-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHMq0zdLX7QX2lwtleiAxcjdn/m04NuRHQlo+KYBALEr9aSbl6NC/laatIwACskC MshOy/CPeIS0eH4HXgIXuA== 0000837276-00-000040.txt : 20000214 0000837276-00-000040.hdr.sgml : 20000214 ACCESSION NUMBER: 0000837276-00-000040 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN AMERICAN LIFE INSURANCE CO /NY/ CENTRAL INDEX KEY: 0000836658 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 410991508 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-30186 FILM NUMBER: 536043 BUSINESS ADDRESS: STREET 1: 1475 DUNWOODY DRIVE STREET 2: SUITE 400 CITY: WEST CHESTER STATE: PA ZIP: 19380-1478 BUSINESS PHONE: 610-425-3516 MAIL ADDRESS: STREET 1: 1475 DUNWOODY DRIVE STREET 2: P. O. BOX 2700 CITY: WEST CHESTER STATE: PA ZIP: 19380-2700 FORMER COMPANY: FORMER CONFORMED NAME: MB VARIABLE LIFE INSURANCE CO DATE OF NAME CHANGE: 19600201 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN AMERICAN LIFE INSURANCE CO DATE OF NAME CHANGE: 19600201 S-1 1 NEW REG. FOR FIRST UNION VA (W FEES) As filed with the Securities and Exchange Commission on February 11, 2000 Registration No. 333-___________ - ----------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 GOLDEN AMERICAN LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 6355 (Primary Standard Industrial Classification Code Number) 41-0991508 (I.R.S. Employer Identification No.) Golden American Life Insurance Company 1475 Dunwoody Drive West Chester, PA 19380-1478 (610) 425-3400 (Name, address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Marilyn Talman, Esq. COPY TO: Golden American Life Insurance Company Stephen E. Roth, Esq. 1475 Dunwoody Drive Sutherland Asbill & Brennan LLP West Chester, Pennsylvania 19380-1478 1275 Pennsylvania Avenue, N.W. (610) 425-3400 Washington, D.C. 20004-2404 (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practical after the effective date of the Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box ................................................ [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering [ ].............. If this Form is post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering [ ]..................................... If this Form is post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering [ ]..................................... If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box [ ] - ----------------------------------------------------------------------------- Calculation of Registration Fee
Proposed Title of each class Proposed maximum of securities to be Amount to be maximum offering price aggregate offering Amount of registered registered price per unit(1) price(1) registration fee - -------------------------------------------------------------------------------------------------------- Annuity Contracts (Interests in N/A N/A $378,787.88 $100 Fixed Account)
(1) The maximum aggregate offering price is estimated solely for the purpose of determining the registration fee. The amount to be registered and the proposed maximum offering price per unit are not applicable since these securities are not issued in predetermined amounts or units. - ----------------------------------------------------------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PART I The Prospectus contained herein does not contain all of the information permitted by Securities and Exchange Commission Regulations. Therefore, this Form S-1 for Golden American Life Insurance Company ("Golden American")incorporates by reference the Statement of Additional Information for the GoldenSelect F.U. Combination Variable and Fixed Annuity, and Part C (Other Information) contained in the Registration Statement on Form N-4 (an initial registration statement, File Nos. 333-_____, 811-5626, filed on or about the date hereof) for Golden American Separate Account B. This information may be obtained free of charge from Golden American Life Insurance Company by calling Customer Service at 800-366-0066. PROFILE AND PROSPECTUS OF GOLDENSELECT F.U. VA/R/ GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY [begin shaded block] PROFILE OF GOLDENSELECT [FIRST UNION VA] FIXED AND VARIABLE ANNUITY CONTRACT [__________ __,] 2000 [inset within shaded block] 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. [end inset within shaded block] [end shaded block] 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 27 mutual fund investment portfolios through our Separate Account B and/or (ii) in a fixed account of Golden American with guaranteed interest periods. The 27 mutual fund portfolios are listed on page [3] below. We currently offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10 years in the fixed account. We set the interest rates in the fixed account (which will never be less than 3%) periodically. We may credit a different interest rate for each interest period. The interest you earn in the fixed account as well as your principal is guaranteed by Golden American as long as you do not take your money out before the maturity date for the interest period. If you withdraw your money from the fixed account more than 30 days before the applicable maturity date, we will apply a market value adjustment. A market value adjustment could increase or decrease your contract value and/or the amount you take out. Generally, the investment portfolios are designed to offer a better return than the fixed account. However, this is NOT guaranteed. You may not make any money, and you can even lose the money you invest. The Contract, like all deferred variable annuity contracts, has two phases: the accumulation phase and the income phase. The accumulation phase is the period between the contract date and the date on which you start receiving the annuity payments under your Contract. The amounts you accumulate during the accumulation phase will determine the amount of annuity payments you will receive. The income phase begins on the annuity start date, which is the date you start receiving regular annuity payments from your Contract. You determine (1) the amount and frequency of premium payments, (2) the investments, (3) transfers between investments, (4) the type of annuity to be paid after the accumulation phase, (5) the beneficiary who will receive the death benefit, and (6) the amount and frequency of withdrawals. 2.YOUR ANNUITY PAYMENTS (THE INCOME PHASE) Annuity payments are the periodic payments you will begin receiving on the annuity start date. You may choose one of the following annuity payment options: [FIRST UNION VA] PROFILE PROSPECTUS BEGINS AFTER PAGE [7] OF THIS PROFILE [Table with Shaded Heading] Annuity Options |------------------------------------------------------------------------| | Option 1 Income for a Payments are made for a specified | | fixed period number of years to you | | or your beneficiary. | |------------------------------------------------------------------------| | Option 2 Income for Payments are made for the rest of | | life with a your life or longer for a specified | | period certain 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 | | period if you should die during the | | period. | |------------------------------------------------------------------------| | Option 3 Joint life income Payments are made for your life | | and the life of another person | | (usually your spouse). | |------------------------------------------------------------------------| | Option 4 Annuity plan Any other annuitization plan that we| | choose to offer on the annuity | | start date. | |------------------------------------------------------------------------| Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under Option 4 may be fixed or variable. If variable and subject to the Investment Company Act of 1940, it will comply with the requirements of such Act. Once you elect an annuity option and begin to receive payments, it cannot be changed. 3.PURCHASE (BEGINNING OF THE ACCUMULATION PHASE) You may purchase the Contract with an initial payment of $5,000 or more ($1,500 for a qualified Contract) up to and including age 70. You may make additional payments of $100 or more ($250 for a qualified Contract) at any time before you turn 76 during the accumulation phase. Under certain circumstances, we may waive the minimum initial and additional premium payment requirement. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. Who may purchase this Contract? Contracts offered by the prospectus accompanying this Profile are available only to customers of [ ] and its affiliates. The Contract may be purchased by individuals as part of a personal retirement plan (a "non-qualified Contract"), or as a Contract that qualifies for special tax treatment when purchased as either an Individual Retirement Annuity (IRA) or in connection with a qualified retirement plan (each a "qualified Contract"). The Contract is designed for people seeking long-term tax-deferred accumulation of assets, generally for retirement or other long-term purposes. The tax-deferred feature is more attractive to people in high federal and state tax brackets. You should not buy this Contract if you are looking for a short-term investment or if you cannot risk getting back less money than you put in. 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 27 mutual fund investment portfolios through our Separate Account B. The investment portfolios are described in the prospectuses for the GCG Trust and the Evergreen Variable Annuity Trust. Keep in mind that while an investment in the fixed account earns a fixed interest rate, an investment in any investment portfolio, depending on market conditions, may cause you to make or lose money. The investment portfolios available under your Contract are: THE GCG TRUST Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series Limited Maturity Bond Series Capital Growth Series Strategic Equity Series Global Fixed Income Series Growth Series Small Cap Series Total Return Series Value Equity Series Real Estate Series Fully Managed Series Research Series Hard Assets Series Equity Income Series Managed Global Series Developing World Series Investors Series All Cap Series Emerging Markets Series Large Cap Value Series Capital Appreciation Series EVERGREEN VARIABLE ANNUITY TRUST Evergreen VA Equity Index Fund Evergreen VA Foundation Fund Evergreen VA Global Leaders Fund Evergreen VA Small Cap Value Fund
[FIRST UNION VA] PROFILE 2 5.EXPENSES The Contract has insurance features and investment features, and there are charges related to each. For the insurance features, the Company deducts a mortality and expense risk charge, an asset-based administrative charge and an annual contract administrative charge of $50. We deduct the mortality and expense risk charge and the asset-based administrative charges daily directly from your contract value in the investment portfolios. The mortality and expense risk charge and the asset-based administrative charge, on an annual basis, are as follows: Mortality & Expense Risk Charge 1.25% Asset-Based Administrative Charge 0.15% ----- Total 1.40% Each investment portfolio has charges for investment management fees and other expenses. These charges, which vary by investment portfolio, currently range from [0.59% to 1.83%] annually (see following table) of the portfolio's average daily net asset balance. If you withdraw money from your Contract, or if you begin receiving annuity payments, we may deduct a premium tax of 0%-3.5% to pay to your state. We deduct a surrender charge if you surrender your Contract or withdraw an amount exceeding the free withdrawal amount. The free withdrawal amount is 10% of premium payments not previously withdrawn received within 10 years prior to the date of the withdrawal. The following table shows the schedule of the surrender charge that will apply. The surrender charge is a percent of each premium payment withdrawn. COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10+ SINCE PREMIUM PAYMENT | | | | | | | | | | SURRENDER CHARGE 8.5% | 8.5% | 8.5% | 8.5% | 8.5% | 8% | 7% | 6% | 4% | 2% | 0%
The following table is designed to help you understand the Contract charges. The "Total Annual Insurance Charges" column includes the mortality and expense risk charge, the asset-based administrative charge, and reflects the annual contract administrative charge as [0.17%] (based on an assumed average contract value of $30,000). The "Total Annual Investment Portfolio Charges" column reflects the portfolio charges for each portfolio and are based on actual expenses as of December 31, 1999, except for (i) portfolios that commenced operations during 1998 where the charges have been estimated, and (ii) newly formed portfolios where the charges have been estimated. The column "Total Annual Charges" reflects the sum of the previous two columns. The columns under the heading "Examples" show you how much you would pay under the Contract for a 1-year period and for a 10-year period. As required by the Securities and Exchange Commission, the examples assume that you invested $1,000 in a Contract that earns 5% annually and that you withdraw your money at the end of Year 1 or at the end of Year 10. For Years 1 and 10, the examples show the total annual charges assessed during that time. For these examples, the premium tax is assumed to be 0%. [FIRST UNION VA] PROFILE 3 [Table with Shaded Heading] TOTAL ANNUAL EXAMPLES: TOTAL ANNUAL INVESTMENT TOTAL TOTAL CHARGES AT THE END INSURANCE PORTFOLIO ANNUAL OF: INVESTMENT PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS THE GCG TRUST Liquid Asset % % % [$ ] [$ ] Limited Maturity Bond % % % [$ ] [$ ] Global Fixed Income % % % [$ ] [$ ] Total Return % % % [$ ] [$ ] Fully Managed % % % [$ ] [$ ] Equity Income % % % [$ ] [$ ] Investors % % % [$ ] [$ ] Large Cap Value % % % [$ ] [$ ] Rising Dividends % % % [$ ] [$ ] Capital Growth % % % [$ ] [$ ] Growth % % % [$ ] [$ ] Value Equity % % % [$ ] [$ ] Research % % % [$ ] [$ ] Managed Global % % % [$ ] [$ ] All Cap % % % [$ ] [$ ] Capital Appreciation % % % [$ ] [$ ] Mid-Cap Growth % % % [$ ] [$ ] Strategic Equity % % % [$ ] [$ ] Small Cap % % % [$ ] [$ ] Real Estate % % % [$ ] [$ ] Hard Assets % % % [$ ] [$ ] Developing World % % % [$ ] [$ ] Emerging Markets % % % [$ ] [$ ] EVERGREEN VARIABLE ANNUITY TRUST Evergreen VA Equity Index Fund % % % [$ ] [$ ] Evergreen VA Foundation Fund % % % [$ ] [$ ] Evergreen VA Global Leaders Fund % % % [$ ] [$ ] Evergreen VA Small Cap Value Fund % % % [$ ] [$ ] The "Total Annual Investment Portfolio Charges" column above reflect current expense reimbursements for applicable investment portfolios. The 1 Year examples above include an 8.5% surrender charge. For more detailed information, see "Fees and Expenses" in the prospectus for the Contract. 6.TAXES Under a qualified Contract, your premiums are generally pre-tax contributions and accumulate on a tax-deferred basis. Premiums and earnings are generally taxed as income when you make a withdrawal or begin receiving annuity payments, presumably when you are in a lower tax bracket. Under a non-qualified Contract, premiums are paid with after-tax dollars, and any earnings will accumulate tax-deferred. You will be taxed on these earnings, but not on premiums, when you withdraw them from the Contract. For owners of most qualified Contracts, when you reach age 70 1/2 (or, in some cases, retire), you will be required by federal tax laws to begin receiving payments from your annuity or risk paying a penalty tax. In those cases, we can calculate and pay you the minimum required distribution amounts at your request. If you are younger than 59 1/2 when you take money out, in most cases, you will be charged a 10% federal penalty tax on the taxable earnings withdrawn. 7.WITHDRAWALS You can withdraw your money at any time during the accumulation phase. You may elect in advance to take systematic withdrawals which are described on page [7]. Withdrawals above the free withdrawal amount may be subject to a surrender charge. We will apply a market value adjustment if you withdraw your money from [FIRST UNION VA] PROFILE 4 the fixed account more than 30 days before the applicable maturity date. Income taxes and a penalty tax may apply to amounts withdrawn. 8.PERFORMANCE The value of your Contract will fluctuate depending on the investment performance of the portfolio(s) you choose. Since this is a new Contract, there is no actual performance history to illustrate. Actual performance information will be shown in an updated prospectus. Please keep in mind that past or hypothetical performance is not a guarantee of future results. 9.DEATH BENEFIT The death benefit is payable when the first of the following persons dies: the contract owner, joint owner, or annuitant (if a contract owner is not an individual). Assuming you are the contract owner, if you die during the accumulation phase, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit value is calculated at the close of the business day on which we receive written notice and due proof of death, as well as required claim forms, at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of your death, the amount of the benefit payable in the future may be affected. If you die after the annuity start date and you are the annuitant, your beneficiary will receive the death benefit you chose under the annuity option then in effect. [FIRST UNION VA] PROFILE 5 The death benefit may be subject to certain mandatory distribution rules required by federal tax law. Under the death benefit, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract after pro rata adjustments for any withdrawals; or 3) the cash surrender value. Note: The amount of the death benefit could be reduced by premium taxes owed and withdrawals not previously deducted. 10.OTHER INFORMATION FREE LOOK. If you cancel the Contract within 10 days after you receive it, you will receive a refund of the adjusted contract value. We determine your contract value at the close of business on the day we receive your written refund request. For purposes of the refund during the free look period, (i) we adjust your contract value for any market value adjustment (if you have invested in the fixed account), and (ii) then we include a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios and the potential positive or negative effect of the market value adjustment, the contract value returned may be greater or less than the premium payment you paid. Some states require us to return to you the amount of the paid premium (rather than the contract value) in which case you will not be subject to investment risk during the free look period. Also, in some states, you may be entitled to a longer free look period. TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You can make transfers among your investment portfolios and your investment in the fixed account as frequently as you wish without any current tax implications. The minimum amount for a transfer is $100. There is currently no charge for transfers, and we do not limit the number of transfers allowed. The Company may, in the future, charge a $25 fee for any transfer after the twelfth transfer in a contract year or limit the number of transfers allowed. Keep in mind that if you transfer or otherwise withdraw your money from the fixed account more than 30 days before the applicable maturity date, we will apply a market value adjustment. A market value adjustment could increase or decrease your contract value and/or the amount you transfer or withdraw. NO PROBATE. In most cases, when you die, the person you choose as your beneficiary will receive the death benefit without going through probate. See "Federal Tax Consideration-Taxation of Death Benefit Proceeds" in the prospectus for the Contract. [FIRST UNION VA] PROFILE 6 ADDITIONAL FEATURES. This Contract has other features you may be interested in. These include: Dollar Cost Averaging. This is a program that allows you to invest a fixed amount of money in the investment portfolios each month, which may give you a lower average cost per unit over time than a single one-time purchase. Dollar cost averaging requires regular investments regardless of fluctuating price levels, and does not guarantee profits or prevent losses in a declining market. This option is currently available only if you have $1,200 or more in the Limited Maturity Bond or the Liquid Asset investment portfolios or in the fixed account with either a 6-month or 1-year guaranteed interest period. Transfers from the fixed account under this program will not be subject to a market value adjustment. Systematic Withdrawals. During the accumulation phase, you can arrange to have money sent to you at regular intervals throughout the year. Within limits these withdrawals will not result in any surrender charge. Withdrawals from your money in the fixed account under this program are not subject to a market value adjustment. Of course, any applicable income and penalty taxes will apply on amounts withdrawn. Automatic Rebalancing. If your contract value is $10,000 or more, you may elect to have the Company automatically readjust the money between your investment portfolios periodically to keep the blend you select. Investments in the fixed account are not eligible for automatic rebalancing. 11.INQUIRIES If you need more information after reading this profile and the prospectus, please contact us at: CUSTOMER SERVICE CENTER P.O. BOX 2700 WEST CHESTER, PA 19380 (800) 366-0066 or your registered representative. [FIRST UNION VA] PROFILE 7 [begin shaded block] GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY [____________ __,] 2000 DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS GOLDENSELECT [FIRST UNION VA] [end shaded block] - ---------------------------------------------------------------------- This prospectus describes GoldenSelect [FIRST UNION VA], a group and individual deferred variable annuity contract (the "Contract") offered by Golden American Life Insurance Company (the "Company," "we" or "our"). The Contract is available in connection with certain retirement plans that qualify for special federal income tax treatment ("qualified Contracts") as well as those that do not qualify for such treatment ("non-qualified Contracts"). The Contract provides a means for you to invest your premium payments in one or more of 27 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: A I M CAPITAL MANAGEMENT, INC. MASSACHUSETTS FINANCIAL SERVICES COMPANY Capital Appreciation Series Mid-Cap Growth Series Strategic Equity Series Research Series ALLIANCE CAPITAL MANAGEMENT L.P. Total Return Series Capital Growth Series SALOMON BROTHERS ASSET MANAGEMENT INC. BARING INTERNATIONAL INVESTMENT LIMITED All Cap Series (AN AFFILIATE) Investors Series Hard Assets Series T. ROWE PRICE ASSOCIATES, INC. Developing World Income Series Equity Income Series Global Fixed Series Fully Managed Series CAPITAL GUARDIAN TRUST COMPANY EVERGREEN ASSET MANAGEMENT, INC. Large Cap Value Series Evergreen VA Equity Index Fund Managed Global Series Evergreen VA Foundation Fund Small Cap Series Evergreen VA Global Leaders Fund EAGLE ASSET MANAGEMENT, INC. Evergreen VA Small Cap Value Fund Value Equity Series [ ] EII REALTY SECURITIES, INC. Emerging Markets Series Real Estate Series ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE) Limited Maturity Bond Series Liquid Asset Series JANUS CAPITAL CORPORATION Growth Series KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC Rising Dividends Series
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. We will credit your Fixed Interest Allocation(s) with a fixed rate of interest. We set the interest rates periodically. We will not set the interest rate to be less than a minimum annual rate of 3%. You may choose guaranteed interest periods of 6 months, and 1, 3, 5, 7 and 10 years. The interest earned on your money as well as your principal is guaranteed as long as you hold them until the maturity date. If you take your money out from a Fixed Interest Allocation more than 30 days before the applicable maturity date, we will apply a market value adjustment ("Market Value Adjustment"). A Market Value Adjustment could increase or decrease your contract value and/or the amount you take out. You bear the risk that you may receive less than your principal if we take a Market Value Adjustment. For Contracts sold in some states, not all Fixed Interest Allocations or subaccounts are available. You have a right to return a Contract within 10 days after you receive it for a refund of the adjusted contract value (which may be more or less than the premium payments you paid), or if required by your state, the original amount of your premium payment. Longer free look periods apply in some states and in certain situations. This prospectus provides information that you should know before investing and should be kept for future reference. A Statement of Additional Information, dated [___________ __, 2000], has been filed with the Securities and Exchange Commission. It is available without charge upon request. To obtain a copy of this document, write to our Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania 19380 or call (800) 366-0066, or access the SEC's website (http://www.sec.gov). The table of contents of the Statement of Additional Information ("SAI") is on the last page of this prospectus and the SAI is made part of this prospectus by reference. - ---------------------------------------------------------------------- THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN SUBACCOUNTS THROUGH THE GCG TRUST OR THE EVERGREEN VARIABLE ANNUITY TRUSTIS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG TRUST AND THE EVERGREEN VARIABLE ANNUITY TRUST. [Shaded Section Header] - ---------------------------------------------------------------------- TABLE OF CONTENTS - ---------------------------------------------------------------------- PAGE Index of Special Terms................................ 1 Fees and Expenses..................................... 2 Performance Information............................... 5 Accumulation Unit.................................. 5 Net Investment Factor.............................. 5 Condensed Financial Information.................... 6 Financial Statements............................... 6 Performance Information............................ 6 Golden American Life Insurance Company................ 7 The Trusts............................................ 7 Golden American Separate Account B.................... 8 The Investment Portfolios............................. 8 Investment Objectives.............................. 8 Investment Management Fees......................... 10 The Fixed Interest Allocation......................... 11 Selecting a Guaranteed Interest Period............. 11 Guaranteed Interest Rates.......................... 11 Transfers from a Fixed Interest Allocation......... 12 Withdrawals from a Fixed Interest Allocation....... 12 Market Value Adjustment............................ 13 The Annuity Contract.................................. 14 Contract Date and Contract Year.................... 14 Annuity Start Date................................. 14 Contract Owner..................................... 14 Annuitant.......................................... 14 Beneficiary........................................ 15 Purchase and Availability of the Contract.......... 15 Crediting of Premium Payments...................... 16 Contract Value..................................... 16 Cash Surrender Value............................... 17 Surrendering to Receive the Cash Surrender Value... 17 Addition, Deletion or Substitution of Subaccounts and Other Changes.................................. 17 The Fixed Account.................................. 18 Other Contracts.................................... 18 Other Important Provisions......................... 18 Withdrawals........................................... 18 Regular Withdrawals................................ 18 Systematic Withdrawals............................. 19 IRA Withdrawals.................................... 19 Transfers Among Your Investments...................... 20 Dollar Cost Averaging.............................. 21 Automatic Rebalancing.............................. 21 Death Benefit......................................... 22 Death Benefit During the Accumulation Phase........ 22 Death Benefit During the Income Phase.............. 23 Charges and Fees...................................... 23 Charge Deduction Subaccount........................ 23 Charges Deducted from the Contract Value........... 23 Surrender Charge................................. 23 Waiver of Surrender Charge for Extended Medical Care 24 i [Shaded Section Header] - ---------------------------------------------------------------------- TABLE OF CONTENTS (CONTINUED) - ---------------------------------------------------------------------- PAGE Free Withdrawal Amount........................... 24 Surrender Charge for Excess Withdrawals.......... 24 Premium Taxes.................................... 24 Administrative Charge............................ 24 Transfer Charge.................................. 24 Charges Deducted from the Subaccounts.............. 25 Mortality and Expense Risk Charge................ 25 Asset-Based Administrative Charge................ 25 Trust Expenses..................................... 25 The Annuity Options................................... 25 Annuitization of Your Contract..................... 25 Selecting the Annuity Start Date................... 26 Frequency of Annuity Payments...................... 26 The Annuity Options................................ 26 Income for a Fixed Period........................ 26 Income for Life with a Period Certain............ 26 Joint Life Income................................ 26 Annuity Plan..................................... 26 Payment When Named Person Dies..................... 26 Other Contract Provisions............................. 27 Reports to Contract Owners......................... 27 Suspension of Payments............................. 27 In Case of Errors in Your Application.............. 27 Assigning the Contract as Collateral............... 27 Contract Changes-Applicable Tax Law................ 27 Free Look.......................................... 27 Group or Sponsored Arrangements.................... 28 Selling the Contract............................... 28 Other Information..................................... 29 Voting Rights...................................... 29 State Regulation................................... 29 Legal Proceedings.................................. 29 Legal Matters...................................... 29 Experts............................................ 29 Federal Tax Considerations............................ 30 More Information About Golden American............... [ ] Financial Statements of Golden American Life Insurance Company..................................... [ ] Statement of Additional Information Table of Contents.................................. [ ] Appendix A Market Value Adjustment Examples A1 Appendix B Surrender Charge for Excess Withdrawals Example B1 ii [Shaded Section Header] - ---------------------------------------------------------------------- INDEX OF SPECIAL TERMS - ---------------------------------------------------------------------- The following special terms are used throughout this prospectus. Refer to the page(s) listed for an explanation of each term: SPECIAL TERM PAGE Accumulation Unit 5 Annuitant 14 Annuity Start Date 14 Cash Surrender Value 17 Contract Date 14 Contract Owner 14 Contract Value 16 Contract Year 14 Fixed Interest Allocation 11 Free Withdrawal Amount 24 Market Value Adjustment 13 Net Investment Factor 5 Death Benefit 22 The following terms as used in this prospectus have the same or substituted meanings as the corresponding terms currently used in the Contract: TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE CONTRACT Accumulation Unit Value Index of Investment Experience Annuity Start Date Annuity Commencement Date Contract Owner Owner or Certificate Owner Contract Value Accumulation Value Transfer Charge Excess Allocation Charge Fixed Interest Allocation Fixed Allocation Free Look Period Right to Examine Period Guaranteed Interest Period Guarantee Period Subaccount(s) Division(s) Net Investment Factor Experience Factor Regular Withdrawals Conventional Partial Withdrawals Withdrawals Partial Withdrawals 1 [Shaded Section Header] - ---------------------------------------------------------------------- FEES AND EXPENSES - ---------------------------------------------------------------------- CONTRACT OWNER TRANSACTION EXPENSES* Surrender Charge: COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10+ SINCE PREMIUM PAYMENT | | | | | | | | | | SURRENDER CHARGE 8.5% | 8.5% | 8.5% | 8.5% | 8.5% | 8% | 7% | 6% | 4% | 2% | 0%
Transfer Charge....................................... None** * If you invested in a Fixed Interest Allocation, a Market Value Adjustment may apply to certain transactions. This may increase or decrease your contract value and/or your transfer or surrender amount. **We may in the future charge $25 per transfer if you make more than 12 transfers in a contract year. ANNUAL CONTRACT ADMINISTRATIVE CHARGE*** Administrative Charge................................. $50 ***We deduct this charge on each contract anniversary and on surrender. SEPARATE ACCOUNT ANNUAL CHARGES**** Mortality and Expense Risk Charge.......... 1.25% Asset-Based Administrative Charge.......... 0.15% ----- Total Separate Account Charges............. 1.40% ***As a percentage of average daily assets in each subaccount. The Separate Account Annual Charges are deducted daily. THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): [Table with Shaded Heading and Shaded lines for readability] |---------------------------------------------------------------------------| | OTHER TOTAL | | EXPENSES(2) EXPENSES | | MANAGEMENT AFTER EXPENSE AFTER EXPENSE | | PORTFOLIO FEES(1) REIMBURSEMENT REIMBURSEMENT(3) | |---------------------------------------------------------------------------| | Liquid Asset % % % | | Limited Maturity Bond % % % | | Global Fixed Income % % % | | Total Return % % % | | Fully Managed % % % | | Equity Income % % % | | Investors % % % | | Large Cap Value % % % | | Rising Dividends % % % | | Capital Growth % % % | | Growth % % % | | Value Equity % % % | | Research % % % | | Managed Global % % % | | All Cap % % % | | Capital Appreciation % % % | | Mid-Cap Growth % % % | | Strategic Equity % % % | | Small Cap % % % | | Real Estate % % % | | Hard Assets % % % | | Developing World % % % | | Emerging Markets % % % | |---------------------------------------------------------------------------| 2 (1)Fees decline as the total assets of one or more portfolios increase. See the prospectus for the GCG Trust for more information. (2)Other expenses generally consist of independent trustees fees and certain expenses associated with investing in international markets. Other expenses are based on actual expenses for the year ended December 31, 1999, except for portfolios that commenced operations in 1999 where the charges have been estimated. (3)Total expenses are based on actual expenses for the fiscal year ended December 31, 1999. Directed Services, Inc. is currently reimbursing expenses to maintain total expenses at [ ]% for the Total Return portfolio and [ ]% for the Global Fixed Income portfolio as shown. Without this reimbursement, and based on current estimates, total expenses would be [ ]% for the Research portfolio and [ ]% for the Global Fixed Income portfolio. This reimbursement agreement will remain in place through August 14, 2000, after which it may be terminated at any time. EVERGREEN VARIABLE ANNUITY TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): |---------------------------------------------------------------------------| | OTHER TOTAL | | EXPENSES(2) EXPENSES | | MANAGEMENT AFTER EXPENSE AFTER EXPENSE | | PORTFOLIO FEES(1) REIMBURSEMENT REIMBURSEMENT(3) | |---------------------------------------------------------------------------| | Evergreen VA Equity | | Index Fund % % % | | Evergreen VA | | Foundation Fund % % % | | Evergreen VA Global | | Leaders Fund % % % | | Evergreen VA Small Cap | | Value Fund % % % | |---------------------------------------------------------------------------| (1) (2) (3) The purpose of the foregoing tables is to help you understand various costs and expenses that you will bear directly and indirectly. See the prospectuses of the GCG Trust and the Evergreen Variable Annuity Trust for additional information on 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. 3 EXAMPLES: The following two examples are designed to show you the expenses you would pay on a $1,000 investment that earns 5% annually. The examples reflect the deduction of a morality and expense risk charge, an asset- based administrative charge, and the annual contract administrative charge as an annual charge of 0.17% of assets (based on an average contract value of $30,000). Note that surrender charges may apply if you choose to annuitize your Contract within the first 5 years, and under certain circumstances, within the first 10 contract years. Thus, in the event you annuitize your Contract under circumstances which require a surrender charge, you should refer to Example 1 below which assumes applicable surrender charges. If you surrender your Contract at the end of the applicable time period, you would pay the following expenses for each $1,000 invested: - ----------------------------------------------------------------------- THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $ $ $ $ Limited Maturity Bond $ $ $ $ Global Fixed Income $ $ $ $ Total Return $ $ $ $ Fully Managed $ $ $ $ Equity Income $ $ $ $ Investors $ $ $ $ Large Cap Value $ $ $ $ Rising Dividends $ $ $ $ Capital Growth $ $ $ $ Growth $ $ $ $ Value Equity $ $ $ $ Research $ $ $ $ Managed Global $ $ $ $ All Cap $ $ $ $ Capital Appreciation $ $ $ $ Mid-Cap Growth $ $ $ $ Strategic Equity $ $ $ $ Small Cap $ $ $ $ Real Estate $ $ $ $ Hard Assets $ $ $ $ Developing World $ $ $ $ Emerging Markets $ $ $ $ EVERGREEN VARIABLE ANNUITY TRUST Evergreen VA $ $ $ $ Equity Index Fund Evergreen VA $ $ $ $ Foundation Fund Evergreen VA Global Leaders Fund $ $ Evergreen VA Small Cap $ $ $ Value Fund $ $ $ $ 4 If you do not surrender your Contract or if you annuitize on the annuity start date, you would pay the following expenses for each $1,000 invested: - ----------------------------------------------------------------------- THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $ $ $ $ Limited Maturity Bond $ $ $ $ Global Fixed Income $ $ $ $ Total Return $ $ $ $ Fully Managed $ $ $ $ Equity Income $ $ $ $ Investors $ $ $ $ Large Cap Value $ $ $ $ Rising Dividends $ $ $ $ Capital Growth $ $ $ $ Growth $ $ $ $ Value Equity $ $ $ $ Research $ $ $ $ Managed Global $ $ $ $ All Cap $ $ $ $ Capital Appreciation $ $ $ $ Strategic Equity $ $ $ $ Mid-Cap Growth $ $ $ $ Small Cap $ $ $ $ Real Estate $ $ $ $ Hard Assets $ $ $ $ Developing World $ $ $ $ Emerging Markets $ $ $ $ EVERGREEN VARIABLE ANNUITY TRUST Evergreen VA $ $ $ $ Equity Index Evergreen VA $ $ $ $ Foundation Evergreen VA Global Leaders $ Evergreen VA Small Cap $ $ $ Value $ $ $ $ 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. [Shaded Section Header] - ---------------------------------------------------------------------- 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: 5 (1)We take the net asset value of the subaccount at the end of each business day. (2)We add to (1) the amount of any dividend or capital gains distribution declared for the subaccount and reinvested in such subaccount. We subtract from that amount a charge for our taxes, if any. (3)We divide (2) by the net asset value of the subaccount at the end of the preceding business day. (4)We then subtract the applicable daily mortality and expense risk charge and the daily asset-based administrative charge from the subaccount. Calculations for the subaccounts are made on a per share basis. FINANCIAL STATEMENTS The unaudited financial statements of Separate Account B for the nine months ended September 30, 1999 and the audited financial statements of Separate Account B for the years ended December 31, 1998 and 1997 are included in the Statement of Additional Information. The unaudited condensed consolidated financial statements of Golden American for the nine months ended September 30, 1999 and the audited consolidated financial statements of Golden American for the years ended December 31, 1998, 1997 and 1996 are included in this prospectus. PERFORMANCE INFORMATION From time to time, we may advertise or include in reports to contract owners performance information for the subaccounts of Separate Account B, including the average annual total return performance, yields and other nonstandard measures of performance. Such performance data will be computed, or accompanied by performance data computed, in accordance with standards defined by the SEC. Except for the Liquid Asset subaccount, quotations of yield for the subaccounts will be based on all investment income per unit (contract value divided by the accumulation unit) earned during a given 30-day period, less expenses accrued during such period. Information on standard total average annual return performance will include average annual rates of total return for 1, 5 and 10 year periods, or lesser periods depending on how long Separate Account B has been investing in the portfolio. We may show other total returns for periods less than one year. Total return figures will be based on the actual historic performance of the subaccounts of Separate Account B, assuming an investment at the beginning of the period when the separate account first invested in the portfolios, withdrawal of the investment at the end of the period, adjusted to reflect the the deduction of all applicable portfolio and current contract charges. We may also show rates of total return on amounts invested at the beginning of the period with no withdrawal at the end of the period. Total return figures which assume no withdrawals at the end of the period will reflect all recurring charges, but will not reflect the surrender charge. Quotations of average annual return for the Managed Global subaccount take into account the period before September 3, 1996, during which it was maintained as a subaccount of Golden American Separate Account D. In addition, we may present historic performance data for the investment portfolios since their inception reduced by some or all of the fees and charges under the Contract. Such adjusted historic performance includes data that precedes the inception dates of the subaccounts of Separate Account B. This data is designed to show the performance that would 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. 6 We may compare performance information for a subaccount to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money Market Institutional Averages, or any other applicable market indices, (ii) other variable annuity separate accounts or other investment products tracked by Lipper Analytical Services (a widely used independent research firm which ranks mutual funds and other investment companies), or any other rating service, and (iii) the Consumer Price Index (measure for inflation) to determine the real rate of return of an investment in the Contract. Our reports and promotional literature may also contain other information including the ranking of any subaccount based on rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by similar rating services. Performance information reflects only the performance of a hypothetical contract and should be considered in light of other factors, including the investment objective of the investment portfolio and market conditions. Please keep in mind that past performance is not a guarantee of future results. [Shaded Section Header] - ---------------------------------------------------------------------- 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. Golden American is authorized to sell insurance and annuities in all states, except New York, and the District of Columbia. In May 1996, Golden American established a subsidiary, First Golden American Life Insurance Company of New York, which is authorized to sell annuities in New York and Delaware. Golden American's consolidated financial statements appear in this prospectus. Equitable of Iowa is the holding company for Golden American, Directed Services, Inc., the investment manager of the GCG Trust and the distributor of the Contracts, and other interests. Equitable of Iowa and another ING affiliate own ING Investment Management, LLC, a portfolio manager of the GCG Trust. ING also owns Baring International Investment Limited, another portfolio manager of the GCG Trust. Our principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. [Shaded Section Header] - ---------------------------------------------------------------------- THE TRUSTS - ---------------------------------------------------------------------- The GCG Trust is a mutual fund whose shares are offered to separate accounts funding variable annuity and variable life insurance policies offered by Golden American and other affiliated insurance companies. The GCG Trust may also sell its shares to separate accounts of other insurance companies, not affiliated with Golden American. Pending SEC approval, shares of the GCG Trust may also be sold to certain qualified pension and retirement plans. The address of the GCG Trust is 1475 Dunwoody Drive, West Chester, PA 19380. The Evergreen Variable Annuity Trust is also a mutual fund whose shares are available to separate accounts of life insurance companies, including Golden American, for both variable annuity contracts and variable life insurance policies. The principal address of the Evergreen Variable Annuity Trust is 201 South College Street, Charlotte, NC 28288. In the event that, due to differences in tax treatment or other considerations, the interests of contract owners of various contracts participating in the Trusts conflict, we, the Boards of Trustees of the GCG Trust, Evergreen Variable Annuity Trust, Directed Services, Inc., Evergreen Asset Management, Inc., 7 and any other insurance companies participating in the Trusts will monitor events to identify and resolve any material conflicts that may arise. YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, AND THE EVERGREEN VARIABLE ANNUITY TRUST IN THE ACCOMPANYING TRUSTS' PROSPECTUSES. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING. [Shaded Section Header] - ---------------------------------------------------------------------- GOLDEN AMERICAN SEPARATE ACCOUNT B - ---------------------------------------------------------------------- Golden American Separate Account B ("Account B") was established as a separate account of the Company on July 14, 1988. It is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. Account B is a separate investment account used for our variable annuity contracts. We own all the assets in Account B but such assets are kept separate from our other accounts. Account B is divided into subaccounts. Each subaccount invests exclusively in shares of one investment portfolio of the GCG Trust, or the Evergreen Variable Annuity Trust. Each investment portfolio has its own distinct investment objectives and policies. Income, gains and losses, realized or unrealized, of a portfolio are credited to or charged against the corresponding subaccount of Account B without regard to any other income, gains or losses of the Company. Assets equal to the reserves and other contract liabilities with respect to each are not chargeable with liabilities arising out of any other business of the Company. They may, however, be subject to liabilities arising from subaccounts whose assets we attribute to other variable annuity contracts supported by Account B. If the assets in Account B exceed the required reserves and other liabilities, we may transfer the excess to our general account. We are obligated to pay all benefits and make all payments provided under the Contracts. We currently offer other variable annuity contracts that invest in Account B but are not discussed in this prospectus. Account B may also invest in other investment portfolios which are not available under your Contract. [Shaded Section Header] - ---------------------------------------------------------------------- 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 THE INVESTMENT PORTFOLIOS, AND YOU MAY LOSE YOUR PRINCIPAL. INVESTMENT OBJECTIVES The investment objective of each investment portfolio is set forth below. You should understand that there is no guarantee that any portfolio will meet its investment objectives. Meeting objectives depends on various factors, including, in certain cases, how well the portfolio managers anticipate changing economic and market conditions. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST AND THE EVERGREEN VARIABLE ANNUITY TRUST. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING. 8 [Shaded Table Header] INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - ------------------------------------------------------------------------ Liquid Asset Seeks high level of current income consistent with the preservation of capital and liquidity. Invests primarily in obligations of the U.S. Government and its agencies and instrumentalities, bank obligations, commercial paper and short-term corporate debt securities. All securities will mature in less than one year. ---------------------------------------------------- Limited Maturity Seeks highest current income consistent with Bond low risk to principal and liquidity. Also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. Invests primarily in diversified limited maturity debt securities with average maturity dates of five years or shorter and in no cases more than seven years. ---------------------------------------------------- Global Fixed Seeks high total return. Income Invests primarily in high-grade fixed income securities, both foreign and domestic. ---------------------------------------------------- Total Return Seeks above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Invests primarily in a combination of equity and fixed income securities. ---------------------------------------------------- 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. ---------------------------------------------------- Equity Income Seeks substantial dividend income as well as long- term growth of capital. Invests primarily in common stocks of well- established companies paying above-average dividends. ---------------------------------------------------- Investors Seeks long-term growth of capital. Current income is a secondary objective. Invests primarily in equity securities of U.S. companies and to a lesser degree, debt securities. ---------------------------------------------------- Large Cap Value Seeks long-term growth of capital and income. Invests primarily in equity and equity-related securities of companies with market capitalizations greater than $1 billion. ---------------------------------------------------- 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". ---------------------------------------------------- Capital Growth Seeks long-term total return. Invests primarily in common stocks of companies where the potential for change (earnings acceleration) is significant. ---------------------------------------------------- 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. ---------------------------------------------------- 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. ---------------------------------------------------- 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. ---------------------------------------------------- Managed Global Seeks capital appreciation. Current income is only an incidental consideration. Invests primarily in common stocks traded in securities markets throughout the world. ---------------------------------------------------- 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. ---------------------------------------------------- Capital Seeks long-term capital growth. Appreciation Invests primarily in equity securities believed by the portfolio manager to be undervalued. ---------------------------------------------------- 9 Mid-Cap Growth Seeks long-term growth of capital. Invests primarily in equity securities of companies with medium market capitalization which the portfolio manager believes have above-average growth potential. ---------------------------------------------------- Strategic Equity Seeks capital appreciation. Invests primarily in common stocks of medium- and small-sized companies. ---------------------------------------------------- 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. ---------------------------------------------------- Real Estate Seeks capital appreciation. Current income is a secondary objective. Invests primarily in publicly-traded real estate equity securities. ---------------------------------------------------- Hard Assets Seeks long-term capital appreciation. Invests primarily in hard asset securities. Hard asset companies produce a commodity which the portfolio manager is able to price on a daily or weekly basis. ---------------------------------------------------- Developing World Seeks capital appreciation. Invests primarily in equity securities of companies in developing or emerging countries. ---------------------------------------------------- Emerging Markets Seeks long-term capital appreciation. Invests primarily in equity securities of companies in at least six different emerging market countries. ---------------------------------------------------- EVERGREEN VARIABLE ANNUITY TRUST Evergreen VA Seeks investment results that achieve price and Equity Index yield performance similar to the Standard and Poor's 500 Composite Stock Price Index ("S&P 500 Index"). Invests substantially all of its total assets in equity securities that represent a composite of the S&P 500 Index. ---------------------------------------------------- Evergreen VA Seeks, in order of priority, reasonable income, Foundation conservation of capital and capital appreciation. Invests principally in a combination of common stocks, securities convertible into or exchangeable for common stocks and fixed income securities. ---------------------------------------------------- Evergreen VA Seeks to provide investors with long-term capital Global Leaders growth. Invests at least 65% of its assets in a diversified portfolio of U.S. and non-U.S. equity securities of companies located in the world's major industrialized countries. ---------------------------------------------------- Evergreen VA Seeks current income and capital growth in the value Small Cap of its shares. Value Invests primarily in common stocks and convertible preferred stocks of small companies (less than $1 billion in market capitalization). ---------------------------------------------------- INVESTMENT PORTFOLIO MANAGEMENT FEES Directed Services, Inc. serves as the overall manager 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 portfolios. Directed Services (and not the GCG Trust) pays each portfolio manager a monthly fee for managing the assets of a portfolio. For a list of the portfolio managers, see the front cover of this prospectus. Directed Services does not bear the expenses of brokerage fees and other transactional expenses for securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and expenses of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. Evergreen Asset Management Corp. serves as the investment advisor to the Evergreen VA Foundation Fund, Evergreen VA Global Leaders Fund and the Evergreen VA Small Cap Value Fund. Evergreen Investment Management serves as the investment advisor to the Evergreen VA Equity Index Fund. The Evergreen Variable Annuity Trust pays Evergreen Asset Management, Inc. and Evergreen Investment Management, both subsidiaries of First Union Corporation, a monthly advisory fee based on the average daily net assets of the investment portfolio for managing the assets of the portfolios and for administering the Evergreen Variable Annuity Trust. 10 YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO'S MANAGEMENT FEES CAN BE FOUND IN THE PROSPECTUSES FOR EACH TRUST. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING. [Shaded Section Header] - ---------------------------------------------------------------------- THE FIXED INTEREST ALLOCATION - ---------------------------------------------------------------------- You may allocate premium payments and transfer your contract value to the guaranteed interest periods of our Fixed Account at any time during the accumulation period. Every time you allocate money to the Fixed Account, we set up a Fixed Interest Allocation for the guaranteed interest period you select. We currently offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10 years, although we may not offer all these periods in the future. You may select one or more guaranteed interest periods at any one time. We will credit your Fixed Interest Allocation with a guaranteed interest rate for the interest period you select, so long as you do not withdraw money from that Fixed Interest Allocation before the end of the guaranteed interest period. Each guaranteed interest period ends on its maturity date which is the last day of the month in which the interest period is scheduled to expire. If you surrender, withdraw, transfer or annuitize your investment in a Fixed Interest Allocation more than 30 days before the end of the guaranteed interest period, we will apply a Market Value Adjustment to the transaction. A Market Value Adjustment could increase or decrease the amount you surrender, withdraw, transfer or annuitize, depending on current interest rates at the time of the transaction. YOU BEAR THE RISK THAT YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF WE APPLY A MARKET VALUE ADJUSTMENT. Assets supporting amounts allocated to the Fixed Account are available to fund the claims of all classes of our customer, contract owners and other creditors. Interests under your Contract relating to the Fixed Account are registered under the Securities Act of 1933, but the Fixed Account is not registered under the 1940 Act. SELECTING A GUARANTEED INTEREST PERIOD You may select one or more Fixed Interest Allocations with specified guaranteed interest periods. A guaranteed interest period is the period that a rate of interest is guaranteed to be credited to your Fixed Interest Allocation. We may at any time decrease or increase the number of guaranteed interest periods offered. In addition, we may offer DCA Fixed Interest Allocations, which are 6-month and 1-year Fixed Interest Allocations available exclusively in connection with our dollar cost averaging program. For more information on DCA Fixed Interest Allocations, see "Transfers Among Your Investments - Dollar Cost Averaging." Your contract value in the Fixed Account is the sum of your Fixed Interest Allocations and the interest credited as adjusted for any withdrawals (including any Market Value Adjustment applied to such withdrawal), transfers or other charges we may impose. Your Fixed Interest Allocation will be credited with the guaranteed interest rate in effect for the guaranteed interest period you selected when we receive and accept your premium or reallocation of contract value. We will credit interest daily at a rate which yields the quoted guaranteed interest rate. GUARANTEED INTEREST RATES Each Fixed Interest Allocation will have an interest rate that is guaranteed as long as you hold it until its maturity date. We do not have a specific formula for establishing the guaranteed interest rates for the 11 different guaranteed interest periods. We determine guaranteed interest rates at our sole discretion. To find out the current guaranteed interest rate for a guaranteed interest period you are interested in, please contact our Customer Service Center or your registered representative. The determination may be influenced by the interest rates on fixed income investments in which we may invest with the amounts we receive under the Contracts. We will invest these amounts primarily in investment- grade fixed income securities (i.e., rated by Standard & Poor's rating system to be suitable for prudent investors) although we are not obligated to invest according to any particular strategy, except as may be required by applicable law. You will have no direct or indirect interest in these investments. We will also consider other factors in determining the guaranteed interest rates, including regulatory and tax requirements, sales commissions and administrative expenses borne by us, general economic trends and competitive factors. We cannot predict the level of future interest rates but no Fixed Interest Allocation will ever have a guaranteed interest rate of less than 3% per year. We may from time to time at our discretion offer interest rate specials for new premiums that are higher than the current base interest rate. Renewal rates for such rate specials will be based on the base interest rate and not on the special rates initially declared. TRANSFERS FROM A FIXED INTEREST ALLOCATION You may transfer your contract value in a Fixed Interest Allocation to one or more new Fixed Interest Allocations with new guaranteed interest periods, or to any of the subaccounts of Account B. We will transfer amounts from your Fixed Interest Allocations starting with the guaranteed interest period nearest its maturity date, until we have honored your transfer request. The minimum amount that you can transfer to or from any Fixed Interest Allocation is $100. If a transfer request would reduce the contract value remaining in a Fixed Interest Allocation to less than $100, we will treat such transfer request as a request to transfer the entire contract value in such Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be subject to a Market Value Adjustment. If you have a special Fixed Interest Allocation that was exclusively offered 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 is subject to a Market Value Adjustment. On the maturity date of a guaranteed interest period, you may transfer amounts from the applicable Fixed Interest Allocation to the subaccounts and/or to new Fixed Interest Allocations with guaranteed interest periods of any length we are offering at that time. You may not, however, transfer amounts to any Fixed Interest Allocation with a guaranteed interest period that extends beyond the annuity start date. At least 30 calendar days before a maturity date of any of your Fixed Interest Allocations, or earlier if required by state law, we will send you a notice of the guaranteed interest periods that are available. You must notify us which subaccounts or new guaranteed interest periods you have selected before the maturity date of your Fixed Interest Allocations. If we do not receive timely instructions from you, we will transfer the contract value in the maturing Fixed Interest Allocation to a new Fixed Interest Allocation with a guaranteed interest period that is the same as the expiring guaranteed interest period. If such guaranteed interest period is not available or would go beyond the annuity start date, we will transfer your contract value in the maturing Fixed Interest Allocation to the next shortest guaranteed interest period which does not go beyond the annuity start date. If no such guaranteed interest period is available, we will transfer the contract value to a subaccount specially designated by the Company for such purpose. Currently we use the Liquid Asset subaccount for such purpose. WITHDRAWALS FROM A FIXED INTEREST ALLOCATION During the accumulation phase, you may withdraw a portion of your contract value in any Fixed Interest Allocation. You may make systematic withdrawals of only the interest earned during the prior month, quarter or year, depending on the frequency chosen, from a Fixed Interest Allocation under our systematic withdrawal option. Systematic withdrawals from a Fixed Interest Allocation are not permitted if such Fixed Interest Allocation is currently participating in the dollar cost averaging program. A withdrawal from a Fixed Interest Allocation may be subject to a Market Value Adjustment and, in some cases, a surrender charge. Be aware that withdrawals may have federal income tax consequences, including a 10% penalty tax, as well as state income tax consequences. 12 If you tell us the Fixed Interest Allocation from which your withdrawal will be made, we will assess the withdrawal against that Fixed Interest Allocation. If you do not, we will assess your withdrawal against the subaccounts in which you are invested unless the withdrawal exceeds the contract value in the subaccounts. If there is no contract value in those subaccounts, we will deduct your withdrawal from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until we have honored your request. MARKET VALUE ADJUSTMENT A Market Value Adjustment may decrease, increase or have no effect on your contract value. We will apply a Market Value Adjustment (i) whenever you withdraw or transfer money from a Fixed Interest Allocation (unless made within 30 days before the maturity date of the applicable guaranteed interest period, or under the systematic withdrawal or dollar cost averaging program) and (ii) if on the annuity start date a guaranteed interest period for any Fixed Interest Allocation does not end on or within 30 days of the annuity start date. We determine the Market Value Adjustment by multiplying the amount you withdraw, transfer or apply to an income plan by the following factor: ( 1+I )N/365 (---------) -1 (1+J+.0050) Where, o "I" is the Index Rate for the affected Fixed Interest Allocation as of the first day of its guaranteed interest period; o "J" is equal to the following: (1) If calculated for a Fixed Interest Allocation of 1 year or more, then "J" is the Index Rate for a new Fixed Interest Allocation with a guaranteed interest period equal to the time remaining (rounded up to the next full year except in Pennsylvania) in the guaranteed interest period; (2) If calculated for a Fixed Interest Allocation of 6 months, then "J" is the lesser of the Index Rate for a new Fixed Interest Allocation with (i) a 6 month guaranteed interest period, or (ii) a 1 year guaranteed interest period at the time of calculation; and o "N" is the remaining number of days in the guaranteed interest period at the time of calculation. The Index Rate is the average of the Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for a period equal to the applicable guaranteed interest period. The average currently is based on the period starting from the 22nd day of the calendar month two months prior to the month of the Index Rate determination and ending the 21st day of the calendar month immediately before the month of determination. We currently calculate the Index Rate once each calendar month but have the right to calculate it more frequently. The Index Rate will always be based on a period of at least 28 days. If the Ask Yields are no longer available, we will determine the Index Rate by using a suitable and approved, if required, replacement method. A Market Value Adjustment may be positive, negative or result in no change. In general, if interest rates are rising, you bear the risk that any Market Value Adjustment will likely be negative and reduce your contract value. On the other hand, if interest rates are falling, it is more likely that you will receive a positive Market Value Adjustment that increases your contract value. In the event of a full surrender, transfer or annuitization from a Fixed Interest Allocation, we will add or subtract any Market Value Adjustment from the amount surrendered, transferred or annuitized. In the event of a partial withdrawal, transfer or annuitization, we will add or subtract any Market Value Adjustment from the total amount withdrawn, transferred or annuitized in order to provide the amount requested. If a negative Market Value Adjustment exceeds your contract value in the Fixed Interest Allocation, we 13 will consider your request to be a full surrender, transfer or annuitization of the Fixed Interest Allocation. Several examples which illustrate how the Market Value Adjustment works are included in Appendix A. [Shaded Section Header] - ---------------------------------------------------------------------- THE ANNUITY CONTRACT - ---------------------------------------------------------------------- The Contract described in this prospectus is a deferred combination variable and fixed annuity contract. The Contract provides a means for you to invest in one or more of the available mutual fund portfolios of the GCG Trust and the Evergreen Variable Annuity Trust through Account B. It also provides a means for you to invest in a Fixed Interest Allocation through the Fixed Account. CONTRACT DATE AND CONTRACT YEAR The date the Contract became effective is the contract date. Each 12- month period following the contract date is a contract year. ANNUITY START DATE The annuity start date is the date you start receiving annuity payments under your Contract. The Contract, like all deferred variable annuity contracts, has two phases: the accumulation phase and the income phase. The accumulation phase is the period between the contract date and the annuity start date. The income phase begins when you start receiving regular annuity payments from your Contract on the annuity start date. CONTRACT OWNER You are the contract owner. You are also the annuitant unless another annuitant is named in the application. You have the rights and options described in the Contract. One or more persons may own the Contract. If there are multiple owners named, the age of the oldest owner will determine the applicable death benefit if such death benefit is available for multiple owners. The death benefit becomes payable when you die. In the case of a sole contract owner who dies before the income phase begins, we will pay the beneficiary the death benefit then due. The sole contract owner's estate will be the beneficiary if no beneficiary has been designated or the beneficiary has predeceased the contract owner. In the case of a joint owner of the Contract dying before the income phase begins, we will designate the surviving contract owner as the beneficiary. This will override any previous beneficiary designation. If the contract owner is a trust and a beneficial owner of the trust has been designated, the beneficial owner will be treated as the contract owner for determining the death benefit. If a beneficial owner is changed or added after the contract date, this will be treated as a change of contract owner for determining the death benefit. JOINT OWNER. For non-qualified Contracts only, joint owners may be named in a written request before the Contract is in effect. Joint owners may independently exercise transfers and other transactions allowed under the Contract. All other rights of ownership must be exercised by both owners. Joint owners own equal shares of any benefits accruing or payments made to them. All rights of a joint owner end at death of that owner if the other joint owner survives. The entire interest of the deceased joint owner in the Contract will pass to the surviving joint owner. ANNUITANT The annuitant is the person designated by you to be the measuring life in determining annuity payments. The annuitant's age determines when the income phase must begin and the amount of the annuity payments to be paid. You are the annuitant unless you choose to name another person. The annuitant may not be changed after the Contract is in effect. 14 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 and the guaranteed death benefit. The new owner's will determine when a death benefit is payable. You may also change the beneficiary. All requests for changes must be in writing and submitted to our Customer Service Center in good order. The change will be effective as of the day you sign the request. The change will not affect any payment made or action taken by us before recording the change. If the new owner's age is less than 86, the death benefit in effect prior to the change in owner will remain in effect. If the new owner's age is 86 or greater (based on the age of the older owner, if joint owners), the death benefit will be the cash surrender value. Once a death benefit has been changed due to a change in owner, a subsequent change to a younger owner will not restore any death benefit. PURCHASE AND AVAILABILITY OF THE CONTRACT Contracts offered by this prospectus are available only to customers of [ ] and its affiliates. We will issue a Contract only if both the annuitant and the contract owner are not older than age 70. The initial premium payment must be $5,000 or more ($1,500 for qualified Contracts). You may make additional payments of $100 or more ($250 for qualified Contracts) at any time after the free look period before you turn age 76. 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. 15 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 all information necessary is received. 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. For initial premium payments, the payment will be credited at the accumulation unit value next determinded after receipt of your premium payment and the completed application.Once the completed application is received, we will allocate the payment to the subaccount and/or Fixed Interest Allocation specified by you within 2 business days. We will make inquiry to discover any missing information related to subsequent payments. For any subsequent premium payments, the payment will be credited at the accumulation unit value next determined after receipt of your premium payment and instructions. Once we allocate your premium payment to the subaccounts selected by you, we convert the premium payment into accumulation units. We divide the amount of the premium payment allocated to a particular subaccount by the value of an accumulation unit for the subaccount to determine the number of accumulation units of the subaccount to be held in Account B with respect to your Contract. The net investment results of each subaccount vary with its investment performance. If your premium payment was transmitted by wire order from your broker-dealer, we will follow one of the following two procedures after we receive and accept the wire order and investment instructions. The procedure we follow depends on state availability and the procedures of your broker-dealer. (1) If either your state or broker-dealer do not permit us to issue a Contract without an application, we reserve the right to rescind the Contract if we do not receive and accept a properly completed application or enrollment form within 5 days of the premium payment. If we do not receive the application or form within 5 days of the premium payment, we will refund the contract value plus any charges we deducted, and the Contract will be voided. Some states require that we return the premium paid, in which case we will comply. (2) If your state and broker-dealer allow us to issue a Contract without an application, we will issue and mail the Contract to you, together with an Application Acknowledgement Statement for your execution. Until our Customer Service Center receives the executed Application Acknowledgement Statement, neither you nor the broker-dealer may execute any financial transactions on your Contract unless they are requested in writing by you. We may require additional information before complying with your request (e.g., signature guarantee). In some states, we may require that an initial premium designated for a subaccount of 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. 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. 16 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 any related charges, and then subtract any contract fees and premium taxes. CASH SURRENDER VALUE The cash surrender value is the amount you receive when you surrender the Contract. The cash surrender value will fluctuate daily based on the investment results of the subaccounts in which you are invested and interest credited to Fixed Interest Allocations and any Market Value Adjustment. We do not guarantee any minimum cash surrender value. On any date during the accumulation phase, we calculate the cash surrender value as follows: we start with your contract value, then we adjust for any Market Value Adjustment, then we deduct any surrender charge, any charge for premium taxes, the annual cotnract administrative fee, and any other charges incurred but not yet deducted. SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE You may surrender the Contract at any time while the annuitant is living and before the annuity start date. A surrender will be effective on the date your written request and the Contract are received at our Customer Service Center. We will determine and pay the cash surrender value at the price next determined after receipt of all paperwork required in order for us to process your surrender. Once paid, all benefits under the Contract will be terminated. For administrative purposes, we will transfer your money to a specially designated subaccount (currently the Liquid Asset subaccount) prior to processing the surrender. This transfer will have no effect on your cash surrender value. You may receive the cash surrender value in a single sum payment or apply it under one or more annuity options. We will usually pay the cash surrender value within 7 days. Consult your tax advisor regarding the tax consequences associated with surrendering your Contract. A surrender made before you reach age 59 1/2 may result in a 10% tax penalty. See "Federal Tax Considerations" for more details. 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 a portfolio susbject to those instructions, we will execute your instructions using the substituted protfolios, unless you request otherwise. We also reserve the right to: (i) deregister Account B under the 1940 Act; (ii) operate Account B as a management company under the 1940 Act if it is operating as a unit investment trust; (iii) operate Account B 17 as a unit investment trust under the 1940 Act if it is operating as a managed separate account; (iv) restrict or eliminate any voting rights as to Account B; and (v) combine Account B with other accounts. We will, of course, provide you with written notice before any of these changes are effected. THE FIXED ACCOUNT The Fixed Account is a segregated asset account which contains the assets that support a contract owner's Fixed Interest Allocations. See "The Fixed Interest Allocations" for more information. OTHER CONTRACTS We offer other variable annuity contracts that also invest in the same investment portfolios of the Trusts. These contracts have different charges that could effect their performance, and may offer different benefits more suitable to your needs. To obtain more information about these other contracts, contact our Customer Service Center or your registered representative. OTHER IMPORTANT PROVISIONS See "Withdrawals," "Transfers Among Your Investments," "Death Benefit," "Charges and Fees," "The Annuity Options" and "Other Contract Provisions" in this prospectus for information on other important provisions in your Contract. [Shaded Section Header] - ---------------------------------------------------------------------- WITHDRAWALS - ---------------------------------------------------------------------- Any time during the accumulation phase and before the death of the annuitant, you may withdraw all or part of your money. Keep in mind that if you request a withdrawal for more than 90% of the cash surrender value, we will treat it as a request to surrender the Contract. If any single withdrawal or the sum of withdrawals exceeds the Free Withdrawal Amount, you will incur a surrender charge. The Free Withdrawal Amount is 10% of premium payments not previously withdrawn received within 10 years prior to the date of the withdrawal. You need to submit to us a written request specifying the Fixed Interest Allocations or subaccounts from which amounts are to be withdrawn, otherwise the withdrawal will be made on a pro rata basis from all of the subaccounts in which you are invested. If there is not enough contract value in the subaccounts, we will deduct the balance of the withdrawal from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until we have honored your request. We will apply a Market Value Adjustment to any withdrawal from your Fixed Interest Allocation taken more than 30 days before its maturity date. Definitive guidance on the proper federal tax treatment of the Market Value Adjustment has not been issued. You may want to discuss the potential tax consequences of a Market Value Adjustment with your tax adviser. We will determine the contract value as of the close of business on the day we receive your withdrawal request at our Customer Service Center. The contract value may be more or less than the premium payments made. For administrative purposes, we will transfer your money to a specially designated subaccount (currently, the Liquid Asset subaccount) prior to processing the withdrawal. This transfer will not effect the withdrawal amount you receive. 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. 18 SYSTEMATIC WITHDRAWALS You may choose to receive automatic systematic withdrawal payments (1) from the contract value in the subaccounts in which you are invested, or (2) from the interest earned in your Fixed Interest Allocations. Systematic withdrawals may be taken monthly, quarterly or annually. You decide when you would like systematic payments to start as long as it starts at least 28 days after your contract date. You also select the date on which the systematic withdrawals will be made, but this date cannot be later than the 28th day of the month. If you have elected to receive systematic withdrawals but have not chosen a date, we will make the withdrawals on the same calendar day of each month as your contract date. If your contract date is after the 28th, your systematic withdrawal will be made on the 28th day of each month. Each systematic withdrawal amount must be a minimum of $100. The amount of your systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount based on a percentage of the premiums not previously withdrawn from the subaccounts in which you are invested. Both forms of systematic withdrawals are subject to the following maximum, which is calculated on each withdrawal date: Maximum Percentage Frequency Monthly 0.833% Quarterly 2.50% Annually 10.00% If your systematic withdrawal is a fixed dollar amount and the amount to be withdrawn would exceed the applicable maximum percentage of your premiums not previously withdrawn on the withdrawal date, we will automatically reduce the amount withdrawn so that it equals such percentage. Thus, your fixed dollar systematic withdrawals will never exceed the maximum percentage. If you want fixed dollar systematic withdrawals to exceed the maximum percentage and are willing to incur associated surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which you may add to your regular systematic withdrawal program. If your systematic withdrawal is based on a percentage of the premiums not previously withdrawn from the subaccounts in which you are invested and the amount to be withdrawn based on that percentage would be less than $100, we will automatically increase the amount to $100 as long as it does not exceed the maximum percentage. If the systematic withdrawal would exceed the maximum percentage, we will send the amount, and then automatically cancel your systematic withdrawal option. Systematic withdrawals from Fixed Interest Allocations are limited to interest earnings during the prior month, quarter, or year, depending on the frequency you chose. Systematic withdrawals are not subject to a Market Value Adjustment, unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed below and the payments exceed interest earnings. Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature are available only in connection with Section 72(q) or 72(t) distributions. A Fixed Interest Allocation may not participate in both the systematic withdrawal option and the dollar cost averaging program at the same time. You may change the amount or percentage of your systematic withdrawal once each contract year or cancel this option at any time by sending satisfactory notice to our Customer Service Center at least 7 days before the next scheduled withdrawal date. The systematic withdrawal option may commence in a contract year where a regular withdrawal has been taken but you may not change the amount or percentage of your withdrawals in any contract year during which you have previously taken a regular withdrawal. You may not elect the systematic withdrawal option if you are taking IRA withdrawals. Fixed Dollar Systematic Withdrawal Feature. You may add the Fixed Dollar Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal program. This feature allows you to receive a systematic withdrawal in a fixed dollar amount regardless of any surrender charges or Market Value Adjustments. Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature are available only in connection with Section 72(q) or 72(t) distributions. You choose the amount of the fixed systematic withdrawals, which may total up to an annual maximum of 10% of your premium payments not previously withdrawn as determined on the day we receive your election of this feature. The maximum limit will not be recalculated when you make additional premium payments, unless you instruct us to do us. We will assess a surrender charge on the withdrawal date if the withdrawal exceeds the maximum limit as calculated on the withdrawal date. We will assess a Market Value Adjustment on the withdrawal date if the withdrawal from a Fixed Interest Allocation exceeds your interest earnings on the withdrawal date. We will apply the surrender charge and any Market Value Adjustment directly to your contract value (rather than to the systematic withdrawal) so that the amount of each systematic withdrawal remains fixed. Flat dollar systematic withdrawals which are intended to satisfy the requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum. Such withdrawals are subject to surrender charges and Market Value Adjustment when they exceed the applicable free withdrawal amount. IRA WITHDRAWALS If you have a non-Roth IRA Contract and will be at least age 70 1/2 during the current calendar year, you may elect to have distributions made to you to satisfy requirements imposed by Federal tax law. IRA withdrawals provide payout of amounts required to be distributed by the Internal Revenue Service rules governing mandatory distributions under qualified plans. We will send you a notice before your distributions commence. You may elect to take IRA withdrawals at that time, or at a later date. You may not elect IRA 19 withdrawals and participate in systematic withdrawals at the same time. If you do not elect to take IRA withdrawals, and distributions are required by Federal tax law, distributions adequate to satisfy the requirements imposed by Federal tax law may be made. Thus, if you are participating in systematic withdrawals, distributions under that option must be adequate to satisfy the mandatory distribution rules imposed by federal tax law. You may choose to receive IRA withdrawals on a monthly, quarterly or annual basis. Under this option, you may elect payments to start as early as 28 days after the contract date. You select the day of the month when the withdrawals will be made, but it cannot be later than the 28th day of the month. If no date is selected, we will make the withdrawals on the same calendar day of the month as the contract date. You may request that we calculate for you the amount that is required to be withdrawn from your Contract each year based on the information you give us and various choices you make. For information regarding the calculation and choices you have to make, see the Statement of Additional Information. The minimum dollar amount you can withdraw is $100. When we determine the required IRA withdrawal amount for a taxable year based on the frequency you select, if that amount is less than $100, we will pay $100. At any time where the IRA withdrawal amount is greater than the contract value, we will cancel the Contract and send you the amount of the cash surrender value. You may change the payment frequency of your IRA withdrawals once each contract year or cancel this option at any time by sending us satisfactory notice to our Customer Service Center at least 7 days before the next scheduled withdrawal date. An IRA withdrawal in excess of the amount allowed under systematic withdrawals will be subject to a Market Value Adjustment. 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. [Shaded Section Header] - ---------------------------------------------------------------------- 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. Transfers will be based on values at the end of the business day in which the transfer request is received at our Customer Service Center. The minimum amount that you may transfer is $100 or, if less, your entire contract value held in a subaccount or a Fixed Interest Allocation. To make a transfer, you must notify our Customer Service Center and all other administrative requirements must be met. Any transfer request received after 4:00 p.m. eastern time or the close of the New York Stock Exchange will be effected on the next business day. Account B and the Company will not be liable for following instructions communicated by telephone or over the internet that we reasonably believe to be genuine. We require personal identifying information to process a request for transfer made over the telephone or over the internet. 20 DOLLAR COST AVERAGING You may elect to participate in our dollar cost averaging program if you have at least $1,200 of contract value in the (i) Limited Maturity Bond subaccount or the Liquid Asset subaccount, or (ii) a Fixed Interest Allocation with either a 6-month or a 1-year guaranteed interest period. These subaccounts or Fixed Interest Allocations serve as the source accounts from which we will, on a monthly basis, automatically transfer a set dollar amount of money to other subaccounts selected by you. We also may offer DCA Fixed Interest Allocations, which are 6-month and 1-year Fixed Interest Allocations available exclusively for use with the dollar cost averaging program. The DCA Fixed Interest Allocations require a minimum premium payment of $1,200 directed into a DCA Fixed Interest Allocation. The dollar cost averaging program is designed to lessen the impact of market fluctuation on your investment. Since we transfer the same dollar amount to other subaccounts each month, more units of a subaccount are purchased if the value of its unit is low and less units are purchased if the value of its unit is high. Therefore, a lower than average value per unit may be achieved over the long term. However, we cannot guarantee this. When you elect the dollar cost averaging program, you are continuously investing in securities regardless of fluctuating price levels. You should consider your tolerance for investing through periods of fluctuating price levels. Unless you have a DCA Fixed Interest Allocation, you elect the dollar amount you want transferred under this program. Each monthly transfer must be at least $100. If your source account is the Limited Maturity Bond subaccount, the Liquid Asset subaccount or a 1- year Fixed Interest Allocation, the maximum amount that can be transferred each month is your contract value in such source account divided by 12. If your source account is a 6-month Fixed Interest Allocation, the maximum amount that can be transferred each month is your contract value in such source account divided by 6. You may change the transfer amount once each contract year. If you have a DCA Fixed Interest Allocation, there is no minimum or maximum transfer amount; we will transfer all your money allocated to that source account into the subaccount(s) in equal payments over the selected 6-month or 1-year period. The last payment will include earnings accrued over the course of the selected period. If you make an additional premium payment into a Fixed Interest Allocation subject to dollar cost averaging, the amount of your transfers under the dollar cost averaging program remains the same, unless you instruct us to increase the transfer amount. Transfers from a Fixed Interest Allocation or a DCA Fixed Interest Allocation under the dollar cost averaging program are not subject to a Market Value Adjustment. However, if you terminate the dollar cost averaging program for a DCA Fixed Interest Allocation and there is money remaining in the DCA Fixed Interest Allocation, we will transfer the remaining money to the Liquid Asset subaccount. Such transfer will trigger a Market Value Adjustment if the transfer is made more than 30 days before the maturity date of the DCA Fixed Interest Allocation. If you do not specify the subaccounts to which the dollar amount of the source account is to be transferred, we will transfer the money to the subaccounts in which you are invested on a proportional basis. The transfer date is the same day each month as your contract date. If, on any transfer date, your contract value in a source account is equal or less than the amount you have elected to have transferred, the entire amount will be transferred and the program will end. You may terminate the dollar cost averaging program at any time by sending satisfactory notice to our Customer Service Center at least 7 days before the next transfer date. A Fixed Interest Allocation or DCA Fixed Interest Allocation may not participate in the dollar cost averaging program and in systematic withdrawals at the same time. We may in the future offer additional subaccounts or withdraw any subaccount or Fixed Interest Allocation to or from the dollar cost averaging program, stop offering DCA Fixed Interest Allocations or otherwise modify, suspend or terminate this program. Of course, such change will not affect any dollar cost averaging programs in operation at the time. AUTOMATIC REBALANCING If you have at least $10,000 of contract value invested in the subaccounts of Account B, you may elect to have your investments in the subaccounts automatically rebalanced. We will transfer funds under your Contract on a quarterly, semi-annual, or annual calendar basis among the subaccounts to maintain the investment blend of your selected subaccounts. The minimum size of any allocation must be in full percentage points. Rebalancing does not affect any amounts that you have allocated to the Fixed Account. The program may be 21 used in conjunction with the systematic withdrawal option only if withdrawals are taken pro rata. Automatic rebalancing is not available if you participate in dollar cost averaging. Automatic rebalancing will not take place during the free look period. To participate in automatic rebalancing, send satisfactory notice to our Customer Service Center. We will begin the program on the last business day of the period in which we receive the notice. You may cancel the program at any time. The program will automatically terminate if you choose to reallocate your contract value among the subaccounts or if you make an additional premium payment or partial withdrawal on other than a pro rata basis. Additional premium payments and partial withdrawals effected on a pro rata basis will not cause the automatic rebalancing program to terminate. [Shaded Section Header] - ---------------------------------------------------------------------- DEATH BENEFIT - ---------------------------------------------------------------------- DEATH BENEFIT DURING THE ACCUMULATION PHASE During the accumulation phase, a death benefit is payable when either the annuitant (when a contract owner is not an individual), the contract owner or the first of joint owners dies. Assuming you are the contract owner, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit value is calculated at the close of the business day on which we receive written notice and proof of death, as well as any required paperwork, at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of death, the amount of the benefit payable in the future may be affected. The proceeds may be received in a single sum or applied to any of the annuity options. If we do not receive a request to apply the death benefit proceeds to an annuity option, we will make a single sum distribution. We will generally pay death benefit proceeds within 7 days after our Customer Service Center has received sufficient information to make the payment. The death benefit under the Contract is the greatest of (i) your contract value; (ii) total premium payments less pro rata adjustments for any withdrawals; and (iii) the cash surrender value. Pro rata withdrawal adjustment on the death benefit is calculated by (i) dividing the contract value withdrawn by the contract value immediately prior to the withdrawal, and then (ii) multiplying the result by the amount of the death benefit component immediately prior to the withdrawal. 22 The amount of the death benefit amount could be reduced by premium taxes owed and withdrawals not previously deducted. DEATH BENEFIT DURING THE INCOME PHASE If any contract owner or the annuitant dies after the annuity start date, we will pay the beneficiary any certain benefit remaining under the annuity in effect at the time. 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 death benefit as of the date we receive due proof of death, minus the contract value also on that date, is greater than zero, we will add such difference to the contract value. Such addition will be allocated to the variable subaccounts in proportion to the contract value in the subaccounts. If there is no contract value in any subaccount, the addition will be allocated to the Liquid Asset subaccount, or its successor. The death benefit will continue to apply, with all age criteria using the surviving spouse's age as the determining age. At subsequent surrender, any surrender charge applicable to premiums paid prior to the date we receive due proof of death of the contract owner will be waived. Any premiums paid later will be subject to any applicable surrender charge. This addition to contract value is available only to the spouse of the owner as of the date of death of the owner if such spouse under the provisions if the contract elects to continue the contract as his or her own. [Shaded Section Header] - ---------------------------------------------------------------------- CHARGES AND FEES - ---------------------------------------------------------------------- We deduct the charges described below to cover our cost and expenses, services provided and risks assumed under the Contracts. We incur certain costs and expenses for distributing and administrating the Contracts, for paying the benefits payable under the Contracts and for bearing various risks associated with the Contracts. The amount of a charge will not always correspond to the actual costs associated. For example, the surrender charge collected may not fully cover all of the distribution expenses incurred by us with the service or benefits provided. In the event there are any profits from fees and charges deducted under the Contract, we may use such profits to finance the distribution of contracts. CHARGE DEDUCTION SUBACCOUNT You may elect to have all charges against your contract value deducted directly from a single subaccount designated by the Company. Currently we use the Liquid Asset subaccount for this purpose. If you do not elect this option, or if the amount of the charges is greater than the amount in the designated subaccount, the charges will be deducted as discussed below. You may cancel this option at any time by sending satisfactory notice to our Customer Service Center. CHARGES DEDUCTED FROM THE CONTRACT VALUE We deduct the following charges from your contract value: SURRENDER CHARGE. We will deduct a contingent deferred sales charge (a "surrender charge") if you surrender your Contract or if you take a withdrawal in excess of the Free Withdrawal Amount during the 10-year period from the date we receive and accept a premium payment. The surrender charge is based on a percentage of each premium payment withdrawn. This charge is intended to cover sales expenses that we have incurred. We may in the future reduce or waive the surrender charge in certain situations and will never charge more than the maximum surrender charges. The percentage of premium payments deducted at the time of surrender or excess withdrawal depends on the number of complete years that have elapsed since that premium payment was made. We determine the surrender charge as a percentage of each premium payment withdrawn as follows: COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10+ SINCE PREMIUM PAYMENT | | | | | | | | | | SURRENDER CHARGE 8.5% | 8.5% | 8.5% | 8.5% | 8.5% | 8% | 7% | 6% | 4% | 2% | 0%
23 WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. We will waive the surrender charge in most states in the following events: (i) you begin receiving qualified extended medical care on or after the first contract anniversary for at least 45 days during a 60-day period and your request for the surrender or withdrawal, together with all required documentation is received at our Customer Service Center during the term of your care or within 90 days after the last day of your care; or (ii) you are first diagnosed by a qualifying medical professional, on or after the first contract anniversary, as having a qualifying terminal illness. We have the right to require an examination by a physician of our choice. If we require such an examination, we will pay for it. You are required to send us satisfactory written proof of illness. See your Contract for more information. The waiver of surrender charge may not be available in all states. FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount is 10% of premium payments not previously withdrawn received within 10 years prior to the date of the withdrawal. SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a surrender charge for excess withdrawals. We consider a withdrawal to be an "excess withdrawal" when the amount you withdraw in any contract year exceeds the Free Withdrawal Amount. Where you are receiving systematic withdrawals, any combination of regular withdrawals taken and any systematic withdrawals expected to be received in a contract year will be included in determining the amount of the excess withdrawal. Such a withdrawal will be considered a partial surrender of the Contract and we will impose a surrender charge and any associated premium tax. We will deduct such charges from the contract value in proportion to the contract value in each subaccount or Fixed Interest Allocation from which the excess withdrawal was taken. In instances where the excess withdrawal equals the entire contract value in such subaccounts or Fixed Interest Allocations, we will deduct charges proportionately from all other subaccounts and Fixed Interest Allocations in which you are invested. ANY WITHDRAWAL FROM A FIXED INTEREST ALLOCATION MORE THAN 30 DAYS BEFORE ITS MATURITY DATE WILL TRIGGER A MARKET VALUE ADJUSTMENT. For the purpose of calculating the surrender charge for an excess withdrawal: a) we treat premiums as being withdrawn on a first-in, first-out basis; and b) amounts withdrawn which are not considered an excess withdrawal are not considered a withdrawal of any premium payments. We have included an example of how this works in Appendix B. Although we treat premium payments as being withdrawn before earnings for purpose of calculating the surrender charge for excess withdrawals, the federal tax law treats earnings as withdrawn first. PREMIUM TAXES. We may make a charge for state and local premium taxes depending on your state of residence. The tax can range from 0% to 3.5% of the premium payment. We have the right to change this amount to conform with changes in the law or if change your state of residence. We deduct the premium tax from your contract value on the annuity start date. However, some jurisdictions impose a premium tax at the time that initial and additional premiums are paid, regardless of when the annuity payments begin. In those states we may defer collection of the premium taxes from your contract value and deduct it when you surrender the Contract, when you take an excess withdrawal, or on the annuity start date. ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on each Contract anniversary, or if you surrender your Contract prior to a Contract anniversary, at the time we determine the cash surrender value payable to you. The amount deducted is $50 per Contract. We deduct the charge proportionately from all subaccounts in which you are invested. If there is no contract value in those subaccounts, we will deduct the charge from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until the charge has been paid. TRANSFER CHARGE. We currently do not deduct any charges for transfers made during a contract year. We have the right, however, to assess up to $25 for each transfer after the twelfth transfer in a contract year. If such a charge is assessed, we would deduct the charge from the subaccounts and the Fixed Interest Allocations from which each such transfer is made in proportion to the amount being transferred from each such subaccount and Fixed Interest Allocation unless you have chosen to have all charges deducted from a single subaccount. The charge will not apply to any transfers due to the election of dollar cost averaging, automatic rebalancing and transfers we make to and from any subaccount specially designated by the Company for such purpose. 24 CHARGES DEDUCTED FROM THE SUBACCOUNTS MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is deducted each business day. The mortality and expense risk charge is equivalent, on an annual basis, to 1.25% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .003446% for each day since the previous business day. ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based administrative charge, on an annual basis, is equal to 0.15% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .000411% for each day since the previous business day. This charge is deducted daily from your assets in each subaccount. TRUST EXPENSES There are fees and charges deducted from each investment portfolio of the Trusts. Please read the respective Trust prospectus for details. [Shaded Section Header] - ---------------------------------------------------------------------- THE ANNUITY OPTIONS - ---------------------------------------------------------------------- ANNUITIZATION OF YOUR CONTRACT If the annuitant and contract owner are living on the annuity start date, we will begin making payments to the contract owner under an income plan. We will make these payments under the annuity option chosen. You may change annuity option by making a written request to us at least 30 days before the annuity start date. The amount of the payments will be determined by applying your contract value adjusted for any applicable Market Value Adjustment on the annuity start date in accordance with the annuity option you chose. You may also elect an annuity option on surrender of the Contract for its cash surrender value or you may choose one or more annuity options for the payment of death benefit proceeds while it is in effect and before the annuity start date. If, at the time of the contract owner's death or the annuitant's death (if the contract owner is not an individual), no option has been chosen for paying death benefit proceeds, the beneficiary may choose an annuity option within 60 days. In all events, payments of death benefit proceeds must comply with the distribution requirements of applicable federal tax law. The minimum monthly annuity income payment that we will make is $20. We may require that a single sum payment be made if the contract value is less than $2,000 or if the calculated monthly annuity income payment is less than $20. For each annuity option we will issue a separate written agreement putting the annuity option into effect. Before we pay any annuity benefits, we require the return of your Contract. If your Contract has been lost, we will require that you complete and return the applicable lost Contract form. Various factors will affect the level of annuity benefits, such as the annuity option chosen, the applicable payment rate used and the investment performance of the portfolios and interest credited to the Fixed Interest Allocations. Our current annuity options provide only for fixed payments. Fixed annuity payments are regular payments, the amount of which is fixed and guaranteed by us. Some fixed annuity options provide fixed payments either for a specified period of time or for the life of the annuitant. The amount of life income payments will depend on the form and duration of payments you chose, the age of the annuitant or 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. 25 SELECTING THE ANNUITY START DATE You select the annuity start date, which is the date on which the annuity payments commence. The annuity start date must be at least 5 years from the contract date but before the month immediately following the annuitant's 90th birthday, or 10 years from the contract date, if later. If, on the annuity start date, a surrender charge remains, the elected annuity option must include a period certain of at least 5 years. If you do not select an annuity start date, it will automatically begin in the month following the annuitant's 90th birthday, or 10 years from the contract date, if later. If the annuity start date occurs when the annuitant is at an advanced age, such as over age 85, it is possible that the Contract will not be considered an annuity for federal tax purposes. See "Federal Tax Considerations" and the Statement of Additional Information. For a Contract purchased in connection with a qualified plan, other than a Roth IRA, distributions must commence not later than April 1st of the calendar year following the calendar year in which you attain age 70 1/2 or, in some case, retire. Distributions may be made through annuitization or withdrawals. You should consult your tax adviser for tax advice. FREQUENCY OF ANNUITY PAYMENTS You choose the frequency of the annuity payments. They may be monthly, quarterly, semi-annually or annually. If we do not receive written notice from you, we will make the payments monthly. There may be certain restrictions on minimum payments that we will allow. THE ANNUITY OPTIONS We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3 are fixed. Payments under Option 4 may be fixed or variable. For a fixed annuity option, the contract value in the subaccounts is transferred to the Company's general account. OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make monthly payments in equal installments for a fixed number of years based on the contract value on the annuity start date. We guarantee that each monthly payment will be at least the amount stated in your Contract. If you prefer, you may request that payments be made in annual, semi-annual or quarterly installments. We will provide you with illustrations if you ask for them. If the cash surrender value or contract value is applied under this option, a 10% penalty tax may apply to the taxable portion of each income payment until the contract owner reaches age 59 1/2. OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Payment is made for the life of the annuitant in equal monthly installments and guaranteed for at least a period certain such as 10 or 20 years. Other periods certain may be available to you on request. You may choose a refund period instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the guaranteed period, payments continue until his or her death. We guarantee that each payment will be at least the amount specified in the Contract corresponding to the person's age on his or her last birthday before the annuity start date. Amounts for ages not shown in the Contract are available if you ask for them. OPTION 3. JOINT LIFE INCOME. This option is available when there are 2 persons named to determine annuity payments. At least one of the persons named must be either the contract owner or beneficiary of the Contract. We guarantee monthly payments will be made as long as at least one of the named persons is living. There is no minimum number of payments. Monthly payment amounts are available if you ask for them. OPTION 4. ANNUITY PLAN. The contract value can be applied to any other annuitization plan that we choose to offer on the annuity start date. Annuity payments under Option 4 may be fixed or variable. If variable and subject to the Investment Company Act of 1940, it will comply with the requirements of such Act. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided in the annuity agreement between you and Golden American. The amounts we will pay are determined as follows: 26 (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 for 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 the Contract. (2) For Option 3, no amounts are payable after both named persons have died. (3) For Option 4, the annuity option agreement will state the amount we will pay, if any. [Shaded Section Header] - ---------------------------------------------------------------------- OTHER CONTRACT PROVISIONS - ---------------------------------------------------------------------- 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. We will also send you copies of any shareholder reports of the investment portfolios in which Account B invests, as well as any other reports, notices or documents we are required by law to furnish to you. SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of any payment or determination of values on any business day (1) when the New York Stock Exchange is closed; (2) when trading on the New York Stock Exchange is restricted; (3) when an emergency exists as determined by the SEC so that the sale of securities held in Account B may not reasonably occur or so that the Company may not reasonably determine the value of Account B's net assets; or (4) during any other period when the Securities and Exchange Commission so permits for the protection of security holders. We have the right to delay payment of amounts from a Fixed Interest Allocation for up to 6 months. IN CASE OF ERRORS IN YOUR APPLICATION If an age or sex given in the application or enrollment form is misstated, the amounts payable or benefits provided by the Contract shall be those that the premium payment would have bought at the correct age or sex. 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 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 27 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 will 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, we will put your money in the subaccount(s) chosen by you, based on the accumulation unit value next computed for each subaccount, and/or in the Fixed Interest Allocation chosen by you. GROUP OR SPONSORED ARRANGEMENTS For certain group or sponsored arrangements, we may reduce any surrender, administration, and mortality and expense risk charges. We may also change the minimum initial and additional premium requirements, or offer an alternative or reduced death benefit. SELLING THE CONTRACT Directed Services, Inc. is the principal underwriter and distributor of the Contract as well as for other contracts issued through Account B and other separate accounts of Golden American. We pay Directed Services for acting as principal underwriter under a distribution agreement which in turn pays the writing agent. The principal address of Directed Services is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. Directed Services enters into sales agreements with broker-dealers to sell the Contracts through registered representatives who are licensed to sell securities and variable insurance products. These broker-dealers are registered with the SEC and are members of the National Association of Securities Dealers, Inc. Directed Services receives a maximum of 10% commission, and passes through 100% of the commission to the broker-dealer whose registered representative sold the contract. [Shaded Table Header] Underwriter Compensation |----------------------------------------------------------------------------| | NAME OF PRINCIPAL | AMOUNT OF | [OTHER | | UNDERWRITER | COMMISSION TO BE PAID | COMPENSATION] | | | | | | Directed Services, Inc. | Maximum of 10% | Reimbursement of any | | | of any initial | covered expenses incurred| | | or additional | by registered | | | premium payments. | representatives in | | | | connection with | | | | the distribution | | | | of the Contracts.] | |----------------------------------------------------------------------------| 28 [Shaded Section Header] - ---------------------------------------------------------------------- OTHER INFORMATION - ---------------------------------------------------------------------- VOTING RIGHTS We will vote the shares of a Trust owned by Account B according to your instructions. However, if the Investment Company Act of 1940 or any related regulations should change, or if interpretations of it or related regulations should change, and we decide that we are permitted to vote the shares of a Trust in our own right, we may decide to do so. We determine the number of shares that you have in a subaccount by dividing the Contract's contract value in that subaccount by the net asset value of one share of the portfolio in which a subaccount invests. We count fractional votes. We will determine the number of shares you can instruct us to vote 180 days or less before a Trust's meeting. We will ask you for voting instructions by mail at least 10 days before the meeting. If we do not receive your instructions in time, we will vote the shares in the same proportion as the instructions received from all Contracts in that subaccount. We will also vote shares we hold in Account B which are not attributable to contract owners in the same proportion. STATE REGULATION We are regulated by the Insurance Department of the State of Delaware. We are also subject to the insurance laws and regulations of all jurisdictions where we do business. The variable Contract offered by this prospectus has been approved where required by those jurisdictions. We are required to submit annual statements of our operations, including financial statements, to the Insurance Departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. LEGAL PROCEEDINGS The Company, like other insurance companies, may be involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. We believe that currently there are no pending or threatened lawsuits that are reasonably likely to have a materially adverse impact on the Company or Account B. LEGAL MATTERS The legal validity of the Contracts was passed on by Myles R. Tashman, Esquire, Executive Vice President, General Counsel and Secretary of Golden American. Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to federal securities laws. EXPERTS The audited financial statements of Golden American Life Insurance Company and Account B appearing in this prospectus or in the Statement of Additional Information and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing or incorporated by reference in the Statement of Additional Information and in the Registration Statement and are included in this prospectus or in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 29 [Shaded Section Header] - ---------------------------------------------------------------------- FEDERAL TAX CONSIDERATIONS - ---------------------------------------------------------------------- The following summary provides a general description of the federal income tax considerations associated with this Contract and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice. You should consult your counsel or other competent tax advisers for more complete information. This discussion is based upon our understanding of the present federal income tax laws. We do not make any representations as to the likelihood of continuation of the present federal income tax laws or as to how they may be interpreted by the IRS. TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED The Contract may be purchased on a non-tax-qualified basis or purchased on a tax-qualified basis. Qualified Contracts are designed for use by individuals whose premium payments are comprised solely of proceeds from and/or contributions under retirement plans that are intended to qualify as plans entitled to special income tax treatment under Sections 401(a), 403(b), 408, or 408A of the Code. The ultimate effect of federal income taxes on the amounts held under a Contract, or annuity payments, depends on the type of retirement plan, on the tax and employment status of the individual concerned, and on our tax status. In addition, certain requirements must be satisfied in purchasing a qualified Contract with proceeds from a tax- qualified plan and receiving distributions from a qualified Contract in order to continue receiving favorable tax treatment. Some retirement plans are subject to distribution and other requirements that are not incorporated into our Contract administration procedures. Contract owners, participants and beneficiaries are responsible for determining that contributions, distributions and other transactions with respect to the Contract comply with applicable law. Therefore, you should seek competent legal and tax advice regarding the suitability of a Contract for your particular situation. The following discussion assumes that qualified Contracts are purchased with proceeds from and/or contributions under retirement plans that qualify for the intended special federal income tax treatment. TAX STATUS OF THE CONTRACTS DIVERSIFICATION REQUIREMENTS. The Code requires that the investments of a variable account be "adequately diversified" in order for non-qualified Contracts to be treated as annuity contracts for federal income tax purposes. It is intended that Account B, through the subaccounts, will satisfy these diversification requirements. In certain circumstances, owners of variable annuity contracts have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Contracts, such as the flexibility of a contract owner to allocate premium payments and transfer contract values, have not been explicitly addressed in published rulings. While we believe that the Contracts do not give contract owners investment control over Account B assets, we reserve the right to modify the Contracts as necessary to prevent a contract owner from being treated as the owner of the Account B assets supporting the Contract. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for federal income tax purposes, the Code requires any non- qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of your death. The non-qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. Other rules may apply to Qualified Contracts. The following discussion assumes that the Contracts will qualify as annuity contracts for federal income tax purposes. 30 TAX TREATMENT OF ANNUITIES IN GENERAL. We believe that if you are a natural person you will generally not be taxed on increases in the value of a Contract until a distribution occurs or until annuity payments begin. (For these purposes, the agreement to assign or pledge any portion of the contract value, and, in the case of a qualified Contract, any portion of an interest in the qualified plan, generally will be treated as a distribution.) TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON. The owner of any annuity contract who is not a natural person generally must include in income any increase in the excess of the contract value over the "investment in the contract" (generally, the premiums or other consideration you paid for the contract less any nontaxable withdrawals) during the taxable year. There are some exceptions to this rule and a prospective contract owner that is not a natural person may wish to discuss these with a tax adviser. The following discussion generally applies to Contracts owned by natural persons. WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the contract value (unreduced by the amount of any surrender charge) immediately before the distribution over the contract owner's investment in the Contract at that time. The tax treatment of market value adjustments is uncertain. You should consult a tax adviser if you are considering taking a withdrawal from your Contract in circumstances where a market value adjustment would apply. In the case of a surrender under a non-qualified Contract, the amount received generally will be taxable only to the extent it exceeds the contract owner's investment in the Contract. PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a non-qualified Contract, there may be imposed a federal tax penalty equal to 10% of the amount treated as income. In general, however, there is no penalty on distributions: o made on or after the taxpayer reaches age 59 1/2; o made on or after the death of a contract owner; o attributable to the taxpayer's becoming disabled; or o made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer. Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. A tax adviser should be consulted with regard to exceptions from the penalty tax. ANNUITY PAYMENTS. Although tax consequences may vary depending on the payment option elected under an annuity contract, a portion of each annuity payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an annuity payment is generally determined in a manner that is designed to allow you to recover your investment in the Contract ratably on a tax-free basis over the expected stream of annuity payments, as determined when annuity payments start. Once your investment in the Contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a Contract because of your death or the death of the annuitant. Generally, such amounts are includible in the income of recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under a payment option, they are taxed in the same way as annuity payments. TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT. A transfer or assignment of ownership of a Contract, the designation of an annuitant, the selection of certain dates for commencement of the annuity phase, or the exchange of a Contract may result in certain tax consequences to you that are 31 not discussed herein. A contract owner contemplating any such transfer, assignment or exchange, should consult a tax advisor as to the tax consequences. WITHHOLDING. Annuity distributions are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same contract owner during any calendar year are treated as one non-qualified deferred annuity contract for purposes of determining the amount includible in such contract owner's income when a taxable distribution occurs. TAXATION OF QUALIFIED CONTRACTS The Contracts are designed for use with several types of qualified plans. The tax rules applicable to participants in these qualified plans vary according to the type of plan and the terms and contributions of the plan itself. Special favorable tax treatment may be available for certain types of contributions and distributions. Adverse tax consequences may result from: contributions in excess of specified limits; distributions before age 59 1/2 (subject to certain exceptions); distributions that do not conform to specified commencement and minimum distribution rules; and in other specified circumstances. Therefore, no attempt is made to provide more than general information about the use of the Contracts with the various types of qualified retirement plans. Contract owners, annuitants, and beneficiaries are cautioned that the rights of any person to any benefits under these qualified retirement plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the Contract, but we shall not be bound by the terms and conditions of such plans to the extent such terms contradict the Contract, unless the Company consents. DISTRIBUTIONS. Annuity payments are generally taxed in the same manner as under a non-qualified Contract. When a withdrawal from a qualified Contract occurs, a pro rata portion of the amount received is taxable, generally based on the ratio of the contract owner's investment in the Contract (generally, the premiums or other consideration paid for the Contract) to the participant's total accrued benefit balance under the retirement plan. For qualified Contracts, the investment in the Contract can be zero. For Roth IRAs, distributions are generally not taxed, except as described below. For qualified plans under Section 401(a) and 403(b), the Code requires that distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the contract owner (or plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a specified form or manner. If the plan participant is a "5 percent owner" (as defined in the Code), distributions generally must begin no later than April 1 of the calendar year following the calendar year in which the contract owner (or plan participant) reaches age 70 1/2. For IRAs described in Section 408, distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the contract owner (or plan participant) reaches age 70 1/2. Roth IRAs under Section 408A do not require distributions at any time before the contract owner's death. WITHHOLDING. Distributions from certain qualified plans generally are subject to withholding for the contract owner's federal income tax liability. The withholding rates vary according to the type of distribution and the contract owner's tax status. The contract owner may be provided the opportunity to elect not to have tax withheld from distributions. "Eligible rollover distributions" from section 401(a) plans and section 403(b) tax-sheltered annuities are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is the taxable portion of any distribution from such a plan, except certain distributions that are required by the Code or distributions in a specified annuity form. The 20% withholding does not apply, however, if the contract owner chooses a "direct rollover" from the plan to another tax-qualified plan or IRA. Brief descriptions of the various types of qualified retirement plans in connection with a Contract follow. We will endorse the Contract as necessary to conform it to the requirements of such plan. 32 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 payable to the beneficiary will be distributed as follows: (a) the death benefit must be completely distributed within 5 years of the contract owner's date of death; or (b) the beneficiary may elect, within the 1-year period after the contract owner's date of death, to receive the death benefit in the form of an annuity from us, provided that (i) such annuity is distributed in substantially equal installments over the life of such beneficiary or over a period not extending beyond the life expectancy of such beneficiary; and (ii) such distributions begin not later than 1 year after the contract owner's date of death. Notwithstanding (a) and (b) above, if the sole contract owner's beneficiary is the deceased owner's surviving spouse, then such spouse may elect to continue the Contract under the same terms as before the contract owner's death. Upon receipt of such election from the spouse at our Customer Service Center: (1) all rights of the spouse as contract owner's beneficiary under the Contract in effect prior to such election will cease; (2) the spouse will become the owner of the Contract and will also be treated as the contingent annuitant, if none has been named and only if the deceased owner was the annuitant; and (3) all rights and privileges granted by the Contract or allowed by Golden American will belong to the spouse as contract owner of the Contract. This election will be deemed to have been made by the spouse if such spouse makes a premium payment to the Contract or fails to make a timely election as described in this paragraph. If the owner's beneficiary is a nonspouse, the distribution provisions described in subparagraphs (a) and (b) above, will apply even if the annuitant and/or contingent annuitant are alive at the time of the contract owner's death. If we do not receive an election from a nonspouse owner's beneficiary within the 1-year period after the contract owner's date of death, then we will pay the death benefit to the owner's beneficiary in a cash payment within five years from date of death. We will determine the death benefit as of the date we receive proof of death. We will make payment of the proceeds on or before the end of the 5-year period starting on the owner's date of death. Such cash payment will be in full settlement of all our liability under the Contract. If the contract owner dies after the annuity start date, we will continue to distribute any benefit payable at least as rapidly as under the annuity option then in effect. All of the contract owner's rights granted under the Contract or allowed by us will pass to the contract owner's beneficiary. If the Contract has joint owners we will consider the date of death of the first joint owner as the death of the contract owner and the surviving joint owner will become the contract owner of the Contract. CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS Section 401(a) of the Code permits corporate employers to establish various types of retirement plans for employees, and permits self- employed individuals to establish these plans for themselves and their employees. These retirement plans may permit the purchase of the Contracts to accumulate retirement savings under the plans. Adverse tax or other legal consequences to the plan, to the participant, or to both may result if this Contract is assigned or transferred to any individual as a means to provide benefit payments, unless the plan complies with all legal requirements applicable to such benefits before transfer of the Contract. Employers intending to use the Contract with such plans should seek competent advice. INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA." These IRAs are subject to limits on the amount that can be contributed, the deductible amount of the contribution, the persons who may be eligible, and the time when distributions commence. Also, distributions from certain other types of qualified retirement plans may be "rolled over" or transferred on a tax- deferred basis into an IRA. There are significant restrictions on rollover or transfer contributions from Savings Incentive Match Plans (SIMPLE), under which certain employers may provide contributions to IRAs on behalf of their employees, subject to special restrictions. Employers may 33 establish Simplified Employee Pension (SEP) Plans to provide IRA contributions on behalf of their employees. Sales of the Contract for use with IRAs may be subject to special requirements of the IRS. ROTH IRAS Section 408A of the Code permits certain eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, are not deductible, and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and other special rules may apply. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. TAX SHELTERED ANNUITIES Section 403(b) of the Code allows employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the premium payments made, within certain limits, on a Contract that will provide an annuity for the employee's retirement. These premium payments may be subject to FICA (social security) tax. Distributions of (1) salary reduction contributions made in years beginning after December 31, 1988; (2) earnings on those contributions; and (3) earnings on amounts held as of the last year beginning before January 1, 1989, are not allowed prior to age 59 1/2, separation from service, death or disability. Salary reduction contributions may also be distributed upon hardship, but would generally be subject to penalties. OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the federal tax consequences under the Contracts are not exhaustive, and special rules are provided with respect to other tax situations not discussed in this prospectus. Further, the federal income tax consequences discussed herein reflect our understanding of current law, and the law may change. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of distributions under a Contract depend on the individual circumstances of each contract owner or recipient of the distribution. A competent tax adviser should be consulted for further information. POSSIBLE CHANGES IN TAXATION Although the likelihood of legislative change is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or other means. It is also possible that any change could be retroactive (that is, effective before the date of the change). A tax adviser should be consulted with respect to legislative developments and their effect on the Contract. 34 [Shaded Section Header] - -------------------------------------------------------------------------- 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 | Post-Acquisition --------------------------------------------|--------------------------------- For the Period For For the Period | For the Period For the Period January 1, 1999 the Year October 25, | January 1, August 14, 1996 through Ended 1997 through | 1997 through 1996 through September 30, December 31, December 31, | October 24, December 31, 1999 1998 1997 | 1997 1996 ------------ ------------ -------------- | -------------- --------------- | Annuity and Interest | Sensitive Life | Product Charges....... $ 55,195 $ 39,119 $ 3,834 | $18,288 $ 8,768 Net Income before | Federal Income Tax.... $ 7,269 $ 10,353 $ (279) | $ (608) $ 570 Net Income (Loss)....... $ 3,551 $ 5,074 $ (425) | $ 729 $ 350 Total Assets............ $7,312,027 $4,752,533 $2,446,395 | N/A $1,677,899 Total Liabilities....... $6,858,151 $4,398,639 $2,219,082 | N/A $1,537,415 Total Stockholder's | Equity................ $ 453,876 $ 353,894 $ 227,313 | N/A $ 140,484
Pre-Acquisition --------------------------------------- For the Period January 1, For the Years 1996 through Ended December 31, August 13, ---------------------- 1996 1995 1994 -------------- ---------- ---------- Annuity and Interest Sensitive Life Product Charges....... $12,259 $ 18,388 $ 17,519 Net Income before Federal Income Tax.... $ 1,736 $ 3,364 $ 2,222 Net Income (Loss)....... $ 3,199 $ 3,364 $ 2,222 Total Assets............ N/A $1,203,057 $1,044,760 Total Liabilities....... N/A $1,104,932 $ 955,254 Total Stockholder's Equity................ N/A $ 98,125 $ 89,506
35 BUSINESS ENVIRONMENT The current business and regulatory environment remains challenging for the insurance industry. The variable annuity competitive environment is intense and is dominated by a number of large variable product companies with strong distribution, name recognition and wholesaling capabilities. Increasing competition from traditional insurance carriers as well as banks and mutual fund companies offer consumers many choices. However, overall demand for variable products remains strong for several reasons including: strong stock market performance over the last five years; relatively low interest rates; an aging U. S. population that is increasingly concerned about retirement and estate planning, as well as 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. In October of 1997, Golden American introduced three new variable annuity products (GoldenSelect Access, GoldenSelect ES II and GoldenSelect Premium Plus) which have contributed significantly to sales. 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 has also been 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 the financial report. Golden American reports financial results on a consolidated basis. The consolidated financial statements include the accounts of Golden American and its subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and collectively with Golden American, the "Companies"). RESULTS OF OPERATIONS MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable") shareholders approved an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI") and ING Groep N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc., Equitable Investment Services, Inc. (subsequently dissolved), Directed Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable of Iowa Companies was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware corporation. For financial statement purposes, the change in control of the Companies through the ING merger was accounted for as a purchase effective October 25, 1997. This merger resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the merger date. As a result, the Companies' financial statements for periods after October 24, 1997 are presented on the Post-Merger new basis of accounting. The purchase price was allocated to EIC and its subsidiaries with $227.6 million allocated to the Companies. Goodwill of $1.4 billion was established for the excess of the merger cost over the fair value of the assets and liabilities of EIC with $151.1 million attributed to the Companies. Goodwill resulting 36 from the merger is being amortized over 40 years on a straight-line basis. The carrying value will be reviewed periodically for any indication of impairment in value. CHANGE IN CONTROL--ACQUISITION. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its wholly owned subsidiaries, Golden American and DSI. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. For financial statement purposes, the change in control of Golden American through the acquisition of BT Variable was accounted for as a purchase effective August 14, 1996. This acquisition resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the acquisition date. As a result, the Companies' financial statements 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. The purchase price was allocated to the three companies purchased - - BT Variable, DSI, and Golden American. The allocation of the purchase price to Golden American was approximately $139.9 million. Goodwill of $41.1 million was established for the excess of the acquisition cost over the fair value of the assets and liabilities and attributed to Golden American. At June 30, 1997, goodwill was increased by $1.8 million due to the adjustment of the value of a receivable existing at the acquisition date. Before the ING merger, goodwill resulting from the acquisition was being amortized over 25 years on a straight-line basis. THE FIRST NINE MONTHS OF 1999 COMPARED TO THE SAME PERIOD OF 1998 PREMIUMS. PERCENTAGE DOLLAR NINE MONTHS ENDED SEPTEMBER 30 1999 CHANGE CHANGE 1998 ---- ---------- ------ ---- (Dollars in millions) Variable annuity premiums: Separate account................ $1,783.5 64.9% $702.1 $1,081.4 Fixed account................... 539.4 55.6 192.8 346.6 -------- ---- ------ -------- Total variable annuity premiums... 2,322.9 62.7 894.9 1,428.0 Variable life premiums............ 7.0 (38.9) (4.4) 11.4 -------- ---- ------ -------- Total premiums.................... $2,329.9 61.9% $890.5 $1,439.4 ======== ==== ====== ========
For the Companies' variable contracts, premiums collected are not reported as revenues, but as deposits to insurance liabilities. Revenues for these products are recognized over time in the form of investment income and product charges. Variable annuity separate account premiums increased 64.9% during the first nine months of 1999. The fixed account portion of the Companies' variable annuity premiums increased 55.6% during the first nine months of 1999. These increases resulted from increased sales of the Premium Plus variable annuity product. Premiums, net of reinsurance, for variable products from two significant broker/dealers each having at least ten percent of total sales for the nine months ended September 30, 1999 totaled $664.2 million, or 29% of total premiums ($142.6 million, or 10%, from the one significant broker/dealer for the nine months ended September 30, 1998). 37 REVENUES. PERCENTAGE DOLLAR NINE MONTHS ENDED SEPTEMBER 30 1999 CHANGE CHANGE 1998 ---- ---------- ------ ---- (Dollars in millions) Annuity and interest sensitive life product charges............ $ 55.2 104.5% $ 28.2 $ 27.0 Management fee revenue............ 6.8 107.4 3.5 3.3 Net investment income............. 42.7 45.7 13.4 29.3 Realized gains(losses) on investments..................... (2.2) (607.5) (2.6) 0.4 Other income...................... 7.4 55.0 2.6 4.8 ------- ------ ------ ------ $ 109.9 69.6% $ 45.1 $ 64.8 ======= ====== ====== ======
Total revenues increased 69.6% in the first nine months of 1999 from the same period in 1998. Annuity and interest sensitive life product charges increased 104.5% in the first nine months of 1999 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 $6.8 million and $3.3 million for the first nine months of 1999 and 1998, respectively. Net investment income increased 45.7% in the first nine months of 1999 due to growth in invested assets from September 30, 1998. The Companies had $2.2 million of realized losses resulting from the writedown of two fixed maturities in the second quarter of 1999 and from the sale of investments in the first nine months of 1999, compared to gains of $0.4 million in the same period of 1998. Other income increased $2.6 million to $7.4 million in the first nine months of 1999 due primarily to income received due to a modified coinsurance agreement with an unaffiliated reinsurer, which was offset by a reduction in the Companies' deferred policy acquisition costs. EXPENSES. Total insurance benefits and expenses increased $44.5 million, or 84.6%, to $97.0 million in the first nine months of 1999. Interest credited to account balances increased $61.3 million, or 95.6%, to $125.4 million in the first nine months of 1999. The extra credit bonus on the Premium Plus variable annuity product increased $49.9 million to $85.7 million at September 30, 1999 resulting in an increase in interest credited during the first nine months of 1999 compared to the same period in 1998. The bonus interest on the fixed account increased $2.6 million to $7.6 million at September 30, 1999 resulting in an increase in interest credited during the first nine months of 1999 compared to the same period in 1998. The remaining increase in interest credited relates to higher account balances associated with the Companies' fixed account option within the variable products. Commissions increased $49.6 million, or 58.4%, to $134.6 million in the first nine months of 1999. Insurance taxes, state licenses, and fees increased $0.9 million, or 32.3%, to $3.5 million in the first nine months of 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. 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. Most costs incurred as the result of sales have been deferred, thus having very little impact on current earnings. General expenses increased $24.1 million, or 102.5%, to $47.6 million in the first nine months of 1999. Management expects general expenses to continue to increase in 1999 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 38 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 and Equitable Life, an affiliate, for certain advisory, computer, and other resources and services provided by Golden American. The Companies' previous balances of deferred policy acquisition costs ("DPAC"), value of purchased insurance in force ("VPIF"), and unearned revenue reserve were eliminated and an asset of $44.3 million representing VPIF was established for all policies in force at the merger date. During the first nine months of 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 the first nine months of 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. Amortization of DPAC increased $15.7 million, or 390.7%, in the first nine months of 1999. This increase resulted from growth in policy acquisition costs deferred from $133.6 million at September 30, 1998 to $244.8 million at September 30, 1999, which was generated by expenses associated with the large sales volume experienced since September 30, 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 September 30, 1999 is $1.1 million for the remainder of 1999, $4.3 million in 2000, $4.0 million in 2001, $3.6 million in 2002, $3.2 million in 2003, and $2.4 million in 2004. Actual amortization may vary based upon changes in assumptions and experience. Amortization of goodwill during the first nine months of 1999 totaled $2.8 million, unchanged from the first nine months of 1998. Goodwill resulting from the merger is being amortized on a straight-line basis over 40 years. Interest expense on the $25 million surplus note issued in December 1996 and expiring December 2026 was $1.5 million in the first nine months of 1999, unchanged from the same period of 1998. Interest expense on the $60 million surplus note issued in December 1998 and expiring December 2028 was $3.3 million in the first nine months of 1999. Golden American also paid $0.7 million in the first nine months of 1999 compared to $1.3 million in the same period of 1998 to ING America Insurance Holdings, Inc. ("ING AIH") for interest on the reciprocal loan agreement. Interest expense on the revolving note payable with SunTrust Bank, Atlanta was $0.1 million for the first nine months of 1999. In addition, Golden American paid interest of $0.2 million during the first quarter of 1998 on the line of credit with Equitable, which was repaid with a capital contribution from the Parent and with funds borrowed from ING AIH. INCOME. Net income for the first nine months of 1999 was $3.6 million, a decrease of $1.3 million from net income of $4.9 million in the same period of 1998. Comprehensive loss for the first nine months of 1999 was $18,000, a decrease of $5.5 million from comprehensive income of $5.5 million in the same period of 1998. 39 1998 COMPARED TO 1997 The following analysis combines Post-Merger and Post-Acquisition activity for 1997. PREMIUMS. POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION For the Period | For the Period For the Year For the Year October 25, 1997 | January 1, 1997 ended ended through | through December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997 ----------------- ----------------- ----------------- | ---------------- (Dollars in millions) | | Variable annuity | premiums: | Separate account.... $1,513.3 $291.2 $111.0 | $180.2 Fixed account....... 588.7 318.0 60.9 | 257.1 -------- ------ ------ | ------ 2,102.0 609.2 171.9 | 437.3 Variable life | premiums............ 13.8 15.6 1.2 | 14.4 -------- ------ ------ | ------ Total premiums........ $2,115.8 $624.8 $173.1 | $451.7 ======== ====== ====== | ======
Variable annuity separate account premiums increased 419.7% in 1998 primarily due to increased sales of the Premium Plus product introduced in October of 1997 and the increased sales levels of the Companies' other products. The fixed account portion of the Companies' variable annuity premiums increased 85.1% in 1998. Variable life premiums decreased 11.4% in 1998. Total premiums increased 238.7% in 1998. During 1998, the Companies' sales were further diversified among broker/dealers. Premiums, net of reinsurance, for variable products from two significant broker/dealers having at least ten percent of total sales for the year ended December 31, 1998 totaled $580.7 million, or 27% of premiums ($328.2 million, or 53% from two significant broker/dealers for the year ended December 31, 1997). REVENUES. POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION For the Period | For the Period For the Year For the Year October 25, 1997 | January 1, 1997 ended ended through | through December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997 ----------------- ----------------- ----------------- | ---------------- (Dollars in millions) | | Annuity and interest | sensitive life | product charges...... $39.1 $22.1 $3.8 | $18.3 Management fee | revenue.............. 4.8 2.8 0.5 | 2.3 Net investment | income............... 42.5 26.8 5.1 | 21.7 Realized gains (losses) | on investments....... (1.5) 0.1 -- | 0.1 Other income........... 5.6 0.7 0.3 | 0.4 ----- ----- ---- | ----- $90.5 $52.5 $9.7 | $42.8 ===== ===== ==== | =====
40 Total revenues increased 72.3%, or $38.0 million, to $90.5 million in 1998. Annuity and interest sensitive life product charges increased 76.8%, or $17.0 million, to $39.1 million in 1998 due to additional fees earned from the increasing block of business under management in the separate accounts and an increase in surrender charge revenues. This increase was partially offset by the elimination of the unearned revenue reserve related to in force acquired business at the merger date, which resulted in lower annuity and interest sensitive life product charges compared to Post-Acquisition levels. Golden American provides certain managerial and supervisory services to DSI. The fee paid to Golden American for these services, which is calculated as a percentage of average assets in the variable separate accounts, was $4.8 million for 1998 and $2.8 million for 1997. Net investment income increased 58.6%, or $15.7 million, to $42.5 million in 1998 from $26.8 million in 1997 due to growth in invested assets. During 1998, the Company had net realized losses on investments of $1.5 million, which included a $1.0 million write down of two impaired bonds, compared to gains of $0.1 million in 1997. Other income increased $4.9 million to $5.6 million in 1998 due primarily to income received under a modified coinsurance agreement with an unaffiliated reinsurer as a result of increased sales. EXPENSES. POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION For the Period | For the Period For the Year For the Year October 25, 1997 | January 1, 1997 ended ended through | through December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997 ----------------- ----------------- ----------------- | ---------------- (Dollars in millions) | | Insurance benefits | and expenses: | Annuity and interest | sensitive life | benefits: | Interest credited to | account balances.. $94.9 $26.7 $7.4 | $19.3 Benefit claims | incurred in excess | of account | balances.......... 2.1 0.1 -- | 0.1 Underwriting, | acquisition, and | insurance expenses: | Commissions.......... 121.2 36.3 9.4 | 26.9 General Expenses.... 37.6 17.3 3.4 | 13.9 Insurance taxes..... 4.1 2.3 0.5 | 1.8 Policy acquisition | costs deferred (197.8) (42.7) (13.7) | (29.0) Amortization: | Deferred policy | acquisition | costs........... 5.1 2.6 0.9 | 1.7 Value of purchased | insurance in | force........... 4.7 6.1 0.9 | 5.2 Goodwill............ 3.8 2.0 0.6 | 1.4 ------ ----- ----- | ----- $ 75.7 $50.7 $ 9.4 | $41.3 ====== ===== ===== | =====
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in 1998 from $50.7 million in 1997. Interest credited to account balances increased 255.4%, or $68.2 million, in 1998 from $26.7 million in 1997. The extra credit bonus on the Premium Plus product introduced in October of 1997 generated a $51.6 million increase in interest credited during 1998 compared to 1997. The remaining increase in interest credited relates to higher account balances associated with the Companies' fixed account option within its variable products. 41 Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in 1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3 million in 1997. Changes in commissions and insurance taxes are generally related to changes in the level of variable product sales. Insurance taxes are impacted by several other factors, which include an increase in FICA taxes primarily due to bonuses. Most costs incurred as the result of new sales including the extra credit bonus were deferred, thus having very little impact on current earnings. General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3 million in 1997. Management expects general expenses to continue to increase in 1999 as a result of the emphasis on expanding the salaried wholesaler distribution network. The Companies use a network of wholesalers to distribute products and the salaries of these wholesalers are included in general expenses. The portion of these salaries and related expenses that varies with production levels is deferred thus having little impact on current earnings. The increase in general expenses was partially offset by reimbursements received from Equitable Life, an affiliate, for certain advisory, computer and other resources and services provided by Golden American. At the merger date, the Companies' deferred policy acquisition costs ("DPAC"), previous balance of value of purchased insurance in force ("VPIF") and unearned revenue reserve were eliminated and a new asset of $44.3 million representing VPIF was established for all policies in force at the merger date. During 1998, VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in the assumptions related to the timing of future gross profits. VPIF decreased $2.6 million in the second quarter of 1998 to adjust the value of other receivables recorded at the time of merger and increased $0.2 million in the first quarter of 1998 as the result of an adjustment to the merger costs. The amortization of VPIF and DPAC increased $1.1 million, or 13.0%, in 1998. During the second quarter of 1997, VPIF was adjusted by $2.3 million to reflect narrower spreads than the gross profit model assumed. Amortization of goodwill for the year ended December 31, 1998 totaled $3.8 million compared to $2.0 million for the year ended December 31, 1997. Interest expense on the $25 million surplus note issued December 1996 and expiring December 2026 was $2.1 million for the year ended December 31, 1998, unchanged from the same period of 1997. In addition, Golden American incurred interest expense of $0.2 million in 1998 compared to $0.5 million in 1997 on the line of credit with Equitable which was repaid with a capital contribution. Golden American also paid $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING AIH") for interest on the reciprocal loan agreement. Interest expense on the revolving note payable with SunTrust Bank, Atlanta was $0.3 million for the year ended December 31, 1998. INCOME. Net income for 1998 was $5.1 million, an increase of $4.8 million from $0.3 million in 1997. Comprehensive income for 1998 was $3.9 million, an increase of $1.8 million from $2.1 million in 1997. 1997 COMPARED TO 1996 The following analysis combines Post-Merger and Post-Acquisition activity for 1997 and Post-Acquisition and Pre-Acquisition activity for 1996 for comparison purposes. Such a comparison does not recognize the impact of the purchase accounting and goodwill amortization except for the periods after August 13, 1996. 42 PREMIUMS. POST-MERGER | COMBINED | POST-ACQUISITION -------------------|-------------------|----------------- For the Period | | For the Period October 25, 1997 | For the Year | January 1, 1997 through | ended | through December 31, 1997 | December 31, 1997 | October 24, 1997 -------------------|-------------------|----------------- (Dollars in millions) | | Variable annuity | | premiums: | | Separate account............. $111.0 | $291.2 | $180.2 Fixed account................ 60.9 | 318.0 | 257.1 ------ | ------ | ------ 171.9 | 609.2 | 437.3 Variable life premiums......... 1.2 | 15.6 | 14.4 ------ | ------ | ------ Total premiums................. $173.1 | $624.8 | $451.7 ====== | ====== | ======
POST-ACQUISITION | COMBINED | PRE-ACQUISITION -------------------|-------------------|----------------- For the Period | | For the Period August 14, 1996 | For the Year | January 1, 1996 through | ended | through December 31, 1996 | December 31, 1996 | August 13, 1996 -------------------|-------------------|----------------- (Dollars in millions) | | Variable annuity | | premiums: | | Separate account............. $ 51.0 | $182.4 | $131.4 Fixed account................ 118.3 | 245.3 | 127.0 ------ | ------ | ------ 169.3 | 427.7 | 258.4 Variable life premiums......... 3.6 | 14.1 | 10.5 ------ | ------ | ------ Total premiums................. $172.9 | $441.8 | $268.9 ====== | ====== | ======
Variable annuity separate account and variable life premiums increased 59.6% and 10.1%, respectively in 1997. During 1997, stock market returns, a relatively low interest rate environment and flat yield curve have made returns provided by variable annuities and mutual funds more attractive than fixed rate products such as certificates of deposits and fixed annuities. The fixed account portion of the Companies' variable annuity premiums increased 29.7% in 1997 due to the Companies' marketing emphasis on fixed rates during the second and third quarters. Premiums, net of reinsurance, for variable products from two significant broker/dealers having at least ten percent of total sales for the year ended December 31, 1997, totaled $328.2 million, or 53% of premiums ($298.0 million or 67% from two significant broker/dealers for the year ended December 31, 1996). 43 REVENUES. POST-MERGER | COMBINED | POST-ACQUISITION -------------------|-------------------|----------------- For the Period | | For the Period October 25, 1997 | For the Year | January 1, 1997 through | ended | through December 31, 1997 | December 31, 1997 | October 24, 1997 -------------------|-------------------|----------------- (Dollars in millions) | | Annuity and interest sensitive | | life product charges......... $3.8 | $22.1 | $18.3 Management fee revenue......... 0.5 | 2.8 | 2.3 Net investment income.......... 5.1 | 26.8 | 21.7 Realized gains (losses) on | | investments.................. -- | 0.1 | 0.1 Other income................... 0.3 | 0.7 | 0.4 ---- | ----- | ----- $9.7 | $52.5 | $42.8 ==== | ===== | =====
POST-ACQUISITION | COMBINED | PRE-ACQUISITION -------------------|-------------------|----------------- For the Period | | For the Period August 14, 1996 | For the Year | January 1, 1996 through | ended | through December 31, 1996 | December 31, 1996 | August 13, 1996 -------------------|-------------------|----------------- (Dollars in millions) | | Annuity and interest sensitive | | life product charges......... $ 8.8 | $21.0 | $12.2 Management fee revenue......... 0.9 | 2.3 | 1.4 Net investment income.......... 5.8 | 10.8 | 5.0 Realized gains (losses) on | | investments.................. -- | (0.4) | (0.4) Other income................... 0.5 | 0.6 | 0.1 ----- | ----- | ----- $16.0 | $34.3 | $18.3 ===== | ===== | =====
Total revenues increased 53.3%, or $18.2 million, to $52.5 million in 1997. Annuity and interest sensitive life product charges increased 5.2%, or $1.1 million in 1997 due to additional fees earned from the increasing block of business under management in the Separate Accounts and an increase in the collection of surrender charges. Golden American provides certain managerial and supervisory services to DSI. This fee, calculated as a percentage of average assets in the variable separate accounts, was $2.8 million for 1997 and $2.3 million for 1996. Net investment income increased 148.3%, or $16.0 million, to $26.8 million in 1997 from $10.8 million in 1996 due to growth in invested assets. During 1997, the Company had net realized gains on the disposal of investments, which were the result of voluntary sales, of $0.1 million compared to net realized losses of $0.4 million in 1996. 44 EXPENSES. POST-MERGER | COMBINED | POST-ACQUISITION -------------------|-------------------|----------------- For the Period | | For the Period October 25, 1997 | For the Year | January 1, 1997 through | ended | through December 31, 1997 | December 31, 1997 | October 24, 1997 -------------------|-------------------|----------------- (Dollars in millions) | | Insurance benefits and | | expenses: | | Annuity and interest | | sensitive life benefits: | | Interest credited to account | | balances................... $ 7.4 | $ 26.7 | $ 19.3 Benefit claims incurred in | | excess of account balances. -- | 0.1 | 0.1 Underwriting, acquisition, and | | insurance expenses: | | Commissions.................. 9.4 | 36.3 | 26.9 General expenses............. 3.4 | 17.3 | 13.9 Insurance taxes.............. 0.5 | 2.3 | 1.8 Policy acquisition costs | | deferred................... (13.7) | (42.7) | (29.0) Amortization: | | Deferred policy acquisition | | costs...................... 0.9 | 2.6 | 1.7 Present value of in force | | acquired................... 0.9 | 6.1 | 5.2 Goodwill..................... 0.6 | 2.0 | 1.4 ------ | ------ | ------ $ 9.4 | $ 50.7 | $ 41.3 ====== | ====== | ======
POST-ACQUISITION | COMBINED | PRE-ACQUISITION -------------------|-------------------|----------------- For the Period | | For the Period August 14, 1996 | For the Year | January 1, 1996 through | ended | through December 31, 1996 | December 31, 1996 | August 13, 1996 -------------------|-------------------|----------------- (Dollars in millions) | | Insurance benefits and | | expenses: | | Annuity and interest sensitive | | life benefits: | | Interest credited to account | | balances.................. $ 5.7 | $ 10.1 | $ 4.4 Benefit claims incurred in | | excess of account | | balances.................. 1.3 | 2.2 | 0.9 Underwriting, acquisition, and | | insurance expenses: | | Commissions................. 9.9 | 26.5 | 16.6 General expenses............ 5.9 | 15.3 | 9.4 Insurance taxes............. 0.7 | 1.9 | 1.2 Policy acquisition costs | | deferred.................. (11.7) | (31.0) | (19.3) Amortization: | | Deferred policy acquisition | | costs..................... 0.2 | 2.6 | 2.4 Present value of in force | | acquired.................. 2.7 | 3.7 | 1.0 Goodwill.................... 0.6 | 0.6 | -- ------ | ------ | ------ $ 15.3 | $ 31.9 | $ 16.6 ====== | ====== | ======
Total insurance benefits and expenses increased 59.3%, or $18.8 million, in 1997 from $31.9 million in 1996. Interest credited to account balances increased 164.4%, or $16.6 million, in 1997 as a result of higher account balances associated with the Company's fixed account option within its variable products. Commissions increased 37.3%, or $9.8 million, in 1997 from $26.5 million in 1996. Insurance taxes increased 23.3%, or $0.4 million, in 1997 from $1.9 million in 1996. Increases and decreases in commissions and insurance taxes are generally related to changes in the level of variable product sales. 45 Insurance taxes are also impacted by several other factors which include an increase in FICA taxes primarily due to bonuses and an increase in state licenses and fees. Most costs incurred as the result of new sales have been deferred, thus having very little impact on earnings. General expenses increased 12.6%, or $2.0 million, in 1997 from $15.3 million in 1996 due in part to certain expenses associated with the merger occurring on October 24, 1997. In addition, the Company uses a network of wholesalers to distribute its products and the salaries of these wholesalers are included in general expenses. The portion of these salaries and related expenses which vary with sales production levels are deferred, thus having little impact on earnings. This increase in general expenses was partially offset by reimbursements received from Equitable Life, an affiliate, for certain advisory, computer and other resources and services provided by Golden American. During the second quarter of 1997, present value of in force acquired ("PVIF") was unlocked by $2.3 million to reflect narrower current spreads than the gross profit model assumed. The Company's deferred policy acquisition costs ("DPAC"), previous balance of PVIF and unearned revenue reserve, as of the merger date, were eliminated and an asset of $44.3 million representing PVIF was established for all policies in force at the merger date. The amortization of PVIF and DPAC increased $2.4 million, or 37.1%, in 1997. Amortization of goodwill for the year ended December 31, 1997 totaled $2.0 million compared to $0.6 million for the year ended December 31, 1996. Interest expense on the $25 million surplus note issued December 1996 was $2.0 million for the year ended December 31, 1997. Interest on any line of credit borrowings was charged at the rate of Equitable's monthly average aggregate cost of short-term funds plus 1.00%. During 1997, the Company paid $0.6 million to Equitable for interest on the line of credit. INCOME. Net income on a combined basis for 1997 was $0.3 million, a decrease of $3.2 million, or 91.4%, from 1996. FINANCIAL CONDITION RATINGS. During 1998, the Companies' ratings were upgraded by Standard & Poor's Rating Services ("Standard & Poor's") from AA to AA+. During the first quarter of 1999, the Companies' ratings were upgraded by Duff & Phelps Credit Rating Company from AA+ to AAA. INVESTMENTS. The financial statement carrying value and amortized cost basis of the Companies' total investment portfolio grew 8.7% and 10.5%, respectively, during the first nine months of 1999. All of the Companies' investments, other than mortgage loans on real estate, are carried at fair value in the Companies' financial statements. As such, growth in the carrying value of the Companies' investment portfolio included changes in unrealized appreciation and depreciation of fixed maturities as well as growth in the cost basis of these securities. 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. The Companies manage the growth of insurance operations in order to maintain adequate capital ratios. To support the fixed account options of the Companies' variable insurance products, cash flow was invested primarily in fixed maturities and short-term investments. At September 30, 1999 and December 31, 1998, the Companies had no investments in default. At September 30, 1999 and December 31, 1998, the Companies' investment portfolio had a yield of 6.6% and 6.4%, respectively. 46 The Companies estimate the total investment portfolio, excluding policy loans, had a fair value approximately equal to 98.0% of amortized cost value at September 30, 1999 (100.2% at December 31, 1998). Fixed Maturities: At September 30, 1999, the Companies had fixed maturities with an amortized cost of $815.0 million and an estimated fair value of $798.7 million. At December 31, 1998, the Companies had fixed maturities with an amortized cost of $739.8 million and an estimated fair value of $742.0 million. The Companies classify 100% of securities as available for sale. At September 30, 1999, net unrealized depreciation on fixed maturities of $16.3 million was comprised of gross appreciation of $0.8 million and gross depreciation of $17.1 million. Net unrealized holding losses on these securities, net of adjustments to VPIF, DPAC, and deferred income taxes of $4.0 million, was included in stockholder's equity at September 30, 1999. At December 31, 1998 net unrealized appreciation of fixed maturities of $2.2 million was comprised of gross appreciation of $6.7 million and gross depreciation of $4.5 million. Net unrealized holding gains on these securities, net of adjustments to VPIF, DPAC, and deferred income taxes of $1.0 million was included in stockholder's equity at December 31, 1998. 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 ($528.0 million or 64.8% at September 30, 1999 and $477.4 million or 64.5% at December 31, 1998), that are rated BBB+ to BBB- by Standard & Poor's ($138.0 million or 16.9% at September 30, 1999 and $124.0 million or 16.8% at December 31, 1998), and below investment grade securities which are securities, issued by corporations that are rated BB+ to CCC- by Standard & Poor's ($72.3 million or 8.9% at September 30, 1999 and $51.6 million or 7.0% at December 31, 1998). Securities not rated by Standard & Poor's had a National Association of Insurance Commissioners ("NAIC") rating of 1, 2, 3 or 4 ($76.7 million or 9.4% at September 30, 1999 and $86.8 million or 11.7% at December 31, 1998). The Companies' fixed maturity investment portfolio had a combined yield at amortized cost of 6.6% at September 30, 1999 and 6.5% at December 31, 1998. Fixed maturities rated BBB+ to BBB- may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities. At September 30, 1999, the amortized cost value of the Companies' total investment in below investment grade securities, excluding mortgage-backed securities, was $73.7 million, or 7.4%, of the Companies' investment portfolio ($52.7 million, or 5.9%, at December 31, 1998). The Companies intend to purchase additional below investment grade securities but do not expect the percentage of the portfolio invested in such securities to exceed 10% of the investment portfolio. At September 30, 1999, the yield at amortized cost on the Companies' below investment grade portfolio was 7.8% compared to 6.6% for the Companies' investment grade corporate bond portfolio. At December 31, 1998, the yield at amortized cost on the Companies' below investment grade portfolio was 7.9% compared to 6.4% for the Companies' investment grade corporate bond portfolio. The Companies estimate the fair value of the below investment grade portfolio was $70.5 million, or 95.6% of amortized cost value, at September 30, 1999 ($51.7 million, or 98.1% of amortized cost value, at December 31, 1998). 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. 47 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 nine months ended September 30, 1999 and Ifor the year ended December 31, 1998, fixed maturities designated as available for sale with a combined amortized cost of $170.6 million and $145.3 million, respectively, were called or repaid by their issuers. In total, net pre-tax losses from sales, calls, and repayments of fixed maturities amounted to $2.2 million and $0.5 million, for the first nine months of 1999 and for the year ended December 31, 1998, respectively. During the fourth quarter of 1998, Golden American determined that the carrying value of two bonds exceeded their estimated net realizable value. As a result, at December 31, 1998, Golden American recognized a total pre-tax loss of approximately $1.0 million to reduce the carrying value of the bonds to their combined net realizable value of $2.9 million. During the second quarter of 1999, further information was received regarding these bonds and Golden American determined that the carrying value of the two bonds exceeded their estimated net realizeable value. As a result, at June 30, 1999 Golden American recognized a total pre-tax loss of approximately $1.6 million to further reduce the carrying value of the bonds to their combined net realizeable value of $1.1 million. Equity Securities: At September 30, 1999 and December 31, 1998, equity securities represented 1.5% and 1.6%, respectively, of the Companies' investment portfolio. At September 30, 1999 and December 31, 1998, the Companies owned equity securities with a cost of $14.4 million and an estimated fair value of $13.7 million and $11.5 million, respectively. At September 30, 1999, net unrealized depreciation of equity securities of $0.7 million was comprised of gross appreciation of $0.3 million and gross depreciation of $1.0 million. At December 31, 1998 net unrealized depreciation of equity securities was comprised entirely of gross depreciation of $2.9 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 represented 9.5% and 10.9% of the Companies' investment portfolio at September 30, 1999 and at December 31, 1998, respectively. Mortgages outstanding at amortized cost were $93.9 million September 30, 1999 with an estimated fair value of $91.2 million. Mortgages outstanding were $97.3 million at December 31, 1998 with an estimated fair value of $99.8 million. At September 30, 1999, the Companies' mortgage loan portfolio included 57 loans with an average size of $1.6 million and average seasoning of 0.8 years if weighted by the number of loans. At December 31, 1998, the Companies' mortgage loan portfolio included 57 loans with an average size of $1.7 million and average seasoning of 0.9 years if weighted by the number of loans. The Companies' mortgage loans on real estate are typically secured by occupied buildings in major metropolitan locations and not speculative developments and are diversified by type of property and geographic location. Mortgage loans on real estate have been analyzed by geographical location with concentrations by state identified as California (12% in 1998 and 1997), Utah (11% in 1998, 13% in 1997), and Georgia (10% in 1998, 11% in 1997). There are no other concentrations of mortgage loans in any state exceeding ten percent at December 31, 1998 and 1997. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (36% in 1998, 43% in 1997), industrial buildings (32% in 1998, 33% in 1997) and retail facilities (20% in 1998, 15% in 1997). As of September 30, 1999, there have been no significant changes to the concentrations of mortgage loans on real estate compared to December 31, 1998. At September 30, 1999 and December 31, 1998, the yield on the Companies' mortgage loan portfolio was 7.3%. 48 At September 30, 1999 and December 31, 1998, 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 U.S. The insurance subsidiaries of EIC have experienced a historically low default rate in their mortgage loan portfolios. OTHER ASSETS. Accrued investment income increased $2.3 million during the first nine months of 1999, due to an increase in the overall size of the portfolio resulting from the investment of premiums allocated to the fixed account options of the Companies' variable products. DPAC represents certain deferred costs of acquiring new insurance business, principally first year commissions and interest bonuses, extra credit bonuses, and other expenses related to the production of new business after the merger. The Companies' previous balances of DPAC and VPIF were eliminated as of the merger date, and an asset representing VPIF was established for all policies in force at the merger date. VPIF is amortized into income in proportion to the expected gross profits of in force acquired business in a manner similar to DPAC amortization. Any expenses which vary directly with the sales of the Companies' products are deferred and amortized. At September 30, 1999, the Companies had DPAC and VPIF balances of $439.2 million and $33.0 million, respectively ($205.0 million and $36.0 million, respectively at December 31, 1998). During the first nine months of 1998, VPIF decreased $2.7 million to adjust the value of other receivables and increased $0.2 million as a result of an adjustment to the merger costs. Property and equipment increased $5.7 million, or 77.1%, during the first nine months of 1999, due to the purchase of furniture and other equipment for Golden American's new offices in West Chester, Pennsylvania. Property and equipment increased $5.8 million during 1998, due to installation of a new policy administration system, introduction of an imaging system as well as the growth in the business. Goodwill totaling $151.1 million, representing the excess of the acquisition cost over the fair value of net assets acquired, was established at the merger date. Accumulated amortization of goodwill as of September 30, 1999 and December 31, 1998 was $7.2 million and $4.4 million, respectively. Other assets increased $35.8 million during the first nine months of 1999, due mainly to an increase in a receivable from the separate account. Other assets increased $5.5 million during 1998, due mainly to an increase in amounts due from an unaffiliated reinsurer under a modified coinsurance agreement. At September 30, 1999, the Companies had $5.6 billion of separate account assets compared to $3.4 billion at December 31, 1998. The increase in separate account assets resulted from market appreciation, increased transfer activity, and sales of the Companies' variable annuity products, net of redemptions. At December 31, 1998, the Companies had $3.4 billion of separate account assets compared to $1.6 billion at December 31, 1997. The increase in separate account assets resulted from market appreciation and growth in sales of the Companies' variable annuity products, net of redemptions. At September 30, 1999, the Companies had total assets of $7.3 billion, a 53.9% increase from December 31, 1998. At December 31, 1998, the Companies had total assets of $4.8 billion, an increase of 94.3% from December 31, 1997. LIABILITIES. In conjunction with the volume of variable annuity sales, the Companies' total liabilities increased $2.5 billion, or 55.9%, during the first nine months of 1999 and totaled $6.9 billion at September 30, 1999. At September 30, 1999, future policy benefits for annuity and interest sensitive life products increased $128.3 million, or 14.6%, to $1.0 billion reflecting premium growth in the Companies' fixed account options of its variable products, net of transfers to the separate accounts. Market appreciation, increased transfer activity, and premiums, net of redemptions, accounted for the $2.2 billion, or 64.9%, increase in separate account liabilities to $5.6 billion at September 30, 1999. In conjunction with the volume of variable annuity sales, the Companies' total liabilities increased $2.2 billion, or 98.2%, during 1998 and totaled $4.4 billion at December 31, 1998. Future policy benefits for annuity and interest sensitive life products increased $375.8 million, or 74.4%, to $881.1 million reflecting premium growth in the Companies' fixed account option of its variable products. Market appreciation and premium growth, net of redemptions, accounted for the $1.7 billion, or 106.3%, increase in separate account liabilities to $3.4 billion at December 31, 1998. 49 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, 1998, Golden American issued a $60 million, 7.25% surplus note to Equitable Life, which matures on December 29, 2028. On December 17, 1996, Golden American issued a $25 million, 8.25% surplus note to Equitable, which matures on December 17, 2026. As a result of the merger, the surplus note is now payable to EIC. At September 30, 1999, other liabilities increased $47.5 million from $32.6 million at December 31, 1998, due primarily to increases in securities payables and remittances to be applied. At December 31, 1998, other liabilities increased $15.3 million from $17.3 million at December 31, 1997, due primarily to increases in accounts payable, outstanding checks, guaranty fund assessment liability, and pension liability. 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 $100.0 million, or 28.8%, from December 31, 1998 to $447.6 million at September 30, 1999 due to capital contributions from the Parent. Additional paid-in capital increased $122.6 million, or 54.5%, from December 31, 1997 to $347.6 million at December 31, 1998 primarily 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 extra premium credits, investment purchases, repayment of debt, as well as withdrawals and surrenders. Net cash used in operating activities was $60.0 million in the first nine months of 1999 compared to $22.7 million in the same period of 1998. Net cash used in operating activities was $63.9 million in 1998 compared to $4.8 million in 1997. The Companies have predominantly had negative cash flows from operating activities since Golden American started issuing variable insurance products in 1989. These negative operating cash flows result primarily from the funding of commissions and other deferrable expenses related to the continued growth in the variable annuity products. The 1998 increase in net cash used in operating activities resulted principally from the introduction of Golden American's extra premium credit product in October 1997. In 1998, $54.4 million in extra premium credits was added to contract- holders' account values versus $2.8 million in 1997. Net cash used in investing activities was $111.3 million during the first nine months of 1999 as compared to $224.5 million in the same period of 1998. This decrease is primarily due to greater net purchases of fixed maturities, equity securities, and mortgage loans on real estate during the first nine months of 1998 than in the same period of 1999. Net purchases of fixed maturities reached $79.7 million during the first nine months of 1999 versus $199.0 million in the same period of 1998. Net sales of mortgage loans on real estate were $3.2 million during the first nine months of 1999 compared to net purchases of $13.2 million during the first nine months of 1998. Net cash used in investing activities was $390.0 million during 1998 as compared to $198.5 million in 1997. This increase is primarily due to greater net purchases of fixed maturities resulting from an increase in funds available from net fixed account deposits. Net purchases of fixed maturities reached 50 $331.3 million in 1998 versus $135.3 million in 1997. Net purchases of mortgage loans on real estate, on the other hand, declined to $12.6 million from $51.2 million at December 31, 1997. In 1998, net purchases of short-term investments were unusually high due to the investment of the remaining proceeds of Golden American's $60.0 million surplus note issued on December 30, 1998. Net cash provided by financing activities was $177.5 million during the first nine months of 1999 compared to $245.1 million during the same period of 1998. In the first nine months of 1999, net cash provided by financing activities was positively impacted by net fixed account deposits of $441.7 million compared to $300.0 million in the same period of 1998. This increase was offset by net reallocations to the Companies' separate accounts, which increased to $439.2 million from $163.5 million during the prior year, and by a decrease in net borrowings of $54.8 million in the first nine months of 1999 compared to the first nine months of 1998. In the first nine months of 1999, another important source of cash provided by financing activities was $100.0 million in capital contributions from the Parent compared to $53.8 million in the first nine months of 1998. In addition, another source of cash provided by financing activities during the third quarter of 1999 was $75.0 million in proceeds from a surplus note with ING AIH. Net cash provided by financing activities was $439.5 million during 1998 as compared to $218.6 million during the prior year. In 1998, net cash provided by financing activities was positively impacted by net fixed account deposits of $520.8 million compared to $303.6 million in 1997. This increase was partially offset by net reallocations to the Companies' separate accounts, which increased to $239.7 million from $110.1 million during the prior year. In 1998, other important sources of cash provided by financing activities were $98.4 million of capital contributions from the Parent and $60.0 million of proceeds from the issuance of a surplus note on December 30, 1998. The Companies have used part of the proceeds of the surplus note to repay outstanding short-term debt. 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 an $85.0 million revolving note facility with SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes that these sources of liquidity are adequate to meet the Companies' short-term cash obligations. Based on current trends, the Companies expect to continue to use net cash in operating activities, given the continued growth of the variable annuity products. It is anticipated that a continuation of capital contributions from the Parent and the issuance of additional surplus notes will cover these net cash outflows. ING is committed to the sustained growth of Golden American. During 1999, ING will maintain Golden American's statutory capital and surplus at the end of each quarter at a level such that: 1) the ratio of Total Adjusted Capital divided by Company Action Level Risk Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds the "Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3, Line 13A of Golden American's Statutory Statement. During the first quarter of 1999, Golden American's operations were moved to a new site in West Chester, Pennsylvania. During the third quarter of 1999, Golden American occupied an additional 20,000 square feet and currently occupies 85,000 square feet of leased space, its affiliate occupies 20,000 square feet, and it has made commitments for an additional 20,000 square feet to be occupied by itself or its affiliates during the fourth quarter of 1999. Previously, Golden American's home office operations were housed in leased locations in Wilmington, Delaware and various locations in Pennsylvania, which were leased on a short-term basis for use in the transition to the new office building. Golden American's New York subsidiary is housed in leased space in New York, New York. The Companies intend to spend approximately $1.0 million on capital needs during the remainder of 1999. 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 51 limit. During 1999, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder, 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 any dividends to Golden American during 1999. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to monitor the capitalization of insurance companies based upon the type and mixture of risks inherent in a company's operations. The formula includes components for asset risk, liability risk, interest rate exposure and other factors. The Companies have complied with the NAIC's risk-based capital reporting requirements. Amounts reported indicate the Companies have total adjusted capital well above all required capital levels. Reinsurance: At September 30, 1999 and at December 31, 1998, Golden American had reinsurance treaties with four unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks under its variable contracts. Golden American remains liable to the extent its reinsurers do not meet their obligations under the reinsurance agreements. 52 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 products. Therefore, the risks associated with the investments supporting the variable separate accounts are assumed by contractholders, not by the Companies (subject to, among other things, certain minimum guarantees). The Companies' products also provide certain minimum death benefits that depend on the performance of the variable separate accounts. Currently the majority of death benefit risks are reinsured, which protects the Companies from adverse mortality experience and prolonged capital market decline. A surrender, partial withdrawal, transfer, or annuitization made prior to the end of a guarantee period from the fixed account may be subject to a market value adjustment. As the majority of the liabilities in the fixed account are subject to market value adjustment, the Companies do not face a material amount of market risk volatility. The fixed account liabilities are supported by a portfolio principally composed of fixed rate investments that can generate predictable, steady rates of return. The portfolio management strategy for the fixed account considers the assets available for sale. This enables the Companies to respond to changes in market interest rates, changes in prepayment risk, changes in relative values of asset sectors and individual securities and loans, changes in credit quality outlook and other relevant factors. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risks as well as other risks. The Companies' asset/liability management discipline includes strategies to minimize exposure to loss as interest rates and economic and market conditions change. 53 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 1998 levels, variable separate account funds, which represent 85% of the in force as of September 30, 1999, pass the risk in underlying fund performance to the contract-holder (except for certain minimum guarantees that are mostly reinsured). With respect to interest rate movements up or down 100 basis points from year-end 1998 levels, the remaining 15% of the in force as of September 30, 1999 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, and the lapse rate of the Companies' policies, notwithstanding product design features intended to enhance persistency of the Companies' products. 54 2. Changes in the federal income tax laws and regulations which may affect the tax status of the Companies' space 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. 6. To the extent third parties are unable to transact business in the Year 2000 and thereafter, the Companies' operations could be adversely affected. 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 annuity and life insurance products. Golden American and its affiliate DSI are party to in excess of 140 sales agreements with broker-dealers, three of whom, Locust Street Securities, Inc., Vestax Securities Corporation, and Multi- Financial Securities Corporation, are affiliates of Golden American. As of September 30, 1999, two broker-dealers produce 10% or more of Golden American's product sales. REINSURANCE. Golden American reinsures its mortality risk associated with the Contract's guaranteed death benefit with one or more appropriately licensed insurance companies. Golden American also, effective June 1, 1994, entered into a reinsurance agreement on a modified coinsurance basis with an affiliate of a broker-dealer which distributes Golden American's products with respect to 25% of the business produced by that broker-dealer. RESERVES. In accordance with the life insurance laws and regulations under which Golden American operates, it is obligated to carry on its books, as liabilities, actuarially determined reserves to meet its obligations on outstanding Contracts. Reserves, based on valuation mortality tables in general use in the United States, where applicable, are computed to equal amounts which, together with interest on such reserves computed annually at certain assumed rates, make adequate provision according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of Golden American. COMPETITION. Golden American is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities marketing insurance products comparable to those of Golden American. There are approximately 2,350 stock, mutual and other types of insurers in the life insurance business in the United States, a substantial number of which are significantly larger than Golden American. SERVICE AGREEMENTS. Beginning in 1994 and continuing until August 13, 1996, Bankers Trust (Delaware), a subsidiary of Bankers Trust New York Corporation, and Golden American became parties to a service agreement pursuant to which Bankers Trust (Delaware) agreed to provide certain accounting, actuarial, tax, underwriting, sales, management and other services to Golden American. Expenses incurred by Bankers Trust (Delaware)in relation to this service agreement were reimbursed by Golden American on an allocated cost basis. Charges billed to Golden American by Bankers Trust (Delaware) pursuant to the service agreement for 1996 through its termination as of August 13, 1996 were $0.5 million. 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 55 American and its subsidiary First Golden American Life Insurance Company of New York ("First Golden"), $0.9 million, $1.1 million, and $27,000 for the first nine months of 1999 and the years ended December 31, 1998 and 1997, respectively, under this service agreement. Golden American provides to DSI certain of its personnel to perform management, administrative and clerical services and the use of certain facilities. Golden American charges DSI for such expenses and all other general and administrative costs, first on the basis of direct charges when identifiable, and the remainder allocated based on the estimated amount of time spent by Golden American's employees on behalf of DSI. In the opinion of management, this method of cost allocation is reasonable. In 1995, the service agreement between DSI and Golden American was amended to provide for a management fee from DSI to Golden American for managerial and supervisory services provided by Golden American. This fee, calculated as a percentage of average assets in the variable separate accounts, was $6.8 million, $4.8 million, $2.8 million and $2.3 million for the first nine months of 1999, and the years of 1998, 1997 and 1996, respectively. Since January 1, 1998, Golden American and First Golden have had an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management and accounting services for a fee, payable quarterly. For the first nine months of 1999 and for the year ended December 31, 1998, Golden American and First Golden incurred fees of $1.6 million and $1.5 million, respectively, under this agreement. Prior to 1998, Golden American and First Golden had a service agreement with Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided investment management services. Golden American and First Golden paid fees of $1.0 million for 1997 and $72,000 for the period from August 14, 1996 through December 31, 1996, respectively. Since 1997, Golden American has provided certain advisory, computer and other resources and services to Equitable Life. Revenues for these services totaled $0.9 million for the first nine months of 1999, $5.8 million for 1998 and $4.3 million for 1997. The Companies provide resources and services to DSI. Revenues for these services totaled $0.8 million for the first nine months of 1999. Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services totaled $0.4 million for the first nine months of 1999 and $0.1 million for 1998. 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 September 30, 1999 and December 31, 1998, are sold primarily through two broker/dealer institutions. For the nine months ended September 30, 1999 and the years 1998, 1997 and 1996, commissions paid by Golden American to DSI (including commissions paid by First Golden) aggregated $130.4 million, $117.5 million, $36.4 million and $27.1 million, respectively. EMPLOYEES. Golden American, as a result of its Service Agreement with Bankers Trust (Delaware) and EIC Variable, had very few direct employees. Instead, various management services were provided by Bankers Trust (Delaware), EIC Variable and Bankers Trust New York Corporation, as described above under "Service Agreement." The cost of these services were allocated to Golden American. Since August 14, 1996, Golden American has hired individuals to perform various management services and has looked to Equitable of Iowa and its affiliates for certain other management services. Certain officers of Golden American are also officers of DSI, and their salaries are allocated among both companies. Certain officers of Golden American are also officers of other Equitable of Iowa subsidiaries. See "Directors and Executive Officers." PROPERTIES. Golden American's principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380, where all of Golden American's records are maintained. This office space is leased. STATE REGULATION. Golden American is subject to the laws of the State of Delaware governing insurance companies and to the regulations of the Delaware Insurance Department (the "Insurance Department"). A detailed financial statement in the prescribed form (the "Annual Statement") is filed with the Insurance Department each year covering Golden American's operations for the preceding year and its financial condition as of the end of that year. Regulation by the Insurance Department includes periodic examination to determine contract liabilities and reserves so that the Insurance Department may certify 56 that these items are correct. Golden American's books and accounts are subject to review by the Insurance Department at all times. A full examination of Golden American's operations is conducted periodically by the Insurance Department and under the auspices of the NAIC. In addition, Golden American is subject to regulation under the insurance laws of all jurisdictions in which it operates. The laws of the various jurisdictions establish supervisory agencies with broad administrative powers with respect to various matters, including licensing to transact business, overseeing trade practices, licensing agents, approving contract forms, establishing reserve requirements, fixing maximum interest rates on life insurance contract loans and minimum rates for accumulation of surrender values, prescribing the form and content of required financial statements and regulating the type and amounts of investments permitted. Golden American is required to file the Annual Statement with supervisory agencies in each of the jurisdictions in which it does business, and its operations and accounts are subject to examination by these agencies at regular intervals. The NAIC has adopted several regulatory initiatives designed to improve the surveillance and financial analysis regarding the solvency of insurance companies in general. These initiatives include the development and implementation of a risk-based capital formula for determining adequate levels of capital and surplus. Insurance companies are required to calculate their risk-based capital in accordance with this formula and to include the results in their Annual Statement. It is anticipated that these standards will have no significant effect upon Golden American. For additional information about the Risk-Based Capital adequacy monitoring system and Golden American, see "Management's Discussion and Analysis Results of Operations" In addition, many states regulate affiliated groups of insurers, such as Golden American, and its affiliates, under insurance holding company legislation. Under such laws, inter-company transfers of assets and dividend payments from insurance subsidiaries may be subject to prior notice or approval, depending on the size of the transfers and payments in relation to the financial positions of the companies involved. Under insurance guaranty fund laws in most states, insurers doing business therein can be assessed (up to prescribed limits) for contract owner losses incurred by other insurance companies which have become insolvent. Most of these laws provide that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. For information regarding Golden American's estimated liability for future guaranty fund assessments, see Note 11 of Notes to Financial Statements. Although the federal government generally does not directly regulate the business of insurance, federal initiatives often have an impact on the business in a variety of ways. Certain insurance products of Golden American are subject to various federal securities laws and regulations. In addition, current and proposed federal measures which may significantly affect the insurance business include regulation of insurance company solvency, employee benefit regulation, removal of barriers preventing banks from engaging in the insurance business, tax law changes affecting the taxation of insurance companies and the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles. 57 DIRECTORS AND OFFICERS NAME (AGE) POSITION(S) WITH THE COMPANY - ---------- ---------------------------- Barnett Chernow (50) President and Director Myles R. Tashman (57) Director, Executive Vice President, General Counsel and Secretary Michael W. Cunningham (50) Director Mark A. Tullis (44) Director Phillip R. Lowery (46) Director James R. McInnis (51) Executive Vice President and Chief Marketing Officer Stephen J. Preston (42) Executive Vice President and Chief Actuary E. Robert Koster (41) Senior Vice President and Chief Financial Officer Patricia M. Corbett (34) Treasurer and Assistant V.P. David L. Jacobson (50) Senior Vice President and Assistant Secretary William L. Lowe (35) Senior Vice President, Sales and Marketing Ronald R. Blasdell (46) Senior Vice President, Project Implementation Steven G. Mandel (40) Senior Vice President and Chief Information Officer Gary F. Haynes (54) Senior Vice President, Operations Each director is elected to serve for one year or until the next annual meeting of shareholders or until his or her successor is elected. Some directors are directors of insurance company subsidiaries of Golden American's parent, Equitable of Iowa. The principal positions of Golden American's directors and senior executive officers for the past five years are listed below: Mr. Barnett Chernow became President and Director of Golden American and President of First Golden in April 1998. From 1993 to 1998, Mr. Chernow served as Executive Vice President of Golden American. He was elected to serve as Executive Vice President and Director of First Golden in September 1996. Mr. Myles R. Tashman joined Golden American in August 1994 as Senior Vice President and was named Executive Vice President, General Counsel and Secretary effective January 1, 1996. He was elected to serve as a Director of Golden American in January 1998. He also serves as a Director, Executive Vice President, General Counsel and Secretary of First Golden. Mr. Michael W. Cunningham became a Director of Golden American and First Golden in April 1999. Also, he has served as a Director of Life of Georgia and Security Life of Denver since 1995. Currently, he serves as Executive Vice President and Chief Financial Officer of ING North America Insurance Corporation, and has worked for them since 1991. Mr. Mark A. Tullis became a Director of Golden American in January 2000. He has served as Executive Vice President, Strategy and Operations for ING Americas Region since September 1999. 58 Mr. Phillip R. Lowery became a Director of Golden American in April 1999. He has served as Executive Vice President and Chief Actuary for ING Americas Region since 1990. Mr. James R. McInnis joined Golden American 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 and Chief Financial Officer of Golden American in September 1998. From August, 1984 to September, 1998 he has held various positions with ING companies in The Netherlands. Ms. Patricia M. Corbett was elected Treasurer of Golden American in December 1998. She joined Equitable Life Insurance Company of Iowa in 1987 and is currently Treasurer and Assistant Vice President of Equitable Life and USG Annuity & Life Company. Mr. David L. Jacobson joined Golden American in November 1993 as Senior Vice President and Assistant Secretary. Mr. Stephen J. Preston joined Golden American in December, 1993 as Senior Vice President, Chief Actuary and Controller. He became an Executive Vice President and Chief Actuary in June 1998. Mr. William L. Lowe joined Equitable Life as Vice President, Sales & Marketing in January 1994. He became a Senior Vice President, Sales & Marketing, of Golden American in August 1997. He was also President of Equitable of Iowa Securities Network, Inc. until October 1998. Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior Vice President and Chief Information Officer in June 1998. Mr. Ronald R. Blasdell joined Golden American in February 1994 and became Senior Vice President, Project Implementation in June 1998. Mr. Gary Haynes joined Golden American in April 1999 and became Senior Vice President, Operations in April 1999. COMPENSATION TABLES 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, 1998. Certain executive officers of Golden American are also officers of DSI. The salaries of such individuals are allocated between Golden American and DSI. Executive officers of Golden American are also officers of DSI. The salaries of such individuals are allocated between Golden American and DSI pursuant to an arrangement among these companies. Throughout 1995 and until August 13, 1996, Terry L. Kendall served as a Managing Director at Bankers Trust New York Corporation. Compensation amounts for Terry L. Kendall which are reflected throughout these tables prior to August 14, 1996 were not charged to Golden American, but were instead absorbed by Bankers Trust New York Corporation. 59 EXECUTIVE COMPENSATION TABLE The following table sets forth information with respect to the annual salary and bonus for Golden American's Chief Executive Officers and the five other most highly compensated executive officers for the fiscal year ended December 31, 1998. As of the date of this prospectus 1999 data was not yet available. LONG-TERM ALL OTHER ANNUAL COMPENSATION COMPENSATION COMPENSATION ------------------- ------------------------ ------------ RESTRICTED SECURITIES NAME AND STOCK AWARDS UNDERLYING PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) OPTIONS(3) - ------------------ ---- ------ -------- ------------ ---------- Barnett Chernow, 1998 $284,171 $105,375 8,000 President 1997 $234,167 $ 31,859 $277,576 4,000 1996 $207,526 $150,000 $ 7,755(4) James R. McInnis, 1998 $250,004 $626,245 2,000 Executive Vice President Keith Glover, 1998 $250,000 $145,120 3,900 Executive Vice President Myles R. Tashman, 1998 $189,337 $ 54,425 3,500 Executive Vice 1997 $181,417 $ 25,000 $165,512 5,000 President, 1996 $176,138 $ 90,000 $ 5,127(4) General Counsel and Secretary Stephen J. Preston, 1998 $173,870 $ 32,152 3,500 Executive Vice 1997 $160,758 $ 16,470 President 1996 $156,937 $ 58,326 and Chief Actuary Paul R. Schlaack, 1998 $406,730 $210,600 Former Chairman 1997 $351,000 $249,185 $1,274,518 19,000 $15,000 and Vice President 1996 $327,875 $249,185 $ 245,875 19,000 $15,000 Terry L. Kendall, 1998 $145,237 $181,417 Former President 1997 $362,833 $ 80,365 $ 644,844 16,000 and CEO 1996 $288,298 $400,000 $11,535(4)
(1) The amount shown relates to bonuses paid in 1998, 1997 and 1996. (2) Restricted stock awards granted to executive officers vested on October 24, 1997 with the change in control of Equitable of Iowa. (3) Awards comprised of qualified and non-qualified stock options. All options were granted with an exercise price equal to the then fair market value of the underlying stock. All options vested with the change in control of Equitable of Iowa and were cashed out for the difference between $68.00 and the exercise price. (4) In 1996, Contributions were made by the Company on behalf of the employee to PartnerShare, the deferred compensation plan sponsored by Bankers Trust New York Corporation and its affiliates for the benefit of all Bankers Trust employees, in February of 1996 to employees on record as of December 31, 1996, after an employee completed one year of service with the company. This contribution could be in the form of deferred compensation and/or a cash payment. In 1996, Mr. Kendall received $9,000 of deferred compensation and $2,535 of cash payment from the plan; Mr. Chernow received $6,000 of deferred compensation and $1,755 of cash payment from the plan; Mr. Tashman received $4,000 of deferred compensation and $1,127 of cash payment from the plan. 60 OPTION GRANTS IN LAST FISCAL YEAR (1998) POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL % OF TOTAL RATES OF STOCK NUMBER OF OPTIONS PRICE APPRECIATION SECURITIES GRANTED TO FOR OPTION UNDERLYING EMPLOYEES EXERCISE TERM (3) OPTIONS IN FISCAL OR BASE EXPIRATION ------------------ NAME GRANTED(1) YEAR PRICE (2) DATE 5% 10% - ---- ---------- ----- --------- ---- -- --- Barnett Chernow 8,000 11.99 $60.518 5/26/2003 $164,016 $362,433 James R. McInnis 2,000 3.00 $60.518 5/26/2003 $ 41,004 $ 90,608 Keith Glover 3,900 5.85 $60.518 5/26/2003 $ 79,958 $176,686 Myles R. Tashman 3,500 5.25 $60.518 5/26/2003 $ 71,758 $158,564 Stephen J. Preston 3,500 5.25 $60.518 5/26/2003 $ 71,758 $158,564
(1) Stock appreciation rights granted on May 26, 1998 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 on the date of grant. (3) Total dollar gains based on indicated rates of appreciation of share price over a the five year term of the rights. Directors of Golden American receive no additional compensation for serving as a director. 61 [Shaded Section Header] - -------------------------------------------------------------------------- UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------- For the Nine Months Ended September 30, 1999 62 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands, except per share data)
September 30, 1999 December 31, 1998 ------------------ ----------------- ASSETS Investments: Fixed maturities, available for sale, at fair value (cost: 1999 -- $815,027; 1998 -- $739,772) $ 798,708 $ 741,985 Equity securities, at fair value (cost: 1999 -- $14,437; 1998 -- $14,437) 13,679 11,514 Mortgage loans on real estate 93,884 97,322 Policy loans 13,454 11,772 Short-term investments 66,519 41,152 ---------- ---------- Total investments 986,244 903,745 Cash and cash equivalents 12,908 6,679 Due from affiliates 1,460 2,983 Accrued investment income 11,896 9,645 Deferred policy acquisition costs 439,176 204,979 Value of purchased insurance in force 32,984 35,977 Current income taxes recoverable 204 628 Deferred income tax asset 29,690 31,477 Property and equipment, less allowances for depreciation of $2,807 in 1999 and $801 in 1998 13,017 7,348 Goodwill, less accumulated amortization of $7,242 in 1999 and $4,408 in 1998 143,886 146,719 Other assets 42,072 6,239 Separate account assets 5,598,490 3,396,114 ---------- ---------- Total assets $7,312,027 $4,752,533 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals: Future policy benefits: Annuity and interest sensitive life products $1,009,382 $ 881,112 Unearned revenue reserve 5,855 3,840 Other policy claims and benefits 15 -- ---------- ---------- 1,015,252 884,952 Surplus notes 160,000 85,000 Due to affiliates 4,328 -- Other liabilities 80,081 32,573 Separate account liabilities 5,598,490 3,396,114 ---------- ---------- 6,858,151 4,398,639 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 447,640 347,640 Accumulated other comprehensive loss (4,464) (895) Retained earnings 8,200 4,649 ---------- ---------- Total stockholder's equity 453,876 353,894 ---------- ---------- Total liabilities and stockholder's equity $7,312,027 $4,752,533 ========== ========== See accompanying notes.
63 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands)
For the Nine For the Nine Months ended Months ended September 30, 1999 September 30, 1998 ------------------ ------------------ Revenues: Annuity and interest sensitive life product charges $ 55,195 $ 26,984 Management fee revenue 6,755 3,257 Net investment income 42,671 29,296 Realized gains (losses) on investments (2,215) 436 Other income 7,448 4,805 --------- -------- 109,854 64,778 Insurance benefits and expenses: Annuity and interest sensitive life benefits: Interest credited to account balances 125,404 64,110 Benefit claims incurred in excess of account balances 3,452 862 Underwriting, acquisition, and insurance expenses: Commissions 134,585 84,958 General expenses 47,551 23,480 Insurance taxes, state licenses, and fees 3,545 2,680 Policy acquisition costs deferred (244,840) (133,616) Amortization: Deferred policy acquisition costs 19,699 4,014 Value of purchased insurance in force 4,803 3,252 Goodwill 2,834 2,834 --------- -------- 97,033 52,574 Interest expense 5,552 3,033 --------- -------- 102,585 55,607 --------- -------- Income before income taxes 7,269 9,171 Income taxes 3,718 4,294 --------- -------- Net income $ 3,551 $ 4,877 ========= ======== See accompanying notes.
64 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
For the Nine For the Nine Months ended Months ended September 30, 1999 September 30, 1998 ------------------ ------------------ NET CASH USED IN OPERATING ACTIVITIES $ (60,026) $ (22,666) INVESTING ACTIVITIES Sale, maturity, or repayment of investments: Fixed maturities -- available for sale 170,548 92,707 Mortgage loans on real estate 4,241 3,145 Short-term investments -- net -- 2,575 ---------- ---------- 174,789 98,427 Acquisition of investments: Fixed maturities -- available for sale (250,277) (291,687) Equity securities -- (10,000) Mortgage loans on real estate (1,034) (16,390) Policy loans -- net (1,682) (1,385) Short-term investments -- net (25,367) -- ---------- ---------- (278,360) (319,462) Net purchase of property and equipment (7,700) (3,470) ---------- ---------- Net cash used in investing activities (111,271) (224,505) FINANCING ACTIVITIES Proceeds from reciprocal loan agreement borrowings 488,950 242,847 Repayment of reciprocal loan agreement borrowings (488,950) (202,847) Proceeds from revolving note payable 131,595 20,082 Repayment of revolving note payable (131,595) -- Proceeds from surplus note 75,000 -- Repayment of line of credit borrowings -- (5,309) Receipts from annuity and interest sensitive life policies credited to account balances 540,464 350,385 Return of account balances on annuity and interest sensitive life policies (98,715) (50,370) Net reallocations to Separate Accounts (439,223) (163,455) Contributions from parent 100,000 53,750 ---------- ---------- Net cash provided by financing activities 177,526 245,083 ---------- ---------- Increase (decrease) in cash and cash equivalents 6,229 (2,088) Cash and cash equivalents at beginning of period 6,679 21,039 ---------- ---------- Cash and cash equivalents at end of period $ 12,908 $ 18,951 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 5,078 $ 3,493 Taxes 10 80 Non-cash financing activities: Non-cash adjustment to additional paid in capital for adjusted merger costs -- 143 Non-cash contribution of capital from parent to repay line of credit borrowings -- 18,750 See accompanying notes.
65 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 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 nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. These financial statements should be read in conjunction with the financial statements and related notes included in the Golden American Life Insurance Company's annual report on Form 10-K for the year ended December 31, 1998. 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"). On October 24, 1997, PFHI Holdings, 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., a Delaware corporation. FAIR VALUES Estimated fair values of publicly traded fixed maturities for 1999 are as reported by an independent pricing service. STATUTORY Net loss for Golden American as determined in accordance with statutory accounting practices was $75,508,000 and $32,198,000 for the nine months ended September 30, 1999 and 1998, respectively. Total statutory capital and surplus was $285,674,000 at September 30, 1999 and $183,045,000 at December 31, 1998. RECLASSIFICATIONS Certain amounts in the September 30, 1998 and December 31, 1998 financial statements have been reclassified to conform to the September 30, 1999 financial statement presentation. 2. COMPREHENSIVE INCOME As of January 1, 1998, the Companies adopted the Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Companies' net income or stockholder's equity. SFAS No. 130 requires unrealized gains or losses on the 66 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) September 30, 1999 2. COMPREHENSIVE INCOME (continued) Companies' available for sale securities (net of adjustments for value of purchased insurance in force ("VPIF"), deferred policy acquisition costs ("DPAC"), and deferred income taxes) to be included in other comprehensive income. During the third quarter and first nine months of 1999, other comprehensive income (loss) for the Companies amounted to $2,059,000 and $(18,000), respectively ($2,426,000 and $5,478,000, respectively, for the same periods of 1998). Included in these amounts are other comprehensive income (loss) for First Golden of $(14,000) and $(258,000) for the third quarter and first nine months of 1999, respectively ($601,000 and $1,174,000, respectively, for the same periods of 1998). Other comprehensive income (loss) excludes net investment gains (losses) included in net income which merely represent transfers from unrealized to realized gains and losses. These amounts totaled $(460,000) and $(2,512,000) during the third quarter and first nine months of 1999, respectively ($263,000 and $388,000, respectively, for the same periods of 1998). Such amounts, which have been measured through the date of sale, are net of income taxes and adjustments for VPIF and DPAC totaling $(38,000) and $297,000 for the third quarter and first nine months of 1999, respectively ($40,000 and $48,000, respectively, for the same periods of 1998). 3. INVESTMENTS INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio at least quarterly in order to determine if the carrying value of any investment has been impaired. The carrying value of debt and equity securities is written down to fair value by a charge to realized losses when an impairment in value appears to be other than temporary. During the 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. 4. RELATED PARTY TRANSACTIONS OPERATING AGREEMENTS: Directed Services, Inc. ("DSI"), an affiliate, acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) and distributor of the variable insurance products issued by the Companies. DSI is authorized to enter into agreements with broker/dealers to distribute the Companies' variable insurance products and appoint representatives of the broker/dealers as agents. The Companies paid commissions and expenses to DSI totaling $50,131,000 in the third quarter and $130,419,000 for the first nine months of 1999 ($32,104,000 and $82,548,000, respectively, for the same periods of 1998). Golden American provides certain managerial and supervisory services to DSI. The fee paid by DSI for these services is calculated as a percentage of average assets in the variable separate accounts. For the third quarter and first nine months of 1999, the fee was $2,659,000 and $6,755,000, respectively ($1,234,000 and $3,257,000, respectively, for the same periods of 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 third quarter and first nine months of 1999, the Companies incurred fees of $523,000 and 67 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) September 30, 1999 4. RELATED PARTY TRANSACTIONS (continued) $1,637,000, respectively, under this agreement ($341,000 and $1,013,000, respectively, for the same periods of 1998). 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. As Golden American's risk based capital level was above required amounts, no annual fee was payable at June 30, 1999 or 1998. Golden American provides certain advisory, computer and other resources and services to Equitable Life. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $237,000 in the third quarter of 1999 and $898,000 for the first nine months of 1999 ($1,524,000 and $5,091,000, respectively, for the same periods of 1998). 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 $50,000 in the third quarter of 1999 and $855,000 for the first nine months of 1999 ($261,000 and $575,000, respectively, for the same periods of 1998). The Companies provide resources and services to DSI. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $276,000 in the third quarter of 1999 and $759,000 for the first nine months of 1999 ($19,000 and $57,000, respectively, for the same periods of 1998). Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $159,000 in the third quarter of 1999 and $376,000 for the first nine months of 1999. For the third quarter of 1999, the Companies received 7.8% of total premiums (9.7% in the same period of 1998), net of reinsurance, for variable products sold through four affiliates, Locust Street Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI, and Multi- Financial Securities Corporation ("Multi-Financial") of $46,600,000, $12,900,000, $0, and $11,000,000, respectively ($34,600,000, $14,200,000, $1,800,000, and $4,100,000, respectively, for the same period of 1998). For the first nine months of 1999, the Companies received 9.5% of total premiums (10.0% in the same period of 1998), net of reinsurance, from LSSI, Vestax, DSI, and Multi-Financial of $121,900,000, $72,000,000, $2,300,000, and $24,400,000, respectively ($92,700,000, $30,000,000, $10,700,000, and $10,000,000, respectively, for the same period of 1998). 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 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 68 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) September 30, 1999 4. RELATED PARTY TRANSACTIONS (continued) $397,000 in the third quarter of 1999 and $633,000 for the first nine months of 1999 ($505,000 and $1,269,000, respectively, for the same periods of 1998). At September 30, 1999, Golden American did not have any borrowings or receivables from ING AIH under this agreement. LINE OF CREDIT: Golden American maintained a line of credit agreement with Equitable to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective December 1, 1996 and expired December 31, 1997, Golden American could borrow up to $25,000,000. Interest on any borrowings was charged at the rate of Equitable's monthly average aggregate cost of short-term funds plus 1.00%. Under this agreement, Golden American incurred interest expense of $211,000 for the first quarter of 1998. The outstanding balance was paid by a capital contribution from the Parent and with funds borrowed from ING AIH. SURPLUS NOTES: 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 no interest expense in the third quarter of 1999. On December 30, 1998, Golden American issued a 7.25% surplus note in the amount of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $1,088,000 in the third quarter of 1999 and $3,263,000 for the first nine months of 1999. 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 $516,000 in the third quarter of 1999 and $1,547,000 for the first nine months of 1999, unchanged from the same periods of 1998. As a result of the merger, the surplus note is now payable to EIC. STOCKHOLDER'S EQUITY: During the third quarter of 1999 and the first nine months of 1999, Golden American received capital contributions from its Parent of $20,000,000 and $100,000,000, respectively ($0 and $72,500,000, respectively, for the same periods of 1998). 5. COMMITMENTS AND CONTINGENCIES REINSURANCE: At September 30, 1999, Golden American had reinsurance treaties with four unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks under its variable contracts. Golden American remains liable to the extent its reinsurers do not meet their obligations under the reinsurance agreements. At September 30, 1999 and 1998, the Companies had a net receivable of $14,041,000 and $6,539,000, respectively, for reserve credits, reinsurance claims, or other receivables from these reinsurers comprised of $2,268,000 and $257,000, respectively, for claims recoverable from reinsurers, $918,000 and $451,000, respectively, for a payable for reinsurance premiums and $12,691,000 and $6,733,000, respectively, for a receivable from an unaffiliated reinsurer. Included in the accompanying financial statements are net considerations to reinsurers of $2,638,000 in the third quarter of 1999 and $6,656,000 for the first nine months of 1999 compared to $1,293,000 and $3,259,000, respectively, for the same periods in 1998. Also included in the accompanying financial statements are net policy benefits of 69 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) September 30, 1999 5. COMMITMENTS AND CONTINGENCIES (continued) $2,569,000 in the third quarter of 1999 and $4,008,000 for the first nine months of 1999 compared to $1,272,000 and $2,096,000, respectively, for the same periods in 1998. 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. GUARANTY FUND ASSESSMENTS: Assessments are levied on the Companies by life and health guaranty associations in most states in which the Companies are licensed to cover losses of policyholders of insolvent or rehabilitated insurers. In some states, these assessments can be partially recovered through a reduction in future premium taxes. The Companies cannot predict whether and to what extent legislative initiatives may affect the right to offset. The associated cost for a particular insurance company can vary significantly based upon its fixed account premium volume by line of business and state premiums as well as its potential for premium tax offset. The Companies have established an undiscounted reserve to cover such assessments, review information regarding known failures, and revise estimates of future guaranty fund assessments. Accordingly, the Companies accrued and charged to expense an additional $208,000 and $598,000 in the third quarter and first nine months of 1998, respectively. At September 30, 1999, the Companies have an undiscounted reserve of $2,444,000 to cover estimated future assessments (net of related anticipated premium tax credits) and have established an asset totaling $586,000 for assessments paid which may be recoverable through future premium tax offsets. The Companies believe this reserve is sufficient to cover expected future guaranty fund assessments based upon previous premiums and known insolvencies at this time. LITIGATION: The Companies, like other insurance companies, may be named or otherwise involved in lawsuits, including class action lawsuits 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. The Companies' asset growth, net investment income, and cash flow are primarily generated from the sale of variable products and associated future policy benefits and separate account liabilities. Substantial changes in tax laws that would make these products less attractive to consumers and extreme fluctuations in interest rates or stock market returns, which may result in higher lapse experience than assumed, could cause a severe impact on the Companies' financial condition. Two broker/dealers, each having at least ten percent of total sales, generated 29% of the Companies' sales during the first nine months of 1999 (10% by one broker/dealer in the same period of 1998). The Premium Plus variable annuity product generated 78% of the Companies' sales during the first nine months of 1999 (59% in the same period of 1998). REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies established a revolving note payable effective July 27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). The note was approved by the Boards of Directors of Golden American and First Golden on August 5, 1998 and September 29, 1998, respectively. As of July 31, 1999, the SunTrust Bank, Atlanta revolving note facility was extended to July 31, 2000. The total amount the Companies may have outstanding is $85,000,000, of which Golden American and First Golden have individual credit sublimits of $75,000,000 and $10,000,000, respectively. The note accrues interest at an annual rate equal to: (1) the cost of funds for the Bank for the period applicable for the advance plus 0.25% or (2) a rate quoted by the Bank to the Companies for the advance. The terms of the agreement require the Companies to maintain the minimum level of Company Action Level Risk Based Capital as established by applicable state law or regulation. During the quarter and nine months ended September 30, 1999, the Companies paid interest expense of $55,000 and $109,000, respectively ($6,000 for the same periods of 1998). At September 30, 1999, the Companies did not have any borrowings under this agreement. 70 [Shaded Section Header] - -------------------------------------------------------------------------- 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, 1998 and 1997, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the year ended December 31, 1998 and for the periods from October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997, August 14, 1996 through December 31, 1996 and January 1, 1996 through August 13, 1996. These financials 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Golden American Life Insurance Company at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for the year ended December 31, 1998 and for the periods from October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997, August 14, 1996 through December 31, 1996 and January 1, 1996 through August 13, 1996 in conformity with generally accepted accounting principles. /s/Ernst & Young LLP Des Moines, Iowa February 12, 1999 71 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) POST-MERGER ------------------------------------ December 31, 1998 December 31, 1997 ----------------- ----------------- ASSETS Investments: Fixed maturities, available for sale, at fair value (cost: 1998 - $739,772; 1997 - $413,288)...................... $ 741,985 $ 414,401 Equity securities, at fair value (cost: 1998 - $14,437; 1997 - $4,437)........................ 11,514 3,904 Mortgage loans on real estate.... 97,322 85,093 Policy loans..................... 11,772 8,832 Short-term investments........... 41,152 14,460 ---------- ---------- Total investments.................. 903,745 526,690 Cash and cash equivalents.......... 6,679 21,039 Due from affiliates................ 2,983 827 Accrued investment income.......... 9,645 6,423 Deferred policy acquisition costs.. 204,979 12,752 Value of purchased insurance in force............................ 35,977 43,174 Current income taxes recoverable... 628 272 Deferred income tax asset.......... 31,477 36,230 Property and equipment, less allowances for depreciation of $801 in 1998 and $97 in 1997.. 7,348 1,567 Goodwill, less accumulated amortization of $4,408 in 1998 and $630 in 1997................. 146,719 150,497 Other assets....................... 6,239 755 Separate account assets............ 3,396,114 1,646,169 ---------- ---------- Total assets....................... $4,752,533 $2,446,395 ========== ==========
See accompanying notes. 72 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in thousands, except per share data) POST-MERGER ------------------------------------ December 31, 1998 December 31, 1997 ----------------- ----------------- LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals: Future policy benefits: Annuity and interest sensitive life products......................... $ 881,112 $ 505,304 Unearned revenue reserve........... 3,840 1,189 Other policy claims and benefits... -- 10 ---------- ---------- 884,952 506,503 Line of credit with affiliate....... -- 24,059 Surplus notes....................... 85,000 25,000 Due to affiliates................... -- 80 Other liabilities................... 32,573 17,271 Separate account liabilities........ 3,396,114 1,646,169 ---------- ---------- 4,398,639 2,219,082 Commitments and contingencies Stockholder's equity: Common stock, par value $10 per share, authorized,issued and outstanding 250,000 shares................... 2,500 2,500 Additional paid-in capital......... 347,640 224,997 Accumulated other comprehensive income (loss).................... (895) 241 Retained earnings (deficit)........ 4,649 (425) ---------- ---------- Total stockholder's equity.......... 353,894 227,313 ---------- ---------- Total liabilities and stockholder's equity............................ $4,752,533 $2,446,395 ========== ==========
See accompanying notes. 73 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | | REVENUES: | | Annuity and interest sensitive | | life product charges........ $ 39,119 $ 3,834 | $ 18,288 $ 8,768 | $12,259 Management fee revenue....... 4,771 508 | 2,262 877 | 1,390 Net investment income........ 42,485 5,127 | 21,656 5,795 | 4,990 Realized gains (losses) on | | investments................. (1,491) 15 | 151 42 | (420) Other income................. 5,569 236 | 426 486 | 70 --------- -------- | -------- ------- | ------- 90,453 9,720 | 42,783 15,968 | 18,289 | | | | INSURANCE BENEFITS AND EXPENSES: | | Annuity and interest sensitive | | life benefits: | | Interest credited to account | | balances..................... 94,845 7,413 | 19,276 5,741 | 4,355 Benefit claims incurred in | | excess of account balances... 2,123 -- | 125 1,262 | 915 Underwriting, acquisition | | and insurance expenses: | | Commissions.................. 121,171 9,437 | 26,818 9,866 | 16,549 General expenses............. 37,577 3,350 | 13,907 5,906 | 9,422 Insurance taxes.............. 4,140 450 | 1,889 672 | 1,225 Policy acquisition costs | | deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300) Amortization: | | Deferred policy acquisition | | costs..................... 5,148 892 | 1,674 244 | 2,436 Value of purchased insurance | | in force.................. 4,724 948 | 5,225 2,745 | 951 Goodwill.................... 3,778 630 | 1,398 589 | -- --------- --------- | -------- ------ | ------- 75,710 9,442 | 41,309 15,313 | 16,553 | | Interest expense............... 4,390 557 | 2,082 85 | -- --------- --------- | -------- ------ | ------- 80,100 9,999 | 43,391 15,398 | 16,553 --------- --------- | -------- ------ | ------- Income (loss) before income | | taxes........................ 10,353 (279) | (608) 570 | 1,736 | | Income taxes................... 5,279 146 | (1,337) 220 | (1,463) --------- --------- | -------- ------ | ------- Net income (loss).............. $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199 ========= ========= | ======== ======= | ========
See accompanying notes. 74 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Dollars in thousands) Accumulated Redeemable Additional Other Retained Total Common Preferred Paid-in Comprehensive Earnings Stockholder's Stock Stock Capital Income (Loss) (Deficit) Equity ------------------------------------------------------------------------------ PRE-ACQUISITION ------------------------------------------------------------------------------ Balance at January 1, 1996........ $2,500 $50,000 $ 45,030 $ 658 $ (63) $ 98,125 Comprehensive income: Net income...................... -- -- -- -- 3,199 3,199 Change in net unrealized investment gains (losses)..... -- -- -- (1,175) -- (1,175) --------- Comprehensive income............. 2,024 Preferred stock dividends........ -- -- -- -- (719) (719) ------ ------- -------- ------- ------ --------- Balance at August 13, 1996........ $2,500 $50,000 $ 45,030 $ (517) $2,417 $ 99,430 ====== ======= ======== ======== ====== =========
------------------------------------------------------------------------------ POST-ACQUISITION ------------------------------------------------------------------------------ Balance at August 14, 1996........ $2,500 $50,000 $ 87,372 -- -- $139,872 Comprehensive income: Net income...................... -- -- -- -- $ 350 350 Change in net unrealized investment gains (losses)...... -- -- -- $ 262 -- 262 -------- Comprehensive income............. 612 Contribution of preferred stock to additional paid-in capital... -- (50,000) 50,000 -- -- -- ------ ------- -------- ------- ------ -------- Balance at December 31, 1996...... 2,500 -- 137,372 262 350 140,484 Comprehensive income: Net income...................... -- -- -- -- 729 729 Change in net unrealized investment gains (losses)...... -- -- -- 1,543 -- 1,543 -------- Comprehensive income............. 2,272 Contribution of capital.......... -- -- 1,121 -- -- 1,121 ------ ------- -------- ------- ------ -------- Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877 ====== ======= ======== ====== ====== ========
------------------------------------------------------------------------------ POST-MERGER ------------------------------------------------------------------------------ Balance at October 25, 1997....... $2,500 -- $224,997 -- -- $227,497 Comprehensive loss: Net loss....................... -- -- -- -- $ (425) (425) Change in net unrealized investment gains (losses)...... -- -- -- $ 241 -- 241 -------- Comprehensive loss............... (184) ------ ------- -------- ------- ------ -------- Balance at December 31, 1997...... 2,500 -- 224,997 241 (425) 227,313 Comprehensive income: Net income...................... -- -- -- -- 5,074 5,074 Change in net unrealized investment gains (losses)...... -- -- -- (1,136) -- (1,136) -------- Comprehensive income............. 3,938 Contribution of capital.......... -- -- 122,500 -- -- 122,500 Other............................ -- -- 143 -- -- 143 ------ ------- -------- ------- ------ -------- Balance at December 31, 1998...... $2,500 -- $347,640 $ (895) $4,649 $353,894 ====== ======= ======== ======= ====== ========
See accompanying notes. 75 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | | OPERATING ACTIVITIES | | Net income (loss)............ $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199 Adjustments to reconcile net | | income (loss) to net cash | | provided by (used in) | | operations: | | Adjustments related to annuity | | and interest sensitive life | | products: | | Interest credited and other | | charges on interest | | sensitive products........ 94,690 7,361 | 19,177 5,106 | 4,472 Change in unearned | | revenues.................. 2,651 1,189 | 3,292 2,063 | 2,084 Decrease (increase) in | | accrued investment income.. (3,222) 1,205 | (3,489) (877) | (2,494) Policy acquisition costs | | deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300) Amortization of deferred | | policy acquisition costs... 5,148 892 | 1,674 244 | 2,436 Amortization of value of | | purchased insurance in | | force...................... 4,724 948 | 5,225 2,745 | 951 Change in other assets, | | other liabilities and | | accrued income taxes....... 9,891 4,205 | (8,944) (96) | 4,672 Provision for depreciation | | and amortization........... 8,147 1,299 | 3,203 1,242 | 703 Provision for deferred | | income taxes............... 5,279 146 | 316 220 | (1,463) Realized (gains) losses on | | investments................ 1,491 (15) | (151) (42) | 420 --------- -------- | -------- -------- | --------- Net cash provided by (used | | in)operating activities..... (63,923) 3,127 | (7,971) (757) | (4,320) | | INVESTING ACTIVITIES | | Sale, maturity or repayment | | of investments: | | Fixed maturities - available | | for sale 145,253 9,871 | 39,622 47,453 | 55,091 Mortgage loans on real | | estate..................... 3,791 1,644 | 5,828 40 | -- Short-term investments-net.. -- -- | 11,415 2,629 | 354 --------- -------- | -------- -------- | --------- 149,044 11,515 | 56,865 50,122 | 55,445 Acquisition of investments: | | Fixed maturities - available | | for sale................... (476,523) (29,596) | (155,173) (147,170) | (184,589) Equity securities........... (10,000) (1) | (4,865) (5) | -- Mortgage loans on real | | estate..................... (16,390) (14,209) | (44,481) (31,499) | -- Policy loans - net.......... (2,940) (328) | (3,870) (637) | (1,977) Short-term investments-net.. (26,692) (13,244) | -- -- | -- --------- -------- | -------- -------- | --------- (532,545) (57,378) | (208,389) (179,311) | (186,566) Purchase of property and | | equipment................... (6,485) (252) | (875) (137) | -- --------- -------- | -------- -------- | --------- Net cash used in investing | | activities.................. (389,986) (46,115) | (152,399) (129,326) | (131,121)
See accompanying notes. 76 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | | FINANCING ACTIVITIES | | Proceeds from issuance of | | surplus note................ $ 60,000 -- | -- $ 25,000 | -- Proceeds from reciprocal loan | | agreement borrowings........ 500,722 -- | -- -- | -- Repayment of reciprocal loan | | agreement borrowings........ (500,722) -- | -- -- | -- Proceeds from revolving | | note payable................ 108,495 -- | -- -- | -- Repayment of revolving note | | payable..................... (108,495) -- | -- -- | -- Proceeds from line of credit | | borrowings.................. -- $10,119 | $ 97,124 -- | -- Repayment of line of credit | | borrowings................... -- (2,207) | (80,977) -- | -- Receipts from annuity and | | interest sensitive life | | policies credited to | | account balances............ 593,428 62,306 | 261,549 116,819 | $149,750 Return of account balances | | on annuity and interest | | sensitive life policies..... (72,649) (6,350) | (13,931) (3,315) | (2,695) Net reallocations to Separate | | Accounts (239,671) (17,017) | (93,069) (10,237) | (8,286) Contributions of capital by | | parent...................... 98,441 -- | 1,011 -- | -- Dividends paid on preferred | | stock....................... -- -- | -- -- | (719) -------- ------- | ------- ------- | ----- Net cash provided by | | financing activities........ 439,549 46,851 | 171,707 128,267 | 138,050 --------- -------- | ------- ------- | ------- Increase (decrease) in cash | | and cash equivalents........ (14,360) 3,863 | 11,337 (1,816) | 2,609 Cash and cash equivalents at | | beginning of period......... 21,039 17,176 | 5,839 7,655 | 5,046 -------- ------- | ------- ------- | ------- Cash and cash equivalents at | | end of period............... $ 6,679 $21,039 | $ 17,176 $ 5,839 | $ 7,655 ========= ======= | ========= ======== | ======== SUPPLEMENTAL DISCLOSURE | | OF CASH FLOW INFORMATION | | Cash paid during the period | | for: | | Interest.................... $ 4,305 $ 295 | $ 1,912 -- | -- Income taxes................ 99 -- | 283 -- | -- Non-cash financing activities: | | Non-cash adjustment to | | additional paid-in capital | | for adjusted merger costs.. 143 -- | -- -- | -- Contribution of property and | | equipment from EIC Variable, | | Inc. net of $353 of | | accumulated depreciation... -- -- | 110 -- | -- Contribution of capital from | | parent to repay line of | | credit borrowings.......... 24,059 -- | -- -- | --
See accompanying notes. 77 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include Golden American Life Insurance Company ("Golden American") and its wholly owned subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and with Golden American, collectively, the "Companies"). All significant intercompany accounts and transactions have been eliminated. ORGANIZATION Golden American, a wholly owned subsidiary of Equitable of Iowa Companies, Inc., offers variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. On January 2, 1997 and December 23, 1997, First Golden became licensed to sell insurance products in New York and Delaware, respectively. The Companies' products are marketed by broker/dealers, financial institutions and insurance agents. The Companies' primary customers are consumers and corporations. On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation, acquired all of the outstanding capital stock of Equitable of Iowa Companies ("Equitable") according to the terms of an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI and ING Groep N.V. ("ING"). PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. See Note 6 for additional information regarding the merger. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its wholly owned subsidiaries, Golden American and Directed Services, Inc. ("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for additional information regarding the acquisition. For financial statement purposes, the ING merger was accounted for as a purchase effective October 25, 1997 and the change in control of Golden American through the acquisition of BT Variable, Inc. was accounted for as a purchase effective August 14, 1996. The merger and acquisition resulted in new bases of accounting reflecting estimated fair values of assets and liabilities at their respective dates. As a result, the Companies' financial statements for the periods after October 24, 1997 are presented on the Post-Merger new basis of accounting, for the period August 14, 1996 through October 24, 1997 are presented on the Post- Acquisition basis of accounting, and for August 13, 1996 and prior periods are presented on the Pre-Acquisition basis of accounting. INVESTMENTS Fixed Maturities: The Companies account for their investments under the Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires fixed maturities to be designated as either "available for sale," "held for investment" or "trading." Sales of fixed maturities designated as "available for sale" are not restricted by SFAS No. 115. Available for sale securities are reported at fair value and unrealized gains and losses on these securities are included directly in stockholder's equity, after adjustment for related changes in value 78 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 1. SIGNIFICANT ACCOUNTING POLICIES (continued) of purchased insurance in force ("VPIF"), deferred policy acquisition costs ("DPAC") and deferred income taxes. At December 31, 1998 and 1997, all of the Companies' fixed maturities are designated as available for sale, although the Companies are not precluded from designating fixed maturities as held for investment or trading at some future date. Securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Premiums and discounts are amortized/accrued utilizing a method which results in a constant yield over the securities' expected lives. Amortization/accrual of premiums and discounts on mortgage and other asset-backed securities incorporates a prepayment assumption to estimate the securities' expected lives. Equity Securities: Equity securities are reported at estimated fair value if readily marketable. The change in unrealized appreciation and depreciation of marketable equity securities (net of related deferred income taxes, if any) is included directly in stockholder's equity. Equity securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which then becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Mortgage Loans: Mortgage loans on real estate are reported at cost adjusted for amortization of premiums and accrual of discounts. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable the Companies will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or to the loan's observable market price, or the fair value of the underlying collateral. The carrying value of impaired loans is reduced by the establishment of a valuation allowance which is adjusted at each reporting date for significant changes in the calculated value of the loan. Changes in this valuation allowance are charged or credited to income. Other Investments: Policy loans are reported at unpaid principal. Short-term investments are reported at cost, adjusted for amortization of premiums and accrual of discounts. Realized Gains and Losses: Realized gains and losses are determined on the basis of specific identification and average cost methods for manager initiated and issuer initiated disposals, respectively. Fair Values: Estimated fair values, as reported herein, of conventional mortgage-backed securities not actively traded in a liquid market and publicly traded fixed maturities are estimated using a third party pricing system. This pricing system uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Fair values of private placement bonds are estimated using a matrix that assumes a spread (based on interest rates and a risk assessment of the bonds) over U.S. Treasury bonds. Estimated fair values of equity securities which consist of the Companies' investment in its registered separate accounts are based upon the quoted fair value of the securities comprising the individual portfolios underlying the separate accounts. 79 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 1. SIGNIFICANT ACCOUNTING POLICIES (continued) CASH AND CASH EQUIVALENTS For purposes of the accompanying Statements of Cash Flows, the Companies consider all demand deposits and interest-bearing accounts not related to the investment function to be cash equivalents. All interest-bearing accounts classified as cash equivalents have original maturities of three months or less. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring new insurance business, principally first year commissions and interest bonuses, extra credit bonuses and other expenses related to the production of new business, have been deferred. Acquisition costs for variable annuity and variable life products are being amortized generally in proportion to the present value (using the assumed crediting rate) of expected future gross profits. This amortization is adjusted retrospectively when the Companies revise their estimate of current or future gross profits to be realized from a group of products. DPAC is adjusted to reflect the pro forma impact of unrealized gains and losses on fixed maturities the Companies have designated as "available for sale" under SFAS No. 115. VALUE OF PURCHASED INSURANCE IN FORCE As a result of the merger and the acquisition, a portion of the purchase price related to each transaction was allocated to the right to receive future cash flows from existing insurance contracts. This allocated cost represents VPIF which reflects the value of those purchased policies calculated by discounting actuarially determined expected future cash flows at the discount rate determined by the purchaser. Amortization of VPIF is charged to expense in proportion to expected gross profits of the underlying business. This amortization is adjusted retrospectively when the Companies revise the estimate of current or future gross profits to be realized from the insurance contracts acquired. VPIF is adjusted to reflect the pro forma impact of unrealized gains and losses on available for sale fixed maturities. See Notes 6 and 7 for additional information on VPIF resulting from the merger and acquisition. PROPERTY AND EQUIPMENT Property and equipment primarily represent leasehold improvements, office furniture, certain other equipment and capitalized computer software and are not considered to be significant to the Companies' overall operations. Property and equipment are reported at cost less allowances for depreciation. Depreciation expense is computed primarily on the basis of the straight-line method over the estimated useful lives of the assets. GOODWILL Goodwill was established as a result of the merger and is being amortized over 40 years on a straight-line basis. Goodwill established as a result of the acquisition was being amortized over 25 years on a straight-line basis. See Notes 6 and 7 for additional information on the merger and acquisition. FUTURE POLICY BENEFITS Future policy benefits for divisions with fixed interest guarantees of the variable products are established utilizing the retrospective deposit accounting method. Policy reserves represent the premiums received plus accumulated interest, less mortality and administration charges. Interest credited to these policies ranged from 3.00% to 10.00% during 1998, 3.30% to 8.25% during 1997 and 4.00% to 7.25% during 1996. The unearned revenue reserve represents unearned distribution fees. These distribution fees have been deferred and are amortized over the life of the contracts in proportion to expected gross profits. 80 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 1. SIGNIFICANT ACCOUNTING POLICIES (continued) SEPARATE ACCOUNTS Assets and liabilities of the separate accounts reported in the accompanying Balance Sheets represent funds separately administered principally for variable annuity and variable life contracts. Contractholders, rather than the Companies, bear the investment risk for the variable products. At the direction of the contractholders, the separate accounts invest the premiums from the sale of variable products in shares of specified mutual funds. The assets and liabilities of the separate accounts are clearly identified and segregated from other assets and liabilities of the Companies. The portion of the separate account assets equal to the reserves and other liabilities of variable annuity and variable life contracts cannot be charged with liabilities arising out of any other business the Companies may conduct. Variable separate account assets are carried at fair value of the underlying investments and generally represent contractholder investment values maintained in the accounts. Variable separate account liabilities represent account balances for the variable annuity and variable life contracts invested in the separate accounts; the fair value of these liabilities is equal to their carrying amount. Net investment income and realized and unrealized capital gains and losses related to separate account assets are not reflected in the accompanying Statements of Operations. Product charges recorded by the Companies from variable products consist of charges applicable to each contract for mortality and expense risk, cost of insurance, contract administration and surrender charges. In addition, some variable annuity and all variable life contracts provide for a distribution fee collected for a limited number of years after each premium deposit. Revenue recognition of collected distribution fees is amortized over the life of the contract in proportion to its expected gross profits. The balance of unrecognized revenue related to the distribution fees is reported as an unearned revenue reserve. DEFERRED INCOME TAXES Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred tax assets or liabilities are adjusted to reflect the pro forma impact of unrealized gains and losses on equity securities and fixed maturities the Companies have designated as available for sale under SFAS No. 115. Changes in deferred tax assets or liabilities resulting from this SFAS No. 115 adjustment are charged or credited directly to stockholder's equity. Deferred income tax expenses or credits reflected in the Companies' Statements of Operations are based on the changes in the deferred tax asset or liability from period to period (excluding the SFAS No. 115 adjustment). DIVIDEND RESTRICTIONS Golden American's ability to pay dividends to its Parent is restricted. Prior approval of insurance regulatory authorities is required for payment of dividends to the stockholder which exceed an annual limit. During 1999, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder unless a notice of its intent to declare a dividend and the amount of the dividend has been filed at least thirty days in advance of the proposed declaration. If the Superintendent finds the financial condition of First Golden does not warrant the distribution, the Superintendent may disapprove the distribution by giving written notice to First Golden within thirty days after the filing. 81 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 1. SIGNIFICANT ACCOUNTING POLICIES (continued) SEGMENT REPORTING As of December 31, 1998, the Companies adopted the SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires enterprises to report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Companies manage their business as one segment, the sale of variable products designed to meet customer needs for tax- advantaged methods of saving for retirement and protection from unexpected death. Variable products are sold to consumers and corporations throughout the United States. The adoption of SFAS No. 131 did not affect the results of operations or financial position of the Companies. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management is required to utilize historical experience and assumptions about future events and circumstances in order to develop estimates of material reported amounts and disclosures. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates and assumptions are (1) estimates of fair values of investments in securities and other financial instruments, as well as fair values of policyholder liabilities, (2) policyholder liabilities, (3) deferred policy acquisition costs and value of purchased insurance in force, (4) fair values of assets and liabilities recorded as a result of merger and acquisition transactions, (5) asset valuation allowances, (6) guaranty fund assessment accruals, (7) deferred tax benefits (liabilities) and (8) estimates for commitments and contingencies including legal matters, if a liability is anticipated and can be reasonably estimated. Estimates and assumptions regarding all of the proceeding are inherently subject to change and are reassessed periodically. Changes in estimates and assumptions could materially impact the financial statements. RECLASSIFICATIONS Certain amounts in the financial statements for the periods ended within the years ended December 31, 1997 and 1996 have been reclassified to conform to the December 31, 1998 financial statement presentation. 2. BASIS OF FINANCIAL REPORTING The financial statements of the Companies differ from related statutory-basis financial statements principally as follows: (1) acquisition costs of acquiring new business are deferred and amortized over the life of the policies rather than charged to operations as incurred; (2) an asset representing the present value of future cash flows from insurance contracts acquired was established as a result of the merger/acquisition and is amortized and charged to expense; (3) future policy benefit reserves for divisions with fixed interest guarantees of the variable products are based on full account values, rather than the greater of cash surrender value or amounts derived from discounting methodologies utilizing statutory interest rates; (4) reserves are reported before reduction for reserve credits related to 82 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 2. BASIS OF FINANCIAL REPORTING (continued) reinsurance ceded and a receivable is established, net of an allowance for uncollectible amounts, for these credits rather than presented net of these credits; (5) fixed maturity investments are designated as "available for sale" and valued at fair value with unrealized appreciation/depreciation, net of adjustments to value of purchased insurance in force, deferred policy acquisition costs and deferred income taxes (if applicable), credited/charged directly to stockholder's equity rather than valued at amortized cost; (6) the carrying value of fixed maturities is reduced to fair value by a charge to realized losses in the Statements of Operations when declines in carrying value are judged to be other than temporary, rather than through the establishment of a formula- determined statutory investment reserve (carried as a liability), changes in which are charged directly to surplus; (7) deferred income taxes are provided for the difference between the financial statement and income tax bases of assets and liabilities; (8) net realized gains or losses attributed to changes in the level of interest rates in the market are recognized when the sale is completed rather than deferred and amortized over the remaining life of the fixed maturity security; (9) a liability is established for anticipated guaranty fund assessments, net of related anticipated premium tax credits, rather than capitalized when assessed and amortized in accordance with procedures permitted by insurance regulatory authorities; (10) revenues for variable products consist of policy charges applicable to each contract for the cost of insurance, policy administration charges, amortization of policy initiation fees and surrender charges assessed rather than premiums received; (11) the financial statements of Golden American's wholly owned subsidiary are consolidated rather than recorded at the equity in net assets; (12) surplus notes are reported as liabilities rather than as surplus; and (13) assets and liabilities are restated to fair values when a change in ownership occurs, with provisions for goodwill and other intangible assets, rather than continuing to be presented at historical cost. The net loss for Golden American as determined in accordance with statutory accounting practices was $68,002,000 in 1998, $428,000 in 1997 and $9,188,000 in 1996. Total statutory capital and surplus was $183,045,000 at December 31, 1998 and $76,914,000 at December 31, 1997. 83 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 3. INVESTMENT OPERATIONS INVESTMENT RESULTS Major categories of net investment income are summarized below: POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | (Dollars in thousands) | | | Fixed maturities............. $35,224 $4,443 | $18,488 $5,083 | $4,507 Equity securities............ -- 3 | -- 103 | -- Mortgage loans on | | real estate................. 6,616 879 | 3,070 203 | -- Policy loans................. 619 59 | 482 78 | 73 Short-term | | investments................. 1,311 129 | 443 441 | 341 Other, net................... 246 (154) | 24 2 | 22 Funds held in | | escrow...................... -- -- | -- -- | 145 ------- ------ | ------- ------ | ------ Gross investment | | income...................... 44,016 5,359 | 22,507 5,910 | 5,088 Less investment | | expenses.................... (1,531) (232) | (851) (115) | (98) ------- ------ | ------- ------ | ------ Net investment | | income...................... $42,485 $5,127 | $21,656 $5,795 | $4,990 ======= ====== | ======= ====== | ======
Realized gains (losses) on investments are as follows: POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | (Dollars in thousands) | | | Fixed maturities: | | available for sale.......... $(1,428) $25 | $151 $42 | $(420) Mortgage loans............... (63) (10) | -- -- | -- ------- --- | ---- --- | ----- Realized gains (losses) | | on investments.............. $(1,491) $15 | $151 $42 | $(420) ======= === | ==== === | =====
84 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 3. INVESTMENT OPERATIONS (continued) The change in unrealized appreciation (depreciation) of securities at fair value is as follows: POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | (Dollars in thousands) | | | Fixed maturities: | | Available for sale.......... $1,100 $(3,494) | $4,197 $2,497 | $(3,045) Held for investment......... -- -- | -- -- | (90) Equity securities............ (2,390) (68) | (462) (4) | (2) ------ ------- | ------ ------ | ------- Unrealized appreciation | | (depreciation) of | | securities.................. $(1,290) $(3,562) | $3,735 $2,493 | $(3,137) ======= ======= | ====== ====== | =======
At December 31, 1998 and December 31, 1997, amortized cost, gross unrealized gains and losses and estimated fair values of fixed maturities, all of which are designated as available for sale, are as follows: POST-MERGER --------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- (Dollars in thousands) DECEMBER 31, 1998 U.S. government and governmental agencies and authorities............. $ 13,568 $ 182 $ (8) $ 13,742 Foreign governments................... 2,028 8 -- 2,036 Public utilities...................... 67,710 546 (447) 67,809 Corporate securities.................. 365,569 4,578 (2,658) 367,489 Other asset-backed securities......... 99,877 281 (1,046) 99,112 Mortgage-backed securities............ 191,020 1,147 (370) 191,797 -------- ------ ------- -------- Total................................. $739,772 $6,742 $(4,529) $741,985 ======== ====== ======= ======== DECEMBER 31, 1997 U.S. government and governmental agencies and authorities............ $ 5,705 $ 5 $ (1) $ 5,709 Foreign governments................... 2,062 -- (9) 2,053 Public utilities...................... 26,983 55 (4) 27,034 Corporate securities.................. 259,798 1,105 (242) 260,661 Other asset-backed securities......... 3,155 32 -- 3,187 Mortgage-backed securities............ 115,585 202 (30) 115,757 -------- ------ ------- -------- Total................................. $413,288 $1,399 $ (286) $414,401 ======== ====== ======= ========
85 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 3. INVESTMENT OPERATIONS (continued) At December 31, 1998, net unrealized investment gains on fixed maturities designated as available for sale totaled $2,213,000. Appreciation of $1,005,000 was included in stockholder's equity at December 31, 1998 (net of an adjustment of $203,000 to VPIF, an adjustment of $455,000 to DPAC and deferred income taxes of $550,000). Short-term investments with maturities of 30 days or less have been excluded from the above schedules. Amortized cost approximates fair value for these securities. Amortized cost and estimated fair value of fixed maturities designated as available for sale, by contractual maturity, at December 31, 1998 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. POST-MERGER --------------------------- Amortized Estimated December 31, 1998 Cost Fair Value - ---------------------------------------------------------------------- (Dollars in thousands) Due within one year...................... $ 50,208 $ 50,361 Due after one year through five years.... 310,291 311,943 Due after five years through ten years... 78,264 78,541 Due after ten years...................... 10,112 10,231 ------- ------- 448,875 451,076 Other asset-backed securities............ 99,877 99,112 Mortgage-backed securities............... 191,020 191,797 -------- -------- Total.................................... $739,772 $741,985 ======== ======== An analysis of sales, maturities and principal repayments of the Companies' fixed maturities portfolio is as follows: Gross Gross Proceeds Amortized Realized Realized from Cost Gains Losses Sale --------- -------- -------- -------- (Dollars in thousands) POST-MERGER For the year ended December 31, 1998: Scheduled principal repayments, calls and tenders...................... $102,504 $ 60 $ (3) $102,561 Sales................................... 43,204 518 (1,030) 42,692 -------- ---- ------- -------- Total................................... $145,708 $578 $(1,033) $145,253 ======== ==== ======= ======== For the period October 25, 1997 through December 31, 1997: Scheduled principal repayments, calls and tenders..................... $ 6,708 $ 2 -- $ 6,710 Sales.................................. 3,138 23 -- 3,161 -------- ---- ------- -------- Total.................................. $ 9,846 $ 25 -- $ 9,871 ======== ==== ======= ========
86 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 3. INVESTMENT OPERATIONS (continued) Gross Gross Proceeds Amortized Realized Realized from Cost Gains Losses Sale --------- -------- -------- -------- (Dollars in thousands) POST- ACQUISITION For the period January 1, 1997 through October 24, 1997: Scheduled principal repayments, calls and tenders..................... $25,419 -- -- $25,419 Sales.................................. 14,052 $153 $ (2) 14,203 ------- ---- ---- ------- Total.................................. $39,471 $153 $ (2) $39,622 ======= ==== ==== ======= For the period August 14, 1996 through December 31, 1996: Scheduled principal repayments, calls and tenders.................... $ 1,612 -- -- $ 1,612 Sales................................. 45,799 $115 $(73) 45,841 ------- ---- ---- ------- Total................................. $47,411 $115 $(73) $47,453 ======= ==== ==== ======= PRE-ACQUISITION For the period January 1, 1996 through August 13, 1996: Scheduled principal repayments, calls and tenders.................... $ 1,801 -- -- $ 1,801 Sales................................. 53,710 $152 $(572) 53,290 ------- ---- ----- ------- Total................................. $55,511 $152 $(572) $55,091 ======= ==== ===== =======
Investment Valuation Analysis: The Companies analyze the investment portfolio at least quarterly in order to determine if the carrying value of any investment has been impaired. The carrying value of debt and equity securities is written down to fair value by a charge to realized losses when an impairment in value appears to be other than temporary. During the year ended December 31, 1998, Golden American recognized a loss on two fixed maturity investments of $973,000. During 1997 and 1996, no investments were identified as having an other than temporary impairment. Investments on Deposit: At December 31, 1998 and 1997, affidavits of deposits covering bonds with a par value of $6,470,000 and $6,605,000, respectively, were on deposit with regulatory authorities pursuant to certain statutory requirements. Investment Diversifications: The Companies' investment policies related to the investment portfolio require diversification by asset type, company and industry and set limits on the amount which can be invested in an individual issuer. Such policies are at least as restrictive as those set forth by regulatory authorities. The following percentages relate to holdings at December 31, 1998 and December 31, 1997. Fixed maturities included investments in basic industrials (26% in 1998, 30% in 1997), conventional mortgage-backed securities (25% in 1998, 13% in 1997), financial companies (19% in 1998, 24% in 1997), other asset- backed securities (11% in 1998) and various government bonds and government or agency mortgage-backed securities (5% in 1998, 17% in 1997). Mortgage loans on real estate have been analyzed 87 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 3. INVESTMENT OPERATIONS (continued) by geographical location with concentrations by state identified as California (12% in 1998 and 1997), Utah (11% in 1998, 13% in 1997) and Georgia (10% in 1998, 11% in 1997). There are no other concentrations of mortgage loans in any state exceeding ten percent at December 31, 1998 and 1997. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (36% in 1998, 43% in 1997), industrial buildings (32% in 1998, 33% in 1997) and retail facilities (20% in 1998, 15% in 1997). Equity securities are not significant to the Companies' overall investment portfolio. No investment in any person or its affiliates (other than bonds issued by agencies of the United States government) exceeded ten percent of stockholder's equity at December 31, 1998. 4. COMPREHENSIVE INCOME As of January 1, 1998, the Companies adopted the SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Companies' net income or stockholder's equity. SFAS No. 130 requires unrealized gains or losses on the Companies' available for sale securities (net of VPIF, DPAC and deferred income taxes) to be included in other comprehensive income. Prior to the adoption of SFAS No. 130, unrealized gains (losses) were reported separately in stockholder's equity. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. Total comprehensive income (loss) for the Companies includes $1,015,000 for the year ended December 31, 1998 for First Golden ($159,000, $536,000 and $(57,000), respectively, for the periods October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997 and December 17, 1996 through December 31, 1996). Other comprehensive income excludes net investment gains (losses) included in net income which merely represent transfers from unrealized to realized gains and losses. These amounts total $(2,133,000) in 1998. Such amounts, which have been measured through the date of sale, are net of income taxes and adjustments to VPIF and DPAC totaling $705,000 in 1998. 5. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of estimated fair value of all financial instruments, including both assets and liabilities recognized and not recognized in a company's balance sheet, unless specifically exempted. SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," requires additional disclosures about derivative financial instruments. Most of the Companies' investments, investment contracts and debt fall within the standards' definition of a financial instrument. Fair values for the Companies' insurance contracts other than investment contracts are not required to be disclosed. In cases where quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accounting, actuarial and regulatory bodies are continuing to study the methodologies to be used in developing fair value information, particularly as it relates to such things as liabilities for insurance contracts. Accordingly, care should be exercised in deriving conclusions about the Companies' business or financial condition based on the information presented herein. The Companies closely monitor the composition and yield of invested assets, the duration and interest credited on insurance liabilities and resulting interest spreads and timing of cash flows. These amounts 88 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) are taken into consideration in the Companies' overall management of interest rate risk, which attempts to minimize exposure to changing interest rates through the matching of investment cash flows with amounts expected to be due under insurance contracts. These assumptions may not result in values consistent with those obtained through an actuarial appraisal of the Companies' business or values that might arise in a negotiated transaction. The following compares carrying values as shown for financial reporting purposes with estimated fair values: POST-MERGER ----------------------------------------------- December 31, 1998 December 31, 1997 ---------------------- ----------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value ----------- --------- ---------- ----------- (Dollars in thousands) ASSETS Fixed maturities, available for sale...................... $ 741,985 $ 741,985 $ 414,401 $ 414,401 Equity securities.............. 11,514 11,514 3,904 3,904 Mortgage loans on real estate.. 97,322 99,762 85,093 86,348 Policy loans................... 11,772 11,772 8,832 8,832 Short-term investments......... 41,152 41,152 14,460 14,460 Cash and cash equivalents...... 6,679 6,679 21,039 21,039 Separate account assets........ 3,396,114 3,396,114 1,646,169 1,646,169 LIABILITIES Annuity products............... 869,009 827,597 493,181 469,714 Surplus notes.................. 85,000 90,654 25,000 28,837 Line of credit with affiliate.. -- -- 24,059 24,059 Separate account liabilities... 3,396,114 3,396,114 1,646,169 1,646,169
The following methods and assumptions were used by the Companies in estimating fair values. Fixed Maturities: Estimated fair values of conventional mortgage- backed securities not actively traded in a liquid market and publicly traded securities are estimated using a third party pricing system. This pricing system uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Equity Securities: Estimated fair values of equity securities, which consist of the Companies' investment in the portfolios underlying its separate accounts, are based upon the quoted fair value of individual securities comprising the individual portfolios. For equity securities not actively traded, estimated fair values are based upon values of issues of comparable returns and quality. Mortgage Loans on Real Estate: Fair values are estimated by discounting expected cash flows, using interest rates currently offered for similar loans. Policy Loans: Carrying values approximate the estimated fair value for policy loans. 89 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) Short-Term Investments and Cash and Cash Equivalents: Carrying values reported in the Companies' historical cost basis balance sheet approximate estimated fair value for these instruments due to their short-term nature. Separate Account Assets: Separate account assets are reported at the quoted fair values of the individual securities in the separate accounts. Annuity Products: Estimated fair values of the Companies' liabilities for future policy benefits for the divisions of the variable annuity products with fixed interest guarantees and for supplemental contracts without life contingencies are stated at cash surrender value, the cost the Companies would incur to extinguish the liability. Surplus Notes: Estimated fair value of the Companies' surplus notes were based upon discounted future cash flows using a discount rate approximating the Companies' return on invested assets. Line Of Credit With Affiliate: Carrying value reported in the Companies' historical cost basis balance sheet approximates estimated fair value for this instrument. Separate Account Liabilities: Separate account liabilities are reported at full account value in the Companies' historical cost balance sheet. Estimated fair values of separate account liabilities are equal to their carrying amount. 6. MERGER Transaction: On October 23, 1997, Equitable's shareholders approved the Merger Agreement dated July 7, 1997 among Equitable, PFHI and ING. On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn, owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. All costs of the merger, including expenses to terminate certain benefit plans, were paid by the Parent. Accounting Treatment: The merger was accounted for as a purchase resulting in a new basis of accounting, reflecting estimated fair values for assets and liabilities at October 24, 1997. The purchase price was allocated to EIC and its subsidiaries with $227,497,000 allocated to the Companies. Goodwill was established for the excess of the merger cost over the fair value of the net assets and attributed to EIC and its subsidiaries including Golden American and First Golden. The amount of goodwill allocated to the Companies relating to the merger was $151,127,000 at the merger date and is being amortized over 40 years on a straight-line basis. The carrying value of goodwill will be reviewed periodically for any indication of impairment in value. The Companies' DPAC, previous balance of VPIF and unearned revenue reserve, as of the merger date, were eliminated and a new asset of $44,297,000 representing VPIF was established for all policies in force at the merger date. 90 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 6. Merger (continued) Value of Purchased Insurance In Force: As part of the merger, a portion of the acquisition cost was allocated to the right to receive future cash flows from insurance contracts existing with the Companies at the merger date. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flow at the discount rate determined by ING. An analysis of the VPIF asset is as follows: POST-MERGER ------------------------------------- For the period For the year October 25, 1997 ended through December 31, 1998 December 31, 1997 ----------------- ----------------- (Dollars in thousands) Beginning balance................. $43,174 $44,297 -------- -------- Imputed interest.................. 2,802 1,004 Amortization...................... (7,753) (1,952) Changes in assumptions of timing of gross profits.......... 227 -- -------- -------- Net amortization.................. (4,724) (948) Adjustment for unrealized gains on available for sale securities....................... (28) (175) Adjustment for other receivables and merger costs................. (2,445) -- -------- -------- Ending balance.................... $35,977 $43,174 ======= ======= Interest is imputed on the unamortized balance of VPIF at a rate of 7.38% for the year ended December 31, 1998 and 7.03% for the period October 25, 1997 through December 31, 1997. The amortization of VPIF, net of imputed interest, is charged to expense. VPIF decreased $2,664,000 in the second quarter of 1998 to adjust the value of other receivables at merger date and increased $219,000 in the first quarter of 1998 as a result of an adjustment to the merger costs. VPIF is adjusted for the unrealized gains (losses) on available for sale securities; such changes are included directly in stockholder's equity. Based on current conditions and assumptions as to the impact of future events on acquired policies in force, the expected approximate net amortization relating to VPIF as of December 31, 1998 is $4,300,000 in 1999, $4,000,000 in 2000, $3,900,000 in 2001, $3,700,000 in 2002 and $3,300,000 in 2003. Actual amortization may vary based upon changes in assumptions and experience. 7. ACQUISITION Transaction: On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable from Whitewood, a wholly owned subsidiary of Bankers Trust Company ("Bankers Trust"), according to the terms of the Purchase Agreement dated May 3, 1996 between Equitable and Whitewood. In exchange for the outstanding capital stock of BT Variable, Equitable paid the sum of $93,000,000 in cash to Whitewood in accordance with the terms of the Purchase Agreement. Equitable also paid the sum of $51,000,000 in cash to Bankers Trust to retire certain debt owed by BT Variable to Bankers Trust pursuant to a revolving credit arrangement. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in 91 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 7. Acquisition (continued) Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. Accounting Treatment: The acquisition was accounted for as a purchase resulting in a new basis of accounting, which reflected estimated fair values for assets and liabilities at August 13, 1996. The purchase price was allocated to the three companies purchased - BT Variable, DSI and Golden American. The allocation of the purchase price to Golden American was approximately $139,872,000. Goodwill was established for the excess of the purchase price over the fair value of the net assets acquired and attributed to Golden American. The amount of goodwill relating to the acquisition was $41,113,000 and was amortized over 25 years on a straight-line basis until the October 24, 1997 merger with ING. Golden American's DPAC, previous balance of VPIF and unearned revenue reserve, as of the acquisition date, were eliminated and an asset of $85,796,000 representing VPIF was established for all policies in force at the acquisition date. Value of Purchased Insurance In Force: As part of the acquisition, a portion of the acquisition cost was allocated to the right to receive future cash flows from the insurance contracts existing with Golden American at the date of acquisition. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flows at the discount rate determined by Equitable. An analysis of the VPIF asset is as follows: POST-ACQUISITION | PRE-ACQUISITION ------------------------------------|---------------- For the period For the period | For the period January 1, 1997 August 14,1996 | January 1, 1996 through through | through October 24, 1997 December 31, 1996 | August 13, 1996 ---------------- ----------------- | --------------- (Dollars in thousands) | Beginning balance................ $83,051 $85,796 | $6,057 ------- ------- | ------ Imputed interest................. 5,138 2,465 | 273 Amortization..................... (12,656) (5,210) | (1,224) Changes in assumption of | timing of gross profits......... 2,293 -- | -- ------- ------- | ------ Net amortization................. (5,225) (2,745) | (951) Adjustment for unrealized gains | (losses) on available for sale | securities...................... (373) -- | 11 ------- ------- | ------ Ending balance $77,453 $83,051 | $5,117 ======= ======= | ======
Pre-Acquisition VPIF represents the remaining value assigned to in force contracts when Bankers Trust purchased Golden American from Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual Benefit") on September 30, 1992. Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to 7.80% for the period August 14, 1996 through October 24, 1997. The amortization of VPIF net of imputed interest was charged to expense. VPIF was also adjusted for the unrealized gains (losses) on available for sale securities; such changes were included directly in stockholder's equity. 8. INCOME TAXES Golden American files a consolidated federal income tax return. Under the Internal Revenue Code, a newly acquired insurance company cannot file as part of its parent's consolidated tax return for 5 years. 92 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 8. INCOME TAXES(continued) At December 31, 1998, the Companies have net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $50,917,000. Approximately $5,094,000, $3,354,000 and $42,469,000 of these NOL carryforwards are available to offset future taxable income of the Companies through the years 2011, 2012 and 2013, respectively. INCOME TAX EXPENSE Income tax expense (benefit) included in the consolidated financial statements is as follows: POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | (Dollars in thousands) | | | Current..................... -- -- | $ 12 -- | -- Deferred.................... $5,279 $146 | (1,349) $220 | $(1,463) ------ ---- | ------- ---- | ------- $5,279 $146 | $(1,337) $220 | $(1,463) ====== ==== | ======= ==== | =======
The effective tax rate on income (loss) before income taxes is different from the prevailing federal income tax rate. A reconciliation of this difference is as follows: POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION ------------------------------------ | ----------------------------------- | --------------- For the period | For the period For the period | For the period For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996 ended through | through through | through December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996 ----------------- ----------------- | ---------------- ----------------- | --------------- | (Dollars in thousands) | | | | | Income (loss) before | | income taxes.............. $10,353 $(279) | $ (608) $570 | $1,736 ======= ===== | ======= ==== | ====== Income tax (benefit) at | | federal statutory rate.... $ 3,624 $ (98) | $ (213) $200 | $ 607 Tax effect (decrease) of: | | Realization of NOL | | carryforwards........... -- -- | -- -- | (1,214) Goodwill amortization..... 1,322 220 | -- -- | -- Compensatory stock | | option and restricted | | stock expense............ -- -- | (1,011) -- | -- Meals and | | entertainment............ 157 23 | 53 20 | -- Other items............... 176 1 | (166) -- | -- Change in valuation | | allowance................. -- -- | -- -- | (856) =------ ----- | ------- ---- | ------- Income tax expense | | (benefit)................. $ 5,279 $ 146 | $(1,337) $220 | $(1,463) ======= ===== | ======= ==== | =======
93 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 8. INCOME TAXES (continued) DEFERRED INCOME TAXES The tax effect of temporary differences giving rise to the Companies' deferred income tax assets and liabilities at December 31, 1998 and 1997 is as follows: POST-MERGER ------------------------------------ December 31, 1998 December 31, 1997 ----------------- ----------------- (Dollars in thousands) Deferred tax assets: Net unrealized depreciation of securities at fair value.......... $ 691 -- Future policy benefits............. 66,273 $27,399 Deferred policy acquisition costs.. -- 4,558 Goodwill........................... 16,323 17,620 Net operating loss carryforwards... 17,821 3,044 Other.............................. 1,272 1,548 -------- ------- 102,380 54,169 Deferred tax liabilities: Net unrealized appreciation of securities at fair value.......... -- (130) Fixed maturity securities.......... (1,034) (1,665) Deferred policy acquisition costs.. (55,520) -- Mortgage loans on real estate...... (845) (845) Value of purchased insurance in force............................. (12,592) (15,172) Other.............................. (912) (127) -------- -------- (70,903) (17,939) -------- -------- Deferred income tax asset........... $ 31,477 $ 36,230 ======== ======== The Companies are required to establish a "valuation allowance" for any portion of the deferred tax assets management believes will not be realized. In the opinion of management, it is more likely than not the Companies will realize the benefit of the deferred tax assets; therefore, no such valuation allowance has been established. 9. RETIREMENT PLANS Defined Benefit Plans Return. In 1998 and 1997, the Companies were allocated their share of the pension liability associated with their employees. The Companies' employees are covered by the employee retirement plan of an affiliate, Equitable Life. Further, Equitable Life sponsors a defined contribution plan that is qualified under Internal Revenue Code Section 401(k). The following tables summarize the benefit obligations and the funded status for pension benefits over the two-year period ended December 31, 1998: 94 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 9. RETIREMENT PLANS (continued) 1998 1997 -------- ------ (Dollars in thousands) CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1............ $ 956 $192 Service cost............................... 1,138 682 Interest cost.............................. 97 25 Actuarial loss............................. 2,266 57 Benefit payments........................... (3) -- ------ ---- Benefit obligation at December 31.......... $4,454 $956 ====== ==== 1998 1997 -------- ------ (Dollars in thousands) FUNDED STATUS Funded status at December 31............... $(4,454) $(956) Unrecognized net loss...................... 2,266 -- ------- ----- Net amount recognized...................... $(2,188) $(956) ======= ===== During 1998 and 1997, the Companies' plan assets were held by Equitable Life, an affiliate. The weighted-average assumptions used in the measurement of the Companies' benefit obligation are as follows: 1998 1997 ------ ------ DECEMBER 31 Discount rate................................ 6.75% 7.25% Expected return on plan assets............... 9.50 9.00 Rate of compensation increase................ 4.00 5.00 The following table provides the net periodic benefit cost for the fiscal years 1998 and 1997: POST-MERGER | POST-ACQUISITION ------------------------------------ | ---------------- For the period | For the period For the year October 25,1997 | January 1,1997 ended through | through December 31, 1998 December 31, 1997 | October 24, 1997 ----------------- ----------------- | ---------------- (Dollars in thousands) | Service cost................ $1,138 $114 | $568 Interest cost............... 97 10 | 15 Amortization of net loss.... -- -- | 1 ------ ---- | ---- Net periodic benefit cost... $1,235 $124 | $584 ====== ==== | ====
There were no gains or losses resulting from curtailments or settlements during 1998 or 1997. 95 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 9. RETIREMENT PLANS (continued) The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $4,454,000, $3,142,000 and $0, respectively, as of December 31, 1998 and $956,000, $579,000 and $0, respectively, as of December 31, 1997. 10. RELATED PARTY TRANSACTIONS Operating Agreements: DSI acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) and distributor of the variable insurance products issued by the Companies. DSI is authorized to enter into agreements with broker/dealers to distribute the Companies' variable insurance products and appoint representatives of the broker/dealers as agents. For the year ended December 31, 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the Companies paid commissions to DSI totaling $117,470,000, $9,931,000 and $26,419,000, respectively ($9,995,000 for the period August 14, 1996 through December 31, 1996 and $17,070,000 for the period January 1, 1996 through August 13, 1996). Golden American provides certain managerial and supervisory services to DSI. The fee paid by DSI for these services is calculated as a percentage of average assets in the variable separate accounts. For the year ended December 31, 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the fee was $4,771,000, $508,000 and $2,262,000, respectively. For the periods August 14, 1996 through December 31, 1996 and January 1, 1996 through August 13, 1996 the fee was $877,000 and $1,390,000, respectively. Effective January 1, 1998, the Companies have an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management services. Under the agreement, the Companies record a fee based on the value of the assets under management. The fee is payable quarterly. For the year ended December 31, 1998, the Companies incurred fees of $1,504,000 under this agreement. Prior to 1998, the Companies had a service agreement with Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided investment management services. Payments for these services totaled $200,000, $768,000 and $72,000 for the periods October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997 and August 14, 1996 through December 31, 1996, respectively. Golden American has a guaranty agreement with Equitable Life, an affiliate. In consideration of an annual fee, payable June 30, Equitable Life guarantees to Golden American that it will make funds available, if needed, to Golden American to pay the contractual claims made under the provisions of Golden American's life insurance and annuity contracts. The agreement is not, and nothing contained therein or done pursuant thereto by Equitable Life shall be deemed to constitute, a direct or indirect guaranty by Equitable Life of the payment of any debt or other obligation, indebtedness or liability, of any kind or character whatsoever, of Golden American. The agreement does not guarantee the value of the underlying assets held in separate accounts in which funds of variable life insurance and variable annuity policies have been invested. The calculation of the annual fee is based on risk based capital. As Golden American's risk based capital level was above required amounts, no annual fee was payable in 1998 or in 1997. Golden American provides certain advisory, computer and other resources and services to Equitable Life. Revenues for these services, which reduced general expenses incurred by Golden American, totaled $5,833,000 for the year ended December 31, 1998 ($1,338,000 and $2,992,000 for the periods October 25, 96 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 10. RELATED PARTY TRANSACTIONS (continued) 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). No services were provided by Golden American in 1996. The Companies have a service agreement with Equitable Life in which Equitable Life provides administrative and financial related services. Under this agreement, the Companies incurred expenses of $1,058,000 for the year ended December 31, 1998 ($13,000 and $16,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). First Golden provides resources and services to DSI. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $75,000 in 1998. For the year ended December 31, 1998, the Companies had premiums, net of reinsurance, for variable products from four affiliates, Locust Street Securities, Inc., Vestax Securities Corporation, DSI and Multi-Financial Securities Corporation of $122,900,000, $44,900,000, $13,600,000 and $13,400,000, respectively. The Companies had premiums, net reinsurance, for variable products from three affiliates, Locust Street Securities, Inc., Vestax Securities Corporation and DSI of $9,300,000, $1,900,000 and $2,100,000 respectively, for the period October 25, 1997 through December 31, 1997 ($16,900,000, $1,200,000 and $400,000 for the period January 1, 1997 through October 24, 1997, respectively). Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate, to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement which became effective January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH, Golden American must obtain the approval of the State of Delaware Department of Insurance. Interest on any Golden American borrowings is charged at the rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, Golden American incurred interest expense of $1,765,000 in 1998. At December 31, 1998, Golden American did not have any borrowings or receivables from ING AIH under this agreement. Line of Credit: Golden American maintained a line of credit agreement with Equitable to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement which became effective December 1, 1996 and expired December 31, 1997, Golden American could borrow up to $25,000,000. Interest on any borrowings was charged at the rate of Equitable's monthly average aggregate cost of short-term funds plus 1.00%. Under this agreement, Golden American incurred interest expense of $211,000 for the year ended December 31, 1998 ($213,000 for the period October 25, 1997 through December 31, 1997, $362,000 for the period January 1, 1997 through October 24, 1997 and $85,000 for the period August 14, 1996 through December 31, 1996). The outstanding balance was paid by a capital contribution. Surplus Notes: On December 30, 1998, Golden American issued a 7.25% surplus note in the amount of $60,000,000 to Equitable Life. The note matures on December 29, 2028. The note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Golden American incurred no interest in 1998. 97 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 10. RELATED PARTY TRANSACTIONS (continued) On December 17, 1996, Golden American issued an 8.25% surplus note in the amount of $25,000,000 to Equitable. The note matures on December 17, 2026. The note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors of Golden American. Any payment of principal made is subject to the prior approval of the Delaware Insurance Commissioner. Golden American incurred interest totaling $2,063,000 in 1998 ($344,000 and $1,720,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). On December 17, 1996, Golden American contributed the $25,000,000 to First Golden acquiring 200,000 shares of common stock (100% of outstanding stock) of First Golden. Stockholder's Equity: On September 23, 1996, EIC Variable, Inc. contributed $50,000,000 of Preferred Stock to the Companies' additional paid-in capital. During 1998, Golden American received $122,500,000 of capital contributions from its Parent. 11. COMMITMENTS AND CONTINGENCIES Contingent Liability: In a transaction that closed on September 30, 1992, Bankers Trust acquired from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all of the issued and outstanding capital stock of Golden American and DSI and certain related assets for consideration with an aggregate value of $13,200,000 and contributed them to BT Variable. The transaction involved settlement of pre-existing claims of Bankers Trust against Mutual Benefit. The ultimate value of these claims has not yet been determined by the Superior Court of New Jersey and, prior to August 13, 1996, was contingently supported by a $5,000,000 note payable from Golden American and a $6,000,000 letter of credit from Bankers Trust. Bankers Trust estimated the contingent liability due from Golden American amounted to $439,000 at August 13, 1996. At August 13, 1996, the balance of the escrow account established to fund the contingent liability was $4,293,000. On August 13, 1996, Bankers Trust made a cash payment to Golden American in an amount equal to the balance of the escrow account less the $439,000 contingent liability discussed above. In exchange, Golden American irrevocably assigned to Bankers Trust all of Golden American's rights to receive any amounts to be disbursed from the escrow account in accordance with the terms of the Exchange Agreement. Bankers Trust also irrevocably agreed to make all payments becoming due under the Golden American note and to indemnify Golden American for any liability arising from the note. Reinsurance: At December 31, 1998, the Companies had reinsurance treaties with four unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks under variable contracts. The Companies remain liable to the extent reinsurers do not meet their obligations under the reinsurance agreements. Reinsurance ceded in force for life mortality risks were $111,552,000 and $96,686,000 at December 31, 1998 and 1997, respectively. At December 31, 1998, the Companies have a net receivable of $7,470,000 for reserve credits, reinsurance claims or other receivables from these reinsurers comprised of $439,000 for claims recoverable from reinsurers, $543,000 for a payable for reinsurance premiums and $7,574,000 for a receivable from an unaffiliated reinsurer. Included in the accompanying financial statements are net considerations to reinsurers of $4,797,000, $326,000, $1,871,000, $875,000 and $600,000 and net policy benefits recoveries of $2,170,000, $461,000, $1,021,000, $654,000 and $1,267,000 for the year ended December 31, 1998 and for the periods October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997, August 14, 1996 through December 31, 1996 and January 1, 1996 through August 13, 1996, respectively. 98 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 11. COMMITMENTS AND CONTINGENCIES (continued) Effective June 1, 1994, Golden American entered into a modified coinsurance agreement with an unaffiliated reinsurer. The accompanying financial statements are presented net of the effects of the treaty which increased income by $1,022,000, $265,000, $335,000, $10,000 and $56,000 for the year ended December 31, 1998 and for the periods October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997, August 14, 1996 through December 31, 1996 and January 1, 1996 through August 13, 1996, respectively. Guaranty Fund Assessments: Assessments are levied against the Companies by life and health guaranty associations in most states in which the Companies are licensed to cover losses of policyholders of insolvent or rehabilitated insurers. In some states, these assessments can be partially recovered through a reduction in future premium taxes. The Companies cannot predict whether and to what extent legislative initiatives may affect the right to offset. The associated cost for a particular insurance company can vary significantly based upon its fixed account premium volume by line of business and state premiums as well as its potential for premium tax offset. The Companies have established an undiscounted reserve to cover such assessments and regularly reviews information regarding known failures and revises its estimates of future guaranty fund assessments. Accordingly, the Companies accrued and charged to expense an additional $1,123,000 for the year ended December 31, 1998, $141,000 for the period October 25, 1997 through December 31, 1997, $446,000 for the period January 1, 1997 through October 24, 1997, $291,000 for the period August 14, 1996 through December 31, 1996 and $480,000 for the period January 1, 1996 through August 13, 1996. At December 31, 1998, the Companies have an undiscounted reserve of $2,446,000 to cover estimated future assessments (net of related anticipated premium tax credits) and has established an asset totaling $586,000 for assessments paid which may be recoverable through future premium tax offsets. The Companies believe this reserve is sufficient to cover expected future guaranty fund assessments, based upon previous premiums, and known insolvencies at this time. Litigation: The Companies, like other insurance companies, may be named or otherwise involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. The Companies currently believe no pending or threatened lawsuits exist that are reasonably likely to have a material adverse impact on the Companies. Vulnerability from Concentrations: The Companies have various concentrations in its investment portfolio (see Note 3 for further information). The Companies' asset growth, net investment income and cash flow are primarily generated from the sale of variable products and associated future policy benefits and separate account liabilities. Substantial changes in tax laws that would make these products less attractive to consumers and extreme fluctuations in interest rates or stock market returns which may result in higher lapse experience than assumed could cause a severe impact to the Companies' financial condition. Two broker/dealers generated 27% of the Companies' sales (53% by two broker/dealers during 1997). Leases: The Companies lease their home office space, certain other equipment and capitalized computer software under operating leases which expire through 2018. During the year ended December 31, 1998 and for the periods October 25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997, August 14, 1996 through December 31, 1996 and January 1, 1996 through August 13, 1996, rent expense totaled $1,241,000, $39,000, $331,000, $147,000 and $247,000, respectively. At December 31, 1998, minimum rental payments due under all non-cancelable operating leases with initial terms of one 99 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 11. COMMITMENTS AND CONTINGENCIES (continued) year or more are: 1999 - $1,528,000; 2000 - $1,429,000; 2001 - $1,240,000; 2002 - $1,007,000; 2003 - $991,000 and 2004 and thereafter - $5,363,000. Revolving Note Payable: To enhance short-term liquidity, the Companies have established a revolving note payable effective July 27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). The note was approved by the Boards of Directors of Golden American and First Golden on August 5, 1998 and September 29, 1998, respectively. The total amount the Companies may have outstanding is $85,000,000, of which Golden American and First Golden have individual credit sublimits of $75,000,000 and $10,000,000, respectively. The note accrues interest at an annual rate equal to: (1) the cost of funds for the Bank for the period applicable for the advance plus 0.25% or (2) a rate quoted by the Bank to the Companies for the advance. The terms of the agreement require the Companies to maintain the minimum level of Company Action Level Risk Based Capital as established by applicable state law or regulation. During the year ended December 31, 1998, the Companies incurred interest expense of $352,000. At December 31, 1998, the Companies did not have any borrowings under this agreement. 100 [Shaded Section Header] - ---------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION - ---------------------------------------------------------------------- TABLE OF CONTENTS ITEM PAGE Introduction............................................. 1 Description of Golden American Life Insurance Company.... 1 Safekeeping of Assets.................................... 1 The Administrator........................................ 1 Independent Auditors..................................... 1 Distribution of Contracts................................ 1 Performance Information.................................. 2 IRA Withdrawal Option.................................... 5 Other Information........................................ 6 Financial Statements of Separate Account B............... 6 Appendix - Description of Bond Ratings.................... A-1 - ---------------------------------------------------------------------- PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS SHOWN ON THE PROSPECTUS COVER. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT B. Please Print or Type: __________________________________________________ NAME __________________________________________________ SOCIAL SECURITY NUMBER __________________________________________________ STREET ADDRESS __________________________________________________ CITY, STATE, ZIP [ ] [First Union VA] [ /00] 101 This page intentionally left blank. 102 APPENDIX A MARKET VALUE ADJUSTMENT EXAMPLES EXAMPLE #1: FULL SURRENDER EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT Assume $100,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into the guaranteed interest period; that the then Index Rate for a 7 year guaranteed interest period ("J") is 8%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. CALCULATE THE MARKET VALUE ADJUSTMENT 1. The contract value of the Fixed Interest Allocation on the date of surrender is $124,230 ( $100,000 X 1.075 ^ 3 ) 2. N = 2,555 ( 365 X 7 ) 3. Market Value Adjustment = $124,230 X (( 1.07 / 1.0850 ) ^ ( 2,555 / 365 ) - 1 ) = $11,535 Therefore, the amount paid to you on full surrender ignoring any surrender charge is $112,695 ( $124,230 - $11,535 ). EXAMPLE #2: FULL SURRENDER EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT Assume $100,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into the guaranteed interest period; that the then Index Rate for a 7 year guaranteed interest period ("J") is 6%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. CALCULATE THE MARKET VALUE ADJUSTMENT 1. The contract value of the Fixed Interest Allocation on the date of surrender is $124,230 ($100,000 x 1.075 ^ 3) 2. N = 2,555 ( 365 X 7 ) 3. Market Value Adjustment =$124,230 X (( 1.07 / 1.0650 ) ^ ( 2,555 / 365 ) - 1 ) = $4,141 Therefore, the amount paid to you on full surrender ignoring any surrender charge is $128,371 ( $124,230 + $4,141 ). EXAMPLE #3: WITHDRAWAL EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT Assume $200,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a withdrawal of $112,695 is requested 3 years into the guaranteed interest period; that the then Index Rate ("J") for a 7 year guaranteed interest period is 8%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. A1 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 $248,459 ( $200,000 x 1.075 ^ 3 ) 2. N = 2,555 ( 365 x 7 ) 3. Amount that must be withdrawn = (( $112,695 / ( 1.07 / 1.0850 ) ^ (2,555 / 365)) = $124,230 Then calculate the Market Value Adjustment on that amount. 4. Market Value Adjustment = $124,230 x (( 1.07 / 1.0850 ) ^ (2,555 / 365) - 1) = $11,535 Therefore, the amount of the withdrawal paid to you ignoring any surrender charge is $112,695, as requested. The Fixed Interest Allocation will be reduced by the amount of the withdrawal, $112,695, and also reduced by the Market Value Adjustment of $11,535, for a total reduction in the Fixed Interest Allocation of $124,230. EXAMPLE #4: WITHDRAWAL EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT Assume $200,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate of 7%; that a withdrawal of $128,371 requested 3 years into the guaranteed interest period; that the then Index Rate ("J") for a 7 year guaranteed interest period is 6%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. First calculate the amount that must be withdrawn from the Fixed Interest Allocation to provide the amount requested. 1. The contract value of Fixed Interest Allocation on the date of surrender is $248,459 ($200,000 x 1.075 ^ 3) 2. N = 2,555 ( 365 x 7 ) 3. Amount that must be withdrawn = (( $128,371 / ( 1.07 /1.0650) ^ ( 2,555 / 365)) = $124,230 Then calculate the Market Value Adjustment on that amount. 4. Market Value Adjustment = $124,230 x (( 1.07 /1.0650) ^ ( 2,555 / 365) - 1 ) = $4,141 Therefore, the amount of the withdrawal paid to you ignoring any surrender charge is $128,371, as requested. The Fixed Interest Allocation will be reduced by the amount of the withdrawal, $128,371, but increased by the Market Value Adjustment of $4,141, for a total reduction in the Fixed Interest Allocation of $124,230. A2 APPENDIX B SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE The following assumes you made an initial premium payment of $10,000 and additional premium payments of $10,000 in each of the second and third contract years, for total premium payments under the Contract of $30,000. It also assumes a withdrawal at the beginning of the fifth contract year of 30% of the contract value of $35,000. In this example, $3,000 (0.10 x $30,000) is the maximum free withdrawal amount that you may withdraw during the contract year without a surrender charge. The total withdrawal would be $10,500 ($35,000 x .30). Therefore, $7,500 ($10,500 - $3,000) is considered an excess withdrawal of a part of the initial premium payment of $10,000 and would be subject to a 8.5% surrender charge of $637.50 ($7,500 x .085). This example does not take into account any Market Value Adjustment or deduction of any premium taxes. B1 ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company is a stock company domiciled in Delaware [ ] [First Union VA] [ /00] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Not applicable. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The following provisions regarding the Indemnification of Directors and Officers of the Registrant are applicable: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND INCORPORATORS Delaware General Corporation Law, Title 8, Section 145 provides that corporations incorporated in Delaware may indemnify their officers, directors, employees or agents for threatened, pending or past legal action by reason of the fact he/she is or was a director, officer, employee or agent. Such indemnification is provided for under the Company's By-Laws under Article VI. Indemnification includes all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such indemnitee. Prepayment of expenses is permitted, however, reimbursement is required if it is ultimately determined that indemnification should not have been given. DIRECTORS' AND OFFICERS' INSURANCE The directors, officers, and employees of the registrant, in addition to the indemnifications described above, are indemnified through the blanket liability insurance policy of Registrant's ultimate parent, ING Groep N.V., or directly by Equitable of Iowa Companies, Inc. for liabilities not covered through the indemnification provided under the By-Laws. SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Not Applicable. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS. 1 Distribution Agreement Between Golden American Life Insurance Company and Directed Services, Inc. 3(a) Restated Certificate of Incorporation of Golden American Life Insurance Company, as amended. 3(b) By-Laws of Golden American Life Insurance Company, as amended. 3(c) Resolution of Board of Directors for Powers of Attorney. 4(a) Individual Deferred Combination Variable and Fixed Annuity Contract. 4(b) Group Deferred Combination Variable and Fixed Annuity Certificate. 4(c) Individual Deferred Variable Annuity Contract. 4(d) Individual Retirement Annuity Rider Page. 4(e) Roth Individual Retirement Annuity Rider. 4(f) Individual Deferred Combination Variable and Fixed Annuity Application. (1) 4(g) Group Deferred Combination Variable and Fixed Annuity Enrollment Form. (1) 4(h) Individual Deferred Variable Annuity Application. (1) 5 Opinion and Consent of Myles R. Tashman. 10(a) Administrative Services Agreement between Golden American and Equitable Life Insurance Company of Iowa. 10(b) Service Agreement between Golden American and Directed Services, Inc. 10(c) Asset Management Agreement between Golden American and ING Investment Management LLC. 10(d) Reciprocal Loan Agreement between Golden American and ING America Insurance Holdings, Inc. 10(e) Revolving Note Payable between Golden American and SunTrust Bank. 10(f) Participation Agreement between Golden American and the Evergreen Variable Annuity Trust. (1) 10(g) Surplus Note between Golden American and First Columbine Life Insurance Company. 10(h) Surplus Note between Golden American and Equitable Life Insurance Company of Iowa. 23(a) Consent of Sutherland, Asbill & Brennan LLP (1) 23(b) Consent of Ernst & Young LLP. 23(c) Consent of Myles R. Tashman, incorporated in Item 5 of this Part II, together with the Opinion of Myles R. Tashman. 24 Powers of Attorney. 27 Financial Data Schedule. (1) To be filed by Pre-Effective Amendment. (b) FINANCIAL STATEMENT SCHEDULE. (1) All financial statements are included in the Prospectus as indicated therein (2) Schedules I, III, IV follow. All other schedules to the consolidated financial statements required by Article 7 of Regulation S-X are omitted because they are not applicable or because the information is included elsewhere in the consolidated financial statements or notes thereto. SCHEDULE I SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES (Dollars in thousands)
Balance Sheet December 31, 1998 Cost 1 Value Amount _______________________________________________________________________________ TYPE OF INVESTMENT Fixed maturities, available for sale: Bonds: United States government and govern- mental agencies and authorities $13,568 $13,742 $13,742 Foreign governments 2,028 2,036 2,036 Public utilities 67,710 67,809 67,809 Corporate securities 365,569 367,489 367,489 Other asset-backed securities 99,877 99,112 99,112 Mortgage-backed securities 191,020 191,797 191,797 ___________ ___________ ___________ Total fixed maturities, available for sale 739,772 741,985 741,985 Equity securities: Common stocks: industrial, miscel- laneous and all other 14,437 11,514 11,514 Mortgage loans on real estate 97,322 97,322 Policy loans 11,772 11,772 Short-term investments 41,152 41,152 ___________ ___________ Total investments $904,455 $903,745 =========== =========== Note 1: Cost is defined as original cost for common stocks, amortized cost for bonds and short-term investments, and unpaid principal for policy loans and mortgage loans on real estate, adjusted for amortization of premiums and accrual of discounts.
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION (Dollars in thousands)
Column Column Column Column Column Column A B C D E F ________________________________________________________________________________ Future Policy Other De- Benefits, Policy ferred Losses, Claims Insur- Policy Claims Un- and ance Acqui- and earned Bene- Premiums sition Loss Revenue fits and Segment Costs Expenses Reserve Payable Charges ________________________________________________________________________________ POST-MERGER ________________________________________________________________________________ Year ended December 31, 1998: Life insurance $204,979 $881,112 $3,840 -- $39,119 Period October 25, 1997 through December 31, 1997: Life insurance 12,752 505,304 1,189 $10 3,834 POST-ACQUISITION ________________________________________________________________________________ Period January 1, 1997 through October 24, 1997: Life insurance N/A N/A N/A N/A 18,288 Period August 14, 1996 through December 31, 1996: Life insurance 11,468 285,287 2,063 -- 8,768 PRE-ACQUISITION ________________________________________________________________________________ Period January 1, 1996 through August 13, 1996: Life insurance N/A N/A N/A N/A 12,259
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED (Dollars in thousands)
Column Column Column Column Column Column A G H I J K ________________________________________________________________________________ Amorti- Benefits zation Claims, of Losses Deferred Net and Policy Other Invest- Settle- Acqui- Opera- ment ment sition ting Premiums Segment Income Expenses Costs Expenses* Written ________________________________________________________________________________ POST-MERGER ________________________________________________________________________________ Year ended December 31, 1998: Life insurance $42,485 $96,968 $5,148 ($26,406) -- Period October 25, 1997 through December 31, 1997: Life insurance 5,127 7,413 892 1,137 -- POST-ACQUISITION ________________________________________________________________________________ Period January 1, 1997 through October 24, 1997: Life insurance 21,656 19,401 1,674 20,234 -- Period August 14, 1996 through December 31, 1996: Life insurance 5,795 7,003 244 8,066 -- PRE-ACQUISITION ________________________________________________________________________________ Period January 1, 1996 through August 13, 1996: Life insurance 4,990 5,270 2,436 8,847 -- *This includes policy acquisition costs deferred for first year commissions and interest bonuses, extra credit bonuses and other expenses related to the production of new business. The cost related to first year interest bonuses and the extra credit bonus are included in benefits claims, losses and settlement expenses.
SCHEDULE IV REINSURANCE
Column A Column B Column C Column D Column E Column F _______________________________________________________________________________ Percen- Assumed tage of Ceded to from Amount Gross Other Other Net Assumed Amount Companies Companies Amount to Net _______________________________________________________________________________ At December 31, 1998: Life insurance in force $181,456,000 $111,552,000 -- $69,904,000 -- ============= ============== ========= ============ ======== At December 31, 1997: Life insurance in force $149,842,000 $96,686,000 -- $53,156,000 -- ============= ============== ========= ============ ======== At December 31, 1996: Life insurance in force $86,192,000 $58,368,000 -- $27,824,000 -- ============= ============== ========= ============ ========
ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of West Chester and State of Pennsylvania, on the 11th day of February, 2000. GOLDEN AMERICAN LIFE INSURANCE COMPANY (Registrant) By: ------------------------ Barnett Chernow* President Attest: /s/Marilyn Talman ---------------------- Marilyn Talman Vice President, Associate General Counsel and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on February 11, 2000. Signature Title - --------- ----- President and Director - -------------------- Barnett Chernow* Senior Vice President - -------------------- and Chief Financial Officer E. Robert Koster* DIRECTORS OF DEPOSITOR - ---------------------- Myles R. Tashman* - ---------------------- Michael W. Cunningham* - ---------------------- Phillip R. Lowery* - ---------------------- Mark A. Tullis* By: /s/ Marilyn Talman Attorney-in-Fact ----------------------- Marilyn Talman _______________________ *Executed by Marilyn Talman on behalf of those indicated pursuant to Power of Attorney. EXHIBIT INDEX ITEM EXHIBIT PAGE # 1 Distribution Agreement Between Golden American Life Insurance Company and Directed Services, Inc. EX-1 3(a) Restated Certificate of Incorporation of Golden American Life Insurance Company, as amended. EX-3.A 3(b) By-laws of Golden American Life Insurance Company, as amended. EX-3.B 3(c) Resolution of Board of Directors for Powers of Attorney EX-3.C 4(a) Individual Deferred Variable and Fixed Annuity Contract. EX-4.A 4(b) Group Deferred Variable and Fixed Annuity Certificate. EX-4.B 4(c) Individual Deferred Variable and Fixed Annuity Contract. EX-4.C 4(d) Individual Retirement Annuity Rider Page. EX-4.D 4(e) Roth Individual Retirement Annuity Rider. EX-4.E 5 Opinion and Consent of Myles R. Tashman, Esq. EX-5 10(a) Administrative Services Agreement between Golden American and Equitable Life Insurance Company of Iowa. EX-10.A 10(b) Service Agreement between Golden American and Directed Services, Inc. EX-10.B 10(c) Asset Management Agreement between Golden American and ING Investment Management LLC. EX-10.C 10(d) Reciprocal Loan Agreement between Golden American and ING America Insurance Holdings, Inc. EX-10.D 10(e) Revolving Note Payable between Golden American and SunTrust Bank. EX-10.E 10(g) Surplus Note between Golden American and First Columbine Life Insurance Company. EX-10.G 10(h) Surplus Note between Golden American and Equitable Life Insurance Company of Iowa. EX-10.H 23(b) Consent of Ernst & Young LLP, independent auditors. EX-23.B 24 Powers of Attorney. EX-24 27 Financial Data Schedule. EX-27 EX-1 2 DISTRIBUTION AGREE. BTWN GALIC & DSI EXHIBIT 1 DISTRIBUTION AGREEMENT AGREEMENT dated December 27, 1988, by and between Golden American Life Insurance Company, ("Golden American") a Minnesota corporation, on its own behalf and on behalf of the Western Capital Specialty Managers Separate Account B ("Account") and Directed Services, Inc., ("DSI"), a New York corporation wholly owned by Golden Financial Group ("GFG"), a Delaware corporation. WHEREAS, Golden American and GFG entered into an agreement effective ____________________, 1988 (the "Golden American-GFG Agreement"), pursuant to which Golden American may market Deferred Variable Annuity and Variable Annuity Certain Contracts ("Annuity Contracts") designed by GFG; and WHEREAS, the Account is a separate account established and maintained by Golden American pursuant to the laws of the State of Minnesota for variable annuity contracts issued by Golden American under which income, gains, and losses, whether or not realized, from assets allocated to such Account, are credited to or charged against such Account without regard to other income, gains or losses of Golden American; and WHEREAS, Golden American proposes to issue and sell Annuity Contract through the Account to suitable purchasers; and WHEREAS, DSI is duly registered as a broker-dealer under the Securities Exchange Act of 1934 ("1934 Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, Golden American and DSI desire to enter into an agreement pursuant to which DSI will act as a principal underwriter for the sale of the Annuity Contracts and may distribute the Annuity Contracts through one or more organizations as set forth in Section 2. below. NOW, THEREFORE, GOLDEN AMERICAN AND DSI HEREBY AGREE AS FOLLOWS: 1. TERM. This Agreement shall remain in force until it is terminated in accordance with the provisions of paragraph 13. 2. PRINCIPAL UNDERWRITER. Golden American hereby appoints DSI and DSI accepts such appointment, during the term of this Agreement, subject to any registration requirements of The Securities Act of 1933 ("1933 Act"), The Investment Company Act of 1940 ("1940 Act"), and the provisions of the 1934 Act, to be a distributor and principal underwriter of the Annuity Contracts issued though the Account. DSI shall offer the Annuity Contracts for sale and distribution at premium rates to be set by Golden American and GFG. Annuity Contracts may be sold only by persons who are duly licensed annuity agents appointed by Golden American and NASD registered representatives as set forth in Section 3 below. Golden American hereby appoints DSI as its agent for the sale of Annuity Contracts in such jurisdictions as Golden American is properly licensed to sell Annuity Contracts. 3. SALE AGREEMENTS. DSI is hereby authorized to enter into separate written agreements, ("Sales Agreements"), on such terms and conditions as DSI may determine not to be inconsistent -1- with this Agreement, with broker/dealers which agree to participate in the distribution of and to use their best efforts to solicit applications for Annuity Contracts. Such broker/dealers and their agents or representatives soliciting applications for Annuity Contracts shall be duly and appropriately licensed, registered or otherwise qualified for the sale of Annuity Contracts under the insurance laws and any applicable securities laws of each state or other jurisdiction in which the Annuity Contracts may be lawfully sold and in which Golden American is licensed to sell Annuity Contracts. Each such broker/dealer shall be both registered as a broker-dealer under the 1934 Act and a member of the NASD, or if not so registered or not such a member, then the agents and representatives of such organization soliciting applications for Annuity Contracts shall be agents and registered representatives of a registered broker/dealer and NASD member which is the parent or other affiliate of such organization and which maintains full responsibility for the training, supervision, and control of the agents and representatives selling Annuity Contracts. DSI shall have the responsibility for the supervision of all such broker/dealers to the extent required by law and shall assume any legal responsibilities of Golden American for the acts, commissions or defalcations of any such broker/dealers. Applications materials for Annuity Contracts solicited by such broker/dealers through their agents or representatives shall be forwarded to DSI. All payments for Annuity Contracts shall be remitted promptly by such broker/dealers directly to Golden American. If held at any time by DSI or a broker/dealer, such payments shall be held in a fiduciary capacity as agent for Golden American and shall be remitted promptly to Golden American. All such payments, whether by check, money order, or wire order, shall be the property of Golden American. Anything in this Distribution Agreement to the contrary notwithstanding, Golden American shall retain the rights to control the sale of Annuity Contracts and to appoint and discharge annuity agents for the sale of Annuity Contracts. DSI shall be held to the exercise of reasonable care in carrying out the provisions of this Distribution Agreement. 4. ANNUITY AGENTS. DSI is authorized to appoint the broker/dealer described in paragraph 3. above as agents of Golden American for the sale of Annuity Contracts. Golden American will undertake to appoint such agents authorized to represent Golden American in the appropriate states or jurisdictions; provided that Golden American reserves the right to refuse to appoint any proposed agent, or once appointed to terminate the same without notice. 5. SUITABILITY. Golden American wishes to ensure that the Annuity Contracts distributed by DSI will be issued to purchasers for whom the Annuity Contracts shall be suitable. DSI shall take reasonable steps to ensure that the various agents appointed by it to sell Annuity Contracts shall not make recommendations to an applicant to purchase Annuity Contracts in the absence of reasonable grounds to believe that the purchase of Annuity Contracts is suitable for such applicant. While not limited to the following, a determination of suitability shall be based on information furnished to an agent after reasonable inquiry concerning the applicant's insurance and investment objectives and financial situation and needs. 6. SALES MATERIALS. -2- The responsibility of the parties hereto for consulting with respect to the design and the drafting and legal review and filing of sales materials, and for the preparation of sales proposals related to the sale of Annuity Contracts shall be as the parties hereto agree in writing. DSI shall ensure, in its Sales Agreements, that organizations appointed by it, and registered representatives of such organizations, shall not use, develop or distribute any sales materials which have not been approved by GFG and Golden American. 7. REPORTS. DSI shall have the responsibility for, with respect to agents appointed by it, maintaining the records of agents licensed, registered and otherwise qualified to sell Annuity Contracts, and for furnishing periodic reports to Golden American as to the sale of Annuity Contracts made pursuant to this Agreement. 8. RECORDS. DSI shall maintain and preserve for the periods prescribed by law or other agreement, such accounts, books, and other documents as are required of it by applicable laws and regulations. The books, accounts and records of Golden American, the Account and DSI as to all transactions hereunder shall be maintained so as to clearly and accurately disclose the nature and details of the transactions, including such accounting information as necessary to support the reasonableness of the amounts to be paid by Golden American hereunder. 9. COMPENSATION. Golden American shall pay DSI the compensation due it as set forth in the attached Exhibit, as such Exhibit may from time to time be amended. 10. INDEPENDENT CONTRACTOR. DSI shall act as an independent contractor and nothing herein contained shall constitute DSI or its agents or employees as employees of Golden American in connection with the sale of Annuity Contracts. 11. INVESTIGATION AND PROCEEDINGS. (a) DSI and Golden American agree to cooperate fully in insurance regulatory investigations or proceedings or judicial proceedings arising in connection with the offering, sale or distribution of Annuity Contracts distributed under this Agreement. DSI and Golden American further agree to cooperate fully in any securities regulatory investigation or proceeding or judicial proceeding with respect to Golden American, DSI, their affiliates and their agents or representatives to the extent that such investigation or proceedings is in connection with the Annuity Contracts offered, sold or distributed under this Agreement. Without limiting the forgoing: (i) DSI will be notified promptly of any customer complaint or notice of any regulatory investigation or proceeding or judicial proceeding received by Golden American with respect to DSI or any agent or representative or which may affect Golden American's issuance of Annuity Contracts marketed under this Agreement. (ii) DSI will promptly notify Golden American of any customer complaint or -3- notice of any regulatory investigation or proceeding received by DSI or its affiliates with respect to DSI or any agent or representative in connection with any Annuity Contracts distributed under this Agreement or any activity in connection with Annuity Contracts. (b) In the case of a substantive customer complaint, DSI and Golden American will cooperate in investigating such complaint and any response to such complaint will be sent to the other party to the Agreement for approval not less than five business days prior to its being sent to the customer or regulatory authority, except that if a more prompt response is required, the proposed response shall be communicated by telephone or telegraph. 12. INDEMNIFICATION. (a) Golden American agrees to indemnify and hold harmless DSI and its affiliates and each officer and director thereof against any losses, claims, damages or liabilities, joint or several, to which DSI or its affiliates or such officer or director may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact, required to be stated therein or necessary to make the statements therein not misleading, contained (i) in any prospectus, or any amendment thereof, or (ii) in any blue-sky application or other document executed by Golden American specifically for the purpose of qualifying Annuity Contracts for sale under the securities laws of any jurisdiction. Golden American will reimburse DSI and each officer or director, for any legal or other expenses reasonably incurred by DSI or such officer or director in connection with investigating or defending any such loss, claim, damage, liability or action; provided that Golden American will not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information (including, without limitation, negative responses to inquiries) furnished to Golden American by or on behalf of DSI specifically for use in the preparation of any prospectus or ant amendment thereof or any such blue-sky application or any amendment thereof or supplement thereto. (b) DSI agrees to indemnify and hold harmless Golden American and its directors, each of its officers who has signed the registration statement and each person, if any, who controls Golden American within the meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages or liabilities to which Golden American and any such director or officer or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) Any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, contained (a) in any prospectus or any amendments thereof, or, (b) in -4- any blue-sky application, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information (including without limitation, negative responses to inquiries) furnished to Golden American by DSI specifically for use in the preparation of any prospectus or any amendments thereof or any such blue-sky application or any such amendment thereof or supplement thereto; or (ii) Any unauthorized use of sales materials or any verbal or written misrepresentations or any unlawful sales practices concerning Annuity Contracts by DSI; or (iii) Claims by agents or representatives or employees of DSI for commissions, service fees, expense allowances or other compensation or remuneration of any type. DSI will reimburse Golden American and any director or officer or controlling person for any legal or other expenses reasonably incurred by Golden American, such director or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. This indemnity agreement will be in addition to any liability which DSI may otherwise have. (c) Promptly after receipt by a party entitled to indemnification ("indemnified party") under this paragraph 12 of notice of the commencement of any action, if a claim in respect thereof is to be made against any person obligated to provide indemnification under this paragraph 12 ("indemnifying party"), such indemnified party will notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability under this paragraph 12, except to the extent that the omission results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged solely as a result of the failure to give such notice. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may wish, to assume the defense thereof, with separate counsel satisfactory to the indemnified party. Such participation shall not relieve such indemnifying party of the obligation to reimburse the indemnified party for reasonable legal and other expenses incurred by such indemnified party in defending himself, except for such expenses incurred after the indemnifying party has deposited funds sufficient to the effect the settlement, with prejudice, of the claim in respect of which indemnity is sought. Any such indemnifying party shall not be liable to any such indemnified party on account of any settlement of any claim or action effected without the consent of such indemnifying party. The indemnity agreements contained in this paragraph 12 shall remain operative and in full force and effect, regardless of: (i) any investigation made by or on behalf of DSI or any officer or director thereof or by or on behalf of Golden American; (ii) delivery of any Annuity Contracts and payments therefore; and -5- (iii) any termination of this Agreement. A successor by law of DSI or any of the parties to this Agreement, as the case may be, shall be entitled to the benefits of the indemnity agreement contained in this paragraph 12. 13. TERMINATION. a. This Agreement may be terminated at any time by mutual consent of the parties. b. Either party may terminate of the other materially breaches any of the terms of this Agreement and fails to cure the breach within sixty days of notification by the other party of such breach. c. This Agreement shall terminate automatically upon the termination of the Golden American-GFG Agreement. d. Upon termination of this Agreement all authorizations, rights and obligations shall cease except; (i) the obligation to settle accounts hereunder, including commissions for Annuity Contracts in effect at the time of termination; (ii) the agreements contained in paragraph 11 hereof; and (iii) the indemnity set for in paragraph 12 hereof. 14. REGULATION. This Agreement shall be subject to the provisions of the 1940 Act and the 1934 Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions from the 1940 Act as the SEC may grant, and the terms thereof shall be interpreted and construed in accordance therewith. DSI shall submit to all regulatory and administrative bodies having jurisdiction over the operations of Golden American or the Account, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws or regulations. 15. SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. -6- 16. GENERAL. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York. A. Force Majeure Either party may be excused for delay or failure to perform under this Agreement if such delay or failure is due to the direct or indirect result of acts of God or government, war or national emergency, or for any cause beyond the reasonable control of either party. B. Entire Agreement This Agreement and any attachments hereto and the material incorporated herein by reference set forth the entire agreement between the parties, and supercede all prior representations, agreements and understandings, written or oral. Changes in the Agreement may be made only in a writing signed by both the parties hereto. C. Notices All notices or other communications under this Agreement shall be in writing and, unless otherwise specifically provided for herein, shall be deemed given when addressed (a) if to Golden American: Mr. Fred H. Davidson Golden American Life Insurance Company 909 Third Avenue New York, NY 10022 (b) if to DSI: Mr. James G. Kaiser Directed Services, Inc. 909 Third Avenue New York, NY 10022 D. Successors, Assigns This Agreement shall be binding upon and shall insure to the benefit of the parties and their respective successors and assigns. Neither this Agreement nor any right hereunder may be assigned without the written consent of the other parties. E. Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of New York. F. Severability If any term or provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of terms and provisions of this -7- Agreement shall remain in full force and effect and shall not be affected or impaired thereby. G. Counterparts This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Attest: GOLDEN AMERICAN LIFE INSURANCE COMPANY /s/Bernard R. Beckerlegge /s/Fred H. Davidson - ------------------------- ---------------------------- Bernard R. Beckerlegge Fred H. Davidson Secretary President Attest: DIRECTED SERVICES, INC. /s/Bernard R. Beckerlegge /s/James G. Kaiser - ------------------------- ---------------------------- Bernard R. Beckerlegge James G. Kaiser Secretary President -8- EX-3.A 3 RESTATED CERT. OF INC. OF GALIC EXHIBIT 3(a) STATE OF DELAWARE [GRAPHIC OF LIBERTY AND INDEPENDENCE SEAL WITH TWO MEN ON OUTSIDE.] DEPARTMENT OF INSURANCE DOVER, DELAWARE -------[GRAPHIC OF DIAMOND SYMBOL]------- I, DONNA LEE H. WILLIAMS, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THAT the attached Certificate of Restated Certificate of Incorporation of the GOLDEN AMERICAN LIFE INSURANCE COMPANY, as filed with the Delaware Secretary of State on December 21, 1993, is a true and correct copy of the document on file with this Department. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND AND AFFIXED THE OFFICIAL SEAL OF THIS DEPARTMENT AT THE CITY OF DOVER, THIS 7TH DAY OF JANUARY, 1994, /S/ DONNA LEE H. WILLIAMS -------------------------------------- Insurance Commissioner -------------------------------------- Deputy Insurance Commissioner PAGE 1 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RESTATED CERTIFICATE OF INCORPORATION OF "GOLDEN AMERICAN LIFE INSURANCE COMPANY" FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY OF DECEMBER, A.D. 1993, AT 11:32 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE COUNTY RECORDER OF DEEDS ON THE TWENTY-EIGHTH DAY OF DECEMBER, A.D. 1993 FOR RECORDING. ---------- [GRAPHIC OF SECRETARY OF STATE SEAL] /S/ WILLIAM T. QUILLEN ---------------------- WILLIAM T. QUILLEN, SECRETARY OF STATE AUTHENTICATION: *4215285 933625028 DATE: 12/28/1993 RESTATED CERTIFICATE OF INCORPORATION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY -------------------------------------- Adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware -------------------------------------- The undersigned, Terry L. Kendall, President of Golden American Life Insurance Company, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Golden American Life Insurance Company. The Corporation was originally incorporated in the State of Minnesota under the name St. Paul Life Insurance Company as a domestic insurance corporation. The Corporation's original; articles of incorporation were filed with the Department of State of the State of Minnesota on January 2, 1973 (the "Original Certificate"). A number of amendments have thereafter been made to the Original Certificate by means of various certificates of amendment and restatement, all of which were also filed in Minnesota. 2. the Corporation has been redomesticated from the State of Minnesota to the State of Delaware, effective as of the date of the filing of this certificate, pursuant to Section 4946 of the Delaware Insurance Code (18 DEL. C.S 4946) and all other applicable provisions o f Delaware and Minnesota law. A Certificate of Incorporation incorporating all of the provisions of the Original Certificate, as amended, has today been filed as the Delaware Certificate of Incorporation of the Corporation to implement the Corporation's redomestication to Delaware. The Corporation is now filing this Restated Certificate of Incorporation to amend and restate such Delaware Certificate of Incorporation and to eliminate unnecessary provisions included therein. 3. The Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety as follows: ARTICLE I The name of the Corporation is Golden American Life Insurance Company. ARTICLE II The registered office of the Corporation in the State of Delaware is located at 1001 Jefferson Street, Suite 550, Wilmington, New Castle County, Delaware 19801. The Corporation is its own registered agent at that address. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV The total number of shares of stock which the Corporation shall have authority to issue is 250,000. All such shares are to be common stock, par value of Ten Dollars ($10) per share, and are to be of one class. ARTICLE V The Corporation is to have perpetual existence. ARTICLE VI The number of directors constituting the Board of Directors of the Corporation shall be such as from time to time shall be fixed by, or in the manner provided in, the By-laws of the Corporation. ARTICLE VII Unless and except to the extent that the By-laws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. ARTICLE VIII In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered to make, alter and repeal the By-laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any by-law made by the Board of Directors. ARTICLE IX A director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such repeal or modification. ARTICLE X The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article. 4. That such Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the unanimous written consent of all of the stockholders entitled to vote in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. -2- IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate of Incorporation as of this 21ST day of December, 1993. By: /s/ Terry L. Kendall -------------------- Terry L. Kendall President Attest: /s/ Bernard R. Beckerlegge - -------------------------- Bernard R. Beckerlegge Secretary -3- EX-3.B 4 BY-LAWS OF GALIC EXHIBIT 3(b) STATE OF DELAWARE [GRAPHIC OF LIBERTY AND INDEPENDENCE SEAL WITH TWO MEN ON OUTSIDE.] DEPARTMENT OF INSURANCE DOVER, DELAWARE -------[GRAPHIC OF DIAMOND SYMBOL]------- I, DONNA LEE H. WILLIAMS, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THAT the attached By-Laws (as amended December 21, 1993) of the GOLDEN AMERICAN LIFE INSURANCE COMPANY, is a true and correct copy of the document on file with this Department. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND AND AFFIXED THE OFFICIAL SEAL OF THIS DEPARTMENT AT THE CITY OF DOVER, THIS 7TH DAY OF JANUARY, 1994, /S/ DONNA LEE H. WILLIAMS -------------------------------------- Insurance Commissioner -------------------------------------- Deputy Insurance Commissioner GOLDEN AMERICAN LIFE INSURANCE COMPANY -------------------------------------- CERTIFICATION The undersigned deposes and says that he is the Secretary and General Counsel for Golden American Life Insurance Company; that he is familiar with the By-Laws of Golden American Life Insurance Company and the contents thereof; that the attached copy of the By-Laws is a true and accurate copy duly adopted by Golden American's Board of Directors. /s/ Bernard R. Beckerlegge -------------------------- Bernard R. Beckerlegge Secretary and General Counsel January 11, 1994 (AS AMENDED 12/21/93) BY-LAWS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY ARTICLE I STOCKHOLDERS Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, or by a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings, but such special meetings may not be called by any other person or persons. Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given that shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these by-laws, the written notice of any meetings shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Section 1.4. ADJOURNMENTS. Any meetings of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meetings at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.5. QUORUM. Except as otherwise provided by law, the certificate of incorporation or these by-laws, at each meeting of stockholders the presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.4 of these by-laws until -1- a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation or any subsidiary of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of the meeting shall announce at the meeting of stockholders the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote. Section 1.7. VOTING: PROXIES. Except as otherwise provided by the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the corporation. Voting at meetings of stockholders need not be by written ballot. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law, the certificate of incorporation or these by-laws, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock which are present in person or by proxy and entitled to vote thereon. Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the -2- case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date of determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when nor prior action of the Board of Directors is required by law, shall be the first date ion which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determine stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. Section 1.10. ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of minutes of stockholders are recorded. Prompt notice of the taking of the corporate -3- action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 1.11. INSPECTORS OF ELECTION. The corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock the corporation outstanding and the voting power of each share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election. Section 1.12. CONDUCT OF MEETINGS. The Board of Directors of the corporation may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to so all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitations, the following: (i) the establishment of an agenda or order of business of the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comment by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. -4- ARTICLE II BOARD OF DIRECTORS Section 2.1. NUMBER: QUALIFICATIONS. The Board of Directors shall consist of not less than three (3) or more than twelve (12) members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. Section 2.2. ELECTION: RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall initially consist of the persons who were directors of the corporation at the time of its redomestication to the State of Delaware, and each such director shall hold office until the first annual meeting of stockholders after such redomestication or until his successor is elected and qualified. At each annual meeting of stockholders thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one year or until his successor is elected and qualified. Any director may resign at any time upon written notice to the corporation. Any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by a majority of the remaining member of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced or until his successor is elected and qualified. Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting. Section 2.5. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 2.6. QUORUM: VOTE REQUIRED FOR ACTION. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation, these by-laws or applicable law otherwise provides, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in -5- their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE III COMMITTEES Section 3.1. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these by- laws. ARTICLE IV OFFICERS Section 4.1. EXECUTIVE OFFICER: ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation -6- or removal. Any officer may resign at any time upon written notice to the corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. Section 4.2. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties. ARTICLE V STOCK Section 5.1. CERTIFICATES. Every holder of stock shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors, if any, of the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the corporation certifying the number of shares owned by him in the corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES: ISSUANCE OF NEW CERTIFICATES. The corporation may issue a new certificate of stock in he place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI INDEMNIFICATION Section 6.1. RIGHT TO INDEMNIFICATION. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person for whom he is the -7- legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans (an "indemnitee"), against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such indemnitee. The corporation shall be required to indemnify an indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if the initiation of such proceeding (or part thereof) by the indemnitee was authorized by the Board of Directors of the corporation. Section 6.2. PREPAYMENT OF EXPENSES. The corporation shall pay the expenses (including attorney's fees) incurred by an indemnitee in defending any proceeding in advance of its final disposition, PROVIDED, HOWEVER, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Article or otherwise. Section 6.3. CLAIMS. If a claim for indemnification or payment of expenses under this Article is not paid in full within sixty days after a written claim therefor by the indemnitee has been received by the corporation, the indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expenses of prosecuting such claim. In any such action the corporation shall have the burden of proving that the indemnitee was not entitled to the requested indemnification or payment of expenses under applicable law. Section 6.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Article VI shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these by-laws, agreement, vote of stockholders or disinterested directors or otherwise. Section 6.5. OTHER INDEMNIFICATION. The corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise. Section 6.6. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VII MISCELLANEOUS Section 7.1. FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. -8- Section 7.2. SEAL. The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. Section 7.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 7.4. INTERESTED DIRECTORS: QUORUM. No contract or transaction between the corporation and one or more of its directors or office, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are know to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are know to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 7.5. FORM OF RECORDS. Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. Section 7.6. AMENDMENT OF BY-LAWS. The by-laws may be altered or repealed, and new by-laws made, by the Board of Directors, but the stockholders may make additional by-laws and may alter and repeal any by-laws whether adopted by them or otherwise. -9- EX-3.C 5 RESOLUTION FOR POWER OF ATTORNEY EXHIBIT 3(c) RESOLVED, the Board of Directors of Golden American Life Insurance Company ("Golden American") hereby authorizes the use of powers of attorney by each Golden American Director and Officer granting to the General Counsel or any Associate General Counsel the authority to sign as attorney-in-fact any and all of Golden American's registration statements to be filed with the Security and Exchange Commission and amendments thereto and any other documents necessary or advisable in connection with Golden American's registration statements or amendments thereto, each such power of attorney becoming effective only upon its manual signature by the Director and/or Officer granting said power of attorney. EX-4.A 6 INDVDL DEFERRED COMB. VAR. & FIXED ANNUITY CNTRCT EXHIBIT 4(a) -----GOLDEN --------AMERICAN DEFERRED COMBINATION ----------LIFE INSURANCE VARIABLE AND FIXED -------COMPANY ANNUITY CERTIFICATE Golden American is a stock company domiciled in Delaware. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | | | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ This is a legal Contract between its Owner and us. Please read it carefully. In this contract you or your refers to the Owner shown above. We, our or us refers to Golden American Life Insurance Company. You may allocate this Contract's Accumulation Value among the Variable Separate Account, the General Account and the Fixed Account shown in the Schedule. If this Contract is in force, we will make income payments to you starting on the Annuity Commencement Date. If the Owner dies prior to the Annuity Commencement Date, we will pay a death benefit to the Beneficiary. The amount of such benefits is subject to the terms of this Contract. ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A VARIABLE SEPARATE ACCOUNT, MAY INCREASE OR DECREASE, DEPENDING ON THE CONTRACT'S INVESTMENT RESULTS. ALL PAYMENTS AND VALUES, WHEN BASED ON THE FIXED ACCOUNT, MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE SUCH PAYMENTS AND VALUES TO INCREASE OR DECREASE. RIGHT TO EXAMINE THIS CONTRACT: YOU MAY RETURN THIS CONTRACT TO US OR THE AGENT THROUGH WHOM YOU PURCHASED IT WITHIN 10 DAYS AFTER YOU RECEIVE IT. IF SO RETURNED, WE WILL TREAT THE CONTRACT AS THOUGH IT WERE NEVER ISSUED. UPON RECEIPT WE WILL PROMPTLY REFUND THE ACCUMULATION VALUE, ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, PLUS ANY CHARGES WE HAVE DEDUCTED AS OF THE DATE THE RETURNED CONTRACT IS RECEIVED BY US. Customer Service Center Secretary: /s/ Myles R. Tashman 1475 Dunwoody Drive West Chester, PA 19380 President: /s/ Barnett Chernow - ------------------------------------------------------------------------------ DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT - NO DIVIDENDS Variable Cash Surrender Values while the Annuitant and Owner are living and prior to the Annuity Commencement Date. Death benefit subject to guaranteed minimum. Additional Premium Payment Option. Partial Withdrawal Option. Non-participating. Investment results reflected in values. GA-IA-1052 CONTRACT CONTENTS - ------------------------------------------------------------------------------ THE SCHEDULE YOUR CONTRACT BENEFITS........14 Payment and Investment Information...3A Cash Value Benefit The Variable Separate Accounts.......3B Partial Withdrawal Option The General Account................3C Proceeds Payable to the Beneficiary Contract Facts.....................3D Charges and Fees...................3E Income Plan Factors................3F CHOOSING AN INCOME PLAN.......16 IMPORTANT TERMS .......................4 INTRODUCTION TO THIS CONTRACT..........6 Annuity Benefits Annuity Commencement Date The Contract Selection The Owner Frequency Selection The Annuitant The Income Plan The Beneficiary The Annuity Options Change of Owner or Beneficiary Payment When Named Person Dies PREMIUM PAYMENTS AND ALLOCATION OTHER IMPORTANT INFORMATION...18 CHANGES.............................8 Initial Premium Payment Sending Notice to Us Additional Premium Payment Option Reports to Owner Your Right to Change Allocation of Assignment - Using this Contract Accumulation Value as Collateral Security What Happens if a Variable Changing this Contract Separate Account Contract Changes - Division is Not Available Applicable Tax Law Misstatement of Age or Sex Non-Participating HOW WE MEASURE THE CONTRACT'S Payments We May Defer ACCUMULATION VALUE.............. 9 Authority to Make Agreements Required Note on Our Computations The Variable Separate Accounts The General Account Valuation Period Accumulation Value Accumulation Value in each Division Measurement of Investment Experience Charges Deducted from Accumulation Value on each Contract Processing Date Copies of any application and any additional Riders and Endorsements are at the back of this Contract. THE SCHEDULE The Schedule gives specific facts about this Contract and its coverage. Please refer to the Schedule while reading this Contract. GA-IA-1052 2 THE SCHEDULE PAYMENT AND INVESTMENT INFORMATION - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Annuitant's Issue Age Annuitant's Sex Owner's Issue Age | | [55] [MALE] [35] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Contract Date Issue Date Residence Status | | [JANUARY 1, 1996] [JANUARY 1, 1996] [DELAWARE] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ INITIAL INVESTMENT Initial Premium Payment received: [$10,000] Your initial Accumulation Value has been invested as follows: Percentage of Divisions Accumulation Value --------- ------------------ [Multiple Allocation 10% Fully Managed 10% Capital Appreciation 10% Rising Dividends 10% All-Growth 10% Real Estate 10% Value Equity 5% Hard Assets 5% Emerging Markets 5% Managed Global 5% Limited Maturity Bond 5% Liquid Asset 5% Strategic Equity 5% Fixed Allocation - 1 Year 5%] ------------------------------- ------------------------- Total 100% ===== ==== ADDITIONAL PREMIUM PAYMENT INFORMATION [We will accept additional premium payments until either the Annuitant or Owner reaches the Attained Age of 85. The minimum additional payment which may be made is [$100.00].] [In no event may you contribute to your IRA for the taxable year in which you attain age 70 1/2 and thereafter (except for rollover contributions). The minimum additional payment which may be made is [$250.00].] GA-IA-1052 3A1 THE SCHEDULE PAYMENT AND INVESTMENT INFORMATION (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Annuitant's Issue Age Annuitant's Sex Owner's Issue Age | | [55] [MALE] [35] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Contract Date Issue Date Residence Status | | [JANUARY 1, 1996] [JANUARY 1, 1996] [DELAWARE] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ ADDITIONAL PREMIUM PAYMENT INFORMATION [We will accept additional premium payments until either the Annuitant or Owner reaches the Attained Age of 85. The minimum additional payment which may be made is [$100.00].] [In no event may you contribute to your IRA for the taxable year in which you attain age 70 1/2 and thereafter (except for rollover contributions). The minimum additional payment which may be made is [$250.00].] ACCUMULATION VALUE ALLOCATION RULES The maximum number of Divisions in which you may be invested at any one time is [sixteen]. You are allowed unlimited allocation changes per Contract Year without charge. We reserve the right to impose a charge for any allocation change in excess of [twelve] per Contract Year. The Excess Allocation Charge is shown in the Schedule. Allocations into and out of the Guaranteed Interest Divisions are subject to restrictions (see General Account). ALLOCATION CHANGES BY TELEPHONE You may request allocation changes by telephone during our telephone request business hours. You may call our Customer Service Center at 1-800-366-0066 to make allocation changes by using the personal identification number you will receive. You may also mail any notice or request for allocation changes to our Customer Service Center at the address shown on the cover page. GA-IA-1052 3A2 THE SCHEDULE THE VARIABLE SEPARATE ACCOUNTS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ DIVISIONS INVESTING IN SHARES OF A MUTUAL FUND Separate Account B (the "Account") is a unit investment trust Separate Account, organized in and governed by the laws of the State of Delaware, our state of domicile. The Account is divided into Divisions. Each Division listed below invests in shares of the mutual fund portfolio (the "Series") designated. Each portfolio is a part of The GCG Trust managed by Directed Services, Inc. SERIES SERIES ------ ------ [Multiple Allocation Real Estate Fully Managed Hard Assets Value Equity Emerging Markets Small Cap Limited Maturity Bond Capital Appreciation Liquid Assets Rising Dividend Strategic Equity Capital Growth Managed Global Developing World Global Fixed Income Large Cap Value Total Return Growth All-Cap Mid-Cap Growth Investors Research Equity Income] Each Division listed below invests in shares of the mutual fund portfolio (the "Portfolio") designated. Each portfolio is a part of the Evergreen Trust managed by Evergreen Asset Management, Inc. PORTFOLIO --------- [Equity Index Foundation Global Leaders Small Cap Value] GA-IA-1052 3B THE SCHEDULE THE GENERAL ACCOUNT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ GENERAL ACCOUNT [Guaranteed Interest Division A Guaranteed Interest Division provides an annual minimum interest rate of 3%. At our sole discretion, we may periodically declare higher interest rates for specific Guarantee Periods. Such rates will apply to periods following the date of declaration. Any declaration will be by class and will be based on our future expectations. Limitations of Allocations We reserve the right to restrict allocations into and out of the General Account. Such limits may be dollar restrictions on allocations into the General Account or we may restrict reallocations into the General Account. Transfers from a Guaranteed Interest Division We currently require that an amount allocated to a Guarantee Period not be transferred until the Maturity Date, except pursuant to our published rules. We reserve the right not to allow amounts previously transferred from a Guaranteed Interest Division to the Variable Separate Account Divisions or to a Fixed Allocation to be transferred back to a Guaranteed Interest Division for a period of at least six months from the date of transfer. GA-IA-1052 3C THE SCHEDULE CONTRACT FACTS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ CONTRACT FACTS Contract Processing Date The Contract Processing Date for your Contract is [April 1] of each year. Specially Designated Divisions When a distribution is made from an investment portfolio underlying a Separate Account Division in which reinvestment is not available, we will allocate the amount of the distribution to the [Liquid Asset Division] unless you specify otherwise. PARTIAL WITHDRAWALS The maximum amount that can be withdrawn each Contract Year without being considered an Excess Partial Withdrawal is described below. We will collect a Surrender Charge for Excess Partial Withdrawals and a charge for any unrecovered premium taxes. In no event may a Partial Withdrawal be greater than 90% of the Cash Surrender Value. After a Partial Withdrawal, the remaining Accumulation Value must be at least $100 to keep the Contract in force. Systematic Partial Withdrawals and Conventional Partial Withdrawals may not be taken in the same Contract Year. To determine the Surrender Charge on Excess Partial Withdrawals, the withdrawals will occur in the following order: (1) Any remaining Free Amount; (2) Premium Payments which were received more than ten years prior to the withdrawal; and, (3) Premium Payments which were received less than ten years prior to withdrawal. Earnings and Free Amounts are not treated as withdrawals of Premium Payments for purposes of calculating any Surrender Charge. The Free Amount for a Contract Year is equal to 10% of Premium Payments received within ten years prior to the date of withdrawal which were not previously withdrawn. Conventional Partial Withdrawals Minimum Withdrawal Amount: $100. Any Conventional Partial Withdrawal is subject to a Market Value Adjustment unless withdrawn from a Fixed Allocation within 30 days prior to the Maturity Date. GA-IA-1052 3D1 THE SCHEDULE CONTRACT FACTS (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ Systematic Partial Withdrawals Systematic Partial Withdrawals may be elected to commence after 28 days from the Contract Issue Date and may be taken on a monthly, quarterly or annual basis. You select the day withdrawals will be made, but no later than the 28th day of the month. If you do not elect a day, the Contract Date will be used. Maximum Withdrawal Amounts: Variable Separate Account Divisions: .833% monthly, 2.5% quarterly or 10% annually of Premium Payments not previously withdrawn. Fixed Allocations and Guaranteed Interest Divisions: Interest earned on a Fixed Allocation or Guaranteed Interest Division for the prior month, quarter or year (depending on the frequency selected). The Maximum Withdrawal Amount available for a year as a Systematic Partial Withdrawal is 10% of Premium Payments not previously withdrawn. A Systematic Partial Withdrawal from a Fixed Allocation is not subject to Market Value Adjustment. Systematic Partial Withdrawals and Conventional Partial Withdrawals may not be taken in the same Contract Year. A Systematic Partial Withdrawal in excess of the Free Amount may be subject to a Surrender Charge. [IRA Partial Withdrawals for Qualified Plans Only IRA Partial Withdrawals may be taken on a monthly, quarterly or annual basis. A minimum withdrawal of $100.00 is required. You select the day the withdrawals will be made, but no later than the 28th day of the month. If you do not elect a day, the Certificate Date will be used. Systematic Partial Withdrawals and Conventional Partial Withdrawals are not allowed when IRA Partial Withdrawals are being taken. An IRA Partial Withdrawal in excess of the maximum amount allowed under the Systematic Partial Withdrawal option may be subject to a Market Value Adjustment.] DEATH BENEFITS [The Death Benefit is the greatest of (i), (ii), (iii) below, where: (i) the Accumulation Value; (ii) the Cash Surrender Value; (iii) the sum of premiums paid, reduced by Prorata Partial Withdrawal Adjustment(s) for Accumulation Value withdrawn. PRORATA PARTIAL WITHDRAWAL ADJUSTMENTS For any partial withdrawal, the Death Benefit components will be reduced by Prorata Partial Withdrawal Adjustments. The Prorata Partial Withdrawal Adjustment to a death benefit component for a partial withdrawal is equal to (1) divided by (2), multiplied by (3), where: (1) is the Accumulation Value withdrawn, (2) is the Accumulation Value immediately prior to the withdrawal, and (3) is the amount of the applicable death benefit component immediately prior to the withdrawal. GA-IA-1052 3D2 THE SCHEDULE CONTRACT FACTS (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ CHANGE OF OWNER A change of Owner will result in recalculation of the Death Benefit. If the Owner's or the oldest of multiple owners' attained age at the time of the change is less than (86), the Death Benefit will remain in effect. If any owner's or oldest multiple owners attained age at the time of the change is (86) or greater, the Death Benefit thereafter will be the cash surrender value. SPOUSAL CONTINUATION UPON DEATH OF OWNER If at the Owner's death, the surviving spouse of the deceased Owner is the beneficiary and such surviving spouse elects to continue the certificate as their own pursuant to Internal Revenue Code Section 72(s) or the equivalent provisions of the U.S. Treasury Department rules for qualified plans, the following will apply: (a) If the Death Benefit as of the date we receive due proof of the death of the Owner, minus the Accumulation Value, also of that date, is greater than zero, we will add such difference to the Accumulation Value. Such addition will be allocated to the divisions of the Separate Account in proportion to the Accumulation Value in the Separate Account. If there is no Accumulation Value in the Separate Account, the addition will be allocated to the Liquid Assets division, or its successor. (b) The Death Benefit will continue to apply, with all age criteria using the surviving spouse's age as the determining age. (c) At subsequent surrender, any surrender charge applicable to premiums paid prior to the date we receive due proof of death of the Owner will be waived. Any premiums paid later will be subject to any applicable surrender charge. This Addition to the Accumulation Value is available only to the spouse of the Owner as of the date of death of the Owner is such spouse under the provisions of this certificate elects to continue the Contract as their own. CHOOSING AN INCOME PLAN Required Date of Annuity Commencement [Distributions from a Contract funding a qualified plan must commence no later than [April 1st] of the calendar year following the calendar year in which the Owner attains age 70 1/2.] The Annuity Commencement Date is required to be the same date as the Contract Processing Date in the month following the Annuitant's 90th birthday. If, on the Annuity Commencement Date, a Surrender Charge remains, your elected Annuity Option must include a period certain of at least five years duration. In applying the Accumulation Value, we may first collect any Premium Taxes due us. Minimum Annuity Income Payment The minimum monthly annuity income payment that we will make is [$20]. Optional Benefit Riders - [None.] GA-IA-1052 3D3 THE SCHEDULE CONTRACT FACTS (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ ATTAINED AGE The Issue Age of the Annuitant or Owner plus the number of full years elapsed since the Contract Date. FIXED ACCOUNT Minimum Fixed Allocation The minimum allocation to the Fixed Account in any one Fixed Allocation is [$250.00]. Minimum Guaranteed Interest Rate - [3%.] Guarantee Periods We currently offer Guarantee Periods of [1,2,3,4,5,6,7,8,9 and 10] year(s). We reserve the right to offer Guarantee Periods of durations other than those available on the Contract Date. We also reserve the right to cease offering a particular Guarantee Period or Periods. Index Rate The Index Rate is the average of the Ask Yields for the U.S. Treasury Strips as reported by a national quoting service for the applicable maturity. The average is based on the period from the 22nd day of the calendar month two months prior to the calendar month of Index Rate determination to the 21st day of the calendar month immediately prior to the month of determination. The applicable maturity date for these U.S. Treasury Strips is on or next following the last day of the Guarantee Period. If the Ask Yields are no longer available, the Index Rate will be determined using a suitable replacement method. We currently set the Index Rate once each calendar month. However, we reserve the right to set the Index Rate more frequently than monthly, but in no event will such Index Rate be based on a period less than 28 days. GA-IA-1052 3D4 THE SCHEDULE CHARGES AND FEES - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ DEDUCTIONS FROM PREMIUMS [None.] DEDUCTIONS FROM ACCUMULATION VALUE Initial Administrative Charge [None.] Administrative Charge We charge [$50] to cover a portion of our ongoing administrative expenses for each Contract Processing Period. The charge is incurred at the beginning of the Contract Processing Period and deducted on the Contract Processing Date at the end of the period. Excess Allocation Charge Currently none, however, we reserve the right to charge [$25] for a change if you make more than [twelve] allocation changes per Contract Year. Any charge will be deducted in proportion to the amount being transferred from each Division. Surrender Charge A Surrender Charge is imposed as a percentage of unliquidated premium if the Contract is surrendered or an Excess Partial Withdrawal is taken. The percentage imposed at time of surrender or Excess Partial Withdrawal depends on the number of complete years that have elapsed since a premium payment was made. The Surrender Charge expressed as a percentage of each premium payment is as follows: Complete Years Elapsed Surrender Since Premium Payment Charges ---------------------- ------- [0 8.5% 1 8.5% 2 8.5% 3 8.5% 4 8.5% 5 8.0% 6 7.0% 7 6.0% 8 4.0% 9 2.0% 10+ 0.0% Surrender of the Contract is permitted at or before the commencement of annuity payments. GA-IA-1052 3E1 THE SCHEDULE CHARGES AND FEES(continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ [Premium Taxes We deduct the amount of any premium or other state and local taxes levied by any state or governmental entity when such taxes are incurred. We reserve the right to defer collection of Premium Taxes until surrender or until application of Accumulation Value to an Annuity Option. An Excess Partial Withdrawal will result in the deduction of any Premium Tax then due us on such amount. We reserve the right to change the amount we charge for Premium Tax charges on future premium payments to conform with changes in the law or if the Owner changes state of residence.] Deductions from the Divisions Mortality and Expense Risk Charge - We deduct [0.003446%] of the assets in each Variable Separate Account Division on a daily basis (equivalent to an annual rate of [1.25%]) for mortality and expense risks. This charge is not deducted from the Fixed Account values. Asset Based Administrative Charge - We deduct [0.000411%] of the assets in each Variable Separate Account Division on a daily basis (equivalent to an annual rate of [0.15%]) to compensate us for a portion of our ongoing administrative expenses. This charge is not deducted from the Fixed Account values. CHARGE DEDUCTION DIVISION All charges against the Accumulation Value in this Contract will be deducted from the [Liquid Asset Division]. GA-IA-1052 3E2 THE SCHEDULE INCOME PLAN FACTORS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | - ------------------------------------------------------------------------------ Values for other payment periods, ages or joint life combinations are available on request. Monthly payments are shown for each $1,000 applied. TABLE FOR INCOME FOR A FIXED PERIOD Fixed Fixed Fixed Period Monthly Period Monthly Period Monthly of Years Income of Years Income of Years Income [5 17.95 14 7.28 23 5.00 6 15.18 15 6.89 24 4.85 7 13.20 16 6.54 25 4.72 8 11.71 17 6.24 26 4.60 9 10.56 18 5.98 27 4.49 10 9.64 19 5.74 28 4.38 11 8.88 20 5.53 29 4.28 12 8.26 21 5.33 30 4.19] 13 7.73 22 5.16 TABLE FOR INCOME FOR LIFE Male/Female Male/Female Male/Female Age 10 Years 20 Years Refund Certain Certain Certain [50 $4.06/3.83 $3.96/3.77 $3.93/3.75 55 4.43/4.14 4.25/4.05 4.25/4.03 60 4.90/4.56 4.57/4.37 4.66/4.40 65 5.51/5.10 4.90/4.73 5.12/4.83 70 6.26/5.81 5.18/5.07 5.76/5.42 75 7.11/6.70 5.38/5.33 6.58/6.19 80 7.99/7.70 5.48/5.46 7.69/7.21 85 8.72/8.59 5.52/5.51 8.72/8.59 90 9.23/9.18 5.53/5.53 10.63/10.53] GA-IA-1052 3F IMPORTANT TERMS - ------------------------------------------------------------------------------ ACCUMULATION VALUE - The amount that a Contract provides for investment at any time. Initially, this amount is equal to the premium paid. ANNUITANT - The person designated by the Owner to be the measuring life in determining Annuity Payments. ANNUITY COMMENCEMENT DATE - For each Contract, the date on which Annuity Payments begin. ANNUITY OPTIONS - Options the Owner selects that determine the form and amount of annuity payments. ANNUITY PAYMENT - The periodic payment an Owner receives. It may be either a fixed or a variable amount based on the Annuity Option chosen. ATTAINED AGE - The Issue Age of the Annuitant or Owner plus the number of full years elapsed since the Contract Date. BENEFICIARY - The person designated to receive benefits in the case of the death of the Owner. BUSINESS DAY - Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of federal holidays, or any day on which the Securities and Exchange Commission ("SEC") requires that mutual funds, unit investment trusts or other investment portfolios be valued. CASH SURRENDER VALUE - The amount the Owner receives upon surrender of the Contract. CHARGE DEDUCTION DIVISION - The Division from which all charges are deducted if so designated or elected by the Owner. CONTINGENT ANNUITANT - The person designated by the Owner who, upon the Annuitant's death prior to the Annuity Commencement Date, becomes the Annuitant. CONTRACT ANNIVERSARY - The anniversary of the Contract Date. CONTRACT DATE - The date we received the initial premium and upon which we begin determining the Contract values. It may not be the same as the Contract Issue Date. This date is used to determine Contract months, processing dates, years, and anniversaries. CONTRACT ISSUE DATE - The date the Contract is issued at our Customer Service Center. CONTRACT PROCESSING DATES - The days when we deduct certain charges from the Accumulation Value. If the Contract Processing Date is not a Valuation Date, it will be on the next succeeding Valuation date. The Contract Processing Date will be on the Contract Anniversary of each year. CONTRACT PROCESSING PERIOD - The period between successive Contract Processing Dates unless it is the first Contract Processing Period. In that case, it is the period from the Contract Date to the first Contract Processing Date. CONTRACT YEAR - The period between Contract Anniversaries. GA-IA-1052 4 IMPORTANT TERMS (continued) - ------------------------------------------------------------------------------ EXPERIENCE FACTOR - The factor which reflects the investment experience of the portfolio in which a Variable Separate Account Division invests and also reflects the charges assessed against the Division for a Valuation Period. FIXED ACCOUNT - This is the Separate Account established to support Fixed Allocations. FIXED ALLOCATION - An amount allocated to the Fixed Account that is credited with a Guaranteed Interest Rate for a specified Guarantee Period. GUARANTEE PERIOD - The period of years a rate of interest is guaranteed to be credited to a Fixed Allocation or allocations to a Guaranteed Interest Division. GUARANTEED INTEREST RATE - The effective annual interest rate which we will credit for a specified Guarantee Period. GUARANTEED INTEREST DIVISION - An investment option available in the General Account, an account which contains all of our assets other than those held in our Separate Accounts. GUARANTEED MINIMUM INTEREST RATE - The minimum interest rate which can be declared by us for Fixed Allocations or allocations to a Guaranteed Interest Division. INDEX OF INVESTMENT EXPERIENCE - The index that measures the performance of a Variable Separate Account Division. INITIAL PREMIUM - The payment amount required to put each Contract in effect. ISSUE AGE - The Annuitant's or Owner's age on the last birthday on or before the Contract Date. MARKET VALUE ADJUSTMENT - A positive or negative adjustment to a Fixed Allocation. It may apply if all or part of a Fixed Allocation is withdrawn, transferred, or applied to an Annuity Option prior to the end of the Guarantee Period. MATURITY DATE - The date on which a Guarantee Period matures. OWNER - The person who owns a Contract and is entitled to exercise all rights of the Contract. This person's death also initiates payment of the death benefit. RIDERS - Riders add provisions or change the terms of the Contract. SPECIALLY DESIGNATED DIVISION - Distributions from a portfolio underlying a Division in which reinvestment is not available will be allocated to this Division unless you specify otherwise. VALUATION DATE - The day at the end of a Valuation Period when each Division is valued. VALUATION PERIOD - Each business day together with any non-business days before it. VARIABLE SEPARATE ACCOUNT DIVISION - An investment option available in the Variable Separate Account shown in the Schedule. GA-IA-1052 5 INTRODUCTION TO THIS CONTRACT - ------------------------------------------------------------------------------ THE CONTRACT This is a legal contract between you and us. We provide benefits as stated in this Contract. In return, you supply us with the Initial Premium Payment required to put this Contract in effect. This Contract, together with any Riders or Endorsements, constitutes the entire Contract. Riders and Endorsements add provisions or change the terms of the basic Contract. THE OWNER You are the Owner of this Contract. You are also the Annuitant unless another Annuitant has been named in the application and is shown in the Schedule. You have the rights and options described in this Contract, including but not limited to the right to receive the Annuity Benefits on the Annuity Commencement Date. One or more people may own this Contract. If there are multiple Owners named, the age of the oldest Owner will be used to determine the applicable death benefit. In the case of a sole Owner who dies prior to the Annuity Commencement Date, we will pay the Beneficiary the death benefit then due. If the sole Owner is not an individual, we will treat the Annuitant as Owner for the purpose of determining when the Owner dies under the death benefit provision (if there is no Contingent Annuitant), and the Annuitant's age will determine the applicable death benefit payable to the Beneficiary. The sole Owner's estate will be the Beneficiary if no Beneficiary designation is in effect, or if the designated Beneficiary has predeceased the Owner. In the case of a joint Owner of the Contract dying prior to the Annuity Commencement Date, the surviving Owner(s) will be deemed as the Beneficiary(ies). THE ANNUITANT The Annuitant is the measuring life of the Annuity Benefits provided under this Contract. You may name a Contingent Annuitant. The Annuitant may not be changed during the Annuitant's lifetime. If the Annuitant dies before the Annuity Commencement Date, the Contingent Annuitant becomes the Annuitant. You will be the Contingent Annuitant unless you name someone else. The Annuitant must be a natural person. If the Annuitant dies and no Contingent Annuitant has been named, we will allow you sixty days to designate someone other than yourself as an Annuitant. If all Owners are not individuals and, through the operation of this provision, an Owner becomes Annuitant, we will pay the death proceeds to the Beneficiary. If there are joint Owners, we will treat the youngest of the Owners as the Contingent Annuitant designated, unless you elect otherwise. THE BENEFICIARY The Beneficiary is the person to whom we pay death proceeds if any Owner dies prior to the Annuity Commencement Date. See Proceeds Payable to the Beneficiary for more information. We pay death proceeds to the primary Beneficiary (unless there are joint Owners in which case the death benefit proceeds are payable to the surviving Owner). If the primary Beneficiary dies before the Owner, the death proceeds are paid to the Contingent Beneficiary, if any. If there is no surviving Beneficiary, we pay the death proceeds to the Owner's estate. GA-IA-1052 6 INTRODUCTION TO THIS CONTRACT (continued) - ------------------------------------------------------------------------------ One or more persons may be named as primary Beneficiary or contingent Beneficiary. In the case of more than one Beneficiary, we will assume any death proceeds are to be paid in equal shares to the surviving Beneficiaries. You can specify other than equal shares. You have the right to change Beneficiaries, unless you designate the primary Beneficiary irrevocable. When an irrevocable Beneficiary has been designated, you and the irrevocable Beneficiary may have to act together to exercise the rights and options under this Contract. CHANGE OF OWNER OR BENEFICIARY During your lifetime and while this Contract is in effect you can transfer ownership of this Contract or change the Beneficiary. To make any of these changes, you must send us written notice of the change in a form satisfactory to us. The change will take effect as of the day the notice is signed. The change will not affect any payment made or action taken by us before recording the change at our Customer Service Center. A Change of Owner may affect the amount of death benefit payable under this Contract. See Proceeds Payable to Beneficiary. GA-IA-1052 7 PREMIUM PAYMENTS AND ALLOCATION CHARGES - ------------------------------------------------------------------------------ INITIAL PREMIUM PAYMENT The Initial Premium Payment is required to put this Contract in effect. The amount of the Initial Premium Payment is shown in the Schedule. ADDITIONAL PREMIUM PAYMENT OPTION You may make additional premium payments under this Contract after the end of the Right to Examine period. Restrictions on additional premium payments, such as the Attained Age of the Annuitant or Owner and the timing and amount of each payment, are shown in the Schedule. We reserve the right to defer acceptance of or to return any additional premium payments. As of the date we receive and accept your additional premium payment: (1) The Accumulation Value will increase by the amount of the premium payment less any premium deductions as shown in the Schedule. (2) The increase in the Accumulation Value will be allocated among the Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account in accordance with your instructions. If you do not provide such instructions, allocation will be among the Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account in proportion to the amount of Accumulation Value in each Division or Fixed Allocation. Where to Make Payments Remit the premium payments to our Customer Service Center at the address shown on the cover page. On request we will give you a receipt signed by our treasurer. YOUR RIGHT TO CHANGE ALLOCATION OF ACCUMULATION VALUE You may change the allocation of the Accumulation Value among the Divisions and Fixed Allocations after the end of the Right to Examine period. The number of free allocation changes each year that we will allow is shown in the Schedule. To make an allocation change, you must provide us with satisfactory notice at our Customer Service Center. The change will take effect when we receive the notice. Restrictions for reallocation into and out of Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account are shown in the Schedule. An allocation from the Fixed Account may be subject to a Market Value Adjustment. See the Schedule. WHAT HAPPENS IF A VARIABLE SEPARATE ACCOUNT DIVISION IS NOT AVAILABLE When a distribution is made from an investment portfolio supporting a unit investment trust Separate Account Division in which reinvestment is not available, we will allocate the distribution to the Specially Designated Division shown in the Schedule unless you specify otherwise. Such a distribution may occur when an investment portfolio or Division matures, when distribution from a portfolio or Division cannot be reinvested in the portfolio or Division due to the unavailability of securities, or for other reasons. When this occurs because of maturity, we will send written notice to you thirty days in advance of such date. To elect an allocation to other than the Specially Designated Division shown in the Schedule, you must provide satisfactory notice to us at least seven days prior to the date the investment matures. Such allocations will not be counted as an allocation change of the Accumulation Value for purposes of the number of free allocations permitted. GA-IA-1052 8 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE - ------------------------------------------------------------------------------ The variable Annuity Benefits under this Contract are provided through investments which may be made in our Separate Accounts. THE VARIABLE SEPARATE ACCOUNTS These accounts, which are designated in the Schedule, are kept separate from our General Account and any other Separate Accounts we may have. They are used to support Variable Annuity Contracts and may be used for other purposes permitted by applicable laws and regulations. We own the assets in the Separate Accounts. Assets equal to the reserves and other liabilities of the accounts will not be charged with liabilities that arise from any other business we conduct; but, we may transfer to our General Account assets which exceed the reserves and other liabilities of the Variable Separate Accounts. Income and realized and unrealized gains or losses from assets in these Variable Separate Accounts are credited to or charged against the account without regard to other income, gains or losses in our other investment accounts. The Variable Separate Account will invest in mutual funds, unit investment trusts and other investment portfolios which we determine to be suitable for this Contract's purposes. The Variable Separate Account is treated as a unit investment trust under Federal securities laws. It is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940. The Variable Separate Account is also governed by state law as designated in the Schedule. The trusts may offer non-registered series. Variable Separate Account Divisions A unit investment trust Separate Account includes Divisions, each investing in a designated investment portfolio. The Divisions and the investment portfolios designated may be managed by a separate investment adviser. Such adviser may be registered under the Investment Advisers Act of 1940. Changes within the Variable Separate Accounts We may, from time to time, make additional Variable Separate Account Divisions available to you. These Divisions will invest in investment portfolios we find suitable for this Contract. We also have the right to eliminate Divisions from a Variable Separate Account, to combine two or more Divisions or to substitute a new portfolio for the portfolio in which a Division invests. A substitution may become necessary if, in our judgment, a portfolio or Division no longer suits the purpose of this Contract. This may happen due to a change in laws or regulations, or a change in a portfolio's investment objectives or restrictions, or because the portfolio or Division is no longer available for investment, or for some other reason. We may get prior approval from the insurance department of our state of domicile before making such a substitution. We will also get any required approval from the SEC and any other required approvals before making such a substitution. Subject to any required regulatory approvals, we reserve the right to transfer assets of the Variable Separate Account which we determine to be associated with the class of contracts to which this Contract belongs, to another Variable Separate Account or Division. When permitted by law, we reserve the right to: (1) deregister a Variable Separate Account under the Investment Company Act of 1940; (2) operate a Variable Separate Account as a management company under the Investment Company Act of 1940, if it is operating as a unit investment trust; (3) operate a Variable Separate Account as a unit investment trust under the Investment Company Act of 1940, if it is operating as a managed Variable Separate Account; (4) restrict or eliminate any voting rights of Owners, or other persons who have voting rights to a Variable Separate Account; and, (5) combine a Variable Separate Account with other Variable Separate Accounts. GA-IA-1052 9 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ THE GENERAL ACCOUNT The General Account contains all assets of the Company other than those in the Separate Accounts we establish. The Guaranteed Interest Divisions available for investment are shown in the Schedule. We may, from time to time, offer other Divisions where assets are held in our General Account. VALUATION PERIOD Each Division and Fixed Allocation will be valued at the end of each Valuation Period on a Valuation Date. A Valuation Period is each Business Day together with any non-Business Days before it. A Business Day is any day the New York Stock Exchange (NYSE) is open for trading, and the SEC requires mutual funds, unit investment trusts, or other investment portfolios to value their securities. ACCUMULATION VALUE The Accumulation Value of this Contract is the sum of the amounts in each of the Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account. You select the Divisions of the Variable Separate Account and General Account and the Fixed Allocations to the Fixed Account to which to allocate the Accumulation Value. The maximum number of Divisions and Fixed Allocations to which the Accumulation Value may be allocated at any one time is shown in the Schedule. ACCUMULATION VALUE IN EACH DIVISION AND FIXED ALLOCATION On the Contract Date On the Contract Date, the Accumulation Value is allocated to each Division and Fixed Allocation as elected by you, subject to certain terms and conditions imposed by us. We reserve the right to allocate premium to the Specially Designated Division during any Right to Examine period. After such time, allocation will be made proportionately in accordance with the initial allocation(s) as elected by you. On each Valuation Date At the end of each subsequent Valuation Period, the amount of Accumulation Value in each Division and Fixed Allocation will be calculated as follows: (1) We take the Accumulation Value in the Division or Fixed Allocation at the end of the preceding Valuation Period. (2) We multiply (1) by the Variable Separate Account Division's Net Rate of Return for the current Valuation Period or we calculate the interest to be credited to a Fixed Allocation or to a Guaranteed Interest Division for the current Valuation Period. (3) We add (1) and (2). (4) We add to (3) any additional premium payments (less any premium deductions as shown in the Schedule) allocated to the Division or Fixed Allocation during the current Valuation Period. (5) We add or subtract allocations to or from that Division or Fixed Allocation during the current Valuation Period. (6) We subtract from (5) any Partial Withdrawals which are allocated to the Division or Fixed Allocation during the current Valuation Period. (7) We subtract from (6) the amounts allocated to that Division or Fixed Allocation for: (a) any charges due for the Optional Benefit Riders as shown in the Schedule; (b) any deductions from Accumulation Value as shown in the Schedule. All amounts in (7) are allocated to each Division or Fixed Allocation in the proportion that (6) bears to the Accumulation Value unless the Charge Deduction Division has been specified (see the Schedule). FIXED ACCOUNT The Fixed Account is a Separate Account under state insurance law and is not required to be registered with the Securities and Exchange Commission under the Investment Company Act of 1940. The Fixed Account includes various Fixed Allocations which we credit with fixed rates of interest for the Guarantee Period or Periods you select. We reset the interest rates for new Fixed Allocations periodically based on our sole discretion. GA-IA-1052 10 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ Guarantee Periods Each Fixed Allocation is guaranteed an interest rate or rates for a Guarantee Period. The Guaranteed Interest Rates for a Fixed Allocation are effective for the entire period. The Maturity Date of a Guarantee Period will be on the last day of the calendar month in which the Guarantee Period ends. Withdrawals and transfers made during a Guarantee Period may be subject to a Market Value Adjustment unless made within thirty days prior to the Maturity Date. Upon the expiry of a Guarantee Period, we will transfer the Accumulation Value of the expiring Fixed Allocation to a Fixed Allocation with a Guarantee Period equal in length to the expiring Guarantee Period, unless you select another period prior to a Maturity Date. We will notify you at least thirty days prior to a Maturity Date of your options for renewal. If the period remaining from the expiry of the previous Guarantee Period to the Annuity Commencement Date is less than the period you have elected or the period expiring, the next shortest period then available that will not extend beyond the Annuity Commencement Date will be offered to you. If a period is not available, the Accumulation Value will be transferred to the Specially Designated Division. We will declare Guaranteed Interest Rates for the then available Fixed Allocation Guarantee Periods. These interest rates are based solely on our expectation as to our future earnings. Declared Guaranteed Interest Rates are subject to change at any time prior to application to specific Fixed Allocations, although in no event will the rates be less than the Minimum Guaranteed Interest Rate (see the Schedule). Market Value Adjustments A Market Value Adjustment will be applied to a Fixed Allocation upon withdrawal, transfer or application to an Income Plan if made more than thirty days prior to such Fixed Allocation's Maturity Date, except on Systematic Partial Withdrawals and IRA Partial Withdrawals. The Market Value Adjustment is applied to each Fixed Allocation separately. The Market Value Adjustment is determined by multiplying the amount of the Accumulation Value withdrawn, transferred or applied to an Income Plan by the following factor: ( 1+I )N/365 (---------) -1 (1+J+.0050) Where I is the Index Rate for a Fixed Allocation on the first day of the applicable Guarantee Period: J is the Index Rate for new Fixed Allocations with Guarantee Periods equal to the number of years (fractional years rounded up to the next full year) remaining in the Guarantee Period at the time of calculation; and N is the remaining number of days in the Guarantee Period at the time of calculation. (The Index Rate is described in the Schedule.) Market Value Adjustments will be applied as follows: (1) The Market Value Adjustment will be applied to the amount withdrawn before deduction of any applicable Surrender Charge. (2) For a Partial Withdrawal, partial transfer or in the case where a portion of an allocation is applied to an Income Plan, the Market Value Adjustment will be calculated on the total amount that must be withdrawn, transferred or applied to an Income Plan in order to provide the amount requested. (3) If the Market Value Adjustment is negative, it will be assessed first against any remaining Accumulation Value in the particular Fixed Allocation. Any remaining Market Value Adjustment will be applied against the amount withdrawn, transferred or applied to an Income Plan. (4) If the Market Value Adjustment is positive, it will be credited to any remaining Accumulation Value in the particular Fixed Allocation. If a cash surrender, full transfer or full application to an Income Plan has been requested, the Market Value Adjustment is added to the amount withdrawn, transferred or applied to an Income Plan. GA-IA-1052 11 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ MEASUREMENT OF INVESTMENT EXPERIENCE Index of Investment Experience The Investment Experience of a Variable Separate Account Division is determined on each Valuation Date. We use an Index to measure changes in each Division's experience during a Valuation Period. We set the Index at $10 when the first investments in a Division are made. The Index for a current Valuation Period equals the Index for the preceding Valuation Period multiplied by the Experience Factor for the current Valuation Period. How We Determine the Experience Factor For Divisions of a unit investment trust Separate Account the Experience Factor reflects the Investment Experience of the portfolio in which the Division invests as well as the charges assessed against the Division for a Valuation Period. The factor is calculated as follows: (1) We take the net asset value of the portfolio in which the Division invests at the end of the current Valuation Period. (2) We add to (1) the amount of any dividend or capital gains distribution declared for the investment portfolio and reinvested in such portfolio during the current Valuation Period. We subtract from that amount a charge for our taxes, if any. (3) We divide (2) by the net asset value of the portfolio at the end of the preceding Valuation Period. (4) We subtract the daily Mortality and Expense Risk Charge for each Division shown in the Schedule for each day in the Valuation Period. (5) We subtract the daily Asset Based Administrative Charge shown in the Schedule for each day in the Valuation Period. Calculations for Divisions investing in unit investment trusts are on a per unit basis. Net Rate of Return for a Variable Separate Account Division The Net Rate of Return for a Variable Separate Account Division during a Valuation Period is the Experience Factor for that Valuation Period minus one. Interest Credited to a Guaranteed Interest Division Accumulation Value allocated to a Guaranteed Interest Division will be credited with the Guaranteed Interest Rate for the Guarantee Period in effect on the date the premium or reallocation is applied. Once applied, such rate will be guaranteed until the Maturity Date of that Guarantee Period. Interest will be credited daily at a rate to yield the declared annual Guaranteed Interest Rate. No Guaranteed Interest Rate will be less than the Minimum Interest Rate shown in the Schedule. Interest Credited to a Fixed Allocation A Fixed Allocation will be credited with the Guaranteed Interest Rate for the Guarantee Period in effect on the date the premium or reallocation is applied. Once applied, such rate will be guaranteed until that Fixed Allocation's Maturity Date. Interest will be credited daily at a rate to yield the declared annual Guaranteed Interest Rate. We periodically declare Guaranteed Interest Rates for then available Guarantee Periods. No Guaranteed Interest Rate will be less than the Minimum Interest Rate shown in the Schedule. CHARGES DEDUCTED FROM ACCUMULATION VALUE ON EACH CONTRACT PROCESSING DATE Expense charges and fees are shown in the Schedule. GA-IA-1052 12 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ Charge Deduction Division Option We will deduct all charges against the Accumulation Value of this Contract from the Charge Deduction Division if you elected this option on the application (see the Schedule). If you did not elect this Option or if the charges are greater than the amount in the Charge Deduction Division, the charges against the Accumulation Value will be deducted as follows: (1) If these charges are less than the Accumulation Value in the Variable Separate Account Divisions, they will be deducted proportionately from all Divisions. (2) If these charges exceed the Accumulation Value in the Variable Separate Account Divisions, any excess over such value will be deducted proportionately from any Fixed Allocations and Guaranteed Interest Divisions. Any charges taken from the Fixed Account or the General Account will be taken from the Fixed Allocations and the Guaranteed Interest Divisions starting with the Guarantee Period nearest its Maturity Date until such charges have been paid. At any time while this Contract is in effect, you may change your election of this Option. To do this you must send us a written request to our Customer Service Center. Any change will take effect within seven days of the date we receive your request. GA-IA-1052 13 YOUR CONTRACT BENEFITS - ------------------------------------------------------------------------------ While this Contract is in effect, there are important rights and benefits that are available to you. We discuss these rights and benefits in this section. CASH VALUE BENEFIT Cash Surrender Value The Cash Surrender Value, while the Annuitant is living and before the Annuity Commencement Date, is determined as follows: (1) We take the Contract's Accumulation Value; (2) We adjust for any applicable Market Value Adjustment; (3) We deduct any Surrender Charges; (4) We deduct any charges shown in the Schedule that have been incurred but not yet deducted, including: (a) any administrative charge that has not yet been deducted; (b) the pro rata part of any charges for Optional Benefit Riders; and (c) any applicable premium or other tax. Cancelling to Receive the Cash Surrender Value At any time while the Annuitant is living and before the Annuity Commencement Date, you may surrender this Contract to us. To do this, you must return this Contract with a signed request for cancellation to our Customer Service Center. The Cash Surrender Value will vary daily. We will determine the Cash Surrender Value as of the date we receive the Contract and your signed request in our Customer Service Center. All benefits under this Contract will then end. We will usually pay the Cash Surrender Value within seven days; but, we may delay payment as described in the Payments We May Defer provision. PARTIAL WITHDRAWAL OPTION After the Contract Date, you may make Partial Withdrawals. Partial Withdrawals may be subject to a Partial Withdrawal Charge (see the Schedule). The minimum amount that may be withdrawn is shown in the Schedule. The maximum amount that may be withdrawn without Surrender Charge is shown in the Schedule. To take a Partial Withdrawal, you must provide us satisfactory notice at our Customer Service Center. PROCEEDS PAYABLE TO THE BENEFICIARY Prior to the Annuity Commencement Date If the sole Owner dies prior to the Annuity Commencement Date, we will pay the Beneficiary the death benefit. If there are joint Owners and any Owner dies, we will pay the surviving Owners the death benefit. We will pay the amount on receipt of due proof of the Owner's death at our Customer Service Center. Such amount may be received in a single lump sum or applied to any of the Annuity Options (see Choosing an Income Plan). When the Owner (or all Owners where there are joint Owners) is not an individual, the death benefit will become payable on the death of the Annuitant prior to the Annuity Commencement Date (unless a Contingent Annuitant survived the Annuitant). Only one death benefit is payable under this Contract. In all events, distributions under the Contract must be made as required by applicable law. GA-IA-1052 14 YOUR CONTRACT BENEFITS (continued) - ------------------------------------------------------------------------------ How to Claim Payments to Beneficiary We must receive proof of the Owner's (or the Annuitant's) death before we will make any payments to the Beneficiary. We will calculate the death benefit as of the date we receive due proof of death. The Beneficiary should contact our Customer Service Center for instructions. GA-IA-1052 15 CHOOSING AN INCOME PLAN - ------------------------------------------------------------------------------ ANNUITY BENEFITS If the Annuitant and Owner are living on the Annuity Commencement Date, we will begin making payments to the Owner. We will make these payment under the Annuity Option (or Options) as chosen in the application or as subsequently selected. You may choose or change an Annuity Option by making a written request at least 30 days prior to the Annuity Commencement Date. Unless you have chosen otherwise, Option 2 on a 10- year period certain basis will become effective. The amounts of the payments will be determined by applying the Accumulation Value on the Annuity Commencement Date in accordance with the Annuity Options section below (see Payments We Defer). Before we pay any Annuity Benefits, we require the return of this Contract. If this Contract has been lost, we require the applicable lost Contract form. ANNUITY COMMENCEMENT DATE SELECTION You select the Annuity Commencement Date. You may select any date following the fifth Contract Anniversary but before the required date of Annuity Commencement as shown in the Schedule. If you do not select a date, the Annuity Commencement Date will be in the month following the required date of Annuity Commencement. FREQUENCY SELECTION You may 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, the payments will be made monthly. THE INCOME PLAN While this Contract is in effect and before the Annuity Commencement Date, you may chose one or more Annuity Options for the payment of death benefits proceeds. If, at the time of the Owner's death, no Option has been chosen for paying the death benefit proceeds, the Beneficiary may choose an Option within one year. You may also elect an Annuity Option on surrender of the Contract for its Cash Surrender Value. For each Option we will issue a separate written agreement putting the Option into effect. Our approval is needed for any Option where: (1) the person named to receive payment is other than the Owner or Beneficiary; or (2) the person named is not a natural person, such as a corporation; or (3) any income payment would be less than the minimum annuity income payment shown in the Schedule. THE ANNUITY OPTIONS There are four Options to choose from. They are: Option 1. Income for a Fixed Period Payment is made in equal installments for a fixed number of years. We guarantee each monthly payment will be at least the Income for Fixed Period amount shown in the Schedule. Values for annual, semiannual or quarterly payments are available on request. GA-IA-1052 16 CHOOSING AN INCOME PLAN (continued) - ------------------------------------------------------------------------------ Option 2. Income for Life Payment is made to the person named in equal monthly installments and guaranteed for at least a period certain. The period certain can be 10 or 20 years. Other periods certain are available on request. A refund certain may be chosen instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the guaranteed period, payments continue until his or her death. We guarantee each payment will be at least the amount shown in the Schedule. By age, we mean the named person's age on his or her nearest birthday before the Option's effective date. Amounts for ages not shown are available on request. Option 3. Joint Life Income This Option is available if there are two persons named to receive payments. At least one of the persons named must be either the Owner of Beneficiary of this Contract. Monthly payments are guaranteed and are made as long as at least one of the named persons is living. The monthly payment amounts are available upon request. Such amounts are guaranteed and will be calculated on the same basis as the Table for Income for Life, however, the amounts will be based on two lives. Option 4. Annuity Plan An amount can be used to buy any single premium immediate annuity we offer for the Option's effective date. The minimum rates for Option 1 are based on 3% interest, compounded annually. The minimum rates for Options 2 and 3 are based on 3% interest, compounded annually, and the Annuity 2000 Mortality Table. We may pay a higher rate at our discretion. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided by the Option agreement. The amounts still due are determined as follows: (1) For Option 1 or for any remaining guaranteed payments in Option 2, payments will be continued. (2) For Option 3, no amounts are payable after both named persons have died. (3) For Option 4, the annuity agreement will state the amount due, if any. GA-IA-1052 17 OTHER IMPORTANT INFORMATION - ------------------------------------------------------------------------------ SENDING NOTICE TO US Whenever written notice is required, send it to our Customer Service Center. The address of our Customer Service Center is shown on the cover page. Please include your Contract number in all correspondence. REPORTS TO OWNER We will send you a report at least once during each Contract Year. The report will show the Accumulation Value and the Cash Surrender Value as of the end of the Contract Processing Period. The report will also show the allocation of the Accumulation Value as of such date and the amounts deducted from or added to the Accumulation Value since the last report. The report will also include any information that may be currently required by the insurance supervisory official of the jurisdiction in which the Contract is delivered. We will also send you copies of any shareholder reports of the portfolios in which the Divisions of the Variable Separate Account invest, as well as any other reports, notices or documents required by law to be furnished to Owners. ASSIGNMENT - USING THIS CONTRACT AS COLLATERAL SECURITY You can assign this Contract as collateral security for a loan or other obligation. This does not change the ownership. Your rights and any Beneficiary's right are subject to the terms of the assignment. To make or release an assignment, we must receive written notice satisfactory to us, at our Customer Service Center. We are not responsible for the validity of any assignment. CHANGING THIS CONTRACT This Contract or any additional benefit riders may be changed to another annuity plan according to our rules at the time of the change. CONTRACT CHANGES - APPLICABLE TAX LAW We reserve the right to make changes in this Contract or its Riders to the extent we deem it necessary to continue to qualify this Contract as an annuity. Any such changes will apply uniformly to all Contracts that are affected. You will be given advance written notice of such changes. MISSTATEMENT OF AGE OR SEX If an age or sex has been misstated, the amounts payable or benefits provided by this Contract will be those that the premium payment made would have bought at the correct age or sex. NON-PARTICIPATING This Contract does not participate in the divisible surplus of Golden American Life Insurance Company. GA-IA-1052 18 OTHER IMPORTANT INFORMATION (continued) - ------------------------------------------------------------------------------ PAYMENTS WE MAY DEFER We may not be able to determine the value of the assets of the Variable Separate Account Divisions because: (1) The NYSE is closed for trading; (2) the SEC determines that a state of emergency exists; (3) an order or pronouncement of the SEC permits a delay for the protection of Owners; or (4) the check used to pay the premium has not cleared through the banking system. This may take up to 15 days. During such times, as to amounts allocated to the Divisions of the Variable Separate Account, we may delay; (1) determination and payment of the Cash Surrender Value; (2) determination and payment of any death benefit if death occurs before the Annuity Commencement Date; (3) allocation changes of the Accumulation Value; or, (4) application of the Accumulation Value under an income plan. As to the amounts allocated to a Guaranteed Interest Division in the General Account and as to amounts allocated to Fixed Allocations of the Fixed Account, we may, at any time, defer payment of the Cash Surrender Value for up to six months after we receive a request for it. We will allow interest of at least 3.00% a year on any Cash Surrender Value payment derived from the Fixed Allocations or the Guaranteed Interest Divisions that we defer 30 days or more. AUTHORITY TO MAKE AGREEMENTS All agreements made by us must be signed by one of our officers. No other person, including an insurance agent or broker, can: (1) change any of this Contract's terms; (2) extend the time for premium payments; or (3) make any agreement binding on us. REQUIRED NOTE ON OUR COMPUTATIONS We have filed a detailed statement of our computations with the insurance supervisory official in the jurisdiction where this Contract is delivered. The values are not less than those required by the law of that state or jurisdiction. Any benefit provided by an attached Optional Benefit Rider will not increase these values unless otherwise stated in that Rider. GA-IA-1052 19 DEFERRED VARIABLE ANNUITY CONTRACT - NO DIVIDENDS - ------------------------------------------------------------------------------ Variable Cash Surrender Values while the Annuitant and Owner are living and prior to the Annuity Commencement Date. Death benefit subject to guaranteed minimum. Additional Premium Payment Option. Partial Withdrawal Option. Non-participating. Investment results reflected in values. GA-IA-1052 EX-4.B 7 GROUP DEFERRED COMB. VAR. & FIXED ANNUITY CERT. EXHIBIT 4(b) ----- GOLDEN DEFERRED COMBINATION --------- AMERICAN VARIABLE AND FIXED - ----------- LIFE INSURANCE ANNUITY CERTIFICATE -------- COMPANY Golden American is a stock company domiciled in Delaware. - --------------------------------------------------------- |----------------------------------------------------------------------------| | Contractholder Group Contract Number | | [GOLDEN INVESTORS TRUST] [G000011-OE] | |----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |----------------------------------------------------------------------------| In this Certificate you or your refers to the Owner shown above. We, our or us refers to Golden American Life Insurance Company. You may allocate this Certificate's Accumulation Value among the Variable Separate Account, the General Account and the Fixed Account shown in the Schedule. This Certificate describes the benefits and provisions of the group contract. The group contract, as issued to the Contractholder by us with any Riders or Endorsements, alone makes up the agreement under which benefits are paid. The group contract may be inspected at the office of the Contractholder. In consideration of any application for this Certificate and the payment of premiums, we agree, subject to the terms and conditions of the group contract, to provide the benefits described in this Certificate to the Owner. The Annuitant under this Certificate must be eligible under the terms of the group contract. If the group contract and this Certificate are in force, we will make income payments to the Owner starting on the Annuity Commencement Date as shown in the Schedule. If the Owner dies prior to the Annuity Commencement Date, we will pay a death benefit to the Beneficiary. The amount of such benefit is subject to the terms of this Certificate. The benefits of the Certificate will be paid according to the provisions of the Certificate and group contract. RIGHT TO EXAMINE THIS CERTIFICATE: YOU MAY RETURN THIS CERTIFICATE TO US OR THE AGENT THROUGH WHOM YOU PURCHASED IT WITHIN 10 DAYS AFTER YOU RECEIVE IT. IF SO RETURNED, WE WILL TREAT THE CERTIFICATE AS THOUGH IT WERE NEVER ISSUED. UPON RECEIPT WE WILL PROMPTLY REFUND THE ACCUMULATION VALUE, ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, PLUS ANY CHARGES WE HAVE DEDUCTED AS OF THE DATE THE RETURNED CERTIFICATE IS RECEIVED BY US. ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A VARIABLE SEPARATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE, DEPENDING ON THE CERTIFICATE'S INVESTMENT RESULTS. ALL PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE SUCH PAYMENTS AND VALUES TO INCREASE OR DECREASE. Secretary: /s/Myles R. Tashman Customer Service Center -------------------- 1475 Dunwoody Drive West Chester, PA 19380 President: /s/Barnett Chernow -------------------- - ----------------------------------------------------------------------------- DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CERTIFICATE - NO DIVIDENDS Variable Cash Surrender Values while the Annuitant and Owner are living and prior to the Annuity Commencement Date. Death benefit subject to guaranteed minimum. Additional Premium Payment Option. Partial Withdrawal Option. Non-participating. Investment results reflected in values. GA-CA-1052 CERTIFICATE CONTENTS - ----------------------------------------------------------------------------- THE SCHEDULE...................3 YOUR CERTIFICATE BENEFITS........14 Payment and Investment Cash Value Benefit Information...................3A Partial Withdrawal Option The Variable Separate Proceeds Payable to the Beneficiary Accounts.....................3B The General Account...........3C Certificate Facts.............3D Charges and Fees..............3E Income Plan Factors...........3F IMPORTANT TERMS................4 CHOOSING AN INCOME PLAN..........15 INTRODUCTION TO THIS Annuity Benefits CERTIFICATE...................6 Annuity Commencement Date Selection The Certificate Frequency Selection The Owner The Income Plan The Annuitant The Annuity Options The Beneficiary Payment When Named Person Dies Change of Owner or Beneficiary PREMIUM PAYMENTS AND OTHER IMPORTANT INFORMATION....17 ALLOCATION CHANGES. ..........8 Sending Notice to Us Initial Premium Payment Reports to Owner Additional Premium Payment Assignment - Using this Option Certificate as Collateral Your Right to Change Allocation Security of Accumulation Value Changing this Certificate What Happens if a Variable Certificate Changes - Separate Account Division is Applicable Tax Law Not Available Misstatement of Age or Sex Non-Participating Payments We May Defer Authority to Make Agreements Required Note on Our Computations HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE..............9 The Variable Separate Accounts The General Account Valuation Period Accumulation Value Accumulation Value in each Division and Fixed Allocation Fixed Account Measurement of Investment Experience Charges Deducted from Accumulation Value on each Certificate Processing Date Copies of any application and any additional Riders and Endorsements are at the back of this Certificate. THE SCHEDULE The Schedule gives specific facts about this Certificate and its coverage. Please refer to the Schedule while reading this Certificate. GA-CA-1052 THE SCHEDULE PAYMENT AND INVESTMENT INFORMATION - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Annuitant's Issue Age Annuitant's Sex Owner's Issue Age | | [55] [MALE] [35] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Certificate Date Issue Date Residence Status | | [JANUARY 1, 1996] [JANUARY 1, 1996] [DELAWARE] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| INITIAL INVESTMENT Initial Premium Payment received: [$10,000] Your initial Accumulation Value has been invested as follows: Percentage of Divisions Accumulation Value --------- ------------------ [Multiple Allocation 10% Fully Managed 10% Capital Appreciation 10% Rising Dividends 10% Large Cap Value 10% Real Estate 10% Value Equity 5% Hard Assets 5% Emerging Markets 5% Managed Global 5% Limited Maturity 5% Bond 5% Liquid Asset 5% Strategic Equity 5%] Fixed Allocation - 1 Year - ------------------------- --- Total 100% ===== === GA-CA-1052 3A1 THE SCHEDULE PAYMENT AND INVESTMENT INFORMATION (continued) - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Annuitant's Issue Age Annuitant's Sex Owner's Issue Age | | [55] [MALE] [35] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Certificate Date Issue Date Residence Status | | [JANUARY 1, 1996] [JANUARY 1, 1996] [DELAWARE] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| ADDITIONAL PREMIUM PAYMENT INFORMATION [We will accept additional Premium Payments until either the Annuitant or Owner reaches the Attained Age of 85. The minimum additional payment which may be made is [$100.00].] [In no event may you contribute to your IRA for the taxable year in which you attain age 70 1/2 and thereafter (except for rollover contributions). The minimum additional payment which may be made is [$250.00].] ACCUMULATION VALUE ALLOCATION RULES The maximum number of Divisions in which you may be invested at any one time is [sixteen]. You are allowed unlimited allocation changes per Certificate Year without charge. We reserve the right to impose a charge for any allocation change in excess of [twelve] per Certificate Year. The Excess Allocation Charge is shown in the Schedule. Allocations into and out of the Guaranteed Interest Divisions are subject to restrictions (see General Account). ALLOCATION CHANGES BY TELEPHONE You may request allocation changes by telephone during our telephone request business hours. You may call our Customer Service Center at 1-800-366-0066 to make allocation changes by using the personal identification number you will receive. You may also mail any notice or request for allocation changes to our Customer Service Center at the address shown on the cover page. GA-CA-1052 3A2 THE SCHEDULE THE VARIABLE SEPARATE ACCOUNTS - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| DIVISIONS INVESTING IN SHARES OF A MUTUAL FUND Separate Account B (the "Account") is a unit investment trust Separate Account, organized in and governed by the laws of the State of Delaware, our state of domicile. The Account is divided into Divisions. Each Division listed below invests in shares of the mutual fund portfolio (the "Series") designated. Each portfolio is a part of The GCG Trust managed by Directed Services, Inc. SERIES SERIES ------ ------ [Multiple Allocation Real Estate Fully Managed Hard Assets Value Equity Emerging Markets Small Cap Limited Maturity Bond Capital Appreciation Liquid Assets Rising Dividend Strategic Equity Capital Growth Managed Global Developing World Global Fixed Income Large Cap Value Total Return Growth All-Cap Mid-Cap Growth Investors Research Equity Income] Each Division listed below invests in shares of the mutual fund portfolio (the "Portfolio") designated. Each portfolio is a part of the Evergreen Trust managed by Evergreen Asset Management, Inc. PORTFOLIO - --------- [Equity Index Foundation Global Leaders Small Cap Value] GA-CA-1052 3B THE SCHEDULE THE GENERAL ACCOUNT - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| GENERAL ACCOUNT [Guaranteed Interest Division A Guaranteed Interest Division provides an annual minimum interest rate of 3%. At our sole discretion, we may periodically declare higher interest rates for specific Guarantee Periods. Such rates will apply to periods following the date of declaration. Any declaration will be by class and will be based on our future expectations. Limitations of Allocations We reserve the right to restrict allocations into and out of the General Account. Such limits may be dollar restrictions on allocations into the General Account or we may restrict reallocations into the General Account. Transfers from a Guaranteed Interest Division We currently require that an amount allocated to a Guarantee Period not be transferred until the Maturity Date, except pursuant to our published rules. We reserve the right not to allow amounts previously transferred from a Guaranteed Interest Division to the Variable Separate Account Divisions or to a Fixed Allocation to be transferred back to a Guaranteed Interest Division for a period of at least six months from the date of transfer.] GA-CA-1052 3C THE SCHEDULE CERTIFICATE FACTS - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| CERTIFICATE FACTS Certificate Processing Date The Certificate Processing Date for your Certificate is [April 1] of each year. Specially Designated Divisions When a distribution is made from an investment portfolio underlying a Separate Account Division in which reinvestment is not available, we will allocate the amount of the distribution to the [Liquid Asset Division] unless you specify otherwise. PARTIAL WITHDRAWALS The maximum amount that can be withdrawn each Certificate Year without being considered an Excess Partial Withdrawal is described below. We will collect a Surrender Charge for Excess Partial Withdrawals and a charge for any unrecovered premium taxes. In no event may a Partial Withdrawal be greater than 90% of the Cash Surrender Value. After a Partial Withdrawal, the remaining Accumulation Value must be at least $100 to keep the Certificate in force. Systematic Partial Withdrawals and Conventional Partial Withdrawals may not be taken in the same Certificate Year. To determine the Surrender Charge on Excess Partial Withdrawals, the withdrawals will occur in the following order: (1) Any remaining Free Amount; (2) Premium Payments which were received more than ten years prior to the withdrawal; and, (3) Premium Payments which were received less than ten years prior to withdrawal. Free Amounts are not treated as withdrawals of Premium Payments for purposes of calculating any Surrender Charge. The Free Amount for a certificate year is equal to 10% of Premium Payments received within ten years prior to the date of withdrawal which were not previously withdrawn. Conventional Partial Withdrawals Minimum Withdrawal Amount: $100. Any Conventional Partial Withdrawal is subject to a Market Value Adjustment unless withdrawn from a Fixed Allocation within 30 days prior to the Maturity Date. GA-CA-1052 3D1 THE SCHEDULE CERTIFICATE FACTS (continued) - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| Systematic Partial Withdrawals Systematic Partial Withdrawals may be elected to commence after 28 days from the Certificate Issue Date and may be taken on a monthly, quarterly or annual basis. You select the day withdrawals will be made, but no later than the 28th day of the month. If you do not elect a day, the Certificate Date will be used. Maximum Withdrawal Amounts: Variable Separate Account Divisions: .833% monthly, 2.5% quarterly or 10% annually of Premium Payments not previously withdrawn. Fixed Allocations and Guaranteed Interest Divisions: Interest earned on a Fixed Allocation or Guaranteed Interest Division for the prior month, quarter or year (depending on the frequency selected). The Maximum Withdrawal Amount available per year as a Systematic Partial Withdrawal is 10% of Premium Payments not previously withdrawn. Systematic Partial Withdrawals from Fixed Allocations are not subject to a Market Value Adjustment. A Systematic Partial Withdrawal in excess of the Free Amount may be subject to a Surrender Charge. [IRA Partial Withdrawals for Qualified Plans Only IRA Partial Withdrawals may be taken on a monthly, quarterly or annual basis. A minimum withdrawal of $100.00 is required. You select the day the withdrawals will be made, but no later than the 28th day of the month. If you do not elect a day, the Certificate Date will be used. Systematic Partial Withdrawals and Conventional Partial Withdrawals are not allowed when IRA Partial Withdrawals are being taken. An IRA Partial Withdrawal in excess of the maximum amount allowed under the Systematic Partial Withdrawal option may be subject to a Market Value Adjustment.] DEATH BENEFITS [The Death Benefit is the greatest of (i), (ii), (iii) below, where: (i) the Accumulation Value; (ii) the Cash Surrender Value; (iii) the sum of premiums paid, reduced by Prorata Partial Withdrawal Adjustment(s) for Accumulation Value withdrawn. PRORATA PARTIAL WITHDRAWAL ADJUSTMENTS For any partial withdrawal, the Death Benefit components will be reduced by Prorata Partial Withdrawal Adjustments. The Prorata Partial Withdrawal Adjustment to a death benefit component for a partial withdrawal is equal to (1) divided by (2), multiplied by (3), where: (1) is the Accumulation Value withdrawn, (2) is the Accumulation Value immediately prior to the withdrawal, and (3) is the amount of the applicable death benefit component immediately prior to the withdrawal. GA-CA-1052 3D2 THE SCHEDULE CERTIFICATE FACTS (continued) - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| CHANGE OF OWNER A change of Owner will result in recalculation of the Death Benefit. If the Owner's or the oldest of multiple owners' attained age at the time of the change is less than (86), the Death Benefit will remain in effect. If any owner's or oldest multiple owners attained age at the time of the change is (86) or greater, the Death Benefit thereafter will be the cash surrender value. SPOUSAL CONTINUATION UPON DEATH OF OWNER If at the Owner's death, the surviving spouse of the deceased Owner is the beneficiary and such surviving spouse elects to continue the certificate as their own pursuant to Internal Revenue Code Section 72(s) or the equivalent provisions of the U.S. Treasury Department rules for qualified plans, the following will apply: (a)If the Death Benefit as of the date we receive due proof of the death of the Owner, minus the Accumulation Value, also of that date, is greater than zero, we will add such difference to the Accumulation Value. Such addition will be allocated to the divisions of the Separate Account in proportion to the Accumulation Value in the Separate Account. If there is no Accumulation Value in the Separate Account, the addition will be allocated to the Liquid Assets division, or its successor. (b)The Death Benefit will continue to apply, with all age criteria using the surviving spouse's age as the determining age. (c)At subsequent surrender, any surrender charge applicable to premiums paid prior to the date we receive due proof of death of the Owner will be waived. Any premiums paid later will be subject to any applicable surrender charge. This Addition to the Accumulation Value is available only to the spouse of the Owner as of the date of death of the Owner is such spouse under the provisions of this certificate elects to continue the Certificate as their own. CHOOSING AN INCOME PLAN Required Date of Annuity Commencement [Distributions from a Certificate funding a qualified plan must commence no later than [April 1st] of the calendar year following the calendar year in which the Owner attains age 70 1/2.] The Annuity Commencement Date is required to be the same date as the Certificate Processing Date in the month following the Annuitant's 90th birthday. If, on the Annuity Commencement Date, a Surrender Charge remains, your elected Annuity Option must include a period certain of at least five years duration. In applying the Accumulation Value, we may first collect any Premium Taxes due us. Minimum Annuity Income Payment The minimum monthly annuity income payment that we will make is [$20]. Optional Benefit Riders - [None.] GA-CA-1052 3D3 THE SCHEDULE CERTIFICATE FACTS (continued) - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| ATTAINED AGE The Issue Age of the Annuitant or Owner plus the number of full years elapsed since the Certificate Date. FIXED ACCOUNT Minimum Fixed Allocation The minimum allocation to the Fixed Account in any one Fixed Allocation is [$250.00]. Minimum Guaranteed Interest Rate - [3%.] Guarantee Periods We currently offer Guarantee Periods of [1,2,3,4,5,6,7,8,9 and 10] year(s). We reserve the right to offer Guarantee Periods of durations other than those available on the Certificate Date. We also reserve the right to cease offering a particular Guarantee Period or Periods. Index Rate The Index Rate is the average of the Ask Yields for the U.S. Treasury Strips as reported by a national quoting service for the applicable maturity. The average is based on the period from the 22nd day of the calendar month two months prior to the calendar month of Index Rate determination to the 21st day of the calendar month immediately prior to the month of determination. The applicable maturity date for these U.S. Treasury Strips is on or next following the last day of the Guarantee Period. If the Ask Yields are no longer available, the Index Rate will be determined using a suitable replacement method. We currently set the Index Rate once each calendar month. However, we reserve the right to set the Index Rate more frequently than monthly, but in no event will such Index Rate be based on a period less than 28 days. GA-CA-1052 3D4 THE SCHEDULE CHARGES AND FEES - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| DEDUCTIONS FROM PREMIUMS [None.] DEDUCTIONS FROM ACCUMULATION VALUE Initial Administrative Charge [None.] Administrative Charge We charge [$50] to cover a portion of our ongoing administrative expenses for each Certificate Processing Period. The charge is incurred at the beginning of the Certificate Processing Period and deducted on the Certificate Processing Date at the end of the period. Excess Allocation Charge Currently none, however, we reserve the right to charge [$25] for a change if you make more than [twelve] allocation changes per Certificate Year. Any charge will be deducted in proportion to the amount being transferred from each Division. Surrender Charge A Surrender Charge is imposed as a percentage of unliquidated premium if the Certificate is surrendered or an Excess Partial Withdrawal is taken. The percentage imposed at time of surrender or Excess Partial Withdrawal depends on the number of complete years that have elapsed since a Premium Payment was made. The Surrender Charge expressed as a percentage of each Premium Payment is as follows: Complete Years Surrender Elapsed Since Premium Charges Payment ------- ------- 0 8.5% 1 8.5% 2 8.5% 3 8.5% 4 8.5% 5 8.0% 6 7.0% 7 6.0% 8 4.0% 9 2.0% 10+ 0.0% Surrender of the Certificate is permitted at or before the commencement of annuity payments. GA-CA-1052 3E1 THE SCHEDULE CHARGES AND FEES (continued) - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| [Premium Taxes We deduct the amount of any premium or other state and local taxes levied by any state or governmental entity when such taxes are incurred. We reserve the right to defer collection of Premium Taxes until surrender or until application of Accumulation Value to an Annuity Option. An Excess Partial Withdrawal will result in the deduction of any Premium Tax then due us on such amount. We reserve the right to change the amount we charge for Premium Tax charges on future Premium Payments to conform with changes in the law or if the Owner changes state of residence.] Deductions from the Divisions Mortality and Expense Risk Charge - We deduct [0.003446%] of the - --------------------------------- assets in each Variable Separate Account Division on a daily basis (equivalent to an annual rate of [1.25%]) for mortality and expense risks. This charge is not deducted from the Fixed Account values. Asset Based Administrative Charge - We deduct [0.000411%] of the - --------------------------------- assets in each Variable Separate Account Division on a daily basis (equivalent to an annual rate of [0.15%]) to compensate us for a portion of our ongoing administrative expenses. This charge is not deducted from the Fixed Account values. CHARGE DEDUCTION DIVISION All charges against the Accumulation Value in this Certificate will be deducted from the [Liquid Asset Division]. GA-CA-1052 3E2 THE SCHEDULE INCOME PLAN FACTORS - ------------------------------------------------------------------------------ |-----------------------------------------------------------------------------| | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |-----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |-----------------------------------------------------------------------------| | Separate Account(s) Certificate Number | | [SEPARATE ACCOUNT B AND THE FIXED ACCOUNT] [123456] | |-----------------------------------------------------------------------------| Values for other payment periods, ages or joint life combinations are available on request. Monthly payments are shown for each $1,000 applied. TABLE FOR INCOME FOR A FIXED PERIOD Fixed Period Monthly Fixed Monthly Fixed Period Monthly of Years Income of Years Income of Years Income [5 17.95 14 7.28 23 5.00 6 15.18 15 6.89 24 4.85 7 13.20 16 6.54 25 4.72 8 11.71 17 6.24 26 4.60 9 10.56 18 5.98 27 4.49 10 9.64 19 5.74 28 4.38 11 8.88 20 5.53 29 4.28 12 8.26 21 5.33 30 4.19] 13 7.73 22 5.16 TABLE FOR INCOME FOR LIFE Male/Female Male/Female Male/Female Age 10 Years 20 Years Refund Certain Certain Certain [50 $4.06/3.83 $3.96/3.77 $3.93/3.75 55 4.43/4.14 4.25/4.05 4.25/4.03 60 4.90/4.56 4.57/4.37 4.66/4.40 65 5.51/5.10 4.90/4.73 5.12/4.83 70 6.26/5.81 5.18/5.07 5.76/5.42 75 7.11/6.70 5.38/5.33 6.58/6.19 80 7.99/7.70 5.48/5.46 7.69/7.21 85 8.72/8.59 5.52/5.51 8.72/8.59 90 9.23/9.18 5.53/5.53 10.63/10.53] GA-CA-1052 3F IMPORTANT TERMS - ----------------------------------------------------------------------------- ACCUMULATION VALUE - The amount that a Certificate provides for investment at any time. Initially, this amount is equal to the premium paid. ANNUITANT - The person designated by the Owner to be the measuring life in determining Annuity Payments. ANNUITY COMMENCEMENT DATE - For each Certificate, the date on which Annuity Payments begin. ANNUITY OPTIONS - Options the Owner selects that determine the form and amount of annuity payments. ANNUITY PAYMENT - The periodic payment an Owner receives. It may be either a fixed or a variable amount based on the Annuity Option chosen. ATTAINED AGE - The Issue Age of the Annuitant or Owner plus the number of full years elapsed since the Certificate Date. BENEFICIARY - The person designated to receive benefits in the case of the death of the Owner. BUSINESS DAY - Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of federal holidays, or any day on which the Securities and Exchange Commission ("SEC") requires that mutual funds, unit investment trusts or other investment portfolios be valued. CASH SURRENDER VALUE - The amount the Owner receives upon surrender of the Certificate. CERTIFICATE ANNIVERSARY - The anniversary of the Certificate Date. CERTIFICATE DATE - The date we received the initial premium and upon which we begin determining the Certificate values. It may not be the same as the Certificate Issue Date. This date is used to determine Certificate months, processing dates, years, and anniversaries. CERTIFICATE ISSUE DATE - The date the Certificate is issued at our Customer Service Center. CERTIFICATE PROCESSING DATES - The days when we deduct certain charges from the Accumulation Value. If the Certificate Processing Date is not a Valuation Date, it will be on the next succeeding Valuation date. The Certificate Processing Date will be on the Certificate Anniversary of each year. CERTIFICATE PROCESSING PERIOD - The period between successive Certificate Processing Dates unless it is the first Certificate Processing Period. In that case, it is the period from the Certificate Date to the first Certificate Processing Date. CERTIFICATE YEAR - The period between Certificate Anniversaries. CHARGE DEDUCTION DIVISION - The Division from which all charges are deducted if so designated or elected by the Owner. CONTINGENT ANNUITANT - The person designated by the Owner who, upon the Annuitant's death prior to the Annuity Commencement Date, becomes the Annuitant. CONTRACT ISSUE DATE - The date the group contract is issued at our Customer Service Center. CONTRACTHOLDER - the entity to whom the group contract is issued. GA-CA-1052 4 IMPORTANT TERMS (continued) - ----------------------------------------------------------------------------- EXPERIENCE FACTOR - The factor which reflects the investment experience of the portfolio in which a Variable Separate Account Division invests and also reflects the charges assessed against the Division for a Valuation Period. FIXED ACCOUNT - This is the Separate Account established to support Fixed Allocations. FIXED ALLOCATION - An amount allocated to the Fixed Account that is credited with a Guaranteed Interest Rate for a specified Guarantee Period. GUARANTEE PERIOD - The period of years a rate of interest is guaranteed to be credited to a Fixed Allocation or allocations to a Guaranteed Interest Division. GUARANTEED INTEREST DIVISION - An investment option available in the General Account, an account which contains all of our assets other than those held in our Separate Accounts. GUARANTEED INTEREST RATE - The effective annual interest rate which we will credit for a specified Guarantee Period. GUARANTEED MINIMUM INTEREST RATE - The minimum interest rate which can be declared by us for Fixed Allocations or Guaranteed Interest Divisions. INDEX OF INVESTMENT EXPERIENCE - The index that measures the performance of a Variable Separate Account Division. INITIAL PREMIUM - The payment amount required to put each Certificate in effect. ISSUE AGE - The Annuitant's or Owner's age on the last birthday on or before the Certificate Date. MARKET VALUE ADJUSTMENT - A positive or negative adjustment to a Fixed Allocation. It may apply if all or part of a Fixed Allocation is withdrawn, transferred, or applied to an Annuity Option prior to the end of the Guarantee Period. MATURITY DATE - The date on which a Guarantee Period matures. OWNER - The person who owns a Certificate and is entitled to exercise all rights of the Certificate. This person's death also initiates payment of the death benefit. RIDERS - Riders add provisions or change the terms of the Certificate. SPECIALLY DESIGNATED DIVISION - Distributions from a portfolio underlying a Division in which reinvestment is not available will be allocated to this Division unless you specify otherwise. VALUATION DATE - The day at the end of a Valuation Period when each Division is valued. VALUATION PERIOD - Each business day together with any non-business days before it. VARIABLE SEPARATE ACCOUNT DIVISION - An investment option available in the Variable Separate Account shown in the Schedule. GA-CA-1052 5 INTRODUCTION TO THIS CERTIFICATE - ----------------------------------------------------------------------------- THE CERTIFICATE This is a legal Certificate between you and us. We provide benefits as stated in this Certificate. In return, you supply us with the Initial Premium Payment required to put this Certificate in effect. This Certificate, together with any Riders or Endorsements, constitutes the entire Certificate. Riders and Endorsements add provisions or change the terms of the basic Certificate. THE OWNER You are the Owner of this Certificate. You are also the Annuitant unless another Annuitant has been named by you and is shown in the Schedule. You have the rights and options described in this Certificate, including but not limited to the right to receive the Annuity Benefits on the Annuity Commencement Date. One or more people may own this Certificate. If there are multiple Owners named, the age of the oldest Owner will be used to determine the applicable death benefit. In the case of a sole Owner who dies prior to the Annuity Commencement Date, we will pay the Beneficiary the death benefit then due. If the sole Owner is not an individual, we will treat the Annuitant as Owner for the purpose of determining when the Owner dies under the death benefit provision (if there is no Contingent Annuitant), and the Annuitant's age will determine the applicable death benefit payable to the Beneficiary. The sole Owner's estate will be the Beneficiary if no Beneficiary designation is in effect, or if the designated Beneficiary has predeceased the Owner. In the case of a joint Owner of the Certificate dying prior to the Annuity Commencement Date, the surviving Owner(s) will be deemed as the Beneficiary(ies). THE ANNUITANT The Annuitant is the measuring life of the Annuity Benefits provided under this Certificate. You may name a Contingent Annuitant. The Annuitant may not be changed during the Annuitant's lifetime. If the Annuitant dies before the Annuity Commencement Date, the Contingent Annuitant becomes the Annuitant. You will be the Contingent Annuitant unless you name someone else. The Annuitant must be a natural person. If the Annuitant dies and no Contingent Annuitant has been named, we will allow you sixty days to designate someone other than yourself as an Annuitant. If all Owners are not individuals and, through the operation of this provision, an Owner becomes Annuitant, we will pay the death proceeds to the Beneficiary. If there are joint Owners, we will treat the youngest of the Owners as the Contingent Annuitant designated, unless you elect otherwise. THE BENEFICIARY The Beneficiary is the person to whom we pay death proceeds if any Owner dies prior to the Annuity Commencement Date. See Proceeds Payable to the Beneficiary for more information. We pay death proceeds to the primary Beneficiary (unless there are joint Owners in which case the death benefit proceeds are payable to the surviving Owner). If the primary Beneficiary dies before the Owner, the death proceeds are paid to the Contingent Beneficiary, if any. If there is no surviving Beneficiary, we pay the death proceeds to the Owner's estate. GA-CA-1052 6 INTRODUCTION TO THIS CERTIFICATE (continued) - ----------------------------------------------------------------------------- One or more persons may be named as primary Beneficiary or contingent Beneficiary. In the case of more than one Beneficiary, we will assume any death proceeds are to be paid in equal shares to the surviving Beneficiaries. You can specify other than equal shares. You have the right to change Beneficiaries, unless you designate the primary Beneficiary irrevocable. When an irrevocable Beneficiary has been designated, you and the irrevocable Beneficiary may have to act together to exercise the rights and options under this Certificate. CHANGE OF OWNER OR BENEFICIARY During your lifetime and while this Certificate is in effect you can transfer ownership of this Certificate or change the Beneficiary. To make any of these changes, you must send us written notice of the change in a form satisfactory to us. The change will take effect as of the day the notice is signed. The change will not affect any payment made or action taken by us before recording the change at our Customer Service Center. A Change of Owner may affect the amount of death benefit payable under this Certificate. See Proceeds Payable to Beneficiary. GA-CA-1052 7 PREMIUM PAYMENTS AND ALLOCATION CHARGES - ----------------------------------------------------------------------------- INITIAL PREMIUM PAYMENT The Initial Premium Payment is required to put this Certificate in effect. The amount of the Initial Premium Payment is shown in the Schedule. ADDITIONAL PREMIUM PAYMENT OPTION You may make additional Premium Payments under this Certificate after the end of the Right to Examine period. Restrictions on additional Premium Payments, such as the Attained Age of the Annuitant or Owner and the timing and amount of each payment, are shown in the Schedule. We reserve the right to defer acceptance of or to return any additional Premium Payments. As of the date we receive and accept your additional Premium Payment: (1) The Accumulation Value will increase by the amount of the Premium Payment less any premium deductions as shown in the Schedule. (2) The increase in the Accumulation Value will be allocated among the Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account in accordance with your instructions. If you do not provide such instructions, allocation will be among the Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account in proportion to the amount of Accumulation Value in each Division or Fixed Allocation. Where to Make Payments Remit the Premium Payments to our Customer Service Center at the address shown on the cover page. On request we will give you a receipt signed by our treasurer. YOUR RIGHT TO CHANGE ALLOCATION OF ACCUMULATION VALUE You may change the allocation of the Accumulation Value among the Divisions and Fixed Allocations after the end of the Right to Examine period. The number of free allocation changes each year that we will allow is shown in the Schedule. To make an allocation change, you must provide us with satisfactory notice at our Customer Service Center. The change will take effect when we receive the notice. Restrictions for reallocation into and out of Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account are shown in the Schedule. An allocation from the Fixed Account may be subject to a Market Value Adjustment. See the Schedule. WHAT HAPPENS IF A VARIABLE SEPARATE ACCOUNT DIVISION IS NOT AVAILABLE When a distribution is made from an investment portfolio supporting a unit investment trust Separate Account Division in which reinvestment is not available, we will allocate the distribution to the Specially Designated Division shown in the Schedule unless you specify otherwise. Such a distribution may occur when an investment portfolio or Division matures, when distribution from a portfolio or Division cannot be reinvested in the portfolio or Division due to the unavailability of securities, or for other reasons. When this occurs because of maturity, we will send written notice to you thirty days in advance of such date. To elect an allocation to other than the Specially Designated Division shown in the Schedule, you must provide satisfactory notice to us at least seven days prior to the date the investment matures. Such allocations will not be counted as an allocation change of the Accumulation Value for purposes of the number of free allocations permitted. GA-CA-1052 8 HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE - ----------------------------------------------------------------------------- The variable Annuity Benefits under this Certificate are provided through investments which may be made in our Separate Accounts. THE VARIABLE SEPARATE ACCOUNTS These accounts, which are designated in the Schedule, are kept separate from our General Account and any other Separate Accounts we may have. They are used to support Variable Annuity Certificates and may be used for other purposes permitted by applicable laws and regulations. We own the assets in the Separate Accounts. Assets equal to the reserves and other liabilities of the accounts will not be charged with liabilities that arise from any other business we conduct; but, we may transfer to our General Account assets which exceed the reserves and other liabilities of the Variable Separate Accounts. Income and realized and unrealized gains or losses from assets in these Variable Separate Accounts are credited to or charged against the account without regard to other income, gains or losses in our other investment accounts. The Variable Separate Account will invest in mutual funds, unit investment trusts and other investment portfolios which we determine to be suitable for this Certificate's purposes. The Variable Separate Account is treated as a unit investment trust under Federal securities laws. It is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940. The Variable Separate Account is also governed by state law as designated in the Schedule. The trusts may offer non-registered series. Variable Separate Account Divisions A unit investment trust Separate Account includes Divisions, each investing in a designated investment portfolio. The Divisions and the investment portfolios designated may be managed by a separate investment adviser. Such adviser may be registered under the Investment Advisers Act of 1940. Changes within the Variable Separate Accounts We may, from time to time, make additional Variable Separate Account Divisions available to you. These Divisions will invest in investment portfolios we find suitable for the group contract. We also have the right to eliminate Divisions from a Variable Separate Account, to combine two or more Divisions or to substitute a new portfolio for the portfolio in which a Division invests. A substitution may become necessary if, in our judgment, a portfolio or Division no longer suits the purpose of the group contract. This may happen due to a change in laws or regulations, or a change in a portfolio's investment objectives or restrictions, or because the portfolio or Division is no longer available for investment, or for some other reason. We may get prior approval from the insurance department of our state of domicile before making such a substitution. We will also get any required approval from the SEC and any other required approvals before making such a substitution. Subject to any required regulatory approvals, we reserve the right to transfer assets of the Variable Separate Account which we determine to be associated with the class of contracts to which the group contract belongs, to another Variable Separate Account or Division. When permitted by law, we reserve the right to: (1) deregister a Variable Separate Account under the Investment Company Act of 1940; (2) operate a Variable Separate Account as a management company under the Investment Company Act of 1940, if it is operating as a unit investment trust; (3) operate a Variable Separate Account as a unit investment trust under the Investment Company Act of 1940, if it is operating as a managed Variable Separate Account; (4) restrict or eliminate any voting rights of Owners, or other persons who have voting rights to a Variable Separate Account; and, (5) combine a Variable Separate Account with other Variable Separate Accounts. GA-CA-1052 9 HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE THE GENERAL ACCOUNT (continued) - ----------------------------------------------------------------------------- THE GENERAL ACCOUNT The General Account contains all assets of the Company other than those in the Separate Accounts we establish. The Guaranteed Interest Divisions available for investment are shown in the Schedule. We may, from time to time, offer other Divisions where assets are held in our General Account. VALUATION PERIOD Each Division and Fixed Allocation will be valued at the end of each Valuation Period on a Valuation Date. A Valuation Period is each Business Day together with any non-Business Days before it. A Business Day is any day the New York Stock Exchange (NYSE) is open for trading, and the SEC requires mutual funds, unit investment trusts, or other investment portfolios to value their securities. ACCUMULATION VALUE The Accumulation Value of this Certificate is the sum of the amounts in each of the Divisions of the Variable Separate Account and General Account and allocations to the Fixed Account. You select the Divisions of the Variable Separate Account and General Account and the Fixed Allocations of the Fixed Account to which to allocate the Accumulation Value. The maximum number of Divisions and Fixed Allocations to which the Accumulation Value may be allocated at any one time is shown in the Schedule. ACCUMULATION VALUE IN EACH DIVISION AND FIXED ALLOCATION On the Certificate Date On the Certificate Date, the Accumulation Value is allocated to each Division and Fixed Allocation as elected by you, subject to certain terms and conditions imposed by us. We reserve the right to allocate premium to the Specially Designated Division during any Right to Examine period. After such time, allocation will be made proportionately in accordance with the initial allocation(s) as elected by you. On each Valuation Date At the end of each subsequent Valuation Period, the amount of Accumulation Value in each Division and Fixed Allocation will be calculated as follows: (1) We take the Accumulation Value in the Division or Fixed Allocation at the end of the preceding Valuation Period. (2) We multiply (1) by the Variable Separate Account Division's Net Rate of Return for the current Valuation Period or we calculate the interest to be credited to a Fixed Allocation or to a Guaranteed Interest Division for the current Valuation Period. (3) We add (1) and (2). (4) We add to (3) any additional Premium Payments (less any premium deductions as shown in the Schedule) allocated to the Division or Fixed Allocation during the current Valuation Period. (5) We add or subtract allocations to or from that Division or Fixed Allocation during the current Valuation Period. (6) We subtract from (5) any Partial Withdrawals which are allocated to the Division or Fixed Allocation during the current Valuation Period. (7) We subtract from (6) the amounts allocated to that Division or Fixed Allocation for: (a) any charges due for the Optional Benefit Riders as shown in the Schedule; (b) any deductions from Accumulation Value as shown in the Schedule. All amounts in (7) are allocated to each Division or Fixed Allocation in the proportion that (6) bears to the Accumulation Value unless the Charge Deduction Division has been specified (see the Schedule). FIXED ACCOUNT The Fixed Account is a Separate Account under state insurance law and is not required to be registered with the Securities and Exchange Commission under the Investment Company Act of 1940. The Fixed Account includes various Fixed Allocations which we credit with fixed rates of interest for the Guarantee Period or Periods you select. We reset the interest rates for new Fixed Allocations periodically based on our sole discretion. GA-CA-1052 10 HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued) - ----------------------------------------------------------------------------- Guarantee Periods Each Fixed Allocation is guaranteed an interest rate or rates for a Guarantee Period. The Guaranteed Interest Rates for a Fixed Allocation are effective for the entire period. The Maturity Date of a Guarantee Period will be on the last day of the calendar month in which the Guarantee Period ends. Withdrawals and transfers made during a Guarantee Period may be subject to a Market Value Adjustment unless made within thirty days prior to the Maturity Date. Upon the expiry of a Guarantee Period, we will transfer the Accumulation Value of the expiring Fixed Allocation to a Fixed Allocation with a Guarantee Period equal in length to the expiring Guarantee Period, unless you select another period prior to a Maturity Date. We will notify you at least thirty days prior to a Maturity Date of your options for renewal. If the period remaining from the expiry of the previous Guarantee Period to the Annuity Commencement Date is less than the period you have elected or the period expiring, the next shortest period then available that will not extend beyond the Annuity Commencement Date will be offered to you. If a period is not available, the Accumulation Value will be transferred to the Specially Designated Division. We will declare Guaranteed Interest Rates for the then available Fixed Allocation Guarantee Periods. These interest rates are based solely on our expectation as to our future earnings. Declared Guaranteed Interest Rates are subject to change at any time prior to application to specific Fixed Allocations, although in no event will the rates be less than the Minimum Guaranteed Interest Rate (see the Schedule). Market Value Adjustments A Market Value Adjustment will be applied to a Fixed Allocation upon withdrawal, transfer or application to an Income Plan if made more than thirty days prior to such Fixed Allocation's Maturity Date, except on Systematic Partial Withdrawals and IRA Partial Withdrawals. The Market Value Adjustment is applied to each Fixed Allocation separately. The Market Value Adjustment is determined by multiplying the amount of the Accumulation Value withdrawn, transferred or applied to an Income Plan by the following factor: ( 1 + I ) N/365 --------------- ( 1 + J + .0050) -1 Where I is the Index Rate for a Fixed Allocation on the first day of the applicable Guarantee Period: J is the Index Rate for new Fixed Allocations with Guarantee Periods equal to the number of years (fractional years rounded up to the next full year) remaining in the Guarantee Period at the time of calculation; and N is the remaining number of days in the Guarantee Period at the time of calculation. (The Index Rate is described in the Schedule.) Market Value Adjustments will be applied as follows: (1) The Market Value Adjustment will be applied to the amount withdrawn before deduction of any applicable Surrender Charge. (2) For a Partial Withdrawal, partial transfer or in the case where a portion of an allocation is applied to an Income Plan, the Market Value Adjustment will be calculated on the total amount that must be withdrawn, transferred or applied to an Income Plan in order to provide the amount requested. (3) If the Market Value Adjustment is negative, it will be assessed first against any remaining Accumulation Value in the particular Fixed Allocation. Any remaining Market Value Adjustment will be applied against the amount withdrawn, transferred or applied to an Income Plan. (4) If the Market Value Adjustment is positive, it will be credited to any remaining Accumulation Value in the particular Fixed Allocation. If a cash surrender, full transfer or full application to an Income Plan has been requested, the Market Value Adjustment is added to the amount withdrawn, transferred or applied to an Income Plan. GA-CA-1052 11 HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued) - ----------------------------------------------------------------------------- MEASUREMENT OF INVESTMENT EXPERIENCE Index of Investment Experience The Investment Experience of a Variable Separate Account Division is determined on each Valuation Date. We use an Index to measure changes in each Division's experience during a Valuation Period. We set the Index at $10 when the first investments in a Division are made. The Index for a current Valuation Period equals the Index for the preceding Valuation Period multiplied by the Experience Factor for the current Valuation Period. How We Determine the Experience Factor For Divisions of a unit investment trust Separate Account the Experience Factor reflects the Investment Experience of the portfolio in which the Division invests as well as the charges assessed against the Division for a Valuation Period. The factor is calculated as follows: (1) We take the net asset value of the portfolio in which the Division invests at the end of the current Valuation Period. (2) We add to (1) the amount of any dividend or capital gains distribution declared for the investment portfolio and reinvested in such portfolio during the current Valuation Period. We subtract from that amount a charge for our taxes, if any. (3) We divide (2) by the net asset value of the portfolio at the end of the preceding Valuation Period. (4) We subtract the daily Mortality and Expense Risk Charge for each Division shown in the Schedule for each day in the Valuation Period. (5) We subtract the daily Asset Based Administrative Charge shown in the Schedule for each day in the Valuation Period. Calculations for Divisions investing in unit investment trusts are on a per unit basis. Net Rate of Return for a Variable Separate Account Division The Net Rate of Return for a Variable Separate Account Division during a Valuation Period is the Experience Factor for that Valuation Period minus one. Interest Credited to a Guaranteed Interest Division Accumulation Value allocated to a Guaranteed Interest Division will be credited with the Guaranteed Interest Rate for the Guarantee Period in effect on the date the premium or reallocation is applied. Once applied, such rate will be guaranteed until the Maturity Date of that Guarantee Period. Interest will be credited daily at a rate to yield the declared annual Guaranteed Interest Rate. No Guaranteed Interest Rate will be less than the Minimum Interest Rate shown in the Schedule. Interest Credited to a Fixed Allocation A Fixed Allocation will be credited with the Guaranteed Interest Rate for the Guarantee Period in effect on the date the premium or reallocation is applied. Once applied, such rate will be guaranteed until that Fixed Allocation's Maturity Date. Interest will be credited daily at a rate to yield the declared annual Guaranteed Interest Rate. We periodically declare Guaranteed Interest Rates for then available Guarantee Periods. No Guaranteed Interest Rate will be less than the Minimum Interest Rate shown in the Schedule. CHARGES DEDUCTED FROM ACCUMULATION VALUE ON EACH CERTIFICATE PROCESSING DATE Expense charges and fees are shown in the Schedule. GA-CA-1052 12 HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued) - ----------------------------------------------------------------------------- Charge Deduction Division Option We will deduct all charges against the Accumulation Value of this Certificate from the Charge Deduction Division if you elected this option on the application (see the Schedule). If you did not elect this Option or if the charges are greater than the amount in the Charge Deduction Division, the charges against the Accumulation Value will be deducted as follows: (1) If these charges are less than the Accumulation Value in the Variable Separate Account Divisions, they will be deducted proportionately from all Divisions. (2) If these charges exceed the Accumulation Value in the Variable Separate Account Divisions, any excess over such value will be deducted proportionately from any Fixed Allocations and Guaranteed Interest Divisions. Any charges taken from the Fixed Account or the General Account will be taken from the Fixed Allocations or the Guaranteed Interest Divisions starting with the Guarantee Period nearest its Maturity Date until such charges have been paid. At any time while this Certificate is in effect, you may change your election of this Option. To do this you must send us a written request to our Customer Service Center. Any change will take effect within seven days of the date we receive your request. GA-CA-1052 13 YOUR CERTIFICATE BENEFITS - ----------------------------------------------------------------------------- While this Certificate is in effect, there are important rights and benefits that are available to you. We discuss these rights and benefits in this section. CASH VALUE BENEFIT Cash Surrender Value The Cash Surrender Value, while the Annuitant is living and before the Annuity Commencement Date, is determined as follows: (1) We take the Certificate's Accumulation Value; (2) We adjust for any applicable Market Value Adjustment; (3) We deduct any Surrender Charges; (4) We deduct any charges shown in the Schedule that have been incurred but not yet deducted, including: (a) any administrative charge that has not yet been deducted; (b) the pro rata part of any charges for Optional Benefit Riders; and (c) any applicable premium or other tax. Cancelling to Receive the Cash Surrender Value At any time while the Annuitant is living and before the Annuity Commencement Date, you may surrender this Certificate to us. To do this, you must return this Certificate with a signed request for cancellation to our Customer Service Center. The Cash Surrender Value will vary daily. We will determine the Cash Surrender Value as of the date we receive the Certificate and your signed request in our Customer Service Center. All benefits under this Certificate will then end. We will usually pay the Cash Surrender Value within seven days; but, we may delay payment as described in the Payments We May Defer provision. PARTIAL WITHDRAWAL OPTION After the Certificate Date, you may make Partial Withdrawals. Partial Withdrawals may be subject to a Partial Withdrawal Charge (see the Schedule). The minimum amount that may be withdrawn is shown in the Schedule. The maximum amount that may be withdrawn without Surrender Charge is shown in the Schedule. To take a Partial Withdrawal, you must provide us satisfactory notice at our Customer Service Center. PROCEEDS PAYABLE TO THE BENEFICIARY Prior to the Annuity Commencement Date If the sole Owner dies prior to the Annuity Commencement Date, we will pay the Beneficiary the death benefit. If there are joint Owners and any Owner dies, we will pay the surviving Owners the death benefit. We will pay the amount on receipt of due proof of the Owner's death at our Customer Service Center. Such amount may be received in a single lump sum or applied to any of the Annuity Options (see Choosing an Income Plan). When the Owner (or all Owners where there are joint Owners) is not an individual, the death benefit will become payable on the death of the Annuitant prior to the Annuity Commencement Date (unless a Contingent Annuitant survived the Annuitant). Only one death benefit is payable under this Certificate. In all events, distributions under the Certificate must be made as required by applicable law. GA-CA-1052 14 YOUR CERTIFICATE BENEFITS (continued) - ----------------------------------------------------------------------------- How to Claim Payments to Beneficiary We must receive proof of the Owner's (or the Annuitant's) death before we will make any payments to the Beneficiary. We will calculate the death benefit as of the date we receive due proof of death. The Beneficiary should contact our Customer Service Center for instructions. GA-CA-1052 15 CHOOSING AN INCOME PLAN - ----------------------------------------------------------------------------- ANNUITY BENEFITS If the Annuitant and Owner are living on the Annuity Commencement Date, we will begin making payments to the Owner. We will make these payment under the Annuity Option (or Options) as chosen in the application or as subsequently selected. You may choose or change an Annuity Option by making a written request at least 30 days prior to the Annuity Commencement Date. Unless you have chosen otherwise, Option 2 on a 10-year period certain basis will become effective. The amounts of the payments will be determined by applying the Accumulation Value on the Annuity Commencement Date in accordance with the Annuity Options section below (see Payments We Defer). Before we pay any Annuity Benefits, we require the return of this Certificate. If this Certificate has been lost, we require the applicable lost Certificate form. ANNUITY COMMENCEMENT DATE SELECTION You select the Annuity Commencement Date. You may select any date following the fifth Certificate Anniversary but before the required date of Annuity Commencement as shown in the Schedule. If you do not select a date, the Annuity Commencement Date will be in the month following the required date of Annuity Commencement. FREQUENCY SELECTION You may 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, the payments will be made monthly. THE INCOME PLAN While this Certificate is in effect and before the Annuity Commencement Date, you may chose one or more Annuity Options for the payment of death benefits proceeds. If, at the time of the Owner's death, no Option has been chosen for paying the death benefit proceeds, the Beneficiary may choose an Option within one year. You may also elect an Annuity Option on surrender of the Certificate for its Cash Surrender Value. For each Option we will issue a separate written agreement putting the Option into effect. Our approval is needed for any Option where: (1) the person named to receive payment is other than the Owner or Beneficiary; or (2) the person named is not a natural person, such as a corporation; or (3) any income payment would be less than the minimum annuity income payment shown in the Schedule. THE ANNUITY OPTIONS There are four Options to choose from. They are: Option 1. Income for a Fixed Period Payment is made in equal installments for a fixed number of years. We guarantee each monthly payment will be at least the Income for Fixed Period amount shown in the Schedule. Values for annual, semiannual or quarterly payments are available on request. GA-CA-1052 16 CHOOSING AN INCOME PLAN (continued) - ----------------------------------------------------------------------------- Option 2. Income for Life Payment is made to the person named in equal monthly installments and guaranteed for at least a period certain. The period certain can be 10 or 20 years. Other periods certain are available on request. A refund certain may be chosen instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the guaranteed period, payments continue until his or her death. We guarantee each payment will be at least the amount shown in the Schedule. By age, we mean the named person's age on his or her nearest birthday before the Option's effective date. Amounts for ages not shown are available on request. Option 3. Joint Life Income This Option is available if there are two persons named to receive payments. At least one of the persons named must be either the Owner of Beneficiary of this Certificate. Monthly payments are guaranteed and are made as long as at least one of the named persons is living. The monthly payment amounts are available upon request. Such amounts are guaranteed and will be calculated on the same basis as the Table for Income for Life, however, the amounts will be based on two lives. Option 4. Annuity Plan An amount can be used to buy any single premium immediate annuity we offer for the Option's effective date. The minimum rates for Option 1 are based on 3% interest, compounded annually. The minimum rates for Options 2 and 3 are based on 3% interest, compounded annually, and the Annuity 2000 Mortality Table. We may pay a higher rate at our discretion. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided by the Option agreement. The amounts still due are determined as follows: (1) For Option 1 or for any remaining guaranteed payments in Option 2, payments will be continued. (2) For Option 3, no amounts are payable after both named persons have died. (3) For Option 4, the annuity agreement will state the amount due, if any. GA-CA-1052 17 OTHER IMPORTANT INFORMATION - ----------------------------------------------------------------------------- ENTIRE CONTRACT The group contract, including any attached Rider, endorsement, amendment and the application of the Contractholder, constitute the entire contract between the Contractholder and us. All statements made by the Contractholder, any Owner or any Annuitant will be deemed representations and not warranties. No such statement will be used in any contest unless it is contained in the application signed by the Owner, a copy of which has been furnished to the Owner, the Beneficiary or to the Contractholder. SENDING NOTICE TO US Whenever written notice is required, send it to our Customer Service Center. The address of our Customer Service Center is shown on the cover page. Please include your Certificate number in all correspondence. REPORTS TO OWNER We will send you a report at least once during each Certificate Year. The report will show the Accumulation Value and the Cash Surrender Value as of the end of the Certificate Processing Period. The report will also show the allocation of the Accumulation Value as of such date and the amounts deducted from or added to the Accumulation Value since the last report. The report will also include any information that may be currently required by the insurance supervisory official of the jurisdiction in which the Certificate is delivered. We will also send you copies of any shareholder reports of the portfolios in which the Divisions of the Variable Separate Account invest, as well as any other reports, notices or documents required by law to be furnished to Owners. ASSIGNMENT - USING THIS CERTIFICATE AS COLLATERAL SECURITY You can assign this Certificate as collateral security for a loan or other obligation. This does not change the ownership. Your rights and any Beneficiary's right are subject to the terms of the assignment. To make or release an assignment, we must receive written notice satisfactory to us, at our Customer Service Center. We are not responsible for the validity of any assignment. CHANGING THIS CERTIFICATE This Certificate or any additional benefit riders may be changed to another annuity plan according to our rules at the time of the change. CERTIFICATE CHANGES - APPLICABLE TAX LAW We reserve the right to make changes in this Certificate or its Riders to the extent we deem it necessary to continue to qualify this Certificate as an annuity. Any such changes will apply uniformly to all Certificates that are affected. You will be given advance written notice of such changes. MISSTATEMENT OF AGE OR SEX If an age or sex has been misstated, the amounts payable or benefits provided by this Certificate will be those that the Premium Payment made would have bought at the correct age or sex. NON-PARTICIPATING This Certificate does not participate in the divisible surplus of Golden American Life Insurance Company. GA-CA-1052 18 OTHER IMPORTANT INFORMATION (continued) - ----------------------------------------------------------------------------- PAYMENTS WE MAY DEFER We may not be able to determine the value of the assets of the Variable Separate Account Divisions because: (1) The NYSE is closed for trading; (2) the SEC determines that a state of emergency exists; (3) an order or pronouncement of the SEC permits a delay for the protection of Owners; or (4) the check used to pay the premium has not cleared through the banking system. This may take up to 15 days. During such times, as to amounts allocated to the Divisions of the Variable Separate Account, we may delay; (1) determination and payment of the Cash Surrender Value; (2) determination and payment of any death benefit if death occurs before the Annuity Commencement Date; (3) allocation changes of the Accumulation Value; or, (4) application of the Accumulation Value under an income plan. As to the amounts allocated to a Guaranteed Interest Division in the General Account and as to amounts allocated to Fixed Allocations of the Fixed Account, we may, at any time, defer payment of the Cash Surrender Value for up to six months after we receive a request for it. We will allow interest of at least 3.00% a year on any Cash Surrender Value payment derived from the Fixed Allocations or Guaranteed Interest Divisions that we defer 30 days or more. AUTHORITY TO MAKE AGREEMENTS All agreements made by us must be signed by one of our officers. No other person, including an insurance agent or broker, can: (1) change any of this Certificate's terms; (2) extend the time for Premium Payments; or (3) make any agreement binding on us. REQUIRED NOTE ON OUR COMPUTATIONS We have filed a detailed statement of our computations with the insurance supervisory official in the jurisdiction where this Certificate is delivered. The values are not less than those required by the law of that state or jurisdiction. Any benefit provided by an attached Optional Benefit Rider will not increase these values unless otherwise stated in that Rider. GA-CA-1052 19 DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CERTIFICATE - NO DIVIDENDS - ----------------------------------------------------------------------------- Variable Cash Surrender Values while the Annuitant and Owner are living and prior to the Annuity Commencement Date. Death benefit subject to guaranteed minimum. Additional Premium Payment Option. Partial Withdrawal Option. Non-participating. Investment results reflected in values. GA-CA-1052 EX-4.C 8 INDIVIDUAL DEFERRED VAR. ANNUITY CONTRACT EXHIBIT 4(c) -----GOLDEN --------AMERICAN DEFERRED COMBINATION ----------LIFE INSURANCE VARIABLE AND FIXED -------COMPANY ANNUITY CERTIFICATE Golden American is a stock company domiciled in Delaware. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | | | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date | | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ This is a legal Contract between its Owner and us. Please read it carefully. In this contract you or your refers to the Owner shown above. We, our or us refers to Golden American Life Insurance Company. You may allocate this Contract's Accumulation Value among the Divisions of the Variable Separate Account and the General Account shown in the Schedule. If this Contract is in force, we will make income payments to you starting on the Annuity Commencement Date. If the Owner dies prior to the Annuity Commencement Date, we will pay a death benefit to the Beneficiary. The amount of such benefits is subject to the terms of this Contract. ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A VARIABLE SEPARATE ACCOUNT, MAY INCREASE OR DECREASE, DEPENDING ON THE CONTRACT'S INVESTMENT RESULTS. RIGHT TO EXAMINE THIS CONTRACT: YOU MAY RETURN THIS CONTRACT TO US OR THE AGENT THROUGH WHOM YOU PURCHASED IT WITHIN 10 DAYS AFTER YOU RECEIVE IT. IF SO RETURNED, WE WILL TREAT THE CONTRACT AS THOUGH IT WERE NEVER ISSUED. UPON RECEIPT WE WILL PROMPTLY REFUND THE ACCUMULATION VALUE PLUS ANY CHARGES WE HAVE DEDUCTED AS OF THE DATE THE RETURNED CONTRACT IS RECEIVED BY US. Customer Service Center Secretary: /s/ Myles R. Tashman 1475 Dunwoody Drive West Chester, PA 19380 President: /s/ Barnett Chernow - ------------------------------------------------------------------------------ DEFERRED VARIABLE ANNUITY CONTRACT - NO DIVIDENDS Variable Cash Surrender Values while the Annuitant and Owner are living and prior to the Annuity Commencement Date. Death benefit subject to guaranteed minimum. Additional Premium Payment Option. Partial Withdrawal Option. Non-participating. Investment results reflected in values. GA-IA-1053 CONTRACT CONTENTS - ------------------------------------------------------------------------------ THE SCHEDULE YOUR CONTRACT BENEFITS........14 Payment and Investment Information...3A Cash Value Benefit The Variable Separate Accounts.......3B Partial Withdrawal Option The General Account................3C Proceeds Payable to the Beneficiary Contract Facts.....................3D Charges and Fees...................3E Income Plan Factors................3F CHOOSING AN INCOME PLAN.......16 IMPORTANT TERMS .......................4 INTRODUCTION TO THIS CONTRACT..........6 Annuity Benefits Annuity Commencement Date The Contract Selection The Owner Frequency Selection The Annuitant The Income Plan The Beneficiary The Annuity Options Change of Owner or Beneficiary Payment When Named Person Dies PREMIUM PAYMENTS AND ALLOCATION OTHER IMPORTANT INFORMATION...18 CHANGES.............................8 Initial Premium Payment Sending Notice to Us Additional Premium Payment Option Reports to Owner Your Right to Change Allocation of Assignment - Using this Contract Accumulation Value as Collateral Security What Happens if a Variable Changing this Contract Separate Account Contract Changes - Division is Not Available Applicable Tax Law Misstatement of Age or Sex Non-Participating HOW WE MEASURE THE CONTRACT'S Payments We May Defer ACCUMULATION VALUE..................9 Authority to Make Agreements Required Note on Our Computations The Variable Separate Accounts The General Account Valuation Period Accumulation Value Accumulation Value in each Division Measurement of Investment Experience Charges Deducted from Accumulation Value on each Contract Processing Date Copies of any application and any additional Riders and Endorsements are at the back of this Contract. THE SCHEDULE The Schedule gives specific facts about this Contract and its coverage. Please refer to the Schedule while reading this Contract. GA-IA-1053 2 THE SCHEDULE PAYMENT AND INVESTMENT INFORMATION - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Annuitant's Issue Age Annuitant's Sex Owner's Issue Age | | [55] [MALE] [35] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Contract Date Issue Date Residence Status | | [JANUARY 1, 1996] [JANUARY 1, 1996] [DELAWARE] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ INITIAL INVESTMENT Initial Premium Payment received: [$10,000] Your initial Accumulation Value has been invested as follows: Percentage of Divisions Accumulation Value --------- ------------------ [Multiple Allocation 10% Fully Managed 10% Capital Appreciation 10% Rising Dividends 10% All-Growth 10% Real Estate 10% Value Equity 10% Hard Assets 5% Emerging Markets 5% Managed Global 5% Limited Maturity 5% Bond 5% Liquid Asset 5%] Strategic Equity ------------------------- ------------------------- Total 100% ----- ---- GA-IA-1053 3A1 THE SCHEDULE PAYMENT AND INVESTMENT INFORMATION(continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Annuitant's Issue Age Annuitant's Sex Owner's Issue Age | | [55] [MALE] [35] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Contract Date Issue Date Residence Status | | [JANUARY 1, 1996] [JANUARY 1, 1996] [DELAWARE] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ ADDITIONAL PREMIUM PAYMENT INFORMATION [We will accept additional premium payments until either the Annuitant or Owner reaches the Attained Age of 85. The minimum additional payment which may be made is [$100.00].] [In no event may you contribute to your IRA for the taxable year in which you attain age 70 1/2 and thereafter (except for rollover contributions). The minimum additional payment which may be made is [$250.00].] ACCUMULATION VALUE ALLOCATION RULES The maximum number of Divisions in which you may be invested at any one time is [sixteen]. You are allowed unlimited allocation changes per Contract Year without charge. We reserve the right to impose a charge for any allocation change in excess of [twelve] per Contract Year. The Excess Allocation Charge is shown in the Schedule. Allocations into and out of the Guaranteed Interest Divisions are subject to restrictions (see General Account). ALLOCATION CHANGES BY TELEPHONE You may request allocation changes by telephone during our telephone request business hours. You may call our Customer Service Center at 1-800-366-0066 to make allocation changes by using the personal identification number you will receive. You may also mail any notice or request for allocation changes to our Customer Service Center at the address shown on the cover page. GA-IA-1053 3A2 THE SCHEDULE THE VARIABLE SEPARATE ACCOUNTS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ DIVISIONS INVESTING IN SHARES OF A MUTUAL FUND Separate Account B (the "Account") is a unit investment trust Separate Account, organized in and governed by the laws of the State of Delaware, our state of domicile. The Account is divided into Divisions. Each Division listed below invests in shares of the mutual fund portfolio (the "Series") designated. Each portfolio is a part of The GCG Trust managed by Directed Services, Inc. SERIES SERIES ------ ------ [Multiple Allocation Real Estate Fully Managed Hard Assets Value Equity Emerging Markets Small Cap Limited Maturity Bond Capital Appreciation Liquid Assets Rising Dividend Strategic Equity Capital Growth Managed Global Developing World Global Fixed Income Large Cap Value Total Return Growth All-Cap Mid-Cap Growth Investors Research Equity Income] Each Division listed below invests in shares of the mutual fund portfolio (the "Portfolio") designated. Each portfolio is a part of the Evergreen Trust managed by Evergreen Asset Management, Inc. PORTFOLIO --------- [Equity Index Foundation Global Leaders Small Cap Value] GA-IA-1053 3B THE SCHEDULE THE GENERAL ACCOUNT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ GENERAL ACCOUNT [Guaranteed Interest Division A Guaranteed Interest Division provides an annual minimum interest rate of 3%. At our sole discretion, we may periodically declare higher interest rates for specific Guarantee Periods. Such rates will apply to periods following the date of declaration. Any declaration will be by class and will be based on our future expectations. Limitations of Allocations We reserve the right to restrict allocations into and out of the General Account. Such limits may be dollar restrictions on allocations into the General Account or we may restrict reallocations into the General Account. Guarantee Periods Each allocation to a Guaranteed Interest Division will be guaranteed an interest rate for the entire Initial Guarantee Period elected. We currently offer Initial Guarantee Periods of one, two, three, five, seven and ten years. The Initial Guarantee Period starts on the day an allocation is made to a Guaranteed Interest Division and ends on the last day of the calendar month following one, two, three, five, seven or ten year(s), as appropriate, the Maturity Date. At the end of a Guarantee Period, you may transfer the Accumulation Value in such Guarantee Period to the Variable Separate Account Divisions or to a Guarantee Period we then offer. If we do not receive notification by the Maturity Date, your Accumulation Value in the maturing Guarantee Period will automatically be transferred to a one-year Guarantee Period. Upon such automatic transfer you will have thirty days to reallocate any of your Accumulation Value to the Divisions. Deduction for Charges We do not deduct the Mortality and Expense Risk Charge and the Asset- Based Administrative Charge with respect to the amount of the Accumulation Value allocated to a Guaranteed Interest Division while such Accumulation Value remains allocated to a Guaranteed Interest Division. Transfers from the Guaranteed Interest Division On a Maturity Date, 100% of the Accumulation Value in the maturing Guarantee Period may be transferred. We currently require that an amount allocated to a Guarantee Period not be transferred until the Maturity Date, except pursuant to our published rules. We reserve the right not to allow amounts previously transferred from a Guaranteed Interest Division to the Variable Separate Account Divisions to be transferred back to the Guaranteed Interest Division for a period of at least six months from the date of transfer. We reserve the right to reduce the amount otherwise available for transfer from a Guaranteed Interest Division by any amounts previously withdrawn from that Guaranteed Interest Division. GA-IA-1053 3C THE SCHEDULE CONTRACT FACTS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ CONTRACT FACTS Contract Processing Date The Contract Processing Date for your Contract is [April 1] of each year. Specially Designated Divisions When a distribution is made from an investment portfolio underlying a Separate Account Division in which reinvestment is not available, we will allocate the amount of the distribution to the [Liquid Asset Division] unless you specify otherwise. PARTIAL WITHDRAWALS The maximum amount that can be withdrawn each Contract Year without being considered an Excess Partial Withdrawal is described below. We will collect a Surrender Charge for Excess Partial Withdrawals and a charge for any unrecovered premium taxes. In no event may a Partial Withdrawal be greater than 90% of the Cash Surrender Value. After a Partial Withdrawal, the remaining Accumulation Value must be at least $100 to keep the Contract in force. Systematic Partial Withdrawals and Conventional Partial Withdrawals may not be taken in the same Contract Year. To determine the Surrender Charge on Excess Partial Withdrawals, the withdrawals will occur in the following order: (1) Any remaining Free Amount; (2) Premium Payments which were received more than ten years prior to the withdrawal; and, (3) Premium Payments which were received less than ten years prior to withdrawal. Free Amounts are not treated as withdrawals of Premium Payments for purposes of calculating any Surrender Charge. The Free Amount for a Contract Year is equal to 10% of Premium Payments received within ten years prior to the date of withdrawal which were not previously withdrawn. Conventional Partial Withdrawals Minimum Withdrawal Amount: $100. GA-IA-1053 3D1 THE SCHEDULE CONTRACT FACTS (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ Systematic Partial Withdrawals Systematic Partial Withdrawals may be elected to commence after 28 days from the Contract Issue Date and may be taken on a monthly, quarterly or annual basis. You select the day withdrawals will be made, but no later than the 28th day of the month. If you do not elect a day, the Contract Date will be used. Maximum Withdrawal Amounts: Variable Separate Account Divisions: .833% monthly, 2.5% quarterly or 10% annually of Premium Payments not previously withdrawn. Guaranteed Interest Divisions: Interest earned on the Guaranteed Interest Divisions for the prior month,quarter or year (depending on the frequency selected). The Maximum Withdrawal Amount available per year as a Systematic Partial Withdrawal is 10% of Premium Payments not previously withdrawn. A Systematic Partial Withdrawal in excess of the Free Amount may be subject to a Surrender Charge. [IRA Partial Withdrawals for Qualified Plans Only IRA Partial Withdrawals may be taken on a monthly, quarterly or annual basis. A minimum withdrawal of $100.00 is required. You select the day the withdrawals will be made, but no later than the 28th day of the month. If you do not elect a day, the Certificate Date will be used. Systematic Partial Withdrawals and Conventional Partial Withdrawals are not allowed when IRA Partial Withdrawals are being taken. An IRA Partial Withdrawal in excess of the maximum amount allowed under the Systematic Partial Withdrawal option may be subject to a Market Value Adjustment.] DEATH BENEFITS [The Death Benefit is the greatest of (i), (ii), (iii) below, where: (i) the Accumulation Value; (ii) the Cash Surrender Value; (iii) the sum of premiums paid, reduced by Prorata Partial Withdrawal Adjustment(s) for Accumulation Value withdrawn. PRORATA PARTIAL WITHDRAWAL BENEFITS For any partial withdrawal, the Death Benefit components will be reduced by Prorata Partial Withdrawal Adjustments. The Prorata Partial Withdrawal Adjustment to a death benefit component for a partial withdrawal is equal to (1) divided by (2), multiplied by (3), where: (1) is the Accumulation Value withdrawn, (2) is the Accumulation Value immediately prior to the withdrawal, and (3) is the amount of the applicable death benefit component immediately prior to the withdrawal. GA-IA-1053 3D2 THE SCHEDULE CONTRACT FACTS (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ CHANGE OF OWNER A change of Owner will result in recalculation of the Death Benefit. If the Owner's or the oldest of multiple owner's attained age at the time of the change is less than (86), the Death Benefit will remain in effect. If any owner's or the oldest multiple owners' attained age at the time of the change is (86) or greater, the Death Benefit thereafter will be the cash surrender value. SPOUSAL CONTINUATION UPON DEATH OF OWNER If at the Owner's death, the surviving spouse of the deceased Owner is the beneficiary and such surviving spouse elects to continue the Contract as their own pursuant to Internal Revenue Code Section 72(s) or the equivalent provisions of the U.S. Treasury Department rules for qualified plans, the following will apply: (a) If the Death Benefit as of the date we receive due proof of the death of the Owner, minus the Accumulation Value, also of that date, is greater than zero, we will add such difference to the Accumulation Value. Such addition will be allocated to the divisions of the Separate Account in proportion to the Accumulation Value in the Separate Account. If there is no Accumulation Value in the Separate Account, the addition will be allocated to the Liquid Assets division, or its successor. (b) The Death Benefit will continue to apply, with all age criteria using the surviving spouse's age as the determining age. (c) At subsequent surrender, any surrender charge applicable to premiums paid prior to the date we receive due proof of death of the Owner will be waived. Any premiums paid later will be subject to any applicable surrender charge. This Addition to the Accumulation Value is available only to the spouse of the Owner as of the date of death of the Owner is such spouse under the provisions of this certificate elects to continue the Contract as their own. CHOOSING AN INCOME PLAN Required Date of Annuity Commencement [Distributions from a Contract funding a qualified plan must commence no later than [April 1st] of the calendar year following the calendar year in which the Owner attains age 70 1/2.] The Annuity Commencement Date is required to be the same date as the Contract Processing Date in the month following the Annuitant's 90th birthday. If, on the Annuity Commencement Date, a Surrender Charge remains, your elected Annuity Option must include a period certain of at least five years duration. In applying the Accumulation Value, we may first collect any Premium Taxes due us. Minimum Annuity Income Payment The minimum monthly annuity income payment that we will make is [$20]. Optional Benefit Riders - [None.] GA-IA-1053 3D3 THE SCHEDULE CHARGES AND FEES - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ ATTAINED AGE The Issue Age of the Annuitant or Owner plus the number of full years elapsed since the Contract Date. DEDUCTIONS FROM PREMIUMS [None.] DEDUCTIONS FROM ACCUMULATION VALUE Initial Administrative Charge [None.] Administrative Charge We charge [$50] to cover a portion of our ongoing administrative expenses for each Contract Processing Period. The charge is incurred at the beginning of the Contract Processing Period and deducted on the Contract Processing Date at the end of the period. Excess Allocation Charge Currently none, however, we reserve the right to charge [$25] for a change if you make more than [twelve] allocation changes per Contract Year. Any charge will be deducted in proportion to the amount being transferred from each Division. Surrender Charge A Surrender Charge is imposed as a percentage of unliquidated premium if the Contract is surrendered or an Excess Partial Withdrawal is taken. The percentage imposed at time of surrender or Excess Partial Withdrawal depends on the number of complete years that have elapsed since a premium payment was made. The Surrender Charge expressed as a percentage of each premium payment is as follows: Complete Years Elapsed Surrender Since Premium Payment Charges --------------------- ------- [0 8.5% 1 8.5% 2 8.5% 3 8.5% 4 8.5% 5 8.0% 6 7.0% 7 6.0% 8 4.0% 9 2.0% 10+ 0.0% Surrender of the Contract is permitted at or before the commencement of annuity payments. GA-IA-1053 3E1 THE SCHEDULE CHARGES AND FEES (continued) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ [Premium Taxes We deduct the amount of any premium or other state and local taxes levied by any state or governmental entity when such taxes are incurred. We reserve the right to defer collection of Premium Taxes until surrender or until application of Accumulation Value to an Annuity Option. An Excess Partial Withdrawal will result in the deduction of any Premium Tax then due us on such amount. We reserve the right to change the amount we charge for Premium Tax charges on future premium payments to conform with changes in the law or if the Owner changes state of residence.] Deductions from the Divisions [Mortality and Expense Risk Charge - We deduct 0.003446% of the assets in each Variable Separate Account Division on a daily basis (equivalent to an annual rate of 1.25%) for mortality and expense risks. This charge is not deducted from the General Account values.] [Asset Based Administrative Charge - We deduct 0.000411% of the assets in each Variable Separate Account Division on a daily basis (equivalent to an annual rate of 0.15%) to compensate us for a portion of our ongoing administrative expenses. This charge is not deducted from the General Account values.] CHARGE DEDUCTION DIVISION All charges against the Accumulation Value in this Contract will be deducted from the [Liquid Asset Division]. GA-IA-1053 3E2 THE SCHEDULE INCOME PLAN FACTORS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ | Annuitant Owner | | [THOMAS J. DOE] [JOHN Q. DOE] | |----------------------------------------------------------------------------| | Initial Premium Annuity Option Annuity Commencement Date| | [$10,000] [LIFE 10-YEAR CERTAIN] [JANUARY 1, 2026] | |----------------------------------------------------------------------------| | Separate Account(s) Contract Number | | [SEPARATE ACCOUNT B] [123456] | - ------------------------------------------------------------------------------ Values for other payment periods, ages or joint life combinations are available on request. Monthly payments are shown for each $1,000 applied. TABLE FOR INCOME FOR A FIXED PERIOD Fixed Fixed Fixed Period Monthly Period Monthly Period Monthly of Years Income of Years Income of Years Income [5 17.95 14 7.28 23 5.00 6 15.18 15 6.89 24 4.85 7 13.20 16 6.54 25 4.72 8 11.71 17 6.24 26 4.60 9 10.56 18 5.98 27 4.49 10 9.64 19 5.74 28 4.38 11 8.88 20 5.53 29 4.28 12 8.26 21 5.33 30 4.19] 13 7.73 22 5.16 TABLE FOR INCOME FOR LIFE Male/Female Male/Female Male/Female Age 10 Years 20 Years Refund Certain Certain Certain [50 $4.06/3.83 $3.96/3.77 $3.93/3.75 55 4.43/4.14 4.25/4.05 4.25/4.03 60 4.90/4.56 4.57/4.37 4.66/4.40 65 5.51/5.10 4.90/4.73 5.12/4.83 70 6.26/5.81 5.18/5.07 5.76/5.42 75 7.11/6.70 5.38/5.33 6.58/6.19 80 7.99/7.70 5.48/5.46 7.69/7.21 85 8.72/8.59 5.52/5.51 8.72/8.59 90 9.23/9.18 5.53/5.53 10.63/10.53] GA-IA-1053 3F IMPORTANT TERMS - ------------------------------------------------------------------------------ ACCUMULATION VALUE - The amount that a Contract provides for investment at any time. Initially, this amount is equal to the premium paid. ANNUITANT - The person designated by the Owner to be the measuring life in determining Annuity Payments. ANNUITY COMMENCEMENT DATE - For each Contract, the date on which Annuity Payments begin. ANNUITY OPTIONS - Options the Owner selects that determine the form and amount of annuity payments. ANNUITY PAYMENT - The periodic payment an Owner receives. It may be either a fixed or a variable amount based on the Annuity Option chosen. ATTAINED AGE - The Issue Age of the Annuitant or Owner plus the number of full years elapsed since the Contract Date. BENEFICIARY - The person designated to receive benefits in the case of the death of the Owner. BUSINESS DAY - Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of federal holidays, or any day on which the Securities and Exchange Commission ("SEC") requires that mutual funds, unit investment trusts or other investment portfolios be valued. CASH SURRENDER VALUE - The amount the Owner receives upon surrender of the Contract. CHARGE DEDUCTION DIVISION - The Division from which all charges are deducted if so designated or elected by the Owner. CONTINGENT ANNUITANT - The person designated by the Owner who, upon the Annuitant's death prior to the Annuity Commencement Date, becomes the Annuitant. CONTRACT ANNIVERSARY - The anniversary of the Contract Date. CONTRACT DATE - The date we received the initial premium and upon which we begin determining the Contract values. It may not be the same as the Contract Issue Date. This date is used to determine Contract months, processing dates, years, and anniversaries. CONTRACT ISSUE DATE - The date the Contract is issued at our Customer Service Center. CONTRACT PROCESSING DATES - The days when we deduct certain charges from the Accumulation Value. If the Contract Processing Date is not a Valuation Date, it will be on the next succeeding Valuation date. The Contract Processing Date will be on the Contract Anniversary of each year. CONTRACT PROCESSING PERIOD - The period between successive Contract Processing Dates unless it is the first Contract Processing Period. In that case, it is the period from the Contract Date to the first Contract Processing Date. CONTRACT YEAR - The period between Contract Anniversaries. GA-IA-1053 4 IMPORTANT TERMS (continued) - ------------------------------------------------------------------------------ EXPERIENCE FACTOR - The factor which reflects the investment experience of the portfolio in which a Variable Separate Account Division invests and also reflects the charges assessed against the Division for a Valuation Period. GUARANTEE PERIOD - The period of years a rate of interest is guaranteed to be credited to a Guaranteed Interest Division. GUARANTEED INTEREST DIVISION - An investment option available in the General Account, an account which contains all of our assets other than those held in our Variable Separate Accounts. GUARANTEED INTEREST RATE - The effective annual interest rate which we will credit for a specified Guarantee Period. GUARANTEED MINIMUM INTEREST RATE - The minimum interest rate which can be declared by us for allocations to a Guaranteed Interest Division. INDEX OF INVESTMENT EXPERIENCE - The index that measures the performance of a Variable Separate Account Division. INITIAL PREMIUM - The payment amount required to put each Contract in effect. ISSUE AGE - The Annuitant's or Owner's age on the last birthday on or before the Contract Date. MATURITY DATE - The date on which a Guarantee Period matures. OWNER - The person who owns a Contract and is entitled to exercise all rights of the Contract. This person's death also initiates payment of the death benefit. RIDERS - Riders add provisions or change the terms of the Contract. SPECIALLY DESIGNATED DIVISION - Distributions from a portfolio underlying a Division in which reinvestment is not available will be allocated to this Division unless you specify otherwise. VALUATION DATE - The day at the end of a Valuation Period when each Division is valued. VALUATION PERIOD - Each business day together with any non-business days before it. VARIABLE SEPARATE ACCOUNT DIVISION - An investment option available in the Variable Separate Account shown in the Schedule. GA-IA-1053 5 INTRODUCTION TO THIS CONTRACT - ------------------------------------------------------------------------------ THE CONTRACT This is a legal contract between you and us. We provide benefits as stated in this Contract. In return, you supply us with the Initial Premium Payment required to put this Contract in effect. This Contract, together with any Riders or Endorsements, constitutes the entire Contract. Riders and Endorsements add provisions or change the terms of the basic Contract. THE OWNER You are the Owner of this Contract. You are also the Annuitant unless another Annuitant has been named in the application and is shown in the Schedule. You have the rights and options described in this Contract, including but not limited to the right to receive the Annuity Benefits on the Annuity Commencement Date. One or more people may own this Contract. If there are multiple Owners named, the age of the oldest Owner will be used to determine the applicable death benefit. In the case of a sole Owner who dies prior to the Annuity Commencement Date, we will pay the Beneficiary the death benefit then due. If the sole Owner is not an individual, we will treat the Annuitant as Owner for the purpose of determining when the Owner dies under the death benefit provision (if there is no Contingent Annuitant), and the Annuitant's age will determine the applicable death benefit payable to the Beneficiary. The sole Owner's estate will be the Beneficiary if no Beneficiary designation is in effect, or if the designated Beneficiary has predeceased the Owner. In the case of a joint Owner of the Contract dying prior to the Annuity Commencement Date, the surviving Owner(s) will be deemed as the Beneficiary(ies). THE ANNUITANT The Annuitant is the measuring life of the Annuity Benefits provided under this Contract. You may name a Contingent Annuitant. The Annuitant may not be changed during the Annuitant's lifetime. If the Annuitant dies before the Annuity Commencement Date, the Contingent Annuitant becomes the Annuitant. You will be the Contingent Annuitant unless you name someone else. The Annuitant must be a natural person. If the Annuitant dies and no Contingent Annuitant has been named, we will allow you sixty days to designate someone other than yourself as an Annuitant. If all Owners are not individuals and, through the operation of this provision, an Owner becomes Annuitant, we will pay the death proceeds to the Beneficiary. If there are joint Owners, we will treat the youngest of the Owners as the Contingent Annuitant designated, unless you elect otherwise. THE BENEFICIARY The Beneficiary is the person to whom we pay death proceeds if any Owner dies prior to the Annuity Commencement Date. See Proceeds Payable to the Beneficiary for more information. We pay death proceeds to the primary Beneficiary (unless there are joint Owners in which case the death benefit proceeds are payable to the surviving Owner). If the primary Beneficiary dies before the Owner, the death proceeds are paid to the Contingent Beneficiary, if any. If there is no surviving Beneficiary, we pay the death proceeds to the Owner's estate. GA-IA-1053 6 INTRODUCTION TO THIS CONTRACT (continued) - ------------------------------------------------------------------------------ One or more persons may be named as primary Beneficiary or contingent Beneficiary. In the case of more than one Beneficiary, we will assume any death proceeds are to be paid in equal shares to the surviving Beneficiaries. You can specify other than equal shares. You have the right to change Beneficiaries, unless you designate the primary Beneficiary irrevocable. When an irrevocable Beneficiary has been designated, you and the irrevocable Beneficiary may have to act together to exercise the rights and options under this Contract. CHANGE OF OWNER OR BENEFICIARY During your lifetime and while this Contract is in effect you can transfer ownership of this Contract or change the Beneficiary. To make any of these changes, you must send us written notice of the change in a form satisfactory to us. The change will take effect as of the day the notice is signed. The change will not affect any payment made or action taken by us before recording the change at our Customer Service Center. A Change of Owner may affect the amount of death benefit payable under this Contract. See Proceeds Payable to Beneficiary. GA-IA-1053 7 PREMIUM PAYMENTS AND ALLOCATION CHARGES - ------------------------------------------------------------------------------ INITIAL PREMIUM PAYMENT The Initial Premium Payment is required to put this Contract in effect. The amount of the Initial Premium Payment is shown in the Schedule. ADDITIONAL PREMIUM PAYMENT OPTION You may make additional premium payments under this Contract after the end of the Right to Examine period. Restrictions on additional premium payments, such as the Attained Age of the Annuitant or Owner and the timing and amount of each payment, are shown in the Schedule. We reserve the right to defer acceptance of or to return any additional premium payments. As of the date we receive and accept your additional premium payment: (1) The Accumulation Value will increase by the amount of the premium payment less any premium deductions as shown in the Schedule. (2) The increase in the Accumulation Value will be allocated among the Divisions of the Variable Separate Account and General Account in accordance with your instructions. If you do not provide such instructions, allocation will be among the Divisions of the Variable Separate Account and General Account in proportion to the amount of Accumulation Value in each Division. Where to Make Payments Remit the premium payments to our Customer Service Center at the address shown on the cover page. On request we will give you a receipt signed by our treasurer. YOUR RIGHT TO CHANGE ALLOCATION OF ACCUMULATION VALUE You may change the allocation of the Accumulation Value among the Divisions after the end of the Right to Examine period. The number of free allocation changes each year that we will allow is shown in the Schedule. To make an allocation change, you must provide us with satisfactory notice at our Customer Service Center. The change will take effect when we receive the notice. Restrictions for reallocation into and out of Divisions of the Variable Separate Account and General Account are shown in the Schedule. WHAT HAPPENS IF A VARIABLE SEPARATE ACCOUNT DIVISION IS NOT AVAILABLE When a distribution is made from an investment portfolio supporting a unit investment trust Separate Account Division in which reinvestment is not available, we will allocate the distribution to the Specially Designated Division shown in the Schedule unless you specify otherwise. Such a distribution may occur when an investment portfolio or Division matures, when distribution from a portfolio or Division cannot be reinvested in the portfolio or Division due to the unavailability of securities, or for other reasons. When this occurs because of maturity, we will send written notice to you thirty days in advance of such date. To elect an allocation to other than the Specially Designated Division shown in the Schedule, you must provide satisfactory notice to us at least seven days prior to the date the investment matures. Such allocations will not be counted as an allocation change of the Accumulation Value for purposes of the number of free allocations permitted. GA-IA-1053 8 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE - ------------------------------------------------------------------------------ The variable Annuity Benefits under this Contract are provided through investments which may be made in our Separate Accounts. THE VARIABLE SEPARATE ACCOUNTS These accounts, which are designated in the Schedule, are kept separate from our General Account and any other Separate Accounts we may have. They are used to support Variable Annuity Contracts and may be used for other purposes permitted by applicable laws and regulations. We own the assets in the Separate Accounts. Assets equal to the reserves and other liabilities of the accounts will not be charged with liabilities that arise from any other business we conduct; but, we may transfer to our General Account assets which exceed the reserves and other liabilities of the Variable Separate Accounts. Income and realized and unrealized gains or losses from assets in these Variable Separate Accounts are credited to or charged against the account without regard to other income, gains or losses in our other investment accounts. The Variable Separate Account will invest in mutual funds, unit investment trusts and other investment portfolios which we determine to be suitable for this Contract's purposes. The Variable Separate Account is treated as a unit investment trust under Federal securities laws. It is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940. The Variable Separate Account is also governed by state law as designated in the Schedule. The trusts may offer non-registered series. Variable Separate Account Divisions A unit investment trust Separate Account includes Divisions, each investing in a designated investment portfolio. The Divisions and the investment portfolios designated may be managed by a separate investment adviser. Such adviser may be registered under the Investment Advisers Act of 1940. Changes within the Variable Separate Accounts We may, from time to time, make additional Variable Separate Account Divisions available to you. These Divisions will invest in investment portfolios we find suitable for this Contract. We also have the right to eliminate Divisions from a Variable Separate Account, to combine two or more Divisions or to substitute a new portfolio for the portfolio in which a Division invests. A substitution may become necessary if, in our judgment, a portfolio or Division no longer suits the purpose of this Contract. This may happen due to a change in laws or regulations, or a change in a portfolio's investment objectives or restrictions, or because the portfolio or Division is no longer available for investment, or for some other reason. We may get prior approval from the insurance department of our state of domicile before making such a substitution. We will also get any required approval from the SEC and any other required approvals before making such a substitution. Subject to any required regulatory approvals, we reserve the right to transfer assets of the Variable Separate Account which we determine to be associated with the class of contracts to which this Contract belongs, to another Variable Separate Account or Division. When permitted by law, we reserve the right to: (1) deregister a Variable Separate Account under the Investment Company Act of 1940; (2) operate a Variable Separate Account as a management company under the Investment Company Act of 1940, if it is operating as a unit investment trust; (3) operate a Variable Separate Account as a unit investment trust under the Investment Company Act of 1940, if it is operating as a managed Variable Separate Account; (4) restrict or eliminate any voting rights of Owners, or other persons who have voting rights to a Variable Separate Account; and, (5) combine a Variable Separate Account with other Variable Separate Accounts. GA-IA-1053 9 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ THE GENERAL ACCOUNT The General Account contains all assets of the Company other than those in the Separate Accounts we establish. The Guaranteed Interest Divisions available for investment are shown in the Schedule. We may, from time to time, offer other Divisions where assets are held in our General Account. VALUATION PERIOD Each Division will be valued at the end of each Valuation Period on a Valuation Date. A Valuation Period is each Business Day together with any non-Business Days before it. A Business Day is any day the New York Stock Exchange (NYSE) is open for trading, and the SEC requires mutual funds, unit investment trusts, or other investment portfolios to value their securities. ACCUMULATION VALUE The Accumulation Value of this Contract is the sum of the amounts in each of the Separate and General Account Divisions. You select the Divisions of the Variable Separate Account and General Account to which to allocate the Accumulation Value. The maximum number of Divisions to which the Accumulation Value may be allocated at any one time is shown in the Schedule. ACCUMULATION VALUE IN EACH DIVISION On the Contract Date On the Contract Date, the Accumulation Value is allocated to each Division as elected by you, subject to certain terms and conditions imposed by us. We reserve the right to allocate premium to the Specially Designated Division during any Right to Examine period. After such time, allocation will be made proportionately in accordance with the initial allocation(s) as elected by you. On each Valuation Date At the end of each subsequent Valuation Period, the amount of Accumulation Value in each Division will be calculated as follows: (1) We take the Accumulation Value in the Division at the end of the preceding Valuation Period. (2) We multiply (1) by the Variable Separate Account Division's Net Rate of Return for the current Valuation Period or we calculated the interest to be credited to a Guaranteed Interest Division for the current Valuation Period. (3) We add (1) and (2). (4) We add to (3) any additional premium payments (less any premium deductions as shown in the Schedule) allocated to the Division during the current Valuation Period. (5) We add or subtract allocations to or from that Division during the current Valuation Period. (6) We subtract from (5) any Partial Withdrawals which are allocated to the Division during the current Valuation Period. (7) We subtract from (6) the amounts allocated to that Division for: (a) any charges due for the Optional Benefit Riders as shown in the Schedule; (b) any deductions from Accumulation Value as shown in the Schedule. All amounts in (7) are allocated to each Division in the proportion that (6) bears to the Accumulation Value unless the Charge Deduction Division has been specified (see the Schedule). GA-IA-1053 10 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ MEASUREMENT OF INVESTMENT EXPERIENCE Index of Investment Experience The Investment Experience of a Variable Separate Account Division is determined on each Valuation Date. We use an Index to measure changes in each Division's experience during a Valuation Period. We set the Index at $10 when the first investments in a Division are made. The Index for a current Valuation Period equals the Index for the preceding Valuation Period multiplied by the Experience Factor for the current Valuation Period. How We Determine the Experience Factor For Divisions of a unit investment trust Separate Account the Experience Factor reflects the Investment Experience of the portfolio in which the Division invests as well as the charges assessed against the Division for a Valuation Period. The factor is calculated as follows: (1) We take the net asset value of the portfolio in which the Division invests at the end of the current Valuation Period. (2) We add to (1) the amount of any dividend or capital gains distribution declared for the investment portfolio and reinvested in such portfolio during the current Valuation Period. We subtract from that amount a charge for our taxes, if any. (3) We divide (2) by the net asset value of the portfolio at the end of the preceding Valuation Period. (4) We subtract the daily Mortality and Expense Risk Charge for each Division shown in the Schedule for each day in the Valuation Period. (5) We subtract the daily Asset Based Administrative Charge shown in the Schedule for each day in the Valuation Period. Calculations for Divisions investing in unit investment trusts are on a per unit basis. Net Rate of Return for a Variable Separate Account Division The Net Rate of Return for a Variable Separate Account Division during a Valuation Period is the Experience Factor for that Valuation Period minus one. Interest Credited to a Guaranteed Interest Division Accumulation Value allocated to a Guaranteed Interest Division will be credited with the Guaranteed Interest Rate for the Guarantee Period in effect on the date the premium or reallocation is applied. Once applied, such rate will be guaranteed until the Maturity Date of that Guarantee Period. Interest will be credited daily at a rate to yield the declared annual Guaranteed Interest Rate. No Guaranteed Interest Rate will be less than the Minimum Interest Rate shown in the Schedule. GA-IA-1053 11 HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued) - ------------------------------------------------------------------------------ CHARGES DEDUCTED FROM ACCUMULATION VALUE ON EACH CONTRACT PROCESSING DATE Expense charges and fees are shown in the Schedule. Charge Deduction Division Option We will deduct all charges against the Accumulation Value of this Contract from the Charge Deduction Division if you elected this option on the application (see the Schedule). If you did not elect this Option or if the charges are greater than the amount in the Charge Deduction Division, the charges against the Accumulation Value will be deducted as follows: (1) If these charges are less than the Accumulation Value in the Variable Separate Account Divisions, they will be deducted proportionately from all Divisions. (2) If these charges exceed the Accumulation Value in the Variable Separate Account Divisions, any excess over such value will be deducted proportionately from the Guaranteed Interest Divisions. Any charges taken from the General Account will be taken from the Guaranteed Interest Divisions starting with the Guarantee Period nearest its Maturity Date until such charges have been paid. At any time while this Contract is in effect, you may change your election of this Option. To do this you must send us a written request to our Customer Service Center. Any change will take effect within seven days of the date we receive your request. GA-IA-1053 12 YOUR CONTRACT BENEFITS - ------------------------------------------------------------------------------ While this Contract is in effect, there are important rights and benefits that are available to you. We discuss these rights and benefits in this section. CASH VALUE BENEFIT Cash Surrender Value The Cash Surrender Value, while the Annuitant is living and before the Annuity Commencement Date, is determined as follows: (1) We take the Contract's Accumulation Value; (2) We deduct any Surrender Charges; (3) We deduct any charges shown in the Schedule that have been incurred but not yet deducted, including: (a) any administrative charge that has not yet been deducted; (b) the pro rata part of any charges for Optional Benefit Riders; and (c) any applicable premium or other tax. Cancelling to Receive the Cash Surrender Value At any time while the Annuitant is living and before the Annuity Commencement Date, you may surrender this Contract to us. To do this, you must return this Contract with a signed request for cancellation to our Customer Service Center. The Cash Surrender Value will vary daily. We will determine the Cash Surrender Value as of the date we receive the Contract and your signed request in our Customer Service Center. All benefits under this Contract will then end. We will usually pay the Cash Surrender Value within seven days; but, we may delay payment as described in the Payments We May Defer provision. PARTIAL WITHDRAWAL OPTION After the Contract Date, you may make Partial Withdrawals. Partial Withdrawals may be subject to a Partial Withdrawal Charge (see the Schedule). The minimum amount that may be withdrawn is shown in the Schedule. The maximum amount that may be withdrawn without Surrender Charge is shown in the Schedule. To take a Partial Withdrawal, you must provide us satisfactory notice at our Customer Service Center. PROCEEDS PAYABLE TO THE BENEFICIARY Prior to the Annuity Commencement Date If the sole Owner dies prior to the Annuity Commencement Date, we will pay the Beneficiary the death benefit. If there are joint Owners and any Owner dies, we will pay the surviving Owners the death benefit. We will pay the amount on receipt of due proof of the Owner's death at our Customer Service Center. Such amount may be received in a single lump sum or applied to any of the Annuity Options (see Choosing an Income Plan). When the Owner (or all Owners where there are joint Owners) is not an individual, the death benefit will become payable on the death of the Annuitant prior to the Annuity Commencement Date (unless a Contingent Annuitant survived the Annuitant). Only one death benefit is payable under this Contract. In all events, distributions under the Contract must be made as required by applicable law. How to Claim Payments to Beneficiary We must receive proof of the Owner's (or the Annuitant's) death before we will make any payments to the Beneficiary. We will calculate the death benefit as of the date we receive due proof of death. The Beneficiary should contact our Customer Service Center for instructions. GA-IA-1053 13 CHOOSING AN INCOME PLAN - ------------------------------------------------------------------------------ ANNUITY BENEFITS If the Annuitant and Owner are living on the Annuity Commencement Date, we will begin making payments to the Owner. We will make these payment under the Annuity Option (or Options) as chosen in the application or as subsequently selected. You may choose or change an Annuity Option by making a written request at least 30 days prior to the Annuity Commencement Date. Unless you have chosen otherwise, Option 2 on a 10- year period certain basis will become effective. The amounts of the payments will be determined by applying the Accumulation Value on the Annuity Commencement Date in accordance with the Annuity Options section below (see Payments We Defer). Before we pay any Annuity Benefits, we require the return of this Contract. If this Contract has been lost, we require the applicable lost Contract form. ANNUITY COMMENCEMENT DATE SELECTION You select the Annuity Commencement Date. You may select any date following the fifth Contract Anniversary but before the required date of Annuity Commencement as shown in the Schedule. If you do not select a date, the Annuity Commencement Date will be in the month following the required date of Annuity Commencement. FREQUENCY SELECTION You may 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, the payments will be made monthly. THE INCOME PLAN While this Contract is in effect and before the Annuity Commencement Date, you may chose one or more Annuity Options for the payment of death benefits proceeds. If, at the time of the Owner's death, no Option has been chosen for paying the death benefit proceeds, the Beneficiary may choose an Option within one year. You may also elect an Annuity Option on surrender of the Contract for its Cash Surrender Value. For each Option we will issue a separate written agreement putting the Option into effect. Our approval is needed for any Option where: (1) the person named to receive payment is other than the Owner or Beneficiary; or (2) the person named is not a natural person, such as a corporation; or (3) any income payment would be less than the minimum annuity income payment shown in the Schedule. THE ANNUITY OPTIONS There are four Options to choose from. They are: Option 1. Income for a Fixed Period Payment is made in equal installments for a fixed number of years. We guarantee each monthly payment will be at least the Income for Fixed Period amount shown in the Schedule. Values for annual, semiannual or quarterly payments are available on request. GA-IA-1053 14 CHOOSING AN INCOME PLAN (continued) - ------------------------------------------------------------------------------ Option 2. Income for Life Payment is made to the person named in equal monthly installments and guaranteed for at least a period certain. The period certain can be 10 or 20 years. Other periods certain are available on request. A refund certain may be chosen instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the Guarantee Period, payments continue until his or her death. We guarantee each payment will be at least the amount shown in the Schedule. By age, we mean the named person's age on his or her nearest birthday before the Option's effective date. Amounts for ages not shown are available on request. Option 3. Joint Life Income This Option is available if there are two persons named to receive payments. At least one of the persons named must be either the Owner of Beneficiary of this Contract. Monthly payments are guaranteed and are made as long as at least one of the named persons is living. The monthly payment amounts are available upon request. Such amounts are guaranteed and will be calculated on the same basis as the Table for Income for Life, however, the amounts will be based on two lives. Option 4. Annuity Plan An amount can be used to buy any single premium immediate annuity we offer for the Option's effective date. The minimum rates for Option 1 are based on 3% interest, compounded annually. The minimum rates for Options 2 and 3 are based on 3% interest, compounded annually, and the Annuity 2000 Mortality Table. We may pay a higher rate at our discretion. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided by the Option agreement. The amounts still due are determined as follows: (1) For Option 1 or for any remaining guaranteed payments in Option 2, payments will be continued. (2) For Option 3, no amounts are payable after both named persons have died. (3) For Option 4, the annuity agreement will state the amount due, if any. GA-IA-1053 15 OTHER IMPORTANT INFORMATION - ------------------------------------------------------------------------------ SENDING NOTICE TO US Whenever written notice is required, send it to our Customer Service Center. The address of our Customer Service Center is shown on the cover page. Please include your Contract number in all correspondence. REPORTS TO OWNER We will send you a report at least once during each Contract Year. The report will show the Accumulation Value and the Cash Surrender Value as of the end of the Contract Processing Period. The report will also show the allocation of the Accumulation Value as of such date and the amounts deducted from or added to the Accumulation Value since the last report. The report will also include any information that may be currently required by the insurance supervisory official of the jurisdiction in which the Contract is delivered. We will also send you copies of any shareholder reports of the portfolios in which the Divisions of the Variable Separate Account invest, as well as any other reports, notices or documents required by law to be furnished to Owners. ASSIGNMENT - USING THIS CONTRACT AS COLLATERAL SECURITY You can assign this Contract as collateral security for a loan or other obligation. This does not change the ownership. Your rights and any Beneficiary's right are subject to the terms of the assignment. To make or release an assignment, we must receive written notice satisfactory to us, at our Customer Service Center. We are not responsible for the validity of any assignment. CHANGING THIS CONTRACT This Contract or any additional benefit riders may be changed to another annuity plan according to our rules at the time of the change. CONTRACT CHANGES - APPLICABLE TAX LAW We reserve the right to make changes in this Contract or its Riders to the extent we deem it necessary to continue to qualify this Contract as an annuity. Any such changes will apply uniformly to all Contracts that are affected. You will be given advance written notice of such changes. MISSTATEMENT OF AGE OR SEX If an age or sex has been misstated, the amounts payable or benefits provided by this Contract will be those that the premium payment made would have bought at the correct age or sex. NON-PARTICIPATING This Contract does not participate in the divisible surplus of Golden American Life Insurance Company. GA-IA-1053 16 OTHER IMPORTANT INFORMATION (continued) - ------------------------------------------------------------------------------ PAYMENTS WE MAY DEFER We may not be able to determine the value of the assets of the Variable Separate Account Divisions because: (1) The NYSE is closed for trading; (2) the SEC determines that a state of emergency exists; (3) an order or pronouncement of the SEC permits a delay for the protection of Owners; or (4) the check used to pay the premium has not cleared through the banking system. This may take up to 15 days. During such times, as to amounts allocated to the Divisions of the Variable Separate Account, we may delay; (1) determination and payment of the Cash Surrender Value; (2) determination and payment of any death benefit if death occurs before the Annuity Commencement Date; (3) allocation changes of the Accumulation Value; or, (4) application of the Accumulation Value under an income plan. As to the amounts allocated to a Guaranteed Interest Division in the General Account, we may, at any time, defer payment of the Cash Surrender Value for up to six months after we receive a request for it. We will allow interest of at least 3.00% a year on any Cash Surrender Value payment derived from the Guaranteed Interest Divisions that we defer 30 days or more. AUTHORITY TO MAKE AGREEMENTS All agreements made by us must be signed by one of our officers. No other person, including an insurance agent or broker, can: (1) change any of this Contract's terms; (2) extend the time for premium payments; or (3) make any agreement binding on us. REQUIRED NOTE ON OUR COMPUTATIONS We have filed a detailed statement of our computations with the insurance supervisory official in the jurisdiction where this Contract is delivered. The values are not less than those required by the law of that state or jurisdiction. Any benefit provided by an attached Optional Benefit Rider will not increase these values unless otherwise stated in that Rider. GA-IA-1053 17 DEFERRED VARIABLE ANNUITY CONTRACT - NO DIVIDENDS. FLEXIBLE PREMIUMS. - ------------------------------------------------------------------------------ Variable Cash Surrender Values while the Annuitant and Owner are living and prior to the Annuity Commencement Date. Death benefit subject to guaranteed minimum. Additional Premium Payment Option. Partial Withdrawal Option. Non-participating. Investment results reflected in values. GA-IA-1053 EX-4.D 9 INDIVIDUAL RETIREMENT ANNUITY RIDER PAGE EXHIBIT 4(d) GOLDEN AMERICAN Individual Retirement LIFE INSURANCE COMPANY Annuity Rider A stock domiciled in Wilmington, Delaware - ------------------------------------------------------------------------ On the basis of the application for the Contract to which this Rider is attached, this Contract is issued as an Individual Retirement Annuity ("IRA") intended to qualify as such under Section 408(b) of the Internal Revenue Code, as amended (the "Code"). This Contract is established for the exclusive benefit of the Owner and the beneficiaries named. In the event of any conflict between the provisions of this Rider and the Contract to which it is attached, the provisions of this Rider will control. Golden American Life Insurance Company of, ("Golden American"), reserves the right to amend or administer the Contract and Rider as necessary to comply with applicable tax requirements. Any such change will apply uniformily to all contracts that are affected and the Owner will have the right to accept or reject such changes. CONTRIBUTIONS Except in the case of a rollover contribution or a contribution made in accordance with the terms of a simplified employee pension ("SEP"), no contributions will be accepted unless they are in cash, and the total of such contributions will not exceed $2,000 for any taxable year. No contribution will be accepted under a SIMPLE plan established by any employer pursuant to Code section 408(p). No transfer or rollover of funds attributable to contributions made by a particular employer under its SIMPLE plan will be accepted from a SIMPLE IRA, that is, an IRA used in conjunction with a SIMPLE plan, prior to the expiration of the 2-year period beginning on the date the individual first participated in that employer's SIMPLE plan. Any refund of premiums (other that those attributable to excess contributions) will be applied before the close of the calendar year following the year of the refund towards the payment or future payment of the future premiums or the purchase of additional benefits. NONFORFEITABILITY AND NONTRANSFERABILITY The Owner's IRA account will be 100% nonforfeitable at all times and will be maintained for the exclusive benefit of the Owner and the beneficiaries named. This IRA may not be attached or alienated except where permitted by law. The Owner may not transfer ownership of any part or all of this IRA at any time, or pledge any part of it or use any part of it as collateral. ROLLOVERS The Owner may make rollover premium purchase payments under the IRA as permitted by Section 402(c), 403(a)(4), 403(b)(8), 408(p)(7) or 408(d)(3). The Insurer may require that the Owner furnish documentation that a rollover premium purchase payment qualifies as a rollover under the Code. SIMPLIFIED EMPLOYEE PENSIONS This IRA will accept premium purchase payments made on behalf of the Owner by the Owner's employer pursuant to a simplified employee pension plan ("SEP") under Code Section 408(k). GA-RA-1009-08/97 1 MINIMUM DISTRIBUTION RULES (a) IRA required minimum annual distributions must commence to the Owner no later than April 1st of the calendar year following the calendar year in which the Owner attains age 70 1/2. The method of distribution elected must insure that the entire interest of the Owner must be distributed by that date. Alternatively, the distribution method elected must commence by that date and provide that the Owner's entire interest be distributed over a period not to exceed: (i) the life expectancy of the Owner or the joint and last survivor expectancy of the Owner and the designated beneficiaries; or, (ii) a period certain not in excess of the life expectancy of the Owner or the joint and last survivor expectancy of the Owner and the designated beneficiaries. All distributions made hereunder will be made in accordance with the requirements of section 401(a) (9) of the Code, including the incidental death benefit requirements of section 401(a) (9) (G) of the Code, and the regulations thereunder, including the minimum distribution incidental benefit requirement of section 1.401(a) (9)-2 of the Proposed Income Tax Regulations. In addition, payments must be either nonincreasing or they may increase only as provided in Q&A F-3 of section 1.401(a) (9)-1 of the Proposed Income Tax Regulations. (b) All payments are to be made in equal annual installments, except where a cashout accelerates payment. There is no account balance, which would vary from year to year, as in a 408(a) IRA. (c) Life expectancy is computed by use of the expected return multiples in Tables V and VI of section 1.72-9 of the Income Tax Regulations. Unless otherwise elected by the individual by the time distributions are required to begin, life expectancies will be recalculated annually. Such election will be irrevocable by the individual and will apply to all subsequent years. The life expectancy of non-spouse beneficiary may not be recalculated. Instead, life expectancy will be calculated using the attained age of such beneficiary during the calendar year in which the beneficiary attains age 70 1/2, and payments for subsequent years will be calculated based on such life expectancy reduced by one for each calendar year which has elapsed since the calendar year life expectancy was first calculated. (d) In the event the Owner dies before distribution of his or her interest commences under this IRA, 100% of the balance under the IRA will be distributed to the beneficiaries named. Distribution will be completed no later than the last day of the calendar year in which the fifth anniversary of the Owner's death occurs. If the individual's interest is payable to a designated beneficiary, then the entire interest of the individual may be distributed over the life or over a period certain not greater than the life expectancy of the designated beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the individual died. The designated beneficiary may elect at any time to receive greater payments. (e) In the event the Owner dies after the commencement of benefits to him under this IRA, distribution of the remaining benefits under the IRA will be made to the beneficiaries named in a method at least as rapid as that in effect as of the date of the Owner's death. Commencement of distributions under this section to the beneficiaries must be no later than the last day of the calendar year in which occurs the first anniversary of the Owner's death. (f) The provisions of (d) and (e) will not apply where the beneficiary is the Owner's surviving spouse. The surviving spouse may elect to delay commencement of required distributions until the December 31st of the calendar year in which the deceased Owner would have attained age 70 1/2. Alternatively, the surviving spouse may elect to rollover the entire balance of the deceased Owner's IRA to the surviving spouse's own IRA. Life expectancy is computed by use of the expected return multiples in Tables V and VI of section 1.72-9 of the Income Tax Regulations. For purposes of distributions beginning after the individual's death, unless otherwise elected by the surviving spouse by the time distributions are required to begin, life expectancies will be recalculated annually. GA-RA-1009-08/97 2 MINIMUM DISTRIBUTION RULES (CONTINUED) Such election will be irrevocable by the surviving spouse and will apply to all subsequent years. In the case of any other designated beneficiary, life expectancies will be calculated using the attained age of such beneficiary during the calendar year in which distributions are required to begin pursuant to this section, and payments for any subsequent calendar year will be calculated based on such life expectancy reduced by one for each calendar year which has elapsed since the calendar year life expectancy was first calculated. Distributions under this section are considered to have begun if distributions are made on account of the individual reaching his or her required beginning date or if prior to the required beginning date distributions irrevocably commence to an individual over a period permitted and in an annuity form acceptable under section 1.401(a) (9) of the Regulations. (g) The designated beneficiary may elect to receive greater payments than those required under this section. If there is more than one beneficiary, the designated beneficiary will be that person with the shortest life expectancy for the purposes of determining the distribution period. (h) For purposes of this Section, any amounts paid to a minor child of the Owner will be treated as having been paid to the surviving spouse if the remainder of the IRA is payable to the surviving spouse when the child attains the age of majority. REPORTS The issuer of an individual retirement annuity will furnish annual calendar year reports concerning the status of the annuity. GA-RA-1009-08/97 3 EX-4.E 10 ROTH INDIVIDUAL RETIREMENT ANNUITY RIDER EXHIBIT 4(e) GOLDEN AMERICAN LIFE INSURANCE COMPANY 1001 JEFFERSON STREET, SUITE 400, WILMINGTON, DE 19801 ROTH INDIVIDUAL RETIREMENT ANNUITY RIDER The following language amends and takes precedence over contrary language in the Contract to which it is attached. All references in this rider to: IRC or Code means the Internal Revenue Code of 1986 as amended and all rules and regulations thereunder. Contract means the policy, certificate or contract to which this rider is attached. Owner means the person ("insured" or "annuitant") covered by the contract. 1. This Contract may not be transferred, sold, assigned, discounted or pledged as collateral: (a)for a loan; (b)as security for the performance of an obligation; or (c)for any other purpose; to any person other than to us under surrender or settlement. 2. The premiums applicable to this Contract will be applied to accumulate a retirement saving fund for the annuitant/Owner. 3. All contributions shall be in cash and the total of all contributions shall not exceed $2,000 for any taxable year, except in the case of a rollover contribution which meets the requirements of IRC Section 408(d)(3) and which is: (a)from another ROTH IRA [as defined in IRC Section 408A(b)]; (b)from an individual retirement account [as defined in IRC Section 408(a)]; or (c)from an individual retirement annuity [as defined in IRC Section 408(b)]; Any refund of premiums (other than those attributable to excess contributions) will be applied before the close of the calendar year following the year of the refund. Any such refund will be applied towards the payment of future premiums or the purchase of additional benefits. 4. Conversion of an individual retirement account or an individual retirement annuity to a ROTH IRA shall be treated as a distribution from an individual retirement plan (other than a ROTH IRA) maintained for the benefit of an individual which is contributed to a ROTH IRA maintained for the benefit of such individual in a rollover contribution qualifying under IRC Section 408(d)(3). 5. All distributions made under this Contract, after the Owner's death, shall be made in accordance with the requirements of IRC Section 401(a)(9) including any regulations under that Section. The above Section and regulations are incorporated by reference. 6. No provision of this Contract or any supplementary contract issued upon the death of the Owner in exchange for this Contract will apply where it permits or provides for settlement of such amount in any manner other than a complete distribution of the Owner's entire interest by December 31 of the calendar year containing the fifth anniversary of the Owner's death, except to the extent that: GA-RA-1038-10/97 6. Continued (a) If the Owner's interest is payable to a designated beneficiary, then the entire interest of the Owner may be distributed over the life of such beneficiary, or over a period not extending beyond the life expectancy of such designated beneficiary, provided that distributions start by December 31st of the year following the year of the Owner's death. If the beneficiary is the Owner's surviving spouse, distribution is not required to begin before December 31st of the year in which the Owner would have turned 70 1/2. (b) If the designated beneficiary is the Owner's surviving spouse, the spouse may treat the Contract as his or her own individual retirement arrangement (IRA). This election will be deemed to have been made if the spouse: (i) makes a regular IRA contribution to the Contract; (ii) makes a rollover to or from such Contract; (iii) fails to elect either of the provisions in Sections 6 or 6(a) above. 7. Life expectancy is computed by use of the expected return multiples in Section 1.72-9 of the Treasury Regulations. For purposes of distributions beginning after the Owner's death, unless otherwise elected by the surviving spouse by the time distributions are required to begin, life expectancies shall be recalculated annually. An election not to recalculate shall be irrevocable by the surviving spouse and shall apply to all subsequent years. The life expectancy of a non-spouse beneficiary shall be calculated using the attained age of such beneficiary during the calendar year in which distributions are required to begin pursuant to this section, and payments for any subsequent calendar year shall be calculated based on such life expectancy reduced by one for each calendar year which has elapsed since the calendar year life expectancy was first calculated. 8. This Contract will be for the exclusive benefit of the Owner or his or her beneficiary. The entire interest of the Owner in this Contract will be nonforfeitable. 9. We will furnish annual calendar year reports concerning the status of this Contract, including information related to any distribution from the Contract. 10.We may amend this Contract to conform to the provisions of the IRC, Internal Revenue Regulations or published Internal Revenue Rulings. President: /s/ Terry L. Kendall Secretary: /s/ Myles R. Tashman GA-RA-1038-10/97 EX-5 11 OPINION AND CONSENT OF MYLES R. TASHMAN, ESQ. EXHIBIT 5 GOLDEN AMERICAN LIFE INSURANCE COMPANY 1475 Dunwoody Drive West Chester, PA 19380-1478 February 11, 2000 Board of Directors Golden American Life Insurance Company 1475 Dunwoody Drive West Chester, PA 19380-1478 Ladies and Gentlemen: In my capacity as Executive Vice President and Secretary of Golden American Life Insurance Company, a Delaware domiciled corporation ("Company"), I have supervised the preparation of the registration statement for the Deferred Combination Variable and Fixed Annuity Contract ("Contract") to be filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933. I am of the following opinion: (1) The Company was organized in accordance with the laws of the State of Delaware and is a duly authorized stock life insurance company under the laws of Delaware and the laws of those states in which the Company is admitted to do business; (2) The Company is authorized to issue Contracts in those states in which it is admitted and upon compliance with applicable local law; (3) The Contracts, when issued in accordance with the prospectus contained in the aforesaid registration statement and upon compliance with applicable local law, will be legal and binding obligations of the Company in accordance with their terms. In arriving at the foregoing opinion, I have made such examination of law and examined such records and other documents as in my judgment are necessary or appropriate. I hereby consent to the filing of this opinion as an exhibit to the aforesaid registration statement and to the reference to me under the caption "Legal Matters" in the prospectus contained in said registration statement. In giving this consent I do not thereby admit that I come within the category of persons whose consent is required under section 7 of the Securities Act of 1933 or the Rules and Regulations of the Securities and Exchange Commission thereunder. Sincerely, /s/ Myles R. Tashman - --------------------- Myles R. Tashman Executive Vice President, General Counsel and Secretary EX-10.A 12 ADMIN. SERVICES AGREEMENT BETWEEN GOLDEN & ELICI EXHIBIT 10(a) SERVICE AGREEMENT This Service Agreement dated as of January 1, 1997, is entered into by and between Equitable Life Insurance Company of Iowa ("ELIC"), a corporation organized and existing under the laws of the State of Iowa, and Golden American Life Insurance Company ("GA"), an insurance company organized and existing under the laws of the State of Delaware. WHEREAS, Equitable Life Insurance Company of Iowa and Golden American Life Insurance Company are owned or controlled directly or indirectly by Equitable of Iowa Companies, which conducts substantially all of its insurance and non-insurance operations through subsidiary companies, and WHEREAS, ELIC provides personnel, services and managerial functions for its subsidiaries and affiliates, and directly or indirectly leases employees and facilities to affiliates to carry out their operations; and WHEREAS, GA is desirous of obtaining certain advisory, computer, and other resources ("Services") provided through ELIC upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the ELIC and GA hereto agree as follows: 1. Services. On the basis of the foregoing premises Services shall be provided to GA as GA shall request from time to time in furtherance of the development and maintenance of GA's activities. Such Services may include the following: a.) Accounting b.) Actuarial c.) Advisory d.) Claims Adjustment e.) Computer Services f.) Employee Services g.) Legal h.) Marketing (excluding commissions) i.) Tax j.) Underwriting k.) Administrative Services 2. Control. All Services to be performed pursuant to this Agreement which require the exercise of judgment shall be performed in accordance with generally accepted insurance practices when insurance or related activi ties are involved. 3. Consideration. Costs shall be attributable to GA for Services performed, in accordance with the allocation set forth in the attached schedule ("Schedule") or in accordance with any future schedules for payment of costs as agreed to between the parties. Quarterly, ELIC shall have the right to (a) adjust the allocations set forth in the Schedule to reflect as closely as possible the actual cost of Services rendered to GA and (b) to allocate the difference between the actual cost of Services rendered to GA and the amounts set forth in the Schedule. Services provided shall be recorded through intercompany accounts. 4. Audit. As of the last day of each year, GA shall have the right, at its own expense, to conduct an audit of the Services rendered and the amounts charged hereunder. 5. Termination. This Agreement shall remain in effect until termination by mutual agreement of the parties hereto on 30 days written notice, with the exception of any Computer Services being provided by ELIC to GA in which case GA shall have the option to continue to receive such services for six months subsequent to such termination notice. 6. Construction. This Agreement shall be interpreted and construed under and pursuant to the laws of the State of Iowa. 7. This Agreement is subject to the approval of the state insurance commissioners of the Delaware and Iowa Departments of Insurance. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. EQUITABLE LIFE INSURANCE COMPANY OF IOWA By:___________________________ Frederick S. Hubbell, President, Chairman of the Board and CEO Attest___________________________ John A. Merriman, Secretary GOLDEN AMERICAN LIFE INSURANCE COMPANY By:______________________________ Terry L. Kendall, President and CEO Attest____________________________ Myles R. Tashman, Secretary SCHEDULE (January 1, 1997) Expense Charges GA's costs shall be computed in the Reports designated below, prepared according to the following methodologies: A. Individual Policies 1. Individual Life - Charges as determined per annual expense study and quarterly allocation report. a) Issuance - Flat amount per policy issued. b) Maintenance - Flat amount per average in force policy. 2. Single Premium Universal Life - Charges as determined per annual expense analysis and Quarterly Allocation Report. a) Issuance - Flat amount per policy issued. b) Maintenance - Flat amount per average in force policy. 3. Group - Charges as set forth in the Group Allocation Report. a) Issuance - Flat amount per policy issued. b) Maintenance - Flat amount per in force certificate and/or groups in force. B. Annuity Policies 1. Deferred Annuities - Charges as set forth in the Annuity Internal Cost Allocation Report a) Flat charge per contract issued b) Maintenance - flat amount per average policy in force. 2. Immediate Annuities - Charges as set forth in the Annuity Internal Cost Allocation Report a) Flat charge per contract issued b) Maintenance charge per contract i) Quarterly fee per in force contract 3. Other Annuities (Specialty, etc.) - Charges as set forth in the pricing of the product. EX-10.B 13 SERVICE AGREEMENT BETWEEN GOLDEN AND DSI EXHIBIT 10(b) SERVICE AGREEMENT This Service Agreement (hereinafter called "Agreement") is made effective as of the 1st day of January 1994, by and between Directed Services, Inc., a New York Corporation (hereinafter called "DSI"), and Golden American Life Insurance Company, a Delaware Insurance Corporation (hereinafter called "Golden American"). WHEREAS, DSI has extensive experience in the distribution of variable insurance business; and WHEREAS, Golden American is an affiliate of DSI and desires DSI to perform certain marketing, sales and other services (hereinafter called "Services") for Golden American in its insurance operations and desires further to make use in its day-to-day operations of certain personnel, property, equipment, and facilities (hereinafter called "Facilities") of DSI as Golden American may request; and WHEREAS, DSI desires Golden American to perform certain managerial, supervisory, treasury, accounting, financial reporting, systems, legal and tax-related tasks for DSI in its securities operations and further to make use in its day-to-day operations of certain personnel, property, equipment, and facilities of Golden American as DSI may request; and WHEREAS, DSI and Golden American contemplate that such an arrangement will achieve certain operating economies, and improve services to the mutual benefit of both DSI and Golden American; and WHEREAS, DSI and Golden American wish to assure that all charges for Services and the use of Facilities incurred hereunder are reasonable and to the extent practicable reflect actual costs and are arrived at in a fair and equitable manner, and that estimated costs, whenever used, are adjusted periodically to bring them into alignment with actual costs; and WHEREAS, DSI and Golden American wish to identify the Services to be rendered to Golden American and DSI and to provide a method of fixing bases for determining the charges to be made. NOW, THEREFORE, in consideration of the premises and of the promises set forth herein, and intending to be legally bound hereby, DSI and Golden American agree as follows: 1. PERFORMANCE OF SERVICES Both parties agree to the extent requested by the other party to perform such Services for each other as the parties determine to be reasonably necessary in the conduct of their insurance operations and securities operations. Each party agrees at all times to use its best efforts to maintain sufficient personnel and Facilities of the kind necessary to perform the Services contemplated under this Agreement. Each shall have the right upon thirty (30) days prior written notice to the other to subcontract with those parents, subsidiaries, affiliates or unrelated third parties (hereinafter "SUBS") accepted in writing by the other party to perform any Services and provide any personnel and Facilities which each is obligated to provide pursuant to this Agreement and in strict accordance with the terms, conditions and limitations contained in this Agreement. In addition, each party agrees that shared personnel may be used. Services provided by such shared personnel may satisfy either party's obligations to perform Services under this Agreement. 1 (a) CAPACITY OF PERSONNEL Whenever either party utilizes its personnel to perform Services for the other pursuant to this Agreement, such personnel shall at all times remain employees of the employer subject solely to its direction and control and the employer shall alone retain full liability to such employees for their welfare, salaries, fringe benefits, legally required employer contributions and tax obligations. No facility of either party used in performing Services for or subject to use by the other party shall be deemed to be transferred, assigned, conveyed or leased by performance or use pursuant to this Agreement. (b) EXERCISE OF JUDGEMENT IN RENDERING SERVICES In providing any Services hereunder which require the exercise of judgement, each party shall perform any such Service in accordance with any standards and guidelines developed and communicated to the other party. In performing any Services hereunder, each party shall at all times act in a manner reasonably calculated to be in, or not opposed to, the best interest of the other party. Neither party shall have liability for any action taken or omitted by it, in furnishing Services and Facilities under this Agreement, in good faith and without gross negligence. (c) CONTROL The performance of Services by DSI for Golden American or Golden American for DSI pursuant to this Agreement shall in no way impair the absolute control of the business and operations of DSI or Golden American by their respective Boards of Directors. Each party shall act hereunder so as to assure the separate operating identity of the other party. 2. SERVICES The performance of DSI under this Agreement with respect to the business and operations of Golden American shall at all times be subject to the direction and control of the Board of Directors of Golden American. The performance of Golden American under this Agreement with respect to the business and operations of DSI shall at all times be subject to the direction and control of the Board of Directors of DSI. 2.1. Subject to the foregoing and to the terms and conditions of this Agreement, DSI shall provide to Golden American the Services set forth below. (a) MARKETING DSI shall provide marketing Services, including recruitment and direction of internal wholesalers, validation of agents' training allowances and development allowances and the administration of all agency matters. (b) ADVERTISING AND SALES PROMOTIONAL SERVICES Under the general supervision of the Board of Directors of Golden American and subject to the direction, control and prior approval of the responsible officers of Golden American, DSI shall provide sales Services, including sales aids, rate guides, sales brochures, solicitation materials and such other promotional materials, information, assistance and advice as shall assist the sales efforts of Golden American. DSI shall also interface to the extent necessary or appropriate with the NASD and SEC regarding marketing materials. 2 (c) DSI shall provide underwriting and related securities Services to Golden American in its offerings of insurance products. (d) DSI shall provide supervisory and regulatory expertise and support as necessary to facilitate Golden American's offering of insurance products, including NASD and SEC interface regarding registered representatives and registration statements. 2.2. Subject to the foregoing and to the terms and conditions of this Agreement, Golden American shall provide to DSI the services set forth below. (a) SUPERVISORY/MANAGERIAL Golden American shall provide managerial and supervisory services to DSI regarding insurance operations, insurance distribution and product specific knowledge/information or training. (b) ACCOUNTING/FINANCIAL Golden American shall provide treasury, accounting, and financial reporting services, including systems support as requested by DSI to support DSI's investment advisory and in the performance of allocations of salaries and expenses of the parties to this Agreement. (c) TAX Golden American shall provide tax-related consulting and related services to DSI's operations. (d) LEGAL Golden American shall provide legal support for DSI. (e) COMMISSIONS PROCESSING Golden American shall process the payment of commissions for DSI. 3. CHARGES Golden American agrees to reimburse DSI and DSI agrees to reimburse Golden American for Services provided to each other pursuant to this Agreement. The charges for such Services and Facilities shall include all direct and directly allocable expenses, reasonably and equitably determined to be attributable to each party, plus a reasonable charge for direct overhead such as rent expense, the amount of such charge for overhead to be agreed upon by the parties from time to time. When shared personnel are used to perform Services, allocations of the cost of such personnel including salaries and benefits shall be in proportion to the time spent by such personnel directly relating to Services performed for the appropriate party to this Agreement. Each party's determination of charges hereunder shall be presented to the other party, and if a party objects to any such determination, it shall so advise the other party within thirty (30) days of receipt of notice of said determination. Unless the parties can reconcile any such objection, they shall agree to the selection of a firm of independent certified public accountants which shall determine the charges properly allocable to each party and shall, within a reasonable time, submit such determination, together with the basis therefore, in writing to DSI and Golden American whereupon such determination shall be binding. The expenses of such a determination by a firm of independent certified public accountants shall be borne equally by DSI and Golden American. 3 4. PAYMENT Each party shall submit to the other party within thirty (30) days of the end of each calendar month a written statement of the amount estimated to be owed by the other party for Services and the use of Facilities pursuant to this Agreement in that calendar month and each party shall pay to the party rendering the statement within thirty (30) days following receipt of such written statement the amount set forth in the statement. 5. ACCOUNTING RECORDS AND DOCUMENTS Each party shall be responsible for maintaining full and accurate accounting records of all Services rendered and Facilities used pursuant to this Agreement to the other party and such additional information as each may reasonably request for purposes of its internal bookkeeping and accounting operations. They shall keep such accounting records insofar as they pertain to the computation of charges hereunder available at their principal offices for audit, inspection and copying by the other party or any governmental agency having jurisdiction over each entity during all reasonable business hours. With respect to accounting and statistical records prepared by reason of their performance under this Agreement, summaries of such records shall be delivered to the other party within thirty (30) days from the end of the month to which the records pertain, or as soon thereafter as practicable. 6. OTHER RECORDS AND DOCUMENTS All books, records, and files established and maintained by DSI by reason of its performance under this Agreement which, absent this Agreement, would have been held by Golden American shall be deemed the property of Golden American, and shall be subject to examination by Golden American and persons authorized by it at all times, and shall be delivered to Golden American at least quarterly. The records held by Golden American for services provided for DSI shall be deemed property of DSI, and shall be subject to examination by DSI and persons authorized by it at all times. With respect to original documents other than those provided for in Section 5 hereof which would otherwise be held by Golden American and which may be obtained by DSI in performing under this Agreement, DSI shall deliver such documents to Golden American within thirty (30) days of their receipt by DSI except where continued custody of such original documents is necessary to perform services hereunder. The records held by Golden American in the performance of services for DSI shall be delivered to DSI within thirty (30) days of their receipt by Golden American except where continued custody is necessary to perform services hereunder. 7. RIGHT TO CONTRACT WITH SUBS Nothing herein shall be deemed to grant either an exclusive right to provide Services to the other party, and each party retains the right to contract with any SUB, affiliated or unaffiliated, for the performance of Services or for the use of Facilities as are available to or have been requested by either party pursuant to this Agreement. 8. TERMINATION AND MODIFICATION This Agreement shall remain in effect until terminated by either DSI or Golden American upon giving thirty (30) days or more advance written notice, provided that Golden American shall have the right to elect to continue to receive data processing Services and/or to continue to utilize data processing Facilities and related software for up to one year from the date of such notice. Upon termination, each party shall promptly deliver to the other party all books and records that are, or are deemed by this Agreement to be, the property of the other party. 4 9. SETTLEMENT ON TERMINATION No later than ninety (90) days after the effective date of termination of this Agreement, each party shall deliver to the other party a detailed written statement of all charges incurred and not included in any previous statement to the effective date of termination. The amount owned hereunder shall be due and payable within thirty (30) days of receipt of such statement. 10. ASSIGNMENT This Agreement and any rights pursuant hereto shall not be assignable by either party hereto, except as set forth herein or by operation of law. Except as and to the extent specifically provided in this Agreement, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective legal successors, any rights, remedies, obligations or liabilities, or to relieve any person other than the parties hereto or their respective legal successors from any obligations or liabilities that would otherwise be applicable. The covenants and agreements contained in this Agreement shall be binding upon, extend to and ensure to the benefit of the parties hereto, their and each of their successors and assigns respectively. 11. GOVERNING LAW This Agreement is made pursuant to and shall be governed by, interpreted under, and the rights of the parties determined in accordance with, the laws of the State of Delaware. 12. ARBITRATION Any unresolved difference of opinion between the parties arising out of or relating to this Agreement, or the breach thereof, except as provided in Section 3, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and the Expedited Procedures thereof, and judgement upon the award rendered by the Arbitrator may be entered in any Court having jurisdiction thereof. The arbitration shall take place in Wilmington, Delaware, or at such other place as the parties may mutually agree. 13. NOTICE All notices, statements or requests provided for hereunder shall be deemed to have been duly given when delivered by hand to an officer of the other party, or when deposited with the U.S. Postal Service as certified or registered mail, postage prepaid, addressed: (a) If to DSI, to: Bernard R. Beckerlegge General Counsel and Secretary Directed Services, Inc. 280 Park Avenue, 14th Floor-West New York, New York 10017 (b) If to Golden American, to: David L. Jacobson Senior Vice President and Assistant Secretary Golden American Life Insurance Company 1001 Jefferson Street, Suite 400 Wilmington, Delaware 19801 or to such other person or place as each party may from time to time designate by written notice sent as aforesaid. 5 14. ENTIRE AGREEMENT This Agreement, together with such Amendments as may from time to time be executed in writing by the parties, constitutes the entire Agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their respective officers duly authorized so to do, and their respective corporate seals to be attached hereto this 7th day of March 1995. Directed Services, Inc. By: /s/ Mary Bea Wilkenson Golden American Life Insurance Company By: /s/ David L. Jacobson 6 The Service Agreement between Golden American Life Insurance Company ("Golden American") and Directed Services, Inc. ("DSI") dated March 7, 1995 is hereby amended by mutual agreement of the parties by addition of the following provisions: Section 2.1 Services of Directed Services, Inc. shall be amended by adding the following: (e) DSI shall conduct due diligence meetings and conferences to educate third-party broker-dealers regarding Golden American's insurance products. Section 3. CHARGES shall be amended by adding the following examples demonstrating equitable determination of expenses. These examples are intended to show the intent of the parties and are not all inclusive: (a) Expenses relating to compensation of wholesalers - 1. Golden American shall pay the base compensation of wholesalers. This serves as Golden American's share for providing insurance knowledge and insurance distribution services. 2. DSI shall pay the bonus compensation of wholesalers. This serves as DSI's share for providing marketing services to third- party broker-dealers. (b) Expenses related to the production of marketing materials - (b) Golden American pays for prospectus and marketing materials directly related to the insurance products. (c) DSI pays for marketing materials related to its investment advisory functions, including brochures describing fund performance, fund objectives and fund risks. (c) Expenses for managerial and supervisory services payable to Golden American 10 bp of separate account assets (Section 2.2(a)). This amendment was executed December 18, 1995 and is effective as of March 7, 1995. By: /s/ Mary Bea Wilkenson By: /s/ David L. Jacobson - -------------------------------- ------------------------------- Directed Services, Inc. Golden American Life Insurance Company Directed Services, Inc. EX-10.C 14 ASSET MANAG AGREE BTW GALIC AND ING EXHIBIT 10(c) ASSET MANAGEMENT AGREEMENT THIS ASSET MANAGEMENT AGREEMENT (the "Agreement"), dated January 20, 1998, and effective as of the date specified in Section 17 hereof, is by and between GOLDEN AMERICAN LIFE INSURANCE COMPANY, a Delaware corporation (the "Client"), and ING INVESTMENT MANAGEMENT LLC, a Delaware limited liability company ("ING-IM"). SECTION 1. APPOINTMENT OF ING-IM - The Client hereby appoints ING-IM to provide asset management services for the Client's general account (the "Account") under the terms and conditions set forth in this Agreement. ING- IM hereby accepts such appointment and agrees to provide such asset management services as are specified in EXHIBIT "A" attached hereto and incorporated herein by reference. SECTION 2. RECOMMENDATIONS - INVESTMENTS - ING-IM shall make recommendations to the Client relating to the direction and management of the investment and reinvestment of assets in the Account and any additions thereto. No cash or securities due to or held for the Account shall be paid or delivered to ING-IM except in payment of the fee payable to ING-IM under this Agreement. SECTION 3. DISCRETIONARY AUTHORITY - BROKERAGE - ING-IM shall have full and complete discretion to establish brokerage accounts in the name of the Client and execute transactions in securities markets in the name of the Client, pursuant to proper authorization from the Client, through one or more securities broker/dealer firms as ING-IM may select, including those which from time to time may furnish to ING-IM statistical and investment research information and other services. The Client accepts the Statement of Policy on Brokerage Practices which is attached to this Agreement as EXHIBIT "B" and incorporated herein by reference. This policy may be modified by ING-IM in consultation with the Client. SECTION 4. INVESTMENT OBJECTIVES - The investment objectives and guidelines for the Account will be communicated in writing by the Client from time to time. ING-IM will utilize these objectives in managing the Account. SECTION 5. ADMINISTRATIVE SERVICES - ING-IM will provide the Client with the following administrative services: preparation of Schedules B and D to the Client's annual statement; pricing of portfolios on a periodic basis as mutually agreed; mortgage loan servicing for both direct and mortgage banker- serviced loans; private placement securities servicing; coordination of purchases and sales at custodian bank; and coordination of securities lending by agent banks. SECTION 6. FEES - The Client will pay to ING-IM as full compensation for services rendered a quarterly fee based on the quarterly fees set for in EXHIBIT "C" attached hereto and incorporated herein by reference, as it may be amended in writing. If ING-IM shall serve for less than the whole of any quarterly period, its compensation determined as provided above shall be calculated and shall be payable on a pro rata basis for the period of the calendar quarter for which it has served as an adviser hereunder. SECTION 7. PROCEDURES - All transactions will be consummated by payment to, or delivery by, the Client, or such other party as the Client may designate in writing (the "Custodian") of all cash and/or securities due to or from the Account. ING-IM shall not act as custodian for the Account. The Client shall establish a procedure for transmitting approvals, directives and authorizations from the Client to ING-IM. Such procedures, once established, shall continue until modified, in whole or in part, by the Client. The Client retains the full right and authority to modify, amend, alter and repeal all such procedures in its sole discretion. ING-IM shall instruct all brokers or dealers executing orders on behalf of the Account to forward to the Client and/or the Custodian copies of all brokerage confirmations promptly after execution of transactions. The Client will instruct the Custodian, if any, to provide ING-IM with such periodic reports concerning the status of the Account as ING-IM may reasonably request. Unless otherwise notified in writing by Client, ING-IM shall be authorized to rely upon instruction received from the named Client representatives set forth in EXHIBIT "D" attached hereto and incorporated herein by reference. SECTION 8. PROXIES - ING-IM shall vote securities held in the Account in response to proxies solicited by the issuers of such securities in accordance with guidelines established by Client. ING-IM will provide such information with respect to such voting as the Client may reasonably request. SECTION 9. SERVICE TO OTHER CLIENTS - It is understood that ING-IM provides asset management services for other clients. It is further understood that ING-IM may take management action on behalf of such other clients which differs from management action taken on behalf of the Account. If the purchase or sale of securities for the Account and for one or more such other clients is considered at or about the same time, the transactions in such securities will be allocated among the several clients in a manner deemed equitable by ING-IM. SECTION 10. LIABILITY OF ING-IM - In rendering services under this Agreement, ING-IM will not be subject to any liability to the Client to any other party for any act or omission of ING-IM except as the result of ING- IM's gross negligence or willful misconduct. Nothing herein shall in any way constitute a waiver or limitation of any right of any person under applicable Federal or State law. SECTION 11. REPRESENTATIONS BY CLIENT - The Client hereby represents and warrants in favor of ING-IM as follows: (a) The Client has the power and authority (i) to enter into and execute this Agreement and (ii) to do all acts and things as are required or contemplated hereunder to be done, observed and performed by it; (b) This Agreement has been duly authorized, validly executed and delivered by one or more authorized signatories of the Client, and this Agreement constitutes a legal, valid and binding obligation of the Client, enforceable against the Client in accordance with its terms; and (c) The execution and delivery of this Agreement and the Client's performance hereunder do not and will not be in contravention of or in conflict with the Client's charter documents or the provisions of any statute, judgment, order, indenture, instrument, agreement or undertaking to which the Client is a party or by which the Client's assets or properties are or may become bound. The Client has obtained all necessary consents and approvals of all regulatory and governmental authorities and agencies have jurisdiction over the Client for the Client to execute and deliver this Agreement and to perform hereunder. SECTION 12. FORM ADV PART II - The parties hereto acknowledge that, concurrently with the execution of this Agreement, ING-IM is furnishing to Client, for Client's review and inspection, a copy of Form ADV Part II most recently filed by ING-IM with the Securities and Exchange Commission. Upon Client's written or oral request, ING-IM shall provide to Client a copy of any future Form ADV Part II. SECTION 13. TERMINATION - This Agreement may be terminated by either party on the month-end next following receipt of written notice of termination. SECTION 14. NOTICE - Any notice, advice or report to be given pursuant to this Agreement shall be delivered or mailed: To ING-IM: ING INVESTMENT MANAGEMENT LLC 5780 Powers Ferry Road, NW Suite 300 Atlanta, GA 30327-4349 To Client: GOLDEN AMERICAN LIFE INSURANCE COMPANY 1001 Jefferson Street Suite 400 Wilmington, DE 19801 SECTION 15. CONSTRUCTION OF AGREEMENT - This Agreement shall be construed and the rights and obligations of the parties hereunder enforced in accordance with the laws of the State of Georgia. SECTION 16. ASSIGNMENT - This Agreement shall bind and inure to the benefit of and be enforceable by the parties hereto and their permitted successors and assigns hereunder; provided, however, that ING-IM may not assign its rights and obligations under this Agreement unless and until it shall have first received the prior written consent of the Client. The above consent may be withheld for any reason, but if such consent is given, ING- IM's assignee shall be required to assume and agree to perform all the obligations of ING-IM hereunder and ING-IM shall remain fully liable for the full and faithful performance of all obligations arising prior to any such assignment. SECTION 17. EFFECTIVE DATE - Notwithstanding the date set forth in the first paragraph hereof, this Agreement shall be effective as of January 1, 1998. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused it to be executed by their duly authorized officers, all as of the day and year first above. CLIENT: GOLDEN AMERICAN LIFE INSURANCE COMPANY By/s/ David L. Jacobson _________________________________ Title: Senior Vice President ________________________________ ING-IM: ING INVESTMENT MANAGEMENT LLC By/s/ Thomas J. Balachowski _________________________________ Title: President and CEO ________________________________ EXHIBIT "A" Asset Management Services _________________________ To the extent permitted by applicable law, ING-IM shall provide all asset management services for Client's Account, including the following: Private placement bonds and preferred stocks in an amount not to exceed the maximum established from time to time by Client's Investment Committee and communicated to ING-IM. Public Market Corporate and Government Bonds. Public Market Preferred Stocks. Common Stocks. Participating and Non-participating Mortgage Loans. Equity Real Estate. Mortgage Backed Securities and Collateralized Mortgage Obligations and derivatives thereof. Cash Management services, as required, in conjunction with Mortgage Loans, Equity Real Estate, and/or the servicing of same. Swap Transactions. "Cap", "Floors", "Puts", "Calls" and similar derivative transactions. EXHIBIT "B" STATEMENT OF POLICY ON BROKERAGE PRACTICES As of May 1, 1975, all national securities exchanges were prohibited from requiring their members to charge fixed rates of commissions on the execution of transactions. This prohibition resulted from the adoption by the Securities and Exchange Commission of Rule 19b-3 under the Securities and Exchange Act of 1934 and the subsequent passage by Congress of the Securities Acts Amendments to include Section 28(e) relating to the payment of brokerage commissions on specific securities transactions in excess of the commission which might be charged by another broker for the same transaction. The provisions of Section 28(e) are specifically incorporated herein by reference. In recognition of the regulatory changes, ING-IM has adopted this statement of policy with respect to commissions paid on portfolio transactions executed on behalf of our clients. It is the responsibility of individuals trading on behalf of our clients to carry out this statement of policy, including the fiduciary responsibility of negotiating for each agency transaction the amount of the brokerage commission. Essentially, this policy reaffirms the principle of seeking "best available price and most favorable execution" with respect to all portfolio transactions. This principle recognized that commissions on portfolio transactions must be negotiated and utilized for the ultimate benefit of our clients. Our brokerage commission policy is as follows: 1. We will continue to use our best efforts to obtain the best available price and most favorable execution with respect to all portfolio transactions executed on behalf of our clients. 2. "Best available price and most favorable execution" is defined to mean the execution of a particular investment decision at the price and commission which provides the most favorable total cost or proceeds reasonably obtainable under the circumstances. 3. In selecting a broker for each specific transactions, we will use our best judgment to choose the broker most capable of providing the brokerage services necessary to obtain best available price and most favorable execution. The full range and quality of brokerage services available will be considered in making these determinations. For example, brokers may be selected on the basis of the quality of such "brokerage services" related to the requirements of the specific transaction as the following: capable floor brokers or traders, competent block trading coverage, good communications, ability to position, retail distribution and underwriting, use of automation, research contacts, arbitrage skills, administrative ability, or provision of market information relating to the security. We will continue to make periodic evaluations of the quality of these brokerage services against our own standards of execution. Brokerage services will be obtained only from those firms which meet our standards, maintain a reasonable capital position, and can be expected to reliably and continuously supply these services. We will continue our endeavor to develop and maintain brokerage contacts and relationships in the interest of providing our clients with maximum liquidity. 4. We are not obliged to choose the broker offering the lowest available commission rate if, in our best judgment, there is a material risk that the total cost or proceeds from the transaction might be less favorable than obtainable elsewhere. We will make every effort to keep informed of rate structures offered by the brokerage community. In the selection of brokers, we will not solicit competitive bids or "shop" the order for a lower rate if this would, in our best judgment, be harmful to the execution process and not in the best interests of our clients. 5. In those instances where it is reasonably determined that more than one broker can offer the brokerage services needed to obtain the best available price and most favorable execution, consideration will be given to those brokers which supply research and other services in addition to execution services. Such services may include factual and statistical information or other items of supplementary research assistance. The individuals trading on behalf of our clients will be informed as to the broker/dealers who supply specific or general research assistance. However, we will not select an executing broker on the basis of research or other services unless such selection is otherwise consistent with best available price and most favorable execution. 6. In no event will we enter into agreements, expressed or implied, with broker/dealer wherein we would select a firm for execution as a means of remuneration for recommending us as an asset manager for prospective or present clients. However, portfolio transactions may be executed through broker/dealers who have made such a recommendation, if otherwise consistent with best price and most favorable execution. 7. In those instances where a client has expressed a preference for a particular broker, that broker will be selected only when the broker is reasonably determined in our best judgment, to be capable of providing the best available and most favorable execution. With the exception of clients subject to the provisions of The Employee Retirement Income Security Act of 1974 ("ERISA"), a client may direct us in writing to execute transactions with one or more specific brokers at such commission rate or rates as may be agreed to by the client and such brokers. With respect to clients subject to ERISA, we may accept clients' direction to execute transactions with one or more specific brokers upon written direction of the clients. Such written notice shall specify the services provided by the broker(s) to the clients, the amount of rate of commissions to be paid and the determination by the clients that such direction is consistent with the provisions of ERISA. EXHIBIT "C" ING INVESTMENT MANAGEMENT MANAGEMENT FEE SCHEDULE AS OF JANUARY 1, 1998 ING-IM will receive an annual fee (payable quarterly) from the Client calculated as follows: 0.25% of the value of the Managed Assets as of the preceding month end. "Managed Assets" shall mean the investment assets of the Client's general account, and certain assets in a non-unitized separate account established and maintained by Client to support certain annuity contracts, excluding policy loans of Client. Value of the Managed Assets for purposes of this Agreement shall be determined by the application of generally accepted accounting principles as applied as of the end of each quarter. EXHIBIT "D" Authorized Representatives of Client ____________________________________ Until otherwise notified in writing by Client, ING-IM shall be authorized to rely upon instruction received from the following name representatives of the Client: [Client to specify] EX-10.D 15 RECIP LOAN AGREE BTW GALIC AND ING EXHIBIT 10(d) RECIPROCAL LOAN AGREEMENT This RECIPROCAL LOAN AGREEMENT (this "Agreement"), dated as of January 1, 1998, between Golden American Life Insurance Company, a Delaware corporation ("Golden American" or "Company"), located at 1001 Jefferson Street, Suite 400, Wilmington, Delaware 19801 and ING America Insurance Holdings, Inc., a Delaware corporation ("INGAIH" or "Company") located at 1105 North Market Street, Wilmington, Delaware 19809 (collectively referred to as the "Companies"). WITNESSETH: WHEREAS, each of the Companies may have, from time to time, a need to borrow funds on a revolving basis; and WHEREAS, each of the Companies may have, from time to time, excess cash available to lend to the other on a revolving basis; and WHEREAS, the Companies are affiliated entities and as such are willing to extend financing to, and borrow from each other as provided herein; and WHEREAS, each of the Companies desires to enter into this Agreement providing for, among other things, the making of such Loans by and among each other; NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Companies agree as follows: ARTICLE 1 _________ DEFINITIONS ___________ SECTION 1.1.DEFINED TERMS. For purposes of this Agreement: "Agreement" shall have the meaning set forth in the preamble hereto. "Authorized Person" shall mean the CFO, Treasurer, Treasury Officer, or Treasury Manager of the Borrowing Company, or a person so designated. "Borrowing Company" shall mean each of the Companies to which a Loan is outstanding or is to be made pursuant to a Request for Borrowing. "Business Day" shall mean a day on which U.S. financial markets are open for the transaction of business required for this Agreement. "Companies" shall have the meaning set forth in the preamble hereto. "Company" shall have the meaning set forth in the preamble hereto. "Default" shall mean any of the events specified in Section 6.1, regardless of whether there shall have occurred any passage of time or giving of notice, or both, that would be necessary in order to constitute such an Event of Default. "Event of Default" shall mean any of the events specified in Section 6.1. "Golden American" shall have the meaning set forth in the preamble hereto. "INGAIH" shall have the meaning set forth in the preamble hereto. "Interest Period" shall mean the number of days or months that a particular interest rate applies to a particular Loan advanced hereunder. "Lending Company" shall mean each of the Companies that has made, or is obligated to make, in accordance with a Request for Borrowing one or more Loans hereunder. "Loans" shall mean the amounts advanced by a Lending Company to a Borrowing Company under this Agreement. "Notice of Borrowing" shall have the meaning set forth in Section 2.2(b) of this Agreement. "Obligations" shall mean all payment and performance obligations of every kind, nature and description of each Borrowing Company to the Lending Company, or either of them, under this Agreement (including any interest, fees and other charges on the Loans or otherwise), whether such obligations are direct or indirect, absolute or contingent, due or not due, contractual or tortuous, liquidated or unliquidated, arising by operation of law or otherwise, now existing or hereafter arising. "Regional Treasury Office" ("RTO") shall mean the Treasurer's office of ING North America Insurance Corporation. "Request for Borrowing" shall have the meaning set forth in Section 2.2(a) of this Agreement. "Revolving Loan Commitment" shall mean the maximum outstanding amount to be funded by the Lending Company to the Borrowing Company. The aggregate sum which the Lending Company may loan to the Borrowing Company under this Agreement shall not exceed $40,000,000. "Termination Date" shall mean December 31, 2007, or such earlier date as payment of the Obligations shall be due (whether by acceleration or otherwise). SECTION 1.2. TERMINOLOGY. Each definition of a document in this Article 1 shall include such document as amended, modified, or supplemented from time to time, and, except where the context otherwise requires, definitions imparting the singular shall include the plural and visa versa. Except where specifically restricted, reference to a party shall include that party and its successors and assigns. All personal pronouns used in this Agreement, whether used in the masculine, feminine, or neuter gender, shall include all other genders. Titles of articles and sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to articles, sections, subsections, paragraphs, clauses, subclauses or exhibits shall refer to the corresponding article, section, subsection, paragraph, clause, subclause of, or exhibit attached to, this Agreement, unless otherwise provided. SECTION 1.3. ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted in accordance with generally accepted accounting principles consistently applied. ARTICLE 2 _________ TERMS OF THE LOANS __________________ SECTION 2.1. REVOLVING CREDIT. (a) Subject to and upon the terms and conditions set forth in this Agreement, each Lending Company agrees to advance to the Borrowing Company, from time to time prior to the Termination Date, Loans advanced under the Revolving Loan Commitment shall be repaid in accordance with Section 2.4 and may be reborrowed from time to time on a revolving basis. (b) Each Borrowing Company's obligation to pay to the Lending Company the principal of and interest on the Loans shall be evidenced by the records of the RTO in lieu of a promissory note or notes. SECTION 2.2. NOTICE AND MANNER OF BORROWING. (a) Whenever the Borrowing Company desires to borrow money hereunder, it shall give the RTO prior written or facsimile request (or verbal request promptly confirmed in writing or by facsimile) of such borrowing or reborrowing (a "Request for Borrowing"). Such Request for Borrowing shall be given by an Authorized Person, to the RTO prior to 10:00 a.m. (Wilmington, Delaware time). Any Request for Borrowing received after 10:00 a.m. shall be deemed received on the next Business Day. (b) The RTO, upon its receipt of a Request for Borrowing, shall determine if the requested funds are available and the interest rates in accordance with Section 2.3(a) of this Agreement (and related Interest Periods, if any) at which the Borrowing Company can borrow money in a principal amount equal to, and on the date of, the proposed borrowing or reborrowing described in each such Request for Borrowing, and shall notify the Lending Company of such interest rates and the related Interest Periods, if any, and the principal amount of the proposed borrowing or reborrowing (a "Notice of Borrowing") by telephone (confirmed in writing) or by facsimile no later than 12:00 p.m. (Wilmington, Delaware time) on the Business Day of the requested borrowing or reborrowing. The RTO shall promptly convey to the Borrowing Company the information contained in the Notice of Borrowing by telephone (confirmed in writing) or by facsimile. (c) On the date of each borrowing, the Lending Company will make available the amount of such borrowing or reborrowing in immediately available funds to the Borrowing Company by depositing such amount in the account of the Borrowing Company by wire transfer via electronic funds transfer (EFT). (d) The RTO shall maintain on its books a control account for each Company in which shall be recorded (i) the amount of each Loan made hereunder to each such Company, (ii) the interest rate applicable with respect to each Loan, (iii) the amount of any principal, interest or fees due or to become due from each Borrowing Company with respect to the Loans, and (iv) the amount of any sum received by each Lending Company hereunder in respect of any such principal, interest or fees due on such Loans. The entries made in the RTO's control accounts shall be prima facie evidence, in the absence of manifest error, of the existence and amounts of Obligations therein recorded and any payments thereon. (e) The RTO shall account to each Company on a quarterly basis with a statement of borrowings, interest rates, charges and payments made pursuant to this Agreement with respect to the Loans and Revolving Loan Commitment. An Authorized Person of the Companies shall review each quarterly accounting for accuracy within thirty days of receipt thereof from the RTO. Each such account rendered by the RTO shall be deemed final, binding and conclusive unless the RTO is notified by the Lending Company or the Borrowing Company within thirty days after the date the account is so rendered that either the Lending Company or the Borrowing Company disputes any item thereof. (f) The RTO shall be justified in assuming, for purposes of carrying out its duties and obligations under this Agreement, including, without limitation, its obligation to maintain accounts and provide accountings of the Loans pursuant to Section 2.2(d) and (e) above, that (1) Loans are disbursed by the Lending Company to the Borrowing Company in accordance with the terms of the Notice of Borrowing, (2) payments on the Loans are made to the Lending Company when due, and (3) no prepayments of any Loans prior to the date that they are due and payable under Section 2.4(a) have occurred, unless the RTO is otherwise notified by either Company within seven Business Days of any such delayed disbursement, overdue payment, or receipt of a prepayment. SECTION 2.3. INTEREST. (a) The Borrowing Company agrees to pay interest in respect of all unpaid principal amounts of the Loans from the respective dates such principal amounts were advanced until the respective dates such principal amounts are repaid at a rate per annum as determined by the RTO and agreed upon by the Companies pursuant to Section 2.2(b) of this Agreement. Golden American shall pay interest on each Loan at a per annum rate which is based on the cost of funds of INGAIH for the interest period for such Loan plus .15%. INGAIH shall pay interest on each Loan at a per annum rate which is based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. The interest rate shall be determined by the RTO in accordance with its usual practices. (b) Overdue principal and, to the extent not prohibited by applicable law, overdue interest in respect of any of the Loans and all other overdue amounts owing hereunder shall bear interest from each date that such amounts are overdue at the rate otherwise applicable to such underlying Loans plus an additional 2% per annum. Interest on each Loan shall accrue from and including the date of such Loan to, but excluding, the date of any repayment thereof; PROVIDED, HOWEVER, that if a Loan is repaid on the same day it is made, one day's interest shall be paid on such Loan. Interest shall be computed on the basis of a year of 360 days for the actual number of days elapsed. (c) The Companies hereby agree that the only charges imposed or to be imposed by the Lending Company hereunder for the use of money in connection with the Loans is and will be the interest required to be paid under the provisions of Sections 2.2(b). In no event shall the amount of interest due and payable under this Agreement or any other documents executed in connection herewith exceed the maximum rate of interest allowed by applicable law and, in the event any such payment is made by the Borrowing Company or received by the Lending Company, such excess sum shall be credited as a payment of principal. It is the express intent hereof that the Borrowing Company not pay and the Lending Company not receive, directly or indirectly in any manner, interest in excess of that which may be lawfully paid under applicable law. SECTION 2.4. REPAYMENT OF PRINCIPAL AND INTEREST. (a) The entire outstanding principal balance of the Loans shall be due and payable by no later than 5:00 p.m. (Eastern time) on the Business Day on which the Loan is due, together with all remaining accrued and unpaid interest thereon, unless an extension of no more than three additional days is authorized by the Lending Company. (b) Any of the Loans may be prepaid in whole or in part at any time without premium or penalty. Any such prepayment made on any Loan shall be applied, first, to interest accrued thereon through the date thereof and then to the principal balance thereof. (c) Each payment and prepayment of principal of any Loan and each payment of interest on any Loan shall be made to the Lending Company and applied to outstanding Loan balances in the following order; first, toward any Loan or Loans then due and payable; and, second, towards the Loan or Loans which are next due and payable at the time of such prepayment. ARTICLE 3 _________ REPRESENTATIONS AND WARRANTIES ______________________________ SECTION 3.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Lending Company to enter into this Agreement, the Borrowing Company hereby represents and warrants as set forth below: (a) ORGANIZATION; POWER; QUALIFICATION. The Borrowing Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, has the power and authority to own or lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing as a foreign corporation, and authorized to do business, in each jurisdiction in which the character of its properties or the nature of its business require such qualification or authorization. (b) AUTHORIZATION; ENFORCEABILITY. The Borrowing Company has the power and has taken all necessary action to authorize it to execute, deliver and perform this Agreement in accordance with the terms hereof and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Borrowing Company and is a legal, valid and binding obligation of the Borrowing Company, enforceable in accordance with its respective terms, (i) subject to limitations imposed by general principles of equity and (ii) subject to applicable bankruptcy, reorganization, insolvency and other similar laws affecting creditors' rights generally and to moratorium laws from time to time in effect. (c) NO CONFLICT. The execution, delivery and performance of this Agreement in accordance with its terms and the consummation of the transactions contemplated hereby do not and will not (i) violate any applicable law or regulation, (ii) conflict with, result in a breach of, or constitute a default under the articles or certificate of incorporation or by-laws of the Borrowing Company or under any indenture, agreement or other instrument to which the Borrowing Company is a party or by which it or any of its properties may be bound, or (iii) result in or require the creation or imposition of any lien upon or with respect to any property now owned or hereafter acquired by the Borrowing Company. (d) COMPLIANCE WITH LAW; ABSENCE OF DEFAULT. The Borrowing Company is in compliance with all applicable laws the failure to comply with which has or could reasonably be expected to have a materially adverse effect on the business, assets, liabilities, financial condition or results of operations of the Borrowing Company, and no event has occurred or has failed to occur which has not been remedied or waived, the occurrence or non-occurrence of which constitutes a Default. SECTION 3.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made under this Agreement shall be deemed to be made, and shall be true and correct, as of the date hereof and as of the date of each Loan. ARTICLE 4 _________ AFFIRMATIVE COVENANTS _____________________ So long as this Agreement is in effect: SECTION 4.1. PRESERVATION OF EXISTENCE. The Borrowing Company will (a) preserve and maintain its existence, rights, franchises, licenses and privileges in its jurisdiction of incorporation and (b) qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization. SECTION 4.2. COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS. The Borrowing Company will comply with the requirements of all applicable laws and regulations the failure with which to comply could have a materially adverse effect on the business, assets, liabilities, financial condition or results of operations of the Borrowing Company. SECTION 4.3. VISITS AND INSPECTIONS. (a) Upon reasonable advance notice from the Lending Company, the Borrowing Company will permit representatives of the Lending Company to (a) visit and inspect the properties of the Borrowing Company during normal business hours, (b) inspect and make extracts from and copies of its books and records, and (c) discuss with its principal officers its businesses, assets, liabilities, financial positions and results of operations. (b) Each Company agrees that upon reasonable advance notice from an auditor of either Company or any regulatory official employed by the Department of Insurance of any state in which either Company is engaged in business, each Company will prepare and deliver to such auditor or regulatory official, within a reasonable time following such request, a written verification of all Loans made to and by the relevant Company. Upon reasonable advance notice to each Company, the books and records of the RTO and each Company relating to the subject matter of this Agreement shall be available for inspection by any auditor of either Company or any regulatory official during normal business hours, and the RTO and each Company will cooperate with said auditor or regulatory official in making any audit which requires inspection of said books and records. ARTICLE 5 _________ NEGATIVE COVENANTS __________________ So long as this Agreement is in effect: SECTION 5.1. LIQUIDATION; MERGER; SALE OF ASSETS; CHANGE OF BUSINESS. The Borrowing Company shall not at any time, without proper notice to the Lending Company: (a) Liquidate or dissolve itself (or suffer any liquidation or dissolution) or otherwise wind up; (b) Merge or consolidate with any other person or entity; (c) Sell, lease, abandon or otherwise dispose of or transfer all or substantially all of its assets other than in the ordinary course of business; or (d) Make any substantial change in the type of business conducted by the Borrowing Company as of the date hereof without the prior written consent of the Lending Company if such action would have a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Borrowing Company. Any corporation into which either Company may be merged, converted or with which either Company may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which either Company shall be a party, shall succeed to all either Company's rights, obligations and immunities hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. ARTICLE 6 _________ DEFAULT _______ SECTION 6.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default: (a) Any representation or warranty made by the Borrowing Company under this Agreement shall prove incorrect or misleading in any material respect when made; (b) The Borrowing Company shall default in the payment of (i) any interest payable under this Agreement within five days of when due, or (ii) any principal payable under this Agreement within three days of when due; (c) The Borrowing Company shall default in the performance or observance of any agreement or covenant contained in this Agreement, and such Default shall not be cured within a period of thirty days from the occurrence of such Default; (d) The Borrowing Company shall default under any other agreement or instrument evidencing or relating to any indebtedness which Default shall not have been cured within any applicable grace period set forth therein; (e) There shall be entered a decree or order by a court having jurisdiction in the premises constituting an order for relief in respect of the Borrowing Company under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Borrowing Company or of any substantial part of its properties, or ordering the winding-up or liquidation of the affairs of the Borrowing Company and any such decree or order shall continue in effect for a period of sixty consecutive days; (f) The Borrowing Company shall file a petition, answer or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Borrowing Company shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official of the Borrowing Company or of any substantial part of its properties, or the Borrowing Company shall fail generally to pay its debts as such debts become due, or the Borrowing Company shall take any corporate action in furtherance of any such action; or (g) This Agreement or any provision hereof shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or a proceeding shall be commenced by the Borrowing Company or any other person or entity seeking to establish the invalidity or unenforceability thereof, or the Borrowing Company shall deny that it has any liability or any obligation for the payment of principal or interest purported to be created under this Agreement. SECTION 6.2. REMEDIES. If an Event of Default shall have occurred and shall be continuing, (a) The obligation of the Lending Company to make Loans hereunder shall immediately cease; (b) With the exception of an Event of Default specified in Section 6.1(e) or (f), the Lending Company, shall declare the principal of and interest on the Loans and all other amounts owed under this Agreement to be forthwith due and payable, whereupon all such amounts shall immediately become absolute and due and payable, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, anything in this Agreement to the contrary notwithstanding, and whereupon all such amounts shall be immediately due and payable; (c) Upon the occurrence and continuance of an Event of Default specified in Section 6.1(e) or (f), such principal, interest and other amounts shall thereupon and concurrently therewith become absolute and due and payable, all without any action by the Lending Company, all of which are hereby expressly waived, anything in this Agreement to the contrary notwithstanding; (d) The Lending Company shall have the right and option to exercise all of the post-default rights granted to them hereunder; and (e) The Lending Company shall have the right and option to exercise all rights and remedies available to them at law or in equity. ARTICLE 7 _________ MISCELLANEOUS _____________ SECTION 8.1. NOTICES. Except as otherwise provided herein, all notices and other communications required or permitted under this Agreement shall be in writing and, if mailed, shall be deemed to have been received on the earlier of the date shown on the receipt or three Business Days after the postmarked date thereof and, if sent by facsimile, shall be followed forthwith by letter and shall be deemed to have been received on the next Business Day following dispatch and acknowledgment of receipt by the recipient's facsimile machine. In addition, notices hereunder may be delivered by hand or overnight courier, in which event the notice shall be deemed effective when delivered. All notices and other communications under this Agreement shall be given to the parties at the address or facsimile number listed below such party's signature line hereto, or such other address or facsimile number as may be specified by any party in a writing addressed to the other parties hereto. SECTION 8.2. WAIVERS. The rights and remedies of the Lending Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which they would otherwise have. No failure or delay by the Lending Company in exercising any right shall operate as a waiver of it. The Lending Company expressly reserves the right to require strict compliance with the terms of this Agreement. In the event the Lending Company decides to fund a request for a Loan at a time when the Borrowing Company is not in strict compliance with the terms of this Agreement, such decision by the Lending Company shall not be deemed to constitute an undertaking by the Lending Company to fund any further requests for Loans or precluding the Lending Company from exercising any rights available to it under the Agreement or at law or equity with respect to the Borrowing Company. Any waiver or indulgence granted by the Lending Company shall not constitute a modification of this Agreement, except to the extent expressly provided in such waiver or indulgence, or constitute a course of dealing by the Lending Company at variance with the terms of this Agreement such as to require further notice by the Lending Company of its intent to require strict adherence to the terms of this Agreement in the future. Any such actions shall not in any way affect the ability of the Lending Company, in their respective sole discretion, to exercise any of their respective rights under this Agreement or under any other agreement. SECTION 8.3. ASSIGNMENT; SUCCESSORS. (a) The Borrowing Company may not assign or transfer any of its rights or obligations hereunder without notice to the Lending Company. (b) The Lending Company may not at any time assign or participate its interest under this Agreement without notice to the Borrowing Company. Any holder of a participation in, and any assignee or transferee of, all or any portion of any amount owed by the Borrowing Company under this Agreement may exercise any and all rights provided in this Agreement with respect to any and all amounts owed by the Borrowing Company to such assignee, transferee or holder as fully as if such assignee, transferee or holder had made the Loans in the amount of the obligation in which its holds a participation or which is assigned or transferred to it. (c) This Agreement shall be binding upon, and inure to the benefit of, the Borrowing Company, the Lending Company, and the permitted successors and assigns of each party hereto. SECTION 8.4. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 8.5. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 8.6. ENTIRE AGREEMENT; AMENDMENTS. This Agreement represents the entire agreement among the parties hereto with respect to the subject matter of this transaction. No amendment or modification of the terms and provisions of this Agreement shall be effective unless in writing and signed by both Companies. SECTION 8.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made hereunder shall be stated to be due on a non-Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest hereunder. SECTION 8.8. TERMINATION. This Agreement may be terminated with respect to any party hereto by such party upon its giving the other parties thirty days notice of its intent to terminate. In the event of termination as provided in this paragraph, the Lending Company's obligation to make Loans to the Borrowing Company shall cease; provided, however, that the Borrowing Company shall continue to be obligated to make all repayments of Loans and all other amounts due and payable by it as provided under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused it to be executed by their duly authorized officers, all as of the day and year first above written. GOLDEN AMERICAN LIFE INSURANCE COMPANY By: /s/ David L. Jacobson ______________________________________________ Title: Senior Vice President ___________________________________________ Address for notices: 1001 Jefferson Street, Suite 400 Wilmington, DE 19801 Phone: 302/576-3404 Fax: 302/576-3520 ING AMERICA INSURANCE HOLDINGS, INC. By: /s/ David S. Pendergrass ______________________________________________ Title: Vice President and Treasurer ___________________________________________ Address for notices: 1105 N. Market Street Wilmington, DE 19809 Phone: 770/980-3300 Fax: 770/980-3301 AMENDMENT NUMBER 1 __________________ RECIPROCAL LOAN AGREEMENT The Reciprocal Loan Agreement dated January 1, 1998 between Golden American Life Insurance Company and ING America Insurance Holdings, Inc., is hereby amended to provide as follows: Golden American Life Insurance Company shall not lend money under the terms of this Agreement, that is, it shall not become a Lending Company, until and unless the prior approval of the State of Delaware Department of Insurance is obtained regarding the amount and terms of such loan or loans. All other provisions of the Reciprocal Loan Agreement shall remain in effect and unaffected by this Amendment. This Amendment is entered into as of this 1st day of January 1998. GOLDEN AMERICAN LIFE INSURANCE COMPANY BY:/s/ David L. Jacobson ______________________________________ TITLE: Senior Vice President __________________________________ ING AMERICA INSURANCE HOLDINGS, INC. BY:/s/ David S. Pendergrass ______________________________________ TITLE: Vice President and Treasurer __________________________________ AMENDMENT NUMBER 2 __________________ RECIPROCAL LOAN AGREEMENT The Reciprocal Loan Agreement dated January 1, 1998 between Golden American Life Insurance Company and ING America Insurance Holdings, Inc., is hereby amended by replacing the defined term "Revolving Loan Commitment" of Section 1.1 with the following: "Revolving Loan Commitment" shall mean the outstanding amount to be funded by the Lending Company to the Borrowing Company. The aggregate sum which the Lending Company may loan to the Borrowing Company under this Agreement shall not exceed $65,000,000.00. All other provisions of the Reciprocal Loan Agreement shall remain in effect and unaffected by this Amendment. This Amendment is entered into as of this 20th day of March 1998. GOLDEN AMERICAN LIFE INSURANCE COMPANY BY:/s/ David L. Jacobson _________________________________ TITLE: Senior Vice President _____________________________ ING AMERICA INSURANCE HOLDINGS, INC. BY:/s/ David S. Pendergrass _________________________________ TITLE: Vice President and Treasurer _____________________________ EX-10.E 16 REVOLV NOTE BTW GALIC AND SUN BANK EXHIBIT 10(e) SINGLE PAYMENT NOTE $75,000,000 July 27, 1998 For value received, the Obligor promises to pay to the order of SunTrust Bank, Atlanta (the "Bank"), on July 31, 1999, or at such earlier date as hereinafter provided, the principal sum of SEVENTY FIVE MILLION DOLLARS ($75,000,000) or such lesser amount of loans as may from time to time, at the Bank's sole discretion, be advanced or, upon repayment, readvanced by the Bank hereunder together with interest from the date hereof on the unpaid principal balance at such annual rate or rates of interest as shall be computed and paid in accordance with the terms and conditions hereinafter set forth. This note evidences the obligation of the Obligor to repay, with interest, any and all present and future indebtedness of the Obligor for loans at any time hereafter made or extended by the Bank hereunder up to the aggregate principal amount of $75,000,000 at any time outstanding. The payment of any indebtedness evidenced by this note shall not affect the enforceability of this note as to any future, different or other indebtedness evidenced hereby. The Obligor acknowledges and agrees that Southland Life Insurance Company (hereinafter "Southland"), Life Insurance Company of Georgia (hereinafter "LICG"), ING America Life Corporation (hereinafter "America Life"), Security Life of Denver Insurance Company (hereinafter "Security Life"), Columbine Life Insurance Company (hereinafter "Columbine"), Midwestern United Life Insurance Company (hereinafter "Midwestern"), and First ING Life Insurance Company of New York (hereinafter "First ING New York") are all direct or indirect subsidiaries of ING America Insurance Holdings, Inc. ("America Holdings"). The Obligor further acknowledges and agrees that Equitable Life Insurance Company of Iowa ("Equitable Life") USG Annuity and Life Insurance Company ("USG"), Equitable American Insurance Company ("Equitable American"), Locust Street Securities, Inc. ("Locust Street"), First Golden American Life Insurance Company of New York ("First Golden"), and the Obligor are all direct or indirect subsidiaries of Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). American Holdings and Equitable of Iowa are both wholly-owned direct subsidiaries of ING Insurance International B.V. On the date that this note is being executed, LICG, Security Life, America Life, Southland, Equitable Life, USG, and America Holdings are executing separate notes to the Bank in the maximum principal amount of $100,000,000 each; Columbine is executing a separate note to the Bank in the maximum principal amount of $75,000,000; Equitable of Iowa is executing a separate note to the Bank in the maximum principal amount of $50,000,000; First ING New York, Locust Street and First Golden are executing separate notes to the Bank in the maximum principal amount of $10,000,000 each; Midwestern is executing a separate note to the Bank in the maximum principal amount of $30,000,000; and Equitable American is executing a separate note to the Bank in the maximum principal amount of $25,000,000, each of which notes are substantially similar to this note (the "Affiliate Notes"). Obligor agrees that the aggregate unpaid principal balance from time to time outstanding on this note plus the aggregate unpaid principal balance from time to time outstanding on the Affiliate Notes will at no time exceed $150,000,000. Obligor will not request any disbursement of principal under this note if, after such disbursement, the unpaid principal balance of this note plus the aggregate unpaid principal of the Affiliate Notes will exceed $150,000,000. If the Obligor desires a disbursement of principal hereunder (an "Advance") the Obligor shall give the Bank written or telephonic notice of the amount of such Advance and the period of time from one (1) day to thirty (30) days that such Advance shall be outstanding (the "Interest Period"), provided, however, (a) if any Interest Period would otherwise end on a day which is not a day on which the Bank and commercial banks in New York, New York, are open for business (a "Business Day"), that Interest Period shall be extended through the next succeeding day which is a Business Day, and (b) no Interest Period shall extend beyond the maturity date of this note. Such written or telephonic notice with respect to the amount of an Advance and the Interest Period to be applicable thereto shall be given to the Bank by the Obligor before one o'clock p.m. Atlanta time, on the first Business Day of the applicable Interest Period. All telephonic notices shall be promptly confirmed in writing. The Obligor shall pay interest upon each Advance from the date of disbursement through the last day of the applicable Interest Period (including the date of disbursement but excluding the date of repayment) at a rate per annum, calculated on the basis of a 360 day year and upon the actual number of days elapsed, equal to either of the following rates of interest as selected by the Obligor: (1) the per annum rate of interest equal to the cost of funds of Bank for the Interest Period applicable to such Advance for amounts substantially similar to the amount of such Advance plus .25% all as determined by Bank in accordance with its usual practices in determining its cost of funds (the "Cost of Funds Rate") or (2) a per annum rate of interest that would be applicable to the requested Advance as quoted by the Bank to the Obligor (the "Quoted Rate"). Unpaid interest accruing at either of such rates will be due and payable on the last Business Day of the applicable Interest Period. The Bank will advise the Obligor of the Cost of Funds Rate and the Quoted Rate that will be applicable to a requested Advance before 1:30 p.m. Atlanta time on the Business Day that the Bank receives a request for an Advance from the Obligor. The Obligor will advise the Bank as to whether the Obligor has selected the Cost of Funds Rate or the Quoted Rate before 2:00 p.m. Atlanta time on the Business Day that the Bank receives a request for an Advance from the Obligor. Any telephonic selection of interest rates by the Obligor will promptly be confirmed in writing. The Bank will promptly disburse the amount of an Advance to the Obligor upon receiving notice of the Obligor's interest rate selection. Unpaid interest accruing at such interest rate will be due and payable on the last Business Day of the applicable Interest Period. The Obligor shall repay the entire outstanding principal balance of each Advance on the last Business Day of the Interest Period applicable thereto. The Obligor may on any Business Day renew an outstanding Advance into an Advance with the same or different Interest Period, provided that the Bank must be advised of the Obligor's election to renew the Advance and the Interest Period applicable to such renewal before one o'clock p.m. on the last Business Day of the then current Interest Period. The interest rate to be applicable to the renewal of any Advance shall be selected in the same manner that the interest rate is selected at the time an Advance is made. Any such renewal shall be at the Bank's sole discretion. If no Interest Period has been elected for any Advance or for any principal balance outstanding hereunder, or if such election shall not be timely, then the Interest Period with respect thereto shall be deemed to be one day and the applicable interest rate shall be the Cost of Funds Rate. No prepayment of any Advance shall be permissible during the Interest Period applicable thereto. Should the Obligor fail for any reason to pay this note in full on the maturity date or on the date of acceleration of payment, the Obligor further promises to pay interest on the unpaid amount from such date until the date of final payment at a Default Rate equal to the Prime Rate plus 4%. Should legal action or an attorney at law be utilized to collect any amount due hereunder, the Obligor further promises to pay all costs of collection, plus reasonable attorney's fees. All amounts due hereunder may be paid at any office of Bank. The principal balance of this note shall conclusively be deemed to be the unpaid principal balance appearing on the Bank's records unless such records are manifestly in error. As security for the payment of this and any other liability of the Obligor to the holder, direct or contingent, irrespective of the nature of such liability or the time it arises, the Obligor hereby grants a security interest to the holder in all property of the Obligor in or coming into the possession, control or custody of the holder, or in which the holder has or hereafter acquires a lien, security interest, or other right. Upon default, holder may, without notice, immediately take possession of and then sell or otherwise dispose of the collateral, signing any necessary documents as Obligor's attorney in fact, and apply the proceeds against any liability of Obligor to holder. Upon demand, the Obligor will furnish such additional collateral, and execute any appropriate documents related thereto, deemed necessary by the holder for its security. The Obligor further authorizes the holder, without notice, to set-off any deposit or account and apply any indebtedness due or to become due from the holder to the Obligor in satisfaction of any liability described in this paragraph, whether or not matured. The holder may, without notice, transfer or register any property constituting security for this note into its or its nominee name with or without any indication of its security interest therein. This note shall immediately mature and become due and payable, without notice or demand, upon the appointment of a receiver for the Obligor or upon the filing of any petition or the commencement of any proceeding by the Obligor for relief under any bankruptcy or insolvency laws, or any law relating to the relief of debtors, readjustment of indebtedness, debtor reorganization, or composition or extension of debt. Furthermore, this note shall, at the option of the holder, immediately mature and become due and payable, without notice or demand, upon the happening of any one or more of the following events; (1) nonpayment on the due date of any amount due hereunder; (2) failure of the Obligor to perform any other material obligation to the holder; (3) if the Obligor shall fail to make any payment as and when such payment is due upon any obligation for borrowed money other than the obligation owing pursuant to this Note, and by reason thereof such obligation becomes due prior to its stated maturity or prior to its regularly scheduled dates of payment; (4) a reasonable belief on the part of the holder that the Obligor is unable to pay its obligations when due or is otherwise insolvent; (5) the filing of any petition or the commencement of any proceeding against the Obligor for relief under bankruptcy or insolvency laws, or any law relating to the relief of debtors, readjustment of indebtedness, debtor reorganization, or composition or extension of debt, which petition or proceeding is not dismissed within 60 days of the date of filing thereof; (6) the suspension of the transaction of the usual business of the Obligor, or the dissolution, liquidation or transfer to another party of a significant portion of the assets of the Obligor and any such action shall have a material adverse effect on the ability of the Obligor to repay the unpaid principal balance hereof; (7) a reasonable belief on the part of the holder that the Obligor has made a representation or warranty in connection with any loan by or other transaction with the holder and such representation or warranty was false in any material respect; (8) the issuance or filing of any levy, attachment, garnishment, or lien against the property of the Obligor which shall remain unpaid or undischarged for a period of thirty (30) days and such failure to pay shall have a material adverse effect on the ability of the Obligor to repay the unpaid principal balance hereof; (9) the failure of the Obligor to satisfy any judgment, penalty or fine imposed by a court or administrative agency of any government and such judgment, penalty, or fine shall remain unpaid, unstayed on appeal, undischarged or undismissed for a period of thirty (30) days; (10) failure of the Obligor, after demand, to furnish financial information or to permit inspection of any books or records during Obligor's normal business hours; (11) Equitable of Iowa shall no longer own 100% of the outstanding voting stock of the Obligor, or (12) the Obligor shall fail to maintain the minimum level of Company Action Level Risk Based Capital as established by applicable state law or regulation. The failure or forbearance of the holder to exercise any right hereunder, or otherwise granted by law or another agreement, shall not affect or release the liability of the Obligor, and shall not constitute a waiver of such right unless so stated by the holder in writing. The Obligor agrees that the holder shall have no responsibility for the collection or protection of any property securing this note, and expressly consents that the holder may from time to time, without notice, extend the time for payment of this note, or any part thereof, waive its rights with respect to any property or indebtedness without releasing the Obligor from any liability to the holder. This note is governed by Georgia law. The term "Obligor" means Golden American Life Insurance Company. The term "Prime Rate", if used herein, shall mean that rate of interest designated by Bank from time to time as its "Prime Rate" which rate is not necessarily the Bank's best rate. The term "holder" means Bank and any subsequent transferee or endorsee hereof. PRESENTMENT AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY THE OBLIGOR GOLDEN AMERICAN LIFE INSURANCE COMPANY BY:/s/ Denny Hargens _____________________________ TITLE: Treasurer _________________________ EX-10.G 17 SURPLUS NOTE BTWN GALIC & FCLIC EXHIBIT 10(g) GOLDEN AMERICAN LIFE INSURANCE COMPANY SURPLUS NOTE Golden American Life Insurance Company agrees to pay First Columbine Life Insurance Company a Colorado corporation, the sum of $35 million ($35,000,000.00) plus interest at the rate of 7.979% per annum from the date hereof, December 8, 1999 until paid. In any event, this note will mature on December 7, 2029. This Surplus Note and accrued interest thereon shall be 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 Life Insurance Company in the event of (a) the institution of bankruptcy, reorganization, insolvency or liquidation proceedings by or against Golden American Life Insurance Company, or (b) the appointment of a Trustee, receiver or other Conservator for a substantial part of Golden American Life Insurance Company properties. Any payments made shall first apply to accrued interest, and the balance of such payment shall apply to reduce the principal of this Note. Any payment of principal and/or interest made shall be subject to the prior approval of the Delaware Insurance Commissioner. If the Commissioner has not approved payment of principal to retire the note prior to its maturity date, the maturity date will be automatically extended until such time as the Commissioner authorizes payment of the final balance of principal. Golden American Life Insurance Company hereby waives presentment and notice of dishonor. In witness whereof, Golden American Life Insurance Company has caused this Note to be executed and delivered. GOLDEN AMERICAN LIFE INSURANCE COMPANY By: /s/ David L. Jacobson -------------------------------- David L. Jacobson, Senior Vice President and Assistant Secretary Attest by: /s/ Myles R. Tashman - ------------------------ Myles R. Tashman Executive Vice President and Secretary EX-10.H 18 SURPLUS NOTE BTWN GALIC & ELICI EXHIBIT 10(h) GOLDEN AMERICAN LIFE INSURANCE COMPANY SURPLUS NOTE Golden American Life Insurance Company agrees to pay Equitable Life Insurance Company of Iowa, an Iowa corporation, the sum of $50 million ($50,000,000.00) plus interest at the rate of 8.179% per annum from the date hereof, December 30, 1999 until paid. In any event, this note will mature on December 29, 2029. This Surplus Note and accrued interest thereon shall be 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 Life Insurance Company in the event of (a) the institution of bankruptcy, reorganization, insolvency or liquidation proceedings by or against Golden American Life Insurance Company, or (b) the appointment of a Trustee, receiver or other Conservator for a substantial part of Golden American Life Insurance Company properties. Any payments made shall first apply to accrued interest, and the balance of such payment shall apply to reduce the principal of this Note. Any payment of principal and/or interest made shall be subject to the prior approval of the Delaware Insurance Commissioner. If the Commissioner has not approved payment of principal to retire the note prior to its maturity date, the maturity date will be automatically extended until such time as the Commissioner authorizes payment of the final balance of principal. Golden American Life Insurance Company hereby waives presentment and notice of dishonor. In witness whereof, Golden American Life Insurance Company has caused this Note to be executed and delivered. GOLDEN AMERICAN LIFE INSURANCE COMPANY By: /s/ David L. Jacobson --------------------------------- David L. Jacobson, Senior Vice President and Assistant Secretary Attest by: /s/ Marilyn Talman - ----------------------- Marilyn Talman Vice President and Assistant Secretary EX-23.B 19 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS EXHIBIT 23(b) Exhibit 23(b) - Consent of Ernst & Young LLP, Independent Auditors We consent to the reference to our firm under the caption "Independent Auditors" and to the use of our report dated February 25, 1999, with respect to the financial statements of Separate Account B, in the Statement of Additional Information incorporated by reference from the Registration Statement (Form N-4 No. 333-_______) filed with the Securities and Exchange Commission contemporaneously with this Registration Statement. We also consent to the use of our report dated February 12, 1999, with respect to the financial statements of Golden American Life Insurance Company, and to the reference to our firm under the caption "Experts" and "Financial Statements" in the Prospectus included in this Registration Statement (Form S-1 No. 333-_______) of Golden American Life Insurance Company for annuity contracts (Interest in Fixed Account) with a proposed maximum offering price of $378,788. Our audits also included the financial statement schedules of Golden American Life Insurance Company included in Item 16(b)(2). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/Ernst & Young LLP Des Moines, Iowa February 10, 2000 EX-24 20 POWERS OF ATTORNEY EXHIBIT 24 ING VARIABLE ANNUITIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being duly elected Directors and/or Officers of Golden American Life Insurance Company ("Golden American"), constitute and appoint Myles R. Tashman, and Marilyn Talman, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him or her in his or her name, place and stead, in any and all capacities, to sign the following Golden American registration statements, and current amendments to registration statements, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and affirming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof: Variable Annuity Product to be sold by F.U. VA * Initial registration of Contracts under Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 333-_____; 811-5626). * Initial registration of fixed account interests on Golden American's Registration Statement on Form S-1 (No. 333-_____). SIGNATURE TITLE DATE - --------- ----- ---- /s/Barnett Chernow - ----------------------- Director, Chairman of January 21, 2000 Barnett Chernow the Board of Directors and President /s/Myles R. Tashman - ----------------------- Director, Executive January 18, 2000 Myles R. Tashman Vice President, General Counsel and Secretary /s/E. Robert Koster - ----------------------- Senior Vice President January 18, 2000 E. Robert Koster and Chief Financial Officer /s/Michael W. Cunningham - ----------------------- Director January 19, 2000 Michael W. Cunningham /s/Phillip R. Lowery - ----------------------- Director January 19, 2000 Phillip R. Lowery /s/Mark A. Tullis - ----------------------- Director January 19, 2000 Mark A. Tullis 1475 Dunwoody Drive GoldenSelect Series West Chester, PA 19380-1478 Issued by Golden American Life Insurance Company EX-27 21 FINANCIAL DATA SCHEDULE FROM 10-Q
7 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 798,708 0 0 13,679 93,884 0 986,244 12,908 0 439,176 7,312,027 1,009,382 5,855 15 0 160,000 0 0 2,500 451,376 7,312,027 0 42,671 (2,215) 69,398 128,856 19,699 (51,522) 7,269 3,718 3,551 0 0 0 3,551 0 0 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----