File No. 333-28765
Filed under Rule 424B(3)
| PROFILE AND PROSPECTUS FOR GOLDENSELECT ACCESS/R/
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| Deferred Combination Variable and Fixed Annuity Contract, November 5, 2001
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| [ING VARIABLE ANNUITIES
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| GOLDENSECT ACCESS PROFILE AND PROSPECTUS
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| Golden American Life Insurance Company
| Separate Account B of Golden Life Insurance Company
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| ING [Lion logo appears here]
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/
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
NOVEMBER 5, 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 the mutual fund investment portfolios through our Separate
Account B and/or (ii) in a fixed account of Golden American with guaranteed
interest periods. The the mutual fund portfolios are listed on page 4. 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 offers a choice of death benefit options. You may choose the
Standard Death Benefit or one of the enhanced death benefit options, described
on page 10. Your choice of death benefit will affect your mortality and expense
risk charge. Subject to state availability, you may also elect, for an
additional charge, an earnings multiplier benefit rider. Please see page 5 for a
description of the applicable charge. The earnings multiplier benefit rider
provides a separate death benefit in addition to the death benefit option you
select. The earnings multiplier benefit rider is available for non-qualified
contracts only. For a description of the earnings multiplier benefit rider,
please see page 11. To find out about availability, check with our Customer
Service Center.
ACCESS PROFILE PROSPECTUS BEGINS AFTER
111296 PAGE 14 OF THIS PROFILE
Your death benefit and mortality and expense risk charge depend on the category
of contract owners to which you belong and on the death benefit that you choose.
There are four categories of contract owners covered by this prospectus. For
ease of reference, they are called Pre-2000, Yr-2000, Yr-2001 and May-2001
contract owners. If you are a contract owner, the category of your contract is
indicated on your quarterly statements beginning with the June 30, 2001
statement. If you are unsure which category applies to you, please call our
Customer Service Center. The telephone number is (800) 366-0066.
The following is a general description of the categories:
Pre-2000: a) all contracts purchased prior to February 1, 2000; b)
contracts purchased on or after February 1, 2000 which offer
three death benefit options (as approved in the state of issue at
the time of purchase);
Yr-2000: Contracts purchased on or after February 1, 2000 which offer
four death benefit options (as approved in the state of issue at
the time of purchase), including the Max 7 Enhanced Death Benefit
and the Annual Ratchet Enhanced Death Benefit to age 80;
Yr-2001: Contracts purchased on or after January 2, 2001 which offer
four death benefit options (as approved in the state of issue at
the time of purchase), including the Annual Ratchet Enhanced
Death Benefit to age 90, and contain new Special Funds language;
May-2001: Contracts purchased on or after May 1, 2001 which offer four
death benefit options (as approved in the state of issue at the
time of purchase), including the Annual Ratchet Enhanced Death
Benefit to age 90, and have an earnings multiplier option benfit
(in states where approved).
Other than as specifically noted, this Profile and Prospectus describe the
benefits applicable to all categories of contract owners.
Subject to state availability, you may also elect, for an additional charge, one
of three other optional riders offering specified benefits featured in the
prospectus for the contract. The three optional benefit riders are listed on
page 12. The optional benefit riders can provide protection under certain
circumstances in the event that unfavorable investment performance has lowered
your value below certain targeted growth. These riders do not guarantee the
performance of your investment portfolios. Separate charges are assessed for the
optional riders. Please see page 5 for a description of the applicable charges.
You should carefully analyze and completely evaluate each rider before you
purchase any. Be aware that the benefit provided by any of the riders will be
affected by certain later actions you may take -- such as withdrawals and
transfers. The riders are not available to Contracts issued before January 1,
2001. To find out about availability, check with our Customer Service Center.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the income phase. The accumulation phase is the period
between the contract date and the date on which you start receiving the annuity
payments under your Contract. The amounts you accumulate during the accumulation
phase will determine the amount of annuity payments you will receive. The income
phase begins on the annuity start date, which is the date you start receiving
regular annuity payments from your Contract.
You determine (1) the amount and frequency of premium payments, (2) the
investments, (3) transfers between investments, (4) the type of annuity to be
paid after the accumulation phase, (5) the beneficiary who will receive the
death benefits, (6) the type of death benefit, and (7) the amount and frequency
of withdrawals.
111296 2 ACCESS PROFILE
2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity payments are the periodic payments you will begin receiving on the
annuity start date. You may choose one of the following annuity payment options:
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ANNUITY OPTIONS
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Option 1 Income for a fixed Payments are made for a specified number of years to you or your
period beneficiary.
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Option 2 Income for life with Payments are made for the rest of your life or longer for a
a period certain 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 90. 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 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 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.
111296 3 ACCESS PROFILE
4. THE INVESTMENT PORTFOLIOS
You can direct your money into (1) the fixed account with guaranteed interest
periods of 6 months, 1, 3, 5, 7 and 10 years, and/or (2) into any one or more of
the following mutual fund investment portfolios through our Separate Account B,
the investment portfolios are described in the prospectuses for the GCG Trust,
the PIMCO Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the
Prudential Series Fund, the Pilgrim Variable Products Trust, the ProFunds, the
AIM Variable Insurance Funds, the Pioneer Variable Contracts Trust and the
INVESCO Variable Investment Funds, Inc. 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 VIT Worldwide Growth
and Income Portfolio (formerly Pilgrim 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 AIM VARIABLE INSURANCE FUNDS
ProFund VP Small-Cap AIM V.I. Dent Demographic Trends Fund
ProFund VP Europe 30
INVESCO VARIABLE INVESTMENT FUNDS, INC.
PIONEER VARIABLE CONTRACTS TRUST INVESCO VIF-- Financial Services Fund
Pioneer Fund VCT Portfolio INVESCO VIF-- Health Sciences Fund
Pioneer Mid-Cap Value VCT Portfolio INVESCO VIF-- Utilities Fund
* Not currently available.
Internet TollkeeperSM is a service mark of Goldman, Sachs & Co.
111296 4 ACCESS PROFILE
Restricted Funds. We may designate any investment option as a Restricted Fund
and limit the amount you may allocate or transfer to a Restricted Fund. We may
establish any such limitation, at our discretion, as a percentage of premium or
contract value or as a specified dollar amount and change the limitation at any
time. Currently, we have not designated any investment option as a Restricted
Fund. We may, with 30 days notice to you, designate any investment portfolio as
a Restricted Fund or change the limitations on existing contracts with respect
to new premiums added to such investment portfolio and also with respect to new
transfers to such investment portfolio. For more detailed information, see
"Restricted Funds" in the prospectus for the Contract.
5. EXPENSES
The Contract has insurance features and investment features, and there are
charges related to each. For the insurance features, the Company deducts a
mortality and expense risk charge, an asset-based administrative charge, and an
annual contract administrative charge of $40. We deduct the mortality and
expense risk charge and the asset-based administrative charges daily directly
from your contract value in the investment portfolios. The mortality and expense
risk charge for Yr-2001 contract owners (depending on the death benefit you
choose) and the asset-based administrative charge, on an annual basis, are as
follows:
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STANDARD ENHANCED DEATH BENEFITS
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
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Mortality & Expense Risk Charge 1.65% 1. 90% 2.00% 2.10%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 1.80% 2.05% 2.15% 2.25%
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Please see Appendix D of the prospectus for a description of the death benefits
and mortality and expense risk charges for Pre-2000, Yr-2000 and Yr-2001
contract owners.
EARNINGS MULTIPLIER BENEFIT RIDER CHARGES
If you choose to purchase the earnings multiplier benefit rider, we will deduct
a separate quarterly charge for the rider on each quarterly contract anniversary
and pro rata when the rider terminates. We deduct the rider charge directly from
your contract value in the investment portfolios; if the value in the investment
portfolios is insufficient, the rider charge will be deducted from the fixed
account. The quarterly rider charge is 0.075% of the contract value (0.30%
annually).
OPTIONAL BENEFIT RIDER CHARGES
If you choose to purchase one of the other optional benefit riders we offer, we
will deduct a separate quarterly charge for the rider on each quarterly contract
anniversary and pro-rata when the rider terminates. We deduct the rider charges
directly from your contract value in the investment portfolios; if the value in
the investment portfolios is insufficient, rider charges will be deducted from
the fixed account. The rider charges are as follows:
111296 5 ACCESS PROFILE
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
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10 Year.......................... 0.125% of the MGAB Charge Base*(0.50% annually)
20 Year.......................... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Rate Quarterly Charge
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7%............................... 0.125% of the MGIB Charge Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
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0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
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 is divided into two: One part reflects
the maximum mortality and expense risk charge (based on the Max 7 Enhanced Death
Benefit), the asset-based administrative charge, the annual contract
administrative charge as 0.05% (based on an average contract value of $75,000),
the earnings multiplier benefit rider charge of 0.30%, and the highest optional
rider charge assumed to be 0.75%, where the rider base is equal to the initial
premium and increases by 7% each year. The second part reflects the same
insurance charges, but without any rider charges. The "Total Annual Investment
Portfolio Charges" column reflects the portfolio charges for each portfolio and
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 (based on the Max 7
Enhanced Death Benefit). For Years 1 and 10, the examples show the total annual
charges assessed during that time and assume that you have elected the Max 7
Enhanced Death Benefit. For these examples, the premium tax is assumed to be 0%.
111296 6 ACCESS PROFILE
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EXAMPLES:
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TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
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WITH W/O TOTAL ANNUAL WITH W/O WITH W/O WITH W/O
THE ANY INVESTMENT THE ANY THE ANY THE ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGES CHARGE CHARGES CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE
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THE GCG TRUST
Liquid Asset 3.35% 2.30% 0.55% 3.90% 2.85% $39 $29 $412 $318
Limited Maturity Bond 3.35% 2.30% 0.55% 3.90% 2.85% $39 $29 $412 $318
Core Bond 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
Fully Managed 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Total Return 3.35% 2.30% 0.89% 4.24% 3.19% $43 $32 $440 $349
Asset Allocation Growth 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
Equity Income 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
All Cap 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
Growth and Income 3.35% 2.30% 1.11% 4.46% 3.41% $45 $34 $458 $369
Real Estate 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Value Equity 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Investors 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
International Equity 3.35% 2.30% 1.26% 4.61% 3.56% $46 $36 $470 $383
Rising Dividends 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Managed Global 3.35% 2.30% 1.26% 4.61% 3.56% $46 $36 $470 $383
Large Cap Value 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
Hard Assets 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Diversified Mid-Cap 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
Research 3.35% 2.30% 0.89% 4.24% 3.19% $43 $32 $440 $349
Capital Growth 3.35% 2.30% 1.00% 4.35% 3.30% $44 $33 $449 $359
Capital Appreciation 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Small Cap 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Mid-Cap Growth 3.35% 2.30% 0.89% 4.24% 3.19% $43 $32 $440 $349
Strategic Equity 3.35% 2.30% 0.95% 4.30% 3.25% $43 $33 $445 $355
Special Situations 3.35% 2.30% 1.11% 4.46% 3.41% $45 $34 $458 $369
Growth 3.35% 2.30% 1.00% 4.35% 3.30% $44 $33 $449 $359
Developing World 3.35% 2.30% 1.76% 5.11% 4.06% $51 $41 $508 $426
Internet Tollkeeper 3.35% 2.30% 1.86% 5.21% 4.16% $52 $42 $516 $434
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 3.35% 2.30% 0.75% 4.10% 3.05% $41 $31 $429 $336
PIMCO StocksPLUS
Growth and Income 3.35% 2.30% 0.65% 4.00% 2.95% $40 $30 $421 $327
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide
Growth 3.35% 2.30% 1.23% 4.58% 3.53% $46 $36 $468 $380
THE PRUDENTIAL SERIES FUND
Prudential Jennison 3.35% 2.30% 1.04% 4.39% 3.34% $44 $34 $453 $363
SP Jennison
International Growth 3.35% 2.30% 1.64% 4.99% 3.94% $50 $40 $499 $416
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap 3.35% 2.30% 1.10% 4.45% 3.40% $45 $34 $457 $368
Pilgrim VP SmallCap
Opportunities 3.35% 2.30% 1.10% 4.45% 3.40% $45 $34 $457 $368
Pilgrim VP Growth
Opportunities 3.35% 2.30% 1.10% 4.45% 3.40% $45 $34 $457 $368
111296 7 ACCESS PROFILE
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EXAMPLES:
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TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
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WITH W/O TOTAL ANNUAL WITH W/O WITH W/O WITH W/O
THE ANY INVESTMENT THE ANY THE ANY THE ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGES CHARGE CHARGES CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE
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PROFUNDS
ProFund VP Bull 3.35% 2.30% 1.80% 5.15% 4.10% $51 $41 $511 $429
ProFund VP Small-Cap 3.35% 2.30% 1.80% 5.15% 4.10% $51 $41 $511 $429
ProFund VP Europe 30 3.35% 2.30% 1.75% 5.10% 4.05% $51 $41 $507 $425
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent
Demographic Trends 3.35% 2.30% 1.45% 4.80% 3.75% $48 $38 $485 $399
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT 3.35% 2.30% 0.93% 4.28% 3.23% $43 $33 $444 $353
Pioneer Mid-Cap
Value VCT 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--
Financial Services 3.35% 2.30% 1.09% 4.44% 3.39% $45 $34 $457 $368
INVESCO VIF--
Health Sciences 3.35% 2.30% 1.07% 4.42% 3.37% $44 $34 $455 $366
INVESCO VIF--
Utilities 3.35% 2.30% 1.41% 4.76% 3.71% $48 $37 $482 $396
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 amount 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 14.
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.
111296 8 ACCESS PROFILE
8. PERFORMANCE
The value of your Contract will fluctuate depending on the investment
performance of the portfolio(s) you choose. The following chart shows average
annual total return for each portfolio that was in operation for the entire year
of 2000. These numbers reflect the deduction of the mortality and expense risk
charge (based on the Max 7 Enhanced Death Benefit), the asset-based
administrative charge, the annual contract fee, the earnings multiplier benefit
rider charge and the maximum optional benefit rider charge on a rider base that
accumulates at 7%. Please keep in mind that past performance is not a guarantee
of future results.
CALENDAR YEAR
INVESTMENT PORTFOLIO 2000 1999 1998
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) -17.88% 20.85% 9.22%
Strategic Equity(2) -15.15% 51.53% -2.29%
Managed by Alliance Capital Management L.P.
Capital Growth(2) -19.74% 21.72% 8.53%
Managed by Baring International Investment Limited
Developing World(2) -35.95% 56.85% --
Hard Assets(2) -7.72% 19.64% -31.88%
Managed by Capital Guardian Trust Company
Managed Global(3) -17.24% 58.39% 25.41%
Small Cap(3) -20.80% 46.08% 17.29%
Managed by Eagle Asset Management, Inc.
Value Equity 5.42% -2.60% -1.61%
Managed by ING Investment Management, LLC
Limited Maturity Bond 4.41% -2.01% 3.57%
Liquid Asset 2.78% 1.50% 1.80%
Managed by Janus Capital Corporation
Growth(2) -24.45% 72.87% 22.98%
Managed by Kayne Anderson Rudnick Investment Management, LLC
Rising Dividends -5.15% 12.33% 10.64%
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 4.90% 73.73% 19.08%
Research -7.48% 20.43% 19.31%
Total Return 12.94% 0.17% 8.17%
Managed By Pacific Investment Management Company
Core Bond(5) -2.18% -11.50% 8.42%
Managed by The Prudential Investment Corporation
Real Estate(4) 27.05% -6.81% -16.19%
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) 9.45% -3.80% 4.93%
Fully Managed 18.26% 3.63% 2.63%
Managed By Pacific Investment Management Company
PIMCO High Yield Bond -3.94% -0.17% --
PIMCO StocksPLUS Growth and Income -12.31% 16.19% --
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(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
(5) Prior to May 1, 2001, a different firm managed the Portfolio using a
different investment style.
111296 9 ACCESS PROFILE
9. DEATH BENEFIT
The death benefit, and earnings multiplier benefit, if elected, is payable when
the first of the following persons dies: the contract owner, joint owner, or
annuitant (if a contract owner is not an individual). Assuming you are the
contract owner, if you die during the accumulation phase, your beneficiary will
receive a death benefit unless the beneficiary is your surviving spouse and
elects to continue the Contract. The death benefit paid depends on the death
benefit you have chosen. The death benefit value is calculated at the close of
the business day on which we receive written notice and due proof of death, as
well as required claim forms, at our Customer Service Center. If your
beneficiary elects to delay receipt of the death benefit until a date after the
time of your death, the amount of the benefit payable in the future may be
affected. If you die after the annuity start date and you are the annuitant,
your beneficiary will receive the death benefit you chose under the annuity
option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
THE FOLLOWING IS A DESCRIPTION OF THE DEATH BENEFIT OPTIONS FOR CONTRACT OWNERS
IN MAY-2001. IF YOU ARE A PRE-2000, YR-2000, OR YR-2001 CONTRACT OWNER, PLEASE
SEE APPENDIX D TO THE PROSPECTUS FOR A DESCRIPTION OF THE CALCULATION OF DEATH
BENEFITS APPLICABLE TO YOUR CONTRACT. IF YOU ARE UNSURE OF WHICH CATEGORY
APPLIES TO YOU, PLEASE CALL OUR CUSTOMER SERVICE CENTER.
You may choose (i) the Standard Death Benefit, (ii) the Annual Ratchet Enhanced
Death Benefit, (iii) the 7% Solution Enhanced Death Benefit, or (iv) the Max 7
Enhanced Death Benefit. The Annual Ratchet Enhanced Death Benefit, the 7%
Solution Enhanced Death Benefit and the Max 7 Enhanced Death Benefit are
available only if the contract owner or the annuitant (if the contract owner is
not an individual) is not more than 79 years old at the time of purchase. The
Annual Ratchet, 7% Solution, and Max 7 Enhanced Death Benefits may not be
available where a Contract is held by joint owners.
Base Death Benefit. We use the Base Death Benefit to help determine the minimum
death benefit payable under each of the death benefit options described below.
You do not elect the Base Death Benefit. The Base Death Benefit is equal to the
greater of:
1) the contract value; and
2) the cash surrender value.
The STANDARD DEATH BENEFIT equals the GREATER of the Base Death Benefit and the
SUM of 1) and 2) where:
1) is the contract value allocated to Special Funds; and
2) is the Standard Minimum Guaranteed Death Benefit for amounts allocated
to Non-Special Funds as furtherdescribed in the prospectus.
ENHANCED DEATH BENEFIT OPTIONS. Under the Enhanced Death Benefit options, if you
die before the annuity start date, your beneficiary will receive the greater of
the Base Death Benefit and the Enhanced Death Benefit option elected. For
purposes of calculating the Enhanced Death Benefits, certain investment
portfolios and the Fixed Account are designated as "Special Funds." In addition
to the Fixed Account, the investment portfolios designated currently as Special
Funds are the Liquid Asset Portfolio and the Limited Maturity Bond Portfolio.
Selecting a Special Fund may limit or reduce the enhanced death benefit. You
will automatically receive the Standard Death Benefit unless you elect one of
the enhanced death benefit options. The enhanced death benefit options are
available only at the time you purchase your Contract. The enhanced death
benefit options are not available where a Contract is owned by joint owners.
Once you choose a death benefit, it cannot be changed. We may in the future stop
or suspend offering any of the enhanced death benefit options to new Contracts.
A change in ownership of the Contract may affect the amount of the death benefit
and the enhanced death benefit. The MGWB rider may also affect the death
benefit. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death
Benefit during Automatic Periodic Benefit Status."
Each of the enhanced death benefit options is based on a minimum guaranteed
death benefit for that option. Please see "Death Benefit Choices" in the
prospectus for details on the calculation of the minimum guaranteed death
benefit for each enhanced death benefit and further details on the effect of
withdrawals and transfers on the calculation of the enhanced death benefits.
The ANNUAL RATCHET ENHANCED DEATH BENEFIT equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
Annual Ratchet Minimum Guaranteed Death Benefit for amounts
allocated to Non-Special Funds as further described in the
prospectus.
The 7% SOLUTION ENHANCED DEATH BENEFIT, equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the 7%
Solution Minimum Guaranteed Death Benefit for amounts allocated to
Non-Special Funds as further described in the prospectus.
The MAX 7 ENHANCED DEATH BENEFIT equals the GREATER of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit. Under this benefit
option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced
Death Benefit are calculated in the same manner as if each were the elected
benefit.
Note: In all cases described above, the amount of the death benefit could be
reduced by premium taxes owed and withdrawals not previously deducted.
The enhanced death benefits may not be available in all states.
We may, with 30 days notice to you, designate any investment portfolio as a
Special Fund on existing contracts with respect to new premiums added to such
investment portfolio and also with respect to new transfers to such investment
portfolio. Keep in mind that selecting a Special Fund may limit or reduce the
Enhanced Death Benefit.
For the period during which a portion of the contract value is allocated to a
Special Fund, we may, at our discretion, reduce the mortality and expense risk
charge attributable to that portion of the contract value. The reduced mortality
and expense risk charge will be applicable only during the period contract value
is allocated to a Special Fund.
EARNINGS MULTIPLIER BENEFIT RIDER. The earnings multiplier benefit rider is an
optional rider that provides a separate death benefit in addition to the death
benefit provided under the death benefit options described above. The rider is
subject to state availability and is available only for issues ages 75 or under.
It may be added at issue of the Contract or on the next contract anniversary
following introduction of the rider in a state, if later. The rider provides a
benefit equal to a percentage of the gain under the Contract, up to a gain equal
to 150% of premiums adjusted for withdrawals ("Maximum Base"). Currently, where
the rider is added at issue, the earnings multiplier benefit is equal to 55%
(30% for issue ages 70 and above) of the lesser of: 1) the Maximum Base; and 2)
the contract value on the date we receive written notice and due proof of death,
as well as required claims forms, minus premiums adjusted for withdrawals. If
the rider is added to a Contract after issue, the earnings multiplier benefit is
equal to 55% (30% for issue ages 70 and above) of the lesser of: 1) 150% of the
contract value on the rider effective date, plus subsequent premiums adjusted
for subsequent withdrawals; and 2) the contract value on the date we receive
written notice and due proof of death, as well as required claims forms, minus
the contract value on the rider effective date, minus subsequent premiums
adjusted for subsequent withdrawals. The adjustment to the benefit for
withdrawals is pro rata, meaning that the benefit will be reduced by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal.
111296 11 ACCESS PROFILE
There is an extra charge for this feature and once selected, it may
not be revoked. The earnings multiplier benefit rider does not provide a benefit
if there is no gain under the Contract. As such, the Company would continue to
assess a charge for the rider, even though no benefit would be payable at death
under the rider if there are no gains under the Contract. Please see page 5 for
a description of the earnings multiplier benefit rider charge.
The rider is available for both non-qualified and qualified contracts. Please
see the discussions of possible tax consequences in sections titled "Individual
Retirement Annuities," "Taxation of Non-Qualified Contracts," and "Taxation of
Qualified Contracts," in the prospectus.
The rider is available for both non-qualified and qualified contracts. Please
see the discussions of possible tax consequences in sections titled "Individual
Retirement Annuities," "Taxation of Non-Qualified Contracts," and "Taxation of
Qualified Contracts," in the prospectus.
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 Non-Special Funds will impact your death benefit and
benefits under an optional benefit rider, if any. Also, a transfer to a
Restricted Fund will not be permitted to the extent that it would increase the
contract value in the Restricted Fund to more than the applicable limits
following the transfer. Transfers from Restricted Funds are not limited. If the
result of multiple transfers is to lower the percentage of total contract value
in the Restricted Fund, the reallocation will be permitted even if the
percentage of contract value in the Restricted Fund is greater than the limit.
See "Restricted Funds" in the prospectus for more information.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add more
than one of these three riders to your Contract. There is a separate charge each
rider. Once elected, the riders generally may not be cancelled. This means once
added the rider may not be removed and charges will be assessed regardless of
the performance of your Contract.
THE FOLLOWING DESCRIBES THE OPTIONAL RIDERS FOR CONTRACT OWNERS PURCHASING
CONTRACTS ON OR AFTER JANUARY 2, 2001. IF YOU PURCHASED YOUR CONTRACT PRIOR TO
THAT DATE, PLEASE SEE APPENDIX E TO THE PROSPECTUS FOR A DESCRIPTION OF THE
CALCULATION OF THE OPTIONAL RIDER BENEFITS APPLICABLE UNDER YOUR CONTRACT.
111296 12 ACCESS PROFILE
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an
optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on a
specified date is below the MGAB rider guarantee. When added at issue, the
MGAB rider guarantees that your contract value will at least equal your
initial premium payment at the end of ten years, or, at least equal two
times your initial premium payment at the end of twenty years, depending
on the waiting period you select, reduced pro-rata for withdrawals and
certain transfers. The MGAB rider offers a ten-year option and a
twenty-year option, of which you may purchase only one. Investment in
Special Funds may limit or reduce the benefits provided under the rider.
As is more fully described in the prospectus, rider benefits are generally
based on the contract value for allocations to Special Funds. The MGAB
rider may offer you protection in the event of a lower contract value that
may result from unfavorable investment performance of your Contract. There
are exceptions, conditions, eligibility requirements, and important
considerations associated with the MGAB rider. See "Optional Riders" in
the prospectus for more complete information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an
optional benefit which guarantees a minimum amount of income that will be
available to you upon annuitization, regardless of fluctuating market
conditions. Ordinarily, the amount of income that will be available to you
upon annuitization is based upon your contract value, the annuity option
you selected and the guaranteed or then current income factors in effect.
If you purchase the MGIB rider, the minimum amount of income that will be
available to you upon annuitization on the MGIB Benefit Date is the
greater of the amounts that are ordinarily available to you under your
Contract and the MGIB annuity benefit, which is based on your MGIB Base,
the MGIB annuity option you selected and the MGIB guaranteed income
factors specified in your rider. Your MGIB Base generally depends on the
amount of premiums you pay during the first five contract years after you
purchase the rider, when you pay them, accumulated at the MGIB rate, less
pro rata adjustments for withdrawals and transfers. Investment in Special
Funds may limit or reduce the benefits provided under the rider. As is
more fully described in the prospectus, rider benefits are generally based
on the contract value for allocations to Special Funds. There are
exceptions, conditions, eligibility requirements, and important
considerations associated with the MGIB rider. You should read the
prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is
an optional benefit which guarantees that if your contract value is
reduced to zero you will receive annual periodic payments, which, when
added together, equal all premium payments paid during the first two
contract years, less adjustments for any prior withdrawals and adjusted by
transfers to Special Funds. If your contract value is reduced to zero,
your periodic payments will be 7% of your Eligible Payment Amount every
year. (Of course, any applicable income and penalty taxes will apply to
amounts withdrawn.) Your original Eligible Payment Amount is your premium
payments received during the first two contract years. Withdrawals that
you make in excess of the above periodic payment amount may substantially
reduce the guarantee. Investment in Special Funds may limit or reduce the
benefits provided under the rider. As is more fully described in the
prospectus, rider benefits are generally based on the contract value for
allocations to Special Funds. There are exceptions, conditions,
eligibility requirements, and important considerations associated with the
MGWB rider. You should read the prospectus for more information.
ADDITIONAL FEATURES. This Contract has other features you may be interested in.
These include:
Dollar Cost Averaging. This is a program that allows you to invest a
fixed amount of money in the investment portfolios each month. It may give
you a lower average cost per unit over time than a single one-time
purchase. Dollar cost averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses
in a declining market. This option is currently available only if you have
$1,200 or more in the Limited Maturity Bond or the Liquid Asset investment
portfolios or in the fixed account with a 1-year guaranteed interest
period. Transfers from the fixed account under this program will not be
subject to a market value adjustment. If you invest in Restricted Funds,
your ability to dollar cost average may be limited. Please see "Transfers
Among Your Investments" in the prospectus for more complete information.
111296 13 ACCESS PROFILE
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. If you invest in Restricted Funds,
your systematic withdrawals may be affected. Please see "Withdrawals" in
the prospectus for more complete information.
Automatic Rebalancing. If your contract value is $10,000 or more, you
may elect to have the Company automatically readjust the money between
your investment portfolios periodically to keep the blend you select.
Investments in the fixed account are not eligible for automatic
rebalancing. If you invest in Restricted Funds, automatic rebalancing may
be affected. Please see "Transfers Among Your Investments" in the
prospectus for more complete information.
11. INQUIRIES
If you need more information after reading this profile and the prospectus,
please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
111296 11 ACCESS PROFILE
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT ACCESS/R/
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NOVEMBER 5, 2001
This prospectus describes GoldenSelect Access, a deferred group and
individual variable annuity contract (the "Contract") offered by Golden
American Life Insurance Company ("Golden American," the "Company," "we" or
"our"). The Contract is available in connection with certain retirement
plans that qualify for special federal income tax treatment ("qualified
Contracts") as well as those that do not qualify for such treatment
("non-qualified Contracts").
The Contract provides a means for you to invest your premium payments
in one or more of the 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 ("SAI"), dated, November 5, 2001, has been filed
with the Securities and Exchange Commission ("SEC"). It is available
without charge upon request. To obtain a copy of this document, write to
our Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania
19380 or call (800) 366-0066, or access the SEC's website
(http://www.sec.gov). The table of contents of the SAI is on the last page
of this prospectus and the SAI is made part of this prospectus by
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN ANY
SUBACCOUNT THROUGH THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, THE
PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES FUND, THE PILGRIM
VARIABLE PRODUCTS TRUST, THE PROFUNDS, THE AIM VARIABLE INSURANCE FUNDS,
THE PIONEER VARIABLE CONTRACTS TRUST OR THE INVESCO VARIABLE INVESTMENT
FUNDS, INC. IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY ANY
BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG
TRUST, THE PIMCO VARIABLE INSURANCE TRUST, THE PILGRIM VARIABLE INSURANCE
TRUST, THE PRUDENTIAL SERIES FUND, THE PILGRIM VARIABLE PRODUCTS TRUST, THE
PROFUNDS, THE AIM VARIABLE INSURANCE FUNDS, THE PIONEER VARIABLE CONTRACTS
TRUST OR THE INVESCO VARIABLE INVESTMENT FUNDS, INC.
--------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED
ON THE BACK OF THIS COVER.
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ACC-111296
ACC - 111296
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC. PACIFIC INVESTMENT MANAGEMENT COMPANY
Capital Appreciation Series Core Bond Series
Strategic Equity Series (formerly Global Fixed Income Series)
ALLIANCE CAPITAL MANAGEMENT L. P. PRUDENTIAL INVESTMENT CORPORATION
Capital Growth Series Real Estate Series
BARING INTERNATIONAL INVESTMENT LIMITED SALOMON BROTHERS ASSET MANAGEMENT, INC
(AN AFFILIATE) All Cap Series
Developing World Series Investors Series
Hard Assets Series T. ROWE PRICE ASSOCIATES, INC.
CAPITAL GUARDIAN TRUST COMPANY Equity Income Series
Large Cap Value Series Fully Managed Series
Managed Global Series PACIFIC INVESTMENT MANAGEMENT COMPANY
Small Cap Series PIMCO High Yield Bond Portfolio
EAGLE ASSET MANAGEMENT, INC PIMCO StocksPLUS Growth and Income Portfolio
Value Equity Series JENNISON ASSOCIATES LLC
FIDELITY MANAGEMENT & RESEARCH COMPANY Prudential Jennison Portfolio
Asset Allocation Growth Series SP Jennison International Growth Portfolio
Diversified Mid-Cap Series ING PILGRIM INVESTMENTS, LLC
GOLDMAN SACHS ASSET MANAGEMENT (AN AFFILIATE)
Internet TollkeeperSM Series Pilgrim VIT Worldwide Growth
ING INVESTMENT MANAGEMENT, LLC (formerly Pilgrim Global Brand Names Fund)
(AN AFFILIATE) Pilgrim VP MagnaCap Portfolio
Limited Maturity Bond Series Pilgrim VP SmallCap Opportunities Portfolio
Liquid Asset Series Pilgrim VP Growth Opportunities Portfolio
ING PILGRIM INVESTMENTS, LLC PROFUND ADVISORS LLC
(AN AFFILIATE) ProFund VP Bull
International Equity Series* ProFund VP Europe 30
JANUS CAPITAL CORPORATION ProFund VP Small-Cap
Growth Series A I M ADVISORS, INC.
Growth and Income Series AIM V.I. Dent Demographic Trends Fund
Special Situations Series PIONEER INVESTMENT MANAGEMENT, INC.
KAYNE ANDERSON RUDNICK INVESTMENT Pioneer Fund VCT Portfolio
MANAGEMENT, LLC Pioneer Mid-Cap Value VCT Portfolio
Rising Dividends Series INVESCO FUNDS GROUP, INC.
MASSACHUSETTS FINANCIAL SERVICES COMPANY INVESCO VIF-- Financial Services Fund
Mid-Cap Growth Series INVESCO VIF-- Health Sciences Fund
Research Series INVESCO VIF-- Utilities Fund
Total Return Series
* 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.
ACC - 111296
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TABLE OF CONTENTS
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PAGE
Index of Special Terms..................................... 1
Fees and Expenses.......................................... 2
Performance Information.................................... 11
Accumulation Unit.................................... 11
Net Investment Factor................................ 11
Condensed Financial Information...................... 12
Financial Statements................................. 12
Performance Information.............................. 12
Golden American Life Insurance Company..................... 13
The Trusts................................................. 13
Golden American Separate Account B......................... 14
The Investment Portfolios.................................. 15
Investment Objectives................................ 15
Investment Management Fees........................... 20
Restricted Funds..................................... 22
The Fixed Interest Allocation.............................. 22
Selecting a Guaranteed Interest Period............... 23
Guaranteed Interest Rates............................ 23
Transfers from a Fixed Interest Allocation........... 23
Withdrawals from a Fixed Interest Allocation......... 24
Market Value Adjustment.............................. 24
Special Funds.............................................. 25
The Annuity Contract....................................... 26
Contract Date and Contract Year ..................... 26
Annuity Start Date................................... 26
Contract Owner....................................... 26
Annuitant............................................ 27
Beneficiary.......................................... 27
Purchase and Availability of the Contract............ 28
Crediting of Premium Payments........................ 28
Administrative Procedures............................ 29
Contract Value....................................... 29
Cash Surrender Value................................. 30
Surrendering to Receive the Cash Surrender Value..... 30
The Subaccounts...................................... 30
Addition, Deletion or Substitution of Subaccounts
and Other Changes................................ 31
The Fixed Account.................................... 31
Optional Riders...................................... 31
Rider Date....................................... 31
No Cancellation.................................. 31
Termination...................................... 32
Minimum Guaranteed Accumulation Benefit Rider.... 32
Minimum Guaranteed Income Benefit Rider.......... 34
Minimum Guaranteed Withdrawal Benefit Rider...... 36
Other Contracts...................................... 38
Other Important Provisions........................... 38
ACC - 111296 i
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TABLE OF CONTENTS (CONTINUED)
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PAGE
Withdrawals................................................ 38
Regular Withdrawals.................................. 39
Systematic Withdrawals............................... 39
IRA Withdrawals...................................... 41
Transfers Among Your Investments........................... 41
Transfers by Third Parties........................... 42
Dollar Cost Averaging................................ 42
Automatic Rebalancing................................ 43
Death Benefit Choices...................................... 44
Death Benefit During the Accumulation Phase.......... 44
Standard Death Benefit........................... 45
Enhanced Death Benefit Options................... 46
Earnings Multiplier Benefit Rider................ 47
Death Benefit During the Income Phase................ 48
Continuation After Death-- Spouse.................... 48
Continuation After Death-- Non Spouse................ 49
Required Distributions Upon Contract Owner's Death... 49
Charges and Fees........................................... 50
Charge Deduction Subaccount.......................... 50
Charges Deducted from the Contract Value............. 50
No Surrender Charge.............................. 50
Premium Taxes.................................... 50
Administrative Charge............................ 50
Transfer Charge.................................. 50
Charges Deducted from the Subaccounts................ 50
Mortality and Expense Risk Charge................ 50
Asset-Based Administrative Charge................ 51
Earnings Multiplier Benefit Charge............... 51
Optional Rider Charges........................... 51
Trust Expenses....................................... 52
The Annuity Options........................................ 52
Annuitization of Your Contract....................... 52
Selecting the Annuity Start Date..................... 53
Frequency of Annuity Payments........................ 53
The Annuity Options.................................. 53
Income for a Fixed Period........................ 53
Income for Life with a Period Certain............ 54
Joint Life Income................................ 54
Annuity Plan..................................... 54
Payment When Named Person Dies....................... 54
Other Contract Provisions.................................. 54
Reports to Contract Owners........................... 54
Suspension of Payments............................... 54
In Case of Errors in Your Application................ 55
Assigning the Contract as Collateral................. 55
Contract Changes-Applicable Tax Law.................. 55
Free Look............................................ 55
Group or Sponsored Arrangements...................... 55
Selling the Contract................................. 55
ACC - 111296 ii
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TABLE OF CONTENTS (CONTINUED)
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PAGE
Other Information.......................................... 56
Voting Rights........................................ 56
State Regulation..................................... 57
Legal Proceedings.................................... 57
Legal Matters........................................ 57
Experts.............................................. 57
Federal Tax Considerations................................. 57
More Information About Golden American Life
Insurance Company.................................... 65
Unaudited Financial Statements of Golden American
Life Insurance Company............................... 88
Financial Statements of Golden American Life
Insurance Company.................................... 100
Statement of Additional Information
Table of Contents....................................... 127
Appendix A
Condensed Financial Information......................... A1
Appendix B
Market Value Adjustment Examples........................ B1
Appendix C
Withdrawal Adjustment for 7% Solution Death
Benefit Examples..................................... C1
Appendix D
Death Benefits for Pre-2000, Yr-2000, or Yr-2001
Contract Owners...................................... D1
Appendix E
Optional Rider Benefits for Pre-2000 and Yr-2000
Contract Owners...................................... E1
ACC - 111296 iii
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INDEX OF SPECIAL TERMS
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The following special terms are used throughout this prospectus. Refer to the
page(s) listed for an explanation of each term:
SPECIAL TERM PAGE
Accumulation Unit 11
Annual Ratchet Enhanced Death Benefit 47
Annuitant 27
Annuity Start Date 26
Cash Surrender Value 30
Contract Date 26
Contract Owner 26
Contract Value 29
Contract Year 26
Earnings Multiplier Benefit 47
Fixed Interest Allocation 22
Market Value Adjustment 24
Max 7 Enhanced Death Benefit 47
Net Investment Factor 11
Restricted Fund 22
Rider Date 31
7% Solution Enhanced Death Benefit 46
Special Fund 25
Standard Death Benefit 45
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
ACC - 111296 1
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FEES AND EXPENSES
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CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge...................................... None
Transfer Charge....................................... $25 per transfer,
if you make more than 12 transfers in a contract year **
* If you invested in a Fixed Interest Allocation, a Market Value
Adjustment may apply to certain transactions. This may increase or
decrease your contract value and/or your transfer or surrender
amount.
** We currently do not impose this charge, but may do so in the future.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE*
Administrative Charge................................ $40
(We waive this charge if the total of your premium payments is $100,000
or more or if your contract value at the end of a contract year is
$100,000 or more.) * We deduct this charge on each contract anniversary
and on surrender.
SEPARATE ACCOUNT ANNUAL CHARGES*
-------------------------------------------------------------------------------------------------
STANDARD ENHANCED DEATH BENEFITS
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
-------------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge** 1.65% 1.90% 2.00% 2.10%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 1.80% 2.05% 2.15% 2.25%
-------------------------------------------------------------------------------------------------
* 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.
** Please see Appendix D for the mortality and expense risk charges
applicable to Pre-2000, Yr-2000, and Yr-2001 contract owners.
EARNINGS MULTIPLIER BENEFIT RIDER CHARGE*
Quarterly Charge....................................... 0.075% of contract
value (0.30%
annually)
* We deduct the rider charge from the subaccounts in which you are
invested on each quarterly contract anniversary and pro rata on
termination of the Contract; if the value in the subaccounts is
insufficient, the rider charge will be deducted from the Fixed
Interest Allocation(s) nearest maturity, and the amount deducted may
be subject to a Market Value Adjustment.
ACC - 111296 2
OPTIONAL RIDER CHARGES*
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year.......................... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year.......................... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Rate Quarterly Charge
--------- ----------------
7%............................... 0.125% of the MGIB Charge Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
* We deduct optional rider charges from the subaccounts in which you
are invested on each quarterly contract anniversary and pro rata on
termination of the Contract; if the value in the subaccounts is
insufficient, the optional rider charges will be deducted from the
Fixed Interest Allocation(s) nearest maturity, and the amount
deducted may be subject to a Market Value Adjustment.
(1) The MGAB Charge Base is the total of premiums added during the
2-year period commencing on the rider date if you purchase the
rider on the contract date, or, your contract value on the rider
date plus premiums added during the 2-year period commencing on the
rider date if you purchased the rider after the contract date,
reduced pro rata for all withdrawals taken while the MGAB rider is
in effect, and reduced pro rata for transfers made during the three
year period before the MGAB Benefit Date. The MGAB Charge Base is
tracked separately for Special and Non-Special Funds, based on
initial allocation of premium (or contract value), subsequent
allocation of eligible premium, withdrawals and transfers.
Withdrawals and transfers may reduce the Charge Base by more than
the amount withdrawn or transferred.
(2) The MGIB Charge Base generally depends on the amount of premiums
you pay during the first five contract years after you purchase the
rider, when you pay them, less a pro rata deduction for any
withdrawal made while the MGIB rider is in effect and accumulated
at the MGIB Rate (7%). The MGIB Charge Base is tracked separately
for Special and Non-Special Funds, based on initial allocation of
premium (or contract value), subsequent allocation of eligible
premium, withdrawals and transfers. Withdrawals and transfers
between Special and Non-Special Funds may reduce the MGIB Charge
Base by more than the amount withdrawn or transferred.
(3) The MGWB Eligible Payment Amount is (i) the total of premiums paid
during the 2-year period commencing on the rider date if you
purchase the rider on the contract date; or (ii) your contract
value on the rider date plus subsequent premiums paid during the
two-year period commencing on the rider date.
ACC - 111296 2
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
-----------------------------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
-----------------------------------------------------------------------------------------------------------------------
Liquid Asset 0.54% 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%
-----------------------------------------------------------------------------------------------------------------------
(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.
ACC - 111296 4
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 VIT Worldwide Growth 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 Pilgrim Investments, LLC, upon becoming the Portfolio's
Investment Manager, assumed all rights, responsibilities and
obligations of its predecessor, ING Mutual Funds Management Co.
LLC. ING Mutual Funds Management Co. LLC, entered into a written
expense limitation agreement with the Portfolio, under which the
Portfolio's Investment Manager will limit expenses of the
Portfolio, excluding interest, taxes, brokerage and extraordinary
expenses, subject to possible reimbursement to the Portfolio's
Investment Manager within three years. The amount of the
Portfolio's expenses waived or reimbursed during the last fiscal
year by the Portfolio's Investment Manager 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
ACC - 111296 5
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 WAIVERS BY PORTFOLIO
PORTFOLIO FEES FEES EXPENSES(2) EXPENSES ADVISER(3) EXPENSES(3
---------------------------------------------------------------------------------------------------------------------
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.
AIM VARIABLE INSURANCE FUNDS ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio)(1)(2):
---------------------------------------------------------------------------------------------------------------------
TOTAL FEE WAIVER AND EXPENSE TOTAL NET
MANAGEMENT 12B-1 OTHER PORTFOLIO REIMBURSEMENTS PORTFOLIO
PORTFOLIO FEES FEES EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
AIM V.I. Dent Demographic
Trends 0.85% 0.25% 0.61% 1.71% 0.26% 1.45%
---------------------------------------------------------------------------------------------------------------------
(1) Figures shown in the table are estimates for the current year and
are expressed as a percentage of the Portfolio's average daily net
assets.
ACC - 111296 6
(2) The Portfolio's adviser has contractually agreed to waive advisory
fees (excluding interest, taxes, dividend expense on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) to the extent necessary to limit the total of
the Management Fees and Other Expenses to 1.30%. Further the
Portfolio's distributor has agreed to reimburse Rule 12b-1
Distribution Plan fees to the extent necessary to limit Total Net
Portfolio Expenses to 1.45%.
PIONEER VARIABLE CONTRACTS TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio)(1):
---------------------------------------------------------------------------
INVESTMENT TOTAL
MANAGEMENT 12B-1 OTHER PORTFOLIO
PORTFOLIO FEE FEE EXPENSES EXPENSES
---------------------------------------------------------------------------
Pioneer Fund VCT 0.65% 0.25% 0.03% 0.93%
Pioneer Mid-Cap Value VCT 0.65% 0.25% 0.11% 1.01%
---------------------------------------------------------------------------
(1) Fees and expenses based on portfolio's latest fiscal year ended
December 31, 2000.
INVESCO VARIABLE INVESTMENT FUNDS, INC. ANNUAL EXPENSES (as a percentage of the
average daily net assets of the portfolio):
----------------------------------------------------------------------------------------
MANAGEMENT 12B-1 OTHER TOTAL
PORTFOLIO FEES FEES(1) EXPENSES(2)(3) EXPENSES
----------------------------------------------------------------------------------------
INVESCO VIF-- Financial Services 0.75% 0.00% 0.34% 1.09%
INVESCO VIF-- Health Sciences 0.75% 0.00% 0.32% 1.07%
INVESCO VIF-- Utilities 0.60% 0.00% 0.81% 1.41%
----------------------------------------------------------------------------------------
(1) Although the Funds may deduct a distribution or 12b-1 fee, the Funds
currently do not. (2) The Funds' actual Other Expenses and Total Expenses
were lower than the figures shown because its
custodian fees were reduced under an expense offset agreement.
(3) Certain expenses of the Funds were absorbed voluntarily by INVESCO
Funds Group Inc. ("INVESCO") pursuant to a commitment between the
Funds and INVESCO. This commitment may be changed at any time
following consultation with the board of directors. After
absorption, but excluding any expense offset arrangements, the
INVESCO VIF - Financial Services and the INVESCO VIF - Health
Sciences portfolios' Other Expenses and Total Expenses for the
fiscal year ended December 31, 2000 were reduced by insignificant
amounts. For the INVESCO VIF - Utilities portfolio, after
absorption, but excluding any expense offset arrangements, the
portfolio's Other Expenses and Total Expenses for the fiscal year
ended December 31, 2000 were 0.62% and 1.22%, respectively.
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, the Pilgrim Variable
Insurance Trust, the Prudential Series Fund, the Pilgrim Variable Products
Trust, the ProFunds, the AIM Variable Insurance Funds, the Pioneer Variable
Contracts Trust and the INVESCO Variable Investment Funds, Inc. 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.
ACC - 111296 7
EXAMPLES:
The following two examples are designed to show you the expenses you would pay
on a $1000 investment that earns 5% annually if you are a Yr-2001 contract
owner. Each example assumes election of the Max 7 Enhanced Death Benefit. The
examples reflect the deduction of a mortality and expense risk charge, an
asset-based administrative charge, and an annual contract administrative charge
as an annual charge of 0.05% of assets (based on an average contract value of
$75,000). Example 1 also assumes you elected the earnings multiplier benefit
rider with a charge of 0.30% of the contract value annually. In addition,
Example 1 assumes you elected an optional benefit rider with the highest cost,
an assumed charge of 0.75% annually, where the rider base is equal to the
initial premium and increases by 7% annually and assumes the rider charge is
assessed each quarter on a base equal to the hypothetical $1,000 premium
increasing at 7% per year. The annual charge of 0.75% results from the
assumption of a 7% annual increase in the rider base but only a 5% earnings
increase in the contract value before expenses. Thus, 0.75% represents an annual
charge over the 10-year period which is equivalent to an increasing charge of
0.125% per quarter over the same period. Each example also assumes that any
applicable expense reimbursements of underlying portfolio expenses will continue
for the periods shown. If the Standard Death Benefit, the Annual Ratchet
Enhanced Death Benefit, or the 7% Solution Enhanced Death Benefit is elected
instead of the Max 7 Enhanced Death Benefit used in the examples, the actual
expenses will be less than those represented in the examples. Please see
Appendix D for expense examples applicable to Pre-2000, Yr-2000, and Yr-2001
contract owners.
ACC - 111296 8
Example 1:
If you elected both the earnings multiplier benefit rider and another optional
benefit rider with the highest charge, you would pay the following expenses for
each $1,000 invested, whether or not you surrender your Contract or annuitize at
the end of the applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $39 $119 $200 $412
Limited Maturity Bond $39 $119 $200 $412
Core Bond $44 $132 $222 $450
Fully Managed $43 $130 $219 $445
Total Return $43 $129 $216 $440
Asset Allocation Growth $44 $132 $222 $450
Equity Income $43 $130 $219 $445
All Cap $44 $132 $222 $450
Growth and Income $45 $135 $226 $458
Real Estate $43 $130 $219 $445
Value Equity $43 $130 $219 $445
Investors $44 $132 $222 $450
International Equity $46 $139 $233 $470
Rising Dividends $43 $130 $219 $445
Managed Global $46 $139 $233 $470
Large Cap Value $44 $132 $222 $450
Hard Assets $43 $130 $219 $445
Diversified Mid-Cap $44 $132 $222 $450
Research $43 $129 $216 $440
Capital Growth $44 $132 $221 $449
Capital Appreciation $43 $130 $219 $445
Small Cap $43 $130 $219 $445
Mid-Cap Growth $43 $129 $216 $440
Strategic Equity $43 $130 $219 $445
Special Situations $45 $135 $226 $458
Growth $44 $132 $221 $449
Developing World $51 $153 $255 $508
Internet Tollkeeper $52 $156 $259 $516
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $41 $125 $210 $429
PIMCO StocksPLUS Growth and Income $40 $122 $206 $421
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $46 $138 $231 $468
THE PRUDENTIAL SERIES FUND
Prudential Jennison $44 $133 $223 $453
SP Jennison International Growth $50 $150 $250 $499
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap $45 $135 $226 $457
Pilgrim VP SmallCap Opportunities $45 $135 $226 $457
Pilgrim VP Growth Opportunities $45 $135 $226 $457
PROFUNDS
ProFund VP Bull $51 $154 $257 $511
ProFund VP Small-Cap $51 $154 $257 $511
ProFund VP Europe 30 $51 $153 $254 $507
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 9
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $48 $144 $241 $485
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $43 $130 $218 $444
Pioneer Mid-Cap Value VCT $44 $132 $222 $450
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $45 $134 $225 $457
INVESCO VIF-- Health Sciences $44 $134 $224 $455
INVESCO VIF-- Utilities $48 $143 $239 $482
--------------------------------------------------------------------------------------------------------------------
Example 2:
If you did not elect the earnings multiplier benefit rider or any other optional
benefit rider, you would pay the following expenses for each $1,000 invested,
whether or not you surrender your contract or annuitize at the end of the
applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $29 $ 88 $150 $318
Limited Maturity Bond $29 $ 88 $150 $318
Core Bond $33 $102 $173 $360
Fully Managed $33 $100 $170 $355
Total Return $32 $ 98 $167 $349
Asset Allocation Growth $33 $102 $173 $360
Equity Income $33 $100 $170 $355
All Cap $33 $102 $173 $360
Growth and Income $34 $105 $177 $369
Real Estate $33 $100 $170 $355
Value Equity $33 $100 $170 $355
Investors $33 $102 $173 $360
International Equity $36 $109 $185 $383
Rising Dividends $33 $100 $170 $355
Managed Global $36 $109 $185 $383
Large Cap Value $33 $102 $173 $360
Hard Assets $33 $100 $170 $355
Diversified Mid-Cap $33 $102 $173 $360
Research $32 $ 98 $167 $349
Capital Growth $33 $102 $172 $359
Capital Appreciation $33 $100 $170 $355
Small Cap $33 $100 $170 $355
Mid-Cap Growth $32 $ 98 $167 $349
Strategic Equity $33 $100 $170 $355
Special Situations $34 $105 $177 $369
Growth $33 $102 $172 $359
Developing World $41 $124 $208 $426
Internet Tollkeeper $42 $126 $212 $434
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $31 $ 94 $160 $336
PIMCO StocksPLUS Growth and Income $30 $ 91 $155 $327
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 10
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $36 $108 $183 $380
THE PRUDENTIAL SERIES FUND
Prudential Jennison $34 $103 $174 $363
SP Jennison International Growth $40 $120 $202 $416
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap $34 $104 $177 $368
Pilgrim VP SmallCap Opportunities $34 $104 $177 $368
Pilgrim VP Growth Opportunities $34 $104 $177 $368
PROFUNDS
ProFund VP Bull $41 $125 $210 $429
ProFund VP Small-Cap $41 $125 $210 $429
ProFund VP Europe 30 $41 $123 $207 $425
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $38 $115 $193 $399
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $33 $ 99 $169 $353
Pioneer Mid-Cap Value VCT $33 $102 $173 $360
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $34 $104 $176 $368
INVESCO VIF-- Health Sciences $34 $104 $176 $366
INVESCO VIF-- Utilities $37 $113 $192 $396
--------------------------------------------------------------------------------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT. 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.
ACC - 111296 11
3) We divide (2) by the net asset value of the subaccount at the end of
the preceding business day.
4) We then subtract the applicable daily mortality and expense risk
charge and the daily asset-based administrative charge from the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus and (ii) the total
investment value history of each such subaccount are presented in Appendix A --
Condensed Financial Information -- for contract categories Pre-2000 and Yr-2000.
Information for Yr-2001 and May-2001 is not presented because these contracts
were not issued in prior years. In the future, we present four sets of tables to
reflect the varying death benefits and mortality expense risk charges, which
affect the accumulation unit values.
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
unaudited condensed consolidated financial statements of Golden American for the
six months ended June 30, 2001 and 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 of
less than one year. Total return figures will be based on the actual historic
performance of the subaccounts of Separate Account B, assuming an investment at
the beginning of the period when the separate account first invested in the
portfolios, withdrawal of the investment at the end of the period, adjusted to
reflect the deduction of all applicable portfolio and current contract charges.
We may also show rates of total return on amounts invested at the beginning of
the period with no withdrawal at the end of the period. Total return figures
which assume no withdrawals at the end of the period will reflect all recurring
charges. In addition, we may present historic performance data for the
investment portfolios since their inception reduced by some or all of the fees
and charges under the Contract. Such adjusted historic performance includes data
that precedes the inception dates of the subaccounts of Separate Account B. This
data is designed to show the performance that would have resulted if the
Contract had been in existence before the separate account began investing in
the portfolios.
Current yield for the Liquid Asset subaccount is based on income received by a
hypothetical investment over a given 7-day period, less expenses accrued, and
then "annualized" (i.e., assuming that the 7-day yield would be received for 52
weeks). We calculate "effective yield" for the Liquid Asset subaccount in a
manner similar to that used to calculate yield, but when annualized, the income
earned by the investment is assumed to be reinvested. The "effective yield" will
thus be slightly higher than the "yield" because of the compounding effect of
earnings. We calculate quotations of yield for the remaining subaccounts on all
investment income per accumulation unit earned during a given 30-day period,
after subtracting fees and expenses accrued during the period, assuming no
surrender and the selection of the Max 7 Enhanced Death Benefit and the MGIB
optional benefit rider.
We may compare performance information for a subaccount to: (i) the Standard &
Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money Market
Institutional Averages, or any other applicable
ACC - 111296 12
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.
--------------------------------------------------------------------------------
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
ACC - 111296 13
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. The AIM
Variable Insurance Funds is also a mutual fund whose shares are available to
separate accounts of life insurance companies, including Golden American. The
address of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100,
Houston, TX 77046-1173.
The Pioneer Variable Contracts Trust is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including Golden
American. The address of Pioneer Variable Contracts Trust is 60 State Street,
Boston, MA 02109.
INVESCO Variable Investment Funds, Inc. is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including Golden
American. The address of the INVESCO Variable Investment Funds, Inc. is 7800
East Union Avenue, Denver, CO.
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, the ProFunds, the AIM Variable Insurance Funds, the Pioneer
Variable Contracts Trust, the Boards of Directors of the Prudential Series Fund,
the INVESCO Variable Investment Funds, Inc., 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, LLC, ProFunds Advisors LLC, A I M Advisors, Inc., Pioneer
Investment Management, Inc. and INVESCO Funds Group, Inc. and any other
insurance companies participating in the Trusts will monitor events to identify
and resolve any material conflicts that may arise.
YOU WILL FIND 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, THE PROFUNDS, THE AIM VARIABLE
INSURANCE FUNDS, THE PIONEER VARIABLE CONTRACTS TRUST AND THE INVESCO VARIABLE
INVESTMENT FUNDS, INC. IN THE ACCOMPANYING PROSPECTUS FOR EACH TRUST. YOU SHOULD
READ THEM CAREFULLY BEFORE INVESTING.
--------------------------------------------------------------------------------
GOLDEN AMERICAN SEPARATE ACCOUNT B
--------------------------------------------------------------------------------
Golden American Separate Account B ("Separate Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with the SEC
as a unit investment trust under the Investment Company Act of 1940 as amended
(the "1940 Act"). Separate Account B is a separate investment account used for
our variable annuity contracts. We own all the assets in Separate Account B but
such assets are kept separate from our other accounts.
Separate Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust, the PIMCO
Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the Prudential
Series Fund, the Pilgrim Variable Products Trust the ProFunds, the AIM Variable
Insurance Funds, the Pioneer Variable Contracts Trust, or the INVESCO Variable
Investment Funds, Inc. Each investment portfolio has its own distinct investment
objectives and policies. Income, gains and losses,
ACC - 111296 14
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, THE PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES FUND, THE
PILGRIM VARIABLE PRODUCTS TRUST, THE PROFUNDS, THE AIM VARIABLE INSURANCE FUNDS,
THE PIONEER VARIABLE CONTRACTS TRUST, AND THE INVESCO VARIABLE INVESTMENT FUNDS,
INC. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset Seeks high level of current income
consistent with the preservation
of capital and liquidity.
Invests primarily in obligations
of the U.S. Government and its
agencies and instrumentalities,
bank obligations, commercial
paper and short-term corporate
debt securities. All securities
will mature in less than one
year.
-----------------------------------
Limited Maturity 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.
-----------------------------------
ACC - 111296 15
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
CoreBond (formerly Seeks maximum total return,
Global Fixed Income) consistent with preservation of
capital and prudent investment
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.
-----------------------------------
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.
-----------------------------------
ACC - 111296 16
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
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 capitalappreciation. 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.
-----------------------------------
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.
-----------------------------------
ACC - 111296 17
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
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
Growth and Income which exceeds the total 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
Pilgrim VIT Worldwide Seeks to provide investors with
Growth (formerly Pilgrim long-term capital appreciation.
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.
-----------------------------------
ACC - 111296 18
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that
have shown growth in earnings and
sales, high return on equity and
assets or other strong financial
data and are also attractively
valued in the opinion of the
manager. Dividend income from
investments will be incidental.
-----------------------------------
SP Jennison International Growth Seeks long-term growth of capital.
Invests primarily in equity-related
securities of issuers located in at
least five different foreign
countries.
-----------------------------------
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, 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
Opportunities appreciation.
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
ProFund VP Bull Seeks daily investment results that
correspond to the 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.
-----------------------------------
ACC - 111296 19
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends Seeks long-term growth of capital.
Fund
Invests primarily in securities
that are likely to benefit from
changing demographic, economic and
lifestyle trends.
-----------------------------------
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio Seeks reasonable income and
capital growth.
Invests a major portion of its
assets in equity securities of
primarily U.S. companies, that are
reasonably priced rather than
priced to reflect premium resulting
from companies' current market
popularity.
-----------------------------------
Pioneer Mid-Cap Value VCT Portfolio Seeks capital appreciation.
Invests primarily in common stocks
of mid-size companies with market
values within the range of market
values of companies included in
Standard & Poor's MidCap 400 Index.
-----------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services Seeks growth.
Fund
Aggressively managed and invests
primarily in equity securities of
companies involved in the financial
services sector.
-----------------------------------
INVESCO VIF -- Health Sciences Seeks growth.
Fund
Aggressively managed and invests
primarily in equity securities of
companies that develop, produce or
distribute products or services
related to health care.
-----------------------------------
INVESCO VIF -- Utilities Fund Seeks growth and current income.
Aggressively managed and invests
primarily in equity securities of
companies that produce, generate,
transmit or distribute natural gas
or electricity, as well as, in
companies that provide
telecommunications services,
including local, long distance and
wireless, and excluding
broadcasting.
-----------------------------------
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
ACC - 111296 20
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") serves as the overall manager of
Pilgrim Variable Insurance Trust and Pilgrim Variable Products Trust. ING
Pilgrim supervises all aspects of the Trusts' operations and provides investment
advisory services to the portfolios of the Trusts, 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.
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.
A I M Advisors, Inc. ("AIM") serves as the overall investment advisor to the AIM
Variable Insurance Funds and is responsible for day-to-day management. AIM
supervises all aspects of fund operations. AIM has engaged H.S. Dent Advisor,
Inc. to serve as subadvisor and provide AIM with microeconomic, thematic,
demographic, lifestyle trends and sector research, custom reports and investment
and market capitalization recommendations to the fund.
Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser to
the Pioneer Variable Contracts Trust. The Pioneer Variable Contracts Trust pays
Pioneer a monthly advisory fee based on the daily net assets of each portfolio.
INVESCO Funds Group, Inc. ("INVESCO") serves as investment adviser for the
INVESCO Variable Investment Funds, Inc. INVESCO, with its affiliated companies,
directs all aspects of the management of the INVESCO Variable Investment Funds,
Inc. The INVESCO Variable Investment Funds, Inc. pays INVESCO a monthly advisory
fee based on the average daily net assets of each portfolio.
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 nine
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. There are an additional three portfolios that may deduct a
distribution or 12b-1 fee but currently do not. 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.
ACC - 111296 21
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
RESTRICTED FUNDS
We may designate any investment option as a Restricted Fund and limit the amount
you may allocate or transfer to a Restricted Fund. We may establish any such
limitation, at our discretion, as a percentage of premium or contract value or
as a specified dollar amount and change the limitation at any time. Currently,
we have not designated any investment option as a Restricted Fund. We may, with
30 days notice to you, designate any investment portfolio as a Restricted Fund
or change the limitations on existing contracts with respect to new premiums
added to such investment portfolio and also with respect to new transfers to
such investment portfolio. If a change is made with regard to designation as a
Restricted Fund or applicable limitations, such change will apply only to
transactions effected after such change.
We limit your investment in the Restricted Funds on both an aggregate basis for
all Restricted Funds and for each individual Restricted Fund. The aggregate
limits for investment in all Restricted Funds are expressed as a percentage of
contract value, percentage of premium and maximum dollar amount. Currently, your
investment in two or more Restricted Funds would be subject to each of the
following three limitations: no more than 30 percent of contract value, up to
100 percent of each premium and no more than $999,999,999. We may change these
limits, in our discretion, for new contracts, premiums, transfers or
withdrawals.
We also limit your investment in each individual Restricted Fund. The limits for
investment in each Restricted Fund are expressed as a percentage of contract
value, percentage of premium and maximum dollar amount. Currently, the limits
for investment in an individual Restricted Fund are the same as the aggregate
limits set forth above. We may change these limits, in our discretion, for new
contracts, premiums, transfers or withdrawals.
We monitor the aggregate and individual limits on investments in Restricted
Funds for each transaction (e.g. premium payments, reallocations, withdrawals,
dollar cost averaging). If the contract value in the Restricted Fund has
increased beyond the applicable limit due to market growth, we will not require
the reallocation or withdrawal of contract value from the Restricted Fund.
However, if an aggregate limit has been exceeded, withdrawals must be taken
either from the Restricted Funds or taken pro rata from all investment options
in which contract value is allocated, so that the percentage of contract value
in the Restricted Funds following the withdrawal is less than or equal to the
percentage of contract value in the Restricted Funds prior to the withdrawal.
We will not permit a transfer to the Restricted Funds to the extent that it
would increase the contract value in the Restricted Fund or in all Restricted
Funds to more than the applicable limits set forth above. We will not limit
transfers from Restricted Funds. If the result of multiple reallocations is to
lower the percentage of total contract value in Restricted Funds, the
reallocation will be permitted even if the percentage of contract value in a
Restricted Fund is greater than its limit.
Please see "Withdrawals" and "Transfers Among Your Investments" in this
prospectus for more information on the effect of Restricted Funds.
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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
ACC - 111296 22
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-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.
ACC - 111296 23
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract value
remaining in a Fixed Interest Allocation to less than $100, we will treat such
transfer request as a request to transfer the entire contract value in such
Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be
subject to a Market Value Adjustment. If you have a special Fixed Interest
Allocation that was offered exclusively with our dollar cost averaging program,
cancelling dollar cost averaging will cause a transfer of the entire contract
value in such Fixed Interest Allocation to the Liquid Asset subaccount, and such
a transfer will be subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer amounts
from the applicable Fixed Interest Allocation to the subaccounts and/or to new
Fixed Interest Allocations with guaranteed interest periods of any length we are
offering at that time. You may not, however, transfer amounts to any Fixed
Interest Allocation with a guaranteed interest period that extends beyond the
annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed Interest
Allocations, or earlier if required by state law, we will send you a notice of
the guaranteed interest periods that are available. You must notify us which
subaccounts or new guaranteed interest periods you have selected before the
maturity date of your Fixed Interest Allocations. If we do not receive timely
instructions from you, we will transfer the contract value in the maturing Fixed
Interest Allocation to a new Fixed Interest Allocation with a guaranteed
interest period that is the same as the expiring guaranteed interest period. If
such guaranteed interest period is not available or would go beyond the annuity
start date, we will transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does not go
beyond the annuity start date. If no such guaranteed interest period is
available, we will transfer the contract value to a subaccount specially
designated by the Company for such purpose. Currently we use the Liquid Asset
subaccount for such purpose.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See "Optional
Riders."
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your contract value
in any Fixed Interest Allocation. You may make systematic withdrawals of only
the interest earned during the prior month, quarter or year, depending on the
frequency chosen, from a Fixed Interest Allocation under our systematic
withdrawal option. Systematic withdrawals from a Fixed Interest Allocation are
not permitted if such Fixed Interest Allocation is currently participating in
the dollar cost averaging program. A withdrawal from a 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.
Please be aware that the benefit we pay under any of the optional riders will be
reduced by any withdrawals you made from the Fixed Interest Allocations during
the period while the rider is in effect. See "Optional Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on your
contract value. We will apply a Market Value Adjustment (i) whenever you
withdraw or transfer money from a Fixed Interest Allocation (unless made within
30 days before the maturity date of the applicable guaranteed interest period,
or under the systematic withdrawal or dollar cost averaging program) and (ii) if
on the annuity start date a
ACC - 111296 24
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:
( 1+I )N/365
---------------
-1
--
1+J+.0025
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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SPECIAL FUNDS
--------------------------------------------------------------------------------
We use the term Special Funds in the discussion of the enhanced death benefit
options and the optional riders. The Special Funds currently include the Liquid
Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest
Allocations. The Company may, at any time, designate new and/or existing
subaccounts as a Special Fund with 30 days notice with respect to new premiums
added or transfers to such subaccounts. Such subaccounts will include those
that, due to their volatility, are excluded from the death benefit and/or living
benefit guarantees that may otherwise be provided. Allocations to Special Funds
will not affect the death benefit that may be available under the earnings
multiplier benefit rider. Designation of a subaccount as a Special Fund may vary
by benefit. For example, a subaccount may be designated a Special Fund for
purposes of calculating a living benefit, but not a death benefit or for
calculating one death benefit and not another.
ACC - 111296 25
--------------------------------------------------------------------------------
THE ANNUITY CONTRACT
--------------------------------------------------------------------------------
The Contract described in this prospectus is a deferred combination variable and
fixed annuity contract. The Contract provides a means for you to invest in one
or more of the available mutual fund portfolios of the GCG Trust, the PIMCO
Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the Prudential
Series Fund, the Pilgrim Variable Products Trust, the ProFunds, the AIM Variable
Insurance Funds, the Pioneer Variable Contracts Trust and the INVESCO Variable
Investment Funds, Inc. 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.
If the contract owner is a trust and a beneficial owner of the trust has been
designated, the beneficial owner will be treated as the contract owner for
determining the death benefit. If a beneficial owner is changed or added after
the contract date, this will be treated as a change of contract owner for
determining the death benefit. If no beneficial owner of the Trust has been
designated, the availability of enhanced death benefits will be based on the age
of the annuitant at the time you purchase the Contract.
JOINT OWNER. For non-qualified Contracts only, joint owners may be named in
a written request before the Contract is in effect. Joint owners may
independently exercise transfers and other transactions allowed under the
Contract. All other rights of ownership must be exercised by both owners. Joint
owners own equal shares of any benefits accruing or payments made to them. All
rights of a joint owner end at death of that owner if the other joint owner
survives. The entire interest of the deceased joint owner in the Contract will
pass to the surviving joint owner and the death benefit will be payable. Joint
owners may only select the Standard Death Benefit option. The earnings
multiplier benefit rider is not available when there are joint owners.
Any addition or deletion of a joint owner is treated as a change of owner which
may affect the amount of the death benefit. See "Change of Contract Owner or
Beneficiary" below. If you have elected an enhanced death benefit, and you add a
joint owner, if the older joint owner is attained age 85 or under, the enhanced
death benefit from the date of change will end, and the Standard Death Benefit
will apply. For all death benefit options, if the older joint owner's attained
age is 86 or over on the date of the ownership change, the death benefit will be
the cash surrender value. The mortality and expense risk charge going forward
will reflect the change in death benefit. If you elected the earnings multiplier
benefit rider, it will terminate if a joint owner is added. Note that returning
a Contract to single owner status will not restore any Enhanced Death Benefit
ACC - 111296 26
or the earnings multiplier 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.
One or more persons may be a beneficiary or contingent beneficiary. In the case
of more than one beneficiary, we will assume any death benefit proceeds are to
be paid in equal shares to the surviving beneficiaries.
You have the right to change beneficiaries during the annuitant's lifetime
unless you have designated an irrevocable beneficiary. When an irrevocable
beneficiary has been designated, you and the irrevocable beneficiary may have to
act together to exercise some of the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime,
you may transfer ownership of a non-qualified Contract. A change in ownership
may affect the amount of the death benefit, the guaranteed minimum death benefit
and/or the death benefit applied to the contract, the amount of the earnings
multiplier benefit, if applicable, and the continuation of any other optional
rider that you have elected. The new owner's age, as of the date of the change,
will be used as the basis for determining the applicable benefits and charges.
The new owner's death will determine when a death benefit is payable.
If you have elected the Standard Death Benefit option, the minimum guaranteed
death benefit will continue if the new owner is age 85 or under on the date of
the ownership change. For the enhanced death benefit options, if the new owner
is age 79 or under on the date that ownership changes, the minimum guaranteed
death benefit will continue. If the new owner is age 80 to 85, the enhanced
death benefit will end, and the
ACC - 111296 27
death benefit will become the Standard Death Benefit. For all death benefit
options, if the new owner's attained age is 86 or over on the date of the
ownership change, the death benefit will be the cash surrender value. The
mortality and expense risk charge going forward will reflect the change in death
benefit. Please note that once a death benefit has been changed due to a change
in owner, a subsequent change to a younger owner will not restore any Enhanced
Death Benefits.
If you have elected the earnings multiplier benefit rider, and the new owner is
under age 76, the rider will continue. The benefit and charge will be adjusted
to reflect the attained age of the new owner as the issue age. The Maximum Base
and Benefit Base percentages in effect on the original rider date will be used
to calculate the benefit. If the new owner is age 76 or over, the rider will
terminate. If you have not elected the earnings multiplier benefit rider, the
new owner may not add the rider upon the change of ownership.
If you have elected another optional rider, the rider will terminate upon a
change of ownership.
You may also change the beneficiary. All requests for changes must be in writing
and submitted to our Customer Service Center in good order. The change will be
effective as of the day you sign the request. The change will not affect any
payment made or action taken by us before recording the change.
A change of owner may have tax consequences.
PURCHASE AND AVAILABILITY OF THE CONTRACT
We will issue a Contract only if both the annuitant and the contract owner are
not older than age 90.
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. If a subaccount is not available or requested in error, we will make
inquiry about a replacement subaccount. If we are unable to reach you or your
representative, we will consider the application incomplete. For initial premium
payments, the payment will be credited at the accumulation unit value next
determined after we receive your premium payment and the completed application.
Once the completed application is received, we will allocate the payment to the
subaccounts and/or Fixed Interest Allocation specified by you within 2 business
days.
We will make inquiry to discover any missing information related to subsequent
payments. We will allocate the subsequent payment(s) pro-rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro-rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent
ACC - 111296 28
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
administrative requirements. We will process your request at the contract value
next determined only after you have met all administrative requirements.
CONTRACT VALUE
We determine your contract value on a daily basis beginning on the contract
date. Your contract value is the sum of (a) the contract value in the Fixed
Interest Allocations, and (b) the contract value in each subaccount in which you
are invested.
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in your
Fixed Interest Allocation is the sum of premium payments 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.
ACC - 111296 29
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, the annual contract administrative fee (unless waived), and
any optional benefit rider charge, and any other charges incurred but not yet
deducted.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
You may surrender the Contract at any time while the annuitant is living and
before the annuity start date. A surrender will be effective on the date your
written request and the Contract are received at our Customer Service Center. We
will determine and pay the cash surrender value at the price next determined
after receipt of all paperwork required in order for us to process your
surrender. Once paid, all benefits under the Contract will be terminated. For
administrative purposes, we will transfer your money to a specially designated
subaccount (currently the Liquid Asset subaccount) prior to processing the
surrender. This transfer will have no effect on your cash surrender value. You
may receive the cash surrender value in a single sum payment or apply it under
one or more annuity options. We will usually pay the cash surrender value within
7 days.
Consult your tax adviser regarding the tax consequences associated with
surrendering your Contract. A surrender made before you reach age 59 1/2 may
result in a 10% tax penalty. See "Federal Tax Considerations" for more details.
THE SUBACCOUNTS
Each of the 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, the ProFunds, the AIM Variable Insurance Funds, the Pioneer
Variable Contracts Trust or the INVESCO Variable Investment Funds, Inc.
ACC - 111296 30
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.
OPTIONAL RIDERS
Subject to state availability, you may elect one of the three optional benefit
riders discussed below. You may not add more than one of these three riders to
your Contract. There is a separate charge for each rider. Once elected, the
riders generally may not be cancelled. This means once you add the rider, you
may not remove it, and charges will be assessed regardless of the performance of
your Contract. Please see "Charges and Fees -- Optional Rider Charges" for
information on rider charges.
The following describes the optional riders for contract owners purchasing
Contracts on or after January 2, 2001. If you purchased your Contract prior to
that date, please see Appendix E for a description of the calculation of the
optional rider benefits applicable under your Contract.
THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE
EACH RIDER THOROUGHLY AND UNDERSTAND IT COMPLETELY BEFORE YOU SELECT ANY. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND
DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE
CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE
RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER
SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)
366-0066.
RIDER DATE. We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider becomes
effective. The rider date is also the contract date if the rider was purchased
at the time the Contract is issued.
NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled,
unless you cancel the Contract during the Contract's free look period,
surrender, annuitize, or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the free look
period, you may not at any time cancel the rider, except with respect to a
one-time right to cancel the twenty-year option of the Minimum Guaranteed
Accumulation Benefit rider under specified conditions. The Company may, at its
discretion, cancel and/or replace a rider at your request in order to renew or
reset a rider.
ACC - 111296 31
TERMINATION. The optional riders are "living benefits." This means that the
guaranteed benefits offered by the riders are intended to be available to you
while you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider will
cease) if you annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are multiple contract owners, or at death of
annuitant if contract owner is not a natural person), unless your spouse
beneficiary elects to continue the Contract, during the accumulation phase. The
optional rider will also terminate if there is a change in contract ownership
(other than a spousal beneficiary continuation on your death). Other
circumstances which may cause a particular optional rider to terminate
automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an
optional benefit which provides you with an MGAB benefit intended to guarantee a
minimum contract value at the end of a specified waiting period. The MGAB is a
one-time adjustment to your contract value in the event your contract value on
the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you
protection in the event your Contract loses value during the MGAB waiting
period. For discussion of the charges we deduct under the MGAB rider, see
"Optional Rider Changes."
The MGAB rider offers a ten-year option and a twenty-year option, of which you
may purchase only one. The ten-year option has a waiting period of ten years
and, other than for allocations to Special Funds, guarantees that your contract
value at the end of ten years will at least equal your initial premium payment,
reduced pro-rata for withdrawals. Transfers made within 3 years prior to the
MGAB Benefit Date will also reduce the benefit pro-rata. The twenty-year option
has a waiting period of twenty years and, other than allocations to Special
Funds, guarantees that your contract value at the end of twenty years will at
least equal two times your initial premium payment, reduced pro-rata for
withdrawals and reduced for transfers made within 3 years prior to the MGAB
Benefit Date. If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in the Special
Funds, may prevent the MGAB Base from doubling over the waiting period. On the
MGAB Benefit Date, which is the next business day after the applicable waiting
period, we calculate your Minimum Guaranteed Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a
calculation used to determine the MGAB. It does not represent a
contract value, nor does it guarantee performance of the
subaccounts in which you are invested. It is also not used in
determining the amount of your annuity income, cash surrender value
and death benefits.
The MGAB Base is tracked separately for Special and Non-Special
Funds, based on the initial allocation of premium (or contract
value), subsequently allocated eligible premiums, withdrawals and
transfers. Contract value is used as the initial value if the rider
is added after the contract date. The aggregate MGAB Base is used
to determine the MGAB on the MGAB Benefit Date. THE AGGREGATE MGAB
BASE EQUALS THE SUM OF (1) THE LESSER OF THE MGAB BASE ALLOCATED TO
SPECIAL FUNDS AND THE CONTRACT VALUE IN THE SPECIAL FUNDS; AND (2)
THE MGAB BASE FOR NON-SPECIAL FUNDS. THUS, INVESTING IN THE SPECIAL
FUNDS MAY LIMIT THE MGAB BENEFIT.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base for Special and
Non-Special Funds is equal to your initial premium plus any
additional premium added to your Contract during the 2-year
period after your rider date, reduced pro-rata for any
withdrawals and reduced for any transfers made within 3
years prior to the MGAB Benefit Date; or
(ii) elected the twenty-year option your MGAB Base for Special
and Non-Special Funds is equal to your initial premium, plus
any additional premium added to your Contract during the
2-year period after your contract date, accumulated at the
MGAB Rate reduced pro-rata for any withdrawals and reduced
for any transfers made within 3 years prior to the MGAB
Benefit
ACC - 111296 32
Date. The MGAB Rate is the annual effective rate of
3.5265%. Accumulation of eligible additional premiums starts
on the date the premium was received. Net transfers from
Special Funds to Non-Special Funds will reduce the MGAB Base
and MGAB Charge Base allocated to Special Funds on a pro
rata basis. If the transfer is made more than 3 years before
the Benefit Date, there will be a corresponding increase in
the MGAB Base for Non-Special Funds equal to the lesser of
the reduction in the MGAB Base for Special Funds and the net
contract value transferred.
Net transfers from Non-Special Funds to Special Funds will
reduce the MGAB Base and MGAB Charge Base allocated to
Non-Special Funds on a pro rata basis. If the transfer is
made more than 3 years before the Benefit Date, there will
be a corresponding increase in the MGAB Base for Special
Funds equal to the reduction in the MGAB Base for
Non-Special Funds.
If you purchased the MGAB rider after the contract date,
your MGAB Base is equal to your contract value on the rider
date, plus premiums added during the 2-year period after
your rider date. Withdrawals taken while the MGAB rider is
in effect, as well as transfers made within 3 years prior to
the MGAB Benefit Date, will reduce the value of your MGAB
Base pro rata. This means that the MGAB Base (and the MGAB
Charge Base) will be reduced by the same percent as the
percent of contract value that was withdrawn (or
transferred). We will look to your contract value
immediately before the withdrawal or transfer when we
determine this percent.
ONLY PREMIUMS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE.
ANY ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT
AFTER THE SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE
MGAB BASE. Thus, the MGAB rider may not be appropriate for
you if you plan to add substantial premium payments after
your second rider anniversary.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR AGGREGATE MGAB BASE. The contract value that we subtract
includes both the contract value in the subaccounts in which you
are invested and the contract value in your Fixed Interest
Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it to the subaccounts in which you are
invested pro-rata based on the proportions of your then contract
value in the subaccounts on that date, unless you have previously
given us other allocation instructions. If you do not have an
investment in any subaccount on the MGAB Benefit Date, we will
allocate the MGAB to the Liquid Asset subaccount on your behalf.
After the crediting of the MGAB, the amount of your annuity income,
cash surrender value and death benefits will reflect the crediting
of the MGAB to your contract value to the extent the contract value
is used to determine such value.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the
rider date if you choose the ten-year option and age 65 or younger on the rider
date if you choose the twenty-year option. The waiting period must end at or
before your annuity start date. The MGAB rider may be purchased (i) on the
contract date, and (ii) within 30 days following the contract date. For
contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date
or added the MGAB rider within 30 days following the contract date, the MGAB
Benefit Date is your 10th contract anniversary for the ten-year option or 20th
contract anniversary for the twenty-year option. If you added the MGAB rider
during the 30-day period preceding your first contract anniversary after the
date of this prospectus, your MGAB Benefit Date will be the first contract
anniversary occurring after 10 years (for the ten-year option)
ACC - 111296 33
or 20 years (for the twenty-year option) after the rider date. The MGAB rider is
not available if the MGAB Benefit Date would fall beyond the latest annuity
start date.
CANCELLATION. If you elected the twenty-year option, you have a one-time
right to cancel the MGAB rider on your first contract anniversary that is at
least 10 years after the rider date. If you purchased the MGAB rider during the
30-day period following the contract date, your one-time right to cancel the
rider occurs on the tenth anniversary of your contract date. To cancel, you need
to send written notice to our Customer Service Center at least 30 days before
such anniversary date. If the MGAB rider is terminated before the MGAB Benefit
Date, you will not be credited with the MGAB and we assess the pro-rata portion
of the MGAB rider changes for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional
benefit which guarantees a minimum amount of annuity income will be available to
you if you annuitize on the MGIB Benefit Date, regardless of fluctuating market
conditions. The amount of the Minimum Guaranteed Income Benefit will depend on
the amount of premiums you pay during the five contract years after you purchase
the rider, the amount of contract value you allocate or transfer to the Special
Funds, the MGIB Rate, the adjustment for Special Fund transfers, and any
withdrawals you take while the rider is in effect. For a discussion of the
charges we deduct under the MGIB rider, see "Optional Rider Charges."
Ordinarily, the amount of income that will be available to you on the annuity
start date is based on your contract value, the annuity option you selected and
the guaranteed or the income factors in effect on the date you annuitize. If you
purchase the MGIB rider, the minimum amount of income that will be available to
you upon annuitization on the MGIB Benefit Date is the greatest of:
(i) your annuity income based on your contract value adjusted for
any Market Value Adjustment on the MGIB Benefit Date applied
to the guaranteed income factors specified in your Contract
for the annuity option you selected;
(ii) your annuity income based on your contract value adjusted for
any Market Value Adjustment on the MGIB Benefit Date applied
to the then current income factors in effect for the annuity
option you selected; and
(iii)the MGIB annuity income based on your MGIB Benefit Base on the
MGIB Benefit Date applied to the MGIB income factors specified
in your rider for the MGIB annuity option you selected. Prior
to applying the MGIB income factors, we will adjust the MGIB
Benefit Base for any premium tax recovery and Market Value
Adjustment that would otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your right
to receive payments under the MGIB rider. Payments under the rider begin on the
MGIB Benefit Date. We require a 10-year waiting period before you can annuitize
the MGIB rider benefit. The MGIB must be exercised in the 30-day period prior to
the end of the waiting period or any subsequent contract anniversary. At your
request, the Company may in its discretion extend the latest contract annuity
start date without extending the MGIB Benefit Date.
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate
your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BENEFIT BASE. The MGIB Benefit Base is
only a calculation used to determine the MGIB. The MGIB Benefit Base
does not represent a contract value, nor does it guarantee performance
of the subaccounts in which you are invested. It is also not used in
determining the amount of your cash surrender value and death
benefits. Any reset of contract value under provisions of the Contract
or other riders will not increase the MGIB Base or MGIB Base Maximum.
The MGIB Base is tracked separately for Special and Non-Special Funds,
based on initial allocation of eligible premium (or contract value)
and subsequently allocated eligible premiums,
ACC - 111296 34
withdrawals and transfers. Contract value is used as the initial value
if the rider is added after the contract date. The MGIB Benefit Base
equals the sum of (1) the contract value of Special Funds, and (2) the
MGIB Base for Non-Special Funds. Thus, investing in the Special Funds
may limit the MGIB benefit. The MGIB Benefit Base is equal to the
lesser of (i) and (ii) where:
(a) is your initial premium (or contract value on the rider date
if you purchased the MGIB rider after the contract date), plus
any eligible additional premiums added to your Contract,
reduced pro-rata by all withdrawals taken while the MGIB rider
is in effect, accumulated at the MGIB Rate to the earlier of
the oldest owner reaching age 80 and reaching the MGIB Base
Maximum, and at 0% thereafter; and
(b) is the MGIB Base Maximum, which equals 200% of allocated
eligible premiums, adjusted for withdrawals and transfers.
Eligible additional premium payments are those added more than 5
years before the earliest MGIB Benefit Date and are included in the
MGIB Base. Premiums paid after that are excluded from the MGIB
Base. Net transfers from Special Funds to Non-Special Funds will
reduce the MGIB Base and MGIB Base Maximum allocated to Special
Funds on a pro rata basis. The resulting increase in the MGIB Base
for Non-Special Funds will equal the lesser of the reduction in the
MGIB Base for Special Funds and the net contract value transferred.
The increase in the MGIB Base Maximum for Non-Special Funds equals
the reduction in the MGIB Base Maximum for Special Funds.
Net transfers from Non-Special Funds to Special Funds will reduce
the MGIB Base and MGIB Base Maximum allocated to Non-Special Funds
on a pro rata basis. The resulting increase in the MGIB Base and
the MGIB Base Maximum for Special Funds equals the reduction in the
MGIB Base and MGIB Base Maximum for Non-Special Funds. Transfers to
one or more Special Funds could reduce the MGIB Benefit.
The MGIB Rate is currently 7%. The Company may at its discretion
discontinue offering this rate. The MGIB Rate is an annual
effective rate.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BENEFIT BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT AND PREMIUM
TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor)
and 10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Benefit Base under the
Table of Income Factors specified in the MGIB rider for the Income Option you
selected. The guaranteed factors contained in the MGIB rider generally provide
lower payout per $1,000 of value applied than the guaranteed factors found in
your Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the
rider date and the ten-year waiting period must end at or prior to the latest
annuity start date. The MGIB rider must be purchased
ACC - 111296 35
(i) on the contract date, or (ii) within thirty days after the contract date.
For contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later. There is a ten year waiting period before the MGIB rider can be
exercised.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date
or added the MGIB rider within 30 days following the contract date, the MGIB
Benefit Date is the contract anniversary next following or is incident with
exercise of your option to annuitize after a ten-year waiting period from the
contract date. If you added the MGIB rider at any other time, your MGIB Benefit
Date is the contract anniversary at least 10 years after the rider date when you
decide to exercise your right to annuities under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may
not be changed except for the following exception. If an annuitant who is not a
contract owner dies prior to annuitization, a new annuitant may be named in
accordance with the provisions of your Contract. The MGIB Base is unaffected and
continues to accumulate.
NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will
provide you with notification which will include an estimate of the amount of
MGIB annuity benefit available if you choose to exercise. The actual amount of
the MGIB annuity benefit will be determined as of the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIME PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR
RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN
THE MGIB ANNUITY BENEFIT.
THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE
YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH
ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF
INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON
CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES
MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR
CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER
ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced to
zero, you will receive periodic payments equal to all premium payments paid
during the first two contract years (Eligible Payment Amount) adjusted for any
prior withdrawals. To maintain this guarantee, withdrawals in any contract year
may not exceed 7% of your adjusted Eligible Payment Amount. If your contract
value is reduced to zero, your periodic payments will be 7% of your Eligible
Payment Amount every year. Payments continue until your MGWB Withdrawal Account
is reduced to zero. For a discussion of the charges we deduct under the MGWB
rider, see "Optional Rider Charges." Your original Eligible Payment Amount
depends on when you purchase the MGWB rider and is:
(i) if you purchased the MGWB rider on the contract date, your premium
payments received during the first two contract years; or
(ii) if you purchased the MGWB rider after the contract date, your contract
value on the rider date, including any premiums received that day, and
any subsequent premium payments received during the two-year period
commencing on the rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments. It does not represent a contract value, nor does it guarantee
performance of the subaccounts in which you are invested. It will not affect
your annuitization, surrender and death benefits.
The MGWB Withdrawal Account is equal to the Eligible Payment Amount , tracked
separately for Special and Non-Special Funds, adjusted for any withdrawals and
transfers between Special and Non-Special Funds.
ACC - 111296 36
THE MGWB WITHDRAWAL ACCOUNT EQUALS THE SUM OF (A) THE MGWB WITHDRAWAL ACCOUNT
ALLOCATED TO NON-SPECIAL FUNDS, AND (B) THE LESSER OF (1) THE MGWB WITHDRAWAL
ACCOUNT ALLOCATED TO SPECIAL FUNDS AND (2) THE CONTRACT VALUE IN THE SPECIAL
FUNDS. THUS, INVESTING IN THE SPECIAL FUNDS MAY LIMIT THE MGWB WITHDRAWAL
ACCOUNT.
Withdrawals of up to 7% per year of the Eligible Payment Amount will reduce the
value of your MGWB Withdrawal Account by the dollar amount of the withdrawal for
Non-Special Funds and pro rata for Special Funds, based on the source of the
withdrawal. Any withdrawals greater than 7% per year of the Eligible Payment
Amount will cause a reduction in the MGWB Withdrawal Account of the Special and
Non-Special Funds by the proportion that the withdrawal bears to the Contract
Value of the Special and Non-Special Funds, respectively, at the time of the
withdrawal. If a single withdrawal involves both Special and Non-Special Funds
and causes the 7% to be exceeded, the withdrawal will be treated as taken first
from Non-Special Funds. Any withdrawals greater than 7% per year of the Eligible
Payment Amount will also cause a reduction in the Eligible Payment Amount by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB Withdrawal Account is also reduced by the amount of any
periodic payments paid under the MGWB rider once your contract value is zero. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
Net transfers from Special Funds to Non-Special Funds will reduce the MGWB
Withdrawal Account allocated to Special Funds on a pro rata basis. The resulting
increase in the MGWB Withdrawal Account allocated to Non-Special Funds will
equal the lesser of the reduction in the MGWB Withdrawal Account for Special
Funds and the net contract value transferred.
Net transfers from Non-Special Funds to Special Funds will reduce the MGWB
Withdrawal Account allocated to Non-Special Funds on a pro rata basis. The
resulting increase in the MGWB Withdrawal Account allocated to Special Funds
equals the reduction in the MGWB Withdrawal Account for Non-Special Funds.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any
amount permitted under your Contract so long as your contract value is greater
than zero. See "Withdrawals." Making any withdrawals in any year greater than 7%
per year of the Eligible Payment Amount will reduce the Eligible Payment Amount
for future withdrawals and payments under the MGWB rider by the proportion that
the withdrawal bears to the contract value at the time of the withdrawal. The
MGWB rider, will remain in force, and you may continue to make withdrawals so
long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii)your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue the
contract), changed the ownership of the Contract or surrendered the
Contract.
The standard Contract provision limiting withdrawals to no more than 90% of
the cash surrender value is not applicable under the MGWB rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status if the following conditions exist:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii)you have not elected to annuitize your Contract; and
ACC - 111296 37
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay
you the annual MGWB periodic payments, beginning on the next contract
anniversary equal to the lesser of the remaining MGWB Withdrawal Account or 7%
annually of your Eligible Payment Amount until the earliest of (i) your
contract's latest annuity start date, (ii) the death of the owner; or (iii)
until your MGWB Withdrawal Account is exhausted. We will reduce the MGWB
Withdrawal Account by the amount of each payment. Once your Contract is given
Automatic Periodic Benefit Status (that is, your contract value is zero), we
will not accept any additional premium payments in your Contract, and the
Contract will not provide any benefits except those provided by the MGWB rider.
Any other rider terminates. Your Contract will remain in Automatic Periodic
Benefit Status until the earliest of (i) payment of all MGWB periodic payments,
and (ii) payment of the Commuted Value (defined below) or (iii) the owner's
death has occurred.
On the Contract's latest annuity start date, in lieu of making the
remaining MGWB periodic payments, we will pay you the Commuted Value of your
MGWB periodic payments remaining. We may, at our option, extend your annuity
start date in order to continue the MGWB periodic payments. The Commuted Value
is the present value of any then remaining MGWB periodic payments at the current
interest rate plus 0.50%. The current interest rate will be determined by the
average of the Ask Yields for U.S. Treasury Strips as quoted by a national
quoting service for period(s) applicable to the remaining payments. Once the
last MGWB periodic payment is made or we pay you the Commuted Value, your
Contract and the MGWB rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never
withdrawn more than 7% per year of the Eligible Payment Amount and you elected
the 7% Solution Enhanced Death Benefit in your Contract (or you elected the Max
7 Enhanced Death Benefit resulting in the 7% Solution Enhanced Death Benefit as
the actual benefit), the death benefit otherwise payable under the terms of your
Contract will remain in force during any Automatic Periodic Benefit Status. In
determining the amount of the death benefit during the Automatic Periodic
Benefit Status, we deem your contract value to be zero and treat the MGWB
periodic payments as withdrawals. In all other cases, the death benefit payable
during Automatic Periodic Benefit Status is your MGWB Withdrawal Account which
equals the sum of the remaining MGWB periodic payments. If you elected the Max 7
Enhanced Death Benefit, then the 7% Solution and the Annual Ratchet components
shall each be calculated as if each were the elected death benefit option.
PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the
rider date. The MGWB rider must be purchased (i) on the contract date, or (ii)
within 30 days after the contract date. For contracts issued more than 30 days
before the date this rider first became available in your state, the Company may
in its discretion allow purchase of this rider during the 30-day period
preceding the first contract anniversary after the date of this prospectus, or
the date of state approval whichever is later.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the same
portfolios of the Trusts. These contracts have different charges that could
affect their performance, and may offer different benefits more suitable to your
needs. To obtain more information about these other contracts, contact our
Customer Service Center or your registered representative.
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "Death Benefit Choices,"
"Charges and Fees," "The Annuity Options" and "Other Contract Provisions" in
this prospectus for information on other important provisions in your Contract.
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WITHDRAWALS
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Any time during the accumulation phase and before the death of the contract
owner, except under certain qualified contracts you may withdraw all or part of
your money. Keep in mind that if you request a
ACC - 111296 38
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.
If the aggregate percentage cap on allocations to the Restricted Funds has been
exceeded, any subsequent withdrawals must be taken so that the percentage of
contract value in the Restricted Funds following the withdrawal would not be
greater than the percentage of contract value in the Restricted Funds prior to
the withdrawal. If a requested withdrawal would cause the percentage cap to be
exceeded, the amount of the withdrawal in excess of the cap would be taken pro
rata from all variable subaccounts.
For administrative purposes, we will transfer your money to a specially
designated subaccount (currently, the Liquid Asset subaccount) prior to
processing the withdrawal. This transfer will not affect the withdrawal amount
you receive.
Please be aware that the benefit we pay under certain optional benefit riders
will be reduced by any withdrawals you take while the rider is in effect. See
"Optional Riders."
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each withdrawal
must be a minimum of $100. We will apply a Market Value Adjustment to any
regular withdrawal from a Fixed Interest Allocation that is taken more than 30
days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. If you have contract value allocated to
one or more Restricted Funds, and you elect to receive systematic withdrawals
from the subaccounts in which you are invested, the systematic withdrawals must
be taken pro rata from all subaccounts in which contract value is invested. If
you do not have contract value allocated to a Restricted Fund and choose
systematic withdrawals on a non pro rata basis, we will monitor the withdrawals
annually. If you subsequently allocate contract value to one or more Restricted
Funds, we will require you to take your systematic withdrawals on a pro rata
basis from all subaccounts in which contract value is invested.
You decide when you would like systematic payments to start as long as it is at
least 28 days after your contract date. You also select the date on which the
systematic withdrawals will be made, but this date cannot be later than the 28th
day of the month. If you have elected to receive systematic withdrawals but have
not chosen a date, we will make the withdrawals on the same calendar day of each
month as your contract date. If your contract date is after the 28th day of the
month, your systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
ACC - 111296 39
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 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.
ACC - 111296 40
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 ("IRS")
rules governing mandatory distributions under qualified plans. We will send you
a notice before your distributions commence. You may elect to take IRA
withdrawals at that time, or at a later date. You may not elect IRA withdrawals
and participate in systematic withdrawals at the same time. If you do not elect
to take IRA withdrawals, and distributions are required by federal tax law,
distributions adequate to satisfy the requirements imposed by federal tax law
may be made. Thus, if you are participating in systematic withdrawals,
distributions under that option must be adequate to satisfy the mandatory
distribution rules imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or annual
basis. Under this option, you may elect payments to start as early as 28 days
after the contract date. You select the day of the month when the withdrawals
will be made, but it cannot be later than the 28th day of the month. If no date
is selected, we will make the withdrawals on the same calendar day of the month
as the contract date.
You may request that we calculate for you the amount that is required to be
withdrawn from your Contract each year based on the information you give us and
various choices you make. For information regarding the calculation and choices
you have to make, see the SAI. 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 satisfactory notice to our
Customer Service Center at least 7 days before the next scheduled withdrawal
date.
An IRA withdrawal in excess of the amount allowed under systematic withdrawals
will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
WITHDRAWALS. You are responsible for determining that withdrawals comply with
applicable law. A withdrawal made before the taxpayer reaches age 59 1/2 may
result in a 10% penalty tax. See "Federal Tax Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
--------------------------------------------------------------------------------
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. Keep in
mind that transfers between Special Funds and other investment portfolios may
negatively impact your death benefit or rider benefits.
If you allocate contract value to an investment option that has been designated
as a Restricted Fund, your ability to transfer contract value to the Restricted
Fund may be limited. A transfer to the Restricted Funds will not be permitted to
the extent that it would increase the contract value in the Restricted Fund to
more than the applicable limits following the transfer. We do not limit
transfers from Restricted Funds. If the
ACC - 111296 41
result of multiple reallocations is to lower the percentage of total contract
value in the Restricted Fund, the reallocation will be permitted even if the
percentage of contract value in the Restricted Fund is greater than the limit.
Please be aware that the benefit we pay under an optional benefit rider may be
affected by certain transfers you make while the rider is in effect. Transfers,
including those involving Special Funds, may also affect your optional rider
base. See "The Annuity Contract -- Optional Riders."
Transfers will be based on values at the end of the business day in which the
transfer request is received at our Customer Service Center.
The minimum amount that you may transfer is $100 or, if less, your entire
contract value held in a subaccount or a Fixed Interest Allocation.
To make a transfer, you must notify our Customer Service Center and all other
administrative requirements must be met. Any transfer request received after
4:00 p.m. eastern time or the close of the New York Stock Exchange will be
effected on the next business day. Separate Account B and the Company will not
be liable for following instructions communicated by telephone or other approved
electronic means that we reasonably believe to be genuine. We may require
personal identifying information to process a request for transfer made over the
telephone, over the internet or other approved electronic means.
TRANSFERS BY THIRD PARTIES
As a convenience to you, we currently allow you to give third parties the right
to effect transfers on your behalf. However, when the third party makes
transfers for many contract owners, the result can be simultaneous transfers
involving large amounts of contract values. Such transfers can disrupt the
orderly management of the investment portfolios available to the Contract, can
result in higher costs to contract owners, and may not be compatible with the
long term goals of contract owners. We require third parties making multiple,
simultaneous or large volume transfers to execute a third party service
agreement with us prior to executing such transfers. Therefore, we may at any
time exercise our business judgment and limit or discontinue accepting transfers
made by a third party. We will notify any third party whose transfers are
limited or discontinued by telephone, facsimile or email according to our
records, followed by a letter. These limits may be based on, among other
criteria, the amount of the aggregate trade or the available investment options
for which third parties may make trades on behalf of multiple contract owners.
We may establish additional procedures or change existing procedures at any time
in the exercise of our business judgment.
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 fewer units are purchased if the value of its unit
is high. Therefore, a lower than average value per unit may be achieved over the
long term. However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities regardless of
fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
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.
ACC - 111296 42
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.
You are permitted to transfer contract value to a Restricted Fund, subject to
the limitations described above in this section and in "The Investment
Portfolios." Compliance with the individual and aggregate Restricted Fund limits
will be reviewed when the dollar cost averaging program is established.
Transfers under the dollar cost averaging program must be within those limits.
We will not review again your dollar cost averaging election for compliance with
the individual and aggregate limits for investment in the Restricted Funds
except in the case of the transactions described below.
o Amount added to source account: If you add amounts to the source
account which would increase the amount to be transferred under the
dollar cost averaging program, we will review the amounts to be
transferred to ensure that the individual and aggregate limits are
not being exceeded. If such limits would be exceeded, we will
require that the dollar cost averaging transfer amounts be changed
to ensure that the transfers are within the limits based on the
then current allocation of contract value to the Restricted Fund(s)
and the then current value of the amount designated to be
transferred to that Restricted Fund(s).
o Additional premium paid: Up to the individual Restricted Fund
percentage limit may be allocated to a Restricted Fund. If more
than the individual limit has been requested to be allocated to a
Restricted Fund, we will look at the aggregate limit, subtract the
current allocation to Restricted Funds, and subtract the current
value of amounts to be transferred under the dollar cost averaging
program to Restricted Funds. The excess, if any, is the maximum
that may be allocated pro rata to Restricted Funds.
o Reallocation request is made while the dollar cost averaging
program is active: If the reallocation would increase the amount
allocated to Restricted Funds, the maximum that may be so allocated
is the individual Restricted Fund percentage limit, less the
current allocation to Restricted Funds and less the current value
of any remaining amounts to be transferred under the dollar cost
averaging program to the Restricted Funds.
We may in the future offer additional subaccounts or withdraw any subaccount or
Fixed Interest Allocation to or from the dollar cost averaging program or
otherwise modify, suspend or terminate this program. Of course, such change will
not affect any dollar cost averaging programs in operation at the time.
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the subaccounts of
Separate Account B, you may elect to have your investments in the subaccounts
automatically rebalanced You are permitted to reallocate between Restricted and
non-Restricted Funds, subject to the limitations described above in this section
and in "The Investment Portfolios." If the reallocation would increase the
amount allocated to the Restricted Funds, the maximum that may be so allocated
is the individual Restricted Fund percentage limit, less the current allocation
to all Restricted Funds.
We will transfer funds under your Contract on a quarterly, semi-annual, or
annual calendar basis among the subaccounts to maintain the investment blend of
your selected subaccounts. The minimum size of any allocation must be in full
percentage points. Rebalancing does not affect any amounts that you have
allocated to the Fixed Account. The program may be used in conjunction with the
systematic withdrawal option only if
ACC - 111296 43
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, and earnings multiplier benefit,
if elected, 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."
Your death benefit and mortality and expense risk charge depend on the category
of contract owners to which you belong and on the death benefit that you choose.
There are four categories of contract owners covered by this prospectus. For
ease of reference, they are called Pre-2000, Yr-2000, Yr-2001 and May-2001
contract owners. If you are a contract owner, the category of your contract is
indicated on your quarterly statements beginning with the June 30, 2001
statement. If you are unsure which category applies to you, please call our
Customer Service Center. The telephone number is (800) 366-0066.
The following is a general description of the categories:
Pre-2000: a) all contracts purchased prior to February 1, 2000;
b) contracts purchased on or after February 1, 2000 which
offer three death benefit options (as approved in the
state of issue at the time of purchase);
Yr-2000: Contracts purchased on or after February 1, 2000 which
offer four death benefit options (as approved in the state
of issue at the time of purchase), including the Max 7
Enhanced Death Benefit and the Annual Ratchet Enhanced
Death Benefit to age 80;
Yr-2001: Contracts purchased on or after January 2, 2001 which offer
four death benefit options (as approved in the state of
issue at the time of purchase), including the Annual
Ratchet Enhanced Death Benefit to age 90, and contain new
Special Funds language;
May-2001: Contracts purchased on or after May 1, 2001 which offer
four death benefit options (as approved in the state of
issue at the time of purchase), including the Annual
Ratchet Enhanced Death Benefit to age 90, and have an
earnings multiplier benefit option (in states where
approved).
Other than as specifically noted, this Prospectus describes the benefits
applicable to all categories of contract owners.
ACC - 111296 44
THE FOLLOWING DESCRIBES THE DEATH BENEFIT OPTIONS FOR CONTRACT OWNERS IN
MAY-2001. IF YOU ARE A PRE-2000, YR-2000, OR YR-2001 CONTRACT OWNER, PLEASE SEE
APPENDIX D FOR A DESCRIPTION OF THE CALCULATION OF THE DEATH BENEFITS APPLICABLE
UNDER YOUR CONTRACT. IF YOU ARE UNSURE OF WHICH CATEGORY APPLIES TO YOU, PLEASE
CALL OUR CUSTOMER SERVICE CENTER.
You may choose one of the following Death Benefits: (a) the Standard Death
Benefit, (b) the 7% Solution Enhanced Death Benefit, (c) the Annual Ratchet
Enhanced Death Benefit or (d) the Max 7 Enhanced Death Benefit. The 7% Solution
Enhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit and the Max 7
Enhanced Death Benefit are available only if the contract owner or the annuitant
(if the contract owner is not an individual) is not more than 79 years old at
the time of purchase. The 7% Solution, Annual Ratchet and Max 7 Enhanced Death
Benefits may not be available where a Contract is held by joint owners.
Once you choose a death benefit, it cannot be changed. We may in the future stop
or suspend offering any of the Enhanced Death Benefit options to new Contracts.
A change in ownership of the Contract may affect the amount of the death benefit
and the Enhanced Death Benefit. The MGWB rider may also affect the death
benefit. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death
Benefit during Automatic Periodic Benefit Status." The Enhanced Death Benefits
are available only at the time you purchase your Contract. The enhanced death
benefits are not available where a Contract is owned by joint owners.
The death benefit, and earnings multiplier benefit, if elected, is payable when
the first of the following persons dies: the contract owner, joint owner, or
annuitant (if a contract owner is not an individual). Assuming you are the
contract owner, if you die during the accumulation phase, your beneficiary will
receive a death benefit unless the beneficiary is your surviving spouse and
elects to continue the Contract. The death benefit paid depends on the death
benefit you have chosen. The death benefit value is calculated at the close of
the business day on which we receive written notice and due proof of death, as
well as required claim forms, at our Customer Service Center. If your
beneficiary elects to delay receipt of the death benefit until a date after the
time of your death, the amount of the benefit payable in the future may be
affected. If you die after the annuity start date and you are the annuitant,
your beneficiary will receive the death benefit you chose under the annuity
option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
We use the Base Death Benefit to help determine the minimum death benefit
payable under each of the death benefit options described below. You do not
elect the Base Death Benefit. The Base Death Benefit is equal to the greater of:
1) the contract value; and
2) the cash surrender value.
The STANDARD DEATH BENEFIT equals the GREATER of the Base Death Benefit and the
SUM of:
1) the contract value allocated to Special Funds; and
2) the Standard Minimum Guaranteed Death Benefit for amounts
allocated to non-Special Funds.
The Standard Minimum Guaranteed Death Benefit equals:
1) the initial premium payment allocated to Special and Non-Special
Funds, respectively;
2) increased by premium payments and adjusted for transfers,
allocated to Special and Non-Special Funds, respectively, after
issue; and
3) reduced by a pro rata adjustment for any withdrawal or transfer
taken from the Special and Non-Special Funds, respectively.
In the event of transfers from Special to Non-Special funds, the increase in the
Minimum Guaranteed Death Benefit of the Non-Special Fund will equal the lesser
of the reduction in the Minimum Guaranteed Death Benefit in the Special Fund and
the contract value transferred. In the event of transfers from Non-Special to
ACC - 111296 45
Special Funds, the increase in the Minimum Guaranteed Death Benefit of the
Special Fund will equal the reduction in the Minimum Guaranteed Death Benefit in
the Non-Special Fund.
ENHANCED DEATH BENEFIT OPTIONS. Under the Enhanced Death Benefit options, if you
die before the annuity start date, your beneficiary will receive the greater of
the Base Death Benefit and the Enhanced Death Benefit option elected. For
purposes of calculating the Enhanced Death Benefits, certain investment
portfolios, and the Fixed Account are designated as "Special Funds." In addition
to the Fixed Account, the investment portfolios designated currently as Special
Funds are the Liquid Asset Portfolio and the Limited Maturity Bond Portfolio.
We may, with 30 days notice to you, designate any investment portfolio as a
Special Fund on existing contracts with respect to new premiums added to such
investment portfolio and also with respect to new transfers to such investment
portfolio. Selecting a Special Fund may limit or reduce the enhanced death
benefit.
For the period during which a portion of the contract value is allocated to a
Special Fund, we may, at our discretion, reduce the mortality and expense risk
charge attributable to that portion of the contract value. The reduced mortality
and expense risk charge will be applicable only during that period.
The 7% SOLUTION ENHANCED DEATH BENEFIT, equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the 7%
Solution Minimum Guaranteed Death Benefit for Non-Special Funds.
The 7% Solution Minimum Guaranteed Death Benefit for Special and Non-Special
Funds equals the lesser of:
1) premiums, adjusted for withdrawals and transfers, accumulated at 7%
until the earlier of attainment of age 80 or reaching the cap (equal
to 3 times all premium payments, as reduced by adjustments for
withdrawals) and thereafter at 0%, and
2) the cap.
Withdrawals of up to 7% per year of cumulative premiums are referred to as
special withdrawals. Special withdrawals reduce the 7% Solution Minimum
Guaranteed Death Benefit by the amount of contract value withdrawn. For any
other withdrawals (withdrawals in excess of the amount available as a special
withdrawal), a pro rata adjustment to the 7% Solution Minimum Guaranteed Death
Benefit is made. The amount of the pro rata adjustment for withdrawals from
Non-Special Funds will equal (a) times (b) divided by (c): where (a) is the 7%
Solution Minimum Guaranteed Death Benefit for Non-Special Funds prior to the
withdrawal; (b) is the contract value of the withdrawal; and (c) is the contract
value allocated to Non-Special Funds before the withdrawal. The amount of the
pro rata adjustment for withdrawals from Special Funds will equal (a) times (b)
divided by (c): where (a) is the 7% Solution Minimum Guaranteed Death Benefit
for Special Funds prior to the withdrawal; (b) is the contract value of the
withdrawal; and (c) is the contract value allocated to Special Funds before the
withdrawal. Please see Appendix C for examples of the pro rata withdrawal
adjustment for withdrawals other than special withdrawals.
Transfers from Special to Non-Special Funds will reduce the 7% Solution Minimum
Guaranteed Death Benefit and the cap for Special Funds on a pro rata basis. The
resulting increase in the 7% Solution Minimum Guaranteed Death Benefit in the
Non-Special Funds will equal the lesser of the reduction in the 7% Solution
Minimum Guaranteed Death Benefit in the Special Funds and the contract value
transferred. The increase in the cap for Non-Special Funds will equal the
reduction in the cap for Special Funds.
Transfers from Non-Special to Special Funds will reduce the 7% Solution Minimum
Guaranteed Death Benefit and the cap in the Non-Special Funds on a pro rata
basis. The resulting increase in the 7% Solution Minimum Guaranteed Death
Benefit and the cap for the Special Funds will equal the reduction in the 7%
Solution Minimum Guaranteed Death Benefit and the cap for the Non-Special Funds.
ACC - 111296 46
The ANNUAL RATCHET ENHANCED DEATH BENEFIT equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
Annual Ratchet Minimum Guaranteed Death Benefit allocated to
Non-Special Funds.
The Annual Ratchet Minimum Guaranteed Death Benefit equals:
1) the initial premium allocated at issue to Special and Non-Special
Funds, respectively;
2) increased dollar for dollar by any premium allocated after issue
to Special and Non-Special funds, respectively;
3) for Non-Special Funds, adjusted on each anniversary that occurs
on or prior to attainment of age 90 to the greater of the Annual
Ratchet Minimum Guaranteed Death Benefit for Non-Special Funds
from the prior anniversary (adjusted for new premiums, partial
withdrawals allocated to Non-Special Funds, and transfers between
Special and Non-Special Funds) and the current contract value
allocated to Non-Special Funds;
4) for Special Funds, adjusted on each anniversary that occurs on or
prior to attainment of age 90 to the greater of the Annual
Ratchet Minimum Guaranteed Death Benefit for Special Funds from
the prior anniversary (adjusted for new premiums, partial
withdrawals allocated to Special Funds, and transfers between
Special and Non-Special Funds) and the current contract value
allocated to Special Funds.
Withdrawals reduce the Annual Ratchet Minimum Guaranteed Death Benefit on a pro
rata basis, based on the amount withdrawn from the Special and Non-Special
Funds, respectively. The amount of the pro rata adjustment for withdrawals from
Non-Special Funds will equal (a) times (b) divided by (c): where (a) is the
Annual Ratchet Minimum Guaranteed Death Benefit for Non-Special Funds prior to
the withdrawal; (b) is the contract value of the withdrawal; and (c) is the
contract value allocated to Non-Special Funds before withdrawal. The amount of
the pro rata adjustment for Special Funds will equal (a) times (b) divided by
(c): where (a) is the Annual Ratchet Minimum Guaranteed Death Benefit for
Special Funds prior to the withdrawal; (b) is the contract value of the
withdrawal; and (c) is the contract value allocated to Special Funds before the
withdrawal.
Transfers from Special to Non-Special Funds will reduce the Annual Ratchet
Minimum Guaranteed Death Benefit for Special Funds on a pro rata basis. The
resulting increase in the Annual Ratchet Minimum Guaranteed Death Benefit in the
Non-Special Funds will equal the lesser of the reduction in the Annual Ratchet
Minimum Guaranteed Death Benefit in the Special Funds and the contract value
transferred.
Transfers from Non-Special to Special Funds will reduce the Annual Ratchet
Minimum Guaranteed Death Benefit for Non-Special Funds on a pro rata basis. The
resulting increase in the Annual Ratchet Minimum Guaranteed Death Benefit for
the Special Funds will equal the reduction in the Annual Ratchet Minimum
Guaranteed Death Benefit for the Non-Special Funds.
The MAX 7 ENHANCED DEATH BENEFIT equals the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit. Under this 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.
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.
EARNINGS MULTIPLIER BENEFIT RIDER. The earnings multiplier benefit rider is an
optional rider that provides a separate death benefit in addition to the death
benefit provided under the death benefit options described above. The rider is
subject to state availability and is available only for issues ages 75 or under.
It
ACC - 111296 47
may be added at issue of the Contract or on the next contract anniversary
following introduction of the rider in a state, if later. The rider provides a
benefit equal to a percentage of the gain under the Contract, up to a gain equal
to 150% of premiums adjusted for withdrawals ("Maximum Base"). Currently, where
the rider is added at issue, the earnings multiplier benefit is equal to 55%
(30% for issue ages 70 and above) of the lesser of: 1) the Maximum Base; and 2)
the contract value on the date we receive written notice and due proof of death,
as well as required claims forms, minus premiums adjusted for withdrawals. If
the rider is added to a Contract after issue, the earnings multiplier benefit is
equal to 55% (30% for issue ages 70 and above) of the lesser of: 1) 150% of the
contract value on the rider effective date, plus subsequent premiums adjusted
for subsequent withdrawals; and 2) the contract value on the date we receive
written notice and due proof of death, as well as required claims forms, minus
the contract value on the rider effective date, minus subsequent premiums
adjusted for subsequent withdrawals. The adjustment to the benefit for
withdrawals is pro rata, meaning that the benefit will be reduced by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal.
There is an extra charge for the earnings multiplier benefit rider and once
selected, it may not be revoked. The earnings multiplier benefit rider does not
provide a benefit if there is no gain under the Contract. As such, the Company
would continue to assess a charge for the rider, even though no benefit would be
payable at death under the rider if there are no gains under the Contract.
Please see page 2 of this prospectus for a description of the charge.
The rider is available for both non-qualified and qualified contracts. Please
see the discussions of possible tax consequences in sections titled "Individual
Retirement Annuities," "Taxation of Non-Qualified Contracts," and "Taxation of
Qualified Contracts," in this prospectus.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date, the
Company will pay the beneficiary any certain benefit remaining under the annuity
in effect at the time.
CONTINUATION AFTER DEATH -- SPOUSE
If, at the contract owner's death, the surviving spouse of the deceased contract
owner is the beneficiary and such surviving spouse elects to continue the
contract as his or her own the following will apply:
If the guaranteed death benefit as of the date we receive due proof of death,
minus the contract value also on that date, is greater than zero, we will add
such difference to the contract value. Such addition will be allocated to the
variable subaccounts in proportion to the contract value in the subaccounts,
unless we are directed otherwise. If there is no contract value in any
subaccount, the addition will be allocated to the Liquid Asset subaccount, or
its successor. Such addition to contract value will not affect the guaranteed
death benefit or any living benefit rider values.
The death benefits under each of the available options will continue, based on
the surviving spouse's age on the date that ownership changes.
Any addition to contract value, as described above, is available only to the
spouse of the owner as of the date of death of the owner if such spouse under
the provisions of the Contract elects to continue the Contract as his or her
own. If you elected the earnings multiplier benefit rider, and the benefit would
otherwise be payable, the benefit will be added to the contract value and
allocated among the variable subaccounts in proportion to the contract value in
the subaccounts, unless we are directed otherwise. If there is no contract value
in any subaccount, the benefit will be allocated to the Liquid Asset subaccount,
or its successor.
The earnings multiplier benefit rider will continue, if the surviving spouse is
eligible based on his or her attained age. If the surviving spouse is older than
the maximum rider issue age, the rider will terminate. The Maximum Base and the
percentages will be reset based on the adjusted contract value. The calculation
of the benefit going forward will be: 1) based on the attained age of the spouse
at the time of the ownership change using current values as of that date; 2)
computed as if the rider was added to the Contract after issue
ACC - 111296 49
and after the increase; and 3) based on the Maximum Base and percentages in
effect on the original rider date. However, we may in the future permit the
surviving spouse to elect to use the then current Maximum Base and percentages
in the benefit calculation.
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."
If you elected the earnings multiplier benefit rider, and the benefit would
otherwise be payable, the benefit will be added to the contract value and
allocated among the variable subaccounts in proportion to the contract value in
the subaccounts, unless we are directed otherwise. If there is no contract value
in any subaccount, the benefit will be allocated to the Liquid Asset subaccount,
or its successor. The earnings multiplier benefit rider then terminates, whether
or not a benefit was payable under the terms of the rider.
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 us 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 a Contract has joint owners we will consider the date of death of the first
joint owner as the death of the contract owner and the surviving joint owner
will become the contract owner of the Contract. If any contract owner is not an
individual, the death of an annuitant shall be treated as the death of a
contract owner.
ACC - 111296 49
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CHARGES AND FEES
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We deduct the Contract charges described below to cover our costs 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 (or from the MGIB Base, if
exercised) on the annuity start date. However, some jurisdictions impose a
premium tax at the time that initial and additional premiums are paid,
regardless of when the annuity payments begin. In those states, we may defer
collection of the premium taxes from your contract value and deduct it when you
surrender the Contract or on the annuity start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on each
Contract anniversary, or if you surrender your Contract prior to a Contract
anniversary, at the time we determine the cash surrender value payable to you.
The amount deducted is $40 per Contract. This charge is waived if your contract
value is $100,000 or more at the end of a contract year or the total of your
premium payments is $100,000 or more or under other conditions established by
Golden American. We deduct the charge proportionately from all subaccounts in
which you are invested. If there is no contract value in those subaccounts, we
will deduct the charge from your Fixed Interest Allocations starting with the
guaranteed interest periods nearest their maturity dates until the charge has
been paid.
TRANSFER CHARGE. We currently do not deduct any charges for transfers made
during a contract year. We have the right, however, to assess up to $25 for each
transfer after the twelfth transfer in a contract year. If such a charge is
assessed, we would deduct the charge from the subaccounts and the Fixed Interest
Allocations from which each such transfer is made in proportion to the amount
being transferred from each such subaccount and Fixed Interest Allocation unless
you have chosen to have all charges deducted from a single subaccount. The
charge will not apply to any transfers due to the election of dollar cost
averaging, 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 and on the category of contract
owner to which you belong. The charge is deducted on each business day based on
the assets you have in each subaccount. The charge for each death benefit
option, on an annual
ACC - 111296 50
basis, for May-2001 contract owners, is equal to 1.65% for
the Standard Death Benefit, 1.90% for the Annual Ratchet Enhanced Death Benefit,
2.00% for the 7% Solution Enhanced Death Benefit or 2.10% 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 .004558% (Standard), .005255% (Annual Ratchet),
.005535% (7% Solution), or .005815% (Max 7), respectively, for each day since
the previous business day. In the event there are any profits from the mortality
and expense risk charge, we may use such profits to finance the distribution of
contracts. Please see Appendix D for a description of the death benefits and
mortality and expense risk charges for Pre-2000, Yr-2000, or Yr-2001 contract
owners.
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.
EARNINGS MULTIPLIER BENEFIT CHARGE. Subject to state availability, you may
purchase the earnings multiplier benefit rider for a non-qualified Contract
either at issue or on the next contract anniversary following the introduction
of the benefit in your state, if later. So long as the rider is in effect, we
will deduct a separate quarterly charge for the rider through a pro rata
reduction of the contract value of the subaccounts in which you are invested. If
there is insufficient contract value in the subaccounts, we will deduct the
charges from your Fixed Interest Allocations starting with the allocation
nearest its maturity date. If that is insufficient, we will deduct the charge
from the allocation next nearest its maturity date, and so on. We deduct the
rider charge on each quarterly contract anniversary in arrears, meaning the
first charge will be deducted on the first quarterly anniversary following the
rider date. If you surrender or annuitize your Contract, we will deduct a pro
rata portion of the charge for the current quarter based on the current contract
value immediately prior to the surrender or annuitization. The quarterly charge
for the earnings multiplier benefit rider is 0.075% (0.30% annually). For a
description of the rider, see "The Earnings Multiplier Benefit Rider."
OPTIONAL RIDER CHARGES. In addition to the earnings multiplier benefit
rider, subject to state availability, you may purchase one of three optional
benefit riders that you may elect at issue. So long as the rider is in effect,
we will deduct a separate quarterly charge for each optional benefit rider
through a pro-rata reduction of the contract value of the subaccounts in which
you are invested. If there is insufficient contract value in the subaccount, we
will deduct the charges from your Fixed Interest Allocations nearest their
maturity date. We deduct each rider charge on each quarterly contract
anniversary in arrears, meaning the first charge will be deducted on the first
quarterly anniversary following rider date. For a description of the riders and
the defined terms used in connection with the riders, see "The Annuity Contract
-- Optional Riders."
Minimum Guaranteed Accumulation Benefit (MGAB). The quarterly charge for
the MGAB rider is as follows:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
20 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date, and
(ii) premiums during the 2-year period commencing on the rider date, reduced
pro-rata for withdrawals and reduced for transfers made within the last 3 years
prior to the MGAB Benefit Date. We will deduct charges only during your ten-year
or twenty-year waiting period, as applicable. If you surrender or annuitize your
Contract, we will deduct a pro rata portion of the charge for the current
quarter based on the current quarterly charge rate and MGAB Charge Base
immediately prior to the surrender or annuitization. The MGAB Charge Base is
adjusted for transfers between Special and Non-Special Funds.
ACC - 111296 51
MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB
rider is as follows:
MGIB Rate Quarterly Charge
--------- ----------------
7%............. 0.125% of the MGIB Charge Base (0.50% annually)
The MGIB Charge Base is the total of premiums paid more than 5 years before the
earliest MGIB Benefit Date, reduced pro-rata for all withdrawals taken while the
MGIB rider is in effect, and accumulated at the MGIB Rate (7%) to the earlier of
age 80 and reaching the MGIB Base Maximum. If you surrender or annuitize your
Contract, we will deduct a pro-rata portion of the charge for the current
quarter based on the current quarterly charge rate and your MGIB Charge Base
immediately prior to the surrender or annuitization. The MGIB Charge Base is
adjusted for transfers between Special and Non-Special Funds.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the
MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Premium
Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid
during the first two contract years following the rider date. When we calculate
the MGWB rider charge, we do not reduce the Eligible Payment Amount by the
amount of any withdrawals taken while the MGWB rider is in effect. We will
deduct charges only during the period before your Contract's Automatic Periodic
Benefit Status. If you surrender or annuitize your Contract, we will deduct a
pro-rata portion of the charge for the current quarter based on the current
quarterly charge rate and your original MGWB Eligible Payment Amount immediately
prior to the surrender or annuitization.
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 nine
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. There are an additional three portfolios that may deduct a
distribution or 12b-1 fee but currently do not. 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 or distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start date, we
will begin making payments to the contract owner under an income plan. We will
make these payments under the annuity option you chose. You may change an
annuity option by making a written request to us at least 30 days before the
annuity start date. The amount of the payments will be determined by applying
your contract value, adjusted for any applicable Market Value Adjustment, on the
annuity start date in accordance with the annuity option you chose. The MGIB
annuity benefit may be available if you have purchased the MGIB rider, provided
the waiting period and other specified conditions have been met.
You may also elect an annuity option on surrender of the Contract for its cash
surrender value or you may choose one or more annuity options for the payment of
death benefit proceeds while it is in effect and before the annuity start date.
If, at the time of the contract owner's death or the annuitant's death (if the
contract
ACC - 111296 52
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 SAI. For a Contract purchased in connection with a
qualified plan, other than a Roth IRA, distributions must commence not later
than April 1st of the calendar year following the calendar year in which you
reach age 70 1/2 (or, in some cases, retire). Distributions may be made through
annuitization or withdrawals. You should consult a tax adviser for tax advice
before investing.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, we will make the payments monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3
are fixed. Payments under Option 4 may be fixed or variable. 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
ACC - 111296 53
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 1940 Act, it will comply with the requirements of
such Act.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided in the annuity agreement between you and Golden American. The
amounts we will pay are determined as follows:
(1) For Option 1, or any remaining guaranteed payments under Option 2, we
will continue payments. Under Options 1 and 2, the discounted values
of the remaining guaranteed payments may be paid in a single sum. This
means we deduct the amount of the interest each remaining guaranteed
payment would have earned had it not been paid out early. The discount
interest rate is never less than 3% for Option 1 and Option 2 per
year. We will, however, base the discount interest rate on the
interest rate used to calculate the payments for Options 1 and 2 if
such payments were not based on the tables in your Contract.
(2) For Option 3, no amounts are payable after both named persons have
died.
(3) For Option 4, the annuity option agreement will state the amount we
will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of each
calendar quarter. The report will show the contract value, cash surrender value,
and the death benefit as of the end of the calendar quarter. The report will
also show the allocation of your contract value and reflects the amounts
deducted from or added to the contract value since the last report. 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
ACC - 111296 54
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 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
ACC - 111296 55
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. 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.
We pay sales commissions to Directed Services for the sale of the Contracts.
Directed Services passes through the entire amount of the sales commission to
the broker-dealer whose registered representative sold the Contract. The maximum
sales commission payable will be approximately 2.5% of the initial and any
additional premium payment. This commission may be returned if the Contract is
not continued through the first Contract Year.
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UNDERWRITER COMPENSATION
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NAME OF PRINCIPAL UNDERWRITER AMOUNT OF COMMISSION TO BE OTHER
PAID COMPENSATION
Directed Services, Inc. Reimbursement of any
The equivalent of a covered expenses
combination of a percentage incurred
of premium payments and a by registered
percentage of the contract representatives
value up to a maximum of 2.5% in connection
in the first year and a with the
percentage of the contract distribution
value up to 1.5% in of the Contracts.
subsequent years.
------------------------------ ------------------------------- ------------------------
Certain sales agreements may provide for a combination of a certain percentage
of commission at the time of sale and an annual trail commission which when
combined could exceed the above commission.
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.
We do not pay any additional commissions on the sale or exercise of any of the
optional benefit riders offered in this prospectus.
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OTHER INFORMATION
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VOTING RIGHTS
We will vote the shares of a Trust owned by Separate Account B according to your
instructions. However, if the 1940 Act or any related regulations should change,
or if interpretations of it or related regulations should change, and we decide
that we are permitted to vote the shares of a Trust in our own right, we may
decide to do so.
We determine the number of shares that you have in a subaccount by dividing the
Contract's contract value in that subaccount by the net asset value of one share
of the portfolio in which a subaccount invests. We count fractional votes. We
will determine the number of shares you can instruct us to vote 180 days or less
before a Trust shareholder meeting. We will ask you for voting instructions by
mail at least 10 days before the meeting. If we do not receive your instructions
in time, we will vote the shares in the same proportion as
ACC - 111296 56
the instructions received from all contracts in that subaccount. We will also
vote shares we hold in Separate Account B which are not attributable to contract
owners in the same proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware. We are
also subject to the insurance laws and regulations of all jurisdictions where we
do business. The Contract offered by this prospectus has been approved where
required by those jurisdictions. We are required to submit annual statements of
our operations, including financial statements, to the Insurance Departments of
the various jurisdictions in which we do business to determine solvency and
compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be involved in lawsuits,
including class action lawsuits. In some class action and other lawsuits
involving insurers, substantial damages have been sought and/or material
settlement payments have been made. We believe that currently there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the Company or Separate Account B.
LEGAL MATTERS
The legal validity of the Contracts was passed on by Myles R. Tashman, Esquire,
Executive Vice President, General Counsel and 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 consolidated financial statements of Golden American at December 31,
2000 and 1999 and for each of the three years in the period ended December 31,
2000, and Separate Account B at December 31, 2000 and the related statements of
operations and changes in net assets for the periods disclosed in the financial
statements, appearing in this prospectus or in the SAI and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing in this prospectus or in the SAI and in
the Registration Statement, and are included or incorporated by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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FEDERAL TAX CONSIDERATIONS
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The following summary provides a general description of the federal income tax
considerations associated with this Contract and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
You should consult your counsel or other competent tax advisers for more
complete information. This discussion is based upon our understanding of the
present federal income tax laws. We do not make any representations as to the
likelihood of continuation of the present federal income tax laws or as to how
they may be interpreted by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or purchased on a
tax-qualified basis. Qualified Contracts are designed for use by individuals
whose premium payments are comprised solely of proceeds from and/or
contributions under retirement plans that are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 403(b), 408, or
408A of the Code. The ultimate effect of federal income taxes on the amounts
held under a Contract, or annuity payments, depends on the type of retirement
plan, on the tax and employment status of the individual concerned, and on our
tax status. In addition, certain requirements must be satisfied in purchasing a
qualified Contract with proceeds from a tax-qualified plan and receiving
distributions from a qualified Contract in order to continue receiving favorable
tax treatment. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Contract administration
procedures. Contract owners, participants and beneficiaries
ACC - 111296 57
are responsible for determining that contributions, distributions and other
transactions with respect to the Contract comply with applicable law. Therefore,
you should seek competent legal and tax advice regarding the suitability of a
Contract for your particular situation. The following discussion assumes that
qualified Contracts are purchased with proceeds from and/or contributions under
retirement plans that qualify for the intended special federal income tax
treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments of a
variable account be "adequately diversified" in order for non-qualified
Contracts to be treated as annuity contracts for federal income tax purposes. It
is intended that Separate Account B, through the subaccounts, will satisfy these
diversification requirements.
INVESTOR CONTROL. In certain circumstances, owners of variable annuity
contracts have been considered for federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the separate account assets. There is little guidance in this area, and some
features of the Contracts, such as the flexibility of a contract owner to
allocate premium payments and transfer contract values, have not been explicitly
addressed in published rulings. While we believe that the Contracts do not give
contract owners investment control over Separate Account B assets, we reserve
the right to modify the Contracts as necessary to prevent a contract owner from
being treated as the owner of the Separate Account B assets supporting the
Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any non-qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The non-qualified Contracts contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are clarified by
regulation or otherwise. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will generally
not be taxed on increases in the value of a Contract until a distribution occurs
or until annuity payments begin. (For these purposes, the agreement to assign or
pledge any portion of the contract value, and, in the case of a qualified
Contract, any portion of an interest in the qualified plan, generally will be
treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a natural
person generally must include in income any increase in the excess of the
contract value over the "investment in the contract" (generally, the premiums or
other consideration you paid for the contract less any nontaxable
withdrawals)during the taxable year. There are some exceptions to this rule and
a prospective contract owner that is not a natural person may wish to discuss
these with a tax adviser. The following discussion generally applies to
Contracts owned by natural persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs
(including amounts paid to you under the MGWB rider), the amount received will
be treated as ordinary income subject to tax up to an amount equal to the excess
(if any) of the contract value immediately before the distribution over the
contract owner's investment in the Contract at that time. The tax treatment of
market value adjustments is
ACC - 111296 58
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.
SEPARATE ACCOUNT CHARGES. It is possible that the Internal Revenue Service
may take a position that charges for certain optional benefits and riders are
deemed to be taxable distributions to you. In particular, the Internal Revenue
Service may treat the quarterly charges deducted for the earnings multiplier
benefit rider as taxable withdrawals, which might also be subject to a tax
penalty if the withdrawal occurs before you reach age 59 1/2. Although we do not
believe that the charges we deduct for the earnings multiplier benefit rider or
any other optional benefit or rider provided under the Contract should be
treated as taxable withdrawals, you should consult your tax advisor prior to
selecting any optional benefit or rider under 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.
ACC - 111296 59
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified plans. The
tax rules applicable to participants in these qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from: contributions in excess
of specified limits; distributions before age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Contracts with the various types of qualified retirement plans. Contract owners,
annuitants, and beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract, but we shall not be bound by the terms and conditions of such
plans to the extent such terms contradict the Contract, unless the Company
consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same manner as
under a non-qualified Contract. When a withdrawal from a qualified Contract
occurs, a pro-rata portion of the amount received is taxable, generally based on
the ratio of the contract owner's investment in the Contract (generally, the
premiums or other consideration paid for the Contract) to the participant's
total accrued benefit balance under the retirement plan. For qualified
Contracts, the investment in the Contract can be zero. For Roth IRAs,
distributions are generally not taxed, except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires that
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the contract owner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally 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.
SEPARATE ACCOUNT CHARGES. It is possible that the Internal Revenue Service
may take a position that charges for certain optional benefits and riders are
deemed to be taxable distributions to you. In particular, the Internal Revenue
Service may treat the quarterly charges deducted for the earnings multiplier
benefit rider as taxable withdrawals, which might also be subject to a tax
penalty if the withdrawal occurs before you reach age 59 1/2. Although we do not
believe that the charges we deduct for the earnings multiplier benefit rider or
any other optional benefit or rider provided under the Contract should be
treated as taxable withdrawals, you should consult your tax advisor prior to
selecting any optional benefit or rider under the Contract.
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,
distributions in a specified annuity form or hardship distributions. 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
ACC - 111296 60
employees. These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant, or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits before transfer of the Contract. Employers intending
to use the Contract with such plans should seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that can be contributed,
the deductible amount of the contribution, the persons who may be eligible, and
the time when distributions commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" or transferred on a
tax-deferred basis into an IRA. There are significant restrictions on rollover
or transfer contributions from Savings Incentive Match Plans for Employees
(SIMPLE), under which certain employers may provide contributions to IRAs on
behalf of their employees, subject to special restrictions. Employers may
establish Simplified Employee Pension (SEP) Plans to provide IRA contributions
on behalf of their employees. Sales of the Contract for use with IRAs may be
subject to special requirements of the IRS.
IRA's generally may not invest in life insurance contracts. We do not believe a
death benefit under an annuity contract that is equal to the greater of premiums
paid (less withdrawals) or contact value will be treated as life insurance.
However, the enhanced death benefits and earnings enhancement benefit under this
Contract may exceed the greater of premiums paid (less withdrawals) and contract
value. We have previously received IRS approval of the form of the Contract,
including the enhanced death benefit feature, for use as an IRA. THE CONTRACT
WITH BOTH ENHANCED DEATH BENEFITS AND THE EARNINGS MULTIPLIER BENEFIT HAS BEEN
FILED WITH THE IRS FOR APPROVAL FOR USE AS AN IRA. HOWEVER, THERE IS NO
ASSURANCE THAT THE IRS WILL GIVE THIS APPROVAL OR THAT THE CONTRACT MEETS THE
QUALIFICATION REQUIREMENTS FOR AN IRA. Although we regard the enhanced death
benefit options and earnings multiplier benefit as investment protection
features that should not have an adverse tax effect, it is possible that the IRS
could take a contrary position regarding tax qualification, which could result
in the immediate taxation of amounts held in the Contract and the imposition of
penalty taxes. YOU SHOULD CONSULT YOUR TAX ADVISOR IF YOU ARE CONSIDERING ADDING
AN ENHANCED DEATH BENEFIT OR EARNINGS MULTIPLIER BENEFIT TO YOUR CONTRACT IF IT
IS AN IRA.
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 limits on
the amount of the contribution and the persons who may be eligible to
contribute, are not deductible, and must be made in cash or as a rollover or
transfer from another Roth IRA or other IRA. A rollover from or conversion of an
IRA to a Roth IRA may be subject to tax, and other special rules may apply.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any IRA. A 10% penalty may apply
to amounts attributable to a conversion from an IRA to a Roth IRA if the amounts
are distributed during the five taxable years beginning with the year in which 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.
ACC - 111296 61
LOANS
Loans may be available if you are under age 70 1/2 and purchased your contract
in connection with a non-ERISA plan qualified under Section 403(b) of the Code
("TSA"). If your contract was issued in connection with a TSA and the terms of
your plan permit, you may take a loan from us, using your Cash Surrender Value
as collateral for the loan. Loans are subject to the terms of the Contract, the
plan and the Code. You are responsible for monitoring the amount and number of
loans outstanding at any one time under your TSA, whether under our contracts or
those of other carriers. We may modify the terms of a loan to comply with
changes in applicable law. WE URGE YOU TO CONSULT WITH A QUALIFIED TAX ADVISOR
PRIOR TO EFFECTING A LOAN TRANSACTION UNDER YOUR CONTRACT.
LOAN PROCEDURES. You must complete a loan application in order to effect a
loan. You may submit a loan application at any time after the free look period
and before the annuity start date. There is a loan fee (currently $25) per loan,
payable at the time of the loan. If the loan amount plus the loan fee exceeds
the maximum loan amount, the fee will be deducted from the loan proceeds.
In order to secure your loan, on the effective date of your loan, we will
transfer an amount equal to the principal amount of your loan into an account
called the "TSA Special Fixed Account." You must indicate your choice of
variable and fixed accounts from which amounts will be transferred to the TSA
Special Fixed Account. If no choice is indicated, amounts will be transferred on
a pro-rata basis from your variable accounts. If amounts allocated to the
variable accounts are not sufficient, amounts will be transferred from the fixed
accounts on a nearest to maturity basis.
Amounts transferred from the TSA Special Fixed Account upon loan repayments
will be transferred to the variable accounts in proportion to the contract value
so allocated. If no contract value is allocated to the variable accounts, such
transfers will be made to the Liquid Asset subaccount.
No withdrawals are permitted unless there has been a Distributable Event.
Distributable Events are the following:
1) attainment of age 59 1/2;
2) separation from service;
3) death; or
4) disability.
You must notify us when a separation from service has occurred. No withdrawals
are permitted from the TSA Special Fixed Account, other than an automatic
withdrawal to pay off a defaulted loan. See "Loan Default," below.
MINIMUM AND MAXIMUM LOAN AMOUNTS. You may borrow a minimum of $1,000,
unless we are required by law to allow a lesser minimum amount. We currently
allow no more than 2 loans per Contract at any time. The maximum loan amount for
a new loan is the lesser of (1) and (2), minus any outstanding loan balance,
where
1) is 50% of the Cash Surrender Value, and
2) is $50,000 minus the excess of the highest outstanding loan balance
during the past 12 months over the loan balance on the date of the new
loan.
INTEREST. The balance in the TSA Special Fixed Account is credited with
interest until the loan is repaid in full. The current annual effective interest
rate is 3.5%. The guaranteed minimum interest rate is 3%. Rates are guaranteed
for one year. Each loan will have a separate TSA Special Fixed Account, and each
may have a different interest crediting rate.
You will be charged interest on the outstanding loan balance at an annual
effective interest rate of 6%. Interest will be charged in arrears. Interest
charges accrue on your outstanding loan balance daily beginning on the effective
date of your loan.
ACC - 111296 62
LOAN REPAYMENT. Loans must be repaid within 5 years. However, if the loan
is used to purchase your principal residence, it must be repaid within 15 years.
You must identify your payments as premium payments or they will be treated as
loan repayments. You may choose whether to make your loan repayments quarterly
or monthly. Currently, loans must be repaid by electronic funds transfer ("EFT")
or pre-authorized check ("PAC"), unless we have approved another form of
payment.
If your loan repayment is late, and the loan would otherwise be in default,
we will make a withdrawal in an amount sufficient to keep the loan from going
into default. The withdrawals will be made on a pro-rata basis from all of the
variable accounts to which contract value is then allocated. If there is not
enough contract value in the variable accounts, the withdrawal will be made from
the fixed accounts on a nearest to maturity basis, and any amount withdrawn may
be subject to a Market Value Adjustment. This will only be done if:
1) there has been a Distributable Event;
2) the amount available for withdrawal is equal to or exceeds the
necessary amount plus any applicable withdrawal charges; and
3) you have authorized us to do so in the loan agreement.
If any of these conditions is not met, the loan will be considered to be in
default, and default procedures will be performed.
LOAN DEFAULT. When your loan is in default, you may pay off the loan, or
the loan will be repaid through an automatic withdrawal from your contract
value, as described below.
1. Loan Repaid
For loans in default status, we will accept repayment only in the
amount necessary to pay off the loan balance in full.
2. Loan Not Repaid
The defaulted loan balance continues to accrue interest until there
has been a Distributable Event, at which time the defaulted loan
balance plus accrued interest will be repaid by automatic
withdrawal. The defaulted loan balance will be considered a Deemed
Distribution. If a Distributable Event has occurred prior to
default, the defaulted loan balance plus accrued interest is repaid
by automatic withdrawal upon default. The automatic withdrawal will
apply first to the TSA Special Fixed Account, then pro-rata to the
variable accounts and then to the fixed accounts on a nearest to
maturity basis. Surrender charges and any market value adjustments
will be applied as applicable to such withdrawals. In either case
the Deemed Distribution or withdrawal will be considered a
currently taxable event, and may be subject to federal income tax
withholding and the federal early withdrawal penalty tax.
OVERLOANS. An overloan occurs when the total outstanding loan balance(s)
exceeds the Cash Surrender Value. If this occurs, we will send you a letter
requesting payment of an amount which will take the loan out of overloan status.
If after 30 days, the overloan status has not been corrected, the loan will be
considered in default. If a Distributable Event occurred, the Contract will
terminate without value. If a Distributable Event has not occurred, the Contract
will continue in force, interest continues to accrue and the loan continues.
Upon the occurrence of a Distributable Event while the loan is still in overloan
status, the Contract will terminate without value.
EFFECT OF LOAN ON OTHER CONTRACT FEATURES. The following contract features
will be impacted by any outstanding loan balance:
1) Withdrawals and Charges: The rules concerning maximum withdrawal
amounts, free partial withdrawals, systematic withdrawals and
waiver of administrative charges will be determined by reducing the
otherwise applicable amounts by the amount of any outstanding loan
balance.
ACC - 111296 63
2) Death Benefit, Earnings multiplier Benefit, Annuitization and
Surrenders: The outstanding loan balance is deducted from any
amounts otherwise payable and in determining the amount available
for annuitization.
3) Riders:
a) Minimum Guaranteed Income Benefit ("MGIB") Rider. Upon
exercising the MGIB rider, the MGIB Base is reduced by an
amount equal to the ratio of the outstanding loan balance to
the contract value multiplied by the MGIB Base.
b) Minimum Guaranteed Withdrawal Benefit ("MGWB") Rider. The
portion of the contract value used to pay off the outstanding
loan balance will reduce the MGWB Withdrawal Account. We do
not recommend the MGWB rider if loans are contemplated.
c) Minimum Guaranteed Accumulation Benefit ("MGAB") Rider.
Generally, loan repayment periods should not extend into the
3-year period preceding the end of the Waiting Period, because
transfers made within such 3-year period reduce the MGAB Base
and the MGAB Charge Base pro rata based on the percentage of
contract value transferred. Transfers between the TSA Special
Fixed Account and the variable accounts will not be excluded
from this treatment.
TAX CONSEQUENCES OF ENHANCED DEATH BENEFIT
THE CONTRACT INCLUDES AN ENHANCED DEATH BENEFIT THAT IN SOME CASES MAY EXCEED
THE GREATER OF THE PREMIUM PAYMENTS OR THE CONTRACT VALUE. THE IRS HAS NOT RULED
WHETHER AN ENHANCE DEATH BENEFIT COULD BE CHARACTERIZED AS AN INCIDENTAL
BENEFIT, THE AMOUNT OF WHICH IS LIMITED IN ANY CODE SECTION 401(A) PENSION OR
PROFIT-SHARING PLAN OR CODE SECTION 403(B) TAX-SHELTERED ANNUITY. EMPLOYERS
USING THE CONTRACT MAY WANT TO CONSULT THEIR TAX ADVISER REGARDING SUCH
LIMITATION. FURTHER, THE INTERNAL REVENUE SERVICE HAS NOT ADDRESSED IN A RULING
OF GENERAL APPLICABILITY WHETHER A DEATH BENEFIT PROVISION SUCH AS THE ENHANCED
DEATH BENEFIT PROVISION IN THE CONTRACT COMPORTS WITH IRA OR ROTH IRA
QUALIFICATION REQUIREMENTS. A TAX ADVISOR SHOULD BE CONSULTED.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences under
the Contracts are not exhaustive, and special rules are provided with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law, and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each contract owner
or recipient of the distribution. A competent tax adviser should be consulted
for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contracts could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective before the date of the change). You should consult a tax adviser
with respect to legislative developments and their effect on the Contract.
ACC - 111296 64
--------------------------------------------------------------------------------
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following selected financial data prepared in accordance with generally
accepted accounting principles ("GAAP") for Golden American should be read in
conjunction with the financial statements and notes thereto included in this
prospectus. On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of Equitable of Iowa
Companies ("Equitable of Iowa"), according to a merger agreement among Equitable
of Iowa, PFHI and ING Groep N.V. (the "ING acquisition"). On August 13, 1996,
Equitable of Iowa acquired all of the outstanding capital stock of BT Variable,
Inc., then the parent of Golden American (the "Equitable acquisition"). For
financial statement purposes, the ING acquisition was accounted for as a
purchase effective October 25, 1997 and the Equitable acquisition was accounted
for as a purchase effective August 14, 1996. As a result, the financial data
presented below for periods after October 24, 1997, are presented on the
Post-Merger new basis of accounting, for the period August 14, 1996 through
October 24, 1997, are presented on the Post-Acquisition basis of accounting, and
for August 13, 1996 and prior periods are presented on the Pre-Acquisition basis
of accounting.
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER
----------------------------------------------------------------------------------
For the Period For the Period
January 31, For the Year For the Year For the Year October 25,
2001 through Ended Ended Ended 1997 through
June 30, December 31, December 31, December 31, December 31,
2001 2000 1999 1998 1997
-------------- ------------ ------------ ------------ --------------
Annuity and Interest
Sensitive Life
Product Charges................. $ 84,284 $ 144,877 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss) before
Federal Income Tax ............. $ 19,842 $ 32,862 $ 19,737 $ 10,353 $ (279)
Net Income (Loss)................... $ 12,135 $ 19,180 $ 11,214 $ 5,074 $ (425)
Total Assets........................ $ 12,848,283 $ 11,852,677 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities................... $ 12,206,786 $ 11,235,540 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's Equity.......... $ 641,497 $ 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
ACC - 111296 65
BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: 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
THE FIRST SIX MONTHS OF 2001
COMPARED TO SAME PERIOD OF 2000
PREMIUMS
PERCENTAGE DOLLAR
FOR THE SIX MONTHS ENDED JUNE 30 2001 CHANGE CHANGE 2000
------- ---------- ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $ 39.2 (94.9)% $(726.5) $ 765.7
Fixed account.................................... 720.9 103.9 367.3 353.6
Total variable annuity premiums...................... 760.1 (32.1) (359.2) 1,119.3
Fixed annuity premiums............................... 1.6 -- 1.6 --
Variable life premiums............................... 1.0 -- -- 1.0
------- ----- ------- --------
Total premiums....................................... $ 762.7 (31.9)% $(357.6) $1,120.3
======= ===== ======= ========
For the Companies' variable and fixed 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 premiums net of reinsurance decreased 32.1% during the first
six months of 2001 compared to the same period of 2000. This decrease is
primarily due to ceded variable annuity separate account premiums of $1.2
billion and $0.9 billion for the first six months of 2001 and 2000,
respectively, under modified coinsurance agreements. Also contributing to the
decrease in variable annuity premiums is a reduction of $462.0 million in
variable annuity separate account premiums from the Premium Plus product in the
first three months of 2001 as compared to the first three months of 2000.
Offsetting these decreases is an increase in fixed account premiums from $353.6
million in 2000 to $720.9 million in 2001. This increase is
ACC - 111296 66
primarily due to sales of the Guarantee product, a registered fixed annuity
product introduced in the last quarter of 2000. Sales for this product totaled
$358.0 million in the first six months of 2001. During the first six months of
2001, First Golden began selling two fixed annuity products, a Flex Annuity and
a Multi-Year Guarantee Annuity.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the six months
ended June 30, 2001 totaled $72.4 million, or 10% of total premiums ($131.4
million, or 12% from a significant broker/dealer for the six months ended June
30, 2000). Gross premiums for variable products from a significant broker/dealer
having at least ten percent of total sales for the six months ended June 30,
2001, totaled $214.6 million, or 11% of total gross premiums ($450.0 million, or
22%, from two significant broker/dealers for the six months ended June 30,
2000).
REVENUES
PERCENTAGE DOLLAR
FOR THE SIX MONTHS ENDED JUNE 30 2001 CHANGE CHANGE 2000
------- ---------- ------ ----
(Dollars in millions)
Annuity and interest sensitive life product
charges.......................................... $84.3 20.9% $14.6 $ 69.7
Management fee revenue............................... 12.4 26.2 2.6 9.8
Net investment income................................ 42.8 34.6 11.0 31.8
Realized losses on investments....................... (1.9) (27.2) 0.7 (2.6)
------ ----- ----- ------
$137.6 26.5% $28.9 $108.7
====== ===== ===== ======
Total revenues increased 26.5% in the first six months of 2001 from the same
period in 2000. Annuity and interest sensitive life product charges increased
20.9% in the first six months of 2001 due to additional fees earned from the
higher average block of business under management in the variable separate
accounts and higher surrender charges.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"). The fee paid to Golden American for these services,
which is calculated as a percentage of average assets in the variable separate
accounts, was $11.5 million and $9.0 million for the first six months of 2001
and 2000, respectively. This increase was due to the increasing average assets
in the variable separate accounts and renegotiation of the fee paid by DSI to
Golden American during the third quarter of 2000.
Net investment income increased 34.6% in the first six months of 2001 due to a
growth in invested assets from June 30, 2000 mainly related to the introduction
of the Guarantee product. The Companies had $1.9 million of realized losses on
the sale of investments in the first six months of 2001, compared to losses of
$2.6 million in the same period of 2000.
EXPENSES
Total insurance benefits and expenses increased $23.3 million, or 27.4%, to
$108.2 million in the first six months of 2001 from the same period in 2000.
Interest credited to account balances decreased $9.9 million, or 9.9%, to $90.2
million in the first six months of 2001. The premium credit on the Premium Plus
product decreased $23.3 million to $50.3 million at June 30, 2001 and the bonus
interest on the fixed account decreased $0.6 million to $4.2 million at June 30,
2001. These decreases were partially offset by an increase in interest credited
due to higher average account balances associated with the Companies' fixed
account options, mainly due to the introduction of the Guarantee product.
Commissions decreased $3.6 million, or 3.2%, to $108.6 million in the first six
months of 2001. Insurance taxes, state licenses, and fees increased $0.6
million, or 21.2%, to $3.5 million in the first six months of 2001. Changes in
commissions and insurance taxes, state licenses, and fees are generally related
to changes in the level and mix or composition of fixed and variable product
sales. Most costs incurred as the result of sales have been deferred, thus
having very little impact on current earnings.
ACC - 111296 67
General expenses increased $16.8 million, or 41.8%, to $57.0 million in the
first six months of 2001. 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. Also contributing to this increase in general
expenses are additional cost allocations during the first six months of 2001.
The increase in general expenses was partially offset by reimbursements received
from DSI, Equitable Life Insurance Company of Iowa ("Equitable Life"), 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 the Companies.
During the first six months of 2001 and 2000, the value of purchased insurance
in force ("VPIF") was adjusted to increase amortization by $245,000 and
$707,000, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits. Based on current conditions and assumptions
as to the impact of future events on acquired policies in force, the expected
approximate net amortization relating to VPIF as of June 30, 2001 is $2.0
million for the remainder of 2001, $3.4 million in 2002, $3.0 million in 2003,
$2.5 million in 2004, $1.8 million in 2005, and $1.4 million in 2006. Actual
amortization may vary based upon changes in assumptions and experience.
Amortization of deferred policy acquisition costs ("DPAC") decreased $6.1
million, or 17.1%, in the first six months of 2001. Deferred policy acquisition
costs decreased $72.8 million, or 74.5%, for the six months ended June 30, 2001.
The decrease in the amortization and the amount of policy acquisition costs
deferred was mainly due to an increase in the amount of deferred costs that have
been offset due to the modified coinsurance agreement entered into during the
second quarter of 2000.
Expenses and charges reimbursed to Golden American under modified coinsurance
agreements increased from $115.8 million for the six months in 2000 to $162.7
million during the first six months in 2001. This was primarily due to a
modified coinsurance agreement which was entered into during the second quarter
of 2000, with Equitable Life, an affiliate, covering a considerable portion of
Golden American's variable annuities issued after January 1, 2000, excluding
those with an interest rate guarantee. Under this reinsurance agreement, $160.9
million in expenses and charges were reimbursed during the first six months of
2001. This reimbursement offset deferred policy acquisition costs and
non-deferrable costs related to policies reinsured under this agreement.
Interest expense decreased 6.0%, or $0.6 million, to $9.5 million in the first
six months of 2001. Interest expense on a $25 million surplus note issued
December 1996 and expiring December 2026 was $1.0 million for the first six
months of 2001, unchanged from the same period of 2000. Interest expense on a
$60 million surplus note issued in December 1998 and expiring December 2028 was
$2.2 million for the first six months of 2001, unchanged from the same period of
2000. Interest expense on a $75 million surplus note, issued September 1999 and
expiring September 2029 was $2.9 million for the first six months of 2001 and
2000. Interest expense on a $50 million surplus note, issued December 1999 and
expiring December 2029 was $2.0 million for the first six months of 2001 and
$2.1 million in 2000. Interest expense on a $35 million surplus note issued
December 1999 and expiring December 2029 was $1.4 million for the first six
months of 2001 and $1.6 million in 2000. Golden American also paid $25,000 in
2001 and $284,000 in 2000 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 $1,000 and $36,000 for the first
six months of 2001 and 2000, respectively.
INCOME
Net income was $12.1 million for the first six months of 2001, an increase of
$4.0 million, or 50.2% from the same period of 2000.
Comprehensive income for the first six months of 2001 was $17.4 million, an
increase of $10.4 million from comprehensive income of $7.0 million in the same
period of 2000.
ACC - 111296 68
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.
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 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 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
ACC - 111296 69
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.
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
ACC - 111296 70
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 DPAC, 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
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 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.
ACC - 111296 71
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................................... 770.7 30.9 182.0 588.7
-------- ----- -------- --------
Total variable annuity premiums...................... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............................... 8.6 (37.8) (5.2) 13.8
-------- ----- -------- --------
Total premiums....................................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ===== ======== ========
For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers each having at least ten percent of total sales for the year
ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to
$528.9 million, or 26%, from two significant broker/dealers for the year ended
December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
Annuity and interest sensitive life product
charges.......................................... $ 82.9 112.0% $43.8 39.1
Management fee revenue............................... 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) 93.3 (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 $11.1
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.
ACC - 111296 72
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)
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
Expenses and charges reimbursed under
modified coinsurance agreements................ (9.2) 64.3 (3.6) (5.6)
------- ----- ----- ------
$ 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 DPAC, VPIF, and unearned revenue reserve
were eliminated and a new asset of $44.3 million representing VPIF was
established for all policies in force at the merger date. During 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. During 1998,
ACC - 111296 73
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 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 Life.
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 increased 50.1% and 48.4%, respectively, during
the first six months of 2001 after decreasing 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 increase in the carrying
value of the Companies' investment portfolio was due mainly to net purchases, as
well as changes in unrealized appreciation and depreciation of fixed maturities.
Growth in the cost basis of the Companies' investment portfolio resulted from
the investment of premiums from the sale of the Companies' fixed account options
due mainly to the introduction of the Guarantee product. The Companies manage
the growth of insurance operations in order to maintain adequate capital ratios.
To support the fixed account options of the Companies' insurance products, cash
flow was invested primarily in fixed maturities and mortgage loans on real
estate.
At June 30, 2001 and 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 100.4% and 99.3% of amortized
cost value at June 30, 2001 and December 31, 2000, respectively.
Fixed Maturities: At June 30, 2001, the Companies had fixed maturities with an
amortized cost of $1.2 billion and an estimated fair value of $1.2 billion. The
Companies classify 100% of securities as available for sale. Net unrealized
appreciation of fixed maturities of $5.2 million was comprised of gross
appreciation of $13.9 million and gross depreciation of $8.7 million. Net
unrealized holding gains on these securities, net of adjustments for VPIF, DPAC,
and deferred income taxes of $1.2 million, were included in stockholder's equity
at June 30, 2001.
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
ACC - 111296 74
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).
The individual securities in the Companies' fixed maturities portfolio (at
amortized cost) include investment grade securities, which include securities
issued by the U.S. government, its agencies, and corporations that are rated at
least A- by Standard & Poor's Rating Services ("Standard & Poor's") ($589.9
million or 48.1% at June 30, 2001 and $519.9 million or 65.1% at December 31,
2000), that are rated BBB+ to BBB- by Standard & Poor's ($239.7 million or 19.6%
at June 30, 2001 and $117.9 million or 14.7% at December 31, 2000), and below
investment grade securities, which are securities issued by corporations that
are rated BB+ and lower by Standard & Poor's ($118.5 million or 9.6% at June 30,
2001 and $53.5 million or 6.7% at December 31, 2000). Securities not rated by
Standard & Poor's had a National Association of Insurance Commissioners ("NAIC")
rating of 1, 2, 3, 4, 5, or 6 ($278.0 million or 22.7% at June 30, 2001 and
$106.9 million or 13.4% at December 31, 2000). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.9% and 6.8% at
June 30, 2001 and December 31, 2000, respectively.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At June 30, 2001, the amortized cost value of the Companies' total investments
in below investment grade securities, excluding mortgage-backed securities, was
$133.3 million, or 8.9%, of the Companies' investment portfolio ($65.1 million,
or 6.4% at December 31, 2000). The Companies do not expect the percentage of the
portfolio invested in below investment grade securities, excluding
mortgage-backed securities, to exceed 10% of the investment portfolio. At June
30, 2001, the yield at amortized cost on the Companies' below investment grade
portfolio was 8.4% compared to 6.9% for the Companies' investment grade
corporate bond 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 $131.2 million, or
98.4% of amortized cost value, at June 30, 2001 ($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.
During the first six months of 2001 and the year ended December 31, 2000, fixed
maturities designated as available for sale with a combined amortized cost of
$233.3 million and $211.3 million, respectively, were sold, called, or repaid by
their issuers. In total, net pre-tax losses from sales, calls, and repayments of
fixed maturities amounted to $0.5 million in the first six months to June 2001.
During the first six months of 2001, Golden American determined that the
carrying value of three impaired bonds exceeded their estimated net
ACC - 111296 75
realizable value. As a result, at June 30, 2001, Golden American recognized a
total pre-tax loss of approximately $679,000 to reduce the carrying value of the
bonds to their net realizable value of $365,000. For year ended December 31,
2000, net pre-tax losses from sales, calls, and repayment of fixed maturities
amounted to $6.1 million, 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: As of December 31, 2000, 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 10.0% and
9.9% of the Companies' investment portfolio at June 30, 2001 and December 31,
2000, respectively. Mortgages outstanding were $150.6 million at June 30, 2001
with an estimated fair value of $151.1 million. 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 60
loans with an average size of $2.5 million at June 30, 2001. 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
Ohio (17% in 2001 and 4% in 2000) and California (16% in 2001 and 15% in 2000).
There are no other concentrations of mortgage loans on real estate in any state
exceeding ten percent at June 30, 2001 and December 31, 2000. Mortgage loans on
real estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (24% in 2001 and 29% in 2000),
industrial buildings (27% in 2001 and 35% in 2000), retail facilities (24% in
2001 and 18% in 2000), and multi-family apartments (21% in 2001 and 10% in
2000). At June 30, 2001 and December 31, 2000, the yield on the Companies'
mortgage loan portfolio was 7.1% and 7.3%, respectively.
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. 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 June 30, 2001 and 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 $9.4 million during the first
six months of 2001 and $19.1 million during 2000, due largely to an increase of
$6.8 million during the first six months of 2001 and $14.6 million during 2000
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 in 2000 was mainly due
to an increase in reinsurance receivable from surrenders, and was consistent
with an increase in ceded premiums from 1999 to 2000.
ACC - 111296 76
Amounts due from affiliates were $68,000 and $38.8 million at June 30, 2001 and
December 31, 2000, respectively. At December 31, 2000, the companies had a
receivable of $35.0 million related to a capital contribution from its parent
Equitable of Iowa. Most of the remaining balance at December 31, 2000 was due to
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 acquisition
of Equitable of Iowa and its subsidiaries by ING Groep N.V. ("ING Group") on
October 24, 1997 (the "acquisition date"). The Companies' previous balances of
DPAC and VPIF were eliminated as of the acquisition date, and an asset
representing VPIF was established for all policies in force at the acquisition
date. VPIF is amortized into income in proportion to the expected gross profits
of in force acquired business in a manner similar to DPAC amortization. Any
expenses which vary directly with the sales of the Companies' products are
deferred and amortized. At June 30, 2001, the Companies had DPAC and VPIF
balances of $624.6 million and $22.3 million, respectively ($635.1 million and
$25.9 million, respectively, at December 31, 2000). During the first six months
of 2001 and 2000, VPIF was adjusted to increase amortization by $245,000 and by
$707,000, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits.
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 June 30, 2001 and December 31,
2000 was $13.9 million and $11.9 million, respectively.
Other assets increased $22.3 million during first six months of 2001 and $29.5
million during 2000, due mainly to increases in the receivable for securities
sold.
At June 30, 2001, the Companies had $10.4 billion of separate account assets
compared to $9.8 billion at December 31, 2000. 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 June 30, 2001, the Companies had total assets of $12.8 billion, an 8.4%
increase from December 31, 2000. At December 31, 2000, the Companies had total
assets of $11.9 billion, a 26.2% increase from December 31, 1999.
LIABILITIES. During the six months ended June 30, 2001, future policy benefits
for annuity and interest sensitive life products increased $393.9 million, or
37.1%, to $1.5 billion reflecting net sales of the Companies' fixed account
net of transfers to the separate account options.
During the year ended December 31, 2000, 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
ACC - 111296 77
note to Equitable Life, which matures on December 17, 2026. As a result of the
merger of Equitable Life into EIC, the surplus note is now payable to EIC.
Amounts due to affiliates decreased $4.8 million or 24.0% to $15.1 million
during the first six months of 2001. This is mainly due to the partial cash
settlement of a liability for the modified coinsurance agreement with Equitable
Life.
During the year ended December 31, 2000, 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 $42.0 million or 60.6% to $111.4 million during the
first six months of 2001 due to the increase in the payable for securities
purchased. 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.
The Companies total liabilities increased $971.2 million or 8.6%, during the
first six months 2001 and totaled $12.2 billion at June 30, 2001. 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 $165.0 million in the first six
months of 2001 compared to net cash provided by operating activities of $33.3
million in the same period of 2000. 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 commissions and other deferrable expenses related to the continued growth
in the variable annuity products. For the six months ended June 30, 2001 and
2000, negative operating cash flows have been offset by the effects of a
modified coinsurance agreement entered into during the second quarter of 2000
with Equitable Life. This resulted in a net cash settlement of $160.9 million in
the first six months of 2001. For the six months ended June 30, 2000, this
modified coinsurance resulted in a net cash settlement of $111.8 million. Also
contributing to this increase in net cash provided by operating activities is an
increase in the payable for securities purchased at June 30, 2001. During 2000,
these 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.
ACC - 111296 78
Net cash used in investing activities was $486.4 million during the first six
months of 2001 compared to net cash provided by investing activities of $39.5
million in the same period of 2000. This increase in the net cash used in
investing activities is primarily due to net purchases of fixed maturities and
mortgage loans on real estate during the first six months of 2001 versus net
sales in 2000. Net purchases of fixed maturities reached $428.6 million during
the first six months of 2001 versus net sales of $22.2 million in the same
period of 2000. Net purchases of mortgage loans on real estate reached $50.9
million in the first six months of 2000 versus net purchases of $5.6 million
during the same period in 2000. These investment purchases were mainly due to an
increase in sales of the Companies fixed account options, primarily from the
introduction of the Guarantee product in the fourth quarter of 2000.
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 provided by financing activities was $309.4 million during the first
six months of 2001 compared to net cash used in financing activities of $25.7
million during the same period in 2000. In the first six months of 2001, net
cash provided by financing activities was positively impacted by net fixed
account deposits of $663.5 million compared to $267.8 million in the same period
of 2000 due primarily to the introduction of the Guarantee product in the fourth
quarter of 2000. In addition, there was a decrease of $49.6 million in net
reallocations to Separate Accounts. In the first six months of 2001, net cash
provided by financing activities was negatively impacted by a decrease in
capital contributions from the Parent as well as a decrease in the amount of
proceeds received from reciprocal loan agreement borrowings. The Companies
received $7.0 million and $80.0 million of capital contributions from the Parent
in the first six months of 2001 and 2000, respectively. During the first six
months of 2000, the Companies received a net amount of $40.0 million from
reciprocal loan agreement borrowings.
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. This revolving note payable was amended and restated in
April 2001 with an expiration date of May 31, 2002. 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 before reinsurance. 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.
ACC - 111296 79
During the first quarter of 1999, Golden American's operations were moved to
a new site in West Chester, Pennsylvania. Currently, Golden American occupies
125,000 square feet of leased space. 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 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: Golden American has reinsurance treaties with five 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 $25,000,000
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
ACC - 111296 80
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
84
management is to maximize returns, taking into account interest rate and credit
risks, as well as other risks. The Companies' asset/liability management
discipline includes strategies to minimize exposure to loss as interest rates
and economic and market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
year end 2000 levels, variable separate account funds, which represent 88% of
the in force as of June 30, 2001, 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 12% of the in force as of June 30, 2001 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.
ACC - 111296 81
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-dealer 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 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") $0.2 million for the first six months of 2001, $1.3
million for 2000, and $1.3 million for 1999 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 $11.5 million, $21.3 million and $10.1 million for the first six months of
2001 and 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 first six
months of 2001 and for the years ended December 31, 2000 and 1999, Golden
American and First Golden incurred fees of $1.7 million, $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
$2.7 million for the first six months of 2001 and $6.2 million for 2000 and $6.1
million for 1999.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.1 million for the first six months of 2001 and $0.2 million for 2000
and $0.4 for 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 the
first six months of 2001 and $0.5 million for 2000 and $0.2 million for 1999.
ACC - 111296 82
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 $0.2 million in the first
six months of 2001 and $0.6 million for 2000 and $0.5 million for 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies totaled $0.1 million for the first
six months of 2001 and $0.3 million for 2000 and $0.2 million for 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies totaled $0.06 million for the first six
months of 2001 and $0.1 million for 2000 and $0.1 million for 1999.
Golden American has a guaranty agreement with Equitable Life, an affiliate. In
consideration of an annual fee, payable June 30, Equitable Life guarantees to
Golden American that it will make funds available, if needed, to Golden American
to pay the contractual claims made under the provisions of Golden American's
life insurance and annuity contracts. The agreement is not, and nothing
contained therein or done pursuant thereto by Equitable Life shall be deemed to
constitute, a direct or indirect guaranty by Equitable Life of the payment of
any debt or other obligation, indebtedness, or liability of any kind or
character whatsoever, of Golden American. The agreement does not guarantee the
value of the underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been invested. The
calculation of the annual fee is based on risk based capital. On June 30, 2001
and for 2000, Golden American incurred a fee of $12,000 and $7,000,
respectively, under this agreement. No annual fee was paid in 1999.
DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) of the variable insurance products
issued by Golden American which as of December 31, 2000, are sold through other
broker/dealer institutions. For the first six months of 2001 and the years 2000
and 1999, commissions paid by Golden American to DSI (including commissions paid
by First Golden) aggregated $108.3 million, $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 Life 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
ACC - 111296 83
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 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 (45) Chief Executive Officer and Director
Chris D. Schreier (45) President
Barnett Chernow (50) President and CEO, Investment Products Group
Myles R. Tashman (58) Executive Vice President, General Counsel
and Assistant Secretary
Wayne R. Huneke (50) Director and Chief Financial Officer
Thomas J. McInerney (45) Director
Mark A. Tullis (46) 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 (44) Executive Vice President and Chief Actuary
David S. Pendergrass (41) Vice President and Treasurer
David L. Jacobson (52) Senior Vice President and Assistant Secretary
William L. Lowe (37) Senior Vice President
Steven G. Mandel (42) Senior Vice President and Chief Information Officer
Gary F. Haynes (56) Senior Vice President and Assistant Secretary
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:
ACC - 111296 84
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.
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
ACC - 111296 85
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. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998 he was with F&G Life
Insurance Company; serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President, Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE AND OTHER INFORMATION
The following sets forth information with respect to the Chief Executive Officer
of Golden American as well as the annual salary and bonus for the next 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.
ACC - 111296 86
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS/1/ OPTIONS OPTIONS COMPENSATION/2/
------------------ ---- ------ -------- ------------ ---------- ----------------
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 1999 $ 191,589 $ 737,933 $ 2,924
President 1998 $ 165,816 $ 528,299 $ 756
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 1998 $ 173,870 $ 32,152 3,500
Chief Actuary
Gary Haynes.............. 2000 $ 201,136 $ 404,773 3,000 $ 14,735
Senior Vice 1999 $ 159,030 $ 50,000 $ 9,540
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.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
% OF TOTAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE APPRECIATION
OPTIONS IN FISCAL OR BASE EXPIRATION FOR OPTION TERM/3/
------------------------
NAME GRANTED/1/ YEAR PRICE/2/ DATE 5% 10%
---- ----------- ---------- -------- ---------- --------- ---------
Barnett Chernow.......... 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.
ACC - 111296 87
--------------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2001
88
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2001 - $1,226,036; 2000 - $798,751)........................ $ 1,231,210 $ 792,578
Equity securities, at fair value
(cost: 2001 - $66; 2000 - $8,611)................................... 58 6,791
Mortgage loans on real estate....................................... 150,620 99,916
Policy loans........................................................ 13,910 13,323
Short-term investments.............................................. 30,297 17,102
----------- -----------
Total investments...................................................... 1,426,095 929,710
Cash and cash equivalents.............................................. 140,894 152,880
Reinsurance recoverable................................................ 21,975 19,331
Reinsurance recoverable from affiliate................................. 21,400 14,642
Due from affiliates.................................................... 68 38,786
Accrued investment income.............................................. 16,364 9,606
Deferred policy acquisition costs...................................... 624,624 635,147
Value of purchased insurance in force ................................. 22,286 25,942
Current income taxes recoverable....................................... 221 511
Deferred income tax asset.............................................. 994 9,047
Property and equipment, less allowances for depreciation of
$8,298 in 2001 and $5,638 in 2000................................... 11,384 14,404
Goodwill, less accumulated amortization of $13,853 in 2001
and $11,964 in 2000................................................. 137,274 139,163
Other assets........................................................... 54,367 32,019
Separate account assets................................................ 10,370,337 9,831,489
----------- -----------
Total assets........................................................... $12,848,283 $11,852,677
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products...................... $ 1,456,796 $ 1,062,891
Unearned revenue reserve.......................................... 6,550 6,817
Other policy claims and benefits.................................... 177 82
----------- -----------
1,463,523 1,069,790
Surplus notes.......................................................... 245,000 245,000
Revolving note payable................................................. 1,400 --
Due to affiliates...................................................... 15,121 19,887
Other liabilities...................................................... 111,405 69,374
Separate account liabilities........................................... 10,370,337 9,831,489
----------- -----------
12,206,786 11,235,540
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.......................................... 590,640 583,640
Accumulated other comprehensive income (loss)....................... 1,179 (4,046)
Retained earnings .................................................. 47,178 35,043
----------- -----------
Total stockholder's equity............................................. 641,497 617,137
----------- -----------
Total liabilities and stockholder's equity............................. $12,848,283 $11,852,677
=========== ===========
See accompanying notes.
ACC - 111296 89
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Revenues:
Annuity and interest sensitive life product charges................. $ 84,284 $ 69,734
Management fee revenue.............................................. 12,438 9,856
Net investment income............................................... 42,771 31,775
----------- ----------
Realized losses on investments...................................... (1,919) (2,637)
137,574 108,728
Insurance benefits and expenses: Annuity and interest sensitive life benefits:
Interest credited to account balances............................... 90,153 100,068
Benefit claims incurred in excess of account balances............... 2,851 3,211
Underwriting, acquisition, and insurance expenses:
Commissions......................................................... 108,600 112,158
General expenses.................................................... 56,989 40,179
Insurance taxes, state licenses, and fees........................... 3,528 2,910
Policy acquisition costs deferred................................. (24,925) (97,724)
Amortization:
Deferred policy acquisition costs............................... 29,632 35,757
Value of purchased insurance in force............................. 2,175 2,278
Goodwill.......................................................... 1,889 1,889
Expense and charges reimbursed under modified
coinsurance agreements (162,668) (115,792)
----------- ----------
108,224 84,934
Interest expense....................................................... 9,508 10,115
----------- ----------
117,732 95,049
----------- ----------
Income before income taxes............................................. 19,842 13,679
Income taxes........................................................... 7,707 5,602
----------- ----------
Net income............................................................. $ 12,135 $ 8,077
=========== ==========
See accompanying notes.
ACC - 111296 90
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. $ 165,012 $ 33,298
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale............................... 229,916 123,182
Equity securities................................................... 6,894 5,195
Mortgage loans on real estate....................................... 60,621 3,281
Policy loans - net.................................................. -- 1,732
Short-term investments - net........................................ -- 17,880
------------- ------------
297,431 151,270
Acquisition of investments:
Fixed maturities - available for sale............................... (658,495) (100,936)
Mortgage loans on real estate....................................... (111,532) (8,887)
Policy loans - net.................................................. (587) --
Short term investments - net........................................ (13,195) --
------------- ------------
(783,809) (109,823)
Net sale (purchase) of property and equipment.......................... 18 (1,974)
Issuance of reciprocal loan agreement receivables...................... -- (16,900)
Receipt of repayment of reciprocal loan agreement receivables.......... -- 16,900
------------- ------------
Net cash (used in) provided by investing activities.................... (486,360) 39,473
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings..................... 29,300 177,900
Repayment of reciprocal loan agreement borrowings...................... (29,300) (137,900)
Proceeds from revolving note payable................................... 1,400 54,800
Repayment of revolving note payable.................................... -- (56,200)
Receipts from annuity and interest sensitive life
policies credited to account balances............................... 734,162 355,662
Return of account balances on annuity
and interest sensitive life policies................................ (70,613) (87,841)
Net reallocations to Separate Accounts................................. (362,587) (412,150)
Contribution from parent .............................................. 7,000 80,000
------------- ------------
Net cash provided by (used in) financing activities.................... 309,362 (25,729)
------------- ------------
Increase (decrease) in cash and cash equivalents....................... (11,986) 47,042
Cash and cash equivalents at beginning of period....................... 152,880 76,690
------------- ------------
Cash and cash equivalents at end of period............................. $ 140,894 $ 123,732
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest............................... $ 9,475 $ 12,649
See accompanying notes.
ACC - 111296 91
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All adjustments
were of a normal recurring nature, unless otherwise noted in Management's
Discussion and Analysis and the Notes to Financial Statements. Operating results
for the six months ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. These
financial statements should be read in conjunction with the financial statements
and related footnotes included in the Golden American Life Insurance Company's
annual report on Form 10-K for the year ended December 31, 2000.
CONSOLIDATION
The condensed consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned subsidiary, First
Golden American Life Insurance Company of New York ("First Golden," and with
Golden American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS: As of January 1, 2001, the Companies adopted FAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended
and interpreted by FAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133, and certain FAS No. 133
implementation issues. This standard, as amended, requires companies to record
all derivatives on the balance sheet as either assets or liabilities and measure
those instruments at fair value. The manner in which companies are to record
gains or losses resulting from changes in the fair values of those derivatives
depends on the use of the derivative and whether it qualifies for hedge
accounting.
Adoption of FAS No. 133 did not have a material effect on the Companies'
financial position or results of operations given the Companies' limited
derivative and embedded derivative holdings.
The Companies chose to elect a transition date of January 1, 1999 for embedded
derivatives. Therefore, only those derivatives embedded in hybrid instruments
issued, acquired or substantively modified by the entity on or after January 1,
1999 are recognized as separate assets or liabilities. The cumulative effect of
the accounting change upon adoption was not material.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Companies may
from time to time utilize various derivative instruments to manage interest rate
and price risk (collectively, market risk). The Companies have appropriate
controls in place, and financial exposures are monitored and managed by the
Companies as an integral part of their overall risk management program.
Derivatives are recognized on the balance sheet at their fair value. The
Companies occasionally purchase a financial instrument that contains a
derivative instrument that is "embedded" in the instrument. The Companies'
insurance products are also reviewed to determine whether they contain an
embedded derivative. The Companies assess whether the economic characteristics
of the embedded derivative are clearly and closely related to the economic
characteristics of the remaining
ACC - 111296 92
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2001
1. BASIS OF PRESENTATION (continued)
component of the financial instrument or insurance product (i.e., the host
contract) and whether a separate instrument with the same terms as the embedded
instrument would meet the definition of a derivative instrument. When it is
determined that the embedded derivative possesses economic characteristics that
are not clearly and closely related to the economic characteristics of the host
contract and that a separate instrument with the same terms would qualify as a
derivative instrument, the embedded derivative is separated from the host
contract and carried at fair value. In cases where the host contract is measured
at fair value, with changes in fair value reported in current period earnings,
or the Companies are unable to reliably identify and measure the embedded
derivative for separation from its host contract, the entire contract is carried
on the balance sheet at fair value and is not designated as a hedging
instrument.
PENDING ACCOUNTING STANDARDS: In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 141,
"Business Combinations", and No. 142, "Goodwill and Other Intangible Assets",
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives. The Companies are required to adopt the new rules effective
January 1, 2002. The Companies are evaluating the impact of the adoption of
these standards and have not yet determined the effect of adoption on their
financial position and results of operations.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $54,982,000 and $12,235,000 for the six months ended
June 30, 2001 and 2000, respectively. Total statutory capital and surplus was
$360,926,000 at June 30, 2001 and $406,923,000 at December 31, 2000.
The National Association of Insurance Commissioners has revised the Accounting
Practices and Procedures Manual, the guidance that defines statutory accounting
principles. The revised manual was 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 has resulted in changes to the accounting practices that the
Companies use to prepare their statutory-basis financial statements. The impact
of these changes to the Companies' statutory-basis capital and surplus as of
January 1, 2001 was not significant.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to conform to the June 30, 2001 financial statement presentation.
2. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the second quarters of 2001 and 2000, total comprehensive
income for the Companies amounted to $2.7 million and $6.4 million,
respectively, and $17.4 million and $7.0 million for the six months ended June
30, 2001 and 2000, respectively. Other comprehensive income excludes net
investment losses included in net income which merely represent transfers from
unrealized to realized gains and losses. These amounts totaled $883,000 and
$120,000 during the second quarters of 2001 and 2000, respectively, and $185,000
and $588,000 for the six months ended June 30, 2001 and 2000, respectively. Such
amounts, which have been measured through the date of sale, are net of income
taxes and adjustments for the value of purchased insurance in force and deferred
policy acquisition costs totaling $1,736,000 and $(1,200,000) for the second
quarters of 2001 and 2000, respectively, and $(104,000) and $(2,041,000) for the
six months ended June 30, 2001 and 2000, respectively.
ACC - 111296 93
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
3. INVESTMENTS
Investment Valuation Analysis: The Companies analyze the investment portfolio at
least quarterly in order to determine if the carrying value of any investment
has been impaired. The carrying value of debt and equity securities is written
down to fair value by a charge to realized losses when impairment in value
appears to be other than temporary. During the first quarter of 2001, Golden
American determined that the carrying value of three bonds exceeded their
estimated net realizable value. As a result, during the six months ended June
30, 2001, Golden American recognized a total pre-tax loss of $679,000 to reduce
the carrying value of the bonds to their combined net realizable value of
$365,000.
4. DERIVATIVE INSTRUMENTS
The Companies may from time to time utilize various derivative instruments to
manage interest rate and price risk (collectively, market risk). The Companies
have appropriate controls in place, and financial exposures are monitored and
managed by the Companies as an integral part of their overall risk management
program. Derivatives are recognized on the balance sheet at their fair value. At
June 30, 2001, the Companies did not utilize any such derivatives. The estimated
fair values and carrying amounts of the Companies' embedded derivatives at June
30, 2001 were $0, net of reinsurance. The estimated fair values and carrying
amounts of the embedded derivatives on a direct basis, before reinsurance, were
$1.1 million.
The fair value of these instruments was estimated based on quoted market prices,
dealer quotations or internal estimates.
5. RELATED PARTY TRANSACTIONS
Operating Agreements: Directed Services, Inc. ("DSI"), an affiliate, acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) and distributor of the variable
insurance products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. The
Companies paid commissions to DSI totaling $52,514,000 and $108,398,000 in the
second quarter and the first six months of 2001, respectively ($53,398,000 and
$109,252,000, respectively, for the same periods of 2000).
Golden American provides certain managerial and supervisory services to DSI. The
fee paid by DSI for these services is calculated as a percentage of average
assets in the variable separate accounts. For the second quarter and six months
ended June 30, 2001, the fee was $5,831,000 and $11,533,000, respectively
($4,740,000 and $9,058,000, respectively, for the same periods of 2000).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
second quarter and the first six months of 2001, the Companies incurred fees of
$858,000 and $1,701,000, respectively, under this agreement ($616,000 and
$1,274,000, respectively, for the same periods of 2000).
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
ACC - 111296 94
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
5. RELATED PARTY TRANSACTIONS (continued)
variable annuity policies have been invested. The calculation of the annual fee
is based on risk based capital. On June 30, 2001 and 2000, Golden American
incurred a fee of $12,000 and $7,000, respectively, under this agreement.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1,360,000 and $2,719,000 for the
second quarter and six months ended June 30, 2001, respectively ($1,708,000 and
$3,276,000, respectively, for the same periods of 2000).
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 $77,000 and $152,000 for the
second quarter and six months ended June 30, 2001, respectively ($355,000 and
$667,000, respectively, for the same periods in 2000).
First Golden provides resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by First Golden, totaled
$8,000 and $134,000 for the second quarter and six months ended June 30, 2001,
respectively ($56,000 and $108,000, respectively, for the same periods in 2000).
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 $430,000 and $478,000 for the
second quarter and six months ended June 30, 2001, respectively ($165,000 and
$270,000, respectively, for the same periods in 2000).
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 $97,000 and $199,000 for
the second quarter and six months ended June 30, 2001, respectively ($149,000
and 318,000, respectively, for the same periods in 2000).
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $79,000 and $133,000 for the
second quarter and six months ended June 30, 2001, respectively ($56,000 and
$108,000, respectively, for the same periods in 2000).
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $34,000 and $63,000 for the second
quarter and six months ended June 30, 2001, respectively ($26,000 and $52,000,
respectively, for the same periods in 2000).
For the second quarter of 2001, the Companies received premiums, net of
reinsurance, for variable products sold through eight affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), IFG Network
Securities, Inc. ("IFG"), Washington Square Securities, Inc. ("Washington
Square"), PrimeVest Financial ("PrimeVest"), and Compulife Investor Services,
Inc. ("Compulife") of $28,500,000, $9,100,000, $200,000, $5,900,000, $3,900,000,
$21,600,000, $7,900,000 and $2,200,000, respectively ($9,500,000, $6,900,000,
$100,000, $2,800,000, $1,500,000, $0, $0, and $0, respectively, for the same
period of 2000). For the first six months of 2001, the Companies received
premiums, net of reinsurance for variable products sold through eight
affiliates, LSSI, Vestax, DSI, Multi-Financial, IFG, Washington Square,
PrimeVest, and Compulife of $37,900,000, $12,900,000, $400,000, $9,000,000,
$5,500,000, $28,900,000, $11,000,000, and $3,700,000, respectively ($67,000,000,
$28,300,000, $800,000, $21,100,000, $8,300,000, $0, $0, and $0, respectively,
for the same period of 2000).
For the second quarter and six months ended June 30, 2001, First Golden received
premiums for fixed annuities products sold through Washington Square. of
approximately $450,000 and $550,000, respectively.
ACC - 111296 95
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
5. RELATED PARTY TRANSACTIONS (continued)
Modified Coinsurance Agreement: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued 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 $50.2 million and $160.9 million for the second quarter and the
six months ended June 30, 2001, respectively ($111.8 million for the second
quarter and the six months ended June 30, 2000). This was offset by a decrease
in deferred acquisition costs of $52.7 million and $160.8 million, respectively,
for the same periods ($109.3 million during the second quarter and the first six
months in 2000). At June 30, 2001, Golden American had a payable to Equitable
Life of $10.0 million due to the timing of the cash settlement for the modified
coinsurance agreement. As at December 31, 2000, Golden American had a payable of
$16.3 million under the 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 minimum guaranteed death
benefits and minimum guaranteed living benefits of variable annuities issued
after January 1, 2000. An irrevocable letter of credit was obtained through Bank
of New York in the amount of $25.0 million related to this agreement. Under this
agreement, Golden American recorded a reinsurance recoverable of $21.4 million
and $14.6 million at June 30, 2001 and December 31, 2000, respectively.
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the 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 $0 and
$254,000 for the second quarters of 2001 and 2000, respectively, and $25,000 and
$336,000 for the six months ended June 30, 2001 and 2000, respectively. At June
30, 2001, Golden American did not have any borrowings or receivables from ING
AIH under this agreement.
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of the note and related accrued interest is
subordinate to payments due to policyholders, claimant and beneficiary claims,
as well as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance Commissioner. Under this
agreement, Golden American incurred interest expense of $1,020,000 and
$1,022,000 for the second quarters of 2001 and 2000, respectively, and
$2,028,000 and $2,056,000 for the six months ended June 30, 2001 and 2000,
respectively.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of the note and related
accrued interest is subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of debtors, other
than surplus note holders, of Golden American. Any payment of principal and/or
interest made is subject to the prior approval of the Delaware Insurance
Commissioner. Under this agreement, Golden American incurred interest expense of
$696,000 and $698,000 for the seconds quarters of 2001 and 2000, respectively,
and $1,385,000 and $1,575,000 for the first six months of 2001 and 2000,
respectively.
ACC - 111296 96
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
5. RELATED PARTY TRANSACTIONS (continued)
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,449,000 and $1,453,000 for the second quarters
of 2001 and 2000, respectively, and $2,882,000 and $2,906,000 for the first six
months of 2001 and 2000, respectively.
On December 30, 1999, ING AIH assigned the note to Equitable Life. On December
30, 1998, Golden American issued a 7.25% surplus note in the amount of
$60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,085,000 and $1,087,000 for the second quarters
of 2001 and 2000, respectively, and $2,157,000 and $2,175,000 for the first six
months of 2001 and 2000, respectively.
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. The note matures on December 17,
2026. Payment of the note and related accrued interest is subordinate to
payments due to policyholders, claimant, and beneficiary claims, as well as
debts owed to all other classes of debtors of Golden American. Any payment of
principal made is subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling $515,000 for the second
quarters of 2001 and 2000, respectively, and $1,031,000 for the first six months
of 2001 and 2000, respectively.
Stockholder's Equity: During the second quarter and the first six months of
2001, Golden American received capital contributions from its Parent of
$7,000,000 ($0 and $80,000,000, respectively, for the same periods in 2000).
6. COMMITMENTS AND CONTINGENCIES
Reinsurance: At June 30, 2001, the Companies had reinsurance treaties with five
unaffiliated reinsurers and three affiliated reinsurers covering a significant
portion of the minimum guaranteed death and living benefits under its variable
contracts as of June 30, 2001. Golden American remains liable to the extent its
reinsurers do not meet their obligations under the reinsurance agreements.
At June 30, 2001 and December 31, 2000, the Companies had net receivables of
$43,375,000 and $33,973,000, respectively, for reinsurance claims, reserve
credits, or other receivables from these reinsurers. These net receivables were
comprised of $1,350,000 and $1,820,000, respectively, for claims recoverable
from reinsurers, $2,546,000 and $4,007,000, respectively, for a payable for
reinsurance premiums, $21,400,000 and $14,642,000, respectively, for reserve
credits, and $23,171,000 and $21,518,000, respectively, for a receivable from an
unaffiliated reinsurer. Included in the accompanying financial statements are
net considerations to reinsurers of $5,962,000 for the second quarter of 2001
and $12,618,000 for the first six months of 2001 compared to $5,271,000 and
$7,908,000 for the same periods in 2000. Also included in the accompanying
financial statements are net policy benefits of $1,834,000 for the second
quarter of 2001 and $11,777,000 for the first six months of 2001 compared to
$1,278,000 and $1,835,000 for the same period in 2000.
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 after
January 1, 2000, excluding those with an interest rate guarantee. At June 30,
2001, Golden American had received a total settlement of $160.9 million under
this agreement pertaining to 2001. The carrying value of the separate account
liabilities covered under this agreement represent 25.0% of total
ACC - 111296 97
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
6. COMMITMENTS AND CONTINGENCIES (continued)
separate account liabilities outstanding at June 30, 2001. Golden American
remains liable to the extent Equitable Life does not meet its obligations under
the agreement. The accompanying financial statements are presented net of the
effects of the agreement.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering minimum
guaranteed death benefits and minimum guaranteed living benefits of variable
annuities issued January 1, 2000. An irrevocable letter of credit was obtained
through Bank of New York in the amount of $25,000,000 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 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.
Investment Commitments: At June 30, 2001, outstanding commitments to fund
mortgage loans totaled $65,620,000. There were no outstanding commitments to
fund mortgage loans at December 31, 2000.
Guaranty Fund Assessments: Assessments are levied on the Companies by life and
health guaranty associations in most states in which the Companies are licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially offset through a reduction in future
premium taxes. The Companies cannot predict whether and to what extent
legislative initiatives may affect the right to offset. The associated cost for
a particular insurance company can vary significantly based upon its fixed
account premium volume by line of business and state premiums as well as its
potential for premium tax offset. The Companies have established an undiscounted
reserve to cover such assessments, review information regarding known failures,
and revise estimates of future guaranty fund assessments. The Companies charged
to expense $1,000 in guaranteed fund assessments in the second quarter of 2001
and $2,000 for the first six months of 2001 compared to $1,000 and $2,000 for
the same periods in 2000. At June 30, 2001 and December 31, 2000, the Companies
have an undiscounted reserve of $2,430,000 to cover future assessments (net of
related anticipated premium tax offsets) and have established an asset totaling
$691,000 and $733,000, respectively, for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments based
upon previous premiums and known insolvencies at this time.
Litigation: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the investment portfolio. As of June 30, 2001, the Companies had one investment
(other than bonds issued by agencies of the United States government) exceeding
ten percent of stockholder's equity. The Companies' asset growth, net investment
income, and cash flow are primarily generated from the sale of variable and
fixed 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 on the Companies' financial condition. One
broker/dealer generated 10% of the Companies' net sales during the second
quarter of 2001 (24% by two broker/dealers in the same period of 2000). One
broker/dealer generated 10% of the Companies' net sales during the first six
months of 2001 (12% by one broker/dealer in the same period of 2000). The
Premium Plus product generated 54% and 52% of the Companies' sales during
ACC - 111296 98
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
6. COMMITMENTS AND CONTINGENCIES (continued)
the second quarter of 2001 and the first six months of 2001 (74% and 75% in the
same periods of 2000). The Guarantee product, introduced in the fourth quarter
of 2000, generated 13% and 18% of the Companies' sales during the second quarter
and the first six months of 2001. The ES II product generated 19% and 16% of the
Companies' sales during the second and the first six months of 2001 (12% and 11%
in the same periods of 2000).
Revolving Note Payable: To enhance short-term liquidity, the Companies
established revolving notes payable with SunTrust Bank, Atlanta (the "Bank").
These revolving notes payable were amended and restated in April 2001 with an
expiration date of May 31, 2002. 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 notes accrue
interest at an annual rate equal to: (1) the cost of funds for the Bank for the
period applicable for the advance plus 0.225% or (2) a rate quoted by the Bank
to the Companies for the advance. The terms of the agreement require the
Companies to maintain the minimum level of Company Action Level Risk Based
Capital as established by applicable state law or regulation. During the second
quarters ended June 30, 2001 and 2000, the Companies incurred interest expense
of $0 and $8,000, respectively. During the six months ended June 30, 2001 and
2000, the Companies incurred interest expense of $1,000 and $36,000,
respectively. At June 30, 2001 and December 31, 2000, the Companies had
borrowings of $1,400,000 and $0, respectively, under these agreements.
ACC - 111296 99
--------------------------------------------------------------------------------
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
ACC - 111296 100
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.
ACC - 111296 101
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.
ACC - 111296 102
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.
ACC - 111296 103
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.
ACC - 111296 104
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.
ACC - 111296 105
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 accounts ............ (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.
ACC - 111296 106
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
ACC - 111296 107
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.
Depreciation
ACC - 111296 108
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
ACC - 111296 109
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.
The Companies
ACC - 111296 110
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ACC - 111296 111
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)
======== ======== ========
ACC - 111296 112
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.
ACC - 111296 113
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
======== ======== ======== ========
ACC - 111296 114
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
3. INVESTMENT OPERATIONS (continued)
Investment Valuation Analysis: The Companies analyze the investment portfolio at
least quarterly in order to determine if the carrying value of any investment
has been impaired. The carrying value of debt and equity securities is written
down to fair value by a charge to realized losses when an impairment in value
appears to be other than temporary.
During the 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.
ACC - 111296 115
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
ACC - 111296 116
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).
ACC - 111296 117
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
======== ======== ========
ACC - 111296 118
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.
ACC - 111296 119
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
====== ====== ======
ACC - 111296 120
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.
ACC - 111296 121
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.
ACC - 111296 122
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.
ACC - 111296 123
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).
ACC - 111296 124
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
ACC - 111296 125
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.
ACC - 111296 126
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction......................................... 1
Description of Golden American Life Insurance
Company........................................... 1
Safekeeping of Assets................................ 1
The Administrator.................................... 1
Independent Auditors................................. 1
Distribution of Contracts............................ 1
Performance Information.............................. 2
IRA Partial Withdrawal Option........................ 9
Other Information.................................... 9
Financial Statements of Separate Account B........... 10
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. 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
ACC - 111296 11/05/2001
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ACC - 111296 127
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APPENDIX A
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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, the ProFund VP Europe 30, the AIM V.I. Dent
Demographic Trends Fund, the Pioneer Fund VCT Portfolio, the Pioneer Mid-Cap
Value VCT Portfolio, the INVESCO VIF -- Financial Services Fund, the INVESCO VIF
-- Health Sciences Fund and the INVESCO -- Utilities Fund 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.
Beginning with the June 30, 2001 quarterly statement, your contract category now
appears on each quarterly statement.
CONTRACT CATEGORY: PRE-2000
LIQUID ASSET
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 15.47 1,882,788 $ 29,128 $ 15.19 136,169 $ 2,069
1999 14.79 1,335,241 19,754 14.55 171,595 2,497
1998 14.33 114,958 1,647 14.11 55,847 788
1997 13.83 3,498 48 13.65 -- --
10/1/97 13.71 -- -- 13.53 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 14.90 180,291 $ 2,686
1999 14.29 341,263 4,877
1998 13.88 101,998 1,416
1997 13.44 72,123 969
10/1/97 13.33 -- --
-------------------------------------------------------------
LIMITED MATURITY BOND
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 17.76 44,713 $ 794 $ 17.45 12,060 $ 210
1999 16.72 74,720 1,249 16.45 15,174 250
1998 16.77 59,954 1,005 16.52 24,212 400
1997 15.91 -- -- 15.70 -- --
10/1/97 15.72 -- -- 15.52 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 17.11 42,631 $ 729
1999 16.15 48,448 783
1998 16.25 27,265 443
1997 15.47 6,594 102
10/1/97 15.29 -- --
-------------------------------------------------------------
ACC - 111296 A1
CONTRACT CATEGORY: PRE-2000
CORE BOND (FORMERLY GLOBAL FIXED INCOME)
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.74 11,906 $ 140 $ 11.62 7,006 $ 81
1999 11.79 10,000 118 11.70 6,732 79
1998 13.09 6,756 88 13.00 973 13
1997 11.87 -- -- 11.81 -- --
10/1/97 11.99 -- -- 11.93 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 11.51 14,336 $ 165
1999 11.60 16,001 186
1998 12.92 13,635 176
1997 11.75 -- --
10/1/97 11.87 -- --
-------------------------------------------------------------
FULLY MANAGED
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 26.04 53,971 $ 1,405 $ 25.57 14,662 $ 375
1999 21.65 59,627 1,291 21.29 16,637 354
1998 20.53 36,730 754 20.23 5,645 114
1997 19.66 5,900 116 19.40 -- --
10/1/97 19.49 -- -- 19.24 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 25.07 74,754 $ 1,874
1999 20.91 88,167 1,844
1998 19.90 54,221 1,079
1997 19.11 927 18
10/1/97 18.96 -- --
-------------------------------------------------------------
TOTAL RETURN
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 20.75 260,099 $ 5,396 $ 20.55 37,113 $ 763
1999 18.06 337,234 6,090 17.91 38,114 683
1998 17.72 148,128 2,624 17.60 21,490 378
1997 16.10 10,470 169 16.02 -- --
10/1/97 15.82 -- -- 15.75 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 20.35 164,366 $ 3,345
1999 17.77 210,313 3,737
1998 17.49 131,812 2,305
1997 15.94 4,594 73
10/1/97 15.68 -- --
-------------------------------------------------------------
ACC - 111296 A2
CONTRACT CATEGORY: PRE-2000
ASSET ALLOCATION GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.38 -- -- $ 9.37 -- --
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 9.37 7,476 $ 70
10/2/00 10.00 -- --
-------------------------------------------------------------
EQUITY INCOME
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 23.91 50,767 $ 1,214 $ 23.49 16,808 $ 395
1999 21.47 82,137 1,764 21.12 21,450 453
1998 21.94 20,873 458 21.61 10,722 232
1997 20.55 1,008 21 20.28 -- --
10/1/97 20.55 -- -- 20.29 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 23.03 55,601 $ 1,281
1999 20.74 58,908 1,222
1998 21.26 30,935 658
1997 19.97 951 19
10/1/97 19.99 -- --
-------------------------------------------------------------
ALL CAP
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.59 20,518 $ 238 $ 11.58 9,849 $ 114
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 11.56 28,833 $ 333
2/1/00 10.00 -- --
-------------------------------------------------------------
GROWTH AND INCOME
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.94 -- -- $ 9.94 1,130 $ 11
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 9.94 1,474 $ 15
10/2/00 10.00 -- --
-------------------------------------------------------------
ACC - 111296 A3
CONTRACT CATEGORY: PRE-2000
REAL ESTATE
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 26.64 6,516 $ 174 $ 26.16 5,466 $ 143
1999 20.62 5,842 120 20.28 4,131 84
1998 21.74 4,904 107 21.42 3,606 77
1997 25.48 318 8 25.14 744 19
10/1/97 25.25 -- -- 24.92 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 25.65 22,147 $ 568
1999 19.92 21,680 432
1998 21.07 18,094 381
1997 24.76 949 23
10/1/97 24.56 -- --
-------------------------------------------------------------
VALUE EQUITY
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 19.46 48,316 $ 940 $ 19.29 12,723 $ 245
1999 18.14 43,052 781 18.01 12,137 219
1998 18.31 38,546 706 18.20 13,015 237
1997 18.28 8,379 153 18.20 2,735 50
10/1/97 18.85 -- -- 18.78 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 19.08 37,083 $ 708
1999 17.84 54,847 979
1998 18.06 39,739 718
1997 18.09 1,848 33
10/1/97 18.67 -- --
-------------------------------------------------------------
INVESTORS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.26 2,291 $ 26 $ 11.25 963 $ 10
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 11.23 491 $ 6
2/1/00 10.00 -- --
-------------------------------------------------------------
RISING DIVIDENDS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 24.94 167,032 $ 4,165 $ 24.67 54,145 $ 1,336
1999 25.83 187,702 4,849 25.59 50,429 1,291
1998 22.61 127,282 2,878 22.43 38,436 862
1997 20.09 4,422 89 19.96 2,343 47
10/1/97 19.30 -- -- 19.19 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 24.36 181,802 $ 4,429
1999 25.31 235,428 5,959
1998 22.22 135,474 3,011
1997 19.81 9,754 193
10/1/97 19.05 -- --
-------------------------------------------------------------
ACC - 111296 A4
CONTRACT CATEGORY: PRE-2000
MANAGED GLOBAL
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 20.19 99,153 $ 2,002 $ 19.94 59,997 $ 1,197
1999 23.97 130,506 3,128 23.71 47,060 1,116
1998 14.88 97,572 1,452 14.75 15,757 232
1997 11.67 5,054 59 11.58 2,459 28
10/1/97 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 19.67 135,545 $ 2,666
1999 23.42 139,357 3,263
1998 14.59 67,979 992
1997 11.47 3,479 40
10/1/97 10.00 -- --
-------------------------------------------------------------
LARGE CAP VALUE
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 10.55 9,433 $ 99 $ 10.53 9,953 $ 105
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 10.52 10,630 $ 112
2/1/00 10.00 -- --
-------------------------------------------------------------
HARD ASSETS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 16.32 3,275 $ 53 $ 16.03 2,018 $ 32
1999 17.37 6,833 119 17.09 2,719 46
1998 14.28 892 13 14.07 1,478 21
1997 20.57 331 7 20.29 -- --
10/1/97 24.00 -- -- 23.68 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 15.72 2,086 $ 33
1999 16.78 6,235 105
1998 13.84 5,166 71
1997 19.99 2,508 50
10/1/97 23.34 -- --
-------------------------------------------------------------
DIVERSIFIED MID-CAP
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.88 2,028 $ 20 $ 9.87 9,856 $ 97
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 9.87 1,732 $ 17,100
10/2/00 10.00 -- --
-------------------------------------------------------------
ACC - 111296 A5
CONTRACT CATEGORY: PRE-2000
RESEARCH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 26.39 150,291 $ 3,967 $ 26.13 129,843 $ 3,393
1999 28.04 150,823 4,229 27.80 127,318 3,540
1998 22.89 110,714 2,534 22.73 31,874 725
1997 18.87 11,013 208 18.77 188 4
10/1/97 19.33 -- -- 19.24 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 25.89 138,087 $ 3,575
1999 27.58 181,319 5,001
1998 22.59 133,399 3,013
1997 18.67 7,799 146
10/1/97 19.15 -- --
-------------------------------------------------------------
CAPITAL GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 17.21 157,772 $ 2,715 $ 17.09 69,354 $ 1,185
1999 21.06 167,529 3,528 20.94 48,822 1,022
1998 17.01 96,954 1,649 16.94 20,590 349
1997 15.41 22,054 340 15.36 393 6
10/1/97 15.99 -- -- 15.95 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 16.96 114,090 $ 1,935
1999 20.82 120,704 2,513
1998 16.87 81,019 1,367
1997 15.32 7,777 119
10/1/97 15.92 -- --
-------------------------------------------------------------
CAPITAL APPRECIATION
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 25.17 56,629 $ 1,425 $ 24.85 23,640 $ 587
1999 30.11 46,533 1,401 29.77 13,334 397
1998 24.50 22,645 555 24.26 5,934 144
1997 22.05 664 15 21.87 295 6
10/1/97 21.95 -- -- 21.78 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 24.48 92,525 $ 2,265
1999 29.38 71,439 2,099
1998 23.98 27,469 659
1997 21.65 2,706 59
10/1/97 21.57 -- --
-------------------------------------------------------------
ACC - 111296 A6
CONTRACT CATEGORY: PRE-2000
SMALL CAP
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------- ----
2000 $ 18.40 135,798 $ 2,498 $ 18.26 46,074 $ 841
1999 22.82 105,241 2,402 22.68 36,816 835
1998 15.37 50,890 782 15.30 17,135 262
1997 12.88 1,196 15 12.84 -- --
10/1/97 13.85 -- -- 13.82 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 18.12 122,678 $ 2,223
1999 $ 22.55 123,524 2,785
1998 15.23 53,468 814
1997 12.81 6,051 77
10/1/97 13.78 -- --
-------------------------------------------------------------
MID-CAP GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 42.23 128,296 $ 5,418 $ 41.89 114,827 $ 4,811
1999 39.59 106,799 4,229 39.34 95,422 3,753
1998 22.43 36,892 827 22.31 11,475 256
1997 18.52 813 15 18.45 1,826 34
10/1/97 18.94 -- -- 18.88 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 41.50 127,691 $ 5,299
1999 39.02 91,512 3,571
1998 22.17 27,846 617
1997 18.36 178 3
10/1/97 18.79 -- --
-------------------------------------------------------------
STRATEGIC EQUITY
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 18.92 71,053 $ 1,345 $ 18.78 29,949 $ 562
1999 21.92 40,286 883 21.78 15,633 341
1998 14.23 34,803 495 14.16 2,507 36
1997 14.31 -- -- 14.26 -- --
10/1/97 14.14 -- -- 14.10 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 18.60 109,011 $ 2,028
1999 21.61 103,635 2,240
1998 14.07 78,636 1,107
1997 14.20 -- --
10/1/97 14.04 -- --
-------------------------------------------------------------
SPECIAL SITUATIONS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.89 6,139 $ 55 $ 8.89 3,337 $ 30
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 8.88 4,546 $ 40
10/2/00 10.00 -- --
-------------------------------------------------------------
ACC - 111296 A7
CONTRACT CATEGORY: PRE-2000
GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 22.02 332,958 $ 7,331 $ 21.86 182,709 $ 3,993
1999 28.62 435,689 12,470 28.46 152,492 4,339
1998 16.29 73,358 1,195 16.22 19,004 308
1997 13.03 4,054 53 12.99 10,033 130
10/1/97 15.18 -- -- 15.14 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 21.70 306,662 $ 6,654
1999 28.29 291,231 8,240
1998 16.16 89,016 1,438
1997 12.96 11,500 149
10/1/97 15.10 -- --
-------------------------------------------------------------
DEVELOPING WORLD
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 7.58 18,014 $ 137 $ 7.55 9,706 $ 73
1999 11.61 19,689 229 11.58 13,759 159
1998 7.28 350 3 7.27 1,768 13
2/19/98 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 7.51 19,723 $ 148
1999 11.54 10,065 116
1998 7.26 616 4
2/19/98 10.00 -- --
-------------------------------------------------------------
PIMCO HIGH YIELD BOND
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 10.01 127,141 $ 1,273 $ 9.97 32,704 $ 326
1999 10.24 145,283 1,488 10.21 35,651 364
1998 10.08 59,318 598 10.07 10,615 107
5/1/98 10.00 -- -- -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 9.93 73,421 $ 729
1999 10.19 109,159 1,112
1998 10.06 70,508 709
5/1/98 -- --
-------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.72 133,610 $ 1,566 $ 11.67 59,574 $ 695
1999 13.13 126,402 1,660 13.10 31,651 415
1998 11.11 22,136 246 11.10 817 9
5/1/98 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 11.62 269,136 $ 3,129
1999 13.06 280,781 3,668
1998 11.09 33,250 369
5/1/98 10.00 -- --
-------------------------------------------------------------
ACC - 111296 A8
CONTRACT CATEGORY: PRE-2000
PILGRIM GLOBAL BRAND NAMES (FORMERLY, ING GLOBAL BRAND NAMES
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.75 -- -- $ 8.75 301 $ 3
5/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 8.74 472 $ 4
5/1/00 10.00 -- --
-------------------------------------------------------------
PRUDENTIAL JENNISON
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 7.85 5,251 $ 41 $ 7.84 -- --
5/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 7.83 7,926 $ 62
5/1/00 10.00 -- --
-------------------------------------------------------------
SP JENNISON INTERNATIONAL GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.56 -- -- $ 8.56 -- --
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
-------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
-------------------------------------------------------------
2000 $ 8.56 -- --
10/2/00 10.00 -- --
-------------------------------------------------------------
ACC - 111296 A9
CONTRACT CATEGORY: YR-2000
LIQUID ASSET
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 15.31 2,307,052 $ 35,317 $ 15.03 191,312 $ 2,876
2/1/00 14.70 -- -- 14.45 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 14.67 49,920 $ 732 $ 14.50 73,853 $ 1,071
2/1/00 14.13 -- -- 13.97 -- --
------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY BOND
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 17.60 45,296 $ 797 $ 17.29 27,971 $ 483
2/1/00 16.56 -- -- 16.28 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 16.87 3,837 $ 65 $ 16.67 10,293 $ 172
2/1/00 15.92 -- -- 15.74 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A10
CONTRACT CATEGORY: YR-2000
CORE BOND (FORMERLY GLOBAL FIXED INCOME)
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.70 25,693 $3001 $ 11.59 11,027 $ 128
2/1/00 11.44 -- -- 11.35 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.44 4,897 $ 56 $ 11.37 7,186 $ 82
2/1/00 11.23 -- -- 11.17 -- --
------------------------------------------------------------------------------------------------------------------
FULLY MANAGED
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 25.84 18,533 $ 479 $ 25.38 13,377 $ 340
2/1/00 20.89 -- -- 20.54 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 24.77 9,867 $ 244 $ 24.47 14,436 $ 353
2/1/00 20.08 -- -- 19.06 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A11
CONTRACT CATEGORY: YR-2000
TOTAL RETURN
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 20.68 101,418 $ 2,097 $ 20.48 37,412 $ 766
2/1/00 17.46 -- -- 17.32 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 20.22 18,662 $ 377 $ 20.10 23,205 $ 466
2/1/00 17.13 -- -- 17.04 -- --
------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.38 13,340 $ 125 $ 9.37 4,094 $ 38
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.37 414 $ 4 $ 9.37 2,028 $ 19
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A12
CONTRACT CATEGORY: YR-2000
EQUITY INCOME
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 23.74 22,218 $ 527 $ 23.31 10,901 $ 254
2/1/00 20.18 -- -- 19.85 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 22.75 10,344 $ 235 $ 22.48 12,701 $ 285
2/1/00 19.41 -- -- 19.19 -- --
------------------------------------------------------------------------------------------------------------------
ALL CAP
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.59 81,144 $ 940 $ 11.57 33,359 $ 386
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.55 69,580 $ 804 $ 11.54 51,207 $ 591
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A13
CONTRACT CATEGORY: YR-2000
GROWTH AND INCOME
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.94 8,419 $ 84 $ 9.94 10,679 $ 106
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.93 3,096 $ 31 $ 9.93 6,664 $ 66
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
REAL ESTATE
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 26.44 7,445 $ 197 $ 25.97 2,636 $ 68
2/1/00 20.64 -- -- 20.30 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 25.34 4,138 $ 105 $ 25.04 4,567 $ 114
2/1/00 19.85 -- -- 19.63 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A14
CONTRACT CATEGORY: YR-2000
VALUE EQUITY
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 19.38 19,915 $ 386 $ 19.20 5,496 $ 106
2/1/00 17.48 -- -- 17.35 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 18.97 6,859 $ 130 $ 18.85 3,119 $ 59
2/1/00 17.17 -- -- 17.08 -- --
------------------------------------------------------------------------------------------------------------------
INVESTORS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.26 11,814 $ 133 $ 11.24 7,405 $ 83
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.22 2,820 $ 32 $ 11.21 19,386 $ 217
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A15
CONTRACT CATEGORY: YR-2000
RISING DIVIDENDS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 24.81 71,151 $ 1,765 $ 24.54 25,276 $ 620
2/1/00 25.53 -- -- 25.28 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 24.18 26,297 $ 636 $ 24.00 37,658 $ 903
2/1/00 24.96 -- -- 24.80 -- --
------------------------------------------------------------------------------------------------------------------
MANAGED GLOBAL
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 20.08 103,869 $ 2,086 $ 19.83 44,114 $ 875
5/1/00 22.29 -- -- 22.04 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 19.51 57,873 $ 1,129 $ 19.34 59,264 $ 1,146
5/1/00 21.72 -- -- 21.56 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A16
CONTRACT CATEGORY: YR-2000
LARGE CAP VALUE
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 10.54 102,777 $ 1,083 $ 10.53 43,073 $ 453
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 10.51 50,965 $ 535 $ 10.50 36,021 $ 378
2/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
HARD ASSETS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 16.20 4,582 $ 74 $ 15.91 818 $ 13
2/1/00 16.12 -- -- 15.85 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 15.53 3,662 $ 57 $ 15.34 1,434 $ 22
2/1/00 15.50 -- -- 15.33 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A17
CONTRACT CATEGORY: YR-2000
DIVERSIFIED MID-CAP
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.88 7,594 $ 75 $ 9.87 62 $ 1
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.87 1,091 $ 11 $ 9.87 3,629 $ 36
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
RESEARCH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 26.30 76,661 $ 2,016 $ 26.05 26,695 $ 695
2/1/00 26.94 -- -- 26.72 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 25.72 25,176 $ 648 $ 25.56 44,388 $ 1,135
2/1/00 26.43 -- -- 26.29 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A18
CONTRACT CATEGORY: YR-2000
CAPITAL GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 17.17 55,376 $ 951 $ 17.04 26,619 $ 454
2/1/00 20.13 -- -- 20.01 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 16.88 19,326 $ 326 $ 16.80 18,742 $ 315
2/1/00 19.86 -- -- 19.78 -- --
------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 25.03 74,815 $ 1,872 $ 24.70 29,608 $ 731
2/1/00 29.44 -- -- 29.09 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 24.27 27,404 $ 665 $ 24.06 29,429 $ 708
2/1/00 28.64 -- -- 28.41 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A19
CONTRACT CATEGORY: YR-2000
SMALL CAP
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 18.35 75,488 $ 1,385 $ 18.21 25,452 $ 464
2/1/00 23.69 -- -- 23.54 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 18.03 31,396 $ 566 $ 17.94 28,771 $ 516
2/1/00 23.35 -- -- 23.25 -- --
------------------------------------------------------------------------------------------------------------------
MID-CAP GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 42.16 120,112 $ 5,064 $ 41.76 36,742 $ 1,534
2/1/00 38.56 -- -- 38.25 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 41.24 37,305 $ 1,538 $ 40.98 62,447 $ 2,559
2/1/00 37.84 -- -- 37.63 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A20
CONTRACT CATEGORY: YR-2000
STRATEGIC EQUITY
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 18.85 71,171 $ 1,342 $ 18.70 25,268 $ 473
2/1/00 21.70 -- -- 21.56 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 18.50 25,891 $ 479 $ 18.40 55,344 $ 1,019
2/1/00 21.37 -- -- 21.27 -- --
------------------------------------------------------------------------------------------------------------------
SPECIAL SITUATIONS
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.89 1,554 $ 14 $ 8.88 118 $ 1
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.88 558 $ 5 $ 8.88 6,836 $ 61
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A21
CONTRACT CATEGORY: YR-2000
GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 21.96 194,584 $ 4,273 $ 21.80 92,527 $ 2,017
2/1/00 29.12 -- -- 28.95 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 21.59 148,220 $ 3,201 $ 21.49 128,111 $ 2,753
2/1/00 28.72 -- -- 28.61 -- --
------------------------------------------------------------------------------------------------------------------
DEVELOPING WORLD
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 7.57 15,576 $ 118 $ 7.54 8,257 $ 62
2/1/00 11.66 -- -- 11.63 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 7.49 5,648 $ 42 $ 7.47 3,920 $ 29
2/1/00 11.58 -- -- 11.56 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A22
CONTRACT CATEGORY: YR-2000
PIMCO HIGH YIELD BOND
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 10.00 69,128 $ 691 $ 9.96 9,906 $ 99
2/1/00 10.16 -- -- 10.13 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 9.90 17,884 $ 177 $ 9.88 10,008 $ 99
2/1/00 10.09 -- -- 10.07 -- --
------------------------------------------------------------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.70 73,801 $ 864 $ 11.66 16,898 $ 197
2/1/00 12.52 -- -- 12.49 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 11.59 24,282 $ 282 $ 11.56 56,240 $ 650
2/1/00 12.45 -- -- 12.42 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A23
CONTRACT CATEGORY: YR-2000
PILGRIM GLOBAL BRAND NAMES (FORMERLY ING GLOBAL BRAND NAMES)
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.75 11,885 $ 104 $ 8.74 16,394 $ 143
5/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.73 3,037 $ 27 $ 8.72 2,591 $ 23
5/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
PRUDENTIAL JENNISON
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 7.84 5,968 $ 47 $ 7.84 17,170 $ 135
5/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 7.82 4,023 $ 31 $ 7.82 17,947 $ 140
5/1/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
ACC - 111296 A24
CONTRACT CATEGORY: YR-2000
SP JENNISON INTERNATIONAL GROWTH
------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.56 -- -- $ 8.56 4,799 $ 41
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT MAX 7
------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
2000 $ 8.55 -- -- $ 8.55 1,645 $ 14
10/2/00 10.00 -- -- 10.00 -- --
------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APPENDIX B
--------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENT EXAMPLES
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
surrender is 3
$124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Market Value Adjustment =
2,555/365
$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
surrender is 3
$124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Market Value Adjustment =
2,555/365
$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.
ACC - 111296 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
withdrawal 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
[($114,530 / ( 1.07/1.0825 ) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
4. Market Value Adjustment =
2,555/365
$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 the Fixed Interest Allocation on the date of
withdrawal 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.
4. Market Value Adjustment =
2,555/365
$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.
ACC - 111296 B2
-------------------------------------------------------------------------------
APPENDIX C
-------------------------------------------------------------------------------
WITHDRAWAL ADJUSTMENT FOR 7% SOLUTION DEATH BENEFIT EXAMPLES
EXAMPLE #1: THE CONTRACT VALUE (AV) IS LOWER THAN THE DEATH BENEFIT
Assume a premium payment of $100,000, AV at the time of withdrawal of
$87,000 and a 7% Solution minimum guarantee death benefit ("MGDB") at the time
of withdrawal of $127,000. A total withdrawal of $27,000 is made. The withdrawal
is a combination of Special Withdrawal and Pro rata Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000 ($127,000 - $7,000)
AV after Special Withdrawal = $80,000 ($87,000 - $7,000)
The Pro rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro rata Withdrawal Adjustment to MGDB = $30,000 ($120,000 * ($20,000
/ $80,000))
MGDB after Pro rata Withdrawal = $90,000 ($120,000 - $30,000)
AV after Pro rata Withdrawal = $60,000 ($80,000 - $20,000)
EXAMPLE #2: THE CONTRACT VALUE (AV) IS GREATER THAN THE DEATH BENEFIT
Assume a premium payment of $100,000, AV at the time of withdrawal of
$167,000 and a 7% Solution minimum guarantee death benefit ("MGDB") at the time
of withdrawal of $127,000. A total withdrawal of $27,000 is made. The withdrawal
is a combination of Special Withdrawal and Pro rata Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000 ($127,000 - $7,000)
AV after Special Withdrawal = $160,000 ($167,000 - $7,000)
The Pro rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro rata Withdrawal Adjustment to MGDB = $15,000 ($120,000 * ($20,000
/ $160,000))
MGDB after Pro rata Withdrawal = $105,000 ($120,000 - $15,000)
AV after Pro rata Withdrawal = $140,000 ($160,000 - $20,000)
ACC - 111296 C1
EXAMPLE #3: THE CONTRACT VALUE (AV) IS EQUAL TO THE DEATH BENEFIT
Assume a premium payment of $100,000, AV at the time of withdrawal of
$127,000 and a 7% Solution minimum guarantee death benefit ("MGDB") at the time
of withdrawal of $127,000. A total withdrawal of $27,000 is made. The withdrawal
is a combination of Special Withdrawal and Pro rata Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000 ($127,000 - $7,000)
AV after Special Withdrawal = $120,000 ($127,000 - $7,000)
The Pro rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro rata Withdrawal Adjustment to MGDB = $20,000 ($120,000 * ($20,000
/ $120,000))
MGDB after Pro rata Withdrawal = $100,000 ($120,000 - $20,000)
AV after Pro rata Withdrawal = $100,000 ($120,000 - $20,000)
ACC - 111296 C2
--------------------------------------------------------------------------------
APPENDIX D
--------------------------------------------------------------------------------
DEATH BENEFITS FOR PRE-2000, YR-2000 OR YR-2001
CONTRACT OWNERS
Your death benefits and mortality and expense risk charge depend on the category
of contract owners to which you belong and on the death benefit that you chose.
There are four categories of contract owners covered by this prospectus. For
ease of reference, they are called Pre-2000, Yr-2000, Yr-2001 and Category
May-2001.
Pre-2000: a) All contracts purchased prior to February 2, 2000; and b) Contracts
purchased on or after February 2, 2000 which offer three death benefit options
(as approved in the state of issue at the time of purchase). Yr-2000: Contracts
purchased on or after February 2, 2000 which offer four death benefit options
(as approved in the state of issue at the time of purchase) including the Max 7
Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit to age 80.
Yr-2001: Contracts purchased on or after January 2, 2001 which offer four death
benefit options (as approved in the state of issue at the time of purchase)
including the Max 7 Enhanced Death Benefit and the Annual Ratchet Enhanced Death
Benefit to age 90, and contain new Special Funds language.
May-2001: Contracts purchased on or after May 1, 2001 which offer four death
benefit options, including the Annual Ratchet Enhanced Death benefit to age 90,
and have an earning multiplier benefit option (in states where approved).
The purpose of this Appendix D is to describe the death benefits and the
mortality and expense risk charges applicable to contract owners in Pre-2000,
Yr-2000 and Yr-2001. Other than where noted, the DEATH BENEFITS described in
this Appendix apply to Pre-2000 and Yr-2000. The death benefits for contract
owners in Yr-2001 and May-2001 are described in the Prospectus. The MORTALITY
AND EXPENSE RISK CHARGES for contract owners in Pre-2000, Yr-2000 and Yr-2001
are described in this Appendix. The mortality and expense risk charges for
contract owners in May-2001 are described in the Prospectus.
The following is a description of the death benefit options for contract owners
in Pre-2000 and Yr-2000. OTHER THAN AS SPECIFIED BELOW, PLEASE SEE THE
PROSPECTUS FOR A FULL DESCRIPTION OF YOUR DEATH BENEFIT OPTIONS AND OTHER
CONTRACT FEATURES. CAPITALIZED TERMS HAVE THE SAME MEANING AS DESCRIBED IN THE
PROSPECTUS.
DEATH BENEFIT
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your
beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawal*; or
3) the cash surrender value.
* For contracts in Pre-2000, total premium payments less any
withdrawals.
ACC - 111296 D1
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments reduced by a pro rata adjustment for any
withdrawals*;
3) the cash surrender value; or
4) the enhanced death benefit, which we determine as follows:
IF YOU ARE IN PRE-2000:
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, then we subtract any withdrawals
(including any market value adjustment applied to such withdrawal) since the
preceding day, and then we subtract any associated surrender charges. The
maximum enhanced death benefit is 2 times all premium payments, less an amount
to reflect withdrawals.
Note: The actual interest rate used for calculating the death benefit for the
Liquid Asset and Limited Maturity Bond investment portfolios will be the lesser
of the 7% annual effective rate or the net rate of return for such portfolios
during the applicable period. The interest rate used for calculating the death
benefit for your investment in the fixed account will be the lesser of the 7%
annual effective rate or the interest credited to such investment during the
applicable period. Thus, selecting these investments may limit the enhanced
death benefit.
IF YOU ARE IN YR-2000:
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, then we adjust for any withdrawals
(including any market value adjustment applied to such withdrawal and any
associated surrender charges) since the preceding day. Special withdrawals are
withdrawals of up to 7% per year of cumulative premiums. 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 the maximum enhanced
death is reached or the contract owner attains age 80, if earlier.
Note for current Special Funds: Certain investment portfolios and the Fixed
Account are designated as "Special Funds" for purposes of calculating the 7%
Solution Enhanced Death Benefit. In addition to the Fixed Account, the
investment portfolios designated currently as Special Funds are the Liquid Asset
Portfolio and the Limited Maturity Bond Portfolio. The actual interest rate used
for calculating the 7% Solution Enhanced Death Benefit for Special Funds will be
the lesser of (1) 7% and (2) the interest rate, positive or negative, providing
a yield on the enhanced death benefit for Special Funds equal to the net return
for the current valuation period on the contract value allocated to Special
Funds. We may, with 30 days notice to you, designate any investment portfolio as
a Special Fund on existing contracts with respect to new premiums added to such
investment portfolio and also with respect to new transfers to such investment
portfolio. Thus selecting these investment portfolios and/or the Fixed Account
may limit or reduce the enhanced death benefit.
* For contracts in Pre-2000, total premium payments less any withdrawals.
ACC - 111296 D2
Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments 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 added if the
preceding day is the contract date), then we add additional premiums
paid since the preceding day, and then reduce the enhanced death
benefit pro rata for any contract value withdrawn.** That amount
becomes the new enhanced death benefit.
* For contracts in Pre-2000, total premium payments less any
withdrawals.
** For contracts in Pre-2000, we subtract withdrawals made
(including any market value adjustment applied to such
withdrawal) since the preceding day.
Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity start
date, your beneficiary will receive the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit. Under this benefit
option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced
Death Benefit are calculated in the same manner as if each were the elected
benefit. THE MAX 7 ENHANCED DEATH BENEFIT IS NOT AVAILABLE TO PRE-2000 CONTRACT
OWNERS.
Note: In all cases described above, the amount of the death benefit could be
reduced by premium taxes owed and withdrawals not previously deducted. ALL
ENHANCED DEATH BENEFITS MAY NOT BE AVAILABLE IN EVERY STATE OR UNDER ALL
CONTRACTS.
MORTALITY AND EXPENSE RISK CHARGE
The mortality and expense risk charge depends on the category of contract owners
to which you belong and on the death benefit that you chose. The mortality and
expense risk charge (depending on the death benefit you chose) and the
asset-based administrative charge, on an annual basis, for Pre-2000, Yr-2000 and
Yr-2001 contract owners are as follows:
PRE-2000:
---------------------------------------------------------------------------------------------------
STANDARD ENHANCED DEATH BENEFITS
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
---------------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge 1.25% 1.40% 1.55%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
Total 1.40% 1.55% 1.70%
---------------------------------------------------------------------------------------------------
The charge is deducted each business day at the rate of .003446% (Standard);
.003863% (Annual Ratchet); or .004280% (7% Solution), respectively, for each day
since the previous business day.
ACC - 111296 D3
EXPENSE EXAMPLES FOR PRE-2000
The following two examples are designed to show you the expenses you would pay
on a $1,000 investment that earns 5% annually. Each example assumes election of
the 7% Solution Enhanced Death Benefit. The examples reflect the deduction of a
mortality and expense risk charge, an asset-based administrative charge, and the
annual contract administrative charge as an annual charge of 0.06% of assets
(based on an average contract value of $75,000). Example 1 also assumes you
elected the earnings multiplier benefit rider with a charge of 0.30% of the
contract value annually. In addition, Example 1 assumes you elected an optional
benefit rider with the highest cost, an assumed charge of 0.75% annually, where
the rider base is equal to the initial premium and increases by 7% annually,
except for the Liquid Asset and Limited Maturity Bond portfolios, where the
assumed charge is 0.50% annually and assume the rider charge is assessed each
quarter on a base equal to the hypothetical $1,000 premium increasing by 7% per
year (or by 5%, the assumed net rate for the Liquid Asset and Limited Maturity
Bond portfolios). The annual charge of 0.75% results from the assumption of a 7%
annual increase in the rider base but only a 5% earnings increase in the
contract value before expenses. Thus, 0.75% represents an annual charge over the
10-year period which is equivalent to an increasing charge of 0.125% per quarter
over the same period. If the Standard Death Benefit or the Annual Ratchet
Enhanced Death Benefit is elected instead of the 7% Solution Enhanced Death
Benefit used in the examples, the actual expenses will be less than those
represented in the examples.
Example 1:
If you elected both the earnings multiplier benefit rider and another optional
benefit rider with the highest charge, you would pay the following expenses for
each $1,000 invested, whether or not you surrender your Contract or annuitize at
the end of the applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $31 $ 96 $163 $341
Limited Maturity Bond $31 $ 96 $163 $341
Core Bond $38 $116 $196 $404
Fully Managed $38 $115 $193 $399
Total Return $37 $113 $191 $394
Asset Allocation Growth $38 $116 $196 $404
Equity Income $38 $115 $193 $399
All Cap $38 $116 $196 $404
Growth and Income $39 $119 $201 $413
Real Estate $38 $115 $193 $399
Value Equity $38 $115 $193 $399
Investors $38 $116 $196 $404
International Equity $41 $124 $208 $426
Rising Dividends $38 $115 $193 $399
Managed Global $41 $124 $208 $426
Large Cap Value $38 $116 $196 $404
Hard Assets $38 $115 $193 $399
Diversified Mid-Cap $38 $116 $196 $404
Research $37 $113 $191 $394
Capital Growth $38 $116 $196 $404
Capital Appreciation $38 $115 $193 $399
Small Cap $38 $115 $193 $399
Mid-Cap Growth $37 $113 $191 $394
Strategic Equity $38 $115 $193 $399
Special Situations $39 $119 $201 $413
Growth $38 $116 $196 $404
Developing World $46 $138 $231 $466
Internet Tollkeeper $47 $141 $235 $474
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D4
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $36 $109 $184 $382
PIMCO StocksPLUS Growth and Income $35 $106 $179 $373
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $40 $123 $206 $423
THE PRUDENTIAL SERIES FUND
Prudential Jennison $39 $117 $198 $407
SP Jennison International Growth $45 $134 $225 $457
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap $39 $119 $200 $412
Pilgrim VP SmallCap Opportunities $39 $119 $200 $412
Pilgrim VP Growth Opportunities $39 $119 $200 $412
PROFUNDS
ProFund VP Bull $46 $139 $232 $469
ProFund VP Small-Cap $46 $139 $232 $469
ProFund VP Europe 30 $46 $137 $230 $465
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $43 $129 $217 $442
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $38 $114 $193 $398
Pioneer Mid-Cap Value VCT $38 $117 $197 $405
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $39 $119 $200 $412
INVESCO VIF-- Health Sciences $39 $118 $200 $410
INVESCO VIF-- Utilities $42 $128 $215 $438
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D5
Example 2:
If you did not elect the earnings multiplier benefit rider or any other optional
benefit rider, you would pay the following expenses for each $1,000 invested,
whether or not you surrender your contract or annuitize at the end of the
applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $23 $ 72 $123 $264
Limited Maturity Bond $23 $ 72 $123 $264
Core Bond $28 $ 86 $146 $309
Fully Managed $27 $ 84 $143 $303
Total Return $27 $ 82 $140 $297
Asset Allocation Growth $28 $ 86 $146 $309
Equity Income $27 $ 84 $143 $303
All Cap $28 $ 86 $146 $309
Growth and Income $29 $ 89 $151 $319
Real Estate $27 $ 84 $143 $303
Value Equity $27 $ 84 $143 $303
Investors $28 $ 86 $146 $309
International Equity $30 $ 93 $158 $333
Rising Dividends $27 $ 84 $143 $303
Managed Global $30 $ 93 $158 $333
Large Cap Value $28 $ 86 $146 $309
Hard Assets $27 $ 84 $143 $303
Diversified Mid-Cap $28 $ 86 $146 $309
Research $27 $ 82 $140 $297
Capital Growth $28 $ 85 $145 $308
Capital Appreciation $27 $ 84 $143 $303
Small Cap $27 $ 84 $143 $303
Mid-Cap Growth $27 $ 82 $140 $297
Strategic Equity $27 $ 84 $143 $303
Special Situations $29 $ 89 $151 $319
Growth $28 $ 85 $145 $308
Developing World $35 $108 $182 $378
Internet Tollkeeper $36 $111 $187 $387
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $25 $ 78 $133 $284
PIMCO StocksPLUS Growth and Income $24 $ 75 $128 $274
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $30 $ 92 $157 $330
THE PRUDENTIAL SERIES FUND
Prudential Jennison $28 $ 87 $147 $312
SP Jennison International Growth $34 $104 $176 $368
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap $29 $ 88 $150 $318
Pilgrim VP SmallCap Opportunities $29 $ 88 $150 $318
Pilgrim VP Growth Opportunities $29 $ 88 $150 $318
PROFUNDS
ProFund VP Bull $36 $109 $184 $382
ProFund VP Small-Cap $36 $109 $184 $382
ProFund VP Europe 30 $35 $107 $182 $377
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D6
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $32 $99 $168 $351
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $27 $84 $142 $302
Pioneer Mid-Cap Value VCT $28 $86 $146 $310
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $29 $88 $150 $318
INVESCO VIF-- Health Sciences $29 $88 $149 $316
INVESCO VIF-- Utilities $32 $97 $165 $347
--------------------------------------------------------------------------------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
YR-2000:
------------------------------------------------------------------------------------------------
STANDARD ENHANCED DEATH BENEFITS
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
------------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge 1.30% 1.45% 1.65% 1.75%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 1.45% 1.60% 1.80% 1.90%
------------------------------------------------------------------------------------------------
The charge is deducted each business day at the rate of .003585% (Standard);
.004002% (Annual Ratchet); .004558% (7% Solution); or .004837% (Max 7),
respectively, for each day since the previous business day.
EXPENSE EXAMPLES FOR YR-2000
The following two examples are designed to show you the expenses you would pay
on a $1,000 investment that earns 5% annually. Each example assumes election of
the Max 7 Enhanced Death Benefit. The examples reflect the deduction of a
mortality and expense risk charge, an asset-based administrative charge, and the
annual contract administrative charge as an annual charge of 0.06% of assets
(based on an average contract value of $75,000). Example 1 also assumes you
elected the earnings multiplier benefit rider with a charge of 0.30% of the
contract value annually. In addition, Example 1 assumes you elected an optional
benefit rider with the highest cost, an assumed charge of 0.75% annually, where
the rider base is equal to the initial premium and increases by 7% annually,
except for the Liquid Asset and Limited Maturity Bond portfolios, where the
assumed charge is 0.50% annually and assume the rider charge is assessed each
quarter on a base equal to the hypothetical $1,000 premium increasing by 7% per
year (or by 5%, the assumed net rate for the Liquid Asset and Limited Maturity
Bond portfolios). The annual charge of 0.75% results from the assumption of a 7%
annual increase in the rider base but only a 5% earnings increase in the
contract value before expenses. Thus, 0.75% represents an annual charge over the
10-year period which is equivalent to an increasing charge of 0.125% per quarter
over the same period. If the Standard Death Benefit, the Annual Ratchet Enhanced
Death Benefit, or the 7% Solution Enhanced Death Benefit is elected instead of
the Max 7 Enhanced Death Benefit used in the examples, the actual expenses will
be less than those represented in the examples.
ACC - 111296 D7
Example 1:
If you elected both the earnings multiplier benefit rider and another optional
benefit rider with the highest charge, you would pay the following expenses for
each $1,000 invested, whether or not you surrender your Contract or annuitize at
the end of the applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $33 $102 $172 $359
Limited Maturity Bond $33 $102 $172 $359
Core Bond $40 $122 $206 $421
Fully Managed $40 $120 $203 $416
Total Return $39 $119 $200 $411
Asset Allocation Growth $40 $122 $206 $421
Equity Income $40 $120 $203 $416
All Cap $40 $122 $206 $421
Growth and Income $41 $125 $210 $430
Real Estate $40 $120 $203 $416
Value Equity $40 $120 $203 $416
Investors $40 $122 $206 $421
International Equity $43 $129 $217 $442
Rising Dividends $40 $120 $203 $416
Managed Global $43 $129 $217 $442
Large Cap Value $40 $122 $206 $421
Hard Assets $40 $120 $203 $416
Diversified Mid-Cap $40 $122 $206 $421
Research $39 $119 $200 $411
Capital Growth $40 $122 $205 $421
Capital Appreciation $40 $120 $203 $416
Small Cap $40 $120 $203 $416
Mid-Cap Growth $39 $119 $200 $411
Strategic Equity $40 $120 $203 $416
Special Situations $41 $125 $210 $430
Growth $40 $122 $205 $421
Developing World $48 $143 $239 $482
Internet Tollkeeper $49 $146 $244 $489
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $38 $115 $193 $399
PIMCO StocksPLUS Growth and Income $37 $112 $189 $391
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $42 $128 $216 $440
THE PRUDENTIAL SERIES FUND
Prudential Jennison $41 $123 $207 $424
SP Jennison International Growth $46 $140 $234 $472
PILGRIM VARIABLE PRODUCT TRUST
Pilgrim VP MagnaCap $41 $125 $210 $429
Pilgrim VP SmallCap Opportunities $41 $125 $210 $429
Pilgrim VP Growth Opportunities $41 $125 $210 $429
PROFUNDS
ProFund VP Bull $48 $144 $241 $485
ProFund VP Small-Cap $48 $144 $241 $485
ProFund VP Europe 30 $48 $143 $239 $481
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D8
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $45 $135 $226 $458
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $40 $120 $202 $416
Pioneer Mid-Cap Value VCT $40 $122 $206 $422
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $41 $125 $210 $429
INVESCO VIF-- Health Sciences $41 $124 $209 $427
INVESCO VIF-- Utilities $44 $133 $224 $454
--------------------------------------------------------------------------------------------------------------------
Example 2:
If you did not elect the earnings multiplier benefit rider or any other optional
benefit rider, you would pay the following expenses for each $1,000 invested,
whether or not you surrender your contract or annuitize at the end of the
applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $25 $ 78 $133 $284
Limited Maturity Bond $25 $ 78 $133 $284
Core Bond $30 $ 92 $156 $328
Fully Managed $29 $ 90 $153 $322
Total Return $29 $ 88 $150 $317
Asset Allocation Growth $30 $ 92 $156 $328
Equity Income $29 $ 90 $153 $322
All Cap $30 $ 92 $156 $328
Growth and Income $31 $ 95 $161 $337
Real Estate $29 $ 90 $153 $322
Value Equity $29 $ 90 $153 $322
Investors $30 $ 92 $156 $328
International Equity $32 $ 99 $168 $351
Rising Dividends $29 $ 90 $153 $322
Managed Global $32 $ 99 $168 $351
Large Cap Value $30 $ 92 $156 $328
Hard Assets $29 $ 90 $153 $322
Diversified Mid-Cap $30 $ 92 $156 $328
Research $29 $ 88 $150 $317
Capital Growth $30 $ 91 $155 $327
Capital Appreciation $29 $ 90 $153 $322
Small Cap $29 $ 90 $153 $322
Mid-Cap Growth $29 $ 88 $150 $317
Strategic Equity $29 $ 90 $153 $322
Special Situations $31 $ 95 $161 $337
Growth $30 $ 91 $155 $327
Developing World $37 $113 $192 $396
Internet Tollkeeper $38 $116 $196 $404
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $28 $ 84 $143 $303
PIMCO StocksPLUS Growth and Income $26 $ 81 $138 $293
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $32 $ 98 $166 $348
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D9
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison $30 $ 92 $157 $434
SP Jennison International Growth $36 $110 $186 $385
PILGRIM VARIABLE PRODUCT TRUST
Pilgrim VP MagnaCap $31 $ 94 $160 $336
Pilgrim VP SmallCap Opportunities $31 $ 94 $160 $336
Pilgrim VP Growth Opportunities $31 $ 94 $160 $336
PROFUNDS
ProFund VP Bull $38 $115 $193 $399
ProFund VP Small-Cap $38 $115 $193 $399
ProFund VP Europe 30 $37 $113 $193 $395
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $34 $105 $177 $369
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $29 $ 89 $152 $321
Pioneer Mid-Cap Value VCT $30 $ 92 $156 $329
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $31 $ 94 $160 $336
INVESCO VIF-- Health Sciences $31 $ 94 $159 $335
INVESCO VIF-- Utilities $34 $103 $175 $365
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D10
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
YR-2001:
----------------------------------------------------------------------------------------------------
STANDARD ENHANCED DEATH BENEFITS
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
----------------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge 1.30% 1.55% 1.65% 1.75%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 1.45% 1.70% 1.80% 1.90%
----------------------------------------------------------------------------------------------------
The charge is deducted each business day at the rate of .003585% (Standard);
.004280% (Annual Ratchet); .004558% (7% Solution); or .004837% (Max 7),
respectively, for each day since the previous business day.
EXPENSE EXAMPLES FOR YR-2001
The following two examples are designed to show you the expenses you would pay
on a $1,000 investment that earns 5% annually. Each example assumes election of
the Max 7 Enhanced Death Benefit. The examples reflect the deduction of a
mortality and expense risk charge , an asset-based administrative charge, and an
annual contract administrative charge as an annual charge of 0.06% of assets
(based on an average contract value of $75,000). Example 1 also assumes you
elected the earnings multiplier benefit rider with a charge of 0.30% of the
contract value annually. In addition, Examples 1 and 2 assume you elected an
optional benefit rider with the highest charge (0.75% annually where the rider
base is equal to the initial
ACC - 111296 D10
premium and increases by 7% annually) and assume
the rider charge is assessed each quarter on a base equal to the hypothetical
$1,000 premium increasing at 7% per year. The annual charge of 0.75% results
from the assumption of a 7% annual increase in the rider base but only a 5%
earnings increase in the contract value before expenses. Thus, 0.75% represents
an annual charge over the 10-year period which is equivalent to an increasing
charge of 0.125% per quarter over the same period. Each example also assumes
that any applicable expense reimbursements of underlying protfolio expenses will
continue for the periods shown. If the Standard Death Benefit, the Annual
Ratchet Enhanced Death Benefit, or the 7% Solution Enhanced Death Benefit is
elected instead of the Max 7 Enhanced Death Benefit used in the examples, the
actual expenses will be less than those represented in the examples.
Example 1:
If you elected both the earnings multiplier benefit rider and another optional
benefit rider with the highest charge, you would pay the following expenses for
each $1,000 invested, whether or not you surrender your Contract or annuitize at
the end of the applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $36 $109 $184 $382
Limited Maturity Bond $36 $109 $184 $382
Core Bond $40 $122 $206 $421
Fully Managed $40 $120 $203 $416
Total Return $39 $119 $200 $411
Asset Allocation Growth $40 $122 $206 $421
Equity Income $40 $120 $203 $416
All Cap $40 $122 $206 $421
Growth and Income $41 $125 $210 $430
Real Estate $40 $120 $203 $416
Value Equity $40 $120 $203 $416
Investors $40 $122 $206 $421
International Equity $43 $129 $217 $442
Rising Dividends $40 $120 $203 $416
Managed Global $43 $129 $217 $442
Large Cap Value $40 $122 $206 $421
Hard Assets $40 $120 $203 $416
Diversified Mid-Cap $40 $122 $206 $421
Research $39 $119 $200 $411
Capital Growth $40 $122 $205 $421
Capital Appreciation $40 $120 $203 $416
Small Cap $40 $120 $203 $416
Mid-Cap Growth $39 $119 $200 $411
Strategic Equity $40 $120 $203 $416
Special Situations $41 $125 $210 $430
Growth $40 $122 $205 $421
Developing World $48 $143 $239 $482
Internet Tollkeeper $49 $146 $244 $489
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $38 $115 $193 $399
PIMCO StocksPLUS Growth and Income $37 $112 $189 $391
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $42 $128 $216 $440
THE PRUDENTIAL SERIES FUND
Prudential Jennison $41 $123 $207 $424
SP Jennison International Growth $46 $140 $234 $472
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D11
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
PILGRIM VARIABLE PRODUCT TRUST
Pilgrim VP MagnaCap $41 $125 $210 $429
Pilgrim VP SmallCap Opportunities $41 $125 $210 $429
Pilgrim VP Growth Opportunities $41 $125 $210 $429
PROFUNDS
ProFund VP Bull $48 $144 $241 $485
ProFund VP Small-Cap $48 $144 $241 $485
ProFund VP Europe 30 $48 $143 $239 $481
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $45 $135 $226 $458
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $40 $120 $202 $416
Pioneer Mid-Cap Value VCT $40 $122 $206 $422
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $41 $125 $210 $429
INVESCO VIF-- Health Sciences $41 $124 $209 $427
INVESCO VIF-- Utilities $44 $133 $224 $454
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D12
Example 2:
If you did not elect the earnings multiplier benefit rider or any other optional
benefit rider, you would pay the following expenses for each $1,000 invested,
whether or not you surrender your contract or annuitize at the end of the
applicable time period:
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $25 $ 78 $133 $284
Limited Maturity Bond $25 $ 78 $133 $284
Core Bond $30 $ 92 $156 $328
Fully Managed $29 $ 90 $153 $322
Total Return $29 $ 88 $150 $317
Asset Allocation Growth $30 $ 92 $156 $328
Equity Income $29 $ 90 $153 $322
All Cap $30 $ 92 $156 $328
Growth and Income $31 $ 95 $161 $337
Real Estate $29 $ 90 $153 $322
Value Equity $29 $ 90 $153 $322
Investors $30 $ 92 $156 $328
International Equity $32 $ 99 $168 $351
Rising Dividends $29 $ 90 $153 $322
Managed Global $32 $ 99 $168 $351
Large Cap Value $30 $ 92 $156 $328
Hard Assets $29 $ 90 $153 $322
Diversified Mid-Cap $30 $ 92 $156 $328
Research $29 $ 88 $150 $317
Capital Growth $30 $ 91 $155 $327
Capital Appreciation $29 $ 90 $153 $322
Small Cap $29 $ 90 $153 $322
Mid-Cap Growth $29 $ 88 $150 $317
Strategic Equity $29 $ 90 $153 $322
Special Situations $31 $ 95 $161 $337
Growth $30 $ 91 $155 $327
Developing World $37 $113 $192 $396
Internet Tollkeeper $38 $116 $196 $404
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $28 $ 84 $143 $303
PIMCO StocksPLUS Growth and Income $26 $ 81 $138 $293
PILGRIM VARIABLE INSURANCE TRUST
Pilgrim VIT Worldwide Growth $32 $ 98 $166 $348
THE PRUDENTIAL SERIES FUND
Prudential Jennison $30 $ 92 $157 $434
SP Jennison International Growth $36 $110 $186 $385
PILGRIM VARIABLE PRODUCT TRUST
Pilgrim VP MagnaCap $31 $ 94 $160 $336
Pilgrim VP SmallCap Opportunities $31 $ 94 $160 $336
Pilgrim VP Growth Opportunities $31 $ 94 $160 $336
PROFUNDS
ProFund VP Bull $38 $115 $193 $399
ProFund VP Small-Cap $38 $115 $193 $399
ProFund VP Europe 30 $37 $113 $193 $395
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends $34 $105 $177 $369
--------------------------------------------------------------------------------------------------------------------
ACC - 111296 D13
--------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT $29 $ 89 $152 $321
Pioneer Mid-Cap Value VCT $30 $ 92 $156 $329
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-- Financial Services $31 $ 94 $160 $336
INVESCO VIF-- Health Sciences $31 $ 94 $159 $335
INVESCO VIF-- Utilities $34 $103 $175 $365
--------------------------------------------------------------------------------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
DEATH BENEFIT FOR EXCLUDED FUNDS FOR PRE-2000 AND YR-2000
We will be designating certain investment portfolios as "Excluded Funds."
Excluded Funds will include certain investment portfolios that, due to their
volatility, will be excluded from the death benefit guarantees that might
otherwise be provided. We may add new portfolios as Excluded Funds. We may also
reclassify an existing portfolio as an Excluded Fund or remove such
classification upon 30 days notice to you. Such reclassification will apply only
to amounts transferred or otherwise added to such portfolio after the effective
date of the reclassification. Investment in Excluded Funds will impact your
death benefit.
For the period of time, and to the extent, that you allocate premium or contract
value to Excluded Funds, your death benefit attributable to that allocation will
equal the contract value of that allocation. Any guarantee of death benefit in
excess of contract value otherwise provided with regard to allocations to
Non-Excluded Funds, does not apply to allocations to Excluded Funds. The death
benefit provided under the Contract may be reduced to the extent that you
allocate premium or contract value to Excluded Funds.
Transfers from Excluded Funds to Non-Excluded funds will reduce all death
benefit components for Excluded Funds on a pro rata basis. Except with respect
to any maximum guaranteed death benefit, the resulting increase in the
Non-Excluded Funds death benefit component will equal the lesser of the
reduction in the death benefit for Excluded Funds and the contract value
transferred. With respect to the maximum guaranteed death benefit, where
applicable, the resulting increase in the Non-Excluded Funds maximum guaranteed
death benefit will equal the reduction in the maximum guaranteed death benefit
for Excluded Funds.
Transfers from Non-Excluded Funds to Excluded Funds will reduce the Non-Excluded
Funds death benefit components on a pro-rata basis. The resulting increase in
the death benefit components of Excluded Funds will equal the reduction in the
Non-Excluded Funds death benefit components.
Adjustments for transfers involving both Excluded Funds and Special Funds will
be calculated separately from adjustments for transfers involving Excluded Funds
and Non-Special Funds, where applicable.
ACC - 111296 D14
--------------------------------------------------------------------------------
APPENDIX E
--------------------------------------------------------------------------------
OPTIONAL RIDER BENEFITS FOR PRE-2000
AND YR-2000 CONTRACT OWNERS
The following is a description of the optional rider benefits for Pre-2000 and
Yr-2000 contract owners who elected an optional rider benefit. We may be
designating certain investment portfolios as "Excluded Funds." We may add new
portfolios as Excluded Funds. We may also reclassify an existing portfolio as an
Excluded Fund or remove such classification upon 30 days notice to you. Such
reclassification will apply only to amounts transferred or otherwise added to
such portfolio after the effective date of the reclassification. Investment in
Excluded Funds will impact the benefit under any optional rider that you have
elected. IF YOU NEVER INVEST IN EXCLUDED FUNDS, YOUR RIDER BENEFITS WILL BE
UNAFFECTED. OTHER THAN AS SPECIFIED BELOW, PLEASE SEE THE PROSPECTUS FOR A
COMPLETE DESCRIPTION OF YOUR OPTIONAL RIDER BENEFITS. CAPITALIZED TERMS HAVE THE
SAME MEANING AS DESCRIBED IN THE PROSPECTUS.
OPTIONAL RIDER BENEFITS
For the period of time, and to the extent, that you allocate premium or contract
value to Excluded Funds, any guarantee of an optional rider benefit does not
apply to those amounts. The optional rider benefit provided under the Contract
may be reduced to the extent that you allocate premium or contract value to
Excluded Funds.
For each rider benefit component contained in your rider, a corresponding
component will be created for allocations to Excluded Funds. Transfers from
Excluded Funds to Non-Excluded funds will reduce all rider benefit components
for Excluded Funds on a pro rata basis. Except with respect to any maximum
guaranteed rider benefit, the resulting increase in the Non-Excluded Funds rider
benefit component will equal the lesser of the reduction in the rider benefit
component for Excluded Funds and the contract value transferred. With respect to
the maximum guaranteed benefit, where applicable, the resulting increase in the
Non-Excluded Funds maximum guaranteed benefit will equal the reduction in the
maximum guaranteed benefit for Excluded Funds.
Transfers from Non-Excluded Funds to Excluded Funds will reduce the Non-Excluded
Funds rider benefit component on a pro rata basis. The resulting increase in the
rider benefit components of Excluded Funds will equal the reduction in the
Non-Excluded Funds benefit.
Adjustments for transfers involving both Excluded Funds and Special Funds will
be calculated separately from adjustments for transfers involving Excluded Funds
and Non-Special Funds, where applicable.
OPTIONAL RIDER BENEFIT FOR NON-EXCLUDED FUNDS
A. MINIMUM GUARANTEED ACCUMULATION BENEFIT ("MGAB"). We calculate your MGAB as
follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a
calculation used to determine the MGAB. The MGAB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your annuity income, cash surrender value
and death benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your
initial premium and credit, plus any additional premium and
credit added to your Contract during the 2-year period
ACC - 111296 E1
after your rider date, reduced pro rata for any withdrawals
and reduced for any transfers made within the last 3 years
prior to the MGAB Benefit Date; or
(ii) elected the twenty-year option, except for the Special Funds
which require special calculations, your MGAB Base is equal to
your initial premium and credit, plus any additional premium
and credit added to your Contract during the 2-year period
after your contract date, accumulated at the MGAB Base Rate,
reduced pro rata for any withdrawals and reduced for any
transfers made within the last 3 years prior to the MGAB
Benefit Date. The MGAB Base Rate for allocations other than
allocations to the Special Funds is the annual effective rate
of 3.5265%. Accumulation of eligible additional premiums
starts on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE
2-YEAR PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB
BASE. ANY ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR
CONTRACT AFTER THE SECOND RIDER ANNIVERSARY ARE NOT INCLUDED
IN THE MGAB BASE. Thus, the MGAB rider may not be appropriate
for you if you plan to add substantial premium payments after
your second rider anniversary.
If you purchased the MGAB rider after the contract date, your
MGAB Base is equal to your contract value on the rider date,
plus premiums and credits added during the 2-year period after
your rider date. Withdrawals taken while the MGAB rider is in
effect, as well as transfers made within 3 years prior to the
MGAB Benefit Date, will reduce the value of your MGAB Base pro
rata. This means that the MGAB Base (and the MGAB Charge Base)
will be reduced by the same percent as the percent of contract
value that was withdrawn (or transferred). We will look to
your contract value immediately before the withdrawal or
transfer when we determine this percent.
For any Special Fund under the twenty-year option, if the
actual interest credited to and/or the investment earnings of
the contract value allocated to the Special Fund over the
calculation period is less than the amount calculated under
the formula above, that lesser amount becomes the increase in
your MGAB Base for the Special Fund for that period. THE MGAB
BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR NEGATIVE.
Thus, investing in the Special Funds may limit the MGAB
benefit.
If you add the 20 year option rider after the contract date,
any payment of premiums after the rider date, and/or
investments in the Special Funds, may prevent the MGAB Base
from doubling over the waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both
the contract value in the subaccounts in which you are invested and
the contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts
in which you are invested pro rata based on the proportion of your
contract value in the subaccounts on that date, unless you have
previously given us other allocation instructions. If you do not
have an investment in any subaccount on the MGAB Benefit Date, we
will allocate the MGAB to the Liquid Asset subaccount on your
behalf. After the crediting of the MGAB, the amount of your annuity
income, cash surrender value and death benefits will reflect the
crediting of the MGAB to your contract value to the extent the
contract value is used to determine such value.
B. MINIMUM GUARANTEED INCOME BENEFIT ("MGIB"). On the MGIB Benefit Date, we
calculate your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a
calculation used to determine the MGIB. The MGIB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the
ACC - 111296 E2
amount of your cash surrender value and death
benefits. Any reset of contract value under provisions of the
Contract or other riders will not increase the MGIB Base or MGIB
Base Maximum.
(i) If you purchased the MGIB rider on the contract date, except
for the Special Funds which require special calculations, the
MGIB Base is equal to your initial premium and credit, plus
any additional premiums and credits added to your Contract
during the 5-year period after your contract date, accumulated
at the MGIB Base Rate (7% for all portfolios except the
Special Funds), reduced pro rata by all withdrawals taken
while the MGIB rider is in effect. Premiums and credits paid
less than 5 years prior to the earliest MGIB Benefit Date are
excluded from the MGIB Base.
(ii) If you purchased the MGIB rider after the contract date,
except for the Special Funds which require special
calculations, your MGIB Base is equal to your contract value
on the rider date plus any eligible premiums and credits added
to your Contract during the 5-year period after your rider
date, accumulated at the MGIB Base Rate (7% for all portfolios
except the Special Funds), reduced pro rata by all withdrawals
taken while the MGIB rider is in effect. Eligible additional
premium payments and credits are those added more than 5 years
before the earliest MGIB Benefit Date and are included in the
MGIB Base. Premiums and credits paid after the 5th rider
anniversary are excluded from the MGIB Base.
(iii)For any Special Fund, if the actual earnings and/or the
interest credited to the contract value allocated to the
Special Fund over the calculation period is less than the
amount determined under the formula above, that lesser amount
becomes the change in your MGIB Base for the Special Fund. THE
MGIB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR
NEGATIVE. Thus, investing in the Special Funds may limit the
MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata
to the percentage of the contract value withdrawn. We offer a
7% MGIB Base Rate, except for the Special Funds. The Company
may at its discretion discontinue offering this rate. The MGIB
Base Rate is an annual effective rate. The MGIB Base is
subject to the MGIB Base Maximum. The MGIB Base Maximum is the
amount calculated above until the earlier of: (i) the date the
oldest contract owner reaches age 80, or (ii) the date the
MGIB Base reaches two times the MGIB Eligible Premiums and
credits, adjusted for any withdrawals. MGIB Eligible Premiums
is the total of premiums paid more than 5 years before the
earliest MGIB Benefit Date.
2. Then we determine the MGIB annuity income by multiplying your MGIB
Base (adjusted for any Market Value Adjustment, surrender charge
and premium taxes) by the income factor, and then divide by $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain; (ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in your
Contract.
ACC - 111296 E3
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
C. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB Withdrawal
Account is only a calculation which represents the remaining amount available
for periodic payments under the MGWB rider. It does not represent a contract
value, nor does it guarantee performance of the subaccounts in which you are
invested. It will not affect your annuitization, surrender and death benefits.
The MGWB Withdrawal Account is equal to the Eligible Payment Amount adjusted for
any withdrawals. Withdrawals of up to 7% per year of the Eligible Payment Amount
will reduce the value of your MGWB Withdrawal Account by the dollar amount of
the withdrawal. Any withdrawals greater than 7% per year of the Eligible Payment
Amount will cause a reduction in both the MGWB Withdrawal Account and the
Eligible Payment Amount by the proportion that the withdrawal bears to the
contract value at the time of the withdrawal. The MGWB Withdrawal Account is
also reduced by the amount of any periodic payments paid under the MGWB rider
once your contract value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any amount
permitted under your Contract so long as your contract value is greater than
zero. See "Withdrawals." However, making any withdrawals in any year greater
than 7% per year of the Eligible Payment Amount will reduce the Eligible Payment
Amount for future withdrawals and payments under the MGWB rider by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB rider will remain in force and you may continue to make
withdrawals each year so long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii)your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue the
contract), changed the ownership of the Contract or surrendered
the Contract.
The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the
dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment
Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment
Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment
Amount pro rata in proportion to the percentage of contract value withdrawn. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii)you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's latest
annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is
ACC - 111296 E4
exhausted. We will reduce the MGWB Withdrawal Account by the amount of each
payment. Once your Contract is given Automatic Periodic Benefit Status, we will
not accept any additional premium payments in your Contract and the Contract
will not provide any benefits except those provided by the MGWB rider. Any other
rider terminates. Your Contract will remain in Automatic Periodic Benefit Status
until the earliest of (i) payment of all MGWB periodic payments (ii) payment of
the Commuted Value (defined below) or (iii) the owner's death has occurred.
On the contract's latest annuity start date, in lieu of making the remaining
MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic
payments remaining. We may, at our option, extend your annuity start date in
order to continue the MGWB periodic payments. The Commuted Value is the present
value of any then remaining MGWB periodic payments at the current interest rate
plus 0.50%. The current interest rate will be determined by the average of the
Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for
period(s) applicable to the remaining payments. Once the last MGWB periodic
payment is made or we pay you the Commuted Value, your Contract and the MGWB
rider terminate.
ACC - 111296 E5
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company
domiciled in Delaware.
ACC - 111296 11/05/2001
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ING VARIABLE ANNUITIES |
GOLDEN AMERICAN LIFE INSURANCE COMPANY |
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Golden American Life Insurance Company is a stock company domiciled in Delaware|
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111296 ACCESS 11/05/2001 |
File No. 333-28765
Filed under Rule 424B(3)
ING VARIABLE ANNUITIES
Golden American Life Insurance Company
Separate Account B of Golden American Life Insurance Company
--------------------------------------------------------------------------------
Profile of
GOLDENSELECT ACCESS(R)
Deferred Combination Variable and Fixed Annuity Contract
November 5, 2001
-------------------------------------------------------------------
This Profile incorporates the complete Profile dated May 1, 2001
and augments it with the following changes and additional
information.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
4. The Investment Portfolios
The following investment portfolios are added to the list of investment
portfolios from Section 4 of the May 1, 2001 Profile. The AIM Variable Insurance
Funds, Pioneer Variable Contracts Trust and the INVESCO Variable Investment
Funds, Inc are available under your Contract and are described in the respective
prospectuses.
AIM Variable Insurance Funds INVESCO Variable Investment Funds, Inc.
AIM V.I. Dent Demographic Trends Fund INVESCO VIF-- Financial Services Fund
INVESCO VIF -- Health Sciences Fund
Pioneer Variable Contracts Trust INVESCO VIF-- Utilities Fund
Pioneer Fund VCT Portfolio
Pioneer Mid-Cap Value VCT Portfolio
ACC-111467
5. Expenses
The following expense information is added to the expense table in Section 5
from the May 1, 2001 Profile.
---------------------------------------------------------------------------------------------------------------------------
Examples:
Total Annual Total Annual Total Charges at the End of:
Insurance Charges Charges 1 Year 10 Years
with w/o Total Annual with w/o with w/o with w/o
the any Investment the any the any the any
Rider Rider Portfolio Rider Rider Rider Rider Rider Rider
Investment Portfolio Charges Charge Charges Charges Charge Charges Charge Charges Charge
---------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent
Demographic Trends 3.35% 2.30% 1.45% 4.80% 3.75% $48 $38 $485 $399
Pioneer Variable Contracts Trust
Pioneer Fund VCT 3.35% 2.30% 0.93% 4.28% 3.23% $43 $33 $444 $353
Pioneer Mid-Cap
Value VCT 3.35% 2.30% 1.01% 4.36% 3.31% $44 $33 $450 $360
INVESCO Variable Investment Funds, Inc.
INVESCO VIF--
Financial Services 3.35% 2.30% 1.09% 4.44% 3.39% $45 $34 $457 $368
INVESCO VIF--
Health Sciences 3.35% 2.30% 1.07% 4.42% 3.37% $44 $34 $455 $366
INVESCO VIF--
Utilities 3.35% 2.30% 1.41% 4.76% 3.71% $48 $37 $482 $396
---------------------------------------------------------------------------------------------------------------------------
9. Death Benefit
The following replaces the same Earnings Multiplier Benefit Rider language in
Section 9 from the May 1, 2001 Profile. Earnings Multiplier Benefit Rider. The
earnings multiplier benefit rider is an optional rider that provides a separate
death benefit in addition to the death benefit provided under the death benefit
options described above. The rider is subject to state availability and is
available only for issues ages 75 or under. It may be added at issue of the
Contract or on the next contract anniversary following introduction of the rider
in a state, if later. The rider provides a benefit equal to a percentage of the
gain under the Contract, up to a gain equal to 150% of premiums adjusted for
withdrawals ("Maximum Base"). Currently, where the rider is added at issue, the
earnings multiplier benefit is equal to 55% (30% for issue ages 70 and above) of
the lesser of: 1) the Maximum Base; and 2) the contract value on the date we
receive written notice and due proof of death, as well as required claims forms,
minus premiums adjusted for withdrawals. If the rider is added to a Contract
after issue, the earnings multiplier benefit is equal to 55% (30% for issue ages
70 and above) of the lesser of: 1) 150% of the contract value on the rider
effective date, plus subsequent premiums adjusted for subsequent withdrawals;
and 2) the contract value on the date we receive written notice and due proof of
death, as well as required claims forms, minus the contract value on the rider
effective date, minus subsequent premiums adjusted for subsequent withdrawals.
The adjustment to the benefit for withdrawals is pro rata, meaning that the
benefit will be reduced by the proportion that the withdrawal bears to the
contract value at the time of the withdrawal.
There is an extra charge for this feature and once selected, it may not be
revoked. The earnings enhancement benefit rider does not provide a benefit if
there is no gain under the Contract. As such, the Company would continue to
assess a charge for the rider, even though no benefit would be payable at death
under the rider if there are no gains under the Contract. Please see page 5 for
a description of the earnings multiplier benefit rider charge.
The rider is available for both non-qualified and qualified contracts. Please
see the discussions of possible tax consequences in sections titled "Individual
Retirement Annuities," "Taxation of Non-Qualified Contracts," and "Taxation of
Qualified Contracts," in the prospectus.
2
ACC-111467
--------------------------------------------------------------------------------
Golden American Life Insurance Company
Separate Account B of Golden American Life Insurance Company
Deferred Combination Variable and Fixed Annuity Prospectus
GOLDENSELECT ACCESS(R)
--------------------------------------------------------------------------------
November 5, 2001
This prospectus incorporates by reference the complete Prospectus dated May
1, 2001 and augments it with the following changes and additional information.
This prospectus provides information that you should know before investing
and should be kept for future reference. A Statement of Additional Information
("SAI"), dated, November 5, 2001, has been filed with the Securities and
Exchange Commission ("SEC"). It is available without charge upon request. To
obtain a copy of this document, write to our Customer Service Center at P.O. Box
2700, West Chester, Pennsylvania 19380 or call (800) 366-0066, or access the
SEC's website (http://www.sec.gov). The table of contents of the SAI is on the
last page of the May 1, 2001 prospectus and the SAI is made part of this
prospectus by reference.
The following investment portfolios are added to the investment portfolios
listed on the back of the front cover from the May 1, 2001 Prospectus.
A I M Advisors, Inc. INVESCO Funds Group Inc.
AIM V.I. Dent Demographic Trends Fund INVESCO VIF-- Financial Services Fund
Pioneer Investment Management, Inc. INVESCO VIF-- Health Sciences Fund
Pioneer Fund VCT Portfolio INVESCO VIF -- Utilities Fund
Pioneer Mid-Cap Value VCT Portfolio
An investment in any subaccount through the AIM Variable Insurance Funds, the
Pioneer Variable Contracts Trust or the INVESCO Variable Investment Funds, Inc.
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 AIM Variable
Insurance Funds, the Pioneer Variable Contracts Trust or the INVESCO Variable
Investment Funds, Inc.
3
ACC-111467
--------------------------------------------------------------------------------
Fees and Expenses
--------------------------------------------------------------------------------
The following is added to the Fees and Expenses Section from the May 1, 2001
Prospectus after the listing for the ProFunds Annual Expenses.
AIM Variable Insurance Funds Annual Expenses (as a percentage of the average
daily net assets of the portfolio)(1)(2):
---------------------------------------------------------------------------------------------------------------------------
Total Fee Waiver and Expense Total Net
Management 12b-1 Other Portfolio Reimbursements Portfolio
Fees Fees Expenses Expenses Expenses
Portfolio
---------------------------------------------------------------------------------------------------------------------------
AIM V.I. Dent Demographic
Trends 0.85% 0.25% 0.61% 1.71% 0.26% 1.45%
---------------------------------------------------------------------------------------------------------------------------
(1) Figures shown in the table are estimates for the current year and are
expressed as a percentage of the Portfolio's average daily net assets.
(2) The Portfolio's adviser has contractually agreed to waive advisory fees
(excluding interest, taxes, dividend expense on short sales, extraordinary
items and increases in expenses due to expense offset arrangements, if any)
to the extent necessary to limit the total of the Management Fees and Other
Expenses to 1.30%. Further the Portfolio's distributor has agreed to
reimburse Rule 12b-1 Distribution Plan fees to the extent necessary to
limit Total Net Portfolio Expenses to 1.45%.
Pioneer Variable Contracts Trust Annual Expenses (as a percentage of the average
daily net assets of the portfolio)(1):
---------------------------------------------------------------------------------------------------------------------------
Investment Total
Management 12b-1 Other Portfolio
Portfolio Fee Fee Expenses Expenses
---------------------------------------------------------------------------------------------------------------------------
Pioneer Fund VCT 0.65% 0.25% 0.03% 0.93%
Pioneer Mid-Cap Value VCT 0.65% 0.25% 0.11% 1.01%
---------------------------------------------------------------------------------------------------------------------------
(1) Fees and expenses based on portfolio's latest fiscal year ended December
31, 2000.
INVESCO Variable Investment Funds, Inc. Annual Expenses (as a percentage of the
average daily net assets of the portfolio):
---------------------------------------------------------------------------------------------------------------------------
Management 12b-1 Other Total
Portfolio Fees Fees(1) Expenses(2)(3) Expenses
---------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-- Financial Services 0.75% 0.00% 0.34% 1.09%
INVESCO VIF-- Health Sciences 0.75% 0.00% 0.32% 1.07%
INVESCO VIF-- Utilities 0.60% 0.00% 0.81% 1.41%
---------------------------------------------------------------------------------------------------------------------------
(1) Although the Funds may deduct a distribution or 12b-1 fee, the Funds
currently do not.
(2) The Funds' actual Other Expenses and Total Expenses were lower than the
figures shown because its custodian fees were reduced under an expense
offset agreement.
(3) Certain expenses of the Funds were absorbed voluntarily by INVESCO Funds
Group Inc. ("INVESCO") pursuant to a commitment between the Funds and
INVESCO. This commitment may be changed at any time following consultation
with the board of directors. After absorption, but excluding any expense
offset arrangements, the INVESCO VIF - Financial Services and the INVESCO
VIF - Health Sciences portfolios' Other Expenses and Total Expenses for the
fiscal year ended December 31, 2000 were reduced by insignificant amounts.
For the INVESCO VIF - Utilities portfolio, after absorption, but excluding
any expense offset arrangements, the portfolio's Other Expenses and Total
Expenses for the fiscal year ended December 31, 2000 were 0.62% and 1.22%,
respectively.
4
ACC-111467
See the prospectuses of the AIM Variable Insurance Funds, the Pioneer Variable
Contracts Trust or the INVESCO Variable Investment Funds, Inc. for
additionalinformation on management or advisory fees and in some cases on other
portfolio expenses.
Examples:
The following examples are added to the respective Example Tables from the May
1, 2001 Prospectus.
Example 1:
---------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $48 $144 $241 $485
Pioneer Variable Contracts Trust
Pioneer Fund VCT $43 $130 $218 $444
Pioneer Mid-Cap Value VCT $44 $132 $222 $450
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $45 $134 $225 $457
INVESCO VIF-- Health Sciences $44 $134 $224 $455
INVESCO VIF-- Utilities $48 $143 $239 $482
---------------------------------------------------------------------------------------------------------------------------
Example 2:
---------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $38 $115 $193 $399
Pioneer Variable Contracts Trust
Pioneer Fund VCT $33 $ 99 $169 $353
Pioneer Mid-Cap Value VCT $33 $102 $173 $360
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $34 $104 $176 $368
INVESCO VIF-- Health Sciences $34 $104 $176 $366
INVESCO VIF-- Utilities $37 $113 $192 $396
---------------------------------------------------------------------------------------------------------------------------
5
ACC-111467
--------------------------------------------------------------------------------
The Trusts
--------------------------------------------------------------------------------
The following language is added to the May 1, 2001 Prospectus describing the new
trusts.
The AIM Variable Insurance Funds is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including Golden
American. The address of AIM Variable Insurance Funds is 11 Greenway Plaza,
Suite 100, Houston, TX 77046-1173.
The Pioneer Variable Contracts Trust is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including Golden
American. The address of Pioneer Variable Contracts Trust is 60 State Street,
Boston, MA 02109.
INVESCO Variable Investment Funds, Inc. is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including Golden
American. The address of the INVESCO Variable Investment Funds, Inc. is 7800
East Union Avenue, Denver, CO 80237.
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, and in addition to those listed in the May 1, 2001 Prospectus,
the AIM Variable Insurance Funds, the Pioneer Variable Contracts Trust, the
Board of Directors of the INVESCO Variable Investment Funds, Inc., and the
management of A I M Advisors, Inc., Pioneer Investment Management, Inc. and
INVESCO Funds Group, Inc., and any other insurance companies participating in
the Trusts will monitor events to identify and resolve any material conflicts
that may arise.
You will find more detailed information about the AIM Variable Insurance Funds,
the Pioneer Variable Contracts Trust and the INVESCO Variable Investment Funds,
Inc. and in the accompanying prospectus for each trust. You should read them
carefully before investing.
6
ACC-111467
--------------------------------------------------------------------------------
The Investment Portfolios
--------------------------------------------------------------------------------
The following language is added to the Investment Objectives Section from the
May 1, 2001 Prospectus.
Investment Portfolio Investment Objective
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends Seeks long-term growth of capital.
Fund Invests primarily in securities
that are likely to benefit from
changing demographic, economic and
lifestyle trends.
----------------------------------
Pioneer Variable Contracts Trust
Pioneer Fund VCT Portfolio Seeks reasonable
income and capital growth. Invests
a major portion of its assets in
equity securities of primarily U.S.
companies, that are reasonably
priced rather than priced to
reflect premium resulting from
companies' current market
popularity.
----------------------------------
Pioneer Mid-Cap Value VCT Portfolio Seeks capital appreciation. Invests
primarily in common stocks of
mid-size companies with market
values within the range of market
values of companies included in
Standard & Poor's MidCap 400 Index.
----------------------------------
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services Seeks growth.
Fund Aggressively managed and invests
primarily in equity securities of
companies involved in the financial
services sector.
----------------------------------
INVESCO VIF -- Health Sciences Seeks growth.
Fund Aggressively managed and invests
primarily in equity securities of
companies that develop, produce or
distribute products or services
related to health care.
----------------------------------
INVESCO VIF -- Utilities Fund Seeks growth
and current income. Aggressively
managed and invests primarily in
equity securities of companies that
produce, generate, transmit or
distribute natural gas or
electricity, as well as, in
companies that provide
telecommunications services,
including local, long distance and
wireless, and excluding
broadcasting.
----------------------------------
The following language is added to the Investment Management Fees Section from
the May 1, 2001 Prospectus.
A I M Advisors, Inc. ("AIM") serves as the overall investment advisor to the AIM
Variable Insurance Funds and is responsible for day-to-day management. AIM
supervises all aspects of fund operations. AIM has engaged H.S. Dent Advisor,
Inc. to serve as subadvisor and provide AIM with microeconomic, thematic,
demographic, lifestyle trends and sector research, custom reports and investment
and market capitalization recommendations to the fund.
Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser to
the Pioneer Variable Contracts Trust. The Pioneer Variable Contracts Trust pays
Pioneer a monthly advisory fee based on the daily net assets of each portfolio.
7
ACC-111467
INVESCO Funds Group, Inc. ("INVESCO") serves as investment adviser for the
INVESCO Variable Investment Funds, Inc. INVESCO, with its affiliated companies,
directs all aspects of the management of the INVESCO Variable Investment Funds,
Inc. The INVESCO Variable Investment Funds, Inc. pays INVESCO a monthly advisory
fee based on the average daily net assets of each portfolio.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, three portfolios may deduct a
distribution or 12b-1 fee but currently do not. 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 and the May 1, 2001 Prospectus.
--------------------------------------------------------------------------------
The Annuity Contract
--------------------------------------------------------------------------------
In addition to the portfolios listed in May 1, 2001, the Contract provides a
means for you to invest in one or more of the available mutual fund portfolios
of the AIM Variable Insurance Funds, the Pioneer Variable Contracts Trust and
the INVESCO Variable Investment Funds, Inc. through Separate Account B.
The following paragraph replaces the same paragraph from the May 1, 2001
Prospectus.
The Subaccounts
Each of the 45 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 Credit
Suisse Warburg Pincus Trust, the Pilgrim Variable Insurance Trust, the
Prudential Series Fund, the Pilgrim Variable Products Trust, the ProFunds, the
AIM Variable Insurance Funds, the Pioneer Variable Contracts Trust or the
INVESCO Variable Investment Funds, Inc.
--------------------------------------------------------------------------------
Death Benefit Choices
--------------------------------------------------------------------------------
The following paragraphs replace the existing Earnings Multiplier Benefit Rider
Section from the May 1, 2001 Prospectus.
Earnings Multiplier Benefit Rider. The earnings multiplier benefit rider is an
optional rider that provides a separate death benefit in addition to the death
benefit provided under the death benefit options described above. The rider is
subject to state availability and is available only for issues ages 75 or under.
It may be added at issue of the Contract or on the next contract anniversary
following introduction of the rider in a state, if later. The rider provides a
benefit equal to a percentage of the gain under the Contract, up to a gain equal
to 150% of premiums adjusted for withdrawals ("Maximum Base"). Currently, where
the rider is added at issue, the earnings multiplier benefit is equal to 55%
(30% for issue ages 70 and above) of the lesser of: 1) the Maximum Base; and 2)
the contract value on the date we receive written notice and due proof of death,
as well as required claims forms, minus premiums adjusted for withdrawals
("Benefit Base"). If the rider is added to a Contract after issue, the earnings
multiplier benefit is equal to 55% (30% for issue ages 70 and above) of the
lesser of: 1) 150% of the contract value on the rider effective date, plus
subsequent premiums adjusted for subsequent withdrawals; and 2) the contract
value on the date we receive written notice and due proof of death, as well as
required claims forms, minus the contract value on the rider effective date,
minus subsequent premiums adjusted for subsequent withdrawals ("Benefit Base").
The adjustment to the benefit for withdrawals is pro rata, meaning that the
benefit will be reduced by the proportion that the withdrawal bears to the
contract value at the time of the withdrawal.
There is an extra charge for the earnings multiplier benefit rider and once
selected, it may not be revoked. The earnings enhancement benefit rider does not
provide a benefit if there is no gain under the Contract. As such, the Company
would continue to assess a charge for the rider, even though no benefit would be
payable at death under the rider if there are no gains under the Contract.
Please see page 2 of this prospectus for a description of the charge.
8
ACC-111467
The rider is available for both non-qualified and qualified contracts. Please
see the discussions of possible tax consequences in sections titled "Individual
Retirement Annuities," "Taxation of Non-Qualified Contracts," and "Taxation of
Qualified Contracts," in this prospectus.
The following paragraph in "Continuation after Death--Spouse" replaces the same
from the May 1, 2001 Prospectus.
The earnings multiplier benefit rider will continue, if the surviving spouse is
eligible based on his or her attained age. If the surviving spouse is older than
the maximum rider issue age, the rider will terminate. The Maximum Base and the
percentages will be reset based on the adjusted contract value. The calculation
of the benefit going forward will be: 1) based on the attained age of the spouse
at the time of the ownership change using current values as of that date; 2)
computed as if the rider was added to the Contract after issue and after the
increase; and 3) based on the Maximum Base and percentages in effect on the
original rider date. However, we may in the future permit the surviving spouse
to elect to use the then current Maximum Base and percentages in the benefit
calculation.
--------------------------------------------------------------------------------
Charges and Fees
--------------------------------------------------------------------------------
The following paragraph replaces the same paragraph of Trust Expenses Section
from the May 1, 2001 Prospectus.
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 nine
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. There are an additional three portfolios that may deduct a
distribution or 12b-1 fee but currently do not. 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.
--------------------------------------------------------------------------------
Other Information
--------------------------------------------------------------------------------
The following paragraph replaces the same paragraph of Experts Section from the
May 1, 2001 Prospectus.
Experts
The audited consolidated financial statements of Golden American at December 31,
2000 and 1999 and for each of the three years in the period ended December 31,
2000, and Separate Account B at December 31, 2000 and the related statements of
operations an changes in net assets for the periods disclosed in the financial
statements, appearing in this prospectus or in the SAI and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing in this prospectus or in the SAI and in
the Registration Statement, and are included or incorporated by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
9
ACC-111467
--------------------------------------------------------------------------------
Federal Tax Considerations
--------------------------------------------------------------------------------
The following paragraph appears before the "Witholding" paragraph fo the
"Taxation of Qualified Contracts" Section from the May 1, 2001 Prospectus.
Separate Account Charges. It is possible that the Internal Revenue Service may
take a position that charges for certain optional benefits and riders are deemed
to be taxable distributions to you. In particular, the Internal Revenue Service
may treat the quarterly charges deducted for the earnings multiplier benefit
rider as taxable withdrawals, which might also be subject to a tax penalty if
the withdrawal occurs before you reach age 59 1/2. Although we do not believe
that the charges we deduct for the earnings multiplier benefit rider or any
other optional benefit or rider provided under the Contract should be treated as
taxable withdrawals, you should consult your tax advisor prior to selecting any
optional benefit or rider under the Contract.
The following paragraph is added following the "Individual Retirement Annuities"
paragraph of the May 1, 2001 Prospectus:
IRA's generally may not invest in life insurance contracts. We do not believe a
death benefit under an annuity contract that is equal to the greater of premiums
paid (less withdrawals) or contact value will be treated as life insurance.
However, the enhanced death benefits and earnings enhancement benefit under this
Contract may exceed the greater of premiums paid (less withdrawals) and contract
value. We have previously received IRS approval of the form of the Contract,
including the enhanced death benefit feature, for use as an IRA. The Contract
with both enhanced death benefits and the earnings multiplier benefit has been
filed with the IRS for approval for use as an IRA. However, there is no
assurance that the IRS will give this approval or that the Contract meets the
qualification requirements for an IRA. Although we regard the enhanced death
benefit options and earnings multiplier benefit as investment protection
features that should not have an adverse tax effect, it is possible that the IRS
could take a contrary position regarding tax qualification, which could result
in the immediate taxation of amounts held in the Contract and the imposition of
penalty taxes. You should consult your tax advisor if you are considering adding
an enhanced death benefit or earnings multiplier benefit to your Contract if it
is an IRA.
10
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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 Period
January 31, For the Year For the Year For the Year October 25,
2001 through Ended Ended Ended 1997 through
June 30, December 31, December 31, December 31, December 31,
2001 2000 1999 1998 1997
-------------- ------------ ------------ ------------ --------------
Annuity and Interest
Sensitive Life
Product Charges................. $ 84,284 $ 144,877 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss) before
Federal Income Tax ............. $ 19,842 $ 32,862 $ 19,737 $ 10,353 $ (279)
Net Income (Loss)................... $ 12,135 $ 19,180 $ 11,214 $ 5,074 $ (425)
Total Assets........................ $ 12,848,283 $ 11,852,677 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities................... $ 12,206,786 $ 11,235,540 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's Equity.......... $ 641,497 $ 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
11
ACC-111467
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
THE FIRST SIX MONTHS OF 2001
COMPARED TO SAME PERIOD OF 2000
PREMIUMS
PERCENTAGE DOLLAR
FOR THE SIX MONTHS ENDED JUNE 30 2001 CHANGE CHANGE 2000
------- ---------- ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $ 39.2 (94.9)% $(726.5) $ 765.7
Fixed account.................................... 720.9 103.9 367.3 353.6
Total variable annuity premiums...................... 760.1 (32.1) (359.2) 1,119.3
Fixed annuity premiums............................... 1.6 -- 1.6 --
Variable life premiums............................... 1.0 -- -- 1.0
------- ----- ------- --------
Total premiums....................................... $ 762.7 (31.9)% $(357.6) $1,120.3
======= ===== ======= ========
For the Companies' variable and fixed 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 premiums net of reinsurance decreased 32.1% during the first
six months of 2001 compared to the same period of 2000. This decrease is
primarily due to ceded variable annuity separate account premiums of $1.2
billion and $0.9 billion for the first six months of 2001 and 2000,
respectively, under modified coinsurance agreements. Also contributing to the
decrease in variable annuity premiums is a reduction of $462.0 million in
variable annuity separate account premiums from the Premium Plus product in the
first three months of 2001 as compared to the first three months of 2000.
Offsetting these decreases is an increase in fixed account premiums from $353.6
million in 2000 to $720.9 million in 2001. This increase is
12
ACC-111467
primarily due to sales of the Guarantee product, a registered fixed annuity
product introduced in the last quarter of 2000. Sales for this product totaled
$358.0 million in the first six months of 2001. During the first six months of
2001, First Golden began selling two fixed annuity products, a Flex Annuity and
a Multi-Year Guarantee Annuity.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the six months
ended June 30, 2001 totaled $72.4 million, or 10% of total premiums ($131.4
million, or 12% from a significant broker/dealer for the six months ended June
30, 2000). Gross premiums for variable products from a significant broker/dealer
having at least ten percent of total sales for the six months ended June 30,
2001, totaled $214.6 million, or 11% of total gross premiums ($450.0 million, or
22%, from two significant broker/dealers for the six months ended June 30,
2000).
REVENUES
PERCENTAGE DOLLAR
FOR THE SIX MONTHS ENDED JUNE 30 2001 CHANGE CHANGE 2000
------- ---------- ------ ----
(Dollars in millions)
Annuity and interest sensitive life product
charges.......................................... $84.3 20.9% $14.6 $ 69.7
Management fee revenue............................... 12.4 26.2 2.6 9.8
Net investment income................................ 42.8 34.6 11.0 31.8
Realized losses on investments....................... (1.9) (27.2) 0.7 (2.6)
------ ----- ----- ------
$137.6 26.5% $28.9 $108.7
====== ===== ===== ======
Total revenues increased 26.5% in the first six months of 2001 from the same
period in 2000. Annuity and interest sensitive life product charges increased
20.9% in the first six months of 2001 due to additional fees earned from the
higher average block of business under management in the variable separate
accounts and higher surrender charges.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"). The fee paid to Golden American for these services,
which is calculated as a percentage of average assets in the variable separate
accounts, was $11.5 million and $9.0 million for the first six months of 2001
and 2000, respectively. This increase was due to the increasing average assets
in the variable separate accounts and renegotiation of the fee paid by DSI to
Golden American during the third quarter of 2000.
Net investment income increased 34.6% in the first six months of 2001 due to a
growth in invested assets from June 30, 2000 mainly related to the introduction
of the Guarantee product. The Companies had $1.9 million of realized losses on
the sale of investments in the first six months of 2001, compared to losses of
$2.6 million in the same period of 2000.
EXPENSES
Total insurance benefits and expenses increased $23.3 million, or 27.4%, to
$108.2 million in the first six months of 2001 from the same period in 2000.
Interest credited to account balances decreased $9.9 million, or 9.9%, to $90.2
million in the first six months of 2001. The premium credit on the Premium Plus
product decreased $23.3 million to $50.3 million at June 30, 2001 and the bonus
interest on the fixed account decreased $0.6 million to $4.2 million at June 30,
2001. These decreases were partially offset by an increase in interest credited
due to higher average account balances associated with the Companies' fixed
account options, mainly due to the introduction of the Guarantee product.
Commissions decreased $3.6 million, or 3.2%, to $108.6 million in the first six
months of 2001. Insurance taxes, state licenses, and fees increased $0.6
million, or 21.2%, to $3.5 million in the first six months of 2001. Changes in
commissions and insurance taxes, state licenses, and fees are generally related
to changes in the level and mix or composition of fixed and variable product
sales. Most costs incurred as the result of sales have been deferred, thus
having very little impact on current earnings.
13
ACC-111467
General expenses increased $16.8 million, or 41.8%, to $57.0 million in the
first six months of 2001. 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. Also contributing to this increase in general
expenses are additional cost allocations during the first six months of 2001.
The increase in general expenses was partially offset by reimbursements received
from DSI, Equitable Life Insurance Company of Iowa ("Equitable Life"), 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 the Companies.
During the first six months of 2001 and 2000, the value of purchased insurance
in force ("VPIF") was adjusted to increase amortization by $245,000 and
$707,000, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits. Based on current conditions and assumptions
as to the impact of future events on acquired policies in force, the expected
approximate net amortization relating to VPIF as of June 30, 2001 is $2.0
million for the remainder of 2001, $3.4 million in 2002, $3.0 million in 2003,
$2.5 million in 2004, $1.8 million in 2005, and $1.4 million in 2006. Actual
amortization may vary based upon changes in assumptions and experience.
Amortization of deferred policy acquisition costs ("DPAC") decreased $6.1
million, or 17.1%, in the first six months of 2001. Deferred policy acquisition
costs decreased $72.8 million, or 74.5%, for the six months ended June 30, 2001.
The decrease in the amortization and the amount of policy acquisition costs
deferred was mainly due to an increase in the amount of deferred costs that have
been offset due to the modified coinsurance agreement entered into during the
second quarter of 2000.
Expenses and charges reimbursed to Golden American under modified coinsurance
agreements increased from $115.8 million for the six months in 2000 to $162.7
million during the first six months in 2001. This was primarily due to a
modified coinsurance agreement which was entered into during the second quarter
of 2000, with Equitable Life, an affiliate, covering a considerable portion of
Golden American's variable annuities issued after January 1, 2000, excluding
those with an interest rate guarantee. Under this reinsurance agreement, $160.9
million in expenses and charges were reimbursed during the first six months of
2001. This reimbursement offset deferred policy acquisition costs and
non-deferrable costs related to policies reinsured under this agreement.
Interest expense decreased 6.0%, or $0.6 million, to $9.5 million in the first
six months of 2001. Interest expense on a $25 million surplus note issued
December 1996 and expiring December 2026 was $1.0 million for the first six
months of 2001, unchanged from the same period of 2000. Interest expense on a
$60 million surplus note issued in December 1998 and expiring December 2028 was
$2.2 million for the first six months of 2001, unchanged from the same period of
2000. Interest expense on a $75 million surplus note, issued September 1999 and
expiring September 2029 was $2.9 million for the first six months of 2001 and
2000. Interest expense on a $50 million surplus note, issued December 1999 and
expiring December 2029 was $2.0 million for the first six months of 2001 and
$2.1 million in 2000. Interest expense on a $35 million surplus note issued
December 1999 and expiring December 2029 was $1.4 million for the first six
months of 2001 and $1.6 million in 2000. Golden American also paid $25,000 in
2001 and $284,000 in 2000 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 $1,000 and $36,000 for the first
six months of 2001 and 2000, respectively.
INCOME
Net income was $12.1 million for the first six months of 2001, an increase of
$4.0 million, or 50.2% from the same period of 2000.
Comprehensive income for the first six months of 2001 was $17.4 million, an
increase of $10.4 million from comprehensive income of $7.0 million in the same
period of 2000.
14
ACC-111467
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.
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 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 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
15
ACC-111467
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.
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
16
ACC-111467
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 DPAC, 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
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 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.
17
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1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................................... 770.7 30.9 182.0 588.7
-------- ----- -------- --------
Total variable annuity premiums...................... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............................... 8.6 (37.8) (5.2) 13.8
-------- ----- -------- --------
Total premiums....................................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ===== ======== ========
For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers each having at least ten percent of total sales for the year
ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to
$528.9 million, or 26%, from two significant broker/dealers for the year ended
December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
Annuity and interest sensitive life product
charges.......................................... $ 82.9 112.0% $43.8 39.1
Management fee revenue............................... 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) 93.3 (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 $11.1
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.
18
ACC-111467
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)
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
Expenses and charges reimbursed under
modified coinsurance agreements................ (9.2) 64.3 (3.6) (5.6)
------- ----- ----- ------
$ 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 DPAC, VPIF, and unearned revenue reserve
were eliminated and a new asset of $44.3 million representing VPIF was
established for all policies in force at the merger date. During 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. During 1998,
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ACC-111467
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 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 Life.
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 increased 50.1% and 48.4%, respectively, during
the first six months of 2001 after decreasing 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 increase in the carrying
value of the Companies' investment portfolio was due mainly to net purchases, as
well as changes in unrealized appreciation and depreciation of fixed maturities.
Growth in the cost basis of the Companies' investment portfolio resulted from
the investment of premiums from the sale of the Companies' fixed account options
due mainly to the introduction of the Guarantee product. The Companies manage
the growth of insurance operations in order to maintain adequate capital ratios.
To support the fixed account options of the Companies' insurance products, cash
flow was invested primarily in fixed maturities and mortgage loans on real
estate.
At June 30, 2001 and 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 100.4% and 99.3% of amortized
cost value at June 30, 2001 and December 31, 2000, respectively.
Fixed Maturities: At June 30, 2001, the Companies had fixed maturities with an
amortized cost of $1.2 billion and an estimated fair value of $1.2 billion. The
Companies classify 100% of securities as available for sale. Net unrealized
appreciation of fixed maturities of $5.2 million was comprised of gross
appreciation of $13.9 million and gross depreciation of $8.7 million. Net
unrealized holding gains on these securities, net of adjustments for VPIF, DPAC,
and deferred income taxes of $1.2 million, were included in stockholder's equity
at June 30, 2001.
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ACC-111467
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).
The individual securities in the Companies' fixed maturities portfolio (at
amortized cost) include investment grade securities, which include securities
issued by the U.S. government, its agencies, and corporations that are rated at
least A- by Standard & Poor's Rating Services ("Standard & Poor's") ($589.9
million or 48.1% at June 30, 2001 and $519.9 million or 65.1% at December 31,
2000), that are rated BBB+ to BBB- by Standard & Poor's ($239.7 million or 19.6%
at June 30, 2001 and $117.9 million or 14.7% at December 31, 2000), and below
investment grade securities, which are securities issued by corporations that
are rated BB+ and lower by Standard & Poor's ($118.5 million or 9.6% at June 30,
2001 and $53.5 million or 6.7% at December 31, 2000). Securities not rated by
Standard & Poor's had a National Association of Insurance Commissioners ("NAIC")
rating of 1, 2, 3, 4, 5, or 6 ($278.0 million or 22.7% at June 30, 2001 and
$106.9 million or 13.4% at December 31, 2000). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.9% and 6.8% at
June 30, 2001 and December 31, 2000, respectively.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At June 30, 2001, the amortized cost value of the Companies' total investments
in below investment grade securities, excluding mortgage-backed securities, was
$133.3 million, or 8.9%, of the Companies' investment portfolio ($65.1 million,
or 6.4% at December 31, 2000). The Companies do not expect the percentage of the
portfolio invested in below investment grade securities, excluding
mortgage-backed securities, to exceed 10% of the investment portfolio. At June
30, 2001, the yield at amortized cost on the Companies' below investment grade
portfolio was 8.4% compared to 6.9% for the Companies' investment grade
corporate bond 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 $131.2 million, or
98.4% of amortized cost value, at June 30, 2001 ($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.
During the first six months of 2001 and the year ended December 31, 2000, fixed
maturities designated as available for sale with a combined amortized cost of
$233.3 million and $211.3 million, respectively, were sold, called, or repaid by
their issuers. In total, net pre-tax losses from sales, calls, and repayments of
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ACC-111467
fixed maturities amounted to $0.5 million in the first six months to June 2001.
During the first six months of 2001, Golden American determined that the
carrying value of three impaired bonds exceeded their estimated net realizable
value. As a result, at June 30, 2001, Golden American recognized a total pre-tax
loss of approximately $679,000 to reduce the carrying value of the bonds to
their net realizable value of $365,000. For year ended December 31, 2000, net
pre-tax losses from sales, calls, and repayment of fixed maturities amounted to
$6.1 million, 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: As of December 31, 2000, 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 10.0% and
9.9% of the Companies' investment portfolio at June 30, 2001 and December 31,
2000, respectively. Mortgages outstanding were $150.6 million at June 30, 2001
with an estimated fair value of $151.1 million. 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 60
loans with an average size of $2.5 million at June 30, 2001. 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
Ohio (17% in 2001 and 4% in 2000) and California (16% in 2001 and 15% in 2000).
There are no other concentrations of mortgage loans on real estate in any state
exceeding ten percent at June 30, 2001 and December 31, 2000. Mortgage loans on
real estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (24% in 2001 and 29% in 2000),
industrial buildings (27% in 2001 and 35% in 2000), retail facilities (24% in
2001 and 18% in 2000), and multi-family apartments (21% in 2001 and 10% in
2000). At June 30, 2001 and December 31, 2000, the yield on the Companies'
mortgage loan portfolio was 7.1% and 7.3%, respectively.
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. 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 June 30, 2001 and 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 $9.4 million during the first
six months of 2001 and $19.1 million during 2000, due largely to an increase of
$6.8 million during the first six months of 2001 and $14.6 million during 2000
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 in 2000 was mainly due
to an increase in reinsurance receivable from surrenders, and was consistent
with an increase in ceded premiums from 1999 to 2000.
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ACC-111467
Amounts due from affiliates were $68,000 and $38.8 million at June 30, 2001 and
December 31, 2000, respectively. At December 31, 2000, the companies had a
receivable of $35.0 million related to a capital contribution from its parent
Equitable of Iowa. Most of the remaining balance at December 31, 2000 was due to
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 acquisition
of Equitable of Iowa and its subsidiaries by ING Groep N.V. ("ING Group") on
October 24, 1997 (the "acquisition date"). The Companies' previous balances of
DPAC and VPIF were eliminated as of the acquisition date, and an asset
representing VPIF was established for all policies in force at the acquisition
date. VPIF is amortized into income in proportion to the expected gross profits
of in force acquired business in a manner similar to DPAC amortization. Any
expenses which vary directly with the sales of the Companies' products are
deferred and amortized. At June 30, 2001, the Companies had DPAC and VPIF
balances of $624.6 million and $22.3 million, respectively ($635.1 million and
$25.9 million, respectively, at December 31, 2000). During the first six months
of 2001 and 2000, VPIF was adjusted to increase amortization by $245,000 and by
$707,000, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits.
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 June 30, 2001 and December 31,
2000 was $13.9 million and $11.9 million, respectively.
Other assets increased $22.3 million during first six months of 2001 and $29.5
million during 2000, due mainly to increases in the receivable for securities
sold.
At June 30, 2001, the Companies had $10.4 billion of separate account assets
compared to $9.8 billion at December 31, 2000. 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 June 30, 2001, the Companies had total assets of $12.8 billion, an 8.4%
increase from December 31, 2000. At December 31, 2000, the Companies had total
assets of $11.9 billion, a 26.2% increase from December 31, 1999.
LIABILITIES. During the six months ended June 30, 2001, future policy benefits
for annuity and interest sensitive life products increased $393.9 million, or
37.1%, to $1.5 billion reflecting net sales of the Companies' fixed account
net of transfers to the separate account options.
During the year ended December 31, 2000, 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 Life, which matures on December 17,
2026. As a result of the merger of Equitable Life into EIC, the surplus note is
now payable to EIC.
23
ACC-111467
Amounts due to affiliates decreased $4.8 million or 24.0% to $15.1 million
during the first six months of 2001. This is mainly due to the partial cash
settlement of a liability for the modified coinsurance agreement with Equitable
Life.
During the year ended December 31, 2000, 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 $42.0 million or 60.6% to $111.4 million during the
first six months of 2001 due to the increase in the payable for securities
purchased. 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.
The Companies total liabilities increased $971.2 million or 8.6%, during the
first six months 2001 and totaled $12.2 billion at June 30, 2001. 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 $165.0 million in the first six
months of 2001 compared to net cash provided by operating activities of $33.3
million in the same period of 2000. 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 commissions and other deferrable expenses related to the continued growth
in the variable annuity products. For the six months ended June 30, 2001 and
2000, negative operating cash flows have been offset by the effects of a
modified coinsurance agreement entered into during the second quarter of 2000
with Equitable Life. This resulted in a net cash settlement of $160.9 million in
the first six months of 2001. For the six months ended June 30, 2000, this
modified coinsurance resulted in a net cash settlement of $111.8 million. Also
contributing to this increase in net cash provided by operating activities is an
increase in the payable for securities purchased at June 30, 2001. During 2000,
these 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.
24
ACC-111467
Net cash used in investing activities was $486.4 million during the first six
months of 2001 compared to net cash provided by investing activities of $39.5
million in the same period of 2000. This increase in the net cash used in
investing activities is primarily due to net purchases of fixed maturities and
mortgage loans on real estate during the first six months of 2001 versus net
sales in 2000. Net purchases of fixed maturities reached $428.6 million during
the first six months of 2001 versus net sales of $22.2 million in the same
period of 2000. Net purchases of mortgage loans on real estate reached $50.9
million in the first six months of 2000 versus net purchases of $5.6 million
during the same period in 2000. These investment purchases were mainly due to an
increase in sales of the Companies fixed account options, primarily from the
introduction of the Guarantee product in the fourth quarter of 2000.
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 provided by financing activities was $309.4 million during the first
six months of 2001 compared to net cash used in financing activities of $25.7
million during the same period in 2000. In the first six months of 2001, net
cash provided by financing activities was positively impacted by net fixed
account deposits of $663.5 million compared to $267.8 million in the same period
of 2000 due primarily to the introduction of the Guarantee product in the fourth
quarter of 2000. In addition, there was a decrease of $49.6 million in net
reallocations to Separate Accounts. In the first six months of 2001, net cash
provided by financing activities was negatively impacted by a decrease in
capital contributions from the Parent as well as a decrease in the amount of
proceeds received from reciprocal loan agreement borrowings. The Companies
received $7.0 million and $80.0 million of capital contributions from the Parent
in the first six months of 2001 and 2000, respectively. During the first six
months of 2000, the Companies received a net amount of $40.0 million from
reciprocal loan agreement borrowings.
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. This revolving note payable was amended and restated in
April 2001 with an expiration date of May 31, 2002. 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 before reinsurance. 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.
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ACC-111467
During the first quarter of 1999, Golden American's operations were moved to
a new site in West Chester, Pennsylvania. Currently, Golden American occupies
125,000 square feet of leased space. 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 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: Golden American has reinsurance treaties with five 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 $25,000,000
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.
26
ACC-111467
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material amount
of market risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the
Companies to respond to changes in market interest rates, changes in prepayment
risk, changes in relative values of asset sectors and individual securities and
loans, changes in credit quality outlook, and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risks, as well as other risks. The Companies'
asset/liability management discipline includes strategies to minimize exposure
to loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
year end 2000 levels, variable separate account funds, which represent 88% of
the in force as of June 30, 2001, 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 12% of the in force as of June 30, 2001 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.
27
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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-dealer 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 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") $0.2 million for the first six months of 2001, $1.3
million for 2000, and $1.3 million for 1999 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 $11.5 million, $21.3 million and $10.1 million for the first six months of
2001 and 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 first six
months of 2001 and for the years ended December 31, 2000 and 1999, Golden
American and First Golden incurred fees of $1.7 million, $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
$2.7 million for the first six months of 2001 and $6.2 million for 2000 and $6.1
million for 1999.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.1 million for the first six months of 2001 and $0.2 million for 2000
and $0.4 for 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 the
first six months of 2001 and $0.5 million for 2000 and $0.2 million for 1999.
28
ACC-111467
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 $0.2 million in the first
six months of 2001 and $0.6 million for 2000 and $0.5 million for 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies totaled $0.1 million for the first
six months of 2001 and $0.3 million for 2000 and $0.2 million for 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies totaled $0.06 million for the first six
months of 2001 and $0.1 million for 2000 and $0.1 million for 1999.
Golden American has a guaranty agreement with Equitable Life, an affiliate. In
consideration of an annual fee, payable June 30, Equitable Life guarantees to
Golden American that it will make funds available, if needed, to Golden American
to pay the contractual claims made under the provisions of Golden American's
life insurance and annuity contracts. The agreement is not, and nothing
contained therein or done pursuant thereto by Equitable Life shall be deemed to
constitute, a direct or indirect guaranty by Equitable Life of the payment of
any debt or other obligation, indebtedness, or liability of any kind or
character whatsoever, of Golden American. The agreement does not guarantee the
value of the underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been invested. The
calculation of the annual fee is based on risk based capital. On June 30, 2001
and for 2000, Golden American incurred a fee of $12,000 and $7,000,
respectively, under this agreement. No annual fee was paid in 1999.
DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) of the variable insurance products
issued by Golden American which as of December 31, 2000, are sold through other
broker/dealer institutions. For the first six months of 2001 and the years 2000
and 1999, commissions paid by Golden American to DSI (including commissions paid
by First Golden) aggregated $108.3 million, $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 Life 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.
29
ACC-111467
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 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 (45) Chief Executive Officer and Director
Chris D. Schreier (45) President
Barnett Chernow (50) President and CEO, Investment Products Group
Myles R. Tashman (58) Executive Vice President, General Counsel
and Assistant Secretary
Wayne R. Huneke (50) Director and Chief Financial Officer
Thomas J. McInerney (45) Director
Mark A. Tullis (46) 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 (44) Executive Vice President and Chief Actuary
David S. Pendergrass (41) Vice President and Treasurer
David L. Jacobson (52) Senior Vice President and Assistant Secretary
William L. Lowe (37) Senior Vice President
Steven G. Mandel (42) Senior Vice President and Chief Information Officer
Gary F. Haynes (56) Senior Vice President and Assistant Secretary
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:
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ACC-111467
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.
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.
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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. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998 he was with F&G Life
Insurance Company; serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President, Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE AND OTHER INFORMATION
The following sets forth information with respect to the Chief Executive Officer
of Golden American as well as the annual salary and bonus for the next 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.
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LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS/1/ OPTIONS OPTIONS COMPENSATION/2/
------------------ ---- ------ -------- ------------ ---------- ----------------
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 1999 $ 191,589 $ 737,933 $ 2,924
President 1998 $ 165,816 $ 528,299 $ 756
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 1998 $ 173,870 $ 32,152 3,500
Chief Actuary
Gary Haynes.............. 2000 $ 201,136 $ 404,773 3,000 $ 14,735
Senior Vice 1999 $ 159,030 $ 50,000 $ 9,540
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.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
% OF TOTAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE APPRECIATION
OPTIONS IN FISCAL OR BASE EXPIRATION FOR OPTION TERM/3/
------------------------
NAME GRANTED/1/ YEAR PRICE/2/ DATE 5% 10%
---- ----------- ---------- -------- ---------- --------- ---------
Barnett Chernow.......... 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.
33
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--------------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2001
34
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2001 - $1,226,036; 2000 - $798,751)........................ $ 1,231,210 $ 792,578
Equity securities, at fair value
(cost: 2001 - $66; 2000 - $8,611)................................... 58 6,791
Mortgage loans on real estate....................................... 150,620 99,916
Policy loans........................................................ 13,910 13,323
Short-term investments.............................................. 30,297 17,102
----------- -----------
Total investments...................................................... 1,426,095 929,710
Cash and cash equivalents.............................................. 140,894 152,880
Reinsurance recoverable................................................ 21,975 19,331
Reinsurance recoverable from affiliate................................. 21,400 14,642
Due from affiliates.................................................... 68 38,786
Accrued investment income.............................................. 16,364 9,606
Deferred policy acquisition costs...................................... 624,624 635,147
Value of purchased insurance in force ................................. 22,286 25,942
Current income taxes recoverable....................................... 221 511
Deferred income tax asset.............................................. 994 9,047
Property and equipment, less allowances for depreciation of
$8,298 in 2001 and $5,638 in 2000................................... 11,384 14,404
Goodwill, less accumulated amortization of $13,853 in 2001
and $11,964 in 2000................................................. 137,274 139,163
Other assets........................................................... 54,367 32,019
Separate account assets................................................ 10,370,337 9,831,489
----------- -----------
Total assets........................................................... $12,848,283 $11,852,677
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products...................... $ 1,456,796 $ 1,062,891
Unearned revenue reserve.......................................... 6,550 6,817
Other policy claims and benefits.................................... 177 82
----------- -----------
1,463,523 1,069,790
Surplus notes.......................................................... 245,000 245,000
Revolving note payable................................................. 1,400 --
Due to affiliates...................................................... 15,121 19,887
Other liabilities...................................................... 111,405 69,374
Separate account liabilities........................................... 10,370,337 9,831,489
----------- -----------
12,206,786 11,235,540
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.......................................... 590,640 583,640
Accumulated other comprehensive income (loss)....................... 1,179 (4,046)
Retained earnings .................................................. 47,178 35,043
----------- -----------
Total stockholder's equity............................................. 641,497 617,137
----------- -----------
Total liabilities and stockholder's equity............................. $12,848,283 $11,852,677
=========== ===========
See accompanying notes.
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Revenues:
Annuity and interest sensitive life product charges................. $ 84,284 $ 69,734
Management fee revenue.............................................. 12,438 9,856
Net investment income............................................... 42,771 31,775
----------- ----------
Realized losses on investments...................................... (1,919) (2,637)
137,574 108,728
Insurance benefits and expenses: Annuity and interest sensitive life benefits:
Interest credited to account balances............................... 90,153 100,068
Benefit claims incurred in excess of account balances............... 2,851 3,211
Underwriting, acquisition, and insurance expenses:
Commissions......................................................... 108,600 112,158
General expenses.................................................... 56,989 40,179
Insurance taxes, state licenses, and fees........................... 3,528 2,910
Policy acquisition costs deferred................................. (24,925) (97,724)
Amortization:
Deferred policy acquisition costs............................... 29,632 35,757
Value of purchased insurance in force............................. 2,175 2,278
Goodwill.......................................................... 1,889 1,889
Expense and charges reimbursed under modified
coinsurance agreements (162,668) (115,792)
----------- ----------
108,224 84,934
Interest expense....................................................... 9,508 10,115
----------- ----------
117,732 95,049
----------- ----------
Income before income taxes............................................. 19,842 13,679
Income taxes........................................................... 7,707 5,602
----------- ----------
Net income............................................................. $ 12,135 $ 8,077
=========== ==========
See accompanying notes.
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. $ 165,012 $ 33,298
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale............................... 229,916 123,182
Equity securities................................................... 6,894 5,195
Mortgage loans on real estate....................................... 60,621 3,281
Policy loans - net.................................................. -- 1,732
Short-term investments - net........................................ -- 17,880
------------- ------------
297,431 151,270
Acquisition of investments:
Fixed maturities - available for sale............................... (658,495) (100,936)
Mortgage loans on real estate....................................... (111,532) (8,887)
Policy loans - net.................................................. (587) --
Short term investments - net........................................ (13,195) --
------------- ------------
(783,809) (109,823)
Net sale (purchase) of property and equipment.......................... 18 (1,974)
Issuance of reciprocal loan agreement receivables...................... -- (16,900)
Receipt of repayment of reciprocal loan agreement receivables.......... -- 16,900
------------- ------------
Net cash (used in) provided by investing activities.................... (486,360) 39,473
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings..................... 29,300 177,900
Repayment of reciprocal loan agreement borrowings...................... (29,300) (137,900)
Proceeds from revolving note payable................................... 1,400 54,800
Repayment of revolving note payable.................................... -- (56,200)
Receipts from annuity and interest sensitive life
policies credited to account balances............................... 734,162 355,662
Return of account balances on annuity
and interest sensitive life policies................................ (70,613) (87,841)
Net reallocations to Separate Accounts................................. (362,587) (412,150)
Contribution from parent .............................................. 7,000 80,000
------------- ------------
Net cash provided by (used in) financing activities.................... 309,362 (25,729)
------------- ------------
Increase (decrease) in cash and cash equivalents....................... (11,986) 47,042
Cash and cash equivalents at beginning of period....................... 152,880 76,690
------------- ------------
Cash and cash equivalents at end of period............................. $ 140,894 $ 123,732
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest............................... $ 9,475 $ 12,649
See accompanying notes.
37
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All adjustments
were of a normal recurring nature, unless otherwise noted in Management's
Discussion and Analysis and the Notes to Financial Statements. Operating results
for the six months ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. These
financial statements should be read in conjunction with the financial statements
and related footnotes included in the Golden American Life Insurance Company's
annual report on Form 10-K for the year ended December 31, 2000.
CONSOLIDATION
The condensed consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned subsidiary, First
Golden American Life Insurance Company of New York ("First Golden," and with
Golden American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS: As of January 1, 2001, the Companies adopted FAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended
and interpreted by FAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133, and certain FAS No. 133
implementation issues. This standard, as amended, requires companies to record
all derivatives on the balance sheet as either assets or liabilities and measure
those instruments at fair value. The manner in which companies are to record
gains or losses resulting from changes in the fair values of those derivatives
depends on the use of the derivative and whether it qualifies for hedge
accounting.
Adoption of FAS No. 133 did not have a material effect on the Companies'
financial position or results of operations given the Companies' limited
derivative and embedded derivative holdings.
The Companies chose to elect a transition date of January 1, 1999 for embedded
derivatives. Therefore, only those derivatives embedded in hybrid instruments
issued, acquired or substantively modified by the entity on or after January 1,
1999 are recognized as separate assets or liabilities. The cumulative effect of
the accounting change upon adoption was not material.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Companies may
from time to time utilize various derivative instruments to manage interest rate
and price risk (collectively, market risk). The Companies have appropriate
controls in place, and financial exposures are monitored and managed by the
Companies as an integral part of their overall risk management program.
Derivatives are recognized on the balance sheet at their fair value. The
Companies occasionally purchase a financial instrument that contains a
derivative instrument that is "embedded" in the instrument. The Companies'
insurance products are also reviewed to determine whether they contain an
embedded derivative. The Companies assess whether the economic characteristics
of the embedded derivative are clearly and closely related to the economic
characteristics of the remaining
38
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2001
1. BASIS OF PRESENTATION (continued)
component of the financial instrument or insurance product (i.e., the host
contract) and whether a separate instrument with the same terms as the embedded
instrument would meet the definition of a derivative instrument. When it is
determined that the embedded derivative possesses economic characteristics that
are not clearly and closely related to the economic characteristics of the host
contract and that a separate instrument with the same terms would qualify as a
derivative instrument, the embedded derivative is separated from the host
contract and carried at fair value. In cases where the host contract is measured
at fair value, with changes in fair value reported in current period earnings,
or the Companies are unable to reliably identify and measure the embedded
derivative for separation from its host contract, the entire contract is carried
on the balance sheet at fair value and is not designated as a hedging
instrument.
PENDING ACCOUNTING STANDARDS: In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 141,
"Business Combinations", and No. 142, "Goodwill and Other Intangible Assets",
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives. The Companies are required to adopt the new rules effective
January 1, 2002. The Companies are evaluating the impact of the adoption of
these standards and have not yet determined the effect of adoption on their
financial position and results of operations.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $54,982,000 and $12,235,000 for the six months ended
June 30, 2001 and 2000, respectively. Total statutory capital and surplus was
$360,926,000 at June 30, 2001 and $406,923,000 at December 31, 2000.
The National Association of Insurance Commissioners has revised the Accounting
Practices and Procedures Manual, the guidance that defines statutory accounting
principles. The revised manual was 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 has resulted in changes to the accounting practices that the
Companies use to prepare their statutory-basis financial statements. The impact
of these changes to the Companies' statutory-basis capital and surplus as of
January 1, 2001 was not significant.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to conform to the June 30, 2001 financial statement presentation.
2. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the second quarters of 2001 and 2000, total comprehensive
income for the Companies amounted to $2.7 million and $6.4 million,
respectively, and $17.4 million and $7.0 million for the six months ended June
30, 2001 and 2000, respectively. Other comprehensive income excludes net
investment losses included in net income which merely represent transfers from
unrealized to realized gains and losses. These amounts totaled $883,000 and
$120,000 during the second quarters of 2001 and 2000, respectively, and $185,000
and $588,000 for the six months ended June 30, 2001 and 2000, respectively. Such
amounts, which have been measured through the date of sale, are net of income
taxes and adjustments for the value of purchased insurance in force and deferred
policy acquisition costs totaling $1,736,000 and $(1,200,000) for the second
quarters of 2001 and 2000, respectively, and $(104,000) and $(2,041,000) for the
six months ended June 30, 2001 and 2000, respectively.
39
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
3. INVESTMENTS
Investment Valuation Analysis: The Companies analyze the investment portfolio at
least quarterly in order to determine if the carrying value of any investment
has been impaired. The carrying value of debt and equity securities is written
down to fair value by a charge to realized losses when impairment in value
appears to be other than temporary. During the first quarter of 2001, Golden
American determined that the carrying value of three bonds exceeded their
estimated net realizable value. As a result, during the six months ended June
30, 2001, Golden American recognized a total pre-tax loss of $679,000 to reduce
the carrying value of the bonds to their combined net realizable value of
$365,000.
4. DERIVATIVE INSTRUMENTS
The Companies may from time to time utilize various derivative instruments to
manage interest rate and price risk (collectively, market risk). The Companies
have appropriate controls in place, and financial exposures are monitored and
managed by the Companies as an integral part of their overall risk management
program. Derivatives are recognized on the balance sheet at their fair value. At
June 30, 2001, the Companies did not utilize any such derivatives. The estimated
fair values and carrying amounts of the Companies' embedded derivatives at June
30, 2001 were $0, net of reinsurance. The estimated fair values and carrying
amounts of the embedded derivatives on a direct basis, before reinsurance, were
$1.1 million.
The fair value of these instruments was estimated based on quoted market prices,
dealer quotations or internal estimates.
5. RELATED PARTY TRANSACTIONS
Operating Agreements: Directed Services, Inc. ("DSI"), an affiliate, acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) and distributor of the variable
insurance products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. The
Companies paid commissions to DSI totaling $52,514,000 and $108,398,000 in the
second quarter and the first six months of 2001, respectively ($53,398,000 and
$109,252,000, respectively, for the same periods of 2000).
Golden American provides certain managerial and supervisory services to DSI. The
fee paid by DSI for these services is calculated as a percentage of average
assets in the variable separate accounts. For the second quarter and six months
ended June 30, 2001, the fee was $5,831,000 and $11,533,000, respectively
($4,740,000 and $9,058,000, respectively, for the same periods of 2000).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
second quarter and the first six months of 2001, the Companies incurred fees of
$858,000 and $1,701,000, respectively, under this agreement ($616,000 and
$1,274,000, respectively, for the same periods of 2000).
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
40
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
5. RELATED PARTY TRANSACTIONS (continued)
variable annuity policies have been invested. The calculation of the annual fee
is based on risk based capital. On June 30, 2001 and 2000, Golden American
incurred a fee of $12,000 and $7,000, respectively, under this agreement.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1,360,000 and $2,719,000 for the
second quarter and six months ended June 30, 2001, respectively ($1,708,000 and
$3,276,000, respectively, for the same periods of 2000).
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 $77,000 and $152,000 for the
second quarter and six months ended June 30, 2001, respectively ($355,000 and
$667,000, respectively, for the same periods in 2000).
First Golden provides resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by First Golden, totaled
$8,000 and $134,000 for the second quarter and six months ended June 30, 2001,
respectively ($56,000 and $108,000, respectively, for the same periods in 2000).
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 $430,000 and $478,000 for the
second quarter and six months ended June 30, 2001, respectively ($165,000 and
$270,000, respectively, for the same periods in 2000).
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 $97,000 and $199,000 for
the second quarter and six months ended June 30, 2001, respectively ($149,000
and 318,000, respectively, for the same periods in 2000).
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $79,000 and $133,000 for the
second quarter and six months ended June 30, 2001, respectively ($56,000 and
$108,000, respectively, for the same periods in 2000).
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $34,000 and $63,000 for the second
quarter and six months ended June 30, 2001, respectively ($26,000 and $52,000,
respectively, for the same periods in 2000).
For the second quarter of 2001, the Companies received premiums, net of
reinsurance, for variable products sold through eight affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), IFG Network
Securities, Inc. ("IFG"), Washington Square Securities, Inc. ("Washington
Square"), PrimeVest Financial ("PrimeVest"), and Compulife Investor Services,
Inc. ("Compulife") of $28,500,000, $9,100,000, $200,000, $5,900,000, $3,900,000,
$21,600,000, $7,900,000 and $2,200,000, respectively ($9,500,000, $6,900,000,
$100,000, $2,800,000, $1,500,000, $0, $0, and $0, respectively, for the same
period of 2000). For the first six months of 2001, the Companies received
premiums, net of reinsurance for variable products sold through eight
affiliates, LSSI, Vestax, DSI, Multi-Financial, IFG, Washington Square,
PrimeVest, and Compulife of $37,900,000, $12,900,000, $400,000, $9,000,000,
$5,500,000, $28,900,000, $11,000,000, and $3,700,000, respectively ($67,000,000,
$28,300,000, $800,000, $21,100,000, $8,300,000, $0, $0, and $0, respectively,
for the same period of 2000).
For the second quarter and six months ended June 30, 2001, First Golden received
premiums for fixed annuities products sold through Washington Square. of
approximately $450,000 and $550,000, respectively.
41
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
5. RELATED PARTY TRANSACTIONS (continued)
Modified Coinsurance Agreement: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued 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 $50.2 million and $160.9 million for the second quarter and the
six months ended June 30, 2001, respectively ($111.8 million for the second
quarter and the six months ended June 30, 2000). This was offset by a decrease
in deferred acquisition costs of $52.7 million and $160.8 million, respectively,
for the same periods ($109.3 million during the second quarter and the first six
months in 2000). At June 30, 2001, Golden American had a payable to Equitable
Life of $10.0 million due to the timing of the cash settlement for the modified
coinsurance agreement. As at December 31, 2000, Golden American had a payable of
$16.3 million under the 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 minimum guaranteed death
benefits and minimum guaranteed living benefits of variable annuities issued
after January 1, 2000. An irrevocable letter of credit was obtained through Bank
of New York in the amount of $25.0 million related to this agreement. Under this
agreement, Golden American recorded a reinsurance recoverable of $21.4 million
and $14.6 million at June 30, 2001 and December 31, 2000, respectively.
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the 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 $0 and
$254,000 for the second quarters of 2001 and 2000, respectively, and $25,000 and
$336,000 for the six months ended June 30, 2001 and 2000, respectively. At June
30, 2001, Golden American did not have any borrowings or receivables from ING
AIH under this agreement.
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of the note and related accrued interest is
subordinate to payments due to policyholders, claimant and beneficiary claims,
as well as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance Commissioner. Under this
agreement, Golden American incurred interest expense of $1,020,000 and
$1,022,000 for the second quarters of 2001 and 2000, respectively, and
$2,028,000 and $2,056,000 for the six months ended June 30, 2001 and 2000,
respectively.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of the note and related
accrued interest is subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of debtors, other
than surplus note holders, of Golden American. Any payment of principal and/or
interest made is subject to the prior approval of the Delaware Insurance
Commissioner. Under this agreement, Golden American incurred interest expense of
$696,000 and $698,000 for the seconds quarters of 2001 and 2000, respectively,
and $1,385,000 and $1,575,000 for the first six months of 2001 and 2000,
respectively.
42
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
5. RELATED PARTY TRANSACTIONS (continued)
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,449,000 and $1,453,000 for the second quarters
of 2001 and 2000, respectively, and $2,882,000 and $2,906,000 for the first six
months of 2001 and 2000, respectively.
On December 30, 1999, ING AIH assigned the note to Equitable Life. On December
30, 1998, Golden American issued a 7.25% surplus note in the amount of
$60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,085,000 and $1,087,000 for the second quarters
of 2001 and 2000, respectively, and $2,157,000 and $2,175,000 for the first six
months of 2001 and 2000, respectively.
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. The note matures on December 17,
2026. Payment of the note and related accrued interest is subordinate to
payments due to policyholders, claimant, and beneficiary claims, as well as
debts owed to all other classes of debtors of Golden American. Any payment of
principal made is subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling $515,000 for the second
quarters of 2001 and 2000, respectively, and $1,031,000 for the first six months
of 2001 and 2000, respectively.
Stockholder's Equity: During the second quarter and the first six months of
2001, Golden American received capital contributions from its Parent of
$7,000,000 ($0 and $80,000,000, respectively, for the same periods in 2000).
6. COMMITMENTS AND CONTINGENCIES
Reinsurance: At June 30, 2001, the Companies had reinsurance treaties with five
unaffiliated reinsurers and three affiliated reinsurers covering a significant
portion of the minimum guaranteed death and living benefits under its variable
contracts as of June 30, 2001. Golden American remains liable to the extent its
reinsurers do not meet their obligations under the reinsurance agreements.
At June 30, 2001 and December 31, 2000, the Companies had net receivables of
$43,375,000 and $33,973,000, respectively, for reinsurance claims, reserve
credits, or other receivables from these reinsurers. These net receivables were
comprised of $1,350,000 and $1,820,000, respectively, for claims recoverable
from reinsurers, $2,546,000 and $4,007,000, respectively, for a payable for
reinsurance premiums, $21,400,000 and $14,642,000, respectively, for reserve
credits, and $23,171,000 and $21,518,000, respectively, for a receivable from an
unaffiliated reinsurer. Included in the accompanying financial statements are
net considerations to reinsurers of $5,962,000 for the second quarter of 2001
and $12,618,000 for the first six months of 2001 compared to $5,271,000 and
$7,908,000 for the same periods in 2000. Also included in the accompanying
financial statements are net policy benefits of $1,834,000 for the second
quarter of 2001 and $11,777,000 for the first six months of 2001 compared to
$1,278,000 and $1,835,000 for the same period in 2000.
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 after
January 1, 2000, excluding those with an interest rate guarantee. At June 30,
2001, Golden American had received a total settlement of $160.9 million under
this agreement pertaining to 2001. The carrying value of the separate account
liabilities covered under this agreement represent 25.0% of total
43
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
6. COMMITMENTS AND CONTINGENCIES (continued)
separate account liabilities outstanding at June 30, 2001. Golden American
remains liable to the extent Equitable Life does not meet its obligations under
the agreement. The accompanying financial statements are presented net of the
effects of the agreement.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering minimum
guaranteed death benefits and minimum guaranteed living benefits of variable
annuities issued January 1, 2000. An irrevocable letter of credit was obtained
through Bank of New York in the amount of $25,000,000 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 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.
Investment Commitments: At June 30, 2001, outstanding commitments to fund
mortgage loans totaled $65,620,000. There were no outstanding commitments to
fund mortgage loans at December 31, 2000.
Guaranty Fund Assessments: Assessments are levied on the Companies by life and
health guaranty associations in most states in which the Companies are licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially offset through a reduction in future
premium taxes. The Companies cannot predict whether and to what extent
legislative initiatives may affect the right to offset. The associated cost for
a particular insurance company can vary significantly based upon its fixed
account premium volume by line of business and state premiums as well as its
potential for premium tax offset. The Companies have established an undiscounted
reserve to cover such assessments, review information regarding known failures,
and revise estimates of future guaranty fund assessments. The Companies charged
to expense $1,000 in guaranteed fund assessments in the second quarter of 2001
and $2,000 for the first six months of 2001 compared to $1,000 and $2,000 for
the same periods in 2000. At June 30, 2001 and December 31, 2000, the Companies
have an undiscounted reserve of $2,430,000 to cover future assessments (net of
related anticipated premium tax offsets) and have established an asset totaling
$691,000 and $733,000, respectively, for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments based
upon previous premiums and known insolvencies at this time.
Litigation: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the investment portfolio. As of June 30, 2001, the Companies had one investment
(other than bonds issued by agencies of the United States government) exceeding
ten percent of stockholder's equity. The Companies' asset growth, net investment
income, and cash flow are primarily generated from the sale of variable and
fixed 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 on the Companies' financial condition. One
broker/dealer generated 10% of the Companies' net sales during the second
quarter of 2001 (24% by two broker/dealers in the same period of 2000). One
broker/dealer generated 10% of the Companies' net sales during the first six
months of 2001 (12% by one broker/dealer in the same period of 2000). The
Premium Plus product generated 54% and 52% of the Companies' sales during
44
ACC-111467
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2001
6. COMMITMENTS AND CONTINGENCIES (continued)
the second quarter of 2001 and the first six months of 2001 (74% and 75% in the
same periods of 2000). The Guarantee product, introduced in the fourth quarter
of 2000, generated 13% and 18% of the Companies' sales during the second quarter
and the first six months of 2001. The ES II product generated 19% and 16% of the
Companies' sales during the second and the first six months of 2001 (12% and 11%
in the same periods of 2000).
Revolving Note Payable: To enhance short-term liquidity, the Companies
established revolving notes payable with SunTrust Bank, Atlanta (the "Bank").
These revolving notes payable were amended and restated in April 2001 with an
expiration date of May 31, 2002. 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 notes accrue
interest at an annual rate equal to: (1) the cost of funds for the Bank for the
period applicable for the advance plus 0.225% or (2) a rate quoted by the Bank
to the Companies for the advance. The terms of the agreement require the
Companies to maintain the minimum level of Company Action Level Risk Based
Capital as established by applicable state law or regulation. During the second
quarters ended June 30, 2001 and 2000, the Companies incurred interest expense
of $0 and $8,000, respectively. During the six months ended June 30, 2001 and
2000, the Companies incurred interest expense of $1,000 and $36,000,
respectively. At June 30, 2001 and December 31, 2000, the Companies had
borrowings of $1,400,000 and $0, respectively, under these agreements.
45
ACC-111467
--------------------------------------------------------------------------------
Appendix A
--------------------------------------------------------------------------------
The opening paragraph of Appendix A from the May 1, 2001 Prospectus is replaced
with the following:
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, the ProFund VP Europe 30, the AIM V.I. Dent
Demographic Trends Fund, the Pioneer Fund VCT Portfolio, the Pioneer Mid-Cap
Value VCT Portfolio, the INVESCO VIF -- Financial Services Fund, the INVESCO VIF
-- Health Sciences Fund and the INVESCO -- Utilities Fund 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.
Beginning with the June 30, 2001 quarterly statement your contract category now
appears on each quarterly statement.
--------------------------------------------------------------------------------
Appendix E
--------------------------------------------------------------------------------
The following is added to the respective example tables in Appendix E from the
May 1, 2001 Prospectus.
Pre-2000:
Example 1:
----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $43 $129 $217 $442
Pioneer Variable Contracts Trust
Pioneer Fund VCT $38 $114 $193 $398
Pioneer Mid-Cap Value VCT $38 $117 $197 $405
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $39 $119 $200 $412
INVESCO VIF-- Health Sciences $39 $118 $200 $410
INVESCO VIF-- Utilities $42 $128 $215 $438
----------------------------------------------------------------------------------------------------------------------
46
ACC-111467
Example 2:
----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $32 $99 $168 $351
Pioneer Variable Contracts Trust
Pioneer Fund VCT $27 $84 $142 $302
Pioneer Mid-Cap Value VCT $28 $86 $146 $310
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $29 $88 $150 $318
INVESCO VIF-- Health Sciences $29 $88 $149 $316
INVESCO VIF-- Utilities $32 $97 $165 $347
----------------------------------------------------------------------------------------------------------------------
Yr-2000:
Example 1:
----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $45 $135 $226 $458
Pioneer Variable Contracts Trust
Pioneer Fund VCT $40 $120 $202 $416
Pioneer Mid-Cap Value VCT $40 $122 $206 $422
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $41 $125 $210 $429
INVESCO VIF-- Health Sciences $41 $124 $209 $427
INVESCO VIF-- Utilities $44 $133 $224 $454
----------------------------------------------------------------------------------------------------------------------
Example 2:
----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $34 $105 $177 $369
Pioneer Variable Contracts Trust
Pioneer Fund VCT $29 $ 89 $152 $321
Pioneer Mid-Cap Value VCT $30 $ 92 $156 $329
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $31 $ 94 $160 $336
INVESCO VIF-- Health Sciences $31 $ 94 $159 $335
INVESCO VIF-- Utilities $34 $103 $175 $365
----------------------------------------------------------------------------------------------------------------------
47
ACC-111467
Yr-2001:
Example 1:
----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $45 $135 $226 $458
Pioneer Variable Contracts Trust
Pioneer Fund VCT $40 $120 $202 $416
Pioneer Mid-Cap Value VCT $40 $122 $206 $422
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $41 $125 $210 $429
INVESCO VIF-- Health Sciences $41 $124 $209 $427
INVESCO VIF-- Utilities $44 $133 $224 $454
----------------------------------------------------------------------------------------------------------------------
Example 2:
----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends $34 $105 $177 $369
Pioneer Variable Contracts Trust
Pioneer Fund VCT $29 $ 89 $152 $321
Pioneer Mid-Cap Value VCT $30 $ 92 $156 $329
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-- Financial Services $31 $ 94 $160 $336
INVESCO VIF-- Health Sciences $31 $ 94 $159 $335
INVESCO VIF-- Utilities $34 $103 $175 $365
----------------------------------------------------------------------------------------------------------------------
48
ACC-111467
File No. 333-28765
Filed under Rule 424B(3)
ING VARIABLE ANNUITIES
Golden American Life Insurance Company
Separate Account B of Golden American Life Insurance Company
PROSPECTUS SUPPLEMENT
Dated November 6, 2001
Supplement to the Prospectus
Dated November 5, 2001 for
Deferred Combination Variable and Fixed Annuity Contracts
issued by Golden American Life Insurance Company
("GoldenSelect Access Prospectus")
-----------------------------
You should keep this supplement with your Profile and Prospectus.
Effective November 6, 2001, for contract owners in category Yr-2001, the effect
that your allocations to Special Funds have on your benefits will change. To
accomplish this, we have added a new minimum "floor" below which your death
benefit or living benefit will not fall. This means that we will calculate your
benefit as described in the prospectus, but will also calculate a different
amount as described below. The greater of the two values will be used to
determine the death benefit, in the event of your death, or any applicable
living benefit.
DEATH BENEFITS
Standard Death Benefit and Annual Ratchet Enhanced Death Benefit:
No existing subaccounts will be treated as Special Funds for purposes of
calculating the floor for these death benefits. Therefore, the floor will be
calculated as these benefits are described in the prospectus for Yr-2000
contract owners, except that the maximum age for Annual Ratchet will continue to
be 90 for Yr-2001 contract owners. Withdrawals will reduce the floor on a
pro-rata basis. Your death benefit will be the greater of the floor and the
death benefit determined as described in the prospectus for Yr-2001 contract
owners.
7% Solution Enhanced Death Benefit :
The minimum guaranteed death benefit will continue to be calculated as described
in your prospectus for Yr-2001 contract owners. The floor will be calculated in
the same manner as the minimum guaranteed death benefit described in the
prospectus for Yr-2001 contract owners, except as follows.
If you transfer contract value to a Special Fund, the floor will not be reduced
by the transfer. Instead, a portion of the floor (pro rata to the contract value
transferred) just prior to the transfer will be frozen (with 0% subsequent
growth) unless the contract value is transferred back to the Non-Special Funds.
Upon such transfer back to Non-Special Funds, we will resume accumulating that
portion of the floor at the 7% annual effective rate as described in the
prospectus, subject to the age limit and the cap described in the prospectus.
Similarly, for contract value allocated directly to Special Funds, that portion
of the floor will be the contract value allocated, and will not accumulate while
invested in Special Funds. Withdrawals will reduce the floor as described for
the minimum guaranteed death benefit in the prospectus. Your death benefit will
be the greater of the floor and the death benefit determined as described in the
prospectus for Yr-2001 contract owners.
Special Funds- Access- 111516 11/05/01
Max 7 Enhanced Death Benefit
The floor for the Annual Ratchet component and the 7% Solution component will be
calculated independently as described above, and the greater of the two amounts
will be the floor for the Max 7 Enhanced Death Benefit. Your death benefit will
be the greater of the floor and the death benefit determined as described in the
prospectus for Yr-2001 contract owners.
LIVING BENEFITS
Minimum Guaranteed Accumulation Benefit (10 year)
No existing subaccounts will be treated as Special Funds for purposes of
calculating the floor for this benefit. Therefore, the floor will be calculated
as this benefit is described in the prospectus for Yr-2000 contract owners.
Withdrawals and certain transfers will reduce the floor on a pro-rata basis. On
the Benefit Date, your MGAB will be based on the greater of the floor and the
MGAB Base determined as described in the prospectus for Yr-2001 contract owners.
Minimum Guaranteed Accumulation Benefit (20 year)
The MGAB Base will continue to be calculated as described in your prospectus for
Yr-2001 contract owners. The floor will be calculated in the same manner as the
MGAB Base described in the prospectus for Yr-2001 contract owners, except as
follows.
If you transfer contract value to a Special Fund more than 3 years before the
Benefit Date, the floor will not be reduced by the transfer. Instead, a portion
of the floor (pro rata to the contract value transferred) just prior to the
transfer will be frozen (with 0% subsequent growth) unless the contract value is
transferred back to the Non-Special Funds. Upon such transfer back to
Non-Special Funds, we will resume accumulating that portion of the floor at the
MGAB rate described in the prospectus. Similarly, for contract value allocated
directly to Special Funds, that portion of the floor will be the contract value
allocated, and will not accumulate while invested in Special Funds. Withdrawals
and other transfers will reduce the floor as described for the MGAB Base in the
prospectus.
On the Benefit Date, your MGAB will be based on the greater of the floor and the
MGAB Base as described in the prospectus for Yr-2001 contract owners.
2
Special Funds- Access- 111516 11/05/01
Minimum Guaranteed Withdrawal Benefit
No existing subaccounts will be treated as Special Funds for purposes of
calculating the floor for this benefit. Therefore, the floor will be calculated
as this benefit is described in the prospectus for Yr-2000 contract owners. Any
rider benefits payable will be based on the greater of the floor and the MGWB
Withdrawal Account determined as described in the prospectus for Yr-2001
contract owners.
Minimum Guaranteed Income Benefit
The MGIB Benefit Base will continue to be calculated as described in your
prospectus for Yr-2001 contract owners. The floor will be calculated in the same
manner as the MGIB Base described in the prospectus for Yr-2001 contract owners,
except as follows.
If you transfer contract value to a Special Fund, the floor will not be reduced
by the transfer. Instead, a portion of the floor (pro rata to the contract value
transferred) just prior to the transfer will be frozen (with 0% subsequent
growth) unless the contract value is transferred back to the Non-Special Funds.
Upon such transfer back to Non-Special Funds, we will resume accumulating that
portion of the floor at the MGIB rate described in the prospectus, subject to
the age limit and the Maximum described in the prospectus. Similarly, for
contract value allocated directly to Special Funds, that portion of the floor
will be the contract value allocated, and will not accumulate while invested in
Special Funds. Withdrawals will reduce the floor as described for the MGIB Base
in the prospectus.
On the Benefit Date, your MGIB Annuity Income will be based on the greater of
the floor and the MGIB Benefit Base as described in the prospectus for Yr-2001
contract owners.
ING VARIABLE ANNUITIES
Golden American Life Insurance Company
Golden American Life Insurance Company is a stock company domiciled in Delaware.
3
Special Funds- Access- 111516 11/05/01