-----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, CvsWWpXZKZu6Mh7+FNzRM9h5Xg9HkYlDjoqxeHLukvYuSF+wruomPuhg/OqqtNQ/ FddRzuOTbcwoT+q7y439iA== 0000837276-00-000115.txt : 20000427 0000837276-00-000115.hdr.sgml : 20000427 ACCESSION NUMBER: 0000837276-00-000115 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000426 EFFECTIVENESS DATE: 20000426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE CO CENTRAL INDEX KEY: 0000836687 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-59261 FILM NUMBER: 608884 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-05626 FILM NUMBER: 608885 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: SPECIALTY MANAGERS SEPARATE ACCOUNT B DATE OF NAME CHANGE: 19910529 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN CAPITAL SPECIALTY MANAGERS SEPARATE ACCOUNT B DATE OF NAME CHANGE: 19890914 485BPOS 1 POST EFF 15/88 DVA PLUS As Filed with the Securities and Exchange Commission on April 25, 2000 Registration Nos. 33-59261, 811-5626 - ---------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ___ [ ] Post-Effective Amendment No. 15 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 88 [X] (Check appropriate box or boxes) SEPARATE ACCOUNT B (Exact Name of Registrant) GOLDEN AMERICAN LIFE INSURANCE COMPANY (Name of Depositor) 1475 Dunwoody Drive West Chester, PA 19380-1478 (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code (610) 425-3400 Marilyn Talman, Esq. COPY TO: Golden American Life Insurance Company Stephen E. Roth, Esq. 1475 Dunwoody Drive Sutherland Asbill & Brennan LLP West Chester, PA 19380-1478 1275 Pennsylvania Avenue, N.W. (610) 425-3516 Washington, D.C. 20004-2404 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: As soon as practical after the effective date of the Registration Statement It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on April 28, 2000 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of Securities Being Registered: Deferred Combination Variable and Fixed Annuity Contracts - ---------------------------------------------------------------------------- PART A EXPLANATORY NOTE This Registration Statement contains three separate Profiles, Prospectuses and Statements of Additional Information for the GoldenSelect DVA PLUS Contract. This Amendment to the Registration Statement contains three forms of the Profile, Prospectus and of Statement of Additional Information. |------------------------------------------------| |PROFILE, | FORM 1 | FORM 2 | |PROSPECTUS | | | |AND SAI | | | |------------|----------------|------------------| |VERSION A | ORIG. DB DESC. | NEW DB DESC. | | | 3 Optional | 3 Optional | | | Riders | Riders | | | 27 PORTFOLIOS | 27 PORTFOLIOS | | | | | |------------|----------------|------------------| |VERSION B | ORIG. DB DESC. | | | | 0 Optional | | | | Riders | N/A | | | 8 PORTFOLIOS | | | | | | | | | | | | | | | | | | | | | | |------------------------------------------------| The Form One, Version A Profile, Prospectus and Statement of Additional Information describes the GoldenSelect DVA Plus Contract and three optional riders offering specified benefits. The Form One, Version B Profile, Prospectus and Statement of Additional Information describes the GoldenSelect DVA Plus Contract (named Granite PrimElite) but does not offer the optional riders. The Contracts covered by this Registration Statement are being offered through two different distribution systems. Therefore, there are two Prospectuses and corresponding Statements of Additional Information ("Version A" and "Version B") for the Contracts covered by this registration statement, one pertaining to each distribution system. Version B differs from Version A in the following respects: (a) Version B offers different variable funding options (specifically, Version B offers the Travelers Series Fund Inc. and Greenwich Street Series Fund, and three series of The GCG Trust whereas Version A offers 27 portfolios of The GCG Trust and other mutual funds; (b) Version B was to be used in New Hampshire only by a different retail distribution system, receiving different compensation, than is the case for Version A; and (c) because Version B was to be used only in New Hampshire, whereas Version A is used in all states (except New York), Version B deletes Contract features, options or procedures described in Version A that are available in other states but not in New Hampshire. In particular, Version B does not include the market value adjusted fixed account option included in Version 1 and covered by an effective registration statement on Form S-1 (File No. 33-23458). Version B is no longer being offered. The Form Two, Version A Profile, Prospectus and Statement of Additional Information updates disclosure regarding death benefits contained in the Form One prospectus and adds disclosure regarding the Max 7 Enhanced Death Benefit to the disclosure contained in the Form One prospectus. There is no Version B for Form Two. SUPPLEMENT FOR FORMS ONE AND TWO LINKING FID BROCHURE TO PROSPECTUS OF GOLDENSELECT DVA PLUS/R/ ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY PROFILE AND PROSPECTUS SUPPLEMENT DATED MAY 1, 2000 Supplement to the Profile and Prospectus dated May 1, 2000, for DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT issued by Golden American Life Insurance Company (the "GoldenSelect DVA PLUS Prospectus") __________ Your should keep this supplement with your GoldenSelect DVA PLUS Prospectus. A Fixed Interest Division option may be available through the group and individual deferred variable and fixed annuity contracts offered by Golden American Life Insurance Company. The Fixed Interest Division is part of the Golden American General Account. Interests in the Fixed Interest Division have not been registered under the Securities Act of 1933, and neither the Fixed Interest Division nor the General Account are registered under the Investment Company Act of 1940. Interests in the Fixed Interest Division are offered through an Offering Brochure, dated May 1, 1999. The Fixed Interest Division is different from the Fixed Account which is described in the prospectus but which is not available in your state. When reading through the GoldenSelect DVA PLUS Prospectus, the Fixed Interest Division should be counted among the various subaccounts available for the allocation of your premiums, in lieu of the Fixed Account. The Fixed Interest Division may not be available in some states. Some restrictions may apply. You will find more complete information relating to the Fixed Interest Division is in the Offering Brochure. Please read the Offering Brochure carefully before send money. ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company is a stock company domiciled in Delaware 106975 FID DVA PLUS 05/01/00 PROFILE AND PROSPECTUS SUPPLEMENT FOR FORM ONE DVA PLUS PROSPECTUS 5.5% WA SUPPLEMENT FOR USE ONLY IN THE STATE OF WASHINGTON ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY PROFILE AND PROSPECTUS SUPPLEMENT MAY 1, 2000 SUPPLEMENT TO THE PROSPECTUS DATED MAY 1, 2000 FOR DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS (THE "GOLDENSELECT DVA PLUS/R/ PROSPECTUS") ISSUED BY GOLDEN AMERICAN LIFE INSURANCE COMPANY FOR USE ONLY IN THE STATE OF WASHINGTON __________ The following information supplements and replaces certain information contained in the Profile and Prospectus dated May 1, 2000 for Deferred Combination Variable and Fixed Annuity Contracts (the "Prospectus"). The capitalized terms used in this supplement have the same meaning as those in the Prospectus. You should keep this supplement with your Profile and Prospectus. GOLDENSELECT DVA PLUS contracts issued for delivery in the State of Washington will have a "5.5% Enhanced Death Benefit" and a "Max 5.5 Enhanced Death Benefit." The "7% Solution Enhanced Death Benefit" and the "Max 7 Enhanced Death Benefit" referred to in the Profile and Prospectus are not available and not offered in the State of Washington. The "5.5% Enhanced Death Benefit" and a "Max 5.5 Enhanced Death Benefit" described as follows supplements the information in the Profile and Prospectus and is made part of those documents. PROFILE 5. EXPENSES The Contract has insurance features and investment features, and there are charges related to each. For the insurance features, the Company deducts a mortality and expense risk charge, an asset-based administrative charge and an annual contract administrative charge of $30. We deduct the mortality and expense risk charge and the asset- based administrative charges daily directly from your contract value in the investment portfolios. The mortality and expense risk charge (depending on the death benefit you choose) and the asset-based administrative charge, on an annual basis, are as follows: 5.5% Solution Max 5.5 ------------- ------- Mortality & Expense Risk Charge 1.30% 1.40% Asset-Based Administrative Charge 0.15% 0.15% ----- ----- Total 1.45% 1.55% The example table is designed to help you understand contract charges. The examples of expenses illustrated in the Profile are the maximum expected expenses associated with a contract which would occur with the assumptions listed. Using the $30 administration charge and the expenses listed above, and if all other assumptions are the same, the fees associated with the Max 5.5 Enhanced Death Benefit Option would not exceed those shown in the tables. 9. DEATH BENEFIT You may choose (i) the Standard Death Benefit, (ii) the 5.5% Solution Enhanced Death Benefit, (iii) the Annual Ratchet Enhanced Death Benefit or (iv) the Max 5.5 Enhanced Death Benefit. The 7% Solution Enhanced Death Benefit and the Max 7 Enhanced Death Benefit are not available in your state. The 5.5% Solution Enhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit and the Max 5.5 Enhanced Death Benefit are available only if the contract owner or the annuitant (if the contract owner is not an individual) is not more than 79 years old at the time of purchase. The 5.5% Solution, Annual Ratchet and Max 5.5 Enhanced Death Benefits may not be available where a Contract is held by joint owners. Under the 5.5% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary is eligible to receive the greatest of: 1)the contract value; 2)the total premium payments made under the Contract after pro rata adjustments for any withdrawals; 3) the cash surrender value; or 4) the enhanced death benefit, which we determine as follows: we credit interest each business day at the 5.5% annual effective rate to the enhanced death benefit from the preceding day (which would be the initial premium if the preceding day is the contract date), then we add additional premiums since the preceding day, then we adjust for any withdrawals (including any market value adjustment applied to such withdrawal and any associated surrender charges) since the preceding day. Special withdrawals are withdrawals of up to 5.5% per year of cumulative premiums. Special withdrawals shall reduce the 5.5% Solution Death Benefit by the amount of contract value withdrawn. For any withdrawals in excess of the amount available as a special withdrawal, a prorata adjustment to the death benefit is made. Note for current Special Funds: The actual interest rate used for calculating the 5.5% Solution Enhanced Death Benefit for the Liquid Asset and Limited Maturity Bond investment portfolios and the Fixed Account, will be the lesser of (1) 5.5% and (2) the interest rate, positive or negative, providing a yield on the Guaranteed Death Benefit equal to the net return for the current valuation period on the contract value allocated to Special Funds. We may, with 30 days notice to you, designate any fund as a Special Fund on existing contracts with respect to new premiums added to such fund and also with respect to new transfers to such funds. Under the MAX 5.5 ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greater of the 5.5% Solution and the Annual Ratchet Enhanced Death Benefit. Under this benefit option, the 5.5% Solution Enhanced Death Benefit and the Annual Ratchet Death Benefit are calculated in the same manner as if each were elected the benefit. Note: In the cases described above and in the prospectus, the amount of the death benefit could be reduced by premium taxes owed and withdrawals not previously deducted. PROSPECTUS - --------------------------------------------------------------------- FEES AND EXPENSES - --------------------------------------------------------------------- ANNUAL CONTRACT ADMINISTRATIVE CHARGE Administrative Charge $30 SEPARATE ACCOUNT ANNUAL CHARGES**** 5.5% Solution Max 5.5 ------------- ------- Mortality & Expense Risk Charge 1.30% 1.40% Asset-Based Administrative Charge 0.15% 0.15% ----- ----- Total 1.45% 1.55% **** As a percentage of average daily assets in each subaccount. The Separate Account Annual Charges are deducted daily. EXAMPLES The examples of expenses shown in the Prospectus are the maximum expected expenses associated with a contract which would occur based on the election of the Max 7 Enhanced Death Benefit Option using the assumptions listed in the prospectus. Using the $30 administration charge and the lower separate account annual charge, and if all other assumptions are the same the expenses associated with an election of the 5.5% Solution Enhanced Death Benefit Option or the Max 5.5 Enhanced Death Benefit Option would not exceed those shown in the example tables in the prospectus. - --------------------------------------------------------------------- DEATH BENEFIT CHOICES - --------------------------------------------------------------------- You may choose from the following 4 death benefit choices: (1) the Standard Death Benefit Option; (2) the 5.5% Solution Enhanced Death Benefit Option; (3) the Annual Ratchet Enhanced Death Benefit Option; and (4) the Max 5.5 Enhanced Death Benefit Option. The 7% Solution Enhanced Death Benefit and the Max 7 Enhanced Death Benefit are not available in your state. ENHANCED DEATH BENEFITS. If the 5.5% Solution Enhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit or the Max 5.5 Enhanced Death Benefit is elected, the death benefit under the Contract is the greatest of (i) the contract value; (ii) total premium payments reduced by a pro rata adjustment for any withdrawal; (iii) the cash surrender value; and (iv) the enhanced death benefit as calculated below. The Max 5.5 Enhanced Death Benefit is the greater of (1) the 5.5% Solution Enhanced Death Benefit or (2) the Annual Ratchet Enhanced Death Benefit. Under this benefit option, the 5.5% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit are calculated in the same manner as if each were the elected benefit. |-------------------------------------------------------------------| | HOW THE ENHANCED DEATH BENEFIT IS CALCULATED | | 5.5% SOLUTION ANNUAL RATCHET | |-------------------------------------------------------------------| | On each business day that | On each contract anniversary | | occurs on or before the | that occurs on or before the | | contract owner turns 80, we | contract owner turns age 80, | | credit interest at the 5.5% | we compare the prior enhanced | | annual effective rate* to the | death benefit to the contract | | enhanced death benefit from the | value and select the larger | | preceding day (which would be | amount as the new enhanced | | the initial premium if the | death benefit. | | preceding day is the contract | On all other days, the | | date), then we add additional | enhanced death benefit is the | | premiums paid since the | amount determined below. We | | preceding day, then we adjust | first take the enhanced death | | for any withdrawals made | benefit from the preceding | | (including any Market Value | day (which would be the | | Adjustment applied to such | initial premium if the | | withdrawals and any associated | valuation date is the | | surrender charges**) since the | contract date) and then we | | preceding day. At age 80 the | add additional premiums paid | | accumulation rate used will | since the preceding day, then | |change. | reduce the enhanced death | |There is no maximum, however, | benefit pro rata for any | |the death benefit will be | contract value withdrawn. | |reduced by adjustments for | That amount becomes the new | |withdrawals.*** | enhanced death benefit. | |-------------------------------------------------------------------| The actual interest rate used for calculating the 5.5% Solution Enhanced Death Benefit for the Liquid Asset and Limited Maturity Bond investment portfolios and the Fixed Account, will be the lesser of (1) 5.5% and (2) the interest rate, positive or negative, providing a yield on the enhanced death benefit equal to the net return for the current valuation period on the contract value allocated to Special Funds. We may, with 30 days notice to you, designate any fund as a Special Fund on existing contracts with respect to new premiums added to such fund and also with respect to new transfers to such funds. Thus, selecting these investments may limit the enhanced death benefit. **Each premium payment reduced by adjustments for any withdrawals and any associated surrender charges incurred will continue to grow at the 5.5% annual effective rate until maximum is reached. *** Each withdrawal reduces the enhanced death benefit as follows: If total withdrawals in a contract year do not exceed 5.5% of cumulative premiums and did not exceed 5.5% of cumulative premiums in any prior contract year, such withdrawals will reduce the enhanced death benefit by the amount of the withdrawal (and any associated surrender charge) including any Market Value Adjustment. Once withdrawals in any contract year exceed 5.5% of cumulative premiums, withdrawals will reduce the enhanced death benefit in proportion to the reduction in contract value pro rata. - --------------------------------------------------------------------- CHARGES AND FEES - --------------------------------------------------------------------- ADMINISTRATIVE CHARGE The administrative charge, if applicable, is $30 per contract year. CHARGES DEDUCTED FROM THE SUBACCOUNTS MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is deducted each business day. The amount of the mortality and expense risk charge depends on the death benefit you have elected. If you have elected the Standard Death Benefit, the charge, on an annual basis, is equal to 1.15% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .003169% for each day since the previous business day. If you have elected an enhanced death benefit, the charge, on an annual basis, is equal to 1.30% for the Annual Ratchet Enhanced Death Benefit, 1.30% for the 5.5% Solution Enhanced Death Benefit or 1.40% for the Max 5.5 Enhanced Death Benefit, of the assets you have in each subaccount. The charge is deducted each business day at the rate of .003585%, .003585%, or .003863%, respectively, for each day since the previous business day. This supplement should be retained with your GOLDENSELECT DVA PLUS/R/ Prospectus. ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company is a stock company domiciled in Delaware 106976 DVA PLUS 05/1/00 DVA PLUS PROFILE AND PROSPECTUS FORM ONE VERSION A ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- PROFILE OF GOLDENSELECT DVA PLUS(R) DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT MAY 1, 2000 ------------------------------------------------------------------- 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. ------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 applicable interest period. If you withdraw your money from the fixed account more than 30 days before the applicable maturity date, we will apply a market value adjustment. A market value adjustment could increase or decrease your contract value and/or the amount you take out. Generally, the investment portfolios are designed to offer a better return than the fixed account. However, this is NOT guaranteed. You may not make any money, and you can even lose the money you invest. Subject to state availability, you may elect one of three optional riders offering specified benefits featured in the prospectus for the Contract. The three optional benefit riders are listed on page 9 below. The optional benefit riders can provide protection under certain circumstances, in the event that unfavorable investment performance has lowered your contract value below certain targeted growth. These riders do not guarantee the performance of your investment portfolios. Separate charges are assessed for the optional riders. You should carefully analyze and completely evaluate each rider before you purchase any. Be aware that the benefit provided by any of the riders will be affected by certain later actions you may take - such as DVA PLUS PROFILE PROSPECTUS BEGINS AFTER PAGE 11 OF THIS PROFILE withdrawals and transfers. The riders are not available to Contracts issued before January 1, 2000. To find out about availability, check with our Customer Service Center. The Contract, like all deferred variable annuity contracts, has two phases: the accumulation phase and the income phase. The accumulation phase is the period between the contract date and the date on which you start receiving the annuity payments under your Contract. The amounts you accumulate during the accumulation phase will determine the amount of annuity payments you will receive. The income phase begins on the annuity start date, which is the date you start receiving regular annuity payments from your Contract. You determine (1) the amount and frequency of premium payments, (2) the investments, (3) transfers between investments, (4) the type of annuity to be paid after the accumulation phase, (5) the beneficiary who will receive the death benefits, (6) the type of death benefit, and (7) the amount and frequency of withdrawals. 2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE) Annuity payments are the periodic payments you will begin receiving on the annuity start date. You may choose one of the following annuity payment options:
---------------------------------------------------------------------------------------------- ANNUITY OPTIONS ---------------------------------------------------------------------------------------------- Option 1 Income for a fixed Payments are made for a specified number of years to you period or your beneficiary. ---------------------------------------------------------------------------------------------- Option 2 Income for life Payments are made for the rest of your life or longer for a with a period specified period such as 10 or 20 years or until the total certain amount used to buy this option has been repaid. This option comes with an added guarantee that payments will continue to your beneficiary for the remainder of such period if you should die during the period. ---------------------------------------------------------------------------------------------- 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 $10,000 or more ($1,500 for a qualified Contract) up to and including age 85. You may make additional payments of $500 or more ($250 for a qualified Contract) at any time before you turn age 85 during the accumulation phase. Under certain circumstances, we may waive the minimum initial and additional premium payment requirement. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. Who may purchase this Contract? The Contract may be purchased by individuals as part of a personal retirement plan (a "non-qualified Contract"), or as a Contract that qualifies for special tax treatment when purchased as either an Individual Retirement Annuity (IRA) or in connection with a qualified retirement plan (each a "qualified Contract"). 2 DVA PLUS PROFILE IRAs and other qualified plans already have the tax-deferral feature found in this Contract. For an additional cost, the Contract provides other benefits including death benefits and the ability to receive a lifetime income. See "Expenses" in this profile. 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, the PIMCO Variable Insurance Trust, ING Variable Insurance Trust and the Prudential Series Fund. Keep in mind that while an investment in the fixed account earns a fixed interest rate, an investment in any investment portfolio, depending on market conditions, may cause you to make or lose money. The investment portfolios available under your Contract are:
THE GCG TRUST Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series Limited Maturity Bond Series Managed Global Series Small Cap Series Global Fixed Income Series Large Cap Value Series Growth Series Fully Managed Series All Cap Series Real Estate Series Total Return Series Research Series Hard Assets Series Equity Income Series Capital Appreciation Series Developing World Series Investors Series Capital Growth Series Emerging Markets Series Value Equity Series Strategic Equity Series THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond Portfolio PIMCO StocksPLUS Growth and Income Portfolio ING VARIABLE INSURANCE TRUST ING Global Brand Names Fund PRUDENTIAL SERIES FUND Prudential Jennison Portfolio
5. EXPENSES The Contract has insurance features and investment features, and there are charges related to each. For the insurance features, the Company deducts a mortality and expense risk charge, an asset-based administrative charge and an annual contract administrative charge of $40. We deduct the mortality and expense risk charge and the asset-based administrative charges daily directly from your contract value in the investment portfolios. The mortality and expense risk charge (depending on the death benefit you choose) and the asset-based administrative charge, on an annual basis, are as follows: STANDARD ENHANCED DEATH BENEFIT DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION Mortality & Expense Risk Charge 1.10% 1.25% 1.40% Asset-Based Administrative Charge 0.15% 0.15% 0.15% ----- ----- ----- Total 1.25% 1.40% 1.55% If you choose to purchase one of the optional benefit riders we offer, we will deduct a separate quarterly charge for the rider on each quarterly contract anniversary and pro rata when the rider terminates. We deduct the rider charges directly from your contract value in the investment portfolios; if the value in the 3 DVA PLUS PROFILE investment portfolios is insufficient, rider charges will be deducted from the fixed account. The rider charges are as follows: OPTIONAL BENEFIT RIDER CHARGES Minimum Guaranteed Accumulation Benefit (MGAB) rider Waiting Period Quarterly Charge -------------- ---------------- 10 Year............. 0.125% of the MGAB Charge Base*(0.50% annually) 20 Year............. 0.125% of the MGAB Charge Base (0.50% annually) Minimum Guaranteed Income Benefit (MGIB) rider MGIB Base Rate Quarterly Charge -------------- ---------------- 7%.................. 0.125% of the MGIB Base* (0.50% annually) Minimum Guaranteed Withdrawal Benefit (MGWB) rider Quarterly Charge ---------------- 0.125% of the MGWB Eligible Payment Amount* (0.50% annually) * See prospectus for a description. Each investment portfolio has charges for investment management fees and other expenses. These charges, which vary by investment portfolio, currently range from 0.56% to 1.75% annually (see following table) of the portfolio's average daily net asset balance. If you withdraw money from your Contract, or if you begin receiving annuity payments, we may deduct a premium tax of 0%-3.5% to pay to your state. We deduct a surrender charge if you surrender your Contract or withdraw an amount exceeding the free withdrawal amount. The free withdrawal amount in any year is 15% of your contract value on the date of the withdrawal less any prior withdrawals during that contract year. The following table shows the schedule of the surrender charge that will apply. The surrender charge is a percent of each premium payment withdrawn. COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0% The following table is designed to help you understand the Contract charges. The "Total Annual Insurance Charges" column is divided into two: one part reflects the maximum mortality and expense risk charge (based on the 7% Solution Enhanced Death Benefit), the asset-based administrative charge, the annual contract administrative charge as 0.06% (based on an average contract value of $69,000), and the highest optional rider charge as 0.75% in most cases, assuming the rider base is equal to the initial premium and the rider base increases by 7% each year. (Note, however, for the Liquid Asset and Limited Maturity Bond portfolios, the rider charge is equal to 0.50% because the base for the rider accumulates at the assumed net rate, not 7%.) The second part reflects the same insurance charge, but without any rider charges. The "Total Annual Investment Portfolio Charges" column reflects the portfolio charges for each portfolio and are based on actual expenses as of December 31, 1999, except for (i) portfolios that commenced operations during 2000 where the charges have been estimated, and (ii) newly formed portfolios where the charges have been estimated. The column "Total Annual Charges" reflects the sum of the previous two columns. The columns under the heading "Examples" show you how much you would pay under the Contract for a 1-year period and for a 10-year period. As required by the Securities and Exchange Commission, the examples assume that you invested $1,000 in a Contract that earns 5% annually and that you withdraw your money at the end of Year 1 or at the end of Year 10 (based on the 7% Solution Enhanced Death Benefit). The 1 Year examples above include a 7% surrender charge. For Years 1 and 10, the examples show the total annual charges assessed during that 4 DVA PLUS PROFILE time and assume that you have elected the 7% Solution Death Benefit. For these examples, the premium tax is assumed to be 0%.
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF: INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS ------------------ ------------------ ------------------ ------------------ W/ THE W/O TOTAL ANNUAL W/ THE W/O W/ THE W/O W/ THE W/O HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE - ------------------------------------------------------------------------------------------------------------------------------------ THE GCG TRUST - ------------------------------------------------------------------------------------------------------------------------------------ Liquid Asset 2.11% 1.61% 0.56% 2.67% 2.17% $97 $92 $303 $250 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Maturity Bond 2.11% 1.61% 0.57% 2.68% 2.18% $97 $92 $304 $251 - ------------------------------------------------------------------------------------------------------------------------------------ Global Fixed Income 2.36% 1.61% 1.60% 3.96% 3.21% $110 $102 $417 $351 - ------------------------------------------------------------------------------------------------------------------------------------ Fully Managed 2.36% 1.61% 0.97% 3.33% 2.58% $104 $96 $362 $291 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return 2.36% 1.61% 0.91% 3.27% 2.52% $103 $96 $357 $286 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Income 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Investors 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295 - ------------------------------------------------------------------------------------------------------------------------------------ Value Equity 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Rising Dividends 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Managed Global 2.36% 1.61% 1.25% 3.61% 2.86% $106 $99 $387 $319 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295 - ------------------------------------------------------------------------------------------------------------------------------------ All Cap 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295 - ------------------------------------------------------------------------------------------------------------------------------------ Research 2.36% 1.61% 0.91% 3.27% 2.52% $103 $96 $357 $286 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Growth 2.36% 1.61% 1.05% 3.41% 2.66% $104 $97 $369 $299 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Equity 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Growth 2.36% 1.61% 0.91% 3.27% 2.52% $103 $96 $357 $286 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Growth 2.36% 1.61% 1.04% 3.40% 2.65% $104 $97 $368 $298 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Hard Assets 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290 - ------------------------------------------------------------------------------------------------------------------------------------ Developing World 2.36% 1.61% 1.75% 4.11% 3.36% $111 $104 $430 $365 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 2.36% 1.61% 1.75% 4.11% 3.36% $111 $104 $430 $365 - ------------------------------------------------------------------------------------------------------------------------------------ THE PIMCO VARIABLE INSURANCE TRUST - ------------------------------------------------------------------------------------------------------------------------------------ PIMCO High Yield Bond 2.36% 1.61% 0.75% 3.11% 2.36% $101 $94 $342 $270 - ------------------------------------------------------------------------------------------------------------------------------------ PIMCO StocksPLUS Growth and Income 2.36% 1.61% 0.65% 3.01% 2.26% $100 $93 $333 $260 - ------------------------------------------------------------------------------------------------------------------------------------ ING VARIABLE INSURANCE TRUST - ------------------------------------------------------------------------------------------------------------------------------------ ING Global Brand Names 2.36% 1.61% 1.23% 3.59% 2.84% $106 $99 $385 $317 - ------------------------------------------------------------------------------------------------------------------------------------ THE PRUDENTIAL SERIES FUND - ------------------------------------------------------------------------------------------------------------------------------------ Prudential Jennison 2.36% 1.61% 1.03% 3.39% 2.64% $104 $97 $368 $297 - ------------------------------------------------------------------------------------------------------------------------------------
The "Total Annual Investment Portfolio Charges" column above reflects current expense reimbursements for applicable investment portfolios. For more detailed information, see "Fees and Expenses" in the prospectus for the Contract. 6. TAXES Under a qualified Contract, your premiums are generally pre-tax contributions and accumulate on a tax-deferred basis. Premiums and earnings are generally taxed as income when you make a withdrawal or begin receiving annuity payments, presumably when you are in a lower tax bracket. Under a non-qualified Contract, premiums are paid with after-tax dollars, and any earnings will accumulate tax-deferred. You will be taxed on these earnings, but not on premiums, when you withdraw them from the Contract. 5 DVA PLUS PROFILE For owners of most qualified Contracts, when you reach age 70 1/2 (or, in some cases, retire), you will be required by federal tax laws to begin receiving payments from your annuity or risk paying a penalty tax. In those cases, we can calculate and pay you the minimum required distribution amounts at your request. If you are younger than 59 1/2 when you take money out, in most cases, you will be charged a 10% federal penalty tax on the taxable earnings withdrawn. 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 10. Withdrawals above the free withdrawal amount may be subject to a surrender charge. We will apply a market value adjustment if you withdraw your money from the fixed account more than 30 days before the applicable maturity date. Income taxes and a penalty tax may apply to amounts withdrawn. 8. PERFORMANCE The value of your Contract will fluctuate depending on the investment performance of the portfolio(s) you choose. The following chart shows average annual total return for each portfolio that was in operation for the entire year of 1999. These numbers reflect the deduction of the mortality and expense risk charge (based on the 7% Solution Enhanced Death Benefit), the asset-based administrative charge and the annual contract fee and the maximum optional death benefit rider charge on a rider base that accumulates at 7%, but do not reflect deductions for any surrender charges. If surrender charges were reflected, they would have the effect of reducing performance. Please keep in mind that past performance is not a guarantee of future results. 6 DVA PLUS PROFILE
- ------------------------------------------------------------------------------------------------------- CALENDAR YEAR INVESTMENT PORTFOLIO 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Managed by A I M Capital Management, Inc. Capital Appreciation (1) 22.07% 10.33% 26.27% 17.73% Strategic Equity(2) 53.07% -1.27% 20.59% 16.89% Managed by Alliance Capital Management, L.P. - ------------------------------------------------------------------------------------------------------- Capital Growth(2) 22.95% 9.63% 22.54% -- - ------------------------------------------------------------------------------------------------------- Managed by Baring International Investment Limited (an affiliate) Developing World(2) 58.45% -- -- -- Emerging Markets(4) 81.68% -25.70% -11.27% 5.02% Global Fixed Income -10.60% 9.51% -1.44% 2.80% Hard Assets(2) 20.85% -31.07% 3.94% 30.46% - ------------------------------------------------------------------------------------------------------- Managed by Capital Guardian Trust Company Large Cap Value -- -- -- -- Managed Global(3) 60.00% 26.63% 9.83% 9.96% Small Cap(3) 47.57% 18.46% 8.02% 17.60% - ------------------------------------------------------------------------------------------------------- Managed by Eagle Asset Management, Inc. Value Equity -1.61% -0.58% 24.63% 8.30% - ------------------------------------------------------------------------------------------------------- Managed by ING Investment Management, LLC (an affiliate) Limited Maturity Bond -0.99% 4.63% 4.44% 2.12% Liquid Asset 2.55% 2.85% 2.90% 2.78% - ------------------------------------------------------------------------------------------------------- Managed by Janus Capital Corporation Growth(2) 74.62% 24.18% 13.35% -- - ------------------------------------------------------------------------------------------------------- Managed by Kayne Anderson Investment Management, LLC Rising Dividends 13.47% 11.75% 27.12% 18.12% - ------------------------------------------------------------------------------------------------------- Managed by Massachusetts Financial Services Company Mid-Cap Growth 75.50% 20.25% 17.16% 18.15% Research 21.66% 20.49% 17.62% 20.76% Total Return 1.19% 9.26% 18.34% 11.29% - ------------------------------------------------------------------------------------------------------- Managed by Prudential Investment Corporation Real Estate(5) -5.86% -15.27% 20.23% 32.47% - ------------------------------------------------------------------------------------------------------- Managed by Salomon Brothers Management, Inc. All Cap -- -- -- -- Investors -- -- -- -- - ------------------------------------------------------------------------------------------------------- Managed by T. Rowe Price Associates, Inc. Equity Income(2) -2.82% 6.00% 14.99% 6.48% Fully Managed 4.68% 3.68% 12.95% 13.93% - ------------------------------------------------------------------------------------------------------- Managed by Pacific Investment Management Company PIMCO High Yield Bond 0.84% -- -- -- PIMCO StocksPLUS Growth and Income 17.37% -- -- -- - ------------------------------------------------------------------------------------------------------- Managed by ING Investment Management Advisors B.V. (an affiliate) ING Global Brand Names -- -- -- -- - ------------------------------------------------------------------------------------------------------- Managed by Jennison Associates LLC Prudential Jennison -- -- -- -- - -------------------------------------------------------------------------------------------------------
- ---------------------------- (1) Prior to April 1, 1999, a different firm managed the Portfolio. (2) Prior to March 1, 1999, a different firm managed the Portfolio. (3) Prior to February 1, 2000, a different firm managed the Portfolio. (4) Prior to March 15, 2000, a different firm managed the Portfolio. (5) Prior to May 1, 2000, a different firm managed the Portfolio. 7 DVA PLUS PROFILE 9. DEATH BENEFIT You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced Death Benefit or (iii) the Annual Ratchet Enhanced Death Benefit. The 7% Solution Enhanced Death Benefit is available only if the contract owner or the annuitant (if the contract owner is not an individual) is not more than 80 years old at the time of purchase. The Annual Ratchet Enhanced Death Benefit is available only if the contract owner or the annuitant (if the contract owner is not an individual) is not more than 79 years old at the time of purchase. The 7% Solution and Annual Ratchet Enhanced Death Benefits may not be available where a Contract is held by joint owners. The death benefit is payable when the first of the following persons die: the contract owner, joint owner, or annuitant (if a contract owner is not an individual). Assuming you are the contract owner, if you die during the accumulation phase, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit paid depends on the death benefit you have chosen. The death benefit value is calculated at the close of the business day on which we receive written notice and due proof of death, as well as required claim forms, at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of your death, the amount of the benefit payable in the future may be affected. If you die after the annuity start date and you are the annuitant, your beneficiary will receive the death benefit you chose under the annuity option then in effect. The death benefit may be subject to certain mandatory distribution rules required by federal tax law. Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract after subtracting any withdrawals; or 3) the cash surrender value. Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract after subtracting any withdrawals; 3) the cash surrender value; or 4) the enhanced death benefit, which we determine as follows: we credit interest each business day at the 7% annual effective rate to the enhanced death benefit from the preceding day (which would be the initial premium if the preceding day is the contract date), then we add additional premiums paid since the preceding day, then we subtract any withdrawals made since the preceding day, then we adjust for any market value adjustment, and then we subtract any associated surrender charges. The maximum enhanced death benefit is 2 times all premium payments, less an amount to reflect withdrawals. Note: The actual interest rate used for calculating the death benefit for the Liquid Asset and Limited Maturity Bond investment portfolios will be the lesser of the 7% annual effective rate or the net rate of return for such portfolios during the applicable period. The interest rate used for calculating the death benefit for your investment in the fixed account will be the lesser of the 7% annual effective rate or the interest credited to such investment during the applicable period. Thus, selecting these investments may limit the enhanced death benefit. 8 DVA PLUS PROFILE Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract after subtracting any withdrawals; 3) the cash surrender value; or 4) the enhanced death benefit, which is determined as follows: On each contract anniversary that occurs on or before the contract owner turns age 80, we compare the prior enhanced death benefit to the contract value and select the larger amount as the new enhanced death benefit. On all other days, the enhanced death benefit is the following amount: On a daily basis we first take the enhanced death benefit from the preceding day (which would be the initial premium if the preceding day is the contract date), then we add additional premiums paid since the preceding day, and then we subtract any withdrawals made since the preceding day, then we adjust for any market value adjustment, and then we subtract for any associated surrender charges. That amount becomes the new enhanced death benefit. Note: In all cases described above, the amount of the death benefit could be reduced by premium taxes owed and withdrawals not previously deducted. The enhanced death benefits may not be available in all states. 10. OTHER INFORMATION FREE LOOK. If you cancel the Contract within 10 days after you receive it, you will receive a refund of the adjusted contract value. We determine your contract value the close of business on the day we receive your written refund request. For purposes of the refund during the free look period, we include a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios, 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, including any charges, (rather than the contract value) in which case you will not be subject to investment risk during the free look period. Also, in some states, you may be entitled to a longer free look period. TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You can make transfers among your investment portfolios and your investment in the fixed account as frequently as you wish without any current tax implications. The minimum amount for a transfer is $100. There is currently no charge for transfers, and we do not limit the number of transfers allowed. The Company may, in the future, charge a $25 fee for any transfer after the twelfth transfer in a contract year or limit the number of transfers allowed. Keep in mind that if you transfer or otherwise withdraw your money from the fixed account more than 30 days before the applicable maturity date, we will apply a market value adjustment. A market value adjustment could increase or decrease your contract value and/or the amount you transfer or withdraw. NO PROBATE. In most cases, when you die, the person you choose as your beneficiary will receive the death benefit without going through probate. See "Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the prospectus for the Contract. OPTIONAL RIDERS. Subject to state availability, you may purchase one of three optional benefit riders for an additional charge. You may not add more than one of these three riders to your Contract. There is a separate charge for each rider. Once elected, the riders generally may not be cancelled. This means once added the rider may not be removed and charges will be assessed regardless of the performance of your Contract. Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an optional benefit which offers you the ability to receive a one-time adjustment to your contract value in the event your contract value on a specified date is below the MGAB rider guarantee. When added at issue, the MGAB rider guarantees that your contract value will at least equal your initial premium payment at the end of ten years, or, at least equal two times your initial premium payment at the end of twenty years, 9 DVA PLUS PROFILE depending on the waiting period you select, reduced pro rata for withdrawals and certain transfers. The MGAB rider offers a ten-year option and a twenty-year option, of which you may purchase only one. Withdrawals and certain transfers may reduce the guarantee by more than the amount withdrawn or transferred. The MGAB rider may offer you protection in the event of a lower contract value that may result from unfavorable investment performance of your Contract. There are exceptions, conditions, eligibility requirements, and important considerations associated with the MGAB rider. You should read the prospectus for more complete information. Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an optional benefit which guarantees a minimum amount of income that will be available to you upon annuitization, regardless of fluctuating market conditions. Ordinarily, the amount of income that will be available to you upon annuitization is based upon your contract value, the annuity option you selected and the guaranteed or then current income factors in effect. If you purchase the MGIB rider, the minimum amount of income that will be available to you upon annuitization on the MGIB Benefit Date is the greater of the amounts that are ordinarily available to you under your Contract and the MGIB annuity benefit, which is based on your MGIB Base, the MGIB annuity option you selected and the MGIB guaranteed income factors specified in your rider. Your MGIB Base generally depends on the amount of premiums you pay during the first five contract years after you purchase the rider, when you pay them, and accumulated at the MGIB rate, less adjustments for withdrawals and transfers. There are exceptions, conditions, eligibility requirements, and important considerations associated with the MGIB rider. You should read the prospectus for more complete information. Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is an optional benefit which guarantees that you will receive annual periodic payments, when added together, equal to all premium payments paid during the first two contract years, less adjustments for any prior withdrawals. If your contract value is reduced to zero, your periodic payments will be 7% of your Eligible Payment Amount every year. (Of course any applicable income and penalty taxes will apply to amounts withdrawn.) Your original Eligible Payment Amount is your premium payments received during the first two contract years. Withdrawals that you make in excess of the above periodic payment amount may substantially reduce the guarantee. There are exceptions, conditions, eligibility requirements, and important considerations associated with the MGWB rider. You should read the prospectus for more complete information. ADDITIONAL FEATURES. This Contract has other features you may be interested in. These include: Dollar Cost Averaging. This is a program that allows you to invest a fixed amount of money in the investment portfolios each month. It may give you a lower average cost per unit over time than a single one-time purchase. Dollar cost averaging requires regular investments regardless of fluctuating price levels, and does not guarantee profits or prevent losses in a declining market. This option is currently available only if you have $1,200 or more in the Limited Maturity Bond or the Liquid Asset investment portfolios or in the fixed account with either a 6-month or 1-year guaranteed interest period. Transfers from the fixed account under this program will not be subject to a market value adjustment. 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. 10 DVA PLUS PROFILE 11. INQUIRIES If you need more information after reading this profile and the prospectus, please contact us at: CUSTOMER SERVICE CENTER P.O. BOX 2700 WEST CHESTER, PENNSYLVANIA 19380 (800) 366-0066 or your registered representative. 11 DVA PLUS PROFILE This page intentionally left blank. - -------------------------------------------------------------------------------- Golden American Life Insurance Company Separate Account B of Golden American Life Insurance Company Deferred Combination Variable and Fixed Annuity Prospectus GOLDENSELECT DVA Plus(R) - -------------------------------------------------------------------------------- May 1, 2000 This prospectus describes GoldenSelect DVA Plus, 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 listed on the back of this cover. We will credit your Fixed Interest Allocation(s) with a fixed rate of interest. We set the interest rates periodically. We will not set the interest rate to be less than a minimum annual rate of 3%. You may choose guaranteed interest periods of 6 months, and 1, 3, 5, 7 and 10 years. The interest earned on your money as well as your principal is guaranteed as long as you hold them until the maturity date. If you take your money out from a Fixed Interest Allocation more than 30 days before the applicable maturity date, we will apply a market value adjustment ("Market Value Adjustment"). A Market Value Adjustment could increase or decrease your contract value and/or the amount you take out. You bear the risk that you may receive less than your principal if we take a Market Value Adjustment. For Contracts sold in some states, not all Fixed Interest Allocations or subaccounts are available. You have a right to return a Contract within 10 days after you receive it for a refund of the adjusted contract value (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 May 1, 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 THE SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST OR THE PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND. - -------------------------------------------------------------------------------- A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF THIS COVER. - -------------------------------------------------------------------------------- The investment portfolios available under your Contract and the portfolio managers are: A I M CAPITAL MANAGEMENT, INC. Capital Appreciation Series Strategic Equity Series ALLIANCE CAPITAL MANAGEMENT L. P. Capital Growth Series BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE) Developing World Series Emerging Markets Series Global Fixed Income Series Hard Assets Series CAPITAL GUARDIAN TRUST COMPANY Large Cap Value Series Managed Global Series Small Cap Series EAGLE ASSET MANAGEMENT, INC. Value Equity Series 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 MASSACHUSETTS FINANCIAL SERVICES COMPANY Mid-Cap Growth Series Research Series Total Return Series THE PRUDENTIAL INVESTMENT CORPORATION Real Estate Series SALOMON BROTHERS ASSET MANAGEMENT, INC. All Cap Series Investors Series T. ROWE PRICE ASSOCIATES, INC. Equity Income Series Fully Managed Series PACIFIC INVESTMENT MANAGEMENT COMPANY PIMCO High Yield Bond Portfolio PIMCO StocksPLUS Growth and Income Portfolio ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE) ING Global Brand Names Fund JENNISON ASSOCIATES LLC Prudential Jennison Portfolio The above mutual fund investment portfolios are purchased and held by corresponding divisions of our Separate Account B. We refer to the divisions as "subaccounts" and the money you place in the Fixed Account's guaranteed interest periods as "Fixed Interest Allocations" in this prospectus. - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE Index of Special Terms................................................. 1 Fees and Expenses...................................................... 2 Performance Information................................................ 9 Accumulation Unit................................................ 9 Net Investment Factor............................................ 10 Condensed Financial Information.................................. 10 Financial Statements............................................. 10 Performance Information.......................................... 10 Golden American Life Insurance Company................................. 11 The Trusts ............................................................ 11 Golden American Separate Account B..................................... 12 The Investment Portfolios.............................................. 12 Investment Objectives............................................ 12 Investment Management Fees....................................... 15 The Fixed Interest Allocation.......................................... 16 Selecting a Guaranteed Interest Period........................... 17 Guaranteed Interest Rates........................................ 17 Transfers from a Fixed Interest Allocation....................... 17 Withdrawals from a Fixed Interest Allocation..................... 18 Market Value Adjustment.......................................... 18 The Annuity Contract................................................... 19 Contract Date and Contract Year ................................. 19 Annuity Start Date............................................... 19 Contract Owner................................................... 20 Annuitant........................................................ 20 Beneficiary...................................................... 21 Purchase and Availability of the Contract........................ 21 Crediting of Premium Payments.................................... 21 Administrative Procedures........................................ 22 Contract Value................................................... 23 Cash Surrender Value............................................. 23 Surrendering to Receive the Cash Surrender Value................. 23 The Subaccounts.................................................. 24 The Fixed Account................................................ 24 Optional Riders.................................................. 24 Minimum Guaranteed Accumulation Benefit Rider............... 25 Minimum Guaranteed Income Benefit Rider..................... 27 Minimum Guaranteed Withdrawal Benefit Rider................. 29 Other Contracts.................................................. 31 Other Important Provisions....................................... 31 Withdrawals............................................................ 31 Regular Withdrawals.............................................. 32 Systematic Withdrawals........................................... 32 IRA Withdrawals.................................................. 33 Transfers Among Your Investments....................................... 34 Dollar Cost Averaging............................................ 35 Automatic Rebalancing............................................ 35 Death Benefit Choices.................................................. 36 Death Benefit During the Accumulation Phase...................... 36 Standard Death Benefit...................................... 36 Enhanced Death Benefits..................................... 36 Death Benefit During the Income Phase............................ 37 i - -------------------------------------------------------------------------------- TABLE OF CONTENTS (CONTINUED) - -------------------------------------------------------------------------------- PAGE Required Distributions upon Contract Owner's Death............... 37 Charges and Fees....................................................... 38 Charge Deduction Subaccount...................................... 38 Charges Deducted from the Contract Value......................... 38 Surrender Charge............................................ 38 Waiver of Surrender Charge for Extended Medical Care........ 39 Free Withdrawal Amount...................................... 39 Surrender Charge for Excess Withdrawals..................... 39 Premium Taxes............................................... 39 Administrative Charge....................................... 40 Transfer Charge............................................. 40 Charges Deducted from the Subaccounts............................ 40 Mortality and Expense Risk Charge........................... 40 Asset-Based Administrative Charge........................... 40 Optional Rider Charges...................................... 40 Trust Expenses................................................... 41 The Annuity Options.................................................... 41 Annuitization of Your Contract................................... 41 Selecting the Annuity Start Date................................. 42 Frequency of Annuity Payments.................................... 42 The Annuity Options.............................................. 43 Income for a Fixed Period................................... 43 Income for Life with a Period Certain....................... 43 Joint Life Income........................................... 43 Annuity Plan................................................ 43 Payment When Named Person Dies................................... 43 Other Contract Provisions.............................................. 43 Reports to Contract Owners....................................... 43 Suspension of Payments........................................... 44 In Case of Errors in Your Application............................ 44 Assigning the Contract as Collateral............................. 44 Contract Changes-Applicable Tax Law.............................. 44 Free Look........................................................ 44 Group or Sponsored Arrangements.................................. 44 Selling the Contract............................................. 45 Other Information...................................................... 45 Voting Rights.................................................... 45 State Regulation................................................. 45 Legal Proceedings................................................ 46 Legal Matters.................................................... 46 Experts.......................................................... 46 Federal Tax Considerations............................................. 46 More Information About Golden American Life Insurance Company.......... 52 Financial Statements of Golden American Life Insurance Company......... 72 Statement of Additional Information Table of Contents................................................ 103 Appendix A Condensed Financial Information.................................. A1 Appendix B Market Value Adjustment Examples................................. B1 Appendix C Surrender Charge for Excess Withdrawals Example.................. C1 ii - -------------------------------------------------------------------------------- INDEX OF SPECIAL TERMS - -------------------------------------------------------------------------------- The following special terms are used throughout this prospectus. Refer to the page(s) listed for an explanation of each term: SPECIAL TERM PAGE Accumulation Unit 9 Annual Ratchet Enhanced Death Benefit 37 Annuitant 20 Annuity Start Date 19 Cash Surrender Value 23 Contract Date 19 Contract Owner 20 Contract Value 23 Contract Year 19 Fixed Interest Allocation 16 Free Withdrawal Amount 39 Market Value Adjustment 18 Net Investment Factor 10 Rider Date 24 7% Solution Enhanced Death Benefit 37 Special Fund 24 Standard Death Benefit 36 The following terms as used in this prospectus have the same or substituted meanings as the corresponding terms currently used in the Contract: TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE CONTRACT Accumulation Unit Value Index of Investment Experience Annuity Start Date Annuity Commencement Date Contract Owner Owner or Certificate Owner Contract Value Accumulation Value Transfer Charge Excess Allocation Charge Fixed Interest Allocation Fixed Allocation Free Look Period Right to Examine Period Guaranteed Interest Period Guarantee Period Subaccount(s) Division(s) Net Investment Factor Experience Factor Regular Withdrawals Conventional Partial Withdrawals Withdrawals Partial Withdrawals 1 - -------------------------------------------------------------------------------- FEES AND EXPENSES - -------------------------------------------------------------------------------- CONTRACT OWNER TRANSACTION EXPENSES* Surrender Charge: COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 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.............................................. $ 40 (We waive this charge if the total of your premium payments is $100,000 or more or if your contract value at the end of a contract year is $100,000 or more.) *** We deduct this charge on each contract anniversary and on surrender. SEPARATE ACCOUNT ANNUAL CHARGES**** STANDARD ENHANCED DEATH BENEFIT DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION ------------- -------------- ----------- Mortality & Expense Risk Charge 1.10% 1.25% 1.40% Asset-Based Administrative Charge 0.15% 0.15% 0.15% ----- ----- ----- Total Separate Account Charges 1.25% 1.40% 1.55% *** As a percentage of average assets in each subaccount. The mortality and expense risk charge and the asset-based administrative charge are deducted daily. OPTIONAL RIDER CHARGES***** Minimum Guaranteed Accumulation Benefit rider: Waiting Period Quarterly Charge -------------- ---------------- 10 Year........... 0.125% of the MGAB Charge Base(1) (0.50% annually) 20 Year........... 0.125% of the MGAB Charge Base (0.50% annually) Minimum Guaranteed Income Benefit rider: MGIB Base Rate Quarterly Charge -------------- ---------------- 7%................ 0.125% of the MGIB Base(2) (0.50% annually) Minimum Guaranteed Withdrawal Benefit rider: Quarterly Charge ---------------- 0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually) ***** We deduct optional rider charges from the subaccounts in which you are invested on each quarterly contract anniversary and pro rata on termination of the Contract; if the value in the subaccounts is insufficient, the optional rider charges will be deducted from the Fixed Interest Allocation nearest maturity. (1) The MGAB Charge Base is the total of premiums added during the 2-year period commencing on the rider date if you purchase the rider on the contract date, or, your contract value on the rider date plus premiums added during the 2-year period commencing on the rider date if your purchase the rider after the contract date, reduced pro rata for all withdrawals taken while the MGAB rider is in effect, and reduced pro rata for transfers made during the three year period before the MGAB Benefit Date. 2 (2) The MGIB Base generally depends on the amount of premiums you pay(s) during the first five contract years after you purchase the rider, when you pay them, and less a pro rata deduction for any withdrawal made while the MGIB rider is in effect. (3) The MGWB Eligible Payment Amount is (i) the total of premiums paid during the 2-year period commencing on the rider date if you purchase the rider on the contract date; or (ii) your contract value on the rider date plus subsequent premiums received during the two-year period commencing on the rider date. THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3) - -------------------------------------------------------------------------------- Liquid Asset 0.56% 0.00% 0.56% - -------------------------------------------------------------------------------- Limited Maturity Bond 0.56% 0.01% 0.57% - -------------------------------------------------------------------------------- Global Fixed Income 1.60% 0.00% 1.60% - -------------------------------------------------------------------------------- Fully Managed 0.96% 0.01% 0.97% - -------------------------------------------------------------------------------- Total Return 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- Equity Income 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Investors 1.00% 0.01% 1.01% - -------------------------------------------------------------------------------- Value Equity 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Rising Dividends 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Managed Global 1.25% 0.00% 1.25% - -------------------------------------------------------------------------------- Large Cap Value 1.00% 0.01% 1.01% - -------------------------------------------------------------------------------- All Cap 1.00% 0.01% 1.01% - -------------------------------------------------------------------------------- Research 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- Capital Appreciation 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Capital Growth 1.04% 0.01% 1.05% - -------------------------------------------------------------------------------- Strategic Equity 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Mid-Cap Growth 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- Small Cap 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Growth 1.04% 0.00% 1.04% - -------------------------------------------------------------------------------- Real Estate 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Hard Assets 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Developing World 1.75% 0.00% 1.75% - -------------------------------------------------------------------------------- Emerging Markets 1.75% 0.00% 1.75% - -------------------------------------------------------------------------------- (1) Fees decline as the total assets of certain combined portfolios increase. See the prospectus for the GCG Trust for more information. (2) Other expenses generally consist of independent trustees fees and certain expenses associated with investing in international markets. Other expenses are based on actual expenses for the year ended December 31, 1999, except for portfolios that commenced operations in 2000 where the charges have been estimated. (3) Total Expenses are based on actual expenses for the fiscal year ended December 31, 1999. 3 THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1) - -------------------------------------------------------------------------------- PIMCO High Yield Bond 0.25% 0.50% 0.75% - -------------------------------------------------------------------------------- PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65% - -------------------------------------------------------------------------------- (1) PIMCO has contractually agreed to reduce total annual portfolio operating expenses to the extent they would exceed, due to the payment of organizational expenses and Trustees' fees, 0.65% and 0.75% for the High Yield Bond and the StocksPLUS Growth and Income Portfolios, respectively, of average daily net assets. Without such reductions, total annual operating expenses for the fiscal year ended December 31, 1999 would have remained unchanged for both Portfolios. Under the Expense Limitation Agreement, PIMCO may recoup any such waivers and reimbursements in future periods, not exceeding three years, provided total expenses, including such recoupment, do not exceed the annual expense limit. The fees expressed are restated as of April 1, 2000. ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of the portfolio):
- -------------------------------------------------------------------------------------------------------- OTHER TOTAL EXPENSES MANAGEMENT 12B-1 FEE(3) EXPENSES AFTER FEE WAIVER FEE AFTER AFTER AFTER EXPENSE AND EXPENSE PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2) - -------------------------------------------------------------------------------------------------------- ING Global Brand Names 0.30% 0.15% 0.78% 1.23% - --------------------------------------------------------------------------------------------------------
(1) Since the portfolio had not commenced operations as of December 31, 1999, expenses as shown are based on estimates of the portfolio's operating expenses for the portfolio's first fiscal year. (2) ING Mutual Funds Management Co. LLC, the investment manager, has entered into an expense limitation contract with the portfolio, under which it will limit expenses of the portfolio as shown, excluding interest, taxes, brokerage, and extraordinary expenses through December 31, 2000. Fee waiver and/or reimbursements by the investment manager may vary in order to achieve such contractually obligated Total Expenses. Without this contract, and based on estimates for the fiscal year ending December 31, 2000, total expenses are estimated to be 2.03% for the portfolio. (3) Pursuant to a Plan of Distribution adopted by the portfolio under Rule 12b-1 under the 1940 Act, the portfolio pays its distributor an annual fee of up to 0.25% of average daily net assets attributable to portfolio shares. The distribution fee may be used by the distributor for the purpose of financing any activity which is primarily intended to result in the sale of shares of the portfolio. For more information see the portfolio's Statement of Additional Information. THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily net assets of the portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE 12B-1 FEE(1) EXPENSES EXPENSES - -------------------------------------------------------------------------------- Prudential Jennison 0.60% 0.25% 0.18% 1.03% - -------------------------------------------------------------------------------- (1) The 12b-1 fee for the Prudential Jennison Portfolio is imposed to enable to portfolio to recover certain sales expenses, including compensation to broker-dealers, the cost of printing prospectuses for delivery to prospective investors and advertising costs for the portfolio. Over a long period of time, the total amount of 12b-1 fees paid may exceed the amount of sales charges imposed by the product. 4 EXAMPLES: The following four examples are designed to show you the expenses you would pay on $1,000 investment that earns 5% annually. Each example assumes election of the 7% Solution Enhanced Death Benefit. The examples reflect deduction of a mortality and expense risk charge, an asset-based administrative charge, and the annual contract administrative charge as an annual charge of 0.06% of assets (based on an average contract value of $69,000). In addition, Examples 1 and 2 assume you elected an optional benefit rider with the highest charge (0.75% annually where the rider base is equal to the initial premium and increases by 7% annually, except for the Liquid Asset and Limited Maturity Bond portfolios, where the charge is .50% annually) and assume the rider charge is assessed each quarter on a base equal to the hypothetical $1,000 premium increasing at 7% per year (the assumed net rate for the Liquid Asset and Limited Maturity Bond portfolios). The annual change of 0.75% results from the assumption of a 7% annual increase in the rider base but only a 5% earnings increase in the contract value before expenses. Thus, 0.75% represents an annual charge over the 10-year period which is equivalent to an increasing charge of 0.125% per quarter over the same period. If the Standard Death Benefit, or the Annual Ratchet Enhanced Death Benefit is elected instead of the 7% Solution Enhanced Death Benefit used in the examples, the actual expenses will be less than those represented in the examples. Note that surrender charges may apply if you choose to annuitize your Contract within the first 3 contract years, and under certain circumstances, within the first 7 contract years. Thus, in the event you annuitize your Contract under circumstances which require a surrender charge, you should refer to Examples 1 and 3 below which assume applicable surrender charges. 5 Example 1: If you surrender your Contract at the end of the applicable time period and elected an optional benefit rider with the highest charge, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $ 97 $143 $182 $303 Limited Maturity Bond $ 97 $144 $183 $304 Global Fixed Income $110 $181 $243 $417 Fully Managed $104 $162 $214 $362 Total Return $103 $161 $211 $357 Equity Income $103 $162 $213 $361 Investors $104 $164 $216 $366 Value Equity $103 $162 $213 $361 Rising Dividends $103 $162 $213 $361 Managed Global $106 $171 $227 $387 Large Cap Value $104 $164 $216 $366 All Cap $104 $164 $216 $366 Research $103 $161 $211 $357 Capital Appreciation $103 $162 $213 $361 Capital Growth $104 $165 $217 $369 Strategic Equity $103 $162 $213 $361 Mid-Cap Growth $103 $161 $211 $357 Small Cap $103 $162 $213 $361 Growth $104 $164 $217 $368 Real Estate $103 $162 $213 $361 Hard Assets $103 $162 $213 $361 Developing World $111 $185 $250 $430 Emerging Markets $111 $185 $250 $430 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $101 $156 $203 $342 PIMCO StocksPLUS Growth and Income $100 $153 $198 $333 ING VARIABLE INSURANCE TRUST ING Global Brand Names $106 $170 $226 $385 PRUDENTIAL SERIES FUND Prudential Jennison $104 $164 $216 $368 6 Example 2: If you do not surrender your Contract at the end of the applicable time period and elected an optional benefit rider with the highest charge, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $27 $83 $142 $303 Limited Maturity Bond $27 $84 $143 $304 Global Fixed Income $40 $121 $203 $417 Fully Managed $34 $102 $174 $362 Total Return $33 $101 $171 $357 Equity Income $33 $102 $173 $361 Investors $34 $104 $176 $366 Value Equity $33 $102 $173 $361 Rising Dividends $33 $102 $173 $361 Managed Global $36 $111 $187 $387 Large Cap Value $34 $104 $176 $366 All Cap $34 $104 $176 $366 Research $33 $101 $171 $357 Capital Appreciation $33 $102 $173 $361 Capital Growth $34 $105 $177 $369 Strategic Equity $33 $102 $173 $361 Mid-Cap Growth $33 $101 $171 $357 Small Cap $33 $102 $173 $361 Growth $34 $104 $177 $368 Real Estate $33 $102 $173 $361 Hard Assets $33 $102 $173 $361 Developing World $41 $125 $210 $430 Emerging Markets $41 $125 $210 $430 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $31 $ 96 $163 $342 PIMCO StocksPLUS Growth and Income $30 $ 93 $158 $333 ING VARIABLE INSURANCE TRUST ING Global Brand Names $36 $110 $186 $385 PRUDENTIAL SERIES FUND Prudential Jennison $34 $104 $176 $368 7 Example 3: If you surrender your Contract at the end of the applicable time period and did not elect any optional benefit rider, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $ 92 $128 $156 $250 Limited Maturity Bond $ 92 $128 $157 $251 Global Fixed Income $102 $159 $208 $351 Fully Managed $ 96 $140 $177 $291 Total Return $ 96 $138 $174 $286 Equity Income $ 96 $140 $177 $290 Investors $ 97 $141 $179 $295 Value Equity $ 96 $140 $177 $290 Rising Dividends $ 96 $140 $177 $290 Managed Global $ 99 $149 $191 $319 Large Cap Value $ 97 $141 $179 $295 All Cap $ 97 $141 $179 $295 Research $ 96 $138 $174 $286 Capital Appreciation $ 96 $140 $177 $290 Capital Growth $ 97 $143 $181 $299 Strategic Equity $ 96 $140 $177 $290 Mid-Cap Growth $ 96 $138 $174 $286 Small Cap $ 96 $140 $177 $290 Growth $ 97 $142 $181 $298 Real Estate $ 96 $140 $177 $290 Hard Assets $ 96 $140 $177 $290 Developing World $104 $163 $215 $365 Emerging Markets $104 $163 $215 $365 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $ 94 $134 $166 $270 PIMCO StocksPLUS Growth and Income $ 93 $131 $161 $260 ING VARIABLE INSURANCE TRUST ING Global Brand Names $ 99 $148 $190 $317 PRUDENTIAL SERIES FUND Prudential Jennison $ 97 $142 $180 $297 8 Example 4: If you do not surrender your Contract at the end of the applicable time period and did not elect any optional benefit rider, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $22 $ 68 $116 $250 Limited Maturity Bond $22 $ 68 $117 $251 Global Fixed Income $32 $ 99 $168 $351 Fully Managed $26 $ 80 $137 $291 Total Return $26 $ 78 $134 $286 Equity Income $26 $ 80 $137 $290 Investors $27 $ 81 $139 $295 Value Equity $26 $ 80 $137 $290 Rising Dividends $26 $ 80 $137 $290 Managed Global $29 $ 89 $151 $319 Large Cap Value $27 $ 81 $139 $295 All Cap $27 $ 81 $139 $295 Research $26 $ 78 $134 $286 Capital Appreciation $26 $ 80 $137 $290 Capital Growth $27 $ 83 $141 $299 Strategic Equity $26 $ 80 $137 $290 Mid-Cap Growth $26 $ 78 $134 $286 Small Cap $26 $ 80 $137 $290 Growth $27 $ 82 $141 $298 Real Estate $26 $ 80 $137 $290 Hard Assets $26 $ 80 $137 $290 Developing World $34 $103 $175 $365 Emerging Markets $34 $103 $175 $365 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $24 $ 74 $126 $270 PIMCO StocksPLUS Growth and Income $23 $ 71 $121 $260 ING VARIABLE INSURANCE TRUST ING Global Brand Names $29 $ 88 $150 $317 PRUDENTIAL SERIES FUND Prudential Jennison $27 $ 82 $140 $297 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. - -------------------------------------------------------------------------------- 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. 9 THE NET INVESTMENT FACTOR The Net Investment Factor is an index number which reflects certain charges under the Contract and the investment performance of the subaccount. The Net Investment Factor is calculated for each subaccount as follows: 1) We take the net asset value of the subaccount at the end of each business day. 2) We add to (1) the amount of any dividend or capital gains distribution declared for the subaccount and reinvested in such subaccount. We subtract from that amount a charge for our taxes, if any. 3) We divide (2) by the net asset value of the subaccount at the end of the preceding business day. 4) We then subtract the applicable daily mortality and expense risk charge and the daily asset-based administrative charge from the subaccount. Calculations for the subaccounts are made on a per share basis. CONDENSED FINANCIAL INFORMATION Tables containing (i) the accumulation unit value history of each subaccount of Golden American Separate Account B offered in this prospectus and (ii) the total investment value history of each such subaccount are presented in Appendix A -- Condensed Financial Information. FINANCIAL STATEMENTS The audited financial statements of Separate Account B for the year ended December 31, 1999 are included in the Statement of Additional Information. The audited consolidated financial statements of Golden American for the years ended December 31, 1999, 1998 and 1997 are included in this prospectus. PERFORMANCE INFORMATION From time to time, we may advertise or include in reports to contract owners performance information for the subaccounts of Separate Account B, including the average annual total return performance, yields and other nonstandard measures of performance. Such performance data will be computed, or accompanied by performance data computed, in accordance with standards defined by the SEC. Except for the Liquid Asset subaccount, quotations of yield for the subaccounts will be based on all investment income per unit (contract value divided by the accumulation unit) earned during a given 30-day period, less expenses accrued during such period. Information on standard total average annual return performance will include average annual rates of total return for 1, 5 and 10 year periods, or lesser periods depending on how long Separate Account B has been investing in the portfolio. We may show other total returns for periods less than one year. Total return figures will be based on the actual historic performance of the subaccounts of Separate Account B, assuming an investment at the beginning of the period when the separate account first invested in the portfolios, withdrawal of the investment at the end of the period, adjusted to reflect the deduction of all applicable portfolio and current contract charges. We may also show rates of total return on amounts invested at the beginning of the period with no withdrawal at the end of the period. Total return figures which assume no withdrawals at the end of the period will reflect all recurring charges, but will not reflect the surrender charge. Quotations of average annual return for the Managed Global subaccount take into account the period before September 3, 1996, during which it was maintained as a subaccount of Golden American Separate Account D. In addition, we may present historic performance data for the investment portfolios since their inception reduced by some or all of the fees and charges under the Contract. Such adjusted historic performance includes data that precedes the inception dates of the subaccounts of Separate Account B. This data is designed to show the performance that would 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 10 effect of earnings. We calculate quotations of yield for the remaining subaccounts on all investment income per accumulation unit earned during a given 30-day period, after subtracting fees and expenses accrued during the period, assuming no surrender and the selection of the 7% Solution Enhanced Death Benefit and the MGIB optional benefit rider. We may compare performance information for a subaccount to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money Market Institutional Averages, or any other applicable market indices, (ii) other variable annuity separate accounts or other investment products tracked by Lipper Analytical Services (a widely used independent research firm which ranks mutual funds and other investment companies), or any other rating service, and (iii) the Consumer Price Index (measure for inflation) to determine the real rate of return of an investment in the Contract. Our reports and promotional literature may also contain other information including the ranking of any subaccount based on rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by similar rating services. Performance information reflects only the performance of a hypothetical contract and should be considered in light of other factors, including the investment objective of the investment portfolio and market conditions. Please keep in mind that past performance is not a guarantee of future results. - -------------------------------------------------------------------------------- GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Golden American Life Insurance Company is a Delaware stock life insurance company, which was originally incorporated in Minnesota on January 2, 1973. Golden American is a wholly owned subsidiary of Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). Equitable of Iowa is a wholly owned subsidiary of ING Groep N.V. ("ING"), a global financial services holding company based in The Netherlands. Golden American is authorized to sell insurance and annuities in all states, except New York, and the District of Columbia. In May 1996, Golden American established a subsidiary, First Golden American Life Insurance Company of New York, which is authorized to sell annuities in New York and Delaware. Golden American's consolidated financial statements appear in this prospectus. Equitable of Iowa is the holding company for Golden American, Directed Services, Inc., the investment manager of the GCG Trust and the distributor of the Contracts, and other interests. Equitable of Iowa and another ING affiliate own ING Investment Management, LLC, a portfolio manager of the GCG Trust. ING also owns Baring International Investment Limited, another portfolio manager of the GCG Trust. Our principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. - -------------------------------------------------------------------------------- THE TRUSTS - -------------------------------------------------------------------------------- The GCG Trust is a mutual fund whose shares are offered to separate accounts funding variable annuity and variable life insurance policies offered by Golden American and other affiliated insurance companies. The GCG Trust may also sell its shares to separate accounts of insurance companies not affiliated with Golden American. Pending SEC approval, shares of the GCG Trust may also be sold to certain qualified pension and retirement plans. The address of the GCG Trust is 1475 Dunwoody Drive, West Chester, PA 19380. The PIMCO Variable Insurance Trust is also a mutual fund whose shares are available to separate accounts of insurance companies, including Golden American, for both variable annuity contracts and variable life insurance policies and to qualified pension and retirement plans. The address of the PIMCO Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach, CA 92660. ING Variable Insurance Trust is also a mutual fund whose shares are offered to separate accounts funding variable annuity contracts offered by Golden American. Pending SEC approval, shares of ING Variable Insurance Trust may also be sold to variable annuity and variable life insurance policies offered by other 11 insurance companies, both affiliated and unaffiliated with Golden American. The address of ING Variable Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380. The Prudential Series Fund is also a mutual fund whose shares are available to separate accounts funding variable annuity and variable life insurance polices offered by The Prudential Insurance Company of America, its affiliated insurers and other life insurance companies not affiliated with Prudential, including Golden American. The address of the Prudential Series Fund is 751 Broad Street, Newark, NJ 07102. In the event that, due to differences in tax treatment or other considerations, the interests of contract owners of various contracts participating in the Trusts conflict, we, the Boards of Trustees of the GCG Trust, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, and the ING Variable Insurance Trust, the Board of Directors of the Prudential Series Fund, and the management of Directed Services, Inc., Pacific Investment Management Company, Credit Suisse Asset Management, LLC, ING Mutual Funds Management Co. LLC, Prudential Insurance Company of America and any other insurance companies participating in the Trusts will monitor events to identify and resolve any material conflicts that may arise. YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING. - -------------------------------------------------------------------------------- GOLDEN AMERICAN SEPARATE ACCOUNT B - -------------------------------------------------------------------------------- Golden American Separate Account B ("Account B") was established as a separate account of the Company on July 14, 1988. It is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. 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, the PIMCO Variable Insurance Trust, the ING Variable Insurance Trust, and the Prudential Series Fund. Each investment portfolio has its own distinct investment objectives and policies. Income, gains and losses, realized or unrealized, of a portfolio are credited to or charged against the corresponding subaccount of Account B without regard to any other income, gains or losses of the Company. Assets equal to the reserves and other contract liabilities with respect to each are not chargeable with liabilities arising out of any other business of the Company. They may, however, be subject to liabilities arising from subaccounts whose assets we attribute to other variable annuity contracts supported by Account B. If the assets in Account B exceed the required reserves and other liabilities, we may transfer the excess to our general account. We are obligated to pay all benefits and make all payments provided under the Contracts. We currently offer other variable annuity contracts that invest in Account B but are not discussed in this prospectus. Account B may also invest in other investment portfolios which are not available under your Contract. Under certain circumstances, we may make certain changes to the subaccounts. For more information, see "The Annuity Contract -- Addition, Deletion, or Substitution of Subaccounts and Other Changes." - -------------------------------------------------------------------------------- THE INVESTMENT PORTFOLIOS - -------------------------------------------------------------------------------- During the accumulation phase, you may allocate your premium payments and contract value to any of the investment portfolios listed in the section below. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO 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 12 factors, including, in certain cases, how well the portfolio managers anticipate changing economic and market conditions. Account B also has other subaccounts investing in other portfolios which are not available to the Contract described in this prospectus. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST AND THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
- -------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------- THE GCG TRUST Liquid Asset Seeks high level of current income consistent with the preservation of capital and liquidity. Invests primarily in obligations of the U.S. Government and its agencies and instrumentali-ties, bank obligations, commercial paper and short-term corporate debt securities. All securities will mature in less than one year. ------------------------------------------------------------ Limited Maturity Bond Seeks highest current income consistent with low risk to principal and liquidity. Also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. Invests primarily in diversified limited maturity debt securities with average maturity dates of five years or shorter and in no cases more than seven years. ------------------------------------------------------------ Global Fixed Income Seeks high total return. Invests primarily in high-grade fixed income securities, both foreign and domestic. ------------------------------------------------------------ Fully Managed Seeks, over the long term, a high total investment return consistent with the preservation of capital and with prudent investment risk. Invests primarily in the common stocks of established companies believed by the portfolio manager to have above-average potential for capital growth. ------------------------------------------------------------ Total Return Seeks above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Invests primarily in a combination of equity and fixed income securities. ------------------------------------------------------------ Equity Income Seeks substantial dividend income as well as long-term growth of capital. Invests primarily in common stocks of well-established companies paying above-average dividends. ------------------------------------------------------------ Investors Seeks long-term growth of capital. Current income is a secondary objective. Invests primarily in equity securities of U.S. Companies and to a lesser degree, debt securities. ------------------------------------------------------------ Value Equity Seeks capital appreciation. Dividend income is a secondary objective. Invests primarily in common stocks of domestic and foreign issuers which meet quantitative standards relating to financial soundness and high intrinsic value relative to price. ------------------------------------------------------------ 13 - -------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------- Rising Dividends Seeks capital appreciation. A secondary objective is dividend income. Invests in equity securities that meet the following quality criteria: regular dividend increases; 35% of earnings reinvested annually; and a credit rating of "A" to "AAA." ------------------------------------------------------------ Managed Global Seeks capital appreciation. Current income is only an incidental consideration. Invests primarily in common stocks traded in securities markets throughout the world. ------------------------------------------------------------ Large Cap Value Seeks long-term growth of capital and income. Invests primarily in equity and equity-related securities of companies with market capitalization greater than $1 billion. ------------------------------------------------------------ All Cap Seeks capital appreciation through investment in secuities which the portfolio manager believes have above-average capital appreciation potential. Invests primarily in equity securities of U.S. companies of any size. ------------------------------------------------------------ Research Seeks long-term growth of capital and future income. Invests primarily in common stocks or securities convertible into common stocks of companies believed to have better than average prospects for long-term growth. ------------------------------------------------------------ Capital Appreciation Seeks long-term capital growth. Invests primarily in equity securities believed by the portfolio manager to be undervalued. ------------------------------------------------------------ Capital Growth Seeks long-term total return. Invests primarily in common stocks of companies where the potential for change (earnings acceleration) is significant. ------------------------------------------------------------ Strategic Equity Seeks capital appreciation. Invests primarily in common stocks of medium- and small-sized companies. ------------------------------------------------------------ Mid-Cap Growth Seeks long-term growth of capital. Invests primarily in equity securities of companies with medium market capitalization which the portfolio manager believes have above-average growth potential. ------------------------------------------------------------ Small Cap Seeks long-term capital appreciation. Invests primarily in equity securities of companies that have a total market capitalization within the range of companies in the Russell 2000 Growth Index or the Standard & Poor's Small-Cap 600 Index. ------------------------------------------------------------ Growth Seeks capital appreciation. Invests primarily in common stocks of growth companies that have favorable relationships between price/earnings ratios and growth rates in sectors offering the potential for above-average returns. ------------------------------------------------------------ 14 - -------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------- 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. ------------------------------------------------------------ THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond Seeks to maximize total return, consistent with preservation of capital and prudent investment management. Invests at least 65% of its assets in a diversified portfolio of junk bonds rated at least B by Moody's Investor Services, Inc. or Standard & Poor's or, if unrated, determined by the portfolio manager to be of comparable quality. ------------------------------------------------------------ PIMCO StocksPLUS Seeks to achieve a total return which exceeds the total Growth and Income return performance of the S&P 500. Invests primarily in common stocks, options, futures, options on futures and swaps. ------------------------------------------------------------ ING VARIABLE INSURANCE TRUST ING Global Brand Names Seeks to provide investors with long-term capital Fund appreciation. Invests at least 65% of its total assets in equity securities of companies that have a well recognized franchise, a global presence and derive most of their revenues from sales of consumer goods. ------------------------------------------------------------ THE PRUDENTIAL SERIES FUND Prudential Jennison Seeks long-term growth of capital. Invests primarily in companies that have shown growth in earnings and sales, high return on equity and assets or other strong financial data and are also attractively valued in the opinion of the manager. Dividend income from investments will be incidental. ------------------------------------------------------------
INVESTMENT MANAGEMENT FEES Directed Services, Inc. serves as the overall manager to each portfolio of the GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment advisory and management services. The monthly fee is based on the average daily net assets of an investment portfolio, and in some cases, the combined total assets of certain grouped portfolios, including retaining portfolio managers to manage the assets of the various 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 15 monthly fee for managing the assets of a portfolio, based on the annual rate of the average daily net assets of a portfolio. For a list of the portfolio managers, see the front cover of this prospectus. Directed Services does not bear the expense of brokerage fees and other transactional expenses for securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and expenses of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. Pacific Investment Management Company ("PIMCO") serves as investment advisor to each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall business management and administrative services necessary for each portfolio's operation. PIMCO provides or procures, at its own expense, the services and information necessary for the proper conduct of business and ordinary operation of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly advisory fee and a separate monthly administrative fee per year, each fee based on the average daily net assets of each of the investment portfolios for managing the assets of the portfolios and for administering the PIMCO Variable Insurance Trust. PIMCO does not bear the expense of brokerage fees and other transactional expenses for securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and expense of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's operations and provides investment advisory services to the portfolios of the Trust, including engaging portfolio managers, as well as monitoring and evaluating the management of the assets of each portfolio by its portfolio manager. ING MFMC, as well as each portfolio manager it engages, is a wholly owned indirect subsidiary of ING Groep N.V. The Prudential Insurance Company of America ("Prudential") serves as the overall investment adviser for the Prudential Series Fund. Prudential is responsible for the management of the Prudential Series Fund and provides investment advice and related services. For the Prudential Jennison Portfolio, Prudential engages Jennison Associates LLC to serve as sub-adviser and to provide day-to-day management. Prudential pays the sub-adviser out of the fee Prudential receives from the Prudential Series Fund. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, two portfolios deduct a distribution or 12b-1 fee, which is used to finance any activity that is primarily intended to result in the sale of shares of the applicable portfolio. For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees and Expenses" in this prospectus. We may receive compensation from the investment advisors, administrators and distributors or directly from the portfolios in connection with administrative, distribution or other services and cost savings attributable to our services. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Contract. The compensation paid by advisors, administrators or distributors may vary. YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING. - -------------------------------------------------------------------------------- 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 16 transaction. A Market Value Adjustment could increase or decrease the amount you surrender, withdraw, transfer or annuitize, depending on current interest rates at the time of the transaction. YOU BEAR THE RISK THAT YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF WE APPLY A MARKET VALUE ADJUSTMENT. Assets supporting amounts allocated to the Fixed Account are available to fund the claims of all classes of our customer, contract owners and other creditors. Interests under your Contract relating to the Fixed Account are registered under the Securities Act of 1933, but the Fixed Account is not registered under the 1940 Act. SELECTING A GUARANTEED INTEREST PERIOD You may select one or more Fixed Interest Allocations with specified guaranteed interest periods. A guaranteed interest period is the period that a rate of interest is guaranteed to be credited to your Fixed Interest Allocation. We may at any time decrease or increase the number of guaranteed interest periods offered. In addition, we may offer DCA Fixed Interest Allocations, which are 6-month and 1-year Fixed Interest Allocations available exclusively in connection with our dollar cost averaging program. For more information on DCA Fixed Interest Allocations, see "Transfers Among Your Investments -- Dollar Cost Averaging." Your contract value in the Fixed Account is the sum of your Fixed Interest Allocations and the interest credited as adjusted for any withdrawals (including any Market Value Adjustment applied to such withdrawal), transfers or other charges we may impose. Your Fixed Interest Allocation will be credited with the guaranteed interest rate in effect for the guaranteed interest period you selected when we receive and accept your premium or reallocation of contract value. We will credit interest daily at a rate which yields the quoted guaranteed interest rate. GUARANTEED INTEREST RATES Each Fixed Interest Allocation will have an interest rate that is guaranteed as long as you do not take your money out until its maturity date. We do not have a specific formula for establishing the guaranteed interest rates for the different guaranteed interest periods. We determine guaranteed interest rates at our sole discretion. To find out the current guaranteed interest rate for a guaranteed interest period you are interested in, please contact our Customer Service Center or your registered representative. The determination may be influenced by the interest rates on fixed income investments in which we may invest with the amounts we receive under the Contracts. We will invest these amounts primarily in investment-grade fixed income securities (i.e., rated by Standard & Poor's rating system to be suitable for prudent investors) although we are not obligated to invest according to any particular strategy, except as may be required by applicable law. You will have no direct or indirect interest in these investments. We will also consider other factors in determining the guaranteed interest rates, including regulatory and tax requirements, sales commissions and administrative expenses borne by us, general economic trends and competitive factors. We cannot predict the level of future interest rates but no Fixed Interest Allocation will ever have a guaranteed interest rate of less than 3% per year. We may from time to time at our discretion offer interest rate specials for new premiums that are higher than the current base interest rate then offered. Renewal rates for such rate specials will be based on the base interest rate and not on the special rates initially declared. TRANSFERS FROM A FIXED INTEREST ALLOCATION You may transfer your contract value in a Fixed Interest Allocation to one or more new Fixed Interest Allocations with new guaranteed interest periods, or to any of the subaccounts of Account B. We will transfer amounts from your Fixed Interest Allocations starting with the guaranteed interest period nearest its maturity date until we have honored your transfer request. The minimum amount that you can transfer to or from any Fixed Interest Allocation is $100. If a transfer request would reduce the contract value remaining in a Fixed Interest Allocation to less than $100, we will treat such transfer request as a request to transfer the entire contract value in such Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be subject to a Market Value Adjustment. If you have a special Fixed Interest Allocation that was offered exclusively with our dollar cost averaging program, 17 cancelling dollar cost averaging will cause a transfer of the entire contract value in such Fixed Interest Allocation to the Liquid Asset subaccount, and such a transfer will be subject to a Market Value Adjustment. On the maturity date of a guaranteed interest period, you may transfer amounts from the applicable Fixed Interest Allocation to the subaccounts and/or to new Fixed Interest Allocations with guaranteed interest periods of any length we are offering at that time. You may not, however, transfer amounts to any Fixed Interest Allocation with a guaranteed interest period that extends beyond the annuity start date. At least 30 calendar days before a maturity date of any of your Fixed Interest Allocations, or earlier if required by state law, we will send you a notice of the guaranteed interest periods that are available. You must notify us which subaccounts or new guaranteed interest periods you have selected before the maturity date of your Fixed Interest Allocations. If we do not receive timely instructions from you, we will transfer the contract value in the maturing Fixed Interest Allocation to a new Fixed Interest Allocation with a guaranteed interest period that is the same as the expiring guaranteed interest period. If such guaranteed interest period is not available or would go beyond the annuity start date, we will transfer your contract value in the maturing Fixed Interest Allocation to the next shortest guaranteed interest period which does not go beyond the annuity start date. If no such guaranteed interest period is available, we will transfer the contract value to a subaccount specially designated by the Company for such purpose. Currently we use the Liquid Asset subaccount for such purpose. Please be aware that the benefit we pay under certain optional benefit riders will be adjusted by any transfers you make to and from the Fixed Interest Allocations during specified periods while the rider is in effect. See "Optional Riders." WITHDRAWALS FROM A FIXED INTEREST ALLOCATION During the accumulation phase, you may withdraw a portion of your contract value in any Fixed Interest Allocation. You may make systematic withdrawals of only the interest earned during the prior month, quarter or year, depending on the frequency chosen, from a Fixed Interest Allocation under our systematic withdrawal option. Systematic withdrawals from a Fixed Interest Allocation are not permitted if such Fixed Interest Allocation is currently participating in the dollar cost averaging program. A withdrawal from a Fixed Interest Allocation may be subject to a Market Value Adjustment and, in some cases, a surrender charge. Be aware that withdrawals may have federal income tax consequences, including a 10% penalty tax, as well as state income tax consequences. If you tell us the Fixed Interest Allocation from which your withdrawal will be made, we will assess the withdrawal against that Fixed Interest Allocation. If you do not, we will assess your withdrawal against the subaccounts in which you are invested, unless the withdrawal exceeds the contract value in the subaccounts. If there is no contract value in those subaccounts, we will deduct your withdrawal from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until we have honored your request. Please be aware that the benefit we pay under any of the optional riders will be reduced on a pro rata basis by any withdrawals you make from the Fixed Interest Allocations during the period while the rider is in effect. See "Optional Riders." MARKET VALUE ADJUSTMENT A Market Value Adjustment may decrease, increase or have no effect on your contract value. We will apply a Market Value Adjustment (i) whenever you withdraw or transfer money from a Fixed Interest Allocation (unless made within 30 days before the maturity date of the applicable guaranteed interest period, or under the systematic withdrawal or dollar cost averaging program) and (ii) if on the annuity start date a guaranteed interest period for any Fixed Interest Allocation does not end on or within 30 days of the annuity start date. We determine the Market Value Adjustment by multiplying the amount you withdraw, transfer or apply to an income plan by the following factor: 18 N/365 ((1+I)/(1+J+.0025)) -1 Where, o "I" is the Index Rate for a Fixed Interest Allocation on the first day of the guaranteed interest period; o "J" is equal to the following: (1) If calculated for a Fixed Interest Allocation of 1 year or more, then "J" is the Index Rate for a new Fixed Interest Allocation with a guaranteed interest period equal to the time remaining (rounded up to the next full year except in Pennsylvania) in the guaranteed interest period; (2) If calculated for a Fixed Interest Allocation of 6 months, then "J" is the lesser of the Index Rate for a new Fixed Interest Allocation with (i) a 6 month guaranteed interest period, or (ii) a 1 year guaranteed interest period, at the time of calculation; and o "N" is the remaining number of days in the guaranteed interest period at the time of calculation. The Index Rate is the average of the Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for a period equal to the applicable guaranteed interest period. The average currently is based on the period starting from the 22nd day of the calendar month two months prior to the month of the Index Rate determination and ending the 21st day of the calendar month immediately before the month of determination. We currently calculate the Index Rate once each calendar month but have the right to calculate it more frequently. The Index Rate will always be based on a period of at least 28 days. If the Ask Yields are no longer available, we will determine the Index Rate by using a suitable and approved, if required, replacement method. A Market Value Adjustment may be positive, negative or result in no change. In general, if interest rates are rising, you bear the risk that any Market Value Adjustment will likely be negative and reduce your contract value. On the other hand, if interest rates are falling, it is more likely that you will receive a positive Market Value Adjustment that increases your contract value. In the event of a full surrender, transfer or annuitization from a Fixed Interest Allocation, we will add or subtract any Market Value Adjustment from the amount surrendered, transferred or annuitized. In the event of a partial withdrawal, transfer or annuitization, we will add or subtract any Market Value Adjustment from the total amount withdrawn, transferred or annuitized in order to provide the amount requested. If a negative Market Value Adjustment exceeds your contract value in the Fixed Interest Allocation, we will consider your request to be a full surrender, transfer or annuitization of the Fixed Interest Allocation. Several examples which illustrate how the Market Value Adjustment works are included in Appendix B. - -------------------------------------------------------------------------------- THE ANNUITY CONTRACT - -------------------------------------------------------------------------------- The Contract described in this prospectus is a deferred combination variable and fixed annuity contract. The Contract provides a means for you to invest in one or more of the available mutual fund portfolios of the GCG Trust, the PIMCO Variable Insurance Trust, ING Variable Insurance Trust and Prudential Series Fund 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. 19 The accumulation phase is the period between the contract date and the annuity start date. The income phase begins when you start receiving regular annuity payments from your Contract on the annuity start date. CONTRACT OWNER You are the contract owner. You are also the annuitant unless another annuitant is named in the application. You have the rights and options described in the Contract. One or more persons may own the Contract. If there are multiple owners named, the age of the oldest owner will determine the applicable death benefit if such death benefit is available for multiple owners. The death benefit becomes payable when you die. In the case of a sole contract owner who dies before the income phase begins, we will pay the beneficiary the death benefit then due. The sole contract owner's estate will be the beneficiary if no beneficiary has been designated or the beneficiary has predeceased the contract owner. In the case of a joint owner of the Contract dying before the income phase begins, we will designate the surviving contract owner as the beneficiary. This will override any previous beneficiary designation. If the contract owner is a trust and a beneficial owner of the trust has been designated, the beneficial owner will be treated as the contract owner for determining the death benefit. If a beneficial owner is changed or added after the contract date, this will be treated as a change of contract owner for determining the death benefit. If no beneficial owner of the Trust has been designated, the availability of enhanced death benefits will be based on the age of the annuitant at the time you purchase the Contract. JOINT OWNER. For non-qualified Contracts only, joint owners may be named in a written request before the Contract is in effect. Joint owners may independently exercise transfers and other transactions allowed under the Contract. All other rights of ownership must be exercised by both owners. Joint owners own equal shares of any benefits accruing or payments made to them. All rights of a joint owner end at death of that owner if the other joint owner survives. The entire interest of the deceased joint owner in the Contract will pass to the surviving joint owner. The age of the older owner will determine the applicable death benefit if Enhanced Death Benefits are available for multiple owners. ANNUITANT The annuitant is the person designated by you to be the measuring life in determining annuity payments. The annuitant's age determines when the income phase must begin and the amount of the annuity payments to be paid. You are the annuitant unless you choose to name another person. The annuitant may not be changed after the Contract is in effect. The contract owner will receive the annuity benefits of the Contract if the annuitant is living on the annuity start date. If the annuitant dies before the annuity start date, and a contingent annuitant has been named, the contingent annuitant becomes the annuitant (unless the contract owner is not an individual, in which case the death benefit becomes payable). If there is no contingent annuitant when the annuitant dies before the annuity start date, the contract owner will become the annuitant. The contract owner may designate a new annuitant within 60 days of the death of the annuitant. If there is no contingent annuitant when the annuitant dies before the annuity start date and the contract owner is not an individual, we will pay the designated beneficiary the death benefit then due. If a beneficiary has not been designated, or if there is no designated beneficiary living, the contract owner will be the beneficiary. If the annuitant was the sole contract owner and there is no beneficiary designation, the annuitant's estate will be the beneficiary. Regardless of whether a death benefit is payable, if the annuitant dies and any contract owner is not an individual, distribution rules under federal tax law will apply. You should consult your tax advisor for more information if you are not an individual. 20 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. 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 80, the death benefit option in effect prior to the change in owner will remain in effect. If the new owner's age is greater than 79, but less than or equal to 85, and if the contract was issued with an enhanced death benefit, the death benefit will become the Standard Death Benefit. If the new owner's age is greater than 85, the death benefit will be the cash surrender value. Once a death benefit has been changed due to a change in owner, a subsequent change to a younger owner will not restore any enhanced death benefits. PURCHASE AND AVAILABILITY OF THE CONTRACT We will issue a Contract only if both the annuitant and the contract owner are not older than age 85. The initial premium payment must be $10,000 or more ($1,500 for qualified Contracts). You may make additional payments of at least $500 or more ($250 for qualified Contracts) at any time after the free look period before you turn age 85. Under certain circumstances, we may waive the minimum premium payment requirement. We may change the minimum initial or additional premium requirements for certain group or sponsored arrangements. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. IRAs and other qualified plans already have the tax-deferral feature found in this Contract. For an additional cost, the Contract provides other benefits including death benefits and the ability to receive a lifetime income. See "Fees and Expenses" in this prospectus. CREDITING OF PREMIUM PAYMENTS We will process your initial premium within 2 business days after receipt, if the application and all information necessary for processing the Contract are complete. Subsequent premium payments will be processed within 1 business day if we receive all information necessary. In certain states we also accept initial and additional premium payments by wire order. Wire transmittals must be accompanied by sufficient electronically transmitted data. We may retain your initial premium payment for up to 5 business days while attempting to complete an incomplete application. If the application cannot be completed within this period, we will inform you of the reasons for the delay. We will also return the premium payment immediately unless you direct us to hold the premium payment until the application is completed. 21 We will allocate your initial payment according to the instructions you specified. If a subaccount is not available or requested in error, we will make inquiry about a replacement subaccount. If we are unable to reach you or your representative, we will allocate your initial payment proportionally among the other subaccount(s) in your instructions. For initial premium payments, the payment will be credited at the accumulation unit value next determined after we receive your premium payment and the completed application. Once the completed application is received, we will allocate the payment to the subaccount(s) and/or Fixed Interest Allocation specified by you within 2 business days. We will make inquiry to discover any missing information related to subsequent payments. We will allocate the subsequent payment(s) pro rata according to the current variable subaccount allocation unless you specify otherwise. Any fixed allocation(s) will not be considered in the pro rata calculations. If a subaccount is no longer available or requested in error, we will allocate the subsequent payment(s) proportionally among the other subaccount(s) in your current allocation or your allocation instructions. For any subsequent premium payments, the payment will be credited at the accumulation unit value next determined after receipt of your premium payment and instructions. Once we allocate your premium payment to the subaccounts selected by you, we convert the premium payment into accumulation units. We divide the amount of the premium payment allocated to a particular subaccount by the value of an accumulation unit for the subaccount to determine the number of accumulation units of the subaccount to be held in Account B with respect to your Contract. The net investment results of each subaccount vary with its investment performance. If your premium payment was transmitted by wire order from your broker-dealer, we will follow one of the following two procedures after we receive and accept the wire order and investment instructions. The procedure we follow depends on state availability and the procedures of your broker-dealer. (1) If either your state or broker-dealer do not permit us to issue a Contract without an application, we reserve the right to rescind the Contract if we do not receive and accept a properly completed application or enrollment form within 5 days of the premium payment. If we do not receive the application or form within 5 days of the premium payment, we will refund the contract value plus any charges we deducted, and the Contract will be voided. Some states require that we return the premium paid, in which case we will comply. (2) If your state and broker-dealer allow us to issue a Contract without an application, we will issue and mail the Contract to you or your representative, together with an Application Acknowledgement Statement for your execution. Until our Customer Service Center receives the executed Application Acknowledgement Statement, neither you nor the broker-dealer may execute any financial transactions on your Contract unless they are requested in writing by you. We may require additional information before complying with your request (e.g., signature guarantee). In some states, we may require that an initial premium designated for a subaccount of Account B or the Fixed Account be allocated to a subaccount specially designated by the Company (currently, the Liquid Asset subaccount) during the free look period. After the free look period, we will convert your contract value (your initial premium plus any earnings less any expenses) into accumulation units of the subaccounts you previously selected. The accumulation units will be allocated based on the accumulation unit value next computed for each subaccount. Initial premiums designated for Fixed Interest Allocations will be allocated to a Fixed Interest Allocation with the guaranteed interest period you have chosen; however, in the future we may allocate the premiums to the specially designated subaccount during the free look period. ADMINISTRATIVE PROCEDURES We may accept a request for Contract service in writing, by telephone, or other approved electronic means, subject to our administrative procedures, which vary depending on the type of service requested and may include proper completion of certain forms, providing appropriate identifying information, and/or other administrative requirements. We will process your request at the accumulation value next determined only after you have met all administrative requirements. 22 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 (including, in some cases, fees for optional benefit riders), and premium taxes. CONTRACT VALUE IN THE SUBACCOUNTS. On the contract date, the contract value in the subaccount in which you are invested is equal to the initial premium paid and 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 (including any rider charges) and premium taxes. CASH SURRENDER VALUE The cash surrender value is the amount you receive when you surrender the Contract. The cash surrender value will fluctuate daily based on the investment results of the subaccounts in which you are invested and interest credited to Fixed Interest Allocations and any Market Value Adjustment. We do not guarantee any minimum cash surrender value. On any date during the accumulation phase, we calculate the cash surrender value as follows: we start with your contract value, then we deduct any surrender charge, any charge for premium taxes, the annual contract and administrative fee (unless waived), any optional benefit riders charge, and any other charges incurred but not yet deducted. Finally, we adjust for any Market Value Adjustment. SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE You may surrender the Contract at any time while the annuitant is living and before the annuity start date. A surrender will be effective on the date your written request and the Contract are received at our Customer Service Center. We will determine and pay the cash surrender value at the price next determined after receipt of all paperwork required in order for us to process your surrender. Once paid, all benefits under the Contract will be terminated. For administrative purposes, we will transfer your money to a specially designated subaccount (currently the Liquid Asset subaccount) prior to processing the surrender. This transfer will have no effect on your cash surrender value. You may receive the cash surrender value in a single sum payment or apply it under one or more annuity options. We will usually pay the cash surrender value within 7 days. Consult your tax adviser regarding the tax consequences associated with surrendering your Contract. A surrender made before you reach age 59 1/2 may result in a 10% tax penalty. See "Federal Tax Considerations" for more details. 23 THE SUBACCOUNTS Each of the 27 subaccounts of Account B offered under this prospectus invests in an investment portfolio with its own distinct investment objectives and policies. Each subaccount of Account B invests in a corresponding portfolio of the GCG Trust, a corresponding portfolio of the PIMCO Variable Insurance Trust, a corresponding portfolio of the ING Variable Insurance Trust, or a corresponding portfolio of the Prudential Series Fund. ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES We may make additional subaccounts available to you under the Contract. These subaccounts will invest in investment portfolios we find suitable for your Contract. We may amend the Contract to conform to applicable laws or governmental regulations. If we feel that investment in any of the investment portfolios has become inappropriate to the purposes of the Contract, we may, with approval of the SEC (and any other regulatory agency, if required) substitute another portfolio for existing and future investments. If you have elected the dollar cost averaging, systematic withdrawals, or automatic rebalancing programs or if you have other outstanding instructions, and we substitute or otherwise eliminate a portfolio which is subject to those instructions, we will execute your instructions using the substituted or proposed replacement portfolio, unless you request otherwise. We also reserve the right to: (i) deregister Account B under the 1940 Act; (ii) operate Account B as a management company under the 1940 Act if it is operating as a unit investment trust; (iii) operate Account B as a unit investment trust under the 1940 Act if it is operating as a managed separate account; (iv) restrict or eliminate any voting rights as to Account B; and (v) combine Account B with other accounts. We will, of course, provide you with written notice before any of these changes are effected. THE FIXED ACCOUNT The Fixed Account is a segregated asset account which contains the assets that support a contract owner's Fixed Interest Allocations. See "The Fixed Interest Allocations" for more information. OPTIONAL RIDERS Subject to state availability, you may elect one of three optional benefit riders discussed below. You may not add more than one of these three riders to your Contract. There is a separate charge for each rider. Once elected, the riders generally may not be cancelled. This means once you add the rider, you may not remove it, and charges will be assessed regardless of the performance of your Contract. Please see "Charges and Fees -- Optional Rider Charges" for information on rider charges. THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE EACH RIDER THOROUGHLY AND UNDERSTAND IT COMPLETELY BEFORE YOU SELECT ANY. THE OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE RIDERS. THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)366-0066. RIDER DATE. We use the term rider date in the discussion of the optional benefit riders below. The rider date is the date an optional benefit rider becomes effective. The rider date is also the contract date if the rider was purchased at the time the Contract is issued. SPECIAL FUNDS. We use the term Special Funds in the discussion of the Minimum Guaranteed Accumulation Benefit rider (with the 20-year waiting period) and the Minimum Guaranteed Income Benefit rider. The Special Funds refer to the Liquid Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest Allocations. The Company may designate new and/or existing subaccounts as a Special Fund with 30 days notice at any time, including during the life of a rider. 24 NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled, unless you cancel the Contract during the Contract's free look period, surrender, annuitize or otherwise terminate the Contract which automatically cancels any attached rider. Once the Contract continues beyond the free look period, you may not at any time cancel the rider, except with respect to a one-time right to cancel the twenty-year option of the Minimum Guaranteed Accumulation Benefit rider under specified conditions. The Company may, at its discretion, cancel and/or replace a rider at your request in order to renew or reset a rider. TERMINATION. The optional riders are "living benefits." This means that the guaranteed benefits offered by the riders are intended to be available to you while you are living and while your Contract is in the accumulation phase. The optional riders automatically terminate (and all benefits under the rider will cease) if you annuitize, surrender or otherwise terminate your Contract or die (first owner to die if there are multiple contract owners, or at death of annuitant if contract owner is not a natural person), unless your spouse beneficiary elects to continue the Contract, during the accumulation phase. The optional rider will also terminate if there is a change in contract ownership (other than a spousal beneficiary continuation on your death). Other circumstances which may cause a particular optional rider to terminate automatically one discussed below with the applicable rider. MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an optional benefit which provides you with an MGAB benefit intended to guarantee a minimum contract value at the end of a specified waiting period. The MGAB is a one-time adjustment to your contract value in the event your contract value on the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you protection in the event your Contract loses value during the MGAB waiting period. For a discussion of the charges we deduct under the MGAB rider, see "Optional Rider Charges." The MGAB rider offers a ten-year option and a twenty-year option, of which you may purchase only one. The ten-year option has a waiting period of ten years and guarantees that your contract value at the end of ten years will at least equal your initial premium payment, reduced pro rata for withdrawals. Transfers made within 3 years prior to the MGAB Benefit Date will also reduce the benefit pro rata. The twenty-year option has a waiting period of twenty years and guarantees that your contract value at the end of twenty years will at least equal two times your initial premium payment, reduced pro rata for withdrawals and reduced for transfers made within 3 years prior to the MGAB Benefit Date. On the MGAB Benefit Date, which is the next business day after the applicable waiting period, we calculate your Minimum Guaranteed Accumulation Benefit. CALCULATING THE MGAB. We calculate your MGAB as follows: 1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a calculation used to determine the MGAB. It does not represent a contract value, nor does it guarantee performance of the subaccounts in which you are invested. It is also not used in determining the amount of your annuity income, cash surrender value and death benefits. If you purchased the MGAB rider on the contract date, and (i) elected the ten-year option, your MGAB Base is equal to your initial premium plus any additional premium added to your Contract during the 2-year period after your rider date, reduced pro rata for any withdrawals and reduced for any transfers made within 3 years prior to the MGAB Benefit Date; or (ii) elected the twenty-year option, except for the Special Funds which require special calculations, your MGAB Base is equal to your initial premium, plus any additional premium added to your Contract during the 2-year period after your contract date, accumulated at the MGAB Base Rates reduced pro rata for any withdrawals and reduced for any transfers made within 3 years prior to the MGAB Benefit Date. The MGAB Base Rate for all allocations other than allocations to the Special Funds is the annual effective rate of 3.5265%. Accumulation of eligible additional premiums starts on the date the premium was received. 25 ONLY PREMIUMS ADDED TO YOUR CONTRACT DURING THE 2-YEAR PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE BUT ANY ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus, the MGAB rider may not be appropriate for you if you plan to add substantial premium payments after your second rider anniversary. If you purchased the MGAB rider after the contract date, your MGAB Base is equal to your contract value on the rider date, plus premiums added during the 2-year period after your rider date. Withdrawals taken while MGAB rider is in effect, as well as, and transfers made within 3 years prior to the MGAB Benefit Date will reduce the value of your MGAB Base pro rata. This means that the MGAB (and the MGAB Charge Base) will be reduced by the same percent as the percent of contract value that was withdrawn (or transferred). We will look to your contract value immediately before the withdrawal or transfer when we determine this percent. For any Special Fund under the twenty-year option, if the actual interest credited to and/or the investment earnings of the contract value allocated to the Special Fund over the calculation period is less than the amount calculated under the formula above, that lesser amount becomes the increase in your MGAB Base for the Special Fund for that period. THE MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the Special Funds may limit the MGAB benefit. If you add the 20-year option rider after the contract date, any payment of premiums after the rider date, and or investments in the Special Funds, may prevent the MGAB Base from doubling over the waiting period. 2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM YOUR MGAB BASE. The contract value that we subtract includes both the contract value in the subaccounts in which you are invested and the contract value in your Fixed Interest Allocations, if any. 3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will automatically credit it to the subaccounts in which you are invested pro rata based on the proportions of your then contract value in the subaccounts on that date, unless you have previously given us other allocation instructions. If you do not have an investment in any subaccount on the MGAB Benefit Date, we will allocate the MGAB to the Liquid Asset subaccount on your behalf. After the crediting of the MGAB, the amount of your annuity income, cash surrender value and death benefits will reflect the crediting of the MGAB to your contract value to the extent the contract value is used to determine such value. WITHDRAWALS AND TRANSFERS. We will reduce your MGAB Base and the MGAB Charge Base pro rata to the percentage of contract value of any withdrawals you make after the rider date but prior to the MGAB Benefit Date. Any transfers you make within three years prior to the MGAB Benefit Date will reduce the MGAB Base and the MGAB Charge Base pro rata to the percentage of contract value transferred. Transfers you make before this date will have no immediate impact on the MGAB Base. Any transfers more than 3 years prior to the MGAB Benefit Date between the subaccounts and Special Funds in which you are invested will cause your MGAB Base to be reallocated pro rata based on the percentage of contract value. Transfers to one or more Special Funds could reduce your MGAB benefit. PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the rider date if you choose the ten-year option and age 65 or younger on the rider date if you choose the twenty-year option. The waiting period must end at or before your annuity start date. The MGAB rider may be purchased (i) on the contract date, and (ii) within 30 days following the contract date. For contracts issued more than 30 days before the date this rider first became available in your state, the Company may in its discretion allow purchase of this rider during the 30-day period preceding the first contract anniversary after the date of this prospectus, or the date of state approval, whichever is later. 26 THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date or added the MGAB rider within 30 days following the contract date, the MGAB Benefit Date is your 10th contract anniversary for the ten-year option or 20th contract anniversary for the twenty-year option. If you added the MGAB rider during the 30-day period preceding your first contract anniversary after the date of this prospectus, your MGAB Benefit Date will be the first contract anniversary occurring after 10 years (for the ten-year option) or 20 years (for the twenty-year option) after the rider date. The MGAB rider is not available if the MGAB Benefit Date would fall beyond the latest annuity start date. CANCELLATION. If you elected the twenty-year option, you have a one-time right to cancel the MGAB rider on your first contract anniversary that is at least 10 years after the rider date. If you purchased the MGAB rider during the 30-day period following the contract date, your one-time right to cancel the rider occurs on the tenth anniversary of your contract date. To cancel, you need to send written notice to our Customer Service Center at least 30 days before such anniversary date. If the MGAB rider is terminated before the MGAB Benefit Date, you will not be credited with the MGAB and we will assess the pro rata portion of the MGAB rider charge for the current quarter. NOTIFICATION. Any crediting of the MGAB will be reported in your first quarterly statement following the MGAB Benefit Date. MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional benefit which guarantees that minimum amount of annuity income will be available to you if you annuitize on the MGIB Benefit Date, regardless of fluctuating market conditions. The amount of the Minimum Guaranteed Income Benefit will depend on the amount of premiums you pay during the five contract years after you purchase the rider, the amount of contract value you allocate or transfer to the Special Funds, the MGIB Rate (7% for all portfolios except the Special Funds), the adjustments for Special Fund transfers, and the dollar amount of any withdrawals you take while the rider is in effect. For a discussion of the charges we deduct under the MGIB rider, see "Optional Rider Charges." Ordinarily, the amount of income that will be available to you on the annuity start date is based on your contract value, the annuity option you selected and the guaranteed or the then current income factors in effect on the date you annuitize. If you purchase the MGIB rider, the minimum amount of income that will be available to you upon annuitization on the MGIB Benefit Date is the greatest of: (i) your annuity income based on your contract value adjusted for any Market Value Adjustment on the MGIB Benefit Date applied to the guaranteed income factors specified in your Contract for the annuity option you selected; (ii) your annuity income based on your contract value adjusted for any Market Value Adjustment on the MGIB Benefit Date applied to the then current income factors in effect for the annuity option you selected; and (iii)the MGIB annuity income based on your MGIB Base on the MGIB Benefit Date applied to the MGIB income factors specified in your rider for the MGIB annuity option you selected. Prior to applying the MGIB income factors, we will adjust the MGIB Base for any surrender charges, premium tax recovery and Market Value Adjustments that would otherwise apply at annuitization. Prior to your latest annuity start date, you may choose to exercise your right to receive payments under the MGIB rider on the MGIB Benefit Date. Payments under the rider begin on the MGIB Benefit Date. We require a 10-year waiting period before you can annuitize under the MGIB rider benefit. The MGIB must be exercised in the 30-day period prior to the end of the waiting period or any subsequent contract anniversary. At your request, the Company may in its discretion extend the latest contract annuity start date without extending the MGIB Benefit Date. DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate your MGIB annuity income as follows: 27 1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a calculation used to determine the MGIB. The MGIB does not represent a contract value, nor does it guarantee performance of the subaccounts in which you are invested. It is also not used in determining the amount of your cash surrender value and death benefits. Any reset of contract value under provisions of the Contract or other riders will not increase the MGIB Base or MGIB Base Maximum. (i) If you purchased the MGIB rider on the contract date, except for the Special Funds which require special calculations, the MGIB Base is equal to your initial premium, plus any additional premiums added to your Contract during the 5-year period after your contract date, accumulated at the MGIB Base Rate (7% for all portfolios except the Special Funds). Premiums paid less than 5 years prior to the earliest MGIB Benefit Date are excluded from the MGIB Base. (ii) If you purchased the MGIB rider after the contract date, except for the Special Funds which require special calculations, your MGIB Base is equal to your contract value on the rider date plus any eligible premiums added to your Contract during the 5-year period after your rider date, accumulated at the MGIB Base Rate (7% for all portfolios except the Special Funds), reduced pro rata by all withdrawals taken while the MGIB rider is in effect. Eligible additional premium payments are those added more than 5 years before the earliest MGIB Benefit Date and are included in the MGIB Base. Premiums paid after the 5th rider anniversary are excluded from the MGIB Base. (iii)For any Special Fund, if the actual earnings and/or the interest credited to the contract value allocated to the Special Fund over the calculation period is less than the amount determined under the formula above, that lesser amount becomes the change in your MGIB Base for the Special Fund. THE MGIB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the Special Funds may significantly limit the MGIB benefit. Of course, regardless of when purchased or how you invest, withdrawals will reduce the value of your MGIB Base pro rata to the percentage of the contract value withdrawn. We offer a 7% MGIB Base Rate, except for the Special Funds. The Company may at its discretion discontinue offering this rate. The MGIB Base Rate is an annual effective rate. The MGIB Base is subject to the MGIB Base Maximum. The MGIB Base Maximum is the amount calculated above until the earlier of: (i) the date the oldest contract owner reaches age 80, or (ii) the date the MGIB Base reaches two times the MGIB Eligible Premiums, adjusted for any withdrawals. MGIB Eligible Premiums is the total of premiums paid more than 5 years before the earliest MGIB Benefit Date. 2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE AND PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000. Two MGIB Income Options are available under the MGIB Rider: (i) Income for Life (Single Life or Joint with 100% Survivor) and 10-30 Year Certain; or (ii) Income for a 20-30 Year Period Certain, or (iii)Any other income plan offered by the Company in connection with the MGIB rider on the MGIB Benefit Date. On the MGIB Benefit Date, we would apply the MGIB Base using the Table of Income Factors specified in the MGIB rider for the Income Option you selected. The guaranteed factors contained in the MGIB rider generally provide lower payout per $1,000 of value applied than the guaranteed factors found in your Contract. 28 Then we compare the MGIB annuity income under the rider guarantee for the option selected with the annuity income under your Contract guarantee for the same option. The greater amount of income will be available to you on the MGIB Benefit Date. WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB Base Maximum pro rata to the percentage of contract value of any withdrawals you make. Any transfers to and from the subaccounts and Special Funds in which you are invested will cause your MGIB Base to be reallocated pro rata based on the percentage of contract value you transfer. Transfers to one or more Special Funds could reduce the MGIB Benefit. PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the rider date and the ten-year waiting period must end at or prior to the latest annuity start date. The MGIB rider must be purchased (i) on the contract date, or (ii) within thirty days after the contract date. For contracts issued more than 30 days before the date this rider first became available in your state, the Company may in its discretion allow purchase of this rider during the 30-day period preceding the first contract anniversary after the date of this prospectus, or the date of state approval, whichever is later. There is a ten year waiting period before you can annuitize under the MGIB rider. THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date or added the MGIB rider within 30 days following the contract date, the MGIB Benefit Date is the contract anniversary on or after the tenth contract anniversary when you decide to exercise your right to annuitize under the MGIB rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is the contract anniversary at least 10 years after the rider date when you decide to exercise your right to annuitize under the MGIB rider. NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may not be changed except for the following exception. If an annuitant who is not a contract owner dies prior to annuitization, a new annuitant may be named in accordance with the provisions of your Contract. The MGIB Base is unaffected and continues to accumulate. NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will provide you with notification which will include an estimate of the amount of MGIB annuity benefit available if you choose to exercise. The actual amount of the MGIB annuity benefit will be determined as of the MGIB Benefit Date. THE MGIB RIDER DOES NOT RESTRICT OR LIMITS YOUR RIGHT TO ANNUITIZE THE CONTRACT AT ANY TIME PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN THE MGIB ANNUITY BENEFIT. THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an optional benefit which guarantees that if your contract value is reduced to zero you will receive periodic payments equal to all premium payments paid during the first two contract years (Eligible Payment Amount) adjusted for any prior withdrawals. To maintain this guarantee, withdrawals in any contract year may not exceed 7% of your adjusted Eligible Payment Amount. If your contract value is redeemed to zero, your periodic payments will be 7% of your Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal Account is reduced to zero. For a discussion of the charges, we deduct under the MGWB rider, see "Optional Rider Charges." Each payment you receive under the MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax. See "Withdrawals" and "Federal Tax Considerations" for more information. Your original Eligible Payment Amount depends on when you purchase the MGWB rider and is: 29 (i) if you purchased the MGWB rider on the contract date, your premium payments received during the first two contract years; or (ii) if you purchased the MGWB rider after the contract date, your contract value on the rider date, including any subsequent premium payments received during the two-year period commencing on the rider date. THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a calculation which represents the remaining amount available for periodic payments under the MGWB rider. It does not represent a contract value, nor does it guarantee performance of the subaccounts in which you are invested. It will not affect your annuitization, surrender and death benefits. The MGWB Withdrawal Account is equal to the Eligible Payment Amount adjusted for any withdrawals. Withdrawals of up to 7% per year of the Eligible Payment Amount. Such withdrawals will reduce the value of your MGWB Withdrawal Account by the dollar amount of the withdrawal. Any withdrawals greater than 7% per year of the Eligible Payment Amount will cause a reduction in both the MGWB Withdrawal Account and the Eligible Payment Amount by the proportion that the withdrawal bears to the Contract Value at the time of the withdrawal. The MGWB Withdrawal Account is also reduced by the amount of any periodic payments paid under the MGWB rider once your contract value is zero. GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any amount permitted under your Contract so long as your contract value is greater than zero. See "Withdrawals." Making any withdrawals in any year greater than 7% per year of the Eligible Payment Amount in any year will reduce the Eligible Payment Amount for future withdrawals and payments under the MGWB rider by the proportion that the withdrawal bears to the contract value at the time of the withdrawal. The MGWB rider, will remain in force, and you may continue to make withdrawals so long as: (i) your contract value is greater than zero; (ii) your MGWB Withdrawal Account is greater than zero; (iii)your latest allowable annuity start date has not been reached; (iv) you have not elected to annuitize your Contract; and (v) you have not died (unless your spouse has elected to continue the contract), changed the ownership of the Contract or surrendered the Contract. The standard Contract provision limiting withdrawals to no more than 90% of the cash surrender value is not applicable under the MGWB rider. WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment Amount, pro rata in proportion to the percentage of contract value withdrawn. If a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider terminates and no further benefits are payable under the rider. AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your contract value is reduced to zero and if the following conditions exist, your Contract is given what we refer to as Automatic Periodic Benefit Status: (i) your MGWB Withdrawal Account is greater than zero; (ii) your latest allowable annuity start date has not been reached; (iii)you have not elected to annuitize your Contract; and 30 (iv) you have not died, changed the ownership of the Contract or surrendered the Contract. Once your Contract is given Automatic Periodic Benefit Status, we will pay you MGWB periodic payments; beginning on the next contract anniversary equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of your Eligible Payment Amount until the earliest of (i) your contract's annuity start date, (ii) the death of the owner; or (iii) until your MGWB Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by the amount of each payment. Once your Contract is given Automatic Periodic Benefit Status, we will not accept any additional premium payments in your Contract, and the Contract will not provide any benefits except those provided by the MGWB rider. Any other rider terminates. Your Contract will remain in Automatic Periodic Benefit Status until the earliest of (i) payment of all MGWB periodic payments, and (ii) payment of the Commuted Value (defined below), or (iii) the owner's death has occurred. On the contract's latest annuity start date, in lieu of making the remaining MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic payments remaining. We may, at our option, extend your annuity start date in order to continue the MGWB periodic payments. The Commuted Value is the present value of any then remaining MGWB periodic payments at the current interest rate plus 0.50%. The current interest rate will be determined by the average of the Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for periods applicable to the remaining payments. Once the last MGWB periodic payment is made or we pay you the Commuted Value, your Contract and the MGWB rider terminate. DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never withdrawn more than 7% per year of the Eligible Payment Amount and you elected the 7% Solution Enhanced Death Benefit in your Contract, the death benefit otherwise payable under the terms of your Contract will remain in force during any Automatic Periodic Benefit Status. In determining the amount of the death benefit during the Automatic Periodic Benefit Status, we deem your contract value to be zero and treat the MGWB periodic payments as withdrawals. In all cases, the death benefit payable during Automatic Periodic Benefit Status is your MGWB Withdrawal Account which equals the sum of the remaining MGWB periodic payments. PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the rider date. The MGWB rider must be purchased (i) on the contract date or, (ii) within 30 days after the contract date, For contracts issued more than 30 days before the date this rider first became available in your state, the Company may in its discretion allow purchase of this rider during the 30-day period preceding the first contract anniversary after the date of this prospectus, or the date of state approval, whichever is later. OTHER CONTRACTS We offer other variable annuity contracts that also invest in the same portfolios of the Trusts. These contracts have different charges that could effect their performance, and may offer different benefits more suitable to your needs. To obtain more information about these other contracts, contact our Customer Service Center or your registered representative. OTHER IMPORTANT PROVISIONS See "Withdrawals," "Transfers Among Your Investments," "Death Benefit Choices," "Charges and Fees," "The Annuity Options" and "Other Contract Provisions" in this prospectus for information on other important provisions in your Contract. - -------------------------------------------------------------------------------- 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 31 Amount in any contract year is 15% of your contract value on the date of the withdrawal less any withdrawals during that contract year. You need to submit to us a written request specifying the Fixed Interest Allocations or subaccounts from which amounts are to be withdrawn, otherwise the withdrawal will be made on a pro rata basis from all of the subaccounts in which you are invested. If there is not enough contract value in the subaccounts, we will deduct the balance of the withdrawal from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until we have honored your request. We will apply a Market Value Adjustment to any withdrawal from your Fixed Interest Allocation taken more than 30 days before its maturity date. We will determine the contract value as of the close of business on the day we receive your withdrawal request at our Customer Service Center. The contract value may be more or less than the premium payments made. 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. Please be aware that the benefit we pay under certain optional benefit riders will be reduced by any withdrawals you take while the rider is in effect. See "Optional Riders." We offer the following three withdrawal options: REGULAR WITHDRAWALS After the free look period, you may make regular withdrawals. Each withdrawal must be a minimum of $1,000. We will apply a Market Value Adjustment to any regular withdrawal from a Fixed Interest Allocation that is taken more than 30 days before its maturity date. SYSTEMATIC WITHDRAWALS You may choose to receive automatic systematic withdrawal payments (1) from the contract value in the subaccounts in which you are invested, or (2) from the interest earned in your Fixed Interest Allocations. Systematic withdrawals may be taken monthly, quarterly or annually. You decide when you would like systematic payments to start as long as it is at least 28 days after your contract date. You also select the date on which the systematic withdrawals will be made, but this date cannot be later than the 28th day of the month. If you have elected to receive systematic withdrawals but have not chosen a date, we will make the withdrawals on the same calendar day of each month as your contract date. If your contract date is after the 28th day of the month, your systematic withdrawal will be made on the 28th day of each month. Each systematic withdrawal amount must be a minimum of $100. The amount of your systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount based on a percentage of your contract value. Both forms of systematic withdrawals are subject to the following maximum, which is calculated on each withdrawal date: MAXIMUM PERCENTAGE FREQUENCY OF CONTRACT VALUE Monthly 1.25% Quarterly 3.75% Annually 15.00% If your systematic withdrawal is a fixed dollar amount and the amount to be withdrawn would exceed the applicable maximum percentage of your contract value on any withdrawal date, we will automatically reduce the amount withdrawn so that it equals such percentage. Thus, your fixed dollar systematic withdrawals will never exceed the maximum percentage. If you want fixed dollar systematic withdrawals to exceed the maximum percentage and are willing to incur associated surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which you may add to your regular fixed dollar systematic withdrawal program. 32 If your withdrawal is based on a percentage of your contract value and the amount to be systematically withdrawn based on that percentage would be less than $100, we will automatically increase the amount to $100 as long as it does not exceed the maximum percentage. If the systematic withdrawal would exceed the maximum percentage, we will send the amount, and then automatically cancel your systematic withdrawal option. Systematic withdrawals from Fixed Interest Allocations are limited to interest earnings during the prior month, quarter, or year, depending on the frequency you chose. Systematic withdrawals are not subject to a Market Value Adjustment, unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed below and the payments exceed interest earnings. Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature are available only in connection with Section 72(q) and 72(t) distributions. A Fixed Interest Allocation may not participate in both the systematic withdrawal option and the dollar cost averaging program at the same time. You may change the amount or percentage of your systematic withdrawal once each contract year or cancel this option at any time by sending satisfactory notice to our Customer Service Center at least 7 days before the next scheduled withdrawal date. If you submit a subsequent premium payment after you have applied for systematic withdrawals, we will not adjust future withdrawals under the systematic withdrawal program unless you specifically request that we do so. The systematic withdrawal option may commence in a contract year where a regular withdrawal has been taken but you may not change the amount or percentage of your withdrawals in any contract year during which you have previously taken a regular withdrawal. You may not elect the systematic withdrawal option if you are taking IRA withdrawals. FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal program. This feature allows you to receive a systematic withdrawal in a fixed dollar amount regardless of any surrender charges or Market Value Adjustments. Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature are available only in connection with Section 72(q) and 72(t) distributions. You choose the amount of the fixed systematic withdrawals, which may total up to a maximum of 15% of your contract value as determined on the day we receive your election of this feature. The maximum limit will not be recalculated when you make additional premium payments, unless you instruct us to do so. We will assess a surrender charge on the withdrawal date if the withdrawal exceeds the maximum limit as calculated on the withdrawal date. We will assess a Market Value Adjustment on the withdrawal date if the withdrawal from a Fixed Interest Allocation exceeds your interest earnings on the withdrawal date. We will apply the surrender charge and any Market Value Adjustment directly to your contract value (rather than to the withdrawal) so that the amount of each systematic withdrawal remains fixed. Flat dollar systematic withdrawals which are intended to satisfy the requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum. Such withdrawals are subject to surrender charges and Market Value Adjustments when they exceed the applicable 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 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 33 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. - -------------------------------------------------------------------------------- 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. Please be aware that the benefit we pay under an optional benefit rider may be effected by certain transfers you make while the rider is in effect. Transfers between Special Funds and other investment portfolios will result in a transfer of the Guaranteed Death Benefit in proportion to the contract value transferred. In cases where more than one Guaranteed Death Benefit exists because of such transfers, each death benefit will be combined to calculate the total death benefit. Transfers may also affect your optional rider base. See "The Annunity Contract Optional Riders." Transfers will be based on values at the end of the business day in which the transfer request is received at our Customer Service Center. The minimum amount that you may transfer is $100 or, if less, your entire contract value held in a subaccount or a Fixed Interest Allocation. To make a transfer, you must notify our Customer Service Center and all other administrative requirements must be met. Any transfer request received after 4:00 p.m. eastern time or the close of the New York Stock Exchange will be effected on the next business day. Account B and the Company will not be liable for following instructions communicated by telephone or other approved electronic means that we reasonably believe to be genuine. We require personal identifying information to process a request for transfer made over the telephone or over the internet. 34 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 35 blend of your selected subaccounts. The minimum size of any allocation must be in full percentage points. Rebalancing does not affect any amounts that you have allocated to the Fixed Account. The program may be used in conjunction with the systematic withdrawal option only if withdrawals are taken pro rata. Automatic rebalancing is not available if you participate in dollar cost averaging. Automatic rebalancing will not take place during the free look period. To participate in automatic rebalancing, send satisfactory notice to our Customer Service Center. We will begin the program on the last business day of the period in which we receive the notice. You may cancel the program at any time. The program will automatically terminate if you choose to reallocate your contract value among the subaccounts or if you make an additional premium payment or partial withdrawal on other than a pro rata basis. Additional premium payments and partial withdrawals effected on a pro rata basis will not cause the automatic rebalancing program to terminate. - -------------------------------------------------------------------------------- DEATH BENEFIT CHOICES - -------------------------------------------------------------------------------- DEATH BENEFIT DURING THE ACCUMULATION PHASE During the accumulation phase, a death benefit is payable when either the annuitant (when a contract owner is not an individual), the contract owner or the first of joint owners dies. Assuming you are the contract owner, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit value is calculated at the close of the business day on which we receive written notice and due proof of death, as well as any required paperwork, at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of death, the amount of the benefit payable in the future may be affected. The proceeds may be received in a single sum or applied to any of the annuity options. If we do not receive a request to apply the death benefit proceeds to an annuity option, we will make a single sum distribution. We will generally pay death benefit proceeds within 7 days after our Customer Service Center has received sufficient information to make the payment. For more information on required distributions under federal income tax laws, you should see "Required Distributions upon Contract Owner's Death." You may choose from the following 3 death benefit choices: (1) the Standard Death Benefit; (2) the 7% Solution Enhanced Death Benefit; and (3) the Annual Ratchet Enhanced Death Benefit. Once you choose a death benefit, it cannot be changed. We may in the future stop or suspend offering any of the enhanced death benefit options to new Contracts. A change in ownership of the Contract may affect the amount of the death benefit and the guaranteed death benefit. The MGWB rider may affect the death benefit. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death Benefits during Automatic Periodic Benefit Status." STANDARD DEATH BENEFIT. You will automatically receive the Standard Death Benefit unless you elect one of the enhanced death benefits. The Standard Death Benefit under the Contract is the greatest of (i) your contract value; (ii) total premium payments less any withdrawals; and (iii) the cash surrender value. ENHANCED DEATH BENEFITS. If the 7% Solution Enhanced Death Benefit or the Annual Ratchet Enhanced Death Benefit is elected, the death benefit under the Contract is the greatest of (i) the contract value; (ii) total premium payments less any withdrawals; (iii) the cash surrender value; and (iv) the enhanced death benefit as calculated below. 36 - -------------------------------------------------------------------------------- HOW THE ENHANCED DEATH BENEFIT IS CALCULATED 7% SOLUTION ANNUAL RATCHET - -------------------------------------------------------------------------------- We credit interest each business On each contract anniversary that day at the 7% annual effective occurs on or before the contract rate* to the enhanced death benefit owner turns age 80, we compare the from the preceding day (which would prior enhanced death benefit to the be the initial premium if the contract value and select the preceding day is the contract larger amount as the new enhanced date), then we add additional death benefit. premiums paid since the preceding day, then we subtract any On all other days, the enhanced withdrawals made (including any death benefit is the amount Market Value Adjustment applied to determined below. We first take the such withdrawals) since the enhanced death benefit from the preceding day and then we subtract preceding day (which would be the any associated surrender charges.** initial premium if the valuation date is the contract date) and then The maximum enhanced death benefit we add additional premiums paid is 2 times all premium payments, as since the preceding day, then we reduced by withdrawals.*** subtract any withdrawals made (including any Market Value Adjustment applied to such withdrawals) since the preceding day, and then we subtract any associated surrender charges. That amount becomes the new enhanced death benefit. - -------------------------------------------------------------------------------- * The interest rate used for calculating the death benefit for the Liquid Asset and Limited Maturity Bond subaccounts will be the lesser of the 7% annual effective rate or the net rate of return for such subaccounts during the applicable period. The interest rate used for calculating the death benefit for your Fixed Interest Allocation will be the lesser of the 7% annual effective rate or the interest credited to such investment during the applicable period. Thus, selecting these investments may limit the enhanced death benefit. If we offer additional subaccounts in the future, we may restrict those new subaccounts from participating in the 7% Solution Enhanced Death Benefit. ** Each premium payment reduced by any withdrawals and any associated surrender charges incurred will continue to grow at the 7% annual effective rate. *** Each withdrawal reduces the maximum enhanced death benefit as follows: first, the maximum enhanced death benefit is reduced by the amount of any withdrawal of earnings; then, it is reduced in proportion to the reduction in the contract value for any withdrawal of premium (in each case, including any associated surrender charges) and as adjusted for any Market Value Adjustment. If those withdrawals in a contract year do not exceed 7% of cumulative premiums and did not exceed 7% of cumulative premiums in any prior contract year, such withdrawals will be treated as withdrawals of earnings for the purpose of calculating the maximum enhanced death benefit. Once withdrawals in any contract year exceed 7% of cumulative premiums, withdrawals will reduce the maximum enhanced death benefit in proportion to the reduction in contract value pro rata. The 7% Solution Enhanced Death Benefit is available only at the time you purchase your Contract and only if the contract owner or annuitant (when the contract owner is other than an individual) is not more than 80 years old at the time of purchase. The Annual Ratchet Enhanced Death Benefit is available only at the time you purchase your Contract and only if the contract owner or annuitant (when the contract owner is other than an individual) is not more than 79 years old at the time of purchase. The 7% Solution and Annual Ratchet Enhanced Death Benefits may not be available where a Contract is held by joint owners. DEATH BENEFIT DURING THE INCOME PHASE If any contract owner or the annuitant dies after the annuity start date, the Company will pay the beneficiary any certain benefit remaining under the annuity in effect at the time. 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. 37 If any contract owner of a non-qualified Contract dies before the annuity start date, the death benefit payable to the beneficiary will be distributed as follows: (a) the death benefit must be completely distributed within 5 years of the contract owner's date of death; or (b) the beneficiary may elect, within the 1-year period after the contract owner's date of death, to receive the death benefit in the form of an annuity from us, provided that (i) such annuity is distributed in substantially equal installments over the life of such beneficiary or over a period not extending beyond the life expectancy of such beneficiary; and (ii) such distributions begin not later than 1 year after the contract owner's date of death. Notwithstanding (a) and (b) above, if the sole contract owner's beneficiary is the deceased owner's surviving spouse, then such spouse may elect to continue the Contract under the same terms as before the contract owner's death. Upon receipt of such election from the spouse at our Customer Service Center: (1) all rights of the spouse as contract owner's beneficiary under the Contract in effect prior to such election will cease; (2) the spouse will become the owner of the Contract and will also be treated as the contingent annuitant, if none has been named and only if the deceased owner was the annuitant; and (3) all rights and privileges granted by the Contract or allowed by Golden American will belong to the spouse as contract owner of the Contract. This election will be deemed to have been made by the spouse if such spouse makes a premium payment to the Contract or fails to make a timely election as described in this paragraph. If the owner's beneficiary is a nonspouse, the distribution provisions described in subparagraphs (a) and (b) above, will apply even if the annuitant and/or contingent annuitant are alive at the time of the contract owner's death. If we do not receive an election from a nonspouse owner's beneficiary within the 1-year period after the contract owner's date of death, then we will pay the death benefit to the owner's beneficiary in a cash payment within five years from date of death. We will determine the death benefit as of the date we receive proof of death. We will make payment of the proceeds on or before the end of the 5-year period starting 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. - -------------------------------------------------------------------------------- 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 7- 38 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+ Since Premium Payment Surrender Charge 7% 7% 6% 5% 4% 3% 1% 0% WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. We will waive the surrender charge in most states in the following events: (i) you begin receiving qualified extended medical care on or after the first contract anniversary for at least 45 days during a 60-day period and your request for the surrender or withdrawal, together with all required documentation is received at our Customer Service Center during the term of your care or within 90 days after the last day of your care; or (ii) you are first diagnosed by a qualifying medical professional, on or after the first contract anniversary, as having a qualifying terminal illness. We have the right to require an examination by a physician of our choice. If we require such an examination, we will pay for it. You are required to send us satisfactory written proof of illness. See your Contract for more information. The waiver of surrender charge may not be available in all states. FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is 15% of your contract value on the date of withdrawal less any withdrawals during that contract year. SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a surrender charge for excess withdrawals. We consider a withdrawal to be an "excess withdrawal" when the amount you withdraw in any contract year exceeds the Free Withdrawal Amount. Where you are receiving systematic withdrawals, any combination of regular withdrawals taken and any systematic withdrawals expected to be received in a contract year will be included in determining the amount of the excess withdrawal. Such a withdrawal will be considered a partial surrender of the Contract and we will impose a surrender charge and any associated premium tax. We will deduct such charges from the contract value in proportion to the contract value in each subaccount or Fixed Interest Allocation from which the excess withdrawal was taken. In instances where the excess withdrawal equals the entire contract value in such subaccounts or Fixed Interest Allocations, we will deduct charges proportionately from all other subaccounts and Fixed Interest Allocations in which you are invested. Any withdrawal from a Fixed Interest Allocation more than 30 days before its maturity date will trigger a Market Value Adjustment. For the purpose of calculating the surrender charge for an excess withdrawal: a) we treat premiums as being withdrawn on a first-in, first-out basis; and b) amounts withdrawn which are not considered an excess withdrawal are not considered a withdrawal of any premium payments. We have included an example of how this works in Appendix C. Although we treat premium payments as being withdrawn before earnings for purpose of calculating the surrender charge for excess withdrawals, the federal tax law treats earnings as withdrawn first. PREMIUM TAXES. We may make a charge for state and local premium taxes depending on your state of residence. The tax can range from 0% to 3.5% of the premium payment. We have the right to change this amount to conform with changes in the law or if you change your state of residence. We deduct the premium tax from your contract value (or from the MGIB Base, if exercised) on the annuity start date. However, some jurisdictions impose a premium tax at the time that initial and additional premiums are paid, regardless of when the annuity payments begin. In those states we may defer collection of the premium taxes from your contract value and deduct it when you surrender the Contract, when you take an excess withdrawal or on the annuity start date. 39 ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on each Contract anniversary, or if you surrender your Contract prior to a Contract anniversary, at the time we determine the cash surrender value payable to you. The amount deducted is $40 per Contract. This charge is waived if your contract value is $100,000 or more at the end of a contract year or the total of your premium payments is $100,000 or more or under other conditions established by Golden American. We deduct the charge proportionately from all subaccounts in which you are invested. If there is no contract value in these subaccounts, we will deduct the charge from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until the charge has been paid. TRANSFER CHARGE. We currently do not deduct any charges for transfers made during a contract year. We have the right, however, to assess up to $25 for each transfer after the twelfth transfer in a contract year. If such a charge is assessed, we would deduct the charge from the subaccounts and the Fixed Interest Allocations from which each such transfer is made in proportion to the amount being transferred from each such subaccount and Fixed Interest Allocation unless you have chosen to have all charges deducted from a single subaccount. The charge will not apply to any transfers due to the election of dollar cost averaging, automatic rebalancing and transfers we make to and from any subaccount specially designated by the Company for such purpose. CHARGES DEDUCTED FROM THE SUBACCOUNTS MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is deducted each business day. The amount of the mortality and expense risk charge depends on the death benefit you have elected. If you have elected the Standard Death Benefit, the charge, on an annual basis, is equal to 1.10% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .003030% for each day since the previous business day. If you have elected an enhanced death benefit, the charge, on an annual basis, is equal to 1.25% for the Annual Ratchet Enhanced Death Benefit, or 1.40% for the 7% Solution Enhanced Death Benefit, of the assets you have in each subaccount. The charge is deducted each business day at the rate of .003446% or .003863%, respectively, for each day since the previous business day. ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based administrative charge, on an annual basis, is equal to 0.15% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .000411% for each day since the previous business day. This charge is deducted daily from your assets in each subaccount. OPTIONAL RIDER CHARGES Subject to state availability, you may purchase one of three optional benefit riders that you may elect at issue. So long as the rider is in effect, we will deduct a separate quarterly charge for each optional benefit rider through a pro rata reduction of the contract value of the subaccounts in which you are invested. If there is insufficient contract value in the subaccount, we will deduct the charges from your Fixed Interest Allocations nearest their maturity date. We deduct each rider charge on each quarterly contract anniversary in arrears, meaning the first charge will be deducted on the first quarterly anniversary following the rider date. For a description of the riders and the defined terms used in connection with the riders, see "The Annuity Contract -- Optional Riders." MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for the MGAB rider is as follows: Waiting Period Quarterly Charge -------------- ---------------- 10 Year.................. 0.125% of the MGAB Charge Base (0.50% annually) 20 Year.................. 0.125% of the MGAB Charge Base (0.50% annually) The MGAB Charge Base is the total of (i) the MGAB Base on the rider date and (ii) premiums during the 2-year period commencing on the rider date, reduced pro rata for withdrawals and reduced for transfers made within the last 3 years prior to the MGAB Benefit Date. We will deduct charges only during your ten-year or twenty-year waiting period, as applicable. If you surrender or annuitize your Contract, we will deduct a pro 40 rata portion of the charge for the current quarter based on the current quarterly charge rate and MGAB Charge Base immediately prior to the surrender or annuitization. MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB rider is as follows: MGIB Base Rate Quarterly Charge -------------- ---------------- 7%....................... 0.125% of the MGIB Base (0.50% annually) The MGIB Base is the total of premiums paid more than 5 years before the earliest MGIB Benefit Date, reduced pro rata for all withdrawals taken while the MGIB rider is in effect, and accumulated at the MGIB Base Rate (7% for all portfolios except the Special Funds). If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and your MGIB Base immediately prior to the surrender or annuitization. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid during the first two contract years following the rider date. When we calculate the MGWB rider charge, we do not reduce the Eligible Payment Amount by the amount of any withdrawals taken while the MGWB rider is in effect. We will deduct charges only during the period before your Contract's Automatic Periodic Benefit Status. If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and your original MGWB Eligible Payment Amount immediately prior to the surrender or annuitization. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Premium Amount. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider "for a description of the MGWB Eligible Payment Amount. We will deduct charges only during the period before your Contract's Automatic Periodic Benefit Status. If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and your original MGWB Eligible Payment Amount immediately prior to the surrender or annuitization. TRUST EXPENSES There are fees and charges deducted from each investment portfolio of the Trusts. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, two portfolios deduct 12b-1 fees. For 1999, total portfolio fees and charges ranged from 0.56% to1.75%. See "Fees and Expenses" in this prospectus. Additionally, we may receive compensation from the investment advisers, administrators, distributors of the portfolios in connection with administrative, distribution, or other services and cost savings experienced by the investment advisers, administrators or distributors. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Contract. Some advisers, administrators or distributors may pay us more than others. - -------------------------------------------------------------------------------- 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 you chose. You may change an annuity option by making a written request to us at least 30 days before the annuity start date. The amount of the payments will be determined by applying your contract value, adjusted for any applicable Market Value Adjustment, on the annuity start date in accordance with the annuity option you 41 chose. The MGIB annuity benefit may be available if you have purchased the MGIB rider, provided the waiting period and other specified conditions have been met. You may also elect an annuity option on surrender of the Contract for its cash surrender value or you may choose one or more annuity options for the payment of death benefit proceeds while it is in effect and before the annuity start date. If, at the time of the contract owner's death or the annuitant's death (if the contract owner is not an individual), no option has been chosen for paying death benefit proceeds, the beneficiary may choose an annuity option within 60 days. In all events, payments of death benefit proceeds must comply with the distribution requirements of applicable federal tax law. The minimum monthly annuity income payment that we will make is $20. We may require that a single sum payment be made if the contract value is less than $2,000 or if the calculated monthly annuity income payment is less than $20. For each annuity option we will issue a separate written agreement putting the annuity option into effect. Before we pay any annuity benefits, we require the return of your Contract. If your Contract has been lost, we will require that you complete and return the applicable lost Contract form. Various factors will affect the level of annuity benefits, such as the annuity option chosen, the applicable payment rate used and the investment performance of the portfolios and interest credited to the Fixed Interest Allocations. Our current annuity options provide only for fixed payments. Fixed annuity payments are regular payments, the amount of which is fixed and guaranteed by us. Some fixed annuity options provide fixed payments either for a specified period of time or for the life of the annuitant. The amount of life income payments will depend on the form and duration of payments you chose, the age of the annuitant or beneficiary (and gender, where appropriate) under applicable law, the total contract value applied to purchase a Fixed Interest Allocation, and the applicable payment rate. Our approval is needed for any option where: (1) The person named to receive payment is other than the contract owner or beneficiary; (2) The person named is not a natural person, such as a corporation; or (3) Any income payment would be less than the minimum annuity income payment allowed. SELECTING THE ANNUITY START DATE You select the annuity start date, which is the date on which the annuity payments commence. The annuity start date must be at least 3 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 3 years. If you do not select an annuity start date, it will automatically begin in the month following the annuitant's 90th birthday, or 10 years from the contract date, if later. If the annuity start date occurs when the annuitant is at an advanced age, such as over age 85, it is possible that the Contract will not be considered an annuity for federal tax purposes. For more information, see "Federal Tax Considerations" and the Statement of Additional Information. For a Contract purchased in connection with a qualified plan, other than a Roth IRA, distributions must commence not later than April 1st of the calendar year following the calendar year in which you reach age 70 1/2 or, in some cases, retire. Distributions may be made through annuitization or withdrawals. You should consult a tax adviser for tax advice before investing. FREQUENCY OF ANNUITY PAYMENTS You choose the frequency of the annuity payments. They may be monthly, quarterly, semi-annually or annually. If we do not receive written notice from you, we will make the payments monthly. There may be certain restrictions on minimum payments that we will allow. 42 THE ANNUITY OPTIONS We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3 are fixed. Payments under Option 4 may be fixed or variable. For a fixed annuity option, the contract value in the subaccounts is transferred to the Company's general account. OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make monthly payments in equal installments for a fixed number of years based on the contract value on the annuity start date. We guarantee that each monthly payment will be at least the amount stated in your Contract. If you prefer, you may request that payments be made in annual, semi-annual or quarterly installments. We will provide you with illustrations if you ask for them. If the cash surrender value or contract value is applied under this option, a 10% penalty tax may apply to the taxable portion of each income payment until the contract owner reaches age 59 1/2. OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Under this option, we make payments for the life of the annuitant in equal monthly installments and guarantee the income for at least a period certain such as 10 or 20 years. Other periods certain may be available to you on request. You may choose a refund period instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the guaranteed period, we will continue payments until his or her death. We guarantee that each payment will be at least the amount specified in the Contract corresponding to the person's age on his or her last birthday before the annuity start date. Amounts for ages not shown in the Contract are available if you ask for them. OPTION 3. JOINT LIFE INCOME. This option is available when there are 2 persons named to determine annuity payments. At least one of the persons named must be either the contract owner or beneficiary of the Contract. We guarantee monthly payments will be made as long as at least one of the named persons is living. There is no minimum number of payments. Monthly payment amounts are available if you ask for them. OPTION 4. ANNUITY PLAN. Under this option, your contract value can be applied to any other annuitization plan that we choose to offer on the annuity start date. Annuity payments under Option 4 may be fixed or variable. If variable and subject to the Investment Company Act of 1940, it will comply with the requirements of such Act. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided in the annuity agreement between you and Golden American. The amounts we will pay are determined as follows: (1) For Option 1, or any remaining guaranteed payments under Option 2, we will continue payments. Under Options 1 and 2, the discounted values of the remaining guaranteed payments may be paid in a single sum. This means we deduct the amount of the interest each remaining guaranteed payment would have earned had it not been paid out early. The discount interest rate is never less than 3% for Option 1 and 3.50% 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. - -------------------------------------------------------------------------------- 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 43 added to the contract value since the last report. You have 30 days to notify our Customer Service Center of any errors or discrepancies contained in the report or in any confirmation notices. We will also send you copies of any shareholder reports of the investment portfolios in which Account B invests, as well as any other reports, notices or documents we are required by law to furnish to you. SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of any payment or determination of values on any business day (1) when the New York Stock Exchange is closed; (2) when trading on the New York Stock Exchange is restricted; (3) when an emergency exists as determined by the SEC so that the sale of securities held in Account B may not reasonably occur or so that the Company may not reasonably determine the value of Account B's net assets; or (4) during any other period when the SEC so permits for the protection of security holders. We have the right to delay payment of amounts from a Fixed Interest Allocation for up to 6 months. IN CASE OF ERRORS IN YOUR APPLICATION If an age or gender given in the application or enrollment form is misstated, the amounts payable or benefits provided by the Contract shall be those that the premium payment would have bought at the correct age or gender. ASSIGNING THE CONTRACT AS COLLATERAL You may assign a non-qualified Contract as collateral security for a loan but you should understand that your rights and any beneficiary's rights may be subject to the terms of the assignment. An assignment may have federal tax consequences. You should consult a tax adviser for tax advice. You must give us satisfactory written notice at our Customer Service Center in order to make or release an assignment. We are not responsible for the validity of any assignment. 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, we include a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios, the contract value returned may be greater or less than the premium payment you paid. Some states require us to return to you the amount of the paid premium (rather than the contract value) in which case you will not be subject to investment risk during the free look period. In these states, your premiums designated for investment in the subaccounts may be allocated during the free look period to a subaccount specially designated by the Company for this purpose (currently, the Liquid Asset subaccount). We may, in our discretion, require that premiums designated for investment in the subaccounts from all other states as well as premiums designated for a Fixed Interest Allocation be allocated to the specially designated subaccount during the free look period. Your Contract is void as of the day we receive your Contract and cancellation request. We determine your contract value at the close of business on the day we receive your written request. If you keep your Contract after the free look period and the investment is allocated to a subaccount specially designated by the Company, we will put your money in the subaccount(s) chosen by you, based on the accumulation unit value next computed for each subaccount, and/or in the Fixed Interest Allocation chosen by you. GROUP OR SPONSORED ARRANGEMENTS For certain group or sponsored arrangements, we may reduce any surrender, administration, and mortality and expense risk charges. We may also change the minimum initial and additional premium requirements, or offer an alternative or reduced death benefit. 44 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 6.5% commission, and passes through 100% of the commission to the broker-dealer whose registered representative sold the Contract. - -------------------------------------------------------------------------------- UNDERWRITER COMPENSATION - -------------------------------------------------------------------------------- NAME OF PRINCIPAL AMOUNT OF OTHER UNDERWRITER COMMISSION TO BE PAID COMPENSATION Directed Services, Inc. Maximum of 6.5% Reimbursement of any of any initial covered expenses or additional incurred premium payments by registered except when representatives combined in connection with some annual with the trail commissions. distribution of the Contracts. - -------------------------------------------------------------------------------- Certain sales agreements may provide for a combination of a certain percentage of commission at the time of sale and an annual trail commission (which when combined could exceed 6.5% of total premium payments). We do not pay any additional commissions on the sale or exercise of any of the optional benefit riders offered in this prospectus. - -------------------------------------------------------------------------------- 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 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 45 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 and Account B appearing in this prospectus or in the Statement of Additional Information and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing in this prospectus or in the Statement of Additional Information and in the Registration Statement and are included or incorporated by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. - -------------------------------------------------------------------------------- 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 46 income tax purposes. It is intended that Account B, through the subaccounts, will satisfy these diversification requirements. INVESTOR CONTROL. In certain circumstances, owners of variable annuity contracts have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Contracts, such as the flexibility of a contract owner to allocate premium payments and transfer contract values, have not been explicitly addressed in published rulings. While we believe that the Contracts do not give contract owners investment control over Account B assets, we reserve the right to modify the Contracts as necessary to prevent a contract owner from being treated as the owner of the Account B assets supporting the Contract. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for federal income tax purposes, the Code requires any non-qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of your death. The non-qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. See "Death Benefit Choices" for additional information on required distributions from non-qualified contracts. Other rules may apply to Qualified Contracts. The following discussion assumes that the Contracts will qualify as annuity contracts for federal income tax purposes. TAX TREATMENT OF ANNUITIES IN GENERAL. We believe that if you are a natural person you will generally not be taxed on increases in the value of a Contract until a distribution occurs or until annuity payments begin. (For these purposes, the agreement to assign or pledge any portion of the contract value, and, in the case of a qualified Contract, any portion of an interest in the qualified plan, generally will be treated as a distribution.) TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON. The owner of any annuity contract who is not a natural person generally must include in income any increase in the excess of the contract value over the "investment in the contract" (generally, the premiums or other consideration you paid for the contract less any nontaxable withdrawals) during the taxable year. There are some exceptions to this rule and a prospective contract owner that is not a natural person may wish to discuss these with a tax adviser. The following discussion generally applies to Contracts owned by natural persons. WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs (including amounts paid to you under the MGWB rider), the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the contract value (unreduced by the amount of any surrender charge) immediately before the distribution over the contract owner's investment in the Contract at that time. Credits constitute earnings (not premiums) for federal tax purposes and are not included in the owner's investment in the Contract. The tax treatment of market value adjustments is uncertain. You should consult a tax adviser if you are considering taking a withdrawal from your Contract in circumstances where a market value adjustment would apply. In the case of a surrender under a non-qualified Contract, the amount received generally will be taxable only to the extent it exceeds the contract owner's investment in the Contract. PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a non-qualified Contract, there may be imposed a federal tax penalty equal to 10% of the amount treated as income. In general, however, there is no penalty on distributions: o made on or after the taxpayer reaches age 59 1/2; 47 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 not discussed herein. A contract owner contemplating any such transfer, assignment or exchange, should consult a tax adviser as to the tax consequences. WITHHOLDING. Annuity distributions are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same contract owner during any calendar year are treated as one non-qualified deferred annuity contract for purposes of determining the amount includible in such contract owner's income when a taxable distribution occurs. TAXATION OF QUALIFIED CONTRACTS The Contracts are designed for use with several types of qualified plans. The tax rules applicable to participants in these qualified plans vary according to the type of plan and the terms and 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 48 under the retirement plan. For qualified Contracts, the investment in the Contract can be zero. For Roth IRAs, distributions are generally not taxed, except as described below. For qualified plans under Section 401(a) and 403(b), the Code requires that distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the contract owner (or plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a specified form or manner. If the plan participant is a "5 percent owner" (as defined in the Code), distributions generally must begin no later than April 1 of the calendar year following the calendar year in which the contract owner (or plan participant) reaches age 70 1/2. For IRAs described in Section 408, distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the contract owner (or plan participant) reaches age 70 1/2. Roth IRAs under Section 408A do not require distributions at any time before the contract owner's death. WITHHOLDING. Distributions from certain qualified plans generally are subject to withholding for the contract owner's federal income tax liability. The withholding rates vary according to the type of distribution and the contract owner's tax status. The contract owner may be provided the opportunity to elect not to have tax withheld from distributions. "Eligible rollover distributions" from section 401(a) plans and section 403(b) tax-sheltered annuities are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is the taxable portion of any distribution from such a plan, except certain distributions that are required by the Code or distributions in a specified annuity form. The 20% withholding does not apply, however, if the contract owner chooses a "direct rollover" from the plan to another tax-qualified plan or IRA. Brief descriptions of the various types of qualified retirement plans in connection with a Contract follow. We will endorse the Contract as necessary to conform it to the requirements of such plan. CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Section 401(a) of the Code permits corporate employers to establish various types of retirement plans for employees, and permits self-employed individuals to establish these plans for themselves and their employees. These retirement plans may permit the purchase of the Contracts to accumulate retirement savings under the plans. Adverse tax or other legal consequences to the plan, to the participant, or to both may result if this Contract is assigned or transferred to any individual as a means to provide benefit payments, unless the plan complies with all legal requirements applicable to such benefits before transfer of the Contract. Employers intending to use the Contract with such plans should seek competent advice. INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA." These IRAs are subject to limits on the amount that can be contributed, the deductible amount of the contribution, the persons who may be eligible, and the time when distributions commence. Also, distributions from certain other types of qualified retirement plans may be "rolled over" or transferred on a tax-deferred basis into an IRA. There are significant restrictions on rollover or transfer contributions from Savings Incentive Match Plans (SIMPLE), under which certain employers may provide contributions to IRAs on behalf of their employees, subject to special restrictions. Employers may establish Simplified Employee Pension (SEP) Plans to provide IRA contributions on behalf of their employees. Sales of the Contract for use with IRAs may be subject to special requirements of the IRS. ROTH IRA Section 408A of the Code permits certain eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, are not deductible, and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and other special rules may apply. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. 49 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. ENHANCED DEATH BENEFIT The Contract includes an Enhanced Death Benefit that in some cases may exceed the greater of the premium payments or the contract value. The Internal Revenue Service has not ruled whether an Enhanced Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any Code section 401(a) pension or profit-sharing plan or Code section 403(b) tax-sheltered annuity. Employers using the Contract may want to consult their tax adviser regarding such limitation. Further, the Internal Revenue Service has not addressed in a ruling of general applicability whether a death benefit provision such as the Enhanced Death Benefit provision in the Contract comports with IRA or Roth IRA qualification requirements. OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the federal tax consequences under the Contracts are not exhaustive, and special rules are provided with respect to other tax situations not discussed in this prospectus. Further, the federal income tax consequences discussed herein reflect our understanding of current law, and the law may change. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of distributions under a Contract depend on the individual circumstances of each contract owner or recipient of the distribution. A competent tax adviser should be consulted for further information. POSSIBLE CHANGES IN TAXATION Although the likelihood of legislative change is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or other means. It is also possible that any change could be retroactive (that is, effective before the date of the change). You should consult a tax adviser with respect to legislative developments and their effect on the Contract. 50 This page intentionally left blank. - -------------------------------------------------------------------------------- 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 For the | Period For the For the For the Period | January 1, Period Year Year October 25, | 1997 August 14, Ended Ended 1997 through | through 1996 through December 31, December 31, December 31, | October 24, December 31, 1999 1998 1997 | 1997 1996 ------------ ------------ ------------ | ----------- ------------ Annuity and Interest | Sensitive Life | Product Charges......... $ 82,935 $ 39,119 $ 3,834 | $ 18,288 $ 8,768 Net Income before | Federal Income Tax ..... $ 19,737 $ 10,353 $ (279) | $ (608) $ 570 Net Income (Loss)........... $ 11,214 $ 5,074 $ (425) | $ 729 $ 350 Total Assets................ $ 9,392,857 $ 4,754,623 $ 2,446,395 | N/A $ 1,677,899 Total Liabilities........... $ 8,915,008 $ 4,400,729 $ 2,219,082 | N/A $ 1,537,415 Total Stockholder's Equity.. $ 477,849 $ 353,894 $ 227,313 | N/A $ 140,484 Pre-Acquisition --------------- For the Period January 1, 1996 through August 13, 1996 --------------- Annuity and Interest Sensitive Life Product Charges......... $ 12,259 Net Income before Federal Income Tax...... $ 1,736 Net Income (Loss)........... $ 3,199 Total Assets................ N/A Total Liabilities........... N/A Total Stockholder's Equity.. N/A
52 BUSINESS ENVIRONMENT The current business and regulatory environment presents many challenges to the insurance industry. The variable annuity competitive environment remains intense and is dominated by a number of large highly rated insurance companies. Increasing competition from traditional insurance carriers as well as banks and mutual fund companies offers consumers many choices. However, overall demand for variable insurance products remains strong for several reasons including: strong stock market performance over the last four years; relatively low interest rates; an aging U.S. population that is increasingly concerned about retirement, estate planning, and maintaining their standard of living in retirement; and potential reductions in government and employer-provided benefits at retirement, as well as lower public confidence in the adequacy of those benefits. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze Golden American Life Insurance Company's ("Golden American") consolidated results of operations. In addition, some analysis and information regarding financial condition and liquidity and capital resources is also provided. This analysis should be read jointly with the consolidated financial statements, related notes, and the Cautionary Statement Regarding Forward-Looking Statements, which appear elsewhere in this report. Golden American reports financial results on a consolidated basis. The consolidated financial statements include the accounts of Golden American and its wholly owned subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and collectively with Golden American, the "Companies"). RESULTS OF OPERATION MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable") shareholders approved an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI"), and ING Groep N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc., Equitable Investment Services, Inc. (subsequently dissolved), Directed Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II, and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware corporation. For financial statement purposes, the change in control of the Companies through the ING merger was accounted for as a purchase effective October 25, 1997. This merger resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the merger date. As a result, the Companies' financial statements for periods after October 24, 1997 are presented on the Post-Merger new basis of accounting. The purchase price was allocated to EIC and its subsidiaries with $227.6 million allocated to the Companies. Goodwill of $1.4 billion was established for the excess of the merger cost over the fair value of the assets and liabilities of EIC with $151.1 million attributed to the Companies. Goodwill resulting from the merger is being amortized over 40 years on a straight-line basis. The carrying value will be reviewed periodically for any indication of impairment in value. CHANGE IN CONTROL -- ACQUISITION. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its wholly owned subsidiaries, Golden American and DSI. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. 53 For financial statement purposes, the change in control of Golden American through the acquisition of BT Variable was accounted for as a purchase effective August 14, 1996. This acquisition resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the acquisition date. As a result, the Companies' financial statements included for the period January 1, 1997 through October 24, 1997 are presented on the Post-Acquisition basis of accounting. The purchase price was allocated to the three companies purchased - BT Variable, DSI, and Golden American. The allocation of the purchase price to Golden American was approximately $139.9 million. Goodwill of $41.1 million was established for the excess of the acquisition cost over the fair value of the assets and liabilities and attributed to Golden American. At June 30, 1997, goodwill was increased by $1.8 million, due to the adjustment of the value of a receivable existing at the acquisition date. Before the ING merger, goodwill resulting from the acquisition was being amortized over 25 years on a straight-line basis. 1999 COMPARED TO 1998 PREMIUMS PERCENTAGE DOLLAR FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998 ---- ------ ------ ---- (Dollars in millions) Variable annuity premiums: Separate account............... $2,511.7 71.9% $1,050.5 $1,461.2 Fixed account.................. 770.7 30.9 182.0 588.7 -------- ----- -------- -------- Total variable annuity premiums.... 3,282.4 60.1 1,232.5 2,049.9 Variable life premiums............. 8.6 (37.8) (5.2) 13.8 -------- ----- -------- -------- Total premiums..................... $3,291.0 59.5% $1,227.3 $2,063.7 ======== ===== ======== ======== For the Companies' variable insurance contracts, premiums collected are not reported as revenues, but as deposits to insurance liabilities. Revenues for these products are recognized over time in the form of investment spread and product charges. Variable annuity separate account premiums increased 71.9% in 1999. The fixed account portion of the Companies' variable annuity premiums increased 30.9% in 1999. These increases resulted from increased sales of the Premium Plus variable annuity product. Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American discontinued offering variable life products. Premiums, net of reinsurance, for variable products from two significant broker/dealers each having at least ten percent of total sales for the year ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to $528.9 million, or 26%, from two significant broker/dealers for the year ended December 31, 1998. REVENUES PERCENTAGE DOLLAR FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998 ---- ------ ------ ---- (Dollars in millions) Annuity and interest sensitive life product charges.................... $ 82.9 112.0% $43.8 $39.1 Management fee revenue................. 10.1 112.5 5.3 4.8 Net investment income.................. 59.2 39.3 16.7 42.5 Realized gains (losses) on investments. (2.9) 96.1 (1.4) (1.5) Other income........................... 10.8 94.4 5.2 5.6 -------- ----- ----- ----- $ 160.1 77.0% $69.6 $90.5 ======== ===== ===== ===== 54 Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999. Annuity and interest sensitive life product charges increased 112.0%, or $43.8 million, to $82.9 million in 1999, primarily due to additional fees earned from the increasing block of business in the separate accounts. Golden American provides certain managerial and supervisory services to DSI. The fee paid to Golden American for these services, which is calculated as a percentage of average assets in the variable separate accounts, was $10.1 million for 1999 and $4.8 million for 1998. Net investment income increased 39.3%, or $16.7 million, to $59.2 million in 1999 from $42.5 million in 1998, due to growth in invested assets from December 31, 1998, increasing interest rates, and a relative increase in below investment grade investments. During 1999, the Company had net realized losses on investments of $2.9 million, which includes a $1.6 million write down of two impaired fixed maturities, compared to net realized losses on investments of $1.5 million in 1998 which included a $1.0 million write down of two impaired fixed maturities. Other income increased $5.2 million to $10.8 million in 1999, due primarily to income received under a modified coinsurance agreement with an unaffiliated reinsurer. EXPENSES
PERCENTAGE DOLLAR FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998 ---- ------ ------ ---- (Dollars in millions) Insurance benefits and expenses: Annuity and interest sensitive life benefits: Interest credited to account balances ... $ 175.9 85.4% $ 81.0 $ 94.9 Benefit claims incurred in excess of account balances ...................... 6.3 200.2 4.2 2.1 Underwriting, acquisition, and insurance expenses: Commissions ............................. 188.4 55.5 67.2 121.2 General expenses ........................ 60.2 60.2 22.6 37.6 Insurance taxes, state licenses, and fees 4.0 (4.0) (0.1) 4.1 Policy acquisition costs deferred ....... (346.4) 75.1 (148.6) (197.8) Amortization: Deferred policy acquisition costs ..... 33.1 543.3 28.0 5.1 Value of purchased insurance in force . 6.2 32.0 1.5 4.7 Goodwill .............................. 3.8 -- -- 3.8 -------- ----- -------- -------- $ 131.5 73.7% $ 55.8 $ 75.7 ======== ===== ======== ========
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999 from $75.7 million in 1998. Interest credited to account balances increased 85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit on the Premium Plus variable annuity product increased $69.3 million to $123.8 million at December 31, 1999. The bonus interest on the fixed account increased $3.0 million to $10.9 million at December 31, 1999. The remaining increase in interest credited relates to higher account balances associated with the Companies' fixed account options within the variable products. Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in 1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million, in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes, state licenses, and fees are generally related to changes in the level and composition of variable product sales. Insurance taxes, state licenses, and fees are impacted by several other factors, which include an increase in FICA taxes primarily due to bonuses and expenses for the triennial insurance department examination of Golden American, which were offset by a decrease in 1999 of guaranty fund assessments paid. Most costs incurred as the result of sales have been deferred, thus having very little impact on current earnings. 55 General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million in 1998. Management expects general expenses to continue to increase in 2000 as a result of the emphasis on expanding the salaried wholesaler distribution network and the growth in sales. The Companies use a network of wholesalers to distribute products, and the salaries and sales bonuses of these wholesalers are included in general expenses. The portion of these salaries and related expenses that varies directly with production levels is deferred thus having little impact on current earnings. The increase in general expenses was partially offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an affiliate, Southland Life Insurance Company, an affiliate, and United Life & Annuity Insurance Company, an affiliate, for certain advisory, computer, and other resources and services provided by Golden American. The Companies' previous balances of deferred policy acquisition costs ("DPAC"), value of purchased insurance in force ("VPIF"), and unearned revenue reserve were eliminated and a new asset of $44.3 million representing VPIF was established for all policies in force at the merger date. During 1999, VPIF was adjusted to increase amortization by $0.7 million to reflect changes in the assumptions related to the timing of estimated gross profits. During 1998, VPIF decreased $2.7 million to adjust the value of other receivables and increased $0.2 million as a result of an adjustment to the merger costs. During 1998, VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in the assumptions related to the timing of future gross profits. Amortization of DPAC increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth in policy acquisition costs deferred from $197.8 million at December 31, 1998 to $346.4 million at December 31, 1999, which was generated by expenses associated with the large sales volume experienced since December 31, 1998. Based on current conditions and assumptions as to the impact of future events on acquired policies in force, the expected approximate net amortization relating to VPIF as of December 31, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may vary based upon changes in assumptions and experience. Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in 1998. Interest expense on a $25 million surplus note issued December 1996 and expiring December 2026 was $2.1 million for the year ended December 31, 1999, unchanged from the same period of 1998. Interest expense on a $60 million surplus note issued in December 1998 and expiring December 2028 was $4.3 million for the year ended December 31, 1999. Interest expense on a $75 million surplus note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million for the year ended December 31, 1999. Golden American also paid $0.8 million in 1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING AIH") for interest on a reciprocal loan agreement. Interest expense on a revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3 million for the years ended December 31, 1999 and 1998, respectively. In addition, Golden American incurred interest expense of $0.2 million in 1998 on a line of credit with Equitable. INCOME. Net income for 1999 was $11.2 million, an increase of $6.1 million from $5.1 million for 1998. Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from comprehensive income of $3.9 million for 1998. 56 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 ========== ========== ========== | ==========
For the Companies' variable contracts, premiums collected are not reported as revenues, but are reported as deposits to insurance liabilities. Revenues for these products are recognized over time in the form of investment income and product charges. Variable annuity separate account premiums increased 419.7% in 1998 primarily due to increased sales of the Premium Plus product introduced in October of 1997 and the increased sales levels of the Companies' other products. The fixed account portion of the Companies' variable annuity premiums increased 85.1% in 1998. Variable life premiums decreased 11.4% in 1998. Total premiums increased 238.7% in 1998. During 1998, the Companies' sales were further diversified among broker/dealers. Premiums, net of reinsurance, for variable products from two significant broker/dealers having at least ten percent of total sales for the year ended December 31, 1998 totaled $528.9 million, or 26% of premiums ($328.2 million, or 53% from two significant broker/dealers for the year ended December 31, 1997). REVENUES
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION ----------------- ----------------- ----------------- | ---------------- For the Period | For the Period For the Year For the Year October 25, 1997 | January 1, 1997 ended ended through | through December 31, 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 ========== ========== ========== | ==========
57 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 in 1997. The extra credit bonus on the Premium Plus product introduced in October of 1997 generated a $51.6 million increase in interest credited during 1998 compared to 1997. The remaining increase in interest credited related to higher account balances associated with the Companies' fixed account option within its variable products. Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in 1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3 million in 1997. Changes in commissions and insurance taxes are generally related to changes in the level of variable product sales. Insurance taxes are impacted by several other factors, which include an increase in FICA taxes primarily due to bonuses. Most costs 58 incurred as the result of new sales including the extra credit bonus were deferred, thus having very little impact on current earnings. General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3 million in 1997. Management expects general expenses to continue to increase in 1999 as a result of the emphasis on expanding the salaried wholesaler distribution network. The Companies use a network of wholesalers to distribute products and the salaries of these wholesalers are included in general expenses. The portion of these salaries and related expenses that varies with production levels is deferred thus having little impact on current earnings. The increase in general expenses was partially offset by reimbursements received from Equitable Life, an affiliate, for certain advisory, computer and other resources and services provided by Golden American. At the merger date, the Companies' deferred policy acquisition costs ("DPAC"), previous balance of value of purchased insurance in force ("VPIF") and unearned revenue reserve were eliminated and a new asset of $44.3 million representing VPIF was established for all policies in force at the merger date. During 1998, VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in the assumptions related to the timing of future gross profits. VPIF decreased $2.6 million in the second quarter of 1998 to adjust the value of other receivables recorded at the time of merger and increased $0.2 million in the first quarter of 1998 as the result of an adjustment to the merger costs. The amortization of VPIF and DPAC increased $1.1 million, or 13.0%, in 1998. During the second quarter of 1997, VPIF was adjusted by $2.3 million to reflect narrower spreads than the gross profit model assumed. Amortization of goodwill for the year ended December 31, 1998 totaled $3.8 million compared to $2.0 million for the year ended December 31, 1997. Interest expense on the $25 million surplus note issued December 1996 and expiring December 2026 was $2.1 million for the year ended December 31, 1998, unchanged from the same period of 1997. In addition, Golden American incurred interest expense of $0.2 million in 1998 compared to $0.5 million in 1997 on the line of credit with Equitable which was repaid with a capital contribution. Golden American also paid $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING AIH") for interest on the reciprocal loan agreement. Interest expense on the revolving note payable with SunTrust Bank, Atlanta was $0.3 million for the year ended December 31, 1998. INCOME. Net income for 1998 was $5.1 million, an increase of $4.8 million from $0.3 million in 1997. Comprehensive income for 1998 was $3.9 million, an increase of $1.8 million from $2.1 million in 1997. FINANCIAL CONDITION RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating Services ("Standard & Poor's"). INVESTMENTS. The financial statement carrying value and amortized cost basis of the Companies' total investments grew 15.5% and 17.5%, respectively, in 1999. All of the Companies' investments, other than mortgage loans on real estate, are carried at fair value in the Companies' financial statements. Therefore, growth in the carrying value of the Companies' investment portfolio was due to 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 December 31, 1999, the Companies investments had a yield of 6.6%. The Companies estimate the total investment portfolio, excluding policy loans, had a fair value approximately equal to 97.6% of amortized cost value at December 31, 1999. 59 FIXED MATURITIES: At December 31, 1999, the Companies had fixed maturities with an amortized cost of $858.1 million and an estimated fair value of $835.3 million. The Companies classify 100% of securities as available for sale. Net unrealized depreciation of fixed maturities of $22.8 million was comprised of gross appreciation of $0.9 million and gross depreciation of $23.7 million. Net unrealized holding losses on these securities, net of adjustments to VPIF, DPAC, and deferred income taxes of $7.0 million were included in stockholder's equity at December 31, 1999. The individual securities in the Companies' fixed maturities portfolio (at amortized cost) include investment grade securities, which include securities issued by the U.S. government, its agencies, and corporations that are rated at least A- by Standard & Poor's ($558.0 million or 65.0%), that are rated BBB+ to BBB- by Standard & Poor's ($123.5 million or 14.4%), and below investment grade securities, which are securities issued by corporations that are rated BB+ to B- by Standard & Poor's ($64.6 million or 7.5%). Securities not rated by Standard & Poor's had a National Association of Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, or 5 ($112.0 million or 13.1%). The Companies' fixed maturity investment portfolio had a combined yield at amortized cost of 6.6% at December 31, 1999. Fixed maturities rated BBB+ to BBB- may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities. At December 31, 1999, the amortized cost value of the Companies' total investment in below investment grade securities, excluding mortgage-backed securities, was $72.3 million, or 6.9%, of the Companies' investment portfolio. The Companies intend to purchase additional below investment grade securities, but do not expect the percentage of the portfolio invested in such securities to exceed 10% of the investment portfolio. At December 31, 1999, the yield at amortized cost on the Companies' below investment grade portfolio was 7.8% compared to 6.5% for the Companies' investment grade corporate bond portfolio. The Companies estimate the fair value of the below investment grade portfolio was $69.1 million, or 95.5% of amortized cost value, at December 31, 1999. Below investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss upon default by the borrower is significantly greater with respect to below investment grade securities than with other corporate debt securities. Below investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as a recession or increasing interest rates, than are investment grade issuers. The Companies attempt to reduce the overall risk in the below investment grade portfolio, as in all investments, through careful credit analysis, strict investment policy guidelines, and diversification by company and by industry. The Companies analyze the investment portfolio, including below investment grade securities, at least quarterly in order to determine if the Companies' ability to realize the carrying value on any investment has been impaired. For debt and equity securities, if impairment in value is determined to be other than temporary (i.e. if it is probable the Companies will be unable to collect all amounts due according to the contractual terms of the security), the cost basis of the impaired security is written down to fair value, which becomes the new cost basis. The amount of the write-down is included in earnings as a realized loss. Future events may occur, or additional or updated information may be received, which may necessitate future write-downs of securities in the Companies' portfolio. Significant write-downs in the carrying value of investments could materially adversely affect the Companies' net income in future periods. In 1999, fixed maturities designated as available for sale with a combined amortized cost of $221.8 million were sold, called, or repaid by their issuers. In total, net pre-tax losses from sales, calls, and repayments of fixed maturities amounted to $1.3 million in 1999, excluding the $1.6 million pre-tax loss on the write-down of two bonds in 1999. 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 60 their combined net realizable value of $2.9 million. During the second quarter of 1999, further information was received regarding these bonds and Golden American determined that the carrying value of the two bonds exceeded their estimated net realizable value. As a result, at June 30, 1999, Golden American recognized a total pre-tax loss of approximately $1.6 million to further reduce the carrying value of the bonds to their combined net realizable value of $1.1 million. EQUITY SECURITIES: Equity securities represent 1.4% of the Companies' investment portfolio. At December 31, 1999, the Companies owned equity securities with a cost of $15.0 million and an estimated fair value of $17.3 million. Net unrealized appreciation of equity securities was comprised entirely of gross appreciation of $2.3 million. Equity securities are primarily comprised of investments in shares of the mutual funds underlying the Companies' registered separate accounts. MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.5% of the Companies' investment portfolio. Mortgages outstanding at amortized cost were $100.1 million at December 31, 1999 with an estimated fair value of $95.5 million. The Companies' mortgage loan portfolio includes 58 loans with an average size of $1.7 million and average seasoning of 0.7 years if weighted by the number of loans. The Companies' mortgage loans on real estate are typically secured by occupied buildings in major metropolitan locations and not speculative developments and are diversified by type of property and geographic location. Mortgage loans on real estate have been analyzed by geographical location with concentrations by state identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations of mortgage loans on real estate in any state exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10% in 1999 and 8% in 1998). At December 31, 1999, the yield on the Companies' mortgage loan portfolio was 7.3%. At December 31, 1999, no mortgage loan on real estate was delinquent by 90 days or more. The Companies' loan investment strategy is consistent with other life insurance subsidiaries of ING in the United States. The insurance subsidiaries of EIC have experienced a historically low default rate in their mortgage loan portfolios. OTHER ASSETS. Accrued investment income increased $1.6 million during 1999, due to an increase in the overall size of the portfolio resulting from the investment of premiums allocated to the fixed account options of the Companies' variable insurance products. DPAC represents certain deferred costs of acquiring new insurance business, principally first year commissions and interest bonuses, premium credit, 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 December 31, 1999, the Companies had DPAC and VPIF balances of $529.0 million and $31.7 million, respectively. During 1998, VPIF decreased $2.7 million to adjust the value of other receivables and increased $0.2 million as a result of an adjustment to the merger costs. Property and equipment increased $6.5 million, or 89.0%, during 1999, due to leasehold improvements, the purchase of furniture and other equipment for Golden American's new offices in West Chester, Pennsylvania, and growth in the business. Goodwill totaling $151.1 million, representing the excess of the acquisition cost over the fair value of net assets acquired, was established at the merger date. Accumulated amortization of goodwill as of December 31, 1999 was $8.2 million. Other assets increased $1.8 million during 1999, due to increases in a receivable from the separate account and accounts receivable. 61 At December 31, 1999, the Companies had $7.6 billion of separate account assets compared to $3.4 billion at December 31, 1998. The increase in separate account assets resulted from market appreciation, increased transfer activity, and growth in sales of the Companies' variable annuity products, net of redemptions. At December 31, 1999, the Companies had total assets of $9.4 billion, a 97.6% increase from December 31, 1998. LIABILITIES. Future policy benefits for annuity and interest sensitive life products increased $152.6 million, or 17.3%, to $1.0 billion reflecting premium growth in the Companies' fixed account options of the variable products, net of transfers to the separate accounts. Market appreciation, increased transfer activity, and premiums, net of redemptions, accounted for the $4.2 billion, or 122.7%, increase in separate account liabilities to $7.6 billion at December 31, 1999. On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note to Equitable Life, which matures on December 29, 2029. On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note to First Columbine Life Insurance Company, an affiliate, which matures on December 7, 2029. On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note to ING AIH, which matures on September 29, 2029. On December 30, 1999, ING AIH assigned the surplus note to Equitable Life. On December 30, 1998, Golden American issued a $60 million, 7.25% surplus note to Equitable Life, which matures on December 29, 2028. On December 17, 1996, Golden American issued a $25 million, 8.25% surplus note to Equitable, which matures on December 17, 2026. As a result of the merger, the surplus note is now payable to EIC. Other liabilities increased $21.7 million from $34.7 million at December 31, 1998, due primarily to increases in remittances to be applied, outstanding checks, accrued interest payable, and pension liability. In conjunction with the volume of variable annuity sales, the Companies' total liabilities increased $4.5 billion, or 102.6%, during 1999 and totaled $8.9 billion at December 31, 1999. The effects of inflation and changing prices on the Companies' financial position are not material since insurance assets and liabilities are both primarily monetary and remain in balance. An effect of inflation, which has been low in recent years, is a decline in stockholder's equity when monetary assets exceed monetary liabilities. STOCKHOLDER'S EQUITY. Additional paid-in capital increased $121.0 million, or 34.8%, from December 31, 1998 to $468.6 million at December 31, 1999, due to capital contributions from the Parent. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability of the Companies to generate sufficient cash flows to meet the cash requirements of operating, investing, and financing activities. The Companies' principal sources of cash are variable annuity premiums and product charges, investment income, maturing investments, proceeds from debt issuance, and capital contributions made by the Parent. Primary uses of these funds are payments of commissions and operating expenses, interest and premium credits, investment purchases, repayment of debt, as well as withdrawals and surrenders. Net cash used in operating activities was $73.4 million in 1999 compared to $63.9 million in 1998. The Companies have predominantly had negative cash flows from operating activities since Golden American started issuing variable insurance products in 1989. These negative operating cash flows result primarily from the funding of commissions and other deferrable expenses related to the continued growth in the variable annuity products. 62 Net cash used in investing activities was $177.5 million during 1999 as compared to $390.0 million in 1998. This decrease is primarily due to greater net purchases of fixed maturities, equity securities, and mortgage loans on real estate during 1998 than in 1999. Net purchases of fixed maturities reached $124.0 million in 1999 versus $331.3 million in 1998. Net purchases of mortgage loans on real estate declined to $3.1 million from $12.6 million in the prior year. Net cash provided by financing activities was $258.6 million during 1999 as compared to $439.5 million during the prior year. In 1999, net cash provided by financing activities was positively impacted by net fixed account deposits of $626.5 million compared to $520.8 million in 1998 and by a $6.7 million increase in net borrowings in 1999 compared to 1998. This increase was offset by net reallocations to the Companies' separate accounts, which increased to $650.3 million from $239.7 million during the prior year. In 1999, another important source of cash provided by financing activities was $121.0 million in capital contributions from the Parent compared to $103.8 million in 1998. Another source of cash provided by financing activities during 1999 was $160.0 million in proceeds from surplus notes compared to $60.0 million in 1998 The Companies' liquidity position is managed by maintaining adequate levels of liquid assets, such as cash or cash equivalents and short-term investments. Additional sources of liquidity include borrowing facilities to meet short-term cash requirements. Golden American maintains a $65.0 million reciprocal loan agreement with ING AIH, which expires on December 31, 2007. In addition, the Companies have established an $85.0 million revolving note facility with SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes these sources of liquidity are adequate to meet the Companies' short-term cash obligations. Based on current trends, the Companies expect to continue to use net cash in operating activities, given the continued growth of the variable annuity sales. It is anticipated that a continuation of capital contributions from the Parent, the issuance of additional surplus notes, and/or modified coinsurance agreements will cover these net cash outflows. ING AIH is committed to the sustained growth of Golden American. During 2000, ING AIH will maintain Golden American's statutory capital and surplus at the end of each quarter at a level such that: 1) the ratio of Total Adjusted Capital divided by Company Action Level Risk Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds the "Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3, Line 13A of Golden American's statutory statement. During the first quarter of 1999, Golden American's operations were moved to a new site in West Chester, Pennsylvania. During 1999, Golden American occupied 105,000 square feet of leased space; its affiliate occupies 20,000 square feet. Previously, Golden American's home office operations were housed in leased locations in Wilmington, Delaware and locations in Pennsylvania. Golden American's New York subsidiary is housed in leased space in New York, New York. The Companies intend to spend approximately $2.4 million on capital needs for 2000. The ability of Golden American to pay dividends to its Parent is restricted. Prior approval of insurance regulatory authorities is required for payment of dividends to the stockholder which exceed an annual limit. During 2000, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder, Golden American, unless a notice of its intent to declare a dividend and the amount of the dividend has been filed with the New York Insurance Department at least thirty days in advance of the proposed declaration. If the Superintendent of the New York Insurance Department finds the financial condition of First Golden does not warrant the distribution, the Superintendent may disapprove the distribution by giving written notice to First Golden within thirty days after the filing. The management of First Golden does not anticipate paying dividends to Golden American during 2000. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to monitor the capitalization of insurance companies based upon the type and mixture of risks 63 inherent in a company's operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. The Companies have complied with the NAIC's risk-based capital reporting requirements. Amounts reported indicate that the Companies have total adjusted capital well above all required capital levels. Reinsurance: At December 31, 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. The reinsurance treaties that covered the nonstandard minimum guaranteed death benefits for new business have been terminated for business issued after December 31, 1999. The Companies are currently pursuing alternative reinsurance arrangements for new business issued after December 31, 1999. There can be no assurance that such alternative arrangements will be available. The reinsurance covering business in force at December 31, 1999 will continue to apply in the future. Impact of Year 2000: In prior years, the Companies discussed the nature and progress of plans to become Year 2000 ready. In late 1999, the Companies completed remediation and testing of systems. As a result of those planning and implementation efforts, the Companies experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date change. Golden American expensed approximately $264,000 during 1999 in connection with remediating systems. The Companies are not aware of any material problems resulting from Year 2000 issues, either with products, internal systems, or the products and services of third parties. The Companies will continue to monitor mission critical computer applications and those of suppliers and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. MARKET RISK AND RISK MANAGEMENT Asset/liability management is integrated into many aspects of the Companies' operations, including investment decisions, product development, and crediting rates determination. As part of the risk management process, different economic scenarios are modeled, including cash flow testing required for insurance regulatory purposes, to determine that existing assets are adequate to meet projected liability cash flows. Key variables include contractholder behavior and the variable separate accounts' performance. Contractholders bear the majority of the investment risks related to the variable insurance products. Therefore, the risks associated with the investments supporting the variable separate accounts are assumed by contractholders, not by the Companies (subject to, among other things, certain minimum guarantees). The Companies' products also provide certain minimum death benefits that depend on the performance of the variable separate accounts. Currently, the majority of death benefit risks are reinsured, which protects the Companies from adverse mortality experience and prolonged capital market decline. A surrender, partial withdrawal, transfer, or annuitization made prior to the end of a guarantee period from the fixed account may be subject to a market value adjustment. As the majority of the liabilities in the fixed account are subject to market value adjustment, the Companies do not face a material amount of market risk volatility. The fixed account liabilities are supported by a portfolio principally composed of fixed rate investments that can generate predictable, steady rates of return. The portfolio management strategy for the fixed account considers the assets available for sale. This enables the Companies to respond to changes in market interest rates, changes in prepayment risk, changes in relative values of asset sectors and individual securities and loans, changes in credit quality outlook, and other relevant factors. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risks, as well as other risks. The Companies' asset/liability management discipline includes strategies to minimize exposure to loss as interest rates and economic and market conditions change. On the basis of these analyses, management believes there is no material solvency risk to the Companies. With respect to a 10% drop in equity values from year end 1999 levels, variable separate account funds, which represent 88% of the in force, pass the risk in underlying fund performance to the contractholder 64 (except for certain minimum guarantees). With respect to interest rate movements up or down 100 basis points from year end 1999 levels, the remaining 12% of the in force are fixed account funds and almost all of these have market value adjustments which provide significant protection against changes in interest rates. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Any forward-looking statement contained herein or in any other oral or written statement by the Companies or any of their officers, directors, or employees is qualified by the fact that actual results of the Companies may differ materially from such statement, among other risks and uncertainties inherent in the Companies' business, due to the following important factors: 1. Prevailing interest rate levels and stock market performance, which may affect the ability of the Companies to sell their products, the market value and liquidity of the Companies' investments, fee revenue, and the lapse rate of the Companies' policies, notwithstanding product design features intended to enhance persistency of the Companies' products. 2. Changes in the federal income tax laws and regulations, which may affect the tax status of the Companies' products. 3. Changes in the regulation of financial services, including bank sales and underwriting of insurance products, which may affect the competitive environment for the Companies' products. 4. Increasing competition in the sale of the Companies' products. 5. Other factors that could affect the performance of the Companies, including, but not limited to, market conduct claims, litigation, insurance industry insolvencies, availability of competitive reinsurance on new business, investment performance of the underlying portfolios of the variable products, variable product design, and sales volume by significant sellers of the Companies' variable products. OTHER INFORMATION SEGMENT INFORMATION. During the period since the acquisition by Bankers Trust, September 30, 1992 to date of this Prospectus, Golden American's operations consisted of one business segment, the sale of variable insurance products. Golden American and its affiliate DSI are party to in excess of 480 sales agreements with broker-dealers, five of whom, Locust Street Securities, Inc., Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network Securities, Inc. and Multi-Financial Securities Corporation, are affiliates of Golden American. As of December 31, 1999, two broker-dealers produce 10% or more of Golden American's product sales. REINSURANCE. Golden American reinsured its mortality risk associated with the Contract's guaranteed death benefit on Contracts issued through December 31, 1999 with one or more appropriately licensed insurance companies. Golden American is currently pursuing alternative reinsurance arrangements for new business. Golden American also, effective June 1, 1994, entered into a reinsurance agreement on a modified coinsurance basis with an affiliate of a broker-dealer which distributes Golden American's products with respect to 25% of the business produced by that broker-dealer. RESERVES. In accordance with the life insurance laws and regulations under which Golden American operates, it is obligated to carry on its books, as liabilities, actuarially determined reserves to meet its obligations on outstanding Contracts. Reserves, based on valuation mortality tables in general use in the United States, where applicable, are computed to equal amounts which, together with interest on such reserves computed annually at certain assumed rates, make adequate provision according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of Golden American. COMPETITION. Golden American is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities marketing insurance products comparable to those of Golden American. There are approximately 2,350 stock, mutual and other types of 65 insurers in the life insurance business in the United States, a substantial number of which are significantly larger than Golden American. Pursuant to a service agreement between Golden American and Equitable Life, Equitable Life provides certain administrative, financial and other services to Golden American. Equitable Life billed Golden American and its subsidiary First Golden American Life Insurance Company of New York ("First Golden"), $1.3 million and $1.1 million, for the years ended December 31, 1999 and 1998, respectively, under this service agreement. Golden American provides to DSI certain of its personnel to perform management, administrative and clerical services and the use of certain facilities. Golden American charges DSI for such expenses and all other general and administrative costs, first on the basis of direct charges when identifiable, and the remainder allocated based on the estimated amount of time spent by Golden American's employees on behalf of DSI. In the opinion of management, this method of cost allocation is reasonable. In 1995, the service agreement between DSI and Golden American was amended to provide for a management fee from DSI to Golden American for managerial and supervisory services provided by Golden American. This fee, calculated as a percentage of average assets in the variable separate accounts, was $10.1 million and $4.8 million for the years 1999 and 1998, respectively. Since January 1, 1998, Golden American and First Golden have had an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management and accounting services for a fee, payable quarterly. For the years ended December 31, 1999 and 1998, Golden American and First Golden incurred fees of $2.2 million and $1.5 million, respectively, under this agreement. Since 1997, Golden American has provided certain advisory, computer and other resources and services to Equitable Life. Revenues for these services totaled $6.1 million for 1999 and $5.8 million for 1998. The Companies provide resources and services to DSI. Revenues for these services totaled $0.4 million of 1999. Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services totaled $0.2 million for 1999 and $0.1 million for 1998. Golden American provides resources and services to United Life & Annuity Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $0.5 million in 1999. The Companies provide resources and services to Security Life of Denver Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies totaled $0.2 million in 1999. The Companies provide resources and services to Southland Life Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies totaled $0.1 million in 1999. DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) of the variable insurance products issued by Golden American which as of December 31, 1999, are sold primarily through two broker/dealer institutions. For the years 1999 and 1998, commissions paid by Golden American to DSI (including commissions paid by First Golden) aggregated $181.5 million and $117.5 million, respectively. EMPLOYEES. Golden American, as a result of its Service Agreement with Bankers Trust (Delaware) and EIC Variable, had very few direct employees. Instead, various management services were provided by Bankers Trust (Delaware), EIC Variable and Bankers Trust New York Corporation, as described above under "Service Agreement." The cost of these services were allocated to Golden American. Since August 14, 1996, Golden American has hired individuals to perform various management services and has looked to Equitable of Iowa and its affiliates for certain other management services. 66 Certain officers of Golden American are also officers of DSI, and their salaries are allocated among both companies. Certain officers of Golden American are also officers of other Equitable of Iowa subsidiaries. See "Directors and Executive Officers." PROPERTIES. Golden American's principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380, where all of Golden American's records are maintained. This office space is leased. STATE REGULATION. Golden American is subject to the laws of the State of Delaware governing insurance companies and to the regulations of the Delaware Insurance Department (the "Insurance Department"). A detailed financial statement in the prescribed form (the "Annual Statement") is filed with the Insurance Department each year covering Golden American's operations for the preceding year and its financial condition as of the end of that year. Regulation by the Insurance Department includes periodic examination to determine contract liabilities and reserves so that the Insurance Department may certify that these items are correct. Golden American's books and accounts are subject to review by the Insurance Department at all times. A full examination of Golden American's operations is conducted periodically by the Insurance Department and under the auspices of the NAIC. In addition, Golden American is subject to regulation under the insurance laws of all jurisdictions in which it operates. The laws of the various jurisdictions establish supervisory agencies with broad administrative powers with respect to various matters, including licensing to transact business, overseeing trade practices, licensing agents, approving contract forms, establishing reserve requirements, fixing maximum interest rates on life insurance contract loans and minimum rates for accumulation of surrender values, prescribing the form and content of required financial statements and regulating the type and amounts of investments permitted. Golden American is required to file the Annual Statement with supervisory agencies in each of the jurisdictions in which it does business, and its operations and accounts are subject to examination by these agencies at regular intervals. The NAIC has adopted several regulatory initiatives designed to improve the surveillance and financial analysis regarding the solvency of insurance companies in general. These initiatives include the development and implementation of a risk-based capital formula for determining adequate levels of capital and surplus. Insurance companies are required to calculate their risk-based capital in accordance with this formula and to include the results in their Annual Statement. It is anticipated that these standards will have no significant effect upon Golden American. For additional information about the Risk-Based Capital adequacy monitoring system and Golden American, see "Management's Discussion and Analysis Results of Operations." In addition, many states regulate affiliated groups of insurers, such as Golden American, and its affiliates, under insurance holding company legislation. Under such laws, inter-company transfers of assets and dividend payments from insurance subsidiaries may be subject to prior notice or approval, depending on the size of the transfers and payments in relation to the financial positions of the companies involved. Under insurance guaranty fund laws in most states, insurers doing business therein can be assessed (up to prescribed limits) for contract owner losses incurred by other insurance companies which have become insolvent. Most of these laws provide that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. For information regarding Golden American's estimated liability for future guaranty fund assessments, see Note 11 of Notes to Financial Statements. Although the federal government generally does not directly regulate the business of insurance, federal initiatives often have an impact on the business in a variety of ways. Certain insurance products of Golden American are subject to various federal securities laws and regulations. In addition, current and proposed federal measures which may significantly affect the insurance business include regulation of insurance company solvency, employee benefit regulation, removal of barriers preventing banks from engaging in the insurance business, tax law changes affecting the taxation of insurance companies and the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles. 67 DIRECTORS AND OFFICERS NAME (AGE) POSITION(S) WITH THE COMPANY - -------------------------- ---------------------------------------------------- Barnett Chernow (50) President and Director Myles R. Tashman (57) Director, Executive Vice President, General Counsel and Secretary Michael W. Cunningham (51) Director Mark A. Tullis (44) Director Phillip R. Lowery (46) Director James R. McInnis (52) Executive Vice President and Chief Marketing Officer Stephen J. Preston (42) Executive Vice President and Chief Actuary E. Robert Koster (41) Senior Vice President and Chief Financial Officer Patricia M. Corbett (35) Treasurer and Assistant V.P. David L. Jacobson (50) Senior Vice President and Assistant Secretary William L. Lowe (36) Senior Vice President, Sales and Marketing Ronald R. Blasdell (46) Senior Vice President, Project Implementation Steven G. Mandel (40) Senior Vice President and Chief Information Officer Gary F. Haynes (55) Senior Vice President, Operations Each director is elected to serve for one year or until the next annual meeting of shareholders or until his or her successor is elected. Some directors are directors of insurance company subsidiaries of Golden American's parent, Equitable of Iowa. Golden American's directors and senior executive officers and their principal positions for the past five years are listed below: Mr. Barnett Chernow became President of Golden American and First Golden in April, 1998. From, 1996 to 1998, Mr. Chernow served as Executive V.P. of First Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President of Golden American. He was elected to serve as a director of First Golden in June, 1996 and Golden American in April, 1998. Mr. Myles R. Tashman joined Golden American in August 1994 as Senior Vice President and was named Executive Vice President, General Counsel and Secretary effective January 1, 1996. He was elected to serve as a Director of Golden American in January 1998. He also serves as a Director, Executive Vice President, General Counsel and Secretary of First Golden. Mr. Michael W. Cunningham became a Director of Golden American and First Golden in April 1999. Also, he has served as a Director of Life of Georgia and Security Life of Denver since 1995. Currently, he serves as Executive Vice President and Chief Financial Officer of ING North America Insurance Corporation, and has worked for them since 1991. Mr. Mark A. Tullis became a Director of Golden American and First Golden in December 1999. He has served as Executive Vice President, Strategy and Operations for ING Americas Region since September 1999. From June, 1994 to August, 1999, he was with Pimerica, serving as Executive Vice President at the time of his departure. Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and First Golden in December 1999. He has served as Executive Vice President and Chief Actuary for ING Americas Region since 1990. Mr. James R. McInnis joined Golden American and First Golden in December, 1997 as Executive Vice President. From 1982 through November, 1997, he held several positions with the Endeavor Group and was President upon his departure. Mr. E. Robert Koster was elected Senior Vice President and Chief Financial Officer of Golden American and First Golden in September 1998. From August, 1984 to September, 1998 he has held various positions with ING companies in The Netherlands. Ms. Patricia M. Corbett was elected Treasurer of Golden American in December 1998. She joined Equitable Life Insurance Company of Iowa in 1987 and is currently Treasurer and Assistant Vice President of Equitable Life and USG Annuity & Life Company. 68 Mr. David L. Jacobson joined Golden American in November 1993 as Vice President and Assistant Secretary and became Senior Vice President in December, 1993. He was elected Senior Vice President and Assistant Secretary for First Golden in June, 1996. Mr. Stephen J. Preston joined Golden American in December, 1993 as Senior Vice President, Chief Actuary and Controller. He became an Executive Vice President and Chief Actuary in June, 1998. He was elected Senior Vice President and Chief Actuary of First Golden in June, 1996 and elected Executive Vice President in June, 1998. Mr. William L. Lowe joined Equitable Life as Vice President, Sales & Marketing in January, 1994. He became a Senior Vice President, Sales & Marketing, of Golden American in August 1997. He was also President of Equitable of Iowa Securities Network, Inc. until October, 1998. Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior Vice President and Chief Information Officer in June, 1998. Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became Senior Vice President, Project Implementation in June, 1998. Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice President, Operations. From August, 1995 to February, 1998 he was with F&G Life Insurance Company; serving as Senior Vice President, Operations at the time of his departure. He served as Senior Vice President Operations with Golden American from July, 1994 to August, 1995. COMPENSATION TABLE AND OTHER INFORMATION The following sets forth information with respect to the Chief Executive Officer of Golden American as well as the annual salary and bonus for the next five highly compensated executive officers for the fiscal year ended December 31, 1999. Certain executive officers of Golden American are also officers of DSI and First Golden. The salaries of such individuals are allocated among Golden American, DSI and First Golden pursuant to an arrangement among these companies. EXECUTIVE COMPENSATION TABLE The following table sets forth information with respect to the annual salary and bonus for Golden American's Chief Executive Officer, the four other most highly compensated executive officers and the two most highly compensated former executive officers for the fiscal year ended December 31, 1999. 69
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------- ----------------------- RESTRICTED SECURITIES NAME AND STOCK AWARDS UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS 1 OPTIONS 2 OPTIONS COMPENSATION 3 - ------------------ ---- ------ ------- --------- ------- -------------- Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $ 20,464 4 President 1998 $ 284,171 $ 105,375 8,000 1997 $ 234,167 $ 31,859 $ 277,576 4,000 James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $ 15,663 4 Executive Vice 1998 $ 250,004 $ 626,245 2,000 President Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $ 14,598 4 Executive Vice 1998 $ 189,337 $ 54,425 3,500 President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000 Counsel and Secretary Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $ 12,564 4 Executive Vice 1998 $ 173.870 $ 32,152 3,500 President and Chief 1997 $ 160,758 $ 16,470 Actuary Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $ 11,551 4 Senior Vice 1998 $ 139,169 $ 25,833 President 1997 $ 129,167 $ 25,000 R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $ 23,921 4 Former Chief Executive Officer Keith Glover............. 1999 $ 87,475 $ 761,892 $ 558,541 4, 5 Former Executive 1998 $ 250,000 $ 145,120 3,900 Vice President
- -------------------- 1 The amount shown relates to bonuses paid in 1999, 1998, and 1997. 2 Restricted stock awards granted to executive officers vested on October 24, 1997 with the change in control of Equitable of Iowa. 3 Other compensation for 1999 includes reimbursements to named employee for participation in company sponsored programs such as tuition reimbursement, PC purchase assistance program, and other miscellaneous payments or reimbursements. For 1999, Mr. Chernow received $2,464; Mr. McInnis received $636; Mr. Tashman received $2,598; Mr. Preston received $564; Mr. Mandel received $2,251; Mr. Armstrong received $1,421; and Mr. Glover received $3,089. 4 Other compensation for 1999 includes a business allowance for each named executive which is required to be applied to specific business expenses of the named executive. 5 In connection with the termination of his employment, Mr. Glover received payments and benefits totaling $555,452. 70 OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT % OF TOTAL ASSUMED ANNUAL NUMBER OF OPTIONS RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3 OPTIONS IN FISCAL OR BASE EXPIRATION ---------------------- NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10% - ---- ----------- ------ --------- ------ ---- ----- Barnett Chernow.......... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191 4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664 James R. McInnis......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312 3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302 Myles R. Tashman......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514 Stephen J. Preston....... 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113 Steven G. Mandel......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955 R. Brock Armstrong....... 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
- ---------------- 1 Stock appreciation rights granted in 1999 to the officers of Golden American have a three-year vesting period and an expiration date as shown. 2 The base price was equal to the fair market value of ING's stock on the date of grant. 3 Total dollar gains based on indicated rates of appreciation of share price over the total term of the rights. 71 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholder Golden American Life Insurance Company We have audited the accompanying consolidated balance sheets of Golden American Life Insurance Company as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years ended December 31, 1999 and 1998 and for the periods from October 25, 1997 through December 31, 1997, and January 1, 1997 through October 24, 1997. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Golden American Life Insurance Company at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the years ended December 31, 1999 and 1998 and for the periods from October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, in conformity with accounting principles generally accepted in the United States. s/Ernst & Young LLP Des Moines, Iowa February 4, 2000 72 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) POST-MERGER --------------------------- December 31, December 31, 1999 1998 ------------ ------------ ASSETS Investments: Fixed maturities, available for sale, at fair value (Cost: 1999 - $858,052; 1998 - $739,772)....................... $835,321 $741,985 Equity securities, at fair value (cost: 1999 - $14,952; 1998 - $14,437)........ 17,330 11,514 Mortgage loans on real estate............ 100,087 97,322 Policy loans............................. 14,157 11,772 Short-term investments................... 80,191 41,152 ---------- ---------- Total investments........................... 1,047,086 903,745 Cash and cash equivalents................... 14,380 6,679 Reinsurance recoverable..................... 14,834 7,586 Due from affiliates......................... 637 2,983 Accrued investment income................... 11,198 9,645 Deferred policy acquisition costs........... 528,957 204,979 Value of purchased insurance in force....... 31,727 35,977 Current income taxes recoverable............ 35 628 Deferred income tax asset................... 21,943 31,477 Property and equipment, less allowances for depreciation of $3,229 in 1999 and $801 in 1998.................................. 13,888 7,348 Goodwill, less accumulated amortization of $8,186 in 1999 and $4,408 in 1998........ 142,941 146,719 Other assets................................ 2,514 743 Separate account assets..................... 7,562,717 3,396,114 ---------- ---------- Total assets................................ $9,392,857 $4,754,623 ========== ========== See accompanying notes. 73 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS - CONTINUED (Dollars in thousands, except per share data) POST-MERGER ----------------------------- December 31, December 31, 1999 1998 -------------- ------------ LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals: Future policy benefits: Annuity and interest sensitive life products....................... $1,033,701 $881,112 Unearned revenue reserve.............. 6,300 3,840 Other policy claims and benefits......... 8 -- ---------- ---------- 1,040,009 884,952 Surplus notes.............................. 245,000 85,000 Revolving note payable..................... 1,400 -- Due to affiliates.......................... 9,547 -- Other liabilities.......................... 56,335 34,663 Separate account liabilities............... 7,562,717 3,396,114 ---------- ---------- 8,915,008 4,400,729 Commitments and contingencies Stockholder's equity: Common stock, par value $10 per share, authorized, issued, and outstanding 250,000 shares........................ 2,500 2,500 Additional paid-in capital............... 468,640 347,640 Accumulated other comprehensive loss..... (9,154) (895) Retained earnings........................ 15,863 4,649 ---------- ---------- Total stockholder's equity................. 477,849 353,894 ---------- ---------- Total liabilities and stockholder's equity. $9,392,857 $4,754,623 ========== ========== See accompanying notes. 74
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) POST- POST-MERGER ACQUISITION --------------------------------------------|------------- For the period |or the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | hrough December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 --------------------------------------------|-------------- Revenues | Annuity and interest | sensitive life product | charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288 Management fee revenue........... 10,136 4,771 508 | 2,262 Net investment income............ 59,169 42,485 5,127 | 21,656 Realized gains (losses) | on investments................ (2,923) (1,491) 15 | 151 Other income..................... 10,827 5,569 236 | 426 -------- ------- ------- | ------- 160,144 90,453 9,720 | 42,783 | Insurance benefits and expenses: | Annuity and interest sensitive | life benefits: | Interest credited to account | balances..................... 175,851 94,845 7,413 | 19,276 Benefit claims incurred in | excess of account balances... 6,370 2,123 -- | 125 Underwriting, acquisition, and | insurance expenses: | Commissions.................... 188,383 121,171 9,437 | 26,818 General expenses............... 60,194 37,577 3,350 | 13,907 Insurance taxes, state | licenses, and fees........... 3,976 4,140 450 | 1,889 Policy acquisition costs | deferred..................... (346,396) (197,796) (13,678) | (29,003) Amortization: | Deferred policy acquisition | costs....................... 33,119 5,148 892 | 1,674 Value of purchased insurance | in force.................... 6,238 4,724 948 | 5,225 Goodwill...................... 3,778 3,778 630 | 1,398 -------- ------- ------- | ------- 131,513 75,710 9,442 | 41,309 | Interest expense.................... 8,894 4,390 557 | 2,082 -------- ------- ------- | ------- 140,407 80,100 9,999 | 43,391 -------- ------- ------- | ------- Income (loss) before income taxes... 19,737 10,353 (279) | (608) | Income taxes........................ 8,523 5,279 146 | (1,337) -------- ------- ------- | ------- | Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729 ======== ======= ======= | =======
See accompanying notes. 75
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Dollars in thousands) Accumulated Additional Other Total Common Paid-in Comprehensive Retained Stockholder's Stock Capital Income (Loss) Earnings Equity ------------------------------------------------------------ PRE-ACQUISITION ------------------------------------------------------------ Balance at January 1, 1997..... $2,500 $137,372 $ 262 $ 350 $140,484 Comprehensive income: Net income................... -- -- -- 729 729 Change in net unrealized investment gains (losses)... -- -- 1,543 -- 1,543 -------- Comprehensive income........... 2,272 Contribution of Capital........ -- 1,121 -- -- 1,121 ------ -------- ------- ------- -------- Balance at October 24, 1997.... $2,500 $138,493 $ 1,805 $ 1,079 $143,877 ====== ======== ======= ======= ======== ----------------------------------------------------------- POST-MERGER ----------------------------------------------------------- Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497 Comprehensive income: Net loss..................... -- -- -- $ (425) (425) Change in net unrealized investment gains (losses). -- -- $ 241 -- 241 -------- Comprehensive loss............. (184) ------ -------- ------- ------- -------- Balance at December 31,1997.... 2,500 224,997 241 (425) $227,313 Comprehensive income: Net income................... -- -- -- 5,074 5,074 Change in net unrealized investment gains (losses). -- -- (1,136) -- (1,136) -------- Comprehensive income.......... 3,938 Contribution of Capital........ -- 122,500 -- -- 122,500 Other.......................... -- 143 -- -- 143 ------ -------- ------- ------- -------- Balance at December 31,1998.... 2,500 224,997 (895) 4,649 353,894 Comprehensive income: Net income................... -- -- -- 11,214 11,214 Change in net unrealized investment gains (losses). -- -- (8,259) -- (8,259) -------- Comprehensive income........... 2,955 Contribution of Capital........ -- 121,000 -- -- 121,000 ------ -------- ------- ------- -------- Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849 ====== ======== ======= ======= ========
See accompanying notes. 76
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) | POST- POST-MERGER | ACQUISITION -------------------------------------------|--------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- OPERATING ACTIVITIES | Net income (loss)................................. $11,214 $5,074 $(425) | $729 Adjustments to reconcile net income (loss) to net | cash provided by (used in) operations: | Adjustments related to annuity and | interest sensitive life products: | Interest credited and other charges on | interest sensitive products................ 175,851 94,845 7,413 | 19,276 Charges for mortality and administration..... 524 (233) (62) | (99) Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292 Increase (decrease) in policy liabilities and | accruals..................................... 8 (10) 10 | -- Decrease (increase) in accrued investment | income....................................... (1,553) (3,222) 1,205 | (3,489) Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003) Amortization of deferred policy | acquisition costs............................ 33,119 5,148 892 | 1,674 Amortization of value of purchased | insurance in force........................... 6,238 4,724 948 | 5,225 Change in other assets, due to/from | affiliates, other liabilities, and accrued | income taxes................................. 24,845 9,979 4,205 | (8,944) Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203 Provision for deferred income taxes............ 8,523 5,279 146 | 316 Realized (gains) losses on investments......... 2,923 1,491 (15) | (151) -------- -------- ------- | --------- Net cash provided by (used in) operating | activities..................................... (73,394) (63,923) 3,127 | (7,971) | INVESTING ACTIVITIES | Sale, maturity, or repayment of investments: | Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622 Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828 Short-term investments - net................... -- -- -- | 11,415 -------- -------- ------- | --------- 227,119 149,044 11,515 | 56,865 Acquisition of investments: | Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173) Equity securities.............................. -- (10,000) (1) | (4,865) Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481) Policy loans - net............................. (2,385) (2,940) (328) | (3,870) Short-term investments - net................... (39,039) (26,692) (13,244) | -- -------- -------- ------- | --------- (395,670) (532,545) (57,378) | (208,389) Net purchase of property and equipment............ (8,968) (6,485) (252) | (875) -------- -------- ------- | --------- Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
See accompanying notes. 77
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) | POST- POST-MERGER | ACQUISITION -------------------------------------------|--------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- FINANCING ACTIVITIES | Proceeds from reciprocal loan agreement | borrowings.............................. $396,350 $500,722 -- | -- Repayment of reciprocal loan agreement | borrowings.............................. (396,350) (500,722) -- | -- Proceeds from revolving note payable....... 220,295 108,495 -- | -- Repayment of revolving note payable........ (218,895) (108,495) -- | -- Proceeds from surplus note................. 160,000 60,000 -- | -- Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124 Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977) Receipts from annuity and interest | sensitive life policies credited to | account balances........................ 773,685 593,428 62,306 | 261,549 Return of account balances on annuity | and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931) Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069) Contributions of capital by parent......... 121,000 103,750 -- | 1,011 -------- -------- ------- | --------- Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707 -------- -------- ------- | --------- | Increase (decrease) in cash and cash | equivalents............................. 7,701 (14,360) 3,863 | 11,337 Cash and cash equivalents at | beginning of period..................... 6,679 21,039 17,176 | 5,839 -------- -------- ------- | --------- Cash and cash equivalents at | end of period........................... $14,380 $6,679 $21,039 | $17,176 ======== ========= ======= | ========= | SUPPLEMENTAL DISCLOSURE | OF CASH FLOW INFORMATION | Cash paid during the period for: | Interest................................ $6,392 $4,305 $295 | $1,912 Income taxes............................ -- 99 -- | 283 Non-cash financing activities: | Non-cash adjustment to additional | paid-in capital for adjusted merger | costs................................. -- 143 -- | -- Contribution of property and | equipment from EIC Variable, | Inc. net of $353 of accumulated | depreciation.......................... -- -- -- | 110 Contribution of capital from parent to | repay line of credit borrowings....... -- 18,750 -- | --
See accompanying notes. 78 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include Golden American Life Insurance Company ("Golden American") and its wholly owned subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and collectively with Golden American, the "Companies"). All significant intercompany accounts and transactions have been eliminated. ORGANIZATION Golden American, a wholly owned subsidiary of Equitable of Iowa Companies, Inc., offers variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. First Golden is licensed to sell insurance products in New York and Delaware. The Companies' products are marketed by broker/dealers, financial institutions, and insurance agents. The Companies' primary customers are consumers and corporations. On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation, acquired all of the outstanding capital stock of Equitable of Iowa Companies ("Equitable") according to the terms of an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. See Note 6 for additional information regarding the merger. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its wholly owned subsidiaries, Golden American and Directed Services, Inc. ("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for additional information regarding the acquisition. For financial statement purposes, the ING merger was accounted for as a purchase effective October 25, 1997 and the change in control of Golden American through the acquisition of BT Variable, Inc. ("BT Variable") was accounted for as a purchase effective August 14, 1996. The merger and acquisition resulted in new bases of accounting reflecting estimated fair values of assets and liabilities at their respective dates. As a result, the Companies' financial statements included for the periods after October 24, 1997 are presented on the Post-Merger new basis of accounting and for the period January 1, 1997 through October 24, 1997 are presented on the Post-Acquisition basis of accounting. INVESTMENTS Fixed Maturities: The Companies account for their investments under the Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires fixed maturities to be designated as either "available for sale," "held for investment," or "trading." Sales of fixed maturities designated as "available for sale" are not restricted by SFAS No. 115. Available for sale securities are reported at fair value and unrealized gains and losses on these securities are included directly in stockholder's equity, after adjustment for related changes in value of purchased insurance in force ("VPIF"), deferred policy acquisition costs ("DPAC"), and deferred income taxes. At December 31, 1999 and 1998, all of the Companies' fixed maturities are designated as available for sale, although the Companies are not precluded from designating fixed maturities as held for investment or trading at some future date. Securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Premiums and discounts are amortized/accrued utilizing a method which results in a constant 79 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) yield over the securities' expected lives. Amortization/accrual of premiums and discounts on mortgage and other asset-backed securities incorporates a prepayment assumption to estimate the securities' expected lives. Equity Securities: Equity securities are reported at estimated fair value if readily marketable. The change in unrealized appreciation and depreciation of marketable equity securities (net of related deferred income taxes, if any) is included directly in stockholder's equity. Equity securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Mortgage Loans On Real Estate: Mortgage loans on real estate are reported at cost adjusted for amortization of premiums and accrual of discounts. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable the Companies will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or to the loan's observable market price, or the fair value of the underlying collateral. The carrying value of impaired loans is reduced by the establishment of a valuation allowance, which is adjusted at each reporting date for significant changes in the calculated value of the loan. Changes in this valuation allowance are charged or credited to income. Other Investments: Policy loans are reported at unpaid principal. Short-term investments are reported at cost, adjusted for amortization of premiums and accrual of discounts. Realized Gains And Losses: Realized gains and losses are determined on the basis of specific identification. Fair Values: Estimated fair values, as reported herein, of conventional mortgage-backed securities not actively traded in a liquid market are estimated using a third party pricing process. This pricing process uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Estimated fair values of publicly traded fixed maturities are reported by an independent pricing service. Fair values of private placement bonds are estimated using a matrix that assumes a spread (based on interest rates and a risk assessment of the bonds) over U.S. Treasury bonds. Estimated fair values of equity securities, which consist of the Companies' investment in its registered separate accounts, are based upon the quoted fair value of the securities comprising the individual portfolios underlying the separate accounts. CASH AND CASH EQUIVALENTS For purposes of the accompanying Statements of Cash Flows, the Companies consider all demand deposits and interest-bearing accounts not related to the investment function to be cash equivalents. All interest-bearing accounts classified as cash equivalents have original maturities of three months or less. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring new insurance business, principally first year commissions and interest bonuses, premium credit, and other expenses related to the production of new business, have been deferred. Acquisition costs for variable insurance products are being amortized generally in proportion to the present value (using the assumed crediting rate) of expected future gross profits. This amortization is adjusted retrospectively when the Companies revise their estimate of current or future gross profits to be realized from a group of products. DPAC is adjusted to reflect the pro forma impact of unrealized gains and losses on fixed maturities the Companies have designated as "available for sale" under SFAS No. 115. 80 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) VALUE OF PURCHASED INSURANCE IN FORCE As a result of the merger and acquisition, a portion of the purchase price related to each transaction was allocated to the right to receive future cash flows from existing insurance contracts. This allocated cost represents VPIF, which reflects the value of those purchased policies calculated by discounting actuarially determined expected future cash flows at the discount rate determined by the purchaser. Amortization of VPIF is charged to expense in proportion to expected gross profits of the underlying business. This amortization is adjusted retrospectively when the Companies revise the estimate of current or future gross profits to be realized from the insurance contracts acquired. VPIF is adjusted to reflect the pro forma impact of unrealized gains and losses on available for sale fixed maturities. See Notes 6 and 7 for additional information on VPIF resulting from the merger and acquisition. PROPERTY AND EQUIPMENT Property and equipment primarily represent leasehold improvements, office furniture, certain other equipment, and capitalized computer software and are not considered to be significant to the Companies' overall operations. Property and equipment are reported at cost less allowances for depreciation. Depreciation expense is computed primarily on the basis of the straight-line method over the estimated useful lives of the assets. GOODWILL Goodwill was established as a result of the merger and is being amortized over 40 years on a straight-line basis. Goodwill established as a result of the acquisition was being amortized over 25 years on a straight-line basis. See Notes 6 and 7 for additional information on the merger and acquisition. FUTURE POLICY BENEFITS Future policy benefits for divisions of the variable products with fixed interest guarantees are established utilizing the retrospective deposit accounting method. Policy reserves represent the premiums received plus accumulated interest, less mortality and administration charges. Interest credited to these policies ranged from 3.00% to 11.00% during 1999, 3.00% to 10.00% during 1998, and 3.30% to 8.25% during 1997. The unearned revenue reserve represents unearned distribution fees. These distribution fees have been deferred and are amortized over the life of the contracts in proportion to expected gross profits. SEPARATE ACCOUNTS Assets and liabilities of the separate accounts reported in the accompanying Balance Sheets represent funds separately administered principally for variable contracts. Contractholders, rather than the Companies, bear the investment risk for the variable insurance products. At the direction of the contractholders, the separate accounts invest the premiums from the sale of variable insurance products in shares of specified mutual funds. The assets and liabilities of the separate accounts are clearly identified and segregated from other assets and liabilities of the Companies. The portion of the separate account assets equal to the reserves and other liabilities of variable contracts cannot be charged with liabilities arising out of any other business the Companies may conduct. Variable separate account assets are carried at fair value of the underlying investments and generally represent contractholder investment values maintained in the accounts. Variable separate account liabilities represent account balances for the variable contracts invested in the separate accounts; the fair value of these liabilities is equal to their carrying amount. Net investment income and realized and unrealized capital gains and losses related to separate account assets are not reflected in the accompanying Statements of Operations. 81 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Product charges recorded by the Companies from variable insurance products consist of charges applicable to each contract for mortality and expense risk, cost of insurance, contract administration, and surrender charges. In addition, some variable annuity and all variable life contracts provide for a distribution fee collected for a limited number of years after each premium deposit. Revenue recognition of collected distribution fees is amortized over the life of the contract in proportion to its expected gross profits. The balance of unrecognized revenue related to the distribution fees is reported as an unearned revenue reserve. DEFERRED INCOME TAXES Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred tax assets or liabilities are adjusted to reflect the pro forma impact of unrealized gains and losses on equity securities and fixed maturities the Companies have designated as available for sale under SFAS No. 115. Changes in deferred tax assets or liabilities resulting from this SFAS No. 115 adjustment are charged or credited directly to stockholder's equity. Deferred income tax expenses or credits reflected in the Companies' Statements of Operations are based on the changes in the deferred tax asset or liability from period to period (excluding the SFAS No. 115 adjustment). DIVIDEND RESTRICTIONS Golden American's ability to pay dividends to its Parent is restricted. Prior approval of insurance regulatory authorities is required for payment of dividends to the stockholder which exceed an annual limit. During 2000, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder, Golden American, unless a notice of its intent to declare a dividend and the amount of the dividend has been filed with the New York Insurance Department at least thirty days in advance of the proposed declaration. If the Superintendent of the New York Insurance Department finds the financial condition of First Golden does not warrant the distribution, the Superintendent may disapprove the distribution by giving written notice to First Golden within thirty days after the filing. SEGMENT REPORTING The Companies manage their business as one segment, the sale of variable insurance products designed to meet customer needs for tax-advantaged saving for retirement and protection from death. Variable insurance products are sold to consumers and corporations throughout the United States. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management is required to utilize historical experience and assumptions about future events and circumstances in order to develop estimates of material reported amounts and disclosures. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates and assumptions are: (1) estimates of fair values of investments in securities and other financial instruments, as well as fair values of policyholder liabilities, (2) policyholder liabilities, (3) deferred policy acquisition costs and value of purchased insurance in force, (4) fair values of assets and liabilities recorded as a result of merger and acquisition transactions, (5) asset valuation allowances, (6) guaranty fund assessment accruals, (7) deferred tax benefits (liabilities), and (8) estimates for commitments and contingencies including legal matters, if a liability is anticipated and can be reasonably estimated. Estimates and assumptions 82 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) regarding all of the preceding items are inherently subject to change and are reassessed periodically. Changes in estimates and assumptions could materially impact the financial statements. RECLASSIFICATIONS Certain amounts for the periods ended in the 1998 and 1997 financial statements have been reclassified to conform to the 1999 financial statement presentation. 2. BASIS OF FINANCIAL REPORTING The financial statements of the Companies differ from related statutory-basis financial statements principally as follows: (1) acquisition costs of acquiring new business are deferred and amortized over the life of the policies rather than charged to operations as incurred; (2) an asset representing the present value of future cash flows from insurance contracts acquired was established as a result of the merger/acquisition and is amortized and charged to expense; (3) future policy benefit reserves for divisions with fixed interest guarantees of the variable insurance products are based on full account values, rather than the greater of cash surrender value or amounts derived from discounting methodologies utilizing statutory interest rates; (4) reserves are reported before reduction for reserve credits related to reinsurance ceded and a receivable is established, net of an allowance for uncollectible amounts, for these credits rather than presented net of these credits; (5) fixed maturity investments are designated as "available for sale" and valued at fair value with unrealized appreciation/depreciation, net of adjustments to value of purchased insurance in force, deferred policy acquisition costs, and deferred income taxes (if applicable), credited/charged directly to stockholder's equity rather than valued at amortized cost; (6) the carrying value of fixed maturities is reduced to fair value by a charge to realized losses in the Statements of Operations when declines in carrying value are judged to be other than temporary, rather than through the establishment of a formula-determined statutory investment reserve (carried as a liability), changes in which are charged directly to surplus; (7) deferred income taxes are provided for the difference between the financial statement and income tax bases of assets and liabilities; (8) net realized gains or losses attributed to changes in the level of interest rates in the market are recognized when the sale is completed rather than deferred and amortized over the remaining life of the fixed maturity security; (9) a liability is established for anticipated guaranty fund assessments, net of related anticipated premium tax credits, rather than capitalized when assessed and amortized in accordance with procedures permitted by insurance regulatory authorities; (10) revenues for variable insurance products consist of policy charges applicable to each contract for the cost of insurance, policy administration charges, amortization of policy initiation fees, and surrender charges assessed rather than premiums received; (11) the financial statements of Golden American's wholly owned subsidiary are consolidated rather than recorded at the equity in net assets; (12) surplus notes are reported as liabilities rather than as surplus; and (13) assets and liabilities are restated to fair values when a change in ownership occurs, with provisions for goodwill and other intangible assets, rather than continuing to be presented at historical cost. The net loss for Golden American as determined in accordance with statutory accounting practices was $85,578,000 in 1999, $68,002,000 in 1998, and $428,000 in 1997. Total statutory capital and surplus was $368,928,000 at December 31, 1999 and $183,045,000 at December 31, 1998. 83 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS INVESTMENT RESULTS Major categories of net investment income are summarized below:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488 Equity securities.............. 515 -- 3 | -- Mortgage loans on real estate.. 7,074 6,616 879 | 3,070 Policy loans................... 485 619 59 | 482 Short-term investments......... 2,583 1,311 129 | 443 Other, net..................... 388 246 (154) | 24 ------- ------- ------- | ------- Gross investment income........ 61,397 44,016 5,359 | 22,507 Less investment expenses....... (2,228) (1,531) (232) | (851) ------- ------- ------- | ------- Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656 ======= ======= ======= | =======
Realized gains (losses) on investments follows:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Fixed maturities, available for | sale.......................... $(2,910) $(1,428) $ 25 | $ 151 Mortgage loans on real estate... (13) (63) (10) | -- ------- ------- ------- | ------- Realized gains (losses) on | investments................... $(2,923) $(1,491) $15 | $151 ======= ======= ======= | ========
The change in unrealized appreciation (depreciation) of securities at fair value follows:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | | Fixed maturities, available for | sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197 Equity securities................ 5,301 (2,390) (68) | (462) -------- -------- -------- | -------- Unrealized appreciation | (depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735 ======== ======== ======== | ========
84 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized gains and losses, and estimated fair values of fixed maturities, all of which are designated as available for sale, follows:
POST-MERGER --------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- --------- (Dollars in thousands) December 31, 1999 ----------------------------- U.S. government and governmental agencies and authorities............ $ 21,363 -- $ (260) $ 21,103 Public utilities.............. 53,754 $ 25 (2,464) 51,315 Corporate securities.......... 396,494 53 (12,275) 384,272 Other asset-backed securities. 207,044 850 (4,317) 203,577 Mortgage-backed securities.... 179,397 39 (4,382) 175,054 -------- ------ -------- -------- Total......................... $858,052 $ 967 $(23,698) $835,321 ======== ====== ======== ======== December 31, 1998 ----------------------------- U. S. government and governmental agencies and authorities............ $ 13,568 $ 182 $ (8) $ 13,742 Foreign governments........... 2,028 8 -- 2,036 Public utilities.............. 67,710 546 (447) 67,809 Corporate securities.......... 365,569 4,578 (2,658) 367,489 Other asset-backed securities. 99,877 281 (1,046) 99,112 Mortgage-backed securities.... 191,020 1,147 (370) 191,797 -------- ------ -------- -------- Total......................... $739,772 $6,742 $ (4,529) $741,985 ======== ====== ======== ======== Foreign governments....................... .......
Short-term investments with maturities of 30 days or less have been excluded from the above schedules. Amortized cost approximates fair value for these securities. At December 31, 1999, net unrealized investment loss on fixed maturities designated as available for sale totaled $22,731,000. Depreciation of $6,955,000 was included in stockholder's equity at December 31, 1999 (net of adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to deferred income taxes). At December 31, 1998, net unrealized investment gains on fixed maturities designated as available for sale totaled $2,213,000. Appreciation of $1,005,000 was included in stockholder's equity at December 31, 1998 (net of adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to deferred income taxes). At December 31, 1999, net unrealized appreciation on equity securities was comprised entirely of gross appreciation of $2,378,000. At December 31, 1998, net unrealized depreciation of equity securities was comprised entirely of gross depreciation of $2,923,000. Amortized cost and estimated fair value of fixed maturities designated as available for sale, by contractual maturity, at December 31, 1999 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 85 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) POST-MERGER ------------------------- Amortized Estimated December 31, 1999 Cost Fair Value - --------------------------------------------------------------------- (Dollars in thousands) Due within one year..................... $ 25,317 $ 25,186 Due after one year through five years... 355,205 344,998 Due after five years through ten years.. 83,004 78,976 Due after ten years..................... 8,085 7,530 -------- -------- 471,611 456,690 Other asset-backed securities........... 207,044 203,577 Mortgage-backed securities.............. 179,397 175,054 -------- -------- Total................................... $858,052 $835,321 ======== ======== An analysis of sales, maturities, and principal repayments of the Companies' fixed maturities portfolio follows:
Gross Gross Proceeds Amortized Realized Realized from Cost Gains Losses Sale --------- -------- -------- -------- (Dollars in thousands) POST-MERGER: For the year ended December 31, 1999: Scheduled principal repayments, calls, and tenders.......................... $141,346 $216 $(174) $141,388 Sales................................... 80,472 141 (1,454) 79,159 -------- ---- ------- -------- Total................................... $221,818 $357 $(1,628) $220,547 ======== ==== ======= ======== For the year ended December 31, 1998: Scheduled principal repayments, calls, and tenders.......................... $102,504 $60 $(3) $102,561 Sales................................... 43,204 518 (1,030) 42,692 -------- ---- ------- -------- Total................................... $145,708 $578 $(1,033) $145,253 ======== ==== ======= ======== For the period October 25, 1997 through December 31, 1997: Scheduled principal repayments, calls, and tenders.......................... $6,708 $2 -- $6,710 Sales................................... 3,138 23 -- 3,161 -------- ---- ------- -------- Total................................... $9,846 $25 -- $9,871 ======== ==== ======= ======== POST-ACQUISITION: For the period January 1, 1997 through October 24, 1997: Scheduled principal repayments, calls, and tenders.......................... $25,419 -- -- $25,419 Sales................................... 14,052 $153 $(2) 14,203 -------- ---- ------- -------- Total................................... $39,471 $153 $(2) $39,622 ======== ==== ======= ========
86 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) Investment Valuation Analysis: The Companies analyze the investment portfolio at least quarterly in order to determine if the carrying value of any investment has been impaired. The carrying value of debt and equity securities is written down to fair value by a charge to realized losses when an impairment in value appears to be other than temporary. During the fourth quarter of 1998, Golden American determined that the carrying value of two bonds exceeded their estimated net realizable value. As a result, at December 31, 1998, Golden American recognized a total pre-tax loss of $973,000 to reduce the carrying value of the bonds to their combined net realizable value of $2,919,000. During the second quarter of 1999, further information was received regarding these bonds and Golden American determined that the carrying value of the two bonds exceeded their estimated net realizable value. As a result, at June 30, 1999, Golden American recognized a total pre-tax loss of $1,639,000 to further reduce the carrying value of the bonds to their combined net realizable value of $1,137,000. During 1997, no investments were identified as having an other than temporary impairment. Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits covering bonds with a par value of $6,470,000 were on deposit with regulatory authorities pursuant to certain statutory requirements. Investment Diversifications: The Companies' investment policies related to the investment portfolio require diversification by asset type, company, and industry and set limits on the amount which can be invested in an individual issuer. Such policies are at least as restrictive as those set forth by regulatory authorities. The following percentages relate to holdings at December 31, 1999 and December 31, 1998. Fixed maturities included investments in basic industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities (22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real estate have been analyzed by geographical location with concentrations by state identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations of mortgage loans on real estate in any state exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10% in 1999, 8% in 1998). Equity securities are not significant to the Companies' overall investment portfolio. No investment in any person or its affiliates (other than bonds issued by agencies of the United States government) exceeded ten percent of stockholder's equity at December 31, 1999. 4. COMPREHENSIVE INCOME Comprehensive income includes all changes in stockholder's equity during a period except those resulting from investments by and distributions to the stockholder. Total comprehensive income (loss) for the Companies includes $(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for the year ended December 31, 1998 and $159,000, and $536,000, respectively, for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997). Other comprehensive income excludes net investment gains (losses) included in net income, which merely represent transfers from unrealized to realized gains and losses. These amounts total $(1,468,000) in 1999 and $(2,133,000) in 1998. Such amounts, which have been measured through the date of sale, are net of income taxes and adjustments to VPIF and DPAC totaling $(1,441,000) in 1999 and $705,000 in 1998. 5. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of estimated fair value of all financial instruments, including both assets and liabilities recognized and not recognized in a 87 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) company's balance sheet, unless specifically exempted. SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," requires additional disclosures about derivative financial instruments. Most of the Companies' investments, investment contracts, and debt fall within the standards' definition of a financial instrument. Fair values for the Companies' insurance contracts other than investment contracts are not required to be disclosed. In cases where quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accounting, actuarial, and regulatory bodies are continuing to study the methodologies to be used in developing fair value information, particularly as it relates to such things as liabilities for insurance contracts. Accordingly, care should be exercised in deriving conclusions about the Companies' business or financial condition based on the information presented herein. The Companies closely monitor the composition and yield of invested assets, the duration and interest credited on insurance liabilities, and resulting interest spreads and timing of cash flows. These amounts are taken into consideration in the Companies' overall management of interest rate risk, which attempts to minimize exposure to changing interest rates through the matching of investment cash flows with amounts expected to be due under insurance contracts. These assumptions may not result in values consistent with those obtained through an actuarial appraisal of the Companies' business or values that might arise in a negotiated transaction. The following compares carrying values as shown for financial reporting purposes with estimated fair values:
POST-MERGER ----------------------------------------------- December 31, 1999 December 31, 1998 ---------------------- --------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value -------- --------- -------- --------- (Dollars in thousands) ASSETS Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985 Equity securities..................... 17,330 17,330 11,514 11,514 Mortgage loans on real estate......... 100,087 95,524 97,322 99,762 Policy loans.......................... 14,157 14,157 11,772 11,772 Short-term investments................ 80,191 80,191 41,152 41,152 Cash and cash equivalents............. 14,380 14,380 6,679 6,679 Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114 LIABILITIES Annuity products...................... 1,017,105 953,546 869,009 827,597 Surplus notes......................... 245,000 226,100 85,000 90,654 Revolving note payable................ 1,400 1,400 -- -- Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
The following methods and assumptions were used by the Companies in estimating fair values. Fixed maturities: Estimated fair values of conventional mortgage-backed securities not actively traded in a liquid market and publicly traded securities are estimated using a third party pricing process. This pricing 88 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) process uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Equity securities: Estimated fair values of equity securities, which consist of the Companies' investment in the portfolios underlying its separate accounts, are based upon the quoted fair value of individual securities comprising the individual portfolios. For equity securities not actively traded, estimated fair values are based upon values of issues of comparable returns and quality. Mortgage loans on real estate: Fair values are estimated by discounting expected cash flows, using interest rates currently offered for similar loans. Policy loans: Carrying values approximate the estimated fair value for policy loans. Short-term investments and cash and cash equivalents: Carrying values reported in the Companies' historical cost basis balance sheet approximate estimated fair value for these instruments due to their short-term nature. Separate account assets: Separate account assets are reported at the quoted fair values of the individual securities in the separate accounts. Annuity products: Estimated fair values of the Companies' liabilities for future policy benefits for the divisions of the variable annuity products with fixed interest guarantees and for supplemental contracts without life contingencies are stated at cash surrender value, the cost the Companies would incur to extinguish the liability. Surplus notes: Estimated fair value of the Companies' surplus notes were based upon discounted future cash flows using a discount rate approximating the current market value. Revolving note payable: Carrying value reported in the Companies' historical cost basis balance sheet approximates estimated fair value for this instrument, as the agreement carries a variable interest rate provision. Separate account liabilities: Separate account liabilities are reported at full account value in the Companies' historical cost balance sheet. Estimated fair values of separate account liabilities are equal to their carrying amount. 6. MERGER Transaction: On October 23, 1997, Equitable's shareholders approved the Merger Agreement dated July 7, 1997 among Equitable, PFHI, and ING. On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn, owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II, and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. All costs of the merger, including expenses to terminate certain benefit plans, were paid by the Parent. 89 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 6. MERGER (continued) Accounting Treatment: The merger was accounted for as a purchase resulting in a new basis of accounting, reflecting estimated fair values for assets and liabilities at October 24, 1997. The purchase price was allocated to EIC and its subsidiaries with $227,497,000 allocated to the Companies. Goodwill was established for the excess of the merger cost over the fair value of the net assets and attributed to EIC and its subsidiaries including Golden American and First Golden. The amount of goodwill allocated to the Companies relating to the merger was $151,127,000 at the merger date and is being amortized over 40 years on a straight-line basis. The carrying value of goodwill will be reviewed periodically for any indication of impairment in value. The Companies' DPAC, previous balance of VPIF, and unearned revenue reserve, as of the merger date, were eliminated and a new asset of $44,297,000 representing VPIF was established for all policies in force at the merger date. Value of Purchased Insurance In Force: As part of the merger, a portion of the acquisition cost was allocated to the right to receive future cash flows from insurance contracts existing with the Companies at the merger date. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flow at the discount rate determined by ING. An analysis of the VPIF asset follows:
POST-MERGER ------------------------------------------------- For the period For the year For the year October 25, 1997 ended ended through December 31, December 31, December 31, 1997 ------------------------------------------------- (Dollars in thousands) Beginning balance........................ $35,977 $43,174 $44,297 ------- ------- ------- Imputed interest......................... 2,373 2,802 1,004 Amortization............................. (7,930) (7,753) (1,952) Changes in assumptions of timing of gross profits.......................... (681) 227 -- ------- ------- ------- Net amortization......................... (6,238) (4,724) (948) Adjustment for unrealized gains (losses) on available for sale securities....... 1,988 (28) (175) Adjustment for other receivables and merger costs........................... -- (2,445) -- ------- ------- ------- Ending balance........................... $31,727 $35,977 $43,174 ======= ======= =======
90 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 6. MERGER (continued) Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for the year ended December 31, 1999, 7.38% for the year ended December 31, 1998, and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999, VPIF was adjusted to increase amortization by $681,000 to reflect changes in the assumptions related to the timing of estimated gross profits. The amortization of VPIF, net of imputed interest, is charged to expense. VPIF decreased $2,664,000 during 1998 to adjust the value of other receivables and increased $219,000 in 1998 as a result of an adjustment to the merger costs. VPIF is adjusted for the unrealized gains (losses) on available for sale securities; such changes are included directly in stockholder's equity. Based on current conditions and assumptions as to the impact of future events on acquired policies in force, the expected approximate net amortization relating to VPIF as of December 31, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in 2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary based upon changes in assumptions and experience. 7. ACQUISITION Transaction: On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable from Whitewood, a wholly owned subsidiary of Bankers Trust Company ("Bankers Trust"), according to the terms of the Purchase Agreement dated May 3, 1996 between Equitable and Whitewood. In exchange for the outstanding capital stock of BT Variable, Equitable paid the sum of $93,000,000 in cash to Whitewood in accordance with the terms of the Purchase Agreement. Equitable also paid the sum of $51,000,000 in cash to Bankers Trust to retire certain debt owed by BT Variable to Bankers Trust pursuant to a revolving credit arrangement. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. Accounting Treatment: The acquisition was accounted for as a purchase resulting in a new basis of accounting, which reflected estimated fair values for assets and liabilities at August 13, 1996. The purchase price was allocated to the three companies purchased - BT Variable, DSI, and Golden American. The allocation of the purchase price to Golden American was approximately $139,872,000. Goodwill was established for the excess of the purchase price over the fair value of the net assets acquired and attributed to Golden American. The amount of goodwill relating to the acquisition was $41,113,000 and was amortized over 25 years on a straight-line basis until the October 24, 1997 merger with ING. Golden American's DPAC, previous balance of VPIF, and unearned revenue reserve, as of the acquisition date, were eliminated and an asset of $85,796,000 representing VPIF was established for all policies in force at the acquisition date. Value of Purchased Insurance In Force: As part of the acquisition, a portion of the acquisition cost was allocated to the right to receive future cash flows from the insurance contracts existing with Golden American at the date of acquisition. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flows at the discount rate determined by Equitable. 91 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 7. ACQUISITION (continued) An analysis of the VPIF asset follows:
POST-ACQUISITION ---------------- For the period January 1, 1997 through October 24, 1997 ---------------- (Dollars in thousands) Beginning balance............ $ 83,051 -------- Imputed interest............. 5,138 Amortization................. (12,656) Changes in assumption of timing of gross profits.... 2,293 -------- Net amortization............. (5,225) Adjustment for unrealized gains on available for sale securities............ (373) -------- Ending balance............... $ 77,453 ========
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to 7.80% for the period January 1, 1997 through October 24, 1997. The amortization of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted for the unrealized gains on available for sale securities; such changes were included directly in stockholder's equity. 8. INCOME TAXES Golden American files a consolidated federal income tax return. Under the Internal Revenue Code, a newly acquired insurance company cannot file as part of the Parent's consolidated tax return for 5 years. At December 31, 1999, the Companies have net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $161,799,000. Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL carryforwards are available to offset future taxable income of the Companies through the years 2011, 2012, 2013, and 2014, respectively. INCOME TAX EXPENSE (BENEFIT) Income tax expense (benefit) included in the consolidated financial statements follows: POST-MERGER |POST-ACQUISITION --------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Current -- -- -- | $ 12 Deferred $8,523 $5,279 $146 | (1,349) ------ ------ ---- | ------- $8,523 $5,279 $146 | $(1,337) ====== ====== ==== | ======= 92 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 8. INCOME TAXES (continued) The effective tax rate on income (loss) before income taxes is different from the prevailing federal income tax rate. A reconciliation of this difference follows:
POST-MERGER |POST-ACQUISITION ---------------------------------------------|----------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | ------------- (Dollars in thousands) | Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608) ======= ======= ===== ======= | Income tax (benefit) at federal | statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213) Tax effect (decrease) of: | Goodwill amortization............ 1,322 1,322 220 | -- Compensatory stock option and restricted stock expense....... -- -- -- | (1,011) Meals and entertainment.......... 199 157 23 | 53 Other items...................... 94 176 1 | (166) ------- ------- ------- | -------- Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337) ======= ======= ======= | ========
93 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 8. INCOME TAXES (continued) DEFERRED INCOME TAXES The tax effect of temporary differences giving rise to the Companies' deferred income tax assets and liabilities at December 31, 1999 and 1998 follows: POST-MERGER ---------------------------- December 31, December 31, 1999 1998 ------------ ------------ (Dollars in thousands) Deferred tax assets: Net unrealized depreciation of securities at fair value............................ -- $1,023 Net unrealized depreciation of available for sale fixed maturities................ $3,745 -- Future policy benefitS..................... 133,494 66,273 Goodwill................................... 16,323 16,323 Net operating loss carryforwards........... 56,630 17,821 Other...................................... 1,333 1,272 ------- ------- 211,525 102,712 Deferred tax liabilities: Net unrealized appreciation of securities at fair value............................ (832) -- Net unrealized appreciation of available for sale fixed maturities................ -- (332) Fixed maturity securities.................. (17,774) (1,034) Deferred policy acquisition costs.......... (154,706) (55,520) Mortgage loans on real estate.............. (715) (845) Value of purchased insurance in force...... (10,462) (12,592) Other...................................... (1,348) (912) ------- ------- (185,837) (71,235) ------- ------- Valuation allowance........................... (3,745) -- ------- ------- Deferred income tax asset..................... $21,943 $31,477 ======= ======= At December 31, 1999, the Company reported, for financial statement purposes, unrealized losses on certain investments which have not been recognized for tax purposes. The Companies have established a valuation allowance against the deferred income tax assets associated with unrealized depreciation on fixed maturities available for sale as the Companies are uncertain as to whether their capital losses, if ever realized, could be utilized to offset future capital gains. 94 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION DEFINED BENEFIT PLANS In 1999 and 1998, the Companies were allocated their share of the pension liability associated with their employees. The Companies' employees are covered by the employee retirement plan of an affiliate, Equitable Life. Further, Equitable Life sponsors a defined contribution plan that is qualified under Internal Revenue Code Section 401(k). The following tables summarize the benefit obligations and the funded status for pension benefits over the two-year period ended December 31, 1999: 1999 1998 ----------------------------------- (Dollars in thousands) Change in benefit obligation: Benefit obligation at January 1... $ 4,454 $956 Service cost...................... 1,500 1,138 Interest cost..................... 323 97 Actuarial (gain) loss............. (2,056) 2,266 Benefit payments.................. -- (3) ------- ------- Benefit obligation at December 31. $ 4,221 $ 4,454 ======= ======= Funded status: Funded status at December 31...... $(4,221) $(4,454) Unrecognized net loss............. 210 2,266 ------- ------- Net amount recognized............. $(4,011) $(2,188) ======= ======= The Companies' plan assets were held by Equitable Life, an affiliate. During 1998, the Equitable Life Employee Pension Plan began investing in an undivided interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit and Trust Company holds the Master Trust's investment assets. The weighted-average assumptions used in the measurement of the Companies' benefit obligation follows: December 31 1999 1998 - ----------------------------------------------------------------- Discount rate.................... 8.00% 6.75% Expected return on plan assets... 9.25 9.50 Rate of compensation increase.... 5.00 4.00 95 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued) The following table provides the net periodic benefit cost for the fiscal years 1999, 1998, and 1997:
POST-MERGER |POST-ACQUISITION ----------------------------------------------|--------------------- For the year For the year For the period | For the period ended ended October 25, 1997 | January 1, 1997 December 31, December 31, through | through 1999 1998 December 31, 1997 |October 24, 1997 ----------------------------------------------|--------------------- (Dollars in thousands) | Service cost................ $1,500 $1,138 $114 | $568 Interest cost............... 323 97 10 | 15 Amortization of net loss.... -- -- -- | 1 ------ ------ ---- | ---- Net periodic benefit cost... $1,823 $1,235 $124 | $584 ====== ====== ==== | ====
There were no gains or losses resulting from curtailments or settlements during 1999, 1998, or 1997. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $4,221,000, $2,488,000, and $0, respectively, as of December 31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31, 1998. During 1997, ING approved the 1997 Phantom Plan for certain key employees. The Phantom Plan is similar to a standard stock option plan; however, the phantom share option entitles the holder to a cash benefit in Dutch Guilders linked to the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The plan participants are entitled to any appreciation in the value of ING ordinary shares over the Phantom Plan option price (strike price) of 53.85 Euros for options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May 26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the ordinary shares themselves. Options are granted at fair value on the date of grant. Options in the Phantom Plan are subject to forfeiture to ING should the individuals terminate their relationship with ING before the three-year initial retention period has elapsed. All options expire five years from the date of grant. On July 1, 1999, ING issued 34,750 options to employees of Golden American related to this plan at a strike price of 53.85 Euros. On May 26, 1998, ING issued 42,400 options related to this plan at a strike price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was higher than the ING share price, there was no compensation expense related to these options in 1998. On May 23, 1997, ING issued 3,500 options related to this plan at a strike price of 85.10 Dutch Guilders. Since the strike price was lower than the ING share price at December 31, 1998, Golden American incurred $46,000 of compensation expense related to these options during 1998. No expense was recognized in 1999 related to the above options. As of December 31, 1999, 58,250 options remain outstanding. 10. RELATED PARTY TRANSACTIONS Operating Agreements: DSI, an affiliate, acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) and distributor of the variable insurance products issued by the Companies. DSI is authorized to enter into agreements with broker/dealers to 96 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) distribute the Companies' variable insurance products and appoint representatives of the broker/dealers as agents. For the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the Companies paid commissions to DSI totaling $181,536,000, $117,470,000, $9,931,000, and $26,419,000, respectively. Golden American provides certain managerial and supervisory services to DSI. The fee paid by DSI for these services is calculated as a percentage of average assets in the variable separate accounts. For the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000, $508,000, and $2,262,000, respectively. Effective January 1, 1998, the Companies have an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management and accounting services. Under the agreement, the Companies record a fee based on the value of the assets under management. The fee is payable quarterly. For the years ended December 31, 1999 and 1998, the Companies incurred fees of $2,227,000 and $1,504,000, respectively, under this agreement. Prior to 1998, the Companies had a service agreement with Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided investment management services. Payments for these services totaled $200,000 and $768,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. Golden American has a guaranty agreement with Equitable Life, an affiliate. In consideration of an annual fee, payable June 30, Equitable Life guarantees to Golden American that it will make funds available, if needed, to Golden American to pay the contractual claims made under the provisions of Golden American's life insurance and annuity contracts. The agreement is not, and nothing contained therein or done pursuant thereto by Equitable Life shall be deemed to constitute, a direct or indirect guaranty by Equitable Life of the payment of any debt or other obligation, indebtedness, or liability, of any kind or character whatsoever, of Golden American. The agreement does not guarantee the value of the underlying assets held in separate accounts in which funds of variable life insurance and variable annuity policies have been invested. The calculation of the annual fee is based on risk based capital. As Golden American's risk based capital level was above required amounts, no annual fee was payable in 1999 or in 1998. Golden American provides certain advisory, computer, and other resources and services to Equitable Life. Revenues for these services, which reduced general expenses incurred by Golden American, totaled $6,107,000 and $5,833,000 for the years ended December 31, 1999 and 1998, respectively ($1,338,000 and $2,992,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). The Companies have a service agreement with Equitable Life in which Equitable Life provides administrative and financial related services. Under this agreement, the Companies incurred expenses of $1,251,000 and $1,058,000 for the years ended December 31, 1999 and 1998, respectively ($13,000 and $16,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). First Golden provides resources and services to DSI. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $387,000 in 1999 and $75,000 in 1998. Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $244,000 in 1999. 97 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) Golden American provides resources and services to United Life & Annuity Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $460,000 in 1999. The Companies provide resources and services to Security Life of Denver Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $216,000 in 1999. The Companies provide resources and services to Southland Life Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $103,000 in 1999. In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total premiums, net of reinsurance, for variable products sold through five affiliates as noted in the following table:
POST-MERGER |POST-ACQUISITION ----------------------------------------------|----------------- | For the year For the year For the period | For the period ended ended October 25, 1997 |January 1, 1997 December 31, December 31, through | through 1999 1998 December 31, 1997|October 24, 1997 ------------ ------------ -----------------|---------------- (Dollars in millions) | LSSI.................................. $168.5 $122.9 $9.3 | $16.9 Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2 DSI................................... 2.5 13.6 2.1 | 0.4 Multi-Financial Securities Corporation 44.1 13.4 -- | -- IFG Network Securities, Inc........... 25.8 3.7 -- | -- ------ ------ ----- | ----- Total................................. $329.0 $198.5 $13.3 | $18.5 ====== ====== ===== | =====
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate, to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH, Golden American must obtain the approval from the Department of Insurance of the State of Delaware. Interest on any Golden American borrowings is charged at the rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, Golden American incurred interest expense of $815,000 in 1999 and $1,765,000 in 1998. At December 31, 1999 and 1998, Golden American did not have any borrowings or receivables from ING AIH under this agreement. Line of Credit: Golden American maintained a line of credit agreement with Equitable to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective December 1, 1996 and expired December 31, 1997, Golden American could borrow up to $25,000,000. Interest on any borrowings was charged at the rate of Equitable's monthly average aggregate cost of short-term funds plus 1.00%. Under this agreement, Golden American incurred interest expense of $211,000 for the year ended December 31, 1998 ($213,000 for the period October 25, 1997 through December 31, 1997 and $362,000 for the period January 1, 1997 through October 24, 1997). The outstanding balance was paid by a capital contribution and with funds borrowed from ING AIH. 98 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus note in the amount of $50,000,000 to Equitable Life. The note matures on December 29, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred no interest in 1999. On December 8, 1999, Golden American issued a 7.979% surplus note in the amount of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an affiliate. The note matures on December 7, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American paid no interest in 1999. On September 30, 1999, Golden American issued a 7.75% surplus note in the amount of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH assigned the note to Equitable Life. On December 30, 1998, Golden American issued a 7.25% surplus note in the amount of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $4,350,000 in 1999. Golden American incurred no interest in 1998. On December 17, 1996, Golden American issued an 8.25% surplus note in the amount of $25,000,000 to Equitable. The note matures on December 17, 2026. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors of Golden American. Any payment of principal made is subject to the prior approval of the Delaware Insurance Commissioner. Golden American incurred interest totaling $2,063,000 in 1999, unchanged from 1998 ($344,000 and $1,720,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). On December 17, 1996, Golden American contributed the $25,000,000 to First Golden acquiring 200,000 shares of common stock (100% of outstanding stock). Stockholder'S Equity: During 1999 and 1998, Golden American received capital contributions from its Parent of $121,000,000 and $122,500,000, respectively. 11. COMMITMENTS AND CONTINGENCIES Reinsurance: At December 31, 1999, the Companies had reinsurance treaties with four unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks under its variable contracts. Golden American remains liable to the extent reinsurers do not meet their obligations under the reinsurance agreements. Reinsurance ceded in force for life mortality risks were $119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000 and $7,586,000, respectively, for reserve credits, reinsurance claims, or 99 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 11. COMMITMENTS AND CONTINGENCIES (continued) other receivables from these reinsurers comprised of $493,000 and $439,000, respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000, respectively, for a payable for reinsurance premiums, and $15,542,000 and $7,690,000, respectively, for a receivable from an unaffiliated reinsurer. Included in the accompanying financial statements are net considerations to reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. Effective June 1, 1994, Golden American entered into a modified coinsurance agreement with an unaffiliated reinsurer. The accompanying financial statements are presented net of the effects of the treaty which increased income by $1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. The reinsurance treaties that covered the nonstandard minimum guaranteed death benefits for new business have been terminated for business issued after December 31, 1999. The Companies are currently pursuing alternative reinsurance arrangements for new business issued after December 31, 1999. There can be no assurance that such alternative arrangements will be available. The reinsurance covering business in force at December 31, 1999 will continue to apply in the future. Guaranty Fund Assessments: Assessments are levied on the Companies by life and health guaranty associations in most states in which the Companies are licensed to cover losses of policyholders of insolvent or rehabilitated insurers. In some states, these assessments can be partially recovered through a reduction in future premium taxes. The Companies cannot predict whether and to what extent legislative initiatives may affect the right to offset. The associated cost for a particular insurance company can vary significantly based upon its fixed account premium volume by line of business and state premiums as well as its potential for premium tax offset. The Companies have established an undiscounted reserve to cover such assessments, review information regarding known failures, and revise estimates of future guaranty fund assessments. Accordingly, the Companies accrued and charged to expense an additional $3,000 and $1,123,000 for the years ended December 31, 1999 and 1998, respectively, $141,000 for the period October 25, 1997 through December 31, 1997 and $446,000 for the period January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the Companies have an undiscounted reserve of $2,444,000 and $2,446,000, respectively, to cover estimated future assessments (net of related anticipated premium tax credits) and has established an asset totaling $618,000 and $586,000, respectively, for assessments paid which may be recoverable through future premium tax offsets. The Companies believe this reserve is sufficient to cover expected future guaranty fund assessments based upon previous premiums and known insolvencies at this time. Litigation: The Companies, like other insurance companies, may be named or otherwise involved in lawsuits, including class action lawsuits and arbitrations. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement or award payments have been made. The Companies currently believe no pending or threatened lawsuits or actions exist that are reasonably likely to have a material adverse impact on the Companies. Vulnerability from Concentrations: The Companies have various concentrations in the investment portfolio (see Note 3 for further information). The Companies' asset growth, net investment income, and cash flow are primarily generated from the sale of variable insurance products and associated future policy benefits and separate account liabilities. Substantial changes in tax laws that would make these products less attractive to consumers and extreme fluctuations in interest rates or stock market returns, which may result in higher lapse experience than assumed, could cause a severe impact to the Companies' financial condition. Two broker/dealers, each having at least ten percent of total sales, generated 28% of the Companies' sales in 1999 100 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 11. COMMITMENTS AND CONTINGENCIES (continued) (26% and 53% by two broker/dealers during 1998 and 1997, respectively). The Premium Plus product generated 79% of the Companies' sales during 1999 (63% during 1998 and 11% during 1997). Leases: The Companies lease their home office space, certain other equipment, and capitalized computer software under operating leases which expire through 2018. During the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000, respectively. At December 31, 1999, minimum rental payments due under all non-cancelable operating leases with initial terms of one year or more are: 2000 - - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 - $2,419,000, and 2005 and thereafter - $42,852,000. Revolving Note Payable: To enhance short-term liquidity, the Companies established a revolving note payable effective July 27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). The note was approved by the Boards of Directors of Golden American and First Golden on August 5, 1998 and September 29, 1998, respectively. As of July 31, 1999, the SunTrust Bank, Atlanta revolving note facility was extended to July 31, 2000. The total amount the Companies may have outstanding is $85,000,000, of which Golden American and First Golden have individual credit sublimits of $75,000,000 and $10,000,000, respectively. The note accrues interest at an annual rate equal to: (1) the cost of funds for the Bank for the period applicable for the advance plus 0.25% or (2) a rate quoted by the Bank to the Companies for the advance. The terms of the agreement require the Companies to maintain the minimum level of Company Action Level Risk Based Capital as established by applicable state law or regulation. During the years ended December 31, 1999 and 1998, the Companies incurred interest expense of $198,000 and $352,000, respectively. 101 - -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS ITEM PAGE Introduction........................................................... 1 Description of Golden American Life Insurance Company.................. 1 Safekeeping of Assets.................................................. 1 The Administrator...................................................... 1 Independent Auditors................................................... 1 Distribution of Contracts.............................................. 1 Performance Information................................................ 2 IRA Partial Withdrawal Option.......................................... 10 Other Information...................................................... 11 Financial Statements of Separate Account B............................. 11 PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS SHOWN ON THE PROSPECTUS COVER. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT B. Please Print or Type: -------------------------------------------------- Name -------------------------------------------------- Social Security Number -------------------------------------------------- Street Address -------------------------------------------------- City, State, Zip 106950 DVA PLUS-3 (05/00) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 103 This page intentionally left blank. APPENDIX A CONDENSED FINANCIAL INFORMATION Except for the Investors, Large Cap Value, All Cap, ING Global Brand Names and the Prudential Jennison subaccounts which had not commenced operations as of December 31, 1999, the following tables give (1) the accumulation unit value ("AUV"), (2) the total number of accumulation units, and (3) the total accumulation unit value, for each subaccount of Golden American Separate Account B available under the Contract for the indicated periods. The date on which the subaccount became available to investors and the starting accumulation unit value are indicated on the last row of each table. The Managed Global subaccount commenced operations initially as a subaccount of another separate account, the Managed Global Account of Separate Account D of Golden American; however, at the time of conversion the value of an accumulation unit did not change. LIQUID ASSET
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $15.04 683,989 $10,287 $14.79 621,814 $9,199 1998 14.54 489,531 7,118 14.33 334,799 4,796 1997 14.02 227,427 3,188 13.83 116,454 1,611 1996 13.52 76,505 1,033 13.35 84,960 1,134 1995 13.03 37,887 494 12.89 62,084 801 10/2/95 12.89 -- -- 12.76 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $14.55 3,273,236 $47,632 1998 14.11 2,069.093 29,200 1997 13.65 1,070,045 14,601 1996 13.19 383,231 5,054 1995 12.76 93,239 1,190 10/2/95 12.63 -- -- - ------------------------------------------------------------------
LIMITED MATURITY BOND
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $17.00 279,468 $4,751 $16.72 196,970 $3,294 1998 17.02 263,074 4,478 16.77 143,896 2,413 1997 16.13 139,323 2,247 15.91 78,553 1,250 1996 15.31 83,927 1,285 15.13 46,293 701 1995 14.86 26,976 401 14.71 11,834 174 10/2/95 14.49 -- -- 14.35 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $16.45 956,859 $15,738 1998 16.52 762,668 12,599 1997 15.70 452,478 7,105 1996 14.95 349,417 5,224 1995 14.56 136,553 1,988 10/2/95 14.20 -- -- - ------------------------------------------------------------------
GLOBAL FIXED INCOME
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $11.88 35,081 $417 $11.79 10,884 $128 1998 13.17 6,337 83 13.09 6,154 81 5/1/98 12.17 -- -- 12.11 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $11.70 156,865 $1,835 1998 13.00 38,751 504 5/1/98 12.04 -- -- - ------------------------------------------------------------------
A1 FULLY MANAGED
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $22.01 549,088 $12,084 $21.65 415,146 $8,987 1998 20.84 544,623 11,351 20.53 441,532 9,066 1997 19.93 418,686 8,345 19.66 441,532 6,706 1996 17.50 203,891 3,568 17.29 173,475 2,999 1995 15.23 49,153 748 15.07 13,988 211 10/2/95 14.77 -- -- 14.62 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $21.29 2,299,379 $48,961 1998 20.23 2,262,811 45,771 1997 19.40 1,737,950 33,720 1996 17.08 952,517 16,273 1995 14.91 184,364 2,750 10/2/95 14.47 -- -- - ------------------------------------------------------------------
TOTAL RETURN
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $18.20 831,642 $15,135 $18.06 649,492 $11,730 1998 17.83 616,433 10,989 17.72 422,146 7,479 1997 16.18 224,763 3,636 16.10 140,222 2,258 1/20/97 13.76 -- -- 13.76 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $17.91 3,791,001 $67,903 1998 17.60 2,547,293 44,830 1997 16.02 720,866 11,548 1/20/97 13.76 -- -- - ------------------------------------------------------------------
EQUITY INCOME
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $21.83 381,468 $8,327 $21.47 314,307 $6,750 1998 22.27 395,764 8,812 21.94 299,456 6,569 1997 20.83 328,740 6,847 20.55 223,101 4,585 1996 17.96 289,954 5,207 17.75 150,732 2,675 1995 16.72 104,463 1,747 16.55 21,073 348 10/2/95 16.10 -- -- 15.94 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $21.12 1,884,822 $39,813 1998 21.61 1,762,451 38,088 1997 20.28 1,472,723 29,860 1996 17.54 1,117,238 19,593 1995 16.38 370,515 6,068 10/2/95 15.78 -- -- - ------------------------------------------------------------------
VALUE EQUITY
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $18.28 433,555 $7,924 $18.14 426,697 $7,742 1998 18.41 454,942 8,377 18.31 500,101 9,155 1997 18.36 372,681 6,843 18.28 410,757 7,509 1996 14.61 181,354 2,649 14.57 249,994 3,642 1995 13.37 34,272 458 13.36 23,394 313 10/2/95 12.43 -- -- 12.41 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $18.01 1,929,405 $34,747 1998 18.20 2,253,141 41,004 1997 18.20 1,749,956 31,853 1996 14.53 1,052,064 15,282 1995 13.34 179,453 2,394 10/2/95 12.40 -- -- - ------------------------------------------------------------------
A2 RISING DIVIDENDS
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $26.07 1,251,144 $32,623 $25.83 1,054,275 $27,235 1998 22.79 1,199,087 $27,323 22.61 1,050,285 23,747 1997 20.22 795,321 16,079 20.09 739,017 14,847 1996 15.77 297,973 4,699 15.69 355,191 5,575 1995 13.24 22,934 304 13.19 36,100 476 10/2/95 12.16 -- -- 12.12 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $25.59 6,721,737 $172,024 1998 22.43 5,893,538 132,211 1997 19.96 3,670,022 73,267 1996 15.62 1,663,079 25,976 1995 13.15 300,820 3,956 10/2/95 12.09 -- -- - ------------------------------------------------------------------
MANAGED GLOBAL
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $24.23 605,044 $14,658 $23.97 545,896 $13,083 1998 15.02 649,216 9,753 14.88 512,728 7,631 1997 11.76 525,356 6,180 11.67 438,611 5,120 1996 10.62 226,224 2,402 10.55 231,774 2,446 1995 9.58 26,722 256 9.53 27,492 262 10/2/95 9.32 -- -- 9.28 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $23.71 3,259,862 $77,287 1998 14.75 3,338,928 49,237 1997 11.58 2,719,073 31,494 1996 10.49 1,375,023 14,422 1995 9.49 208,957 1,983 10/2/95 9.24 -- -- - ------------------------------------------------------------------
RESEARCH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $28.25 565,925 $15,988 $28.04 458,015 $12,842 1998 23.03 437,189 10,068 22.89 335,512 7,680 1997 18.95 223,067 4,227 18.87 142,676 2,692 1/20/97 16.43 -- -- 16.43 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $27.80 3,126,054 $86,919 1998 22.73 2,179,744 49,553 1997 18.77 786,122 14,752 1/20/97 16.43 -- -- - ------------------------------------------------------------------
CAPITAL APPRECIATION
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $30.46 431,150 $13,132 $30.11 391,380 $11,785 1998 24.75 413,115 10,233 24.50 370,619 9,080 1997 22.24 353,774 7,868 22.05 286,892 6,326 1996 17.46 162,558 2,839 17.34 174,592 3,028 1995 14.71 24,117 355 14.63 16,369 239 10/2/95 14.31 -- -- 14.23 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $29.77 2,494,266 $74,243 1998 24.26 2,345,157 56,884 1997 21.87 1,751,491 38,297 1996 17.22 1,106,359 19,054 1995 14.55 326,610 4,752 10/2/95 14.16 -- -- - ------------------------------------------------------------------
A3 CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $21.18 598,663 $12,678 $21.06 524,742 $11,051 1998 17.08 537,480 9,180 17.01 444,973 7,569 1997 15.45 325,440 5,027 15.41 226,587 3,491 1996 12.50 50,199 627 12.49 38,037 475 9/3/96 10.94 -- -- 10.94 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $20.94 3,125,440 $65,439 1998 16.94 2,202,441 37,304 1997 15.36 1,127,105 17,318 1996 12.47 173,758 2,167 9/3/96 10.94 -- -- - ------------------------------------------------------------------
STRATEGIC EQUITY
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $22.06 455,696 $10,053 $21.92 365,555 $8,013 1998 14.30 508,588 7,272 14.23 589,815 8,393 1997 14.36 406,747 5,840 14.31 534,105 7,643 1996 11.81 370,536 4,374 11.78 231,567 2,729 1995 10.01 76,095 762 10.01 47,478 475 10/2/95 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $21.78 1,611,499 $35,103 1998 14.16 1,566,193 22,178 1997 14.26 1,345,085 19,186 1996 11.76 968,694 11,396 1995 10.01 152,633 1,528 10/2/95 10.00 -- -- - ------------------------------------------------------------------
MID-CAP GROWTH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $39.97 287,598 $11,494 $39.59 294,064 $11,643 1998 22.60 173,070 3,912 22.43 183,243 4,109 1997 18.64 85,870 1,600 18.52 112,382 2,081 1996 15.77 29,878 471 15.70 28,223 443 9/3/96 14.64 -- -- 14.64 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $39.34 1,649,358 $64,879 1998 22.31 992,373 22,143 1997 18.45 503,083 9,284 1996 15.66 56,163 880 9/3/96 14.64 -- -- - ------------------------------------------------------------------
SMALL CAP
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $22.96 453,438 $10,411 $22.82 580,175 $13,240 1998 15.44 446,934 6,900 15.37 525,379 8,074 1997 12.92 401,090 5,183 12.88 445,138 5,735 1996 11.86 198,338 2,352 11.84 227,347 2,692 1/2/96 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $22.68 2,653,814 $60,197 1998 15.30 2,474,802 37,859 1997 12.84 2,029,658 26,068 1996 11.82 1,316,663 15,569 1/2/96 10.00 -- -- - ------------------------------------------------------------------
A4 GROWTH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $28.78 758,379 $21,827 $28.62 737,375 $21,104 1998 16.36 362,210 5,926 16.29 284,480 4,636 1997 13.06 161,235 2,106 13.03 132,596 1,728 1/20/97 11.99 -- -- 11.99 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $28.46 4,445,942 $126,509 1998 16.22 1,635,638 26,538 1997 12.99 718,807 9,340 1/20/97 11.99 -- -- - ------------------------------------------------------------------
REAL ESTATE
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $20.96 136,122 $2,854 $20.62 92,387 $1,905 1998 22.07 170,494 3,763 21.74 125,630 2,731 1997 25.82 173,241 4,473 25.48 113,110 2,882 1996 21.30 54,229 1,155 21.04 42,710 899 1995 15.94 2,716 43 15.78 2,910 46 10/2/95 15.06 -- -- 14.91 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $20.28 583,100 $11,828 1998 21.42 797,901 17,090 1997 25.14 888,507 22,334 1996 20.79 384,928 8,004 1995 15.61 61,143 955 10/2/95 14.76 -- -- - ------------------------------------------------------------------
HARD ASSETS
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $17.66 112,564 $1,988 $17.37 62,935 $1,093 1998 14.50 146,678 2,126 14.28 74,676 1,067 1997 20.85 154,417 3,219 20.57 81,681 1,680 1996 19.89 94,213 1,873 19.65 43,232 850 1995 15.11 24,828 375 14.96 2,847 42 10/2/95 14.86 -- -- 14.71 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $17.09 518,280 $8,856 1998 14.07 574,275 8,080 1997 20.29 632,371 12,834 1996 19.42 341,711 6,635 1995 14.80 26,605 394 10/2/95 14.57 -- -- - ------------------------------------------------------------------
DEVELOPING WORLD
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $11.62 683 $8 $11.61 33,523 $389 1998 7.29 617 5 7.28 12,180 89 5/1/98 10.42 -- -- 10.42 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $11.58 292,097 $3,382 1998 7.27 49,393 359 5/1/98 10.42 -- -- - ------------------------------------------------------------------
A5 EMERGING MARKETS
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $12.01 359,966 $4,323 $11.90 244,574 $2,910 1998 6.56 266,800 1,751 6.51 249,607 1,625 1997 8.75 249,197 2,182 8.70 215,512 1,875 1996 9.78 97,857 957 9.74 102,267 995 1995 9.23 15,670 145 9.20 12,465 115 10/2/95 9.50 -- -- 9.47 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $11.79 1,046,228 $12,331 1998 6.46 1,170,656 7,563 1997 8.64 1,131,253 9,779 1996 9.69 679,247 6,581 1995 9.17 160,820 1,475 10/2/95 9.44 -- -- - ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $10.27 400,821 $4,115 $10.24 229,047 $2,345 1998 10.09 213,774 2,157 10.08 118,295 1,192 5/1/98 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $10.21 1,634,648 $16,695 1998 10.07 630,858 6,353 5/1/98 10.00 -- -- - ------------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $13.16 284,260 $3,742 $13.13 187,840 $2,467 1998 11.12 112,706 1,253 11.11 53,016 589 5/1/98 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $13.10 1,952,379 $25,572 1998 11.10 474,542 5,268 5/1/98 10.00 -- -- - ------------------------------------------------------------------
A6 APPENDIX B MARKET VALUE ADJUSTMENT EXAMPLES EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT Assume $100,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into the guaranteed interest period; that the then Index Rate for a 7-year guaranteed interest period ("J") is 8%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. CALCULATE THE MARKET VALUE ADJUSTMENT 1. The contract value of the Fixed Interest Allocation on the date of surrender is 3 $124,230 ($100,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 2,555/365 3. Market Value Adjustment = $124,230 x [((1.07/1.0825) -1] = $9,700 Therefore, the amount paid to you on full surrender ignoring any surrender charge is $114,530 ($124,230 - $9,700 ). EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT Assume $100,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into the guaranteed interest period; that the then Index Rate for a 7-year guaranteed interest period ("J") is 6%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. CALCULATE THE MARKET VALUE ADJUSTMENT 1. The contract value of the Fixed Interest Allocation on the date of surrender is 3 $124,230 ($100,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 2,555/365 3. Market Value Adjustment = $124,230 x [((1.07/1.0625) -1] = $6,270 Therefore, the amount paid to you on full surrender ignoring any surrender charge is $130,500 ($124,230 + $6,270 ). EXAMPLE #3: WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT Assume $200,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a withdrawal of $114,530 is requested 3 years into the guaranteed interest period; that the then Index Rate ("J") for a 7-year guaranteed interest period is 8%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. B1 First calculate the amount that must be withdrawn from the Fixed Interest Allocation to provide the amount requested. 1. The contract value of the Fixed Interest Allocation on the date of withdrawal is 3 $248,459 ( $200,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 3. Amount that must be withdrawn = 2,555/365 [ $114,530 / ((1.07/1.0825) ) ] = $124,230 Then calculate the Market Value Adjustment on that amount. 4. Market Value Adjustment = 2,555/365 $124,230 x [((1.07/1.0825) ) -1] = $9,700 Therefore, the amount of the withdrawal paid to you ignoring any surrender charge is $114,530, as requested. The Fixed Interest Allocation will be reduced by the amount of the withdrawal, $114,530, and also reduced by the Market Value Adjustment of $9,700, for a total reduction in the Fixed Interest Allocation of $124,230. EXAMPLE #4: WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT Assume $200,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate of 7%; that a withdrawal of $130,500 requested 3 years into the guaranteed interest period; that the then Index Rate ("J") for a 7-year guaranteed interest period is 6%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. First calculate the amount that must be withdrawn from the Fixed Interest Allocation to provide the amount requested. 1. The contract value of Fixed Interest Allocation on the date of surrender is 3 $248,459 ( $200,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 3. Amount that must be withdrawn = 2,555/365 [$130,500 /((1.07/1.0625) )] = $124,230 Then calculate the Market Value Adjustment on that amount. 2,555/365 4. Market Value Adjustment = $124,230 x [((1.07/1.0625) ) -1] = $6,270 Therefore, the amount of the withdrawal paid to you ignoring any surrender charge is $130,500, as requested. The Fixed Interest Allocation will be reduced by the amount of the withdrawal, $130,500, but increased by the Market Value Adjustment of $6,270, for a total reduction in the Fixed Interest Allocation of $124,230. B2 APPENDIX C SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE The following assumes you made an initial premium payment of $25,000 and additional premium payments of $25,000 in each of the second and third contract years, for total premium payments under the Contract of $75,000. It also assumes a withdrawal at the beginning of the fifth contract year of 30% of the contract value of $90,000. In this example, $13,500 (15% of $90,000) is the maximum free withdrawal amount that you may withdraw during the contract year without a surrender charge. The total withdrawal would be $27,000 ($90,000 x .30). Therefore, $13,500 ($27,000 - $13,500) is considered an excess withdrawal and would be subject to a 4% surrender charge of $540 ($13,500 x .04). This example does not take into account any Market Value Adjustment or deduction of any premium taxes. C1 This page intentionally left blank. This page intentionally left blank. ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company is a stock company domiciled in Delaware - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 106950 DVA PLUS-3 05/01/2000 DVA PLUS (GRANITE PRIMELITE) PROFILE AND PROSPECTUS FORM ONE VERSION B ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- PROFILE OF GRANITE PRIMELITE VARIABLE ANNUITY CONTRACT MAY 1, 2000 ---------------------------------------------------------------------- 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. ---------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. THE ANNUITY CONTRACT The Contract offered in this prospectus is an individual deferred variable 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 one or more of 8 mutual fund investment portfolios through our Separate Account B listed on the next page. 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 benefits, (6) the type of death benefit, and (7) the amount and frequency of withdrawals. 2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE) Annuity payments are the periodic payments you will begin receiving on the annuity start date. You may choose one of the following annuity payment options: GRANITE PRIMELITE PROFILE PROSPECTUS BEGINS AFTER PAGE 6 OF THIS PROFILE
----------------------------------------------------------------------------------------- ANNUITY OPTIONS ----------------------------------------------------------------------------------------- Option 1 Income for a fixed Payments are made for a specified number of period years to you or your beneficiary. ----------------------------------------------------------------------------------------- Option 2 Income for life with Payments are made for the rest of your life a period certain or longer for a specified period such as 10 or 20 years or until the total amount used to buy this option has been repaid. This option comes with an added guarantee that payments will continue to your beneficiary for the remainder of such period if you should die during the period. ----------------------------------------------------------------------------------------- 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 85. You may make additional payments of $500 or more ($250 for a qualified Contract) at any time before you turn 85 during the accumulation phase. Under certain circumstances, we may waive the minimum initial and additional premium payment requirement. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. Who may purchase this Contract? The Contract may be purchased by individuals as part of a personal retirement plan (a "non-qualified Contract"), or as a Contract that qualifies for special tax treatment when purchased as either an Individual Retirement Annuity (IRA) or in connection with a qualified retirement plan (each a "qualified Contract"). IRAs and other qualified plans already have the tax-deferral feature found in this Contract. For an additional cost, the Contract provides other benefits including death benefits and the ability to receive a lifetime income. See "Expenses" in this profile. The Contract is designed for people seeking long-term tax-deferred accumulation of assets, generally for retirement or other long-term purposes. The tax-deferred feature is more attractive to people in high federal and state tax brackets. You should not buy this Contract if you are looking for a short-term investment or if you cannot risk getting back less money than you put in. 4. THE INVESTMENT PORTFOLIOS You can direct your money into any one or more of the following 8 mutual fund investment portfolios through our Separate Account B. The investment portfolios are described in the prospectuses for the GCG Trust, Travelers Series Fund Inc. and Greenwich Street Series Fund. Keep in mind that your investment in any of the investment portfolios, depending on market conditions, may cause you to make or lose money: 2 GRANITE PRIMELITE PROFILE THE GCG TRUST Total Return Series Research Series Mid-Cap Growth Series TRAVELERS SERIES FUND INC. Smith Barney Large Cap Value Portfolio Smith Barney International Equity Portfolio Smith Barney Money Market Portfolio Smith Barney High Income Portfolio GREENWICH STREET SERIES FUND Appreciation Portfolio 5. EXPENSES The Contract has insurance features and investment features, and there are charges related to each. For the insurance features, the Company deducts a mortality and expense risk charge, an asset-based administrative charge and an annual contract administrative charge of $40. We deduct the mortality and expense risk charge and the asset-based administrative charges daily directly from your contract value in the investment portfolios. The mortality and expense risk charge (depending on the death benefit you choose) and the asset-based administrative charge, on an annual basis, are as follows: STANDARD ANNUAL RATCHET DEATH BENEFIT ENHANCED DEATH BENEFIT Mortality & Expense Risk Charge 1.10% 1.25% Asset-Based Administrative Charge 0.15% 0.15% ----- ----- Total 1.25% 1.40% Each investment portfolio has charges for investment management fees and other expenses. These charges, which vary by investment portfolio, currently range from 0.54% to 1.00% annually (see following table) of the portfolio's average daily net asset balance. If you withdraw money from your Contract, or if you begin receiving annuity payments, we may deduct a premium tax of 0%-3.5% to pay to your state. We deduct a surrender charge if you surrender your Contract or withdraw an amount exceeding the free withdrawal amount. The free withdrawal amount in any year is 15% of your contract value on the date of the withdrawal less any prior withdrawals during that contract year. The following table shows the schedule of the surrender charge that will apply. The surrender charge is a percent of each premium payment. COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0% The following table is designed to help you understand the Contract charges. The "Total Annual Insurance Charges" column includes the maximum mortality and expense risk charge (based on the Annual Ratchet Enhanced Death Benefit), the asset-based administrative charge, and reflects the annual contract administrative charge as 0.08% (based on an average contract value of $52,000). 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. The column "Total Annual Charges" reflects the sum of the previous two columns. The columns under the heading "Examples" show you how much you would pay under the Contract for a 1-year period and for a 10-year period. As required by the Securities and Exchange Commission, the examples assume that you invested $1,000 in a Contract that earns 5% annually and that you withdraw your money at the end of Year 1 or at the end of Year 10. The 1 Year examples above include a 7% surrender charge. For Years 1 and 10, the examples show 3 GRANITE PRIMELITE PROFILE the total annual charges assessed during that time and assume that you have elected the Annual Ratchet Enhanced Death Benefit. For these examples, the premium tax is assumed to be 0%.
- ---------------------------------------------------------------------------------------------------- EXAMPLES: TOTAL ANNUAL -------- TOTAL ANNUAL INVESTMENT TOTAL TOTAL CHARGES AT THE END OF: INSURANCE PORTFOLIO ANNUAL INVESTMENT PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS - ---------------------------------------------------------------------------------------------------- THE GCG TRUST Total Return 1.48% 0.91% 2.39% $94 $273 - ---------------------------------------------------------------------------------------------------- Research 1.48% 0.91% 2.39% $94 $273 - ---------------------------------------------------------------------------------------------------- Mid-Cap Growth 1.48% 0.91% 2.39% $95 $273 TRAVELERS SERIES FUND INC. - ---------------------------------------------------------------------------------------------------- Smith Barney Large Cap Value 1.48% 0.67% 2.15% $92 $248 - ---------------------------------------------------------------------------------------------------- Smith Barney International Equity 1.48% 1.00% 2.48% $95 $282 - ---------------------------------------------------------------------------------------------------- Smith Barney High Income 1.48% 0.66% 2.14% $92 $247 - ---------------------------------------------------------------------------------------------------- Smith Barney Money Market 1.48% 0.54% 2.02% $91 $235 GREENWICH STREET SERIES FUND - ---------------------------------------------------------------------------------------------------- Appreciation Portfolio 1.48% 0.79% 2.27% $93 $261 - ----------------------------------------------------------------------------------------------------
The examples above reflect an 7% surrender charge for Year 1. For more detailed information, see the fee table 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 case, 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 amount 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 amount withdrawn. 7. WITHDRAWALS You can withdraw your money at any time during the accumulation phase. You may elect in advance to take systematic withdrawals which are described on page 6. Withdrawals above the free withdrawal amount may be subject to a surrender charge. Income taxes and a penalty tax may apply to amounts withdrawn. 8. PERFORMANCE The value of your Contract will fluctuate depending on the investment performance of the portfolio(s) you choose. The following chart shows average annual total return for each portfolio that was in operation for the entire year for 1999. These numbers reflect the deduction of the mortality and expense risk charge (based on the Annula Ratchet Enhanced Death Benefit), the asset-based administrative charge and the annual contract fee, but do not reflect deductions for any surrender charges. If surrender charges were reflected, they would have the effect of reducing performance. Please keep in mind that past performance is not a guarantee of future results. 4 GRANITE PRIMELITE PROFILE - -------------------------------------------------------------------------------- CALENDAR YEAR INVESTMENT PORTFOLIO 1999 1998 - -------------------------------------------------------------------------------- Managed by Massachusetts Financial Services Total Return 1.86% 9.91% Research 22.42% 21.21% Mid-Cap Growth 76.48% 20.97% - -------------------------------------------------------------------------------- Managed by SSB Citi Fund Management LLC. Smith Barney Large Cap Value (-1.45%) 8.17% Smith Barney International Equity 65.32% 4.90% Smith Barney High Income 1.06% (1.09%) Smith Barney Money Market 3.21% 3.48% Appreciation 11.44% 17.37% - -------------------------------------------------------------------------------- 9. DEATH BENEFIT You may choose (i) the Standard Death Benefit, or (ii) the Annual Ratchet Enhanced Death Benefit. The Annual Ratchet Enhanced Death Benefit is available only if the contract owner or the annuitant (if the contract owner is not an individual) is not more than 79 years old at the time of purchase. The Annual Ratchet Enhanced Death Benefit may not be available where a Contract is held by joint owners. The death benefit is payable when the first of the following persons dies: the contract owner, joint owner, or annuitant (if a contract owner is not an individual). Assuming you are the contract owner, if you die during the accumulation phase, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit paid depends on the death benefit you have chosen. The death benefit value is calculated at the close of the business day on which we receive due proof of death at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of your death, the amount of the benefit payable in the future may be affected. If you die after the annuity start date and you are the annuitant, your beneficiary will receive the death benefit you chose under the annuity option then in effect. The death benefit may be subject to certain mandatory distribution rules required by federal tax law. Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract after subtracting any withdrawals; or 3) the cash surrender value. Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract after subtracting any withdrawals; 3) the cash surrender value; or 4) the enhanced death benefit, which is determined as follows: On each contract anniversary that occurs on or before the contract owner turns age 80, we compare the prior enhanced death benefit to the contract value and select the larger amount as the new enhanced death benefit. On all other days, the enhanced death benefit is the following amount: On a daily basis we first take the enhanced death benefit from the preceding day (which would be the initial premium if the preceding day is the contract date), then we add additional premiums paid since the preceding day, and then we subtract any withdrawals made since the preceding day, then we subtract for any associated surrender charges. That amount becomes the new enhanced death benefit. 5 GRANITE PRIMELITE PROFILE Note: In all cases described above, amounts could be reduced by premium taxes owed and withdrawals not previously deducted. The enhanced death benefits may not be available in all states. 10. OTHER INFORMATION FREE LOOK. If you cancel the Contract within 10 days after you receive it, you will receive a full refund of your contract value. For purposes of the refund during the free look period, your contract value includes a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios, the contract value returned may be greater or less than the premium payment you paid. We determine your contract value at the close of business on the day we receive your written refund request. TRANSFERS AMONG THE INVESTMENT PORTFOLIOS. You can make transfers among your investment portfolios as frequently as you wish without any current tax implications. The minimum amount for a transfer is $100. Currently there is 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. NO PROBATE. In most cases, when you die, the person you choose as your beneficiary will receive the death benefit without going through probate. 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 Smith Barney Money Market investment portfolio. 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. 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. 11. INQUIRIES If you need more information after reading this prospectus, please contact us at: CUSTOMER SERVICE CENTER P.O. BOX 2700 WEST CHESTER, PENNSYLVANIA 19380 (800) 366-0066 or your registered representative. 6 GRANITE PRIMELITE PROFILE - -------------------------------------------------------------------------------- GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY MAY 1, 2000 DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS GOLDENSELECT GRANITE PRIMELITE - -------------------------------------------------------------------------------- This prospectus describes GRANITE PRIMELITE, an 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 8 mutual fund investment portfolios. Your contract value will vary daily to reflect the investment performance of the investment portfolio(s) you select. The investment portfolios available under your Contract and the portfolio managers are: MASSACHUSETTS FINANCIAL SERVICES COMPANY Total Return Series Research Series Mid-Cap Growth Series SSB CITI FUND MANAGEMENT LLC Smith Barney Large Cap Value Portfolio Smith Barney International Equity Portfolio Smith Barney High Income Portfolio Smith Barney Money Market Portfolio Appreciation Portfolio The above mutual fund investment portfolios are purchased and held by corresponding divisions of our Separate Account B. We refer to the divisions as "subaccounts" in this prospectus. You have a right to return a Contract within 10 days after you receive it for a full refund of the contract value (which may be more or less than the premium payments you paid. Longer free look periods apply in some states. This prospectus provides information that you should know before investing and should be kept for future reference. A Statement of Additional Information, dated May 1, 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 THE GCG TRUST, TRAVELERS SERIES FUND INC. OR GREENWICH STREET SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG TRUST, TRAVELERS SERIES FUND INC. AND GREENWICH STREET SERIES FUND. - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE Index of Special Terms.................................................. 1 Fees and Expenses....................................................... 2 Performance Information................................................. 4 Accumulation Unit................................................... 4 Net Investment Factor............................................... 4 Condensed Financial Information..................................... 5 Financial Statements................................................ 5 Performance Information............................................. 5 Golden American Life Insurance Company.................................. 6 The Trusts.............................................................. 6 Golden American Separate Account B...................................... 7 The Investment Portfolios............................................... 7 Investment Objectives............................................... 7 Investment Management Fees and Other Expenses....................... 8 The Annuity Contract.................................................... 9 Contract Date and Contract Year .................................... 9 Annuity Start Date.................................................. 9 Contract Owner...................................................... 9 Annuitant........................................................... 10 Beneficiary......................................................... 10 Purchase and Availability of the Contract........................... 11 Crediting of Premium Payments....................................... 11 Administrative Procedures........................................... 12 Contract Value...................................................... 12 Cash Surrender Value................................................ 12 Surrendering to Receive the Cash Surrender Value.................... 12 The Subaccounts..................................................... 12 Addition, Deletion or Substitution of Subaccounts and Other Changes. 13 Other Contracts..................................................... 13 Other Important Provisions.......................................... 13 Withdrawals............................................................. 13 Regular Withdrawals................................................. 13 Systematic Withdrawals.............................................. 14 IRA Withdrawals..................................................... 15 Transfers Among Your Investments........................................ 15 Dollar Cost Averaging............................................... 16 Automatic Rebalancing............................................... 16 Death Benefit Choices................................................... 16 Death Benefit During the Accumulation Phase......................... 16 Standard Death Benefit.......................................... 17 Annual Ratchet Enhanced Death Benefit........................... 17 Death Benefit During the Income Phase............................... 17 Required Distributions upon Contract Owner's Death.................. 17 Charges and Fees........................................................ 18 Charge Deduction Subaccount......................................... 18 Charges Deducted from the Contract Value............................ 18 Surrender Charge................................................ 18 Free Withdrawal Amount.......................................... 19 Surrender Charge for Excess Withdrawals......................... 19 i - -------------------------------------------------------------------------------- TABLE OF CONTENTS (CONTINUED) - -------------------------------------------------------------------------------- PAGE Premium Taxes................................................... 19 Administrative Charge........................................... 19 Transfer Charge................................................. 20 Charges Deducted from the Subaccounts............................... 20 Mortality and Expense Risk Charge............................... 20 Asset-Based Administrative Charge............................... 20 Trust Expenses...................................................... 20 The Annuity Options..................................................... 20 Annuitization of Your Contract...................................... 20 Selecting the Annuity Start Date.................................... 21 Frequency of Annuity Payments....................................... 21 The Annuity Options................................................. 21 Income for a Fixed Period....................................... 21 Income for Life with a Period Certain........................... 22 Joint Life Income............................................... 22 Annuity Plan.................................................... 22 Payment When Named Person Dies...................................... 22 Other Contract Provisions............................................... 22 Reports to Contract Owners.......................................... 22 Suspension of Payments.............................................. 22 In Case of Errors in Your Application............................... 23 Assigning the Contract as Collateral................................ 23 Contract Changes-Applicable Tax Law................................. 23 Free Look........................................................... 23 Group or Sponsored Arrangements..................................... 23 Selling the Contract................................................ 23 Other Information....................................................... 24 Voting Rights....................................................... 24 State Regulation.................................................... 24 Legal Proceedings................................................... 24 Legal Matters....................................................... 24 Experts............................................................. 24 Federal Tax Considerations.............................................. 25 Statement of Additional Information Table of Contents................................................... 30 Appendix A Condensed Financial Information..................................... A1 Appendix B Surrender Charge for Excess Withdrawals Example..................... B1 ii - -------------------------------------------------------------------------------- INDEX OF SPECIAL TERMS - -------------------------------------------------------------------------------- The following special terms are used throughout this prospectus. Refer to the page(s) listed for an explanation of each term: SPECIAL TERM PAGE Accumulation Unit 4 Annual Ratchet Enhanced Death Benefit 17 Annuitant 10 Annuity Start Date 9 Cash Surrender Value 12 Contract Date 9 Contract Owner 9 Contract Value 12 Contract Year 9 Free Withdrawal Amount 19 Net Investment Factor 4 Standard Death Benefit 17 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 Free Look Period Right to Examine Period Subaccount(s) Division(s) Net Investment Factor Experience Factor Regular Withdrawals Conventional Partial Withdrawals Withdrawals Partial Withdrawals 1 - -------------------------------------------------------------------------------- FEES AND EXPENSES - -------------------------------------------------------------------------------- CONTRACT OWNER TRANSACTION EXPENSES* Surrender Charge: COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0% Transfer Charge................................................. None* * 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........................................... $40 (We waive this charge if the total of your premium payments is $100,000 or more or if your contract value at the end of a contract year is $100,000 or more.) *** We deduct this charge on each contract anniversary and on surrender. SEPARATE ACCOUNT ANNUAL CHARGES****
STANDARD ANNUAL RATCHET ENHANCED DEATH BENEFIT DEATH BENEFIT ------------- ------------- Mortality and Expense Risk Charge...... 1.10% 1.25% Asset-Based Administrative Charge...... 0.15% 0.15% ----- ----- Total Separate Account Charges......... 1.25% 1.40%
**** As a percentage of average assets in each subaccount. The mortality and expense risk charge and the asset-based administrative charge are deducted daily. THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3) - -------------------------------------------------------------------------------- Total Return 0.91% 0.00% 0.91% Research 0.91% 0.00% 0.91% Mid-Cap Growth 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- (1) Fees decline as the total assets of certain combined portfolios increase. See the prospectus for the GCG Trust for more information. (2) Other expenses generally consist of independent trustees fees and certain expenses associated with investing in international markets. Other expenses are based on actual expenses for the year ended December 31, 1999. (3) Total Expenses are based on actual expenses for the fiscal year ended December 31, 1999. 2 TRAVELERS SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily net assets of the portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE EXPENSES(1) EXPENSES - -------------------------------------------------------------------------------- Smith Barney Large Cap Value 0.65% 0.02% 0.67% - -------------------------------------------------------------------------------- Smith Barney International Equity 0.90% 0.10% 1.00% - -------------------------------------------------------------------------------- Smith Barney High Income 0.60% 0.06% 0.66% - -------------------------------------------------------------------------------- Smith Barney Money Market 0.50% 0.04% 0.54% - -------------------------------------------------------------------------------- (1) Other expenses are based on actual expenses for the fiscal year ended October 31, 1999. GREENWICH STREET SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily net assets of the portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE EXPENSES(1) EXPENSES - -------------------------------------------------------------------------------- Appreciation 0.55% 0.24% 0.79% - -------------------------------------------------------------------------------- (1) Other expenses are based on actual expenses for the year ended December 31, 1999. The purpose of the foregoing tables is to help you understand the various costs and expenses that you will bear directly and indirectly. See the prospectuses of the GCG Trust, Travelers Series Fund Inc., and Greenwich Street Series Fund 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 table above or the examples below. EXAMPLES: The following two examples are designed to show you the expenses you would pay on a $1,000 investment that earns 5% annually. Each example assumes the election of the Annual Ratchet Enhanced Death Benefit. The examples reflect the deduction of a mortality and expense risk charge, an asset-based administrative charge, and the annual contract administrative charge as an annual charge of 0.08% of assets (based on an average contract value of $52,000). If the Standard Death Benefit is elected instead of the Annual Ratchet Enhanced Death Benefit used in the examples, the actual expenses will be less than those represented in the examples. Note that surrender charges may apply if you choose to annuitize your Contract within the first 5 contract years, and under certain circumstances, within the first 7 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 assume applicable surrender charges. 3 Example 1: If you surrender your Contract at the end of the applicable time period, you would pay the following expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Total Return.................... $ 94 $ 135 $ 168 $ 273 Research........................ $ 94 $ 135 $ 168 $ 273 Mid-Cap Growth.................. $ 94 $ 135 $ 168 $ 273 TRAVELERS SERIES FUND INC. Smith Barney Large Cap Value.... $ 92 $ 127 $ 155 $ 248 Smith Barney International Equity $ 95 $ 137 $ 172 $ 282 Smith Barney High Income........ $ 92 $ 127 $ 155 $ 247 Smith Barney Money Market....... $ 91 $ 123 $ 149 $ 235 GREENWICH STREET SERIES FUND Appreciation.................... $ 93 $ 131 $ 162 $ 261
Example 2: If you do not surrender your Contract or if you annuitize on the annuity start date, you would pay the following expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Total Return.................... $ 24 $ 75 $ 128 $ 273 Research........................ $ 24 $ 75 $ 128 $ 273 Mid-Cap Growth.................. $ 24 $ 75 $ 128 $ 273 TRAVELERS SERIES FUND INC. Smith Barney Large Cap Value.... $ 22 $ 67 $ 115 $ 248 Smith Barney International Equity $ 25 $ 77 $ 132 $ 282 Smith Barney High Income ....... $ 22 $ 67 $ 115 $ 247 Smith Barney Money Market....... $ 21 $ 63 $ 109 $ 235 GREENWICH STREET SERIES FUND Appreciation.................... $ 23 $ 71 $ 122 $ 261
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN SUBJECT TO THE TERMS OF YOUR CONTRACT. - -------------------------------------------------------------------------------- PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- ACCUMULATION UNIT We use accumulation units to calculate the value of a Contract. Each subaccount of Separate Account B has its own accumulation unit value. The accumulation units are valued each business day that the New York Stock Exchange is open for trading. Their values may increase or decrease from day to day according to a Net Investment Factor, which is primarily based on the investment performance of the applicable investment portfolio. Shares in the investment portfolios are valued at their net asset value. THE NET INVESTMENT FACTOR The Net Investment Factor is an index number which reflects charges under the Contract and the investment performance of the subaccount. The Net Investment Factor is calculated for each subaccount as follows: 4 (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 each subaccount. Calculations for the subaccounts are made on a per share basis. CONDENSED FINANCIAL INFORMATION Tables containing (i) the accumulation unit value history of each subaccount of Golden American Separate Account B offered in this prospectus and (ii) the total investment value history of each such subaccount are presented in Appendix A -- Condensed Financial Information. FINANCIAL STATEMENTS The audited financial statements of Separate Account B for the year ended December 31, 1999 and the audited consolidated financial statements of Golden American for the years ended December 31, 1999, 1998 and 1997 are included in the Statement of Additional Information. 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 Smith Barney Money Market 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 the subaccount of Separate Account B has been in existence. 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, withdrawal of the investment at the end of the period, and the deduction of all applicable portfolio and 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. In addition, we may present historic performance data for the mutual fund 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 during that time. Current yield for the Smith Barney Money Market 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 Smith Barney Money Market subaccount in a manner similar to that used to calculate yield, but when annualized, the income earned by the investment is assumed to be reinvested. The "effective yield" will thus be slightly higher than the "yield" because of the compounding effect of earnings. We calculate quotations of yield for the remaining subaccounts on all investment income per accumulation unit earned during a given 30-day period, after subtracting fees and expenses accrued during the period. We may compare performance information for a subaccount to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money Market Institutional Averages, or any other applicable market indices, (ii) other variable annuity separate accounts or other investment products tracked by Lipper 5 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 assess the real rate of return from an investment in the Contract. Our reports and promotional literature may also contain other information including the ranking of any subaccount based on rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by similar rating services. Performance information reflects only the performance of a hypothetical contract and should be considered in light of other factors, including the investment objective of the investment portfolio and market conditions. Please keep in mind that past performance is not a guarantee of future results. - -------------------------------------------------------------------------------- GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Golden American Life Insurance Company is a Delaware stock life insurance company, which was originally incorporated in Minnesota on January 2, 1973. Golden American is a wholly owned subsidiary of Equitable of Iowa Companies, Inc. ("Equitable of Iowa") Equitable of Iowa is a wholly owned subsidiary of ING Groep N.V. ("ING"), a global financial services holding company based in the Netherlands. Golden American is authorized to sell insurance and annuities in all states, except New York, and the District of Columbia. In May 1996, Golden American established a subsidiary, First Golden American Life Insurance Company of New York, which is authorized to sell annuities in New York and Delaware. Golden American's consolidated financial statements appear in the Statement of Additional Information. 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. Our principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. - -------------------------------------------------------------------------------- THE TRUSTS - -------------------------------------------------------------------------------- The GCG Trust is a mutual fund whose shares are offered to separate accounts funding variable annuity and variable life insurance policies offered by Golden American and other affiliated insurance companies. The GCG Trust may also sell its shares to separate accounts of insurance companies not affiliated with Golden American. Pending SEC approval, shares of the GCG Trust may also be sold to certain qualified pension and retirement plans. The address of the GCG Trust is 1475 Dunwoody Drive, West Chester, PA 19380. Travelers Series Fund and Greenwich Street Series Fund are also mutual funds whose shares are available to separate accounts of Golden American and other insurance companies, both affiliated and not affiliated. The principal address of Travelers Series Fund and Greenwich Street Series Fund is 388 Greenwich Street, New York, New York 10013. 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 and Greenwich Street Series Fund, the Board of Directors of Travelers Series Fund Inc., and the management of Directed Services, Inc., SSB Citi Fund Management LLC. and any other insurance companies participating in the Trusts will monitor events to identify and resolve any material conflicts that may arise. YOU WILL FIND MORE COMPLETE INFORMATION ABOUT THE GCG TRUST, TRAVELERS SERIES FUND INC. AND GREENWICH STREET SERIES FUND IN THE ACCOMPANYING TRUSTS' PROSPECTUSES. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING. 6 - -------------------------------------------------------------------------------- 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, Travelers Series Fund and the Greenwich Street Series Fund. Each investment portfolio has its own distinct investment objectives and policies. Income, gains and losses, realized or unrealized, of a portfolio are credited to or charged against the corresponding subaccount of Account B without regard to any other income, gains or losses of the Company. Assets equal to the reserves and other contract liabilities with respect to each are not chargeable with liabilities arising out of any other business of the Company. They may, however, be subject to liabilities arising from subaccounts whose assets we attribute to other variable annuity contracts supported by Account B. If the assets in Account B exceed the required reserves and other liabilities, we may transfer the excess to our general account. We are obligated to pay all benefits and make all payments provided under the Contracts. We currently offer other variable annuity contracts that invest in Account B but are not discussed in this prospectus. Account B may also invest in other investment portfolios which are not available under your Contract. Under certain circumstances, we may make certain changes to the subaccounts. For more information, see "The Annuity Contract -- Addition, Deletion, or Substitution of Subaccounts and Other Changes." - -------------------------------------------------------------------------------- THE INVESTMENT PORTFOLIOS - -------------------------------------------------------------------------------- During the accumulation phase, you may allocate your premium payments and contract value to any of the investment portfolios listed below. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE INVESTMENT PORTFOLIOS AND MAY LOSE YOUR PRINCIPAL. INVESTMENT OBJECTIVES The investment objective of each investment portfolio is set forth below. You should understand that there is no guarantee that any portfolio will meet its investment objectives. Meeting objectives depends on various factors, including, in certain cases, how well the portfolio managers anticipate changing economic and market conditions. Separate Account B also has other subaccounts investing in other portfolios which are not available to the Contract described in this prospectus. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST, TRAVELERS SERIES FUND AND GREENWICH STREET SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING. - -------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------- THE GCG TRUST 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. -------------------------------------------------------- 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. -------------------------------------------------------- 7 - -------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------- Mid-Cap Growth Seeks long-term growth of capital. Invests primarily in equity securities of companies with medium market capitalization which the portfolio manager believes have above-average growth potential. -------------------------------------------------------- TRAVELERS SERIES FUND, INC. Smith Barney Large Cap Value Seeks current income and long-term growth of income and capital. Invests primarily in common stocks of U.S. companies having market capitalization of at least $5 billion at the time of investment. -------------------------------------------------------- Smith Barney International Equity Seeks total return on its assets from growth of capital and income. Invests primarily in a diversified portfolio of equity securities of established non-U.S. issuers. -------------------------------------------------------- Smith Barney High Income Seeks high current income. Secondary objective: capital appreciation. Invests in high-yielding corporate debt obligations and preferred stock of foreign issuers. In addition, the portfolio may invest up to 20% of its assets in the securities of foreign issuers that are denominated in currencies other than U.S. dollars. -------------------------------------------------------- Smith Barney Money Market Seeks maximum current income and preservation of capital. Invests in bank obligations and high quality commercial paper, corporate obligations and municipal obligations in addition to U.S. government securities and related repurchase agreements. -------------------------------------------------------- GREENWICH STREET SERIES FUND Appreciation Seeks long-term appreciation of capital. The fund invests primarily in equity securities of U.S. companies. The fund typically invests in medium and large capitalization companies but may also invest in small capitalization companies. Equity securities include exchange traded and over-the-counter common stocks and preferred stocks, debt convertible into equity securities, and warrants and rights relating to equity securities. -------------------------------------------------------- INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES Directed Services, Inc. ("Directed Services") serves as the overall manager to each portfolio of the GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment advisory and management services. The monthly fee is based on the average daily net assets of an investment portfolio, and in some cases, the combined total assets of certain grouped portfolios. Directed Services has retained portfolio managers to manage the assets of each portfolio of the GCG Trust. Directed Services (and not the GCG Trust) pays each portfolio manager a monthly fee for managing the assets of a portfolio, based on the average daily net assets of a portfolio. For a list of the portfolio managers, see the front cover of this prospectus. SSB Citi Fund Management LLC ("SSB Citi") serves as the investment advisor for the Travelers Series Fund Inc. and the Greenwich Street Series Fund. The Travelers Series Fund Inc. and the Greenwich Street Series Fund each pay SSB Citi a monthly advisory fee for its investment advisory services based on the average daily net assets of the respective investment portfolios. Directed Services and SSB Citi provide or procure, at their own expense, the services necessary for the operation of the portfolios, including the retention of portfolio managers to manage the assets of the certain 8 portfolios. Directed Services, SSB Citi and Travelers do not bear the expense of brokerage fees and other transactional expenses for securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and expenses of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. For 1999, total portfolio fees and charges ranged from 0.54% to 1.00%. See "Fees and Expenses" in this prospectus. Golden American may receive compensation from the investment advisors, administrators and distributors or directly from the portfolios in connection with administrative, distribution or other services we provide and other cost savings attributable to our services. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Contract. The compensation paid by advisors, administrators or distributors may vary. You can find more detailed information about each portfolio's management fees in the prospectuses for each Trust. You should read these prospectuses before investing. - -------------------------------------------------------------------------------- THE ANNUITY CONTRACT - -------------------------------------------------------------------------------- The Contract described in this prospectus is an individual deferred variable 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, Travelers Series Fund and Greenwich Street Series Fund funded by Account B. 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. 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 9 pass to the surviving joint owner. The age of the older owner will determine the applicable death benefit if Enhanced Death Benefits are available for multiple owners. ANNUITANT The annuitant is the person designated by you to be the measuring life in determining annuity payments. The annuitant's age determines when the income phase must begin and the amount of the annuity payments to be paid. You are the annuitant unless you choose to name another person. The annuitant may not be changed after the Contract is in effect. The contract owner will receive the annuity benefits of the Contract if the annuitant is living on the annuity start date. If the annuitant dies before the annuity start date, and a contingent annuitant has been named, the contingent annuitant becomes the annuitant (unless the contract owner is not an individual, in which case the death benefit becomes payable). If there is no contingent annuitant when the annuitant dies before the annuity start date, the contract owner will become the annuitant. The contract owner may designate a new annuitant within 60 days of the death of the annuitant. If there is no contingent annuitant when the annuitant dies before the annuity start date and the contract owner is not an individual, we will pay the designated beneficiary the death benefit then due. If a beneficiary has not been designated, or if there is no designated beneficiary living, the contract owner will be the beneficiary. If the annuitant was the sole contract owner and there is no beneficiary designation, the annuitant's estate will be the beneficiary. Regardless of whether a death benefit is payable, if the annuitant dies and any contract owner is not an individual, distribution rules under federal tax law will apply. You should consult your tax advisor for more information if you are not an individual. BENEFICIARY The beneficiary is named by you in a written request. The beneficiary is the person who receives any death benefit proceeds and who becomes the successor contract owner if the contract owner (or the annuitant if the contract owner is other than an individual) dies before the annuity start date. We pay death benefits to the primary beneficiary (unless there are joint owners, in which case death proceeds are payable to the surviving owner(s)). If the beneficiary dies before the annuitant or the contract owner, the death benefit proceeds are paid to the contingent beneficiary, if any. If there is no surviving beneficiary, we pay the death benefit proceeds to the contract owner's estate. One or more persons may be a beneficiary or contingent beneficiary. In the case of more than one beneficiary, we will assume any death benefit proceeds are to be paid in equal shares to the surviving beneficiaries. You have the right to change beneficiaries during the annuitant's lifetime unless you have designated an irrevocable beneficiary. When an irrevocable beneficiary has been designated, you and the irrevocable beneficiary may have to act together to exercise some of the rights and options under the Contract. CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime, you may transfer ownership of a non-qualified Contract. A change in ownership may affect the amount of the death benefit and the guaranteed death benefit. 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 80, the death benefit option in effect prior to the change in owner will remain in effect. If the new owner's age is greater than 79, but less than or equal to 85, and if the contract was issued with an enhanced death benefit, the death benefit will become the Standard Death Benefit. If the new owner's age is greater than 85, the death benefit will be the cash surrender value. Once a death benefit 10 has been changed due to a change in owner, a subsequent change to a younger owner will not restore any enhanced death benefits. PURCHASE AND AVAILABILITY OF THE CONTRACT We will issue a Contract only if both the annuitant and the contract owner are not older than age 85. The initial premium payment must be $5,000 or more ($1,500 for qualified Contracts). You may make additional payments of at least $500 or more ($250 for qualified Contracts) at any time after the free look period before you turn age 85. Under certain circumstances, we may waive the minimum premium payment requirement. We may also change the minimum initial or additional premium requirements for certain group or sponsored arrangements. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. IRAs and other qualified plans already have the tax-deferral feature found in this Contract. For an additional cost, the Contract provides other benefits including death benefits and the ability to receive a lifetime income. See "Fees and Expenses" in this prospectus. CREDITING OF PREMIUM PAYMENTS We will process your initial premium within 2 business days after receipt, if the application and all information necessary for processing the Contract are complete. Subsequent premium payments will be processed within 1 business day if we receive all information necessary. In certain states we also accept initial and additional premium payments by wire order. Wire transmittals must be accompanied by sufficient electronically transmitted data. We may retain your initial premium payment for up to 5 business days while attempting to complete an incomplete application. If the application cannot be completed within this period, we will inform you of the reasons for the delay. We will also return the premium payment immediately unless you direct us to hold the premium payment until the application is completed. We will allocate your initial payment according to the instructions you specified. If a subaccount is not available or requested in error, we will make inquiry about a replacement subaccount. If we are unable to reach you or your representative, we will allocate your initial payment proportionally among the other subaccount(s) in your instructions. For initial premium payments, the payment will be credited at the accumulation unit value next determined after we receive your premium payment and the completed application. Once the completed application is received, we will allocate the payment to the subaccount(s) specified by you within 2 business days. We will make inquiry to discover any missing information related to subsequent payments. We will allocate the subsequent payment(s) pro rata according to the current variable subaccount allocation unless you specify otherwise. If a subaccount is no longer available or requested in error, we will allocate the subsequent payment(s) proportionally among the other subaccount(s) in your current allocation or your allocation instructions. For any subsequent premium payments, the payment will be credited at the accumulation unit value next determined after receipt of your premium payment and instructions. Once we allocate your premium payment to the subaccounts selected by you, we convert the premium payment into accumulation units. We divide the amount of the premium payment allocated to a particular subaccount by the value of an accumulation unit for the subaccount to determine the number of accumulation units of the subaccount to be held in Account B with respect to your Contract. The net investment results of each subaccount vary with its investment performance. ADMINISTRATIVE PROCEDURES We may accept a request for Contract service in writing, by telephone, or other approved electronic means, subject to our administrative procedures, which vary depending on the type of service requested and may include proper completion of certain forms, providing appropriate identifying information, and/or other administrative requirements. We will process your request at the accumulation value next determined only after you have met all administrative requirements. 11 CONTRACT VALUE We determine your contract value on a daily basis beginning on the contract date. Your contract value is the contract value in each subaccount in which you are invested. 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 specified by you. 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. 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 deduct any surrender charge, any charge for premium taxes, and any other charges incurred but not yet deducted. SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE You may surrender the Contract at any time while the annuitant is living and before the annuity start date. A surrender will be effective on the date your written request and the Contract are received at our Customer Service Center. We will determine and pay the cash surrender value at the price next determined after receipt of your request. 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 Smith Barney Money Market subaccount) prior to processing the surrender. You may receive the cash surrender value in a single sum payment or apply it under one or more annuity options. We will usually pay the cash surrender value within 7 days. Consult your tax advisor regarding the tax consequences associated with surrendering your Contract. A surrender made before you reach age 59 1/2 may result in a 10% tax penalty. See "Federal Tax Considerations" for more details. THE SUBACCOUNTS Each of the 8 subaccounts of Separate Account B offered under this prospectus invests in an investment portfolio with its own distinct investment objectives and policies. Each subaccount of Account B invests in a corresponding portfolio of the GCG Trust, a corresponding portfolio of the Travelers Series Fund Inc. or a corresponding portfolio of the Greenwich Street Series Fund. ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES We may make additional subaccounts available to you under the Contract. These subaccounts will invest in investment portfolios we find suitable for your Contract. We may amend the Contract to conform to applicable laws or governmental regulations. If we feel that investment in any of the investment portfolios has become inappropriate to the purposes of the Contract, we may, with approval of the SEC (and any other regulatory agency, if required) substitute another portfolio for 12 existing and future investments. If you have elected the dollar cost averaging, systematic withdrawals, or automatic rebalancing programs or if you have other outstanding instructions, and we substitute or otherwise eliminate a portfolio which is subject to those instructions, we will execute your instructions using the substituted or proposed replacement portfolio, unless you request otherwise. We also reserve the right to: (i) deregister Account B under the 1940 Act; (ii) operate Account B as a management company under the 1940 Act if it is operating as a unit investment trust; (iii) operate Account B as a unit investment trust under the 1940 Act if it is operating as a managed separate account; (iv) restrict or eliminate any voting rights as to Account B; and (v) combine Account B with other accounts. We will, of course, provide you with written notice before any of these changes are effected. OTHER CONTRACTS We offer other variable annuity contracts that also invest in the same portfolios of the Trusts. These contracts have different charges that could effect their performance, and may offer different benefits more suitable to your needs. To obtain more information about these other contracts, contact our Customer Service Center or your registered representative. OTHER IMPORTANT PROVISIONS See "Withdrawals," "Transfers Among Your Investments," "Death Benefit Choices," "Charges and Fees," "The Annuity Options" and "Other Contract Provisions" in this prospectus for information on other important provisions in your Contract. - -------------------------------------------------------------------------------- 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 in any contract year is 15% of your contract value on the date of withdrawal less any withdrawals during that contract year. You need to submit to us a written request specifying the 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. 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 Smioth Barney Money Market 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 $1,000. SYSTEMATIC WITHDRAWALS You may choose to receive automatic systematic withdrawals on a monthly, quarterly, or annual basis from the subaccounts in which you are invested. You may elect payments to start as early as 28 days after the contract date. You choose the date on which the withdrawals will be made but this date cannot be later than the 28th day of the month. If you do not choose a date, we will make the withdrawals on the same calendar 13 day of each month as the contract date. If your contract date is after the 28th day of the month, your systematic withdrawal will be made on the 28th day of each month. Each systematic withdrawal amount must be a minimum of $100. The amount of your systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount based on a percentage of your contract value. Both forms of systematic withdrawals are subject to the following maximum, which is calculated on each withdrawal date: FREQUENCY MAXIMUM PERCENTAGE Monthly 1.25% Quarterly 3.75% Annually 15.00% If your systematic withdrawal is a fixed dollar amount and the amount to be withdrawn would exceed the applicable maximum percentage of your contract value on any withdrawal date, we will automatically reduce the amount withdrawn so that it equals such percentage. Thus, your fixed dollar systematic withdrawals will never exceed the maximum percentage. If you want fixed dollar systematic withdrawals to exceed the maximum percentage and are willing to incur associated surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which you may add to your regular fixed dollar systematic withdrawal program. If your withdrawal is based on a percentage of your contract value and the amount to be systematically withdrawn based on that percentage would be less than $100, we will automatically increase the amount to $100 as long as it does not exceed the maximum percentage. If the systematic withdrawal would exceed the maximum percentage, we will send the amount, and then automatically cancel your systematic withdrawal option. You may change the amount or percentage of your systematic withdrawal once each contract year or cancel this option at any time by sending satisfactory notice to our Customer Service Center at least 7 days before the next scheduled withdrawal date. If you submit a subsequent premium payment after you have applied for systematic withdrawals, we will not adjust future withdrawals under the systematic withdrawal program unless you specifically request that we do so. The systematic withdrawal option may commence in a contract year where a regular withdrawal has been taken but you may not change the amount or percentage of your withdrawals in any contract year during which you have previously taken a regular withdrawal. You may not elect the systematic withdrawal option if you are taking IRA withdrawals. FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal program. This feature allows you to receive a systematic withdrawal in a fixed dollar amount regardless of any surrender charges or Market Value Adjustments. You choose the amount of the fixed systematic withdrawals, which may total up to a maximum of 15% of your contract value as determined on the day we receive your election of this feature. The maximum limit will not be recalculated when you make additional premium payments, unless you instruct us to do so. We will assess a surrender charge on the withdrawal date if the withdrawal exceeds the maximum limit as calculated on the withdrawal date. We will apply the surrender charge directly to your contract value (rather than to the withdrawal) so that the amount of each systematic withdrawal remains fixed. Flat dollar systematic withdrawals which are intended to satisfy the requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum. Such withdrawals are subject to surrender charges and Market Value Adjustments when they exceed the applicable 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 14 distributions commence. You may elect to take IRA withdrawals at that time, or at a later date. You may not elect IRA withdrawals and participate in systematic withdrawals at the same time. If you do not elect to take IRA withdrawals, and distributions are required by Federal tax law, distributions adequate to satisfy the requirements imposed by Federal tax law may be made. Thus, if you are participating in systematic withdrawals, distributions under that option must be adequate to satisfy the mandatory distribution rules imposed by federal tax law. You may choose to receive IRA withdrawals on a monthly, quarterly or annual basis. Under this option, you may elect payments to start as early as 28 days after the contract date. You select the day of the month when the withdrawals will be made, but it cannot be later than the 28th day of the month. If no date is selected, we will make the withdrawals on the same calendar day of the month as the contract date. You may request that we calculate for you the amount that is required to be withdrawn from your Contract each year based on the information you give us and various choices you make. For information regarding the calculation and choices you have to make, see the Statement of Additional Information. 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. CONSULT YOUR TAX ADVISOR 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. - -------------------------------------------------------------------------------- TRANSFERS AMONG YOUR INVESTMENTS - -------------------------------------------------------------------------------- You may transfer your contract value among the subaccounts in which you are invested 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. 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. 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 that we reasonably believe to be genuine. We require personal identifying information to process a request for transfer made over the telephone. 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 Smith Barney Money Market subaccount. This subaccount serves as the source account from which we will, on a monthly basis, automatically transfer a set dollar amount of money to other subaccounts selected by you. 15 The dollar cost averaging program is designed to lessen the impact of market fluctuation on your investment. Since we transfer the same dollar amount to other subaccounts each month, more units of a subaccount are purchased if the value of its unit is low and less units are purchased if the value of its unit is high. Therefore, a lower than average value per unit may be achieved over the long term. However, we cannot guarantee this. When you elect the dollar cost averaging program, you are continuously investing in securities regardless of fluctuating price levels. You should consider your tolerance for investing through periods of fluctuating price levels. You elect the dollar amount you want transferred under this program. Each monthly transfer must be at least $100. The maximum amount that can be transferred each month is your contract value in the Smith Barney Money Market subaccount divided by 12. You may change the transfer amount once each contract year. If you do not specify the subaccounts to which the dollar amount of the Smith Barney Money Market subaccount 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 the Smith Barney Money Market subaccount 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. We may in the future offer additional subaccounts or withdraw any subaccount to or from the dollar cost averaging program or otherwise modify, suspend or terminate this program. Of course, such change will not affect any dollar cost averaging programs in operation at the time. AUTOMATIC REBALANCING If you have at least $10,000 of contract value invested in the subaccounts of 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. The program may be used in conjunction with the systematic withdrawal option only if withdrawals are taken pro rata. Automatic rebalancing is not available if you participate in dollar cost averaging. Automatic rebalancing will not take place during the free look period. To participate in automatic rebalancing, send satisfactory notice to our Customer Service Center. We will begin the program on the last business day of the period in which we receive the notice. You may cancel the program at any time. The program will automatically terminate if you choose to reallocate your contract value among the subaccounts or if you make an additional premium payment or partial withdrawal on other than a pro rata basis. Additional premium payments and partial withdrawals effected on a pro rata basis will not cause the automatic rebalancing program to terminate. - -------------------------------------------------------------------------------- DEATH BENEFIT CHOICES - -------------------------------------------------------------------------------- DEATH BENEFIT DURING THE ACCUMULATION PHASE During the accumulation phase, a death benefit is payable when either the annuitant (when contract owner is not an individual), the contract owner or the first of joint owners dies. Assuming you are the contract owner, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit value is calculated at the close of the business day on which we receive proof of death 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 16 sufficient information to make the payment. For information on required distributions under federal income tax laws, you should see "Required Distributions upon Contract Owner's Death." You may choose from the following 2 death benefit choices: (1) the Standard Death Benefit Option; and (2) the Annual Ratchet Enhanced Death Benefit Option. Once you choose a death benefit, it cannot be changed. We may in the future stop or suspend offering any of the enhanced death benefit options to new Contracts. A change in ownership of the Contract may affect the amount of the death benefit and the guaranteed death benefit. STANDARD DEATH BENEFIT. You will automatically receive the Standard Death Benefit unless you elect the Annual Ratchet Enhanced Death Benefit. The Standard Death Benefit under the Contract is the greatest of (i) your contract value; (ii) total premium payments less any withdrawals; and (iii) the cash surrender value. ANNUAL RATCHET ENHANCED DEATH BENEFIT. If the Annual Ratchet Enhanced Death Benefit is elected, the death benefit under the Contract is the greatest of (i) the contract value; (ii) total premium payments less any withdrawals; (iii) the cash surrender value; and (iv) the enhanced death benefit as calculated below. - -------------------------------------------------------------------------------- HOW THE ENHANCED DEATH BENEFIT IS CALCULATED FOR THE ANNUAL RATCHET ENHANCED DEATH BENEFIT - -------------------------------------------------------------------------------- On each contract anniversary that occurs on or before the contract owner turns age 80, we compare the prior enhanced death benefit to the contract value and select the larger amount as the new enhanced death benefit. On all other days, the enhanced death benefit is the amount determined below. We first take the enhanced death benefit from the preceding day (which would be the initial premium if the valuation date is the contract date), then we add additional premiums paid since the preceding day, then we subtract any withdrawals made since the preceding day, and then we subtract any associated surrender charges. That amount becomes the new enhanced death benefit. - -------------------------------------------------------------------------------- The Annual Ratchet Enhanced Death Benefit is available only at the time you purchase your Contract and only if the contract owner or annuitant (when the contract owner is other than an individual) is not more than 79 years old at the time of purchase. The Annual Ratchet Enhanced Death Benefit may not be available where a contract is held by joint owners. DEATH BENEFIT DURING THE INCOME PHASE If any contract owner or the annuitant dies after the annuity start date, the Company will pay the beneficiary any certain benefit remaining under the annuity in effect at the time. REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH We will not allow any payment of benefits provided under a non-qualified Contract which do not satisfy the requirements of Section 72(s) of the Code. If any contract owner of a non-qualified Contract dies before the annuity start date, the death benefit payable to the beneficiary will be distributed as follows: (a) the death benefit must be completely distributed within 5 years of the contract owner's date of death; or (b) the beneficiary may elect, within the 1-year period after the contract owner's date of death, to receive the death benefit in the form of an annuity from us, provided that (i) such annuity is distributed in substantially equal installments over the life of such beneficiary or over a period not extending beyond the life expectancy of such beneficiary; and (ii) such distributions begin not later than 1 year after the contract owner's date of death. 17 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. - -------------------------------------------------------------------------------- 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 Smith Barney Money Market 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 7-year period from the date we receive and accept a premium payment. The surrender charge is based on a percentage of each premium payment. 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 18 that premium payment was made. We determine the surrender charge as a percentage of each premium payment as follows: COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0% WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. We will waive the surrender charge in most states in the following events: (i) you begin receiving qualified extended medical care on or after the first contract anniversary for at least 45 days during a 60-day period and your request for the surrender or withdrawal, together with all required documentation is received at our Customer Service Center during the term of your care or within 90 days after the last day of your care; or (ii) you are first diagnosed by a qualifying medical professional, on or after the first contract anniversary, as having a qualifying terminal illness. We have the right to require an examination by a physician of our choice. If we require such an examination, we will pay for it. You are required to send us satisfactory written proof of illness. See your Contract for more information. The waiver of surrender charge may not be available in all states. FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is 15% of your contract value on the date of withdrawal less any withdrawals during that contract year. 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 from which the excess withdrawal was taken. In instances where the excess withdrawal equals the entire contract value in such subaccounts, we will deduct charges proportionately from all other subaccounts in which you are invested. 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 the contract owner's state of residence. The tax can range from 0% to 3.5% of the premium. We have the right to change this amount to conform with changes in the law or if the contract owner changes 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 on surrender of the Contract, on excess withdrawals or on the annuity start date. ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on each Contract anniversary, or if you surrender your Contract prior to a Contract anniversary, at the time we determine the cash surrender value payable to you. The amount deducted is $40 per Contract. This charge is waived if your contract value is $100,000 or more at the end of a contract year or the total of your premium payments is $100,000 or more or under other conditions established by Golden American. We deduct the annual administrative charge proportionately from all subaccounts in which you are invested. 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 from which each such transfer 19 is made in proportion to the amount being transferred from each such subaccount unless you have chosen to have all charges deducted from a single subaccount. The charge will not apply to any transfers due to the election of dollar cost averaging, automatic rebalancing and transfers we make to and from any subaccount specially designated by the Company for such purpose. CHARGES DEDUCTED FROM THE SUBACCOUNTS MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is deducted each business day. The amount of the mortality and expense risk charge depends on the death benefit you have elected. If you have elected the Standard Death Benefit, the charge, on an annual basis, is equal to 1.10% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .003030% for each day since the previous business day. If you have elected the Annual Ratchet Enhanced Death Benefit, the charge, on an annual basis, is equal to 1.25% of the assets you have in each subaccount. The charge is deducted each business day at the rate of .003446% for each day since the previous business day. ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily charge from the assets in each subaccount, to compensate us for a portion of the administrative expenses under the Contract. The daily charge is at a rate of .000411% (equivalent to an annual rate of 0.15%) on the 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. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. For 1999, total portfolio fees and charges ranged from 0.54% to 1.00%. See "Fees and Expenses" in this prospectus. Additionally, we may receive compensation from the investment advisers, administrators, distributors of the portfolios in connection with administrative, distribution, or other services and cost savings experienced by the investment advisers, administrators or distributors. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Contract. Some advisers, administrators or distributors may pay us more than others. - -------------------------------------------------------------------------------- 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 you chose. You may change an annuity option by making a written request to us at least 30 days before the annuity start date. The amount of the payments will be determined by applying your contract value 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 20 the level of annuity benefits, such as the annuity option chosen, the applicable payment rate used and the investment performance of the portfolios. 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), and the applicable payment rate. Our approval is needed for any option where: (1) The person named to receive payment is other than the contract owner or beneficiary; (2) The person named is not a natural person, such as a corporation; or (3) Any income payment would be less than the minimum annuity income payment allowed. SELECTING THE ANNUITY START DATE You select the annuity start date, which is the date on which the annuity payments commence. The annuity start date must be at least 3 years from the contract date but before the month immediately following the annuitant's 90th birthday, or 10 years from the contract date, if later. If, on the annuity start date, a surrender charge remains, the elected annuity option must include a period certain of at least 5 years. If you do not select an annuity start date, it will automatically begin in the month following the annuitant's 90th birthday, or 10 years from the contract date, if later. If the annuity start date occurs when the annuitant is at an advanced age, such as over age 85, it is possible that the Contract will not be considered an annuity for federal tax purposes. For more information see "Federal Tax Considerations" and the Statement of Additional Information. For a Contract purchased in connection with a qualified plan, other than a Roth IRA, distributions must commence not later than April 1st of the calendar year following the calendar year in which you reach age 70 1/2 or, in some cases, retire. Distributions may be made through annuitization or withdrawals. You should consult a tax advisor for tax advice before investing. FREQUENCY OF ANNUITY PAYMENTS You choose the frequency of the annuity payments. They may be monthly, quarterly, semi-annually or annually. If we do not receive written notice from you, we will make the payments monthly. There may be certain restrictions on minimum payments that we will allow. THE ANNUITY OPTIONS We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3 are fixed. Payments under Option 4 may be fixed or variable. For a fixed annuity option, the contract value in the subaccounts is transferred to the Company's general account. OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make monthly payments in equal installments for a fixed number of years based on the contract value on the annuity start date. We guarantee that each monthly payment will be at least the amount stated in your Contract. If you prefer, you may request that payments be made in annual, semi-annual or quarterly installments. We will provide you with illustrations if you ask for them. If the cash surrender value or contract value is applied under this option, a 10% penalty tax may apply to the taxable portion of each income payment until the contract owner reaches age 59 1/2. OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Under this option, we make payments for the life of the annuitant in equal monthly installments and guarantee the income for at least a period certain such as 10 or 20 years. Other periods certain may be available to you on request. You may choose a refund period instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the guaranteed period, we will continue payments until his or her death, we guarantee that each payment will be at least the amount specified in the Contract corresponding to the 21 person's age on his or her last birthday before the annuity start date. Amounts for ages not shown in the Contract are available if you ask for them. OPTION 3. JOINT LIFE INCOME. This option is available when there are 2 persons named to determine annuity payments. At least one of the persons named must be either the contract owner or beneficiary of the Contract. We guarantee monthly payments will be made as long as at least one of the named persons is living. There is no minimum number of payments. Monthly payment amounts are available if you ask for them. OPTION 4. ANNUITY PLAN. Under this option, your contract value can be applied to any other annuitization plan that we choose to offer on the annuity start date. Annuity payments under Option 4 may be fixed or variable. If variable and subject to the Investment Company Act of 1940, it will comply with the requirements of such Act. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided in the annuity agreement between you and Golden American. The amounts we will pay are determined as follows: (1) For Option 1, or any remaining guaranteed payments under Option 2, we will continue payments. Under Options 1 and 2, the discounted values of the remaining guaranteed payments may be paid in a single sum. This means we deduct the amount of the interest each remaining guaranteed payment would have earned had it not been paid out early. The discount interest rate is never less than 3% for Option 1 and 3.50% 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 your Contract. (2) For Option 3, no amounts are payable after both named persons have died. (3) For Option 4, the annuity option agreement will state the amount we will pay, if any. - -------------------------------------------------------------------------------- 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 or in any confirmation notices. We will also send you copies of any shareholder reports of the investment portfolios in which Account B invests, as well as any other reports, notices or documents we are required by law to furnish to you. SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of any payment or determination of values on any business day (1) when the New York Stock Exchange is closed; (2) when trading on the New York Stock Exchange is restricted; (3) when an emergency exists as determined by the Securities and Exchange Commission 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. IN CASE OF ERRORS IN YOUR APPLICATION If an age or gender given in the application or enrollment form is misstated, the amounts payable or benefits provided by the Contract shall be those that the premium payment would have bought at the correct age or gender. 22 ASSIGNING THE CONTRACT AS COLLATERAL You may assign a non-qualified Contract as collateral security for a loan but understand that your rights and any beneficiary's rights may be subject to the terms of the assignment. An assignment may have federal tax consequences. You should consult a tax adviser for tax advice. You must give us satisfactory written notice at our Customer Service Center in order to make or release an assignment. We are not responsible for the validity of any assignment. CONTRACT CHANGES -- APPLICABLE TAX LAW We have the right to make changes in the Contract to continue to qualify the Contract as an annuity under applicable federal tax law. You will be given advance notice of such changes. FREE LOOK You may cancel your Contract within your 10-day free look period. We deem the free look period to expire 15 days after we mail the Contract to you. Some states may require a longer free look period. To cancel, you need to send your Contract to our Customer Service Center or to the agent from whom you purchased it. We will refund the contract value. For purposes of the refund during the free look period, your contract value includes a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios, 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. We determine your contract value at the close of business on the day we receive your written refund request. Your Contract will be void as of the day we receive your Contract and your request. Some states require that we return the premium paid rather than the contract value. 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 Smith Barney Money Market subaccount). We may, in our discretion, require that premiums designated for investment in the subaccounts from all other states be allocated to the specially designated subaccount during the free look period. 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 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 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 Inc. 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. The selling broker-dealer receives a maximum of 6.5% commission, and passes through 100% of the commission to the broker-dealer whose registered representative sold the contract. Certain sales agreements may provide for a combination of a certain percentage of commission at the time of sale and an annual trail commission (which when combined could exceed 6.5% of total premium payments). 23 - -------------------------------------------------------------------------------- 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 Contract offered by this prospectus has been approved where required by those jurisdictions. We are required to submit annual statements of our operations, including financial statements, to the Insurance Departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. LEGAL PROCEEDINGS The Company, like other insurance companies, may be involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. We believe that currently there are no pending or threatened lawsuits that are reasonably likely to have a material adverse impact on the Company or 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 or incorporated by reference 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 or incorporated by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. - -------------------------------------------------------------------------------- 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. 24 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 whom 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 the Contracts to be treated as annuity contracts for federal income tax purposes. It is intended that Account B, through the subaccounts, will satisfy these diversification requirements. INVESTOR CONTROL. In certain circumstances, owners of variable annuity contracts have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Contracts, such as the flexibility of a contract owner to allocate premium payments and transfer contract values, have not been explicitly addressed in published rulings. While we believe that the Contracts do not give contract owners investment control over Account B assets, we reserve the right to modify the Contracts as necessary to prevent a contract owner from being treated as the owner of the Account B assets supporting the Contract. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for federal income tax purposes, the Code requires any non-qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of your death. The non-qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. Other rules may apply to Qualified Contracts. The following discussion assumes that the Contracts will qualify as annuity contracts for federal income tax purposes. TAX TREATMENT OF ANNUITIES IN GENERAL. We believe that if you are a natural person you will generally not be taxed on increases in the value of a Contract until a distribution occurs or until annuity payments begin. (For these purposes, the agreement to assign or pledge any portion of the contract value, and, in the case of a qualified Contract, any portion of an interest in the qualified plan, generally will be treated as a distribution.) TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON. The owner of any annuity contract who is not a natural person generally must include in income any increase in the excess of the contract value over the "investment in the contract" (generally, the premiums or other consideration paid for the contract) during the taxable year. There are 25 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. 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 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 26 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. 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 27 or transfer contributions from Savings Incentive Match Plans (SIMPLE), under which certain employers may provide contributions to IRAs on behalf of their employees, subject to special restrictions. Employers may establish Simplified Employee Pension (SEP) Plans to provide IRA contributions on behalf of their employees. Sales of the Contract for use with IRAs may be subject to special requirements of the IRS. ROTH IRA Section 408A of the Code permits certain eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, are not deductible, and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and other special rules may apply. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to the Roth IRA. A 10% penalty may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. TAX SHELTERED ANNUITIES Section 403(b) of the Code allows employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the premium payments made, within certain limits, on a Contract that will provide an annuity for the employee's retirement. These premium payments may be subject to FICA (social security) tax. Distributions of (1) salary reduction contributions made in years beginning after December 31, 1988; (2) earnings on those contributions; and (3) earnings on amounts held as of the last year beginning before January 1, 1989, are not allowed prior to age 59 1/2, separation from service, death or disability. Salary reduction contributions may also be distributed upon hardship, but would generally be subject to penalties. ENHANCED DEATH BENEFIT The Contract includes an Enhanced Death Benefit that in some cases may exceed the greater of the premium payments or the contract value. The Internal Revenue Service has not ruled whether an Enhanced Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any Code section 401(a) pension or profit-sharing plan or Code section 403(b) tax-sheltered annuity. Employers using the Contract may want to consult their tax adviser regarding such information. Further, the Internal Revenue Service has not addressed in a ruling of general applicability whether a death benefit provision such as the Enhanced Death Benefit provision in the Contract comports with IRA or Roth IRA qualification requirements. OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the federal tax consequences under the Contracts are not exhaustive, and special rules are provided with respect to other tax situations not discussed in this prospectus. Further, the federal income tax consequences discussed herein reflect our understanding of current law, and the law may change. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of distributions under a Contract depend on the individual circumstances of each contract owner or recipient of the distribution. A competent tax adviser should be consulted for further information. POSSIBLE CHANGES IN TAXATION Although the likelihood of legislative change is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or other means. It is also possible that any change could be retroactive (that is, effective before the date of the change). You should consult a tax adviser with respect to legislative developments and their effect on the Contract. 28 - -------------------------------------------------------------------------------- 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............................................ 2 Performance Information.............................................. 2 IRA Partial Withdrawal Option........................................ 7 Other Information.................................................... 8 Financial Statements of Golden America Life Insurance Company........ 8 Financial Statements of Separate Account B........................... 8 30 - -------------------------------------------------------------------------------- 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 106967 5/00 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 31 This page is intentionally left blank. 32 APPENDIX A CONDENSED FINANCIAL INFORMATION The following tables give (1) the accumulation unit value ("AUV"), (2) the total number of accumulation units, and (3) the total accumulation unit value, for each subaccount of Golden American Separate Account B available under the Contract for the indicated periods. The subaccounts became available on May 6, 1997 with the starting accumulation unit value indicated on the last row of each table. TOTAL RETURN
- ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 18.20 4,770 $ 87 $ 18.06 33,383 $ 603 1998 17.83 10,098 180 17.72 32,769 581 1997 16.18 63 1 16.10 4,893 79 5/6/97 14.07 -- -- 14.02 -- -- - ----------------------------------------------------------------------------------------------------------------- RESEARCH - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 28.25 2,544 $ 72 $ 28.04 37,387 $ 1,048 1998 23.03 3,070 71 22.89 38,692 886 1997 18.95 102 2 18.87 11,534 218 5/6/97 16.14 -- -- 16.09 -- -- - ----------------------------------------------------------------------------------------------------------------- MID-CAP GROWTH - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 39.97 3,692 $ 148 $ 39.59 27,138 $ 1,075 1998 22.60 981 22 22.43 23,659 531 1997 18.64 202 4 18.52 4,122 76 10/1/97 14.82 -- -- 14.75 -- -- - ----------------------------------------------------------------------------------------------------------------- A1 SMITH BARNEY LARGE CAP VALUE - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 19.11 4,123 $ 79 $ 18.98 29,721 $ 564 1998 19.35 1,600 31 19.24 34,859 671 1997 17.84 -- -- 17.77 12,137 216 5/6/97 15.20 -- -- 15.15 -- -- - ----------------------------------------------------------------------------------------------------------------- SMITH BARNEY INTERNATIONAL EQUITY - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 23.78 2,572 $ 61 $ 23.61 20,133 $ 476 1998 $ 14.35 2,885 41 14.28 19,916 285 1997 13.65 130 2 13.59 6,948 94 5/6/97 13.53 -- -- 13.49 -- -- - ----------------------------------------------------------------------------------------------------------------- SMITH BARNEY MONEY MARKET - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 11.82 10,885 $ 129 $ 11.74 38,389 $ 450 1998 11.43 2,017 23 11.37 25,941 295 1997 11.02 -- -- 10.97 16,571 182 5/6/97 10.74 -- -- 10.71 -- -- - ----------------------------------------------------------------------------------------------------------------- SMITH BARNEY HIGH INCOME - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 13.84 5,981 $ 83 $ 13.74 33,782 $ 464 1998 13.66 12,711 174 13.58 46,593 633 1997 13.77 73 1 13.72 15,160 208 5/6/97 12.46 -- -- 12.42 -- -- - ----------------------------------------------------------------------------------------------------------------- A2 APPRECIATION - ----------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ----------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------- 1999 $ 18.47 711 $ 13 $ 18.36 52,802 $ 970 1998 16.53 1,108 18 16.47 58,107 957 1997 14.05 -- -- 14.01 18,759 263 5/6/97 12.01 -- -- 11.99 -- -- - -----------------------------------------------------------------------------------------------------------------
A3 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 fourth contract year of 20% of the contract value of $35,000. In this example, $5,250 ($35,000 x .15) is the maximum free withdrawal amount that you may withdraw during the contract year without a surrender charge. The total withdrawal would be $7,000 ($35,000 x .20). Therefore, $1,750 ($7,000 - $5,250) is considered an excess withdrawal of a part of the initial premium payment of $10,000 and would be subject to a 5% surrender charge of $87.50 ($1,750 x .05). This example does not take into account 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 106967 5/00 DVA PLUS PROFILE AND PROSPECTUS FORM TWO VERSION A ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- PROFILE OF GOLDENSELECT DVA PLUS(R) DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT MAY 1, 2000 ------------------------------------------------------------------- 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. ------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 applicable interest period. If you withdraw your money from the fixed account more than 30 days before the applicable maturity date, we will apply a market value adjustment. A market value adjustment could increase or decrease your contract value and/or the amount you take out. Generally, the investment portfolios are designed to offer a better return than the fixed account. However, this is NOT guaranteed. You may not make any money, and you can even lose the money you invest. Subject to state availability, you may elect one of three optional riders offering specified benefits featured in the prospectus for the Contract. The three optional benefit riders are listed on page 9 below. The optional benefit riders can provide protection under certain circumstances, in the event that unfavorable investment performance has lowered your contract value below certain targeted growth. These riders do not guarantee the performance of your investment portfolios. Separate charges are assessed for the optional riders. You should carefully analyze and completely evaluate each rider before you purchase any. Be aware that the benefit provided by any of the riders will be affected by certain later actions you may take - such as withdrawals and transfers. The riders are not available to Contracts issued before January 1, 2000. To find out about availability, check with our Customer Service Center. DVA PLUS PROFILE PROSPECTUS BEGINS AFTER PAGE 11 OF THIS PROFILE The Contract, like all deferred variable annuity contracts, has two phases: the accumulation phase and the income phase. The accumulation phase is the period between the contract date and the date on which you start receiving the annuity payments under your Contract. The amounts you accumulate during the accumulation phase will determine the amount of annuity payments you will receive. The income phase begins on the annuity start date, which is the date you start receiving regular annuity payments from your Contract. You determine (1) the amount and frequency of premium payments, (2) the investments, (3) transfers between investments, (4) the type of annuity to be paid after the accumulation phase, (5) the beneficiary who will receive the death benefits, (6) the type of death benefit, and (7) the amount and frequency of withdrawals. 2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE) Annuity payments are the periodic payments you will begin receiving on the annuity start date. You may choose one of the following annuity payment options:
---------------------------------------------------------------------------------------------- ANNUITY OPTIONS ---------------------------------------------------------------------------------------------- Option 1 Income for a fixed Payments are made for a specified number of years to you period or your beneficiary. ---------------------------------------------------------------------------------------------- Option 2 Income for life Payments are made for the rest of your life or longer for a with a period specified period such as 10 or 20 years or until the total certain amount used to buy this option has been repaid. This option comes with an added guarantee that payments will continue to your beneficiary for the remainder of such period if you should die during the period. ---------------------------------------------------------------------------------------------- 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 $10,000 or more ($1,500 for a qualified Contract) up to and including age 85. You may make additional payments of $500 or more ($250 for a qualified Contract) at any time before you turn age 85 during the accumulation phase. Under certain circumstances, we may waive the minimum initial and additional premium payment requirement. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. Who may purchase this Contract? The Contract may be purchased by individuals as part of a personal retirement plan (a "non-qualified Contract"), or as a Contract that qualifies for special tax treatment when purchased as either an Individual Retirement Annuity (IRA) or in connection with a qualified retirement plan (each a "qualified Contract"). 2 DVA PLUS PROFILE IRAs and other qualified plans already have the tax-deferral feature found in this Contract. For an additional cost, the Contract provides other benefits including death benefits and the ability to receive a lifetime income. See "Expenses" in this profile. 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, the PIMCO Variable Insurance Trust, ING Variable Insurance Trust and the Prudential Series Fund. Keep in mind that while an investment in the fixed account earns a fixed interest rate, an investment in any investment portfolio, depending on market conditions, may cause you to make or lose money. The investment portfolios available under your Contract are:
THE GCG TRUST Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series Limited Maturity Bond Series Managed Global Series Small Cap Series Global Fixed Income Series Large Cap Value Series Growth Series Fully Managed Series All Cap Series Real Estate Series Total Return Series Research Series Hard Assets Series Equity Income Series Capital Appreciation Series Developing World Series Investors Series Capital Growth Series Emerging Markets Series Value Equity Series Strategic Equity Series THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond Portfolio PIMCO StocksPLUS Growth and Income Portfolio ING VARIABLE INSURANCE TRUST ING Global Brand Names Fund PRUDENTIAL SERIES FUND Prudential Jennison Portfolio
5. EXPENSES The Contract has insurance features and investment features, and there are charges related to each. For the insurance features, the Company deducts a mortality and expense risk charge, an asset-based administrative charge and an annual contract administrative charge of $40. We deduct the mortality and expense risk charge and the asset-based administrative charges daily directly from your contract value in the investment portfolios. The mortality and expense risk charge (depending on the death benefit you choose) and the asset-based administrative charge, on an annual basis, are as follows:
Standard Enhanced Death Benefit Death Benefit Annual Ratchet 7% Solution Max 7 ------------- -------------- ----------- ----- Mortality & Expense Risk Charge..... 1.15% 1.30% 1.50% 1.60% Asset-Based Administrative Charge... 0.15% 0.15% 0.15% 0.15% ----- ----- ----- ----- Total.......................... 1.30% 1.45% 1.65% 1.75%
If you choose to purchase one of the optional benefit riders we offer, we will deduct a separate quarterly charge for the rider on each quarterly contract anniversary and pro rata when the rider terminates. We deduct the rider charges directly from your contract value in the investment portfolios; if the value in the 3 DVA PLUS PROFILE investment portfolios is insufficient, rider charges will be deducted from the fixed account. The rider charges are as follows: OPTIONAL BENEFIT RIDER CHARGES Minimum Guaranteed Accumulation Benefit (MGAB) rider Waiting Period Quarterly Charge -------------- ---------------- 10 Year............. 0.125% of the MGAB Charge Base*(0.50% annually) 20 Year............. 0.125% of the MGAB Charge Base (0.50% annually) Minimum Guaranteed Income Benefit (MGIB) rider MGIB Base Rate Quarterly Charge -------------- ---------------- 7%.................. 0.125% of the MGIB Base* (0.50% annually) Minimum Guaranteed Withdrawal Benefit (MGWB) rider Quarterly Charge ---------------- 0.125% of the MGWB Eligible Payment Amount* (0.50% annually) * See prospectus for a description. Each investment portfolio has charges for investment management fees and other expenses. These charges, which vary by investment portfolio, currently range from 0.56% to 1.75% annually (see following table) of the portfolio's average daily net asset balance. If you withdraw money from your Contract, or if you begin receiving annuity payments, we may deduct a premium tax of 0%-3.5% to pay to your state. We deduct a surrender charge if you surrender your Contract or withdraw an amount exceeding the free withdrawal amount. The free withdrawal amount in any year is 15% of your contract value on the date of the withdrawal less any prior withdrawals during that contract year. The following table shows the schedule of the surrender charge that will apply. The surrender charge is a percent of each premium payment withdrawn. COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0% The following table is designed to help you understand the Contract charges. The "Total Annual Insurance Charges" column is divided into two: one part reflects the maximum mortality and expense risk charge (based on the Max 7 Enhanced Death Benefit), the asset-based administrative charge, the annual contract administrative charge as 0.06% (based on an average contract value of $69,000), and the highest optional rider charge as 0.75% in most cases, assuming the rider base is equal to the initial premium and the rider base increases by 7% each year. (Note, however, for the Liquid Asset and Limited Maturity Bond portfolios, the rider charge is equal to 0.50% because the base for the rider accumulates at the assumed net rate, not 7%.) The second part reflects the same insurance charge, but without any rider charges. The "Total Annual Investment Portfolio Charges" column reflects the portfolio charges for each portfolio and are based on actual expenses as of December 31, 1999, except for (i) portfolios that commenced operations during 2000 where the charges have been estimated, and (ii) newly formed portfolios where the charges have been estimated. The column "Total Annual Charges" reflects the sum of the previous two columns. The columns under the heading "Examples" show you how much you would pay under the Contract for a 1-year period and for a 10-year period. As required by the Securities and Exchange Commission, the examples assume that you invested $1,000 in a Contract that earns 5% annually and that you withdraw your money at the end of Year 1 or at the end of Year 10 (based on the Max 7 Enhanced Death Benefit). The 1 Year examples above include a 7% surrender charge. For Years 1 and 10, the examples show the total annual charges assessed during that time and 4 DVA PLUS PROFILE assume that you have elected the Max 7 Enhanced Death Benefit. For these examples, the premium tax is assumed to be 0%.
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF: INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS ------------------ ------------------ ------------------ ------------------ W/ THE W/O TOTAL ANNUAL W/ THE W/O W/ THE W/O W/ THE W/O HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE - ------------------------------------------------------------------------------------------------------------------------------------ THE GCG TRUST - ------------------------------------------------------------------------------------------------------------------------------------ THE GCG TRUST Liquid Asset 2.31% 1.81% 0.56% 2.87% 2.37% $99 $94 $322 $271 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Maturity Bond 2.31% 1.81% 0.57% 2.88% 2.38% $99 $94 $323 $272 - ------------------------------------------------------------------------------------------------------------------------------------ Global Fixed Income 2.56% 1.81% 1.60% 4.16% 3.41% $112 $104 $434 $369 - ------------------------------------------------------------------------------------------------------------------------------------ Fully Managed 2.56% 1.81% 0.97% 3.53% 2.78% $106 $98 $380 $311 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return 2.56% 1.81% 0.91% 3.47% 2.72% $105 $98 $375 $305 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Income 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Investors 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315 - ------------------------------------------------------------------------------------------------------------------------------------ Value Equity 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Rising Dividends 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Managed Global 2.56% 1.81% 1.25% 3.81% 3.06% $108 $101 $404 $337 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315 - ------------------------------------------------------------------------------------------------------------------------------------ All Cap 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315 - ------------------------------------------------------------------------------------------------------------------------------------ Research 2.56% 1.81% 0.91% 3.47% 2.72% $105 $98 $375 $305 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Growth 2.56% 1.81% 1.05% 3.61% 2.86% $106 $99 $387 $319 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Equity 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Growth 2.56% 1.81% 0.91% 3.47% 2.72% $105 $98 $375 $305 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Growth 2.56% 1.81% 1.04% 3.60% 2.85% $106 $99 $386 $318 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Hard Assets 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310 - ------------------------------------------------------------------------------------------------------------------------------------ Developing World 2.56% 1.81% 1.75% 4.31% 3.56% $113 $106 $446 $383 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 2.56% 1.81% 1.75% 4.31% 3.56% $113 $106 $446 $383 - ------------------------------------------------------------------------------------------------------------------------------------ THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond 2.56% 1.81% 0.75% 3.31% 2.56% $103 $96 $360 $290 - ------------------------------------------------------------------------------------------------------------------------------------ PIMCO StocksPLUS Growth and Income 2.56% 1.81% 0.65% 3.21% 2.46% $102 $95 $351 $280 - ------------------------------------------------------------------------------------------------------------------------------------ ING VARIABLE INSURANCE TRUST ING Global Brand Names 2.56% 1.81% 1.23% 3.79% 3.04% $108 $101 $403 $336 - ------------------------------------------------------------------------------------------------------------------------------------ THE PRUDENTIAL SERIES FUND Prudential Jennison 2.56% 1.81% 1.03% 3.59% 2.84% $106 $ 99 $385 $317 - ------------------------------------------------------------------------------------------------------------------------------------
The "Total Annual Investment Portfolio Charges" column above reflects current expense reimbursements for applicable investment portfolios. For more detailed information, see "Fees and Expenses" in the prospectus for the Contract. 6. TAXES Under a qualified Contract, your premiums are generally pre-tax contributions and accumulate on a tax-deferred basis. Premiums and earnings are generally taxed as income when you make a withdrawal or begin receiving annuity payments, presumably when you are in a lower tax bracket. 5 DVA PLUS PROFILE 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 10. Withdrawals above the free withdrawal amount may be subject to a surrender charge. We will apply a market value adjustment if you withdraw your money from the fixed account more than 30 days before the applicable maturity date. Income taxes and a penalty tax may apply to amounts withdrawn. 8. PERFORMANCE The value of your Contract will fluctuate depending on the investment performance of the portfolio(s) you choose. The following chart shows average annual total return for each portfolio that was in operation for the entire year of 1999. These numbers reflect the deduction of the mortality and expense risk charge (based on the Max 7 Enhanced Death Benefit), the asset-based administrative charge and the annual contract fee and the maximum optional death benefit rider charge on a rider base that accumulates at 7%, but do not reflect deductions for any surrender charges. If surrender charges were reflected, they would have the effect of reducing performance. Please keep in mind that past performance is not a guarantee of future results. 6 DVA PLUS PROFILE
- --------------------------------------------------------------------------------------------------------- CALENDAR YEAR INVESTMENT PORTFOLIO 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Managed by A I M Capital Management, Inc. Capital Appreciation(1) 21.83% 10.10% 26.01% 16.92% Strategic Equity(2) 52.76% -1.47% 20.35% 16.09% - --------------------------------------------------------------------------------------------------------- Managed by Alliance Capital Management, L.P. Capital Growth 22.70% 9.41% 22.29% -- - --------------------------------------------------------------------------------------------------------- Managed by Baring International Investment Limited (an affiliate) Developing World(2) 58.12% -- -- -- Emerging Markets(4) 81.32% -25.85% -11.46% 4.37% Global Fixed Income -10.78% 9.29% -1.65% 2.50% Hard Assets(2) 20.61% -31.21% 3.73% 28.08% - --------------------------------------------------------------------------------------------------------- Managed by Capital Guardian Trust Company Large Cap Value -- -- -- -- Managed Global(3) 59.67% 26.37% 9.60% 9.04% Small Cap(3) 47.27% 18.22% 7.80% 17.36% - --------------------------------------------------------------------------------------------------------- Managed by Eagle Asset Management, Inc. Value Equity -1.82% -0.78% 24.38% 7.93% - --------------------------------------------------------------------------------------------------------- Managed by ING Investment Management, LLC (an affiliate) Limited Maturity Bond -1.19% 4.42% 4.23% 1.93% Liquid Asset 2.34% 2.65% 2.65% 2.51% - --------------------------------------------------------------------------------------------------------- Managed by Janus Capital Corporation Growth(2) 74.27% 23.93% 13.12% -- - --------------------------------------------------------------------------------------------------------- Managed by Kayne Anderson Investment Management, LLC Rising Dividends 13.24% 11.52% 26.87% 17.19% - --------------------------------------------------------------------------------------------------------- Managed by Massachusetts Financial Services Company Mid-Cap Growth 75.15% 20.01% 16.93% 15.91% Research 21.41% 20.24% 17.38% 20.31% Total Return 0.99% 9.03% 18.10% 10.87% - --------------------------------------------------------------------------------------------------------- Managed by Prudential Investment Corporation Real Estate(5) -6.05% -15.44% 19.98% 32.12% - --------------------------------------------------------------------------------------------------------- Managed by Salomon Brothers Management, Inc. All Cap -- -- -- -- Investors -- -- -- -- - --------------------------------------------------------------------------------------------------------- Managed by T. Rowe Price Associates, Inc. Equity Income(2) -3.02% 5.78% 14.76% 5.86% Fully Managed 4.47% 3.47% 12.72% 13.22% - --------------------------------------------------------------------------------------------------------- Managed by Pacific Investment Management Company PIMCO High Yield Bond 0.64% -- -- -- PIMCO StocksPLUS Growth and Income 17.13% -- -- -- - --------------------------------------------------------------------------------------------------------- Managed by ING Investment Management Advisors B.V. (an affiliate) ING Global Brand Names -- -- -- -- - --------------------------------------------------------------------------------------------------------- Managed by Jennison Associates LLC Prudential Jennison -- -- -- -- - ---------------------------------------------------------------------------------------------------------
- ---------------------- (1) Prior to April 1, 1999, a different firm managed the Portfolio. (2) Prior to March 1, 1999, a different firm managed the Portfolio. (3) Prior to February 1, 2000, a different firm managed the Portfolio. (4) Prior to March 15, 2000, a different firm managed the Portfolio. (5) Prior to May 1, 2000, a different firm managed the Portfolio. 7 DVA PLUS PROFILE 9. DEATH BENEFIT You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced Death Benefit, (iii) the Annual Ratchet Enhanced Death Benefit or (iv) the Max 7 Enhanced Death Benefit. The 7% Solution Enhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit and the Max 7 Enhanced Death Benefit are available only if the contract owner or the annuitant (if the contract owner is not an individual) is not more than 79 years old at the time of purchase. The 7% Solution, Annual Ratchet and Max 7 Enhanced Death Benefits may not be available where a Contract is held by joint owners. The death benefit is payable when the first of the following persons dies: the contract owner, joint owner, or annuitant (if a contract owner is not an individual). Assuming you are the contract owner, if you die during the accumulation phase, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit paid depends on the death benefit you have chosen. The death benefit value is calculated at the close of the business day on which we receive written notice and due proof of death, as well as required claim forms, at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of your death, the amount of the benefit payable in the future may be affected. If you die after the annuity start date and you are the annuitant, your beneficiary will receive the death benefit you chose under the annuity option then in effect. The death benefit may be subject to certain mandatory distribution rules required by federal tax law. Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract reduced by a pro rata adjustment for any withdrawals; or 3) the cash surrender value. Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract reduced by a pro rata adjustment for any withdrawals; 3) the cash surrender value; or 4) the enhanced death benefit, which we determine as follows: we credit interest each business day at the 7% annual effective rate to the enhanced death benefit from the preceding day (which would be the initial premium added if the preceding day is the contract date), then we add additional premiums paid since the preceding day, then we adjust for any withdrawals (including any market value adjustment applied to such withdrawal and any associated surrender charges) since the preceding day. Special withdrawals are withdrawals of up to 7% per year of cumulative premiums. Special withdrawals shall reduce the 7% Solution Benefit by the amount of contract value withdrawn. For any withdrawals in excess of the amount available as a special withdrawal, a pro rata adjustment to the death benefit is made. The maximum enhanced death benefit is 3 times all premium payments added, adjusted to reflect withdrawals. Each accumulated initial or additional premium payment will continue to grow at the 7% annual effective rate until reaching the maximum enhanced death benefit or attained age 80 of the contract owner, if earlier. Note for current Special Funds: The actual interest rate used for calculating the 7% Solution Enhanced Death Benefit for the Liquid Asset and Limited Maturity Bond investment portfolios and the Fixed Account, will be the lesser of (1) 7% and (2) the interest rate, positive or negative, providing a yield on the enhanced death benefit equal to the net return for the current valuation 8 DVA PLUS PROFILE period on the contract value allocated to Special Funds. We may, with 30 days notice to you, designate any fund as a Special Fund on existing contracts with respect to new premiums added to such fund and also with respect to new transfers to such funds. Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greatest of: 1) the contract value; 2) the total premium payments made under the Contract reduced by a pro rata adjustment for any withdrawal; 3) the cash surrender value; or 4) the enhanced death benefit, which is determined as follows: On each contract anniversary that occurs on or before the contract owner turns age 80, we compare the prior enhanced death benefit to the contract value and select the larger amount as the new enhanced death benefit. On all other days, the enhanced death benefit is the following amount: On a daily basis we first take the enhanced death benefit from the preceding day (which would be the initial premium if the preceding day is the contract date), then we add additional premiums paid since the preceding day, and then we adjust for any withdrawals on a pro rata basis, (including any market value adjustment applied to such withdrawal and any associated surrender charges) since the preceding day. That amount becomes the new enhanced death benefit. Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity start date, your beneficiary will receive the greater of the 7% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit. Under this benefit option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet Benefit are calculated in the same manner as if each were the elected benefit. Note: In all cases described above, the amount of the death benefit could be reduced by premium taxes owed and withdrawals not previously deducted. The enhanced death benefits may not be available in all states. 10. OTHER INFORMATION FREE LOOK. If you cancel the Contract within 10 days after you receive it, you will receive a refund of 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, we include a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios, the contract value returned may be greater or less than the premium payment you paid. Some states require us to return to you the amount of the paid premium, excluding any charges, (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. Transfers between Special Funds and other investment portfolios will result in a transfer of the Guaranteed Death Benefit in proportion to the account value transferred. In cases where more than one Guaranteed Death Benefit exists because of such transfers, each death benefit will be combined to calculate the total death benefit. 9 DVA PLUS PROFILE NO PROBATE. In most cases, when you die, the person you choose as your beneficiary will receive the death benefit without going through probate. See "Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the prospectus for the Contract. OPTIONAL RIDERS. Subject to state availability, you may purchase one of three optional benefit riders for an additional charge. You may not add more than one of these three riders to your Contract. There is a separate charge for each rider. Once elected, the riders generally may not be cancelled. This means once added the rider may not be removed and charges will be assessed regardless of the performance of your Contract. Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an optional benefit which offers you the ability to receive a one-time adjustment to your contract value in the event your contract value on a specified date is below the MGAB rider guarantee. When added at issue, the MGAB rider guarantees that your contract value will at least equal your initial premium payment at the end of ten years, or, at least equal two times your initial premium payment at the end of twenty years, depending on the waiting period you select, reduced pro rata for withdrawals and certain transfers. The MGAB rider offers a ten-year option and a twenty-year option, of which you may purchase only one. Withdrawals and certain transfers may reduce the guarantee by more than the amount withdrawn or transferred. The MGAB rider may offer you protection in the event of a lower contract value that may result from unfavorable investment performance of your Contract. There are exceptions, conditions, eligibility requirements, and important considerations associated with the MGAB rider. You should read the prospectus for more complete information. Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an optional benefit which guarantees a minimum amount of income that will be available to you upon annuitization, regardless of fluctuating market conditions. Ordinarily, the amount of income that will be available to you upon annuitization is based upon your contract value, the annuity option you selected and the guaranteed or then current income factors in effect. If you purchase the MGIB rider, the minimum amount of income that will be available to you upon annuitization on the MGIB Benefit Date is the greater of the amounts that are ordinarily available to you under your Contract and the MGIB annuity benefit, which is based on your MGIB Base, the MGIB annuity option you selected and the MGIB guaranteed income factors specified in your rider. Your MGIB Base generally depends on the amount of premiums you pay during the first five contract years after you purchase the rider, when you pay them, and accumulated at the MGIB rate, less adjustments for withdrawals and transfers. There are exceptions, conditions, eligibility requirements, and important considerations associated with the MGIB rider. You should read the prospectus for more complete information. Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is an optional benefit which guarantees that you will receive annual periodic payments, when added together, equal to all premium payments paid during the first two contract years, less adjustments for any prior withdrawals. If your contract value is reduced to zero, your periodic payments will be 7% of your Eligible Payment Amount every year. (Of course any applicable income and penalty taxes will apply to amounts withdrawn.) Your original Eligible Payment Amount is your premium payments received during the first two contract years. Withdrawals that you make in excess of the above periodic payment amount may substantially reduce the guarantee. There are exceptions, conditions, eligibility requirements, and important considerations associated with the MGWB rider. You should read the prospectus for more complete information. ADDITIONAL FEATURES. This Contract has other features you may be interested in. These include: Dollar Cost Averaging. This is a program that allows you to invest a fixed amount of money in the investment portfolios each month. It may give you a lower average cost per unit over time than a single one-time purchase. Dollar cost averaging requires regular investments regardless of fluctuating price levels, and does not guarantee profits or prevent losses in a declining market. This option is currently available only if you have $1,200 or more in the Limited Maturity Bond or the Liquid Asset investment portfolios or in the fixed account with either a 6-month or 1-year guaranteed interest period. Transfers from the fixed account under this program will not be subject to a market value adjustment. 10 DVA PLUS PROFILE 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, PENNSYLVANIA 19380 (800) 366-0066 or your registered representative. 11 DVA PLUS PROFILE This page intentionally left blank. - -------------------------------------------------------------------------------- GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS GOLDENSELECT DVA PLUS(R) - -------------------------------------------------------------------------------- MAY 1, 2000 This prospectus describes GoldenSelect DVA Plus, 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 listed on the back of this cover. We will credit your Fixed Interest Allocation(s) with a fixed rate of interest. We set the interest rates periodically. We will not set the interest rate to be less than a minimum annual rate of 3%. You may choose guaranteed interest periods of 6 months, and 1, 3, 5, 7 and 10 years. The interest earned on your money as well as your principal is guaranteed as long as you hold them until the maturity date. If you take your money out from a Fixed Interest Allocation more than 30 days before the applicable maturity date, we will apply a market value adjustment ("Market Value Adjustment"). A Market Value Adjustment could increase or decrease your contract value and/or the amount you take out. You bear the risk that you may receive less than your principal if we take a Market Value Adjustment. For Contracts sold in some states, not all Fixed Interest Allocations or subaccounts are available. You have a right to return a Contract within 10 days after you receive it for a refund of the adjusted contract value (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 May 1, 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 THE SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST OR THE PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND. - -------------------------------------------------------------------------------- A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF THIS COVER. - -------------------------------------------------------------------------------- The investment portfolios available under your Contract and the portfolio managers are: A I M CAPITAL MANAGEMENT, INC. Capital Appreciation Series Strategic Equity Series ALLIANCE CAPITAL MANAGEMENT L. P. Capital Growth Series BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE) Developing World Series Emerging Markets Series Global Fixed Income Series Hard Assets Series CAPITAL GUARDIAN TRUST COMPANY Large Cap Value Series Managed Global Series Small Cap Series EAGLE ASSET MANAGEMENT, INC. Value Equity Series 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 MASSACHUSETTS FINANCIAL SERVICES COMPANY Mid-Cap Growth Series Research Series Total Return Series THE PRUDENTIAL INVESTMENT CORPORATION Real Estate Series SALOMON BROTHERS ASSET MANAGEMENT, INC. All Cap Series Investors Series T. ROWE PRICE ASSOCIATES, INC. Equity Income Series Fully Managed Series PACIFIC INVESTMENT MANAGEMENT COMPANY PIMCO High Yield Bond Portfolio PIMCO StocksPLUS Growth and Income Portfolio ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE) ING Global Brand Names Fund JENNISON ASSOCIATES LLC Prudential Jennison Portfolio The above mutual fund investment portfolios are purchased and held by corresponding divisions of our Separate Account B. We refer to the divisions as "subaccounts" and the money you place in the Fixed Account's guaranteed interest periods as "Fixed Interest Allocations" in this prospectus. - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE Index of Special Terms................................................. 1 Fees and Expenses...................................................... 2 Performance Information................................................ 9 Accumulation Unit................................................ 9 Net Investment Factor............................................ 10 Condensed Financial Information.................................. 10 Financial Statements............................................. 10 Performance Information.......................................... 10 Golden American Life Insurance Company................................. 11 The Trusts ............................................................ 11 Golden American Separate Account B..................................... 12 The Investment Portfolios.............................................. 12 Investment Objectives............................................ 13 Investment Management Fees....................................... 16 The Fixed Interest Allocation.......................................... 17 Selecting a Guaranteed Interest Period........................... 17 Guaranteed Interest Rates........................................ 17 Transfers from a Fixed Interest Allocation....................... 18 Withdrawals from a Fixed Interest Allocation..................... 18 Market Value Adjustment.......................................... 19 The Annuity Contract................................................... 20 Contract Date and Contract Year ................................. 20 Annuity Start Date............................................... 20 Contract Owner................................................... 20 Annuitant........................................................ 20 Beneficiary...................................................... 21 Purchase and Availability of the Contract........................ 22 Crediting of Premium Payments.................................... 22 Administrative Procedures........................................ 23 Contract Value................................................... 23 Cash Surrender Value............................................. 23 Surrendering to Receive the Cash Surrender Value................. 24 The Subaccounts.................................................. 24 The Fixed Account................................................ 24 Optional Riders.................................................. 24 Rider Date.................................................. 25 Special Funds............................................... 25 No Cancellation............................................. 25 Termination................................................. 25 Minimum Guaranteed Accumulation Benefit Rider............... 25 Minimum Guaranteed Income Benefit Rider..................... 27 Minimum Guaranteed Withdrawal Benefit Rider................. 30 Other Contracts.................................................. 32 Other Important Provisions....................................... 32 Withdrawals............................................................ 32 Regular Withdrawals.............................................. 32 Systematic Withdrawals........................................... 32 IRA Withdrawals.................................................. 34 Transfers Among Your Investments....................................... 34 Dollar Cost Averaging............................................ 35 Automatic Rebalancing............................................ 36 Death Benefit Choices.................................................. 36 Death Benefit During the Accumulation Phase...................... 36 Standard Death Benefit...................................... 37 Enhanced Death Benefits..................................... 37 i - -------------------------------------------------------------------------------- TABLE OF CONTENTS (CONTINUED) - -------------------------------------------------------------------------------- PAGE Death Benefit During the Income Phase............................ 38 Continuation After Death--Spouse................................. 38 Continuation After Death--Non Spouse............................. 38 Required Distributions upon Contract Owner's Death............... 38 Charges and Fees....................................................... 39 Charge Deduction Subaccount...................................... 39 Charges Deducted from the Contract Value......................... 39 Surrender Charge............................................ 39 Waiver of Surrender Charge for Extended Medical Care........ 39 Free Withdrawal Amount...................................... 40 Surrender Charge for Excess Withdrawals..................... 40 Premium Taxes............................................... 40 Administrative Charge....................................... 40 Transfer Charge............................................. 40 Charges Deducted from the Subaccounts............................ 41 Mortality and Expense Risk Charge........................... 41 Asset-Based Administrative Charge........................... 41 Optional Rider Charges...................................... 41 Trust Expenses................................................... 42 The Annuity Options.................................................... 42 Annuitization of Your Contract................................... 42 Selecting the Annuity Start Date................................. 43 Frequency of Annuity Payments.................................... 43 The Annuity Options.............................................. 43 Income for a Fixed Period................................... 43 Income for Life with a Period Certain....................... 43 Joint Life Income........................................... 44 Annuity Plan................................................ 44 Payment When Named Person Dies................................... 44 Other Contract Provisions.............................................. 44 Reports to Contract Owners....................................... 44 Suspension of Payments........................................... 44 In Case of Errors in Your Application............................ 44 Assigning the Contract as Collateral............................. 45 Contract Changes-Applicable Tax Law.............................. 45 Free Look........................................................ 45 Group or Sponsored Arrangements.................................. 45 Selling the Contract............................................. 45 Other Information...................................................... 46 Voting Rights.................................................... 46 State Regulation................................................. 46 Legal Proceedings................................................ 46 Legal Matters.................................................... 46 Experts.......................................................... 47 Federal Tax Considerations............................................. 47 More Information About Golden American Life Insurance Company.......... 52 Financial Statements of Golden American Life Insurance Company......... 72 Statement of Additional Information Table of Contents................................................ 103 Appendix A Condensed Financial Information.................................. A1 Appendix B Market Value Adjustment Examples................................. B1 Appendix C Surrender Charge for Excess Withdrawals Example.................. C1 ii - -------------------------------------------------------------------------------- INDEX OF SPECIAL TERMS - -------------------------------------------------------------------------------- The following special terms are used throughout this prospectus. Refer to the page(s) listed for an explanation of each term: SPECIAL TERM PAGE Accumulation Unit 9 Annual Ratchet Enhanced Death Benefit 37 Annuitant 21 Annuity Start Date 20 Cash Surrender Value 23 Max 7 Enhanced Death Benefit 37 Contract Date 20 Contract Owner 20 Contract Value 23 Contract Year 20 Fixed Interest Allocation 16 Free Withdrawal Amount 39 Market Value Adjustment 19 Net Investment Factor 10 Rider Date 25 7% Solution Enhanced Death Benefit 37 Special Fund 25 Standard Death Benefit 37 The following terms as used in this prospectus have the same or substituted meanings as the corresponding terms currently used in the Contract: TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE CONTRACT Accumulation Unit Value Index of Investment Experience Annuity Start Date Annuity Commencement Date Contract Owner Owner or Certificate Owner Contract Value Accumulation Value Transfer Charge Excess Allocation Charge Fixed Interest Allocation Fixed Allocation Free Look Period Right to Examine Period Guaranteed Interest Period Guarantee Period Subaccount(s) Division(s) Net Investment Factor Experience Factor Regular Withdrawals Conventional Partial Withdrawals Withdrawals Partial Withdrawals 1 - -------------------------------------------------------------------------------- FEES AND EXPENSES - -------------------------------------------------------------------------------- CONTRACT OWNER TRANSACTION EXPENSES* Surrender Charge: COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 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.............................................. $ 40 (We waive this charge if the total of your premium payments is $100,000 or more or if your contract value at the end of a contract year is $100,000 or more.) *** We deduct this charge on each contract anniversary and on surrender. SEPARATE ACCOUNT ANNUAL CHARGES****
STANDARD ENHANCED DEATH BENEFIT DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7 ------------- -------------- ----------- ----- Mortality & Expense Risk Charge.......... 1.15% 1.30% 1.50% 1.60% Asset-Based Administrative Charge........ 0.15% 0.15% 0.15% 0.15% ----- ----- ----- ----- Total Separate Account Charges.... 1.30% 1.45% 1.65% 1.75%
*** As a percentage of average assets in each subaccount. The mortality and expense risk charge and the asset-based administrative charge are deducted daily. OPTIONAL RIDER CHARGES***** Minimum Guaranteed Accumulation Benefit rider: Waiting Period Quarterly Charge -------------- ---------------- 10 Year.......... 0.125% of the MGAB Charge Base(1) (0.50% annually) 20 Year.......... 0.125% of the MGAB Charge Base (0.50% annually) Minimum Guaranteed Income Benefit rider: MGIB Base Rate Quarterly Charge -------------- ---------------- 7%.................... 0.125% of the MGIB Base(2) (0.50% annually) Minimum Guaranteed Withdrawal Benefit rider: Quarterly Charge ---------------- 0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually) ***** We deduct optional rider charges from the subaccounts in which you are invested on each quarterly contract anniversary and pro rata on termination of the Contract; if the value in the subaccounts is insufficient, the optional rider charges will be deducted from the Fixed Interest Allocation nearest maturity. (1) The MGAB Charge Base is the total of premiums added during the 2-year period commencing on the rider date if you purchase the rider on the contract date, or, your contract value on the rider date plus premiums added during the 2-year period commencing on the rider date if your purchase the rider after the contract date, reduced pro rata for all withdrawals taken while the MGAB rider is in effect, and reduced pro rata for transfers made during the three year period before the MGAB Benefit Date. 2 (2) The MGIB Base generally depends on the amount of premiums you pay(s) during the first five contract years after you purchase the rider, when you pay them, and less a pro rata deduction for any withdrawal made while the MGIB rider is in effect. (3) The MGWB Eligible Payment Amount is (i) the total of premiums paid during the 2-year period commencing on the rider date if you purchase the rider on the contract date; or (ii) your contract value on the rider date plus subsequent premiums received during the two-year period commencing on the rider date. THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3) - -------------------------------------------------------------------------------- Liquid Asset 0.56% 0.00% 0.56% - -------------------------------------------------------------------------------- Limited Maturity Bond 0.56% 0.01% 0.57% - -------------------------------------------------------------------------------- Global Fixed Income 1.60% 0.00% 1.60% - -------------------------------------------------------------------------------- Fully Managed 0.96% 0.01% 0.97% - -------------------------------------------------------------------------------- Total Return 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- Equity Income 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Investors 1.00% 0.01% 1.01% - -------------------------------------------------------------------------------- Value Equity 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Rising Dividends 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Managed Global 1.25% 0.00% 1.25% - -------------------------------------------------------------------------------- Large Cap Value 1.00% 0.01% 1.01% - -------------------------------------------------------------------------------- All Cap 1.00% 0.01% 1.01% - -------------------------------------------------------------------------------- Research 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- Capital Appreciation 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Capital Growth 1.04% 0.01% 1.05% - -------------------------------------------------------------------------------- Strategic Equity 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Mid-Cap Growth 0.91% 0.00% 0.91% - -------------------------------------------------------------------------------- Small Cap 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Growth 1.04% 0.00% 1.04% - -------------------------------------------------------------------------------- Real Estate 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Hard Assets 0.96% 0.00% 0.96% - -------------------------------------------------------------------------------- Developing World 1.75% 0.00% 1.75% - -------------------------------------------------------------------------------- Emerging Markets 1.75% 0.00% 1.75% - -------------------------------------------------------------------------------- (1) Fees decline as the total assets of certain combined portfolios increase. See the prospectus for the GCG Trust for more information. (2) Other expenses generally consist of independent trustees fees and certain expenses associated with investing in international markets. Other expenses are based on actual expenses for the year ended December 31, 1999, except for portfolios that commenced operations in 2000 where the charges have been estimated. (3) Total Expenses are based on actual expenses for the fiscal year ended December 31, 1999. 3 THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of a portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1) - -------------------------------------------------------------------------------- PIMCO High Yield Bond 0.25% 0.50% 0.75% - -------------------------------------------------------------------------------- PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65% - -------------------------------------------------------------------------------- (1) PIMCO has contractually agreed to reduce total annual portfolio operating expenses to the extent they would exceed, due to the payment of organizational expenses and Trustees' fees, 0.65% and 0.75% for the High Yield Bond and the StocksPLUS Growth and Income Portfolios, respectively, of average daily net assets. Without such reductions, total annual operating expenses for the fiscal year ended December 31, 1999 would have remained unchanged for both Portfolios. Under the Expense Limitation Agreement, PIMCO may recoup any such waivers and reimbursements in future periods, not exceeding three years, provided total expenses, including such recoupment, do not exceed the annual expense limit. The fees expressed are restated as of April 1, 2000. ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets of the portfolio):
- -------------------------------------------------------------------------------------------------------- OTHER TOTAL EXPENSES MANAGEMENT 12B-1 FEE(3) EXPENSES AFTER FEE WAIVER FEE AFTER AFTER AFTER EXPENSE AND EXPENSE PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2) - -------------------------------------------------------------------------------------------------------- ING Global Brand Names 0.30% 0.15% 0.78% 1.23% - --------------------------------------------------------------------------------------------------------
(1) Since the portfolio had not commenced operations as of December 31, 1999, expenses as shown are based on estimates of the portfolio's operating expenses for the portfolio's first fiscal year. (2) ING Mutual Funds Management Co. LLC, the investment manager, has entered into an expense limitation contract with the portfolio, under which it will limit expenses of the portfolio as shown, excluding interest, taxes, brokerage, and extraordinary expenses through December 31, 2000. Fee waiver and/or reimbursements by the investment manager may vary in order to achieve such contractually obligated Total Expenses. Without this contract, and based on estimates for the fiscal year ending December 31, 2000, total expenses are estimated to be 2.03% for the portfolio. (3) Pursuant to a Plan of Distribution adopted by the portfolio under Rule 12b-1 under the 1940 Act, the portfolio pays its distributor an annual fee of up to 0.25% of average daily net assets attributable to portfolio shares. The distribution fee may be used by the distributor for the purpose of financing any activity which is primarily intended to result in the sale of shares of the portfolio. For more information see the portfolio's Statement of Additional Information. THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily net assets of the portfolio): - -------------------------------------------------------------------------------- MANAGEMENT OTHER TOTAL PORTFOLIO FEE 12B-1 FEE(1) EXPENSES EXPENSES - -------------------------------------------------------------------------------- Prudential Jennison 0.60% 0.25% 0.18% 1.03% - -------------------------------------------------------------------------------- (1) The 12b-1 fee for the Prudential Jennison Portfolio is imposed to enable to portfolio to recover certain sales expenses, including compensation to broker-dealers, the cost of printing prospectuses for delivery to prospective investors and advertising costs for the portfolio. Over a long period of time, the total amount of 12b-1 fees paid may exceed the amount of sales charges imposed by the product. 4 EXAMPLES: The following four examples are designed to show you the expenses you would pay on $1,000 investment that earns 5% annually. Each example assumes election of the Max 7 Enhanced Death Benefit. The examples reflect the deduction of a mortality and expense risk charge, an asset-based administrative charge, and the annual contract administrative charge as an annual charge of 0.06% of assets (based on an average contract value of $69,000). In addition, Examples 1 and 2 assume you elected an optional benefit rider with the highest charge (0.75% annually where the rider base is equal to the initial premium and increases by 7% annually, except for the Liquid Asset and Limited Maturity Bond portfolios, where the charge is 0.50% annually) and assume the rider charge is assessed each quarter on a base equal to the hypothetical $1,000 premium increasing at 7% per year (the assumed net rate for the Liquid Asset and Limited Maturity Bond portfolios). The annual charge of 0.75% results from the assumption of a 7% annual increase in the rider base but only a 5% earnings increase in the contract value before expenses. Thus, 0.75% represents an annual charge over the 10-year period which is equivalent to an increasing charge of 0.125% per quarter over the same period. If the Standard Death Benefit, the Annual Ratchet Enhanced Death Benefit or 7% Solution Enhanced Death Benefit is elected instead of the Max 7 Enhanced Death Benefit used in the examples, the actual expenses will be less than those represented in the examples. Note that surrender charges may apply if you choose to annuitize your Contract within the first 3 contract years, and under certain circumstances, within the first 7 contract years. Thus, in the event you annuitize your Contract under circumstances which require a surrender charge, you should refer to Examples 1 and 3 below which assume applicable surrender charges. 5 Example 1: If you surrender your Contract at the end of the applicable time period and elected an optional benefit rider with the highest charge, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $ 99 $149 $192 $322 Limited Maturity Bond $ 99 $150 $193 $323 Global Fixed Income $112 $186 $252 $434 Fully Managed $106 $168 $223 $380 Total Return $105 $167 $220 $375 Equity Income $105 $168 $223 $379 Investors $106 $169 $225 $384 Value Equity $105 $168 $223 $379 Rising Dividends $105 $168 $223 $379 Managed Global $108 $176 $236 $404 Large Cap Value $106 $169 $225 $384 All Cap $106 $169 $225 $384 Research $105 $167 $220 $375 Capital Appreciation $105 $168 $223 $379 Capital Growth $106 $171 $227 $387 Strategic Equity $105 $168 $223 $379 Mid-Cap Growth $105 $167 $220 $375 Small Cap $105 $168 $223 $379 Growth $106 $170 $226 $386 Real Estate $105 $168 $223 $379 Hard Assets $105 $168 $223 $379 Developing World $113 $191 $259 $446 Emerging Markets $113 $191 $259 $446 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $103 $162 $213 $360 PIMCO StocksPLUS Growth and Income $102 $159 $208 $351 ING VARIABLE INSURANCE TRUST ING Global Brand Names $108 $176 $235 $403 PRUDENTIAL SERIES FUND Prudential Jennison $106 $170 $226 $385 6 Example 2: If you do not surrender your Contract at the end of the applicable time period and elected an optional benefit rider with the highest charge, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $29 $ 89 $152 $322 Limited Maturity Bond $29 $ 90 $153 $323 Global Fixed Income $42 $126 $212 $434 Fully Managed $36 $108 $183 $380 Total Return $35 $107 $180 $375 Equity Income $35 $108 $183 $379 Investors $36 $109 $185 $384 Value Equity $35 $108 $183 $379 Rising Dividends $35 $108 $183 $379 Managed Global $38 $116 $196 $404 Large Cap Value $36 $109 $185 $384 All Cap $36 $109 $185 $384 Research $35 $107 $180 $375 Capital Appreciation $35 $108 $183 $379 Capital Growth $36 $111 $187 $387 Strategic Equity $35 $108 $183 $379 Mid-Cap Growth $35 $107 $180 $375 Small Cap $35 $108 $183 $379 Growth $36 $110 $186 $386 Real Estate $35 $108 $183 $379 Hard Assets $35 $108 $183 $379 Developing World $43 $131 $219 $446 Emerging Markets $43 $131 $219 $446 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $33 $102 $173 $360 PIMCO StocksPLUS Growth and Income $32 $ 99 $168 $351 ING VARIABLE INSURANCE TRUST ING Global Brand Names $38 $116 $195 $403 PRUDENTIAL SERIES FUND Prudential Jennison $36 $110 $186 $385 7 Example 3: If you surrender your Contract at the end of the applicable time period and did not elect any optional benefit rider, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $ 94 $134 $167 $271 Limited Maturity Bond $ 94 $134 $167 $272 Global Fixed Income $104 $165 $217 $369 Fully Managed $ 98 $146 $187 $311 Total Return $ 98 $144 $184 $305 Equity Income $ 98 $146 $186 $310 Investors $ 99 $147 $189 $315 Value Equity $ 98 $146 $186 $310 Rising Dividends $ 98 $146 $186 $310 Managed Global $101 $155 $201 $337 Large Cap Value $ 99 $147 $189 $315 All Cap $ 99 $147 $189 $315 Research $ 98 $144 $184 $305 Capital Appreciation $ 98 $146 $186 $310 Capital Growth $ 99 $149 $191 $319 Strategic Equity $ 98 $146 $186 $310 Mid-Cap Growth $ 98 $144 $184 $305 Small Cap $ 98 $146 $186 $310 Growth $ 99 $148 $190 $318 Real Estate $ 98 $146 $186 $310 Hard Assets $ 98 $146 $186 $310 Developing World $106 $169 $225 $383 Emerging Markets $106 $169 $225 $383 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $ 96 $140 $176 $290 PIMCO StocksPLUS Growth and Income $ 95 $137 $171 $280 ING VARIABLE INSURANCE TRUST ING Global Brand Names $101 $154 $200 $336 PRUDENTIAL SERIES FUND Prudential Jennison $ 99 $148 $190 $317 8 Example 4: If you do not surrender your Contract at the end of the applicable time period and did not elect any optional benefit rider, you would pay the following expenses for each $1,000 invested: THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS Liquid Asset $24 $ 74 $127 $271 Limited Maturity Bond $24 $ 74 $127 $272 Global Fixed Income $34 $105 $177 $369 Fully Managed $28 $ 86 $147 $311 Total Return $28 $ 84 $144 $305 Equity Income $28 $ 86 $146 $310 Investors $29 $ 87 $149 $315 Value Equity $28 $ 86 $146 $310 Rising Dividends $28 $ 86 $146 $310 Managed Global $31 $ 95 $161 $337 Large Cap Value $29 $ 87 $149 $315 All Cap $29 $ 87 $149 $315 Research $28 $ 84 $144 $305 Capital Appreciation $28 $ 86 $146 $310 Capital Growth $29 $ 89 $151 $319 Strategic Equity $28 $ 86 $146 $310 Mid-Cap Growth $28 $ 84 $144 $305 Small Cap $28 $ 86 $146 $310 Growth $29 $ 88 $150 $318 Real Estate $28 $ 86 $146 $310 Hard Assets $28 $ 86 $146 $310 Developing World $36 $109 $185 $383 Emerging Markets $36 $109 $185 $383 THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond $26 $ 80 $136 $290 PIMCO StocksPLUS Growth and Income $25 $ 77 $131 $280 ING VARIABLE INSURANCE TRUST ING Global Brand Names $31 $ 94 $160 $336 PRUDENTIAL SERIES FUND Prudential Jennison $29 $ 88 $150 $317 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. - -------------------------------------------------------------------------------- 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. 9 THE NET INVESTMENT FACTOR The Net Investment Factor is an index number which reflects certain charges under the Contract and the investment performance of the subaccount. The Net Investment Factor is calculated for each subaccount as follows: 1) We take the net asset value of the subaccount at the end of each business day. 2) We add to (1) the amount of any dividend or capital gains distribution declared for the subaccount and reinvested in such subaccount. We subtract from that amount a charge for our taxes, if any. 3) We divide (2) by the net asset value of the subaccount at the end of the preceding business day. 4) We then subtract the applicable daily mortality and expense risk charge and the daily asset-based administrative charge from the subaccount. Calculations for the subaccounts are made on a per share basis. CONDENSED FINANCIAL INFORMATION Tables containing (i) the accumulation unit value history of each subaccount of Golden American Separate Account B offered in this prospectus and (ii) the total investment value history of each such subaccount are presented in Appendix A -- Condensed Financial Information. FINANCIAL STATEMENTS The audited financial statements of Separate Account B for the year ended December 31, 1999 are included in the Statement of Additional Information. The audited consolidated financial statements of Golden American for the years ended December 31, 1999, 1998 and 1997 are included in this prospectus. PERFORMANCE INFORMATION From time to time, we may advertise or include in reports to contract owners performance information for the subaccounts of Separate Account B, including the average annual total return performance, yields and other nonstandard measures of performance. Such performance data will be computed, or accompanied by performance data computed, in accordance with standards defined by the SEC. Except for the Liquid Asset subaccount, quotations of yield for the subaccounts will be based on all investment income per unit (contract value divided by the accumulation unit) earned during a given 30-day period, less expenses accrued during such period. Information on standard total average annual return performance will include average annual rates of total return for 1, 5 and 10 year periods, or lesser periods depending on how long Separate Account B has been investing in the portfolio. We may show other total returns for periods less than one year. Total return figures will be based on the actual historic performance of the subaccounts of Separate Account B, assuming an investment at the beginning of the period when the separate account first invested in the portfolios, withdrawal of the investment at the end of the period, adjusted to reflect the deduction of all applicable portfolio and current contract charges. We may also show rates of total return on amounts invested at the beginning of the period with no withdrawal at the end of the period. Total return figures which assume no withdrawals at the end of the period will reflect all recurring charges, but will not reflect the surrender charge. Quotations of average annual return for the Managed Global subaccount take into account the period before September 3, 1996, during which it was maintained as a subaccount of Golden American Separate Account D. In addition, we may present historic performance data for the investment portfolios since their inception reduced by some or all of the fees and charges under the Contract. Such adjusted historic performance includes data that precedes the inception dates of the subaccounts of Separate Account B. This data is designed to show the performance that would 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 10 effect of earnings. We calculate quotations of yield for the remaining subaccounts on all investment income per accumulation unit earned during a given 30-day period, after subtracting fees and expenses accrued during the period, assuming no surrender and the selection of the Max 7 Enhanced Death Benefit and the MGIB optional benefit rider. We may compare performance information for a subaccount to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money Market Institutional Averages, or any other applicable market indices, (ii) other variable annuity separate accounts or other investment products tracked by Lipper Analytical Services (a widely used independent research firm which ranks mutual funds and other investment companies), or any other rating service, and (iii) the Consumer Price Index (measure for inflation) to determine the real rate of return of an investment in the Contract. Our reports and promotional literature may also contain other information including the ranking of any subaccount based on rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by similar rating services. Performance information reflects only the performance of a hypothetical contract and should be considered in light of other factors, including the investment objective of the investment portfolio and market conditions. Please keep in mind that past performance is not a guarantee of future results. - -------------------------------------------------------------------------------- GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Golden American Life Insurance Company is a Delaware stock life insurance company, which was originally incorporated in Minnesota on January 2, 1973. Golden American is a wholly owned subsidiary of Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). Equitable of Iowa is a wholly owned subsidiary of ING Groep N.V. ("ING"), a global financial services holding company based in The Netherlands. Golden American is authorized to sell insurance and annuities in all states, except New York, and the District of Columbia. In May 1996, Golden American established a subsidiary, First Golden American Life Insurance Company of New York, which is authorized to sell annuities in New York and Delaware. Golden American's consolidated financial statements appear in this prospectus. Equitable of Iowa is the holding company for Golden American, Directed Services, Inc., the investment manager of the GCG Trust and the distributor of the Contracts, and other interests. Equitable of Iowa and another ING affiliate own ING Investment Management, LLC, a portfolio manager of the GCG Trust. ING also owns Baring International Investment Limited, another portfolio manager of the GCG Trust. Our principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. - -------------------------------------------------------------------------------- THE TRUSTS - -------------------------------------------------------------------------------- The GCG Trust is a mutual fund whose shares are offered to separate accounts funding variable annuity and variable life insurance policies offered by Golden American and other affiliated insurance companies. The GCG Trust may also sell its shares to separate accounts of insurance companies not affiliated with Golden American. Pending SEC approval, shares of the GCG Trust may also be sold to certain qualified pension and retirement plans. The address of the GCG Trust is 1475 Dunwoody Drive, West Chester, PA 19380. The PIMCO Variable Insurance Trust is also a mutual fund whose shares are available to separate accounts of insurance companies, including Golden American, for both variable annuity contracts and variable life insurance policies and to qualified pension and retirement plans. The address of the PIMCO Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach, CA 92660. ING Variable Insurance Trust is also a mutual fund whose shares are offered to separate accounts funding variable annuity contracts offered by Golden American. Pending SEC approval, shares of ING Variable Insurance Trust may also be sold to variable annuity and variable life insurance policies offered by other 11 insurance companies, both affiliated and unaffiliated with Golden American. The address of ING Variable Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380. The Prudential Series Fund is also a mutual fund whose shares are available to separate accounts funding variable annuity and variable life insurance polices offered by The Prudential Insurance Company of America, its affiliated insurers and other life insurance companies not affiliated with Prudential, including Golden American. The address of the Prudential Series Fund is 751 Broad Street, Newark, NJ 07102. In the event that, due to differences in tax treatment or other considerations, the interests of contract owners of various contracts participating in the Trusts conflict, we, the Boards of Trustees of the GCG Trust, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, and the ING Variable Insurance Trust, the Board of Directors of the Prudential Series Fund, Directed Services, Inc., Pacific Investment Management Company, Credit Suisse Asset Management, LLC, ING Mutual Funds Management Co. LLC, Prudential Insurance Company of America and any other insurance companies participating in the Trusts will monitor events to identify and resolve any material conflicts that may arise. YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING. - -------------------------------------------------------------------------------- GOLDEN AMERICAN SEPARATE ACCOUNT B - -------------------------------------------------------------------------------- Golden American Separate Account B ("Account B") was established as a separate account of the Company on July 14, 1988. It is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. 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, the PIMCO Variable Insurance Trust, the ING Variable Insurance Trust, and the Prudential Series Fund. Each investment portfolio has its own distinct investment objectives and policies. Income, gains and losses, realized or unrealized, of a portfolio are credited to or charged against the corresponding subaccount of Account B without regard to any other income, gains or losses of the Company. Assets equal to the reserves and other contract liabilities with respect to each are not chargeable with liabilities arising out of any other business of the Company. They may, however, be subject to liabilities arising from subaccounts whose assets we attribute to other variable annuity contracts supported by Account B. If the assets in Account B exceed the required reserves and other liabilities, we may transfer the excess to our general account. We are obligated to pay all benefits and make all payments provided under the Contracts. We currently offer other variable annuity contracts that invest in Account B but are not discussed in this prospectus. Account B may also invest in other investment portfolios which are not available under your Contract. Under certain circumstances, we may make certain changes to the subaccounts. For more information, see "The Annuity Contract -- Addition, Deletion, or Substitution of Subaccounts and Other Changes." - -------------------------------------------------------------------------------- THE INVESTMENT PORTFOLIOS - -------------------------------------------------------------------------------- During the accumulation phase, you may allocate your premium payments and contract value to any of the investment portfolios listed in the section below. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE INVESTMENT PORTFOLIOS, AND YOU MAY LOSE YOUR PRINCIPAL. 12 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. Account B also has other subaccounts investing in other portfolios which are not available to the Contract described in this prospectus. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST AND THE PIMCO VARIABLE INSURANCE TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
- -------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------- THE GCG TRUST Liquid Asset Seeks high level of current income consistent with the preservation of capital and liquidity. Invests primarily in obligations of the U.S. Government and its agencies and instrumentali-ties, bank obligations, commercial paper and short-term corporate debt securities. All securities will mature in less than one year. ------------------------------------------------------------ Limited Maturity Bond Seeks highest current income consistent with low risk to principal and liquidity. Also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. Invests primarily in diversified limited maturity debt securities with average maturity dates of five years or shorter and in no cases more than seven years. ------------------------------------------------------------ Global Fixed Income Seeks high total return. Invests primarily in high-grade fixed income securities, both foreign and domestic. ------------------------------------------------------------ Fully Managed Seeks, over the long term, a high total investment return consistent with the preservation of capital and with prudent investment risk. Invests primarily in the common stocks of established companies believed by the portfolio manager to have above-average potential for capital growth. ------------------------------------------------------------ Total Return Seeks above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. Invests primarily in a combination of equity and fixed income securities. ------------------------------------------------------------ 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. ------------------------------------------------------------ 13 - -------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------- Value Equity Seeks capital appreciation. Dividend income is a secondary objective. Invests primarily in common stocks of domestic and foreign issuers which meet quantitative standards relating to financial soundness and high intrinsic value relative to price. ------------------------------------------------------------ Rising Dividends Seeks capital appreciation. A secondary objective is dividend income. Invests in equity securities that meet the following quality criteria: regular dividend increases; 35% of earnings reinvested annually; and a credit rating of "A" to "AAA." ------------------------------------------------------------ Managed Global Seeks capital appreciation. Current income is only an incidental consideration. Invests primarily in common stocks traded in securities markets throughout the world. ------------------------------------------------------------ Large Cap Value Seeks long-term growth of capital and income. Invests primarily in equity and equity-related securities of companies with market capitalization greater than $1 billion. ------------------------------------------------------------ All Cap Seeks capital appreciation through investment in secuities which the portfolio manager believes have above-average capital appreciation potential. Invests primarily in equity securities of U.S. companies of any size. ------------------------------------------------------------ Research Seeks long-term growth of capital and future income. Invests primarily in common stocks or securities convertible into common stocks of companies believed to have better than average prospects for long-term growth. ------------------------------------------------------------ Capital Appreciation Seeks long-term capital growth. Invests primarily in equity securities believed by the portfolio manager to be undervalued. ------------------------------------------------------------ Capital Growth Seeks long-term total return. Invests primarily in common stocks of companies where the potential for change (earnings acceleration) is significant. ------------------------------------------------------------ Strategic Equity Seeks capital appreciation. Invests primarily in common stocks of medium- and small-sized companies. ------------------------------------------------------------ Mid-Cap Growth Seeks long-term growth of capital. Invests primarily in equity securities of companies with medium market capitalization which the portfolio manager believes have above-average growth potential. ------------------------------------------------------------ Small Cap Seeks long-term capital appreciation. Invests primarily in equity securities of companies that have a total market capitalization within the range of companies in the Russell 2000 Growth Index or the Standard & Poor's Small-Cap 600 Index. ------------------------------------------------------------ 14 - -------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------- Growth Seeks capital appreciation. Invests primarily in common stocks of growth companies that have favorable relationships between price/earnings ratios and growth rates in sectors offering the potential for above-average returns. ------------------------------------------------------------ Real Estate Seeks capital appreciation. Current income is a secondary objective. Invests primarily in publicly traded real estate equity securities. ------------------------------------------------------------ Hard Assets Seeks long-term capital appreciation. Invests primarily in hard asset securities. Hard asset companies produce a commodity which the portfolio manager is able to price on a daily or weekly basis. ------------------------------------------------------------ Developing World Seeks capital appreciation. Invests primarily in equity securities of companies in developing or emerging countries. ------------------------------------------------------------ Emerging Markets Seeks long-term capital appreciation. Invests primarily in equity securities of companies in at least six different emerging market countries. ------------------------------------------------------------ THE PIMCO VARIABLE INSURANCE TRUST PIMCO High Yield Bond Seeks to maximize total return, consistent with preservation of capital and prudent investment management. Invests at least 65% of its assets in a diversified portfolio of junk bonds rated at least B by Moody's Investor Services, Inc. or Standard & Poor's or, if unrated, determined by the portfolio manager to be of comparable quality. ------------------------------------------------------------ PIMCO StocksPLUS Seeks to achieve a total return which exceeds the total Growth and Income return performance of the S&P 500. Invests primarily in common stocks, options, futures, options on futures and swaps. ------------------------------------------------------------ ING VARIABLE INSURANCE TRUST ING Global Brand Names Seeks to provide investors with long-term capital Fund appreciation. Invests at least 65% of its total assets in equity securities of companies that have a well recognized franchise, a global presence and derive most of their revenues from sales of consumer goods. ------------------------------------------------------------ THE PRUDENTIAL SERIES FUND Prudential Jennison Seeks long-term growth of capital. Invests primarily in companies that have shown growth in earnings and sales, high return on equity and assets or other strong financial data and are also attractively valued in the opinion of the manager. Dividend income from investments will be incidental. ------------------------------------------------------------
15 INVESTMENT MANAGEMENT FEES Directed Services, Inc. serves as the overall manager to each portfolio of the GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment advisory and management services. The monthly fee is based on the average daily net assets of an investment portfolio, and in some cases, the combined total assets of certain grouped portfolios, including retaining portfolio managers to manage the assets of the various 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, based on the annual rate of the average daily net assets of a portfolio. For a list of the portfolio managers, see the front cover of this prospectus. Directed Services does not bear the expense of brokerage fees and other transactional expenses for securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and expenses of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. Pacific Investment Management Company ("PIMCO") serves as investment advisor to each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall business management and administrative services necessary for each portfolio's operation. PIMCO provides or procures, at its own expense, the services and information necessary for the proper conduct of business and ordinary operation of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly advisory fee and a separate monthly administrative fee per year, each fee based on the average daily net assets of each of the investment portfolios for managing the assets of the portfolios and for administering the PIMCO Variable Insurance Trust. PIMCO does not bear the expense of brokerage fees and other transactional expenses for securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and expense of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's operations and provides investment advisory services to the portfolios of the Trust, including engaging portfolio managers, as well as monitoring and evaluating the management of the assets of each portfolio by its portfolio manager. ING MFMC, as well as each portfolio manager it engages, is a wholly owned indirect subsidiary of ING Groep N.V. The Prudential Insurance Company of America ("Prudential") serves as the overall investment adviser for the Prudential Series Fund. Prudential is responsible for the management of the Prudential Series Fund and provides investment advice and related services to each portfolio. For the Prudential Jennison Portfolio, Prudential engages Jennison Associates LLC to serve as a sub-adviser and to provide day-to-day management. Prudential pays the sub-advisor out of the fee Prudential receives from the Prudential Series Fund. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, two portfolios deduct a distribution or 12b-1 fee, which is used to finance any activity that is primarily intended to result in the sale of shares of the applicable portfolio. For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees and Expenses" in this prospectus. We may receive compensation from the investment advisors, administrators and distributors or directly from the portfolios in connection with administrative, distribution or other services and cost savings attributable to our services. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Contract. The compensation paid by advisors, administrators or distributors may vary. YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING. 16 - -------------------------------------------------------------------------------- THE FIXED INTEREST ALLOCATION - -------------------------------------------------------------------------------- You may allocate premium payments and transfer your contract value to the guaranteed interest periods of our Fixed Account at any time during the accumulation period. Every time you allocate money to the Fixed Account, we set up a Fixed Interest Allocation for the guaranteed interest period you select. We currently offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10 years, although we may not offer all these periods in the future. You may select one or more guaranteed interest periods at any one time. We will credit your Fixed Interest Allocation with a guaranteed interest rate for the interest period you select, so long as you do not withdraw money from that Fixed Interest Allocation before the end of the guaranteed interest period. Each guaranteed interest period ends on its maturity date which is the last day of the month in which the interest period is scheduled to expire. If you surrender, withdraw, transfer or annuitize your investment in a Fixed Interest Allocation more than 30 days before the end of the guaranteed interest period, we will apply a Market Value Adjustment to the transaction. A Market Value Adjustment could increase or decrease the amount you surrender, withdraw, transfer or annuitize, depending on current interest rates at the time of the transaction. YOU BEAR THE RISK THAT YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF WE APPLY A MARKET VALUE ADJUSTMENT. Assets supporting amounts allocated to the Fixed Account are available to fund the claims of all classes of our customer, contract owners and other creditors. Interests under your Contract relating to the Fixed Account are registered under the Securities Act of 1933, but the Fixed Account is not registered under the 1940 Act. SELECTING A GUARANTEED INTEREST PERIOD You may select one or more Fixed Interest Allocations with specified guaranteed interest periods. A guaranteed interest period is the period that a rate of interest is guaranteed to be credited to your Fixed Interest Allocation. We may at any time decrease or increase the number of guaranteed interest periods offered. In addition, we may offer DCA Fixed Interest Allocations, which are 6-month and 1-year Fixed Interest Allocations available exclusively in connection with our dollar cost averaging program. For more information on DCA Fixed Interest Allocations, see "Transfers Among Your Investments -- Dollar Cost Averaging." Your contract value in the Fixed Account is the sum of your Fixed Interest Allocations and the interest credited as adjusted for any withdrawals (including any Market Value Adjustment applied to such withdrawal), transfers or other charges we may impose. Your Fixed Interest Allocation will be credited with the guaranteed interest rate in effect for the guaranteed interest period you selected when we receive and accept your premium or reallocation of contract value. We will credit interest daily at a rate which yields the quoted guaranteed interest rate. GUARANTEED INTEREST RATES Each Fixed Interest Allocation will have an interest rate that is guaranteed as long as you do not take your money out until its maturity date. We do not have a specific formula for establishing the guaranteed interest rates for the different guaranteed interest periods. We determine guaranteed interest rates at our sole discretion. To find out the current guaranteed interest rate for a guaranteed interest period you are 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. 17 We may from time to time at our discretion offer interest rate specials for new premiums that are higher than the current base interest rate then offered. Renewal rates for such rate specials will be based on the base interest rate and not on the special rates initially declared. TRANSFERS FROM A FIXED INTEREST ALLOCATION You may transfer your contract value in a Fixed Interest Allocation to one or more new Fixed Interest Allocations with new guaranteed interest periods, or to any of the subaccounts of Account B. We will transfer amounts from your Fixed Interest Allocations starting with the guaranteed interest period nearest its maturity date until we have honored your transfer request. The minimum amount that you can transfer to or from any Fixed Interest Allocation is $100. If a transfer request would reduce the contract value remaining in a Fixed Interest Allocation to less than $100, we will treat such transfer request as a request to transfer the entire contract value in such Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be subject to a Market Value Adjustment. If you have a special Fixed Interest Allocation that was offered exclusively with our dollar cost averaging program, cancelling dollar cost averaging will cause a transfer of the entire contract value in such Fixed Interest Allocation to the Liquid Asset subaccount, and such a transfer will be subject to a Market Value Adjustment. On the maturity date of a guaranteed interest period, you may transfer amounts from the applicable Fixed Interest Allocation to the subaccounts and/or to new Fixed Interest Allocations with guaranteed interest periods of any length we are offering at that time. You may not, however, transfer amounts to any Fixed Interest Allocation with a guaranteed interest period that extends beyond the annuity start date. At least 30 calendar days before a maturity date of any of your Fixed Interest Allocations, or earlier if required by state law, we will send you a notice of the guaranteed interest periods that are available. You must notify us which subaccounts or new guaranteed interest periods you have selected before the maturity date of your Fixed Interest Allocations. If we do not receive timely instructions from you, we will transfer the contract value in the maturing Fixed Interest Allocation to a new Fixed Interest Allocation with a guaranteed interest period that is the same as the expiring guaranteed interest period. If such guaranteed interest period is not available or would go beyond the annuity start date, we will transfer your contract value in the maturing Fixed Interest Allocation to the next shortest guaranteed interest period which does not go beyond the annuity start date. If no such guaranteed interest period is available, we will transfer the contract value to a subaccount specially designated by the Company for such purpose. Currently we use the Liquid Asset subaccount for such purpose. Please be aware that the benefit we pay under certain optional benefit riders will be adjusted by any transfers you make to and from the Fixed Interest Allocations during specified periods while the rider is in effect. See "Optional Riders." WITHDRAWALS FROM A FIXED INTEREST ALLOCATION During the accumulation phase, you may withdraw a portion of your contract value in any Fixed Interest Allocation. You may make systematic withdrawals of only the interest earned during the prior month, quarter or year, depending on the frequency chosen, from a Fixed Interest Allocation under our systematic withdrawal option. Systematic withdrawals from a Fixed Interest Allocation are not permitted if such Fixed Interest Allocation is currently participating in the dollar cost averaging program. A withdrawal from a Fixed Interest Allocation may be subject to a Market Value Adjustment and, in some cases, a surrender charge. Be aware that withdrawals may have federal income tax consequences, including a 10% penalty tax, as well as state income tax consequences. If you tell us the Fixed Interest Allocation from which your withdrawal will be made, we will assess the withdrawal against that Fixed Interest Allocation. If you do not, we will assess your withdrawal against the subaccounts in which you are invested, unless the withdrawal exceeds the contract value in the subaccounts. If there is no contract value in those subaccounts, we will deduct your withdrawal from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until we have honored your request. 18 Please be aware that the benefit we pay under any of the optional riders will be reduced on a pro rata basis by any withdrawals you make from the Fixed Interest Allocations during the period while the rider is in effect. See "Optional Riders." MARKET VALUE ADJUSTMENT A Market Value Adjustment may decrease, increase or have no effect on your contract value. We will apply a Market Value Adjustment (i) whenever you withdraw or transfer money from a Fixed Interest Allocation (unless made within 30 days before the maturity date of the applicable guaranteed interest period, or under the systematic withdrawal or dollar cost averaging program) and (ii) if on the annuity start date a guaranteed interest period for any Fixed Interest Allocation does not end on or within 30 days of the annuity start date. We determine the Market Value Adjustment by multiplying the amount you withdraw, transfer or apply to an income plan by the following factor: N/365 ((1+I)/(1+J+.0025)) -1 Where, o "I" is the Index Rate for a Fixed Interest Allocation on the first day of the guaranteed interest period; o "J" is equal to the following: (1) If calculated for a Fixed Interest Allocation of 1 year or more, then "J" is the Index Rate for a new Fixed Interest Allocation with a guaranteed interest period equal to the time remaining (rounded up to the next full year except in Pennsylvania) in the guaranteed interest period; (2) If calculated for a Fixed Interest Allocation of 6 months, then "J" is the lesser of the Index Rate for a new Fixed Interest Allocation with (i) a 6 month guaranteed interest period, or (ii) a 1 year guaranteed interest period, at the time of calculation; and o "N" is the remaining number of days in the guaranteed interest period at the time of calculation. The Index Rate is the average of the Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for a period equal to the applicable guaranteed interest period. The average currently is based on the period starting from the 22nd day of the calendar month two months prior to the month of the Index Rate determination and ending the 21st day of the calendar month immediately before the month of determination. We currently calculate the Index Rate once each calendar month but have the right to calculate it more frequently. The Index Rate will always be based on a period of at least 28 days. If the Ask Yields are no longer available, we will determine the Index Rate by using a suitable and approved, if required, replacement method. A Market Value Adjustment may be positive, negative or result in no change. In general, if interest rates are rising, you bear the risk that any Market Value Adjustment will likely be negative and reduce your contract value. On the other hand, if interest rates are falling, it is more likely that you will receive a positive Market Value Adjustment that increases your contract value. In the event of a full surrender, transfer or annuitization from a Fixed Interest Allocation, we will add or subtract any Market Value Adjustment from the amount surrendered, transferred or annuitized. In the event of a partial withdrawal, transfer or annuitization, we will add or subtract any Market Value Adjustment from the total amount withdrawn, transferred or annuitized in order to provide the amount requested. If a negative Market Value Adjustment exceeds your contract value in the Fixed Interest Allocation, we will consider your request to be a full surrender, transfer or annuitization of the Fixed Interest Allocation. Several examples which illustrate how the Market Value Adjustment works are included in Appendix B. 19 - -------------------------------------------------------------------------------- THE ANNUITY CONTRACT - -------------------------------------------------------------------------------- The Contract described in this prospectus is a deferred combination variable and fixed annuity contract. The Contract provides a means for you to invest in one or more of the available mutual fund portfolios of the GCG Trust, the PIMCO Variable Insurance Trust, the ING Variable Insurance Trust, and the Prudential Series Fund 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. If no beneficial owner of the Trust has been designated, the availability of enhanced death benefits will be based on the age of the annuitant at the time you purchase the Contract. JOINT OWNER. For non-qualified Contracts only, joint owners may be named in a written request before the Contract is in effect. Joint owners may independently exercise transfers and other transactions allowed under the Contract. All other rights of ownership must be exercised by both owners. Joint owners own equal shares of any benefits accruing or payments made to them. All rights of a joint owner end at death of that owner if the other joint owner survives. The entire interest of the deceased joint owner in the Contract will pass to the surviving joint owner and the death benefit is paid upon the death of the first of the joint owners to die. Joint owners may only select the Standard Death Benefit option. Upon adding an additional owner to a contract which was issued with an Enhanced Death Benefit option, generally, your death benefit will be changed automatically to a Standard Death Benefit and your mortality and expense risk charges will be lowered correspondingly to that which is charged under the Standard Death Benefit Option. Also note that if any owner's age is 86 or greater, even the standard death benefit guarantee will also be lost. Note that returning a Contract to single owner status will not restore any Enhanced Death Benefit. Unless otherwise specified, the term "age" when used for joint owners shall mean the age of the oldest owner. ANNUITANT The annuitant is the person designated by you to be the measuring life in determining annuity payments. The annuitant's age determines when the income phase must begin and the amount of the annuity payments 20 to be paid. You are the annuitant unless you choose to name another person. The annuitant may not be changed after the Contract is in effect. The contract owner will receive the annuity benefits of the Contract if the annuitant is living on the annuity start date. If the annuitant dies before the annuity start date, and a contingent annuitant has been named, the contingent annuitant becomes the annuitant (unless the contract owner is not an individual, in which case the death benefit becomes payable). If there is no contingent annuitant when the annuitant dies before the annuity start date, the contract owner will become the annuitant. The contract owner may designate a new annuitant within 60 days of the death of the annuitant. If there is no contingent annuitant when the annuitant dies before the annuity start date and the contract owner is not an individual, we will pay the designated beneficiary the death benefit then due. If a beneficiary has not been designated, or if there is no designated beneficiary living, the contract owner will be the beneficiary. If the annuitant was the sole contract owner and there is no beneficiary designation, the annuitant's estate will be the beneficiary. Regardless of whether a death benefit is payable, if the annuitant dies and any contract owner is not an individual, distribution rules under federal tax law will apply. You should consult your tax advisor for more information if you are not an individual. BENEFICIARY The beneficiary is named by you in a written request. The beneficiary is the person who receives any death benefit proceeds and who becomes the successor contract owner if the contract owner (or the annuitant if the contract owner is other than an individual) dies before the annuity start date. We pay death benefits to the primary beneficiary (unless there are joint owners, in which case death proceeds are payable to the surviving owner(s)). If the beneficiary dies before the annuitant or the contract owner, the death benefit proceeds are paid to the contingent beneficiary, if any. If there is no surviving beneficiary, we pay the death benefit proceeds to the contract owner's estate. One or more persons may be a beneficiary or contingent beneficiary. In the case of more than one beneficiary, we will assume any death benefit proceeds are to be paid in equal shares to the surviving beneficiaries. You have the right to change beneficiaries during the annuitant's lifetime unless you have designated an irrevocable beneficiary. When an irrevocable beneficiary has been designated, you and the irrevocable beneficiary may have to act together to exercise some of the rights and options under the Contract. CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime, you may transfer ownership of a non-qualified Contract. A change in ownership may affect the amount of the death benefit, the guaranteed death benefit and/or the death benefit applied to the contract. The new owner's age, as of the date of the change, will be used as the basis for determining which option to use. The new owner's death will determine when a death benefit is payable. If the new owner's age is less than 80, the death benefit option in effect prior to the change in owner will remain in effect. If the new owner's age is greater than 79, but less than or equal to 85, and if the contract was issued with an enhanced death benefit, the death benefit will become the Standard Death Benefit. If the new owner's age is greater than 85, the death benefit will be the cash surrender value. Once a death benefit has been changed due to a change in owner, a subsequent change to a younger owner will not restore any enhanced death benefits. PURCHASE AND AVAILABILITY OF THE CONTRACT We will issue a Contract only if both the annuitant and the contract owner are not older than age 85. 21 The initial premium payment must be $10,000 or more ($1,500 for qualified Contracts). You may make additional payments of at least $500 or more ($250 for qualified Contracts) at any time after the free look period before you turn age 85. Under certain circumstances, we may waive the minimum premium payment requirement. We may change the minimum initial or additional premium requirements for certain group or sponsored arrangements. Any initial or additional premium payment that would cause the contract value of all annuities that you maintain with us to exceed $1,000,000 requires our prior approval. IRAs and other qualified plans already have the tax-deferral feature found in this Contract. For an additional cost, the Contract provides other benefits including death benefits and the ability to receive a lifetime income. See "Fees and Expenses" in this prospectus. CREDITING OF PREMIUM PAYMENTS We will process your initial premium within 2 business days after receipt, if the application and all information necessary for processing the Contract are complete. Subsequent premium payments will be processed within 1 business day if we receive all information necessary. In certain states we also accept initial and additional premium payments by wire order. Wire transmittals must be accompanied by sufficient electronically transmitted data. We may retain your initial premium payment for up to 5 business days while attempting to complete an incomplete application. If the application cannot be completed within this period, we will inform you of the reasons for the delay. We will also return the premium payment immediately unless you direct us to hold the premium payment until the application is completed. We will allocate your initial payment according to the instructions you specified. If a subaccount is not available or requested in error, we will make inquiry about a replacement subaccount. If we are unable to reach you or your representative, we will allocate your initial payment proportionally among the other subaccount(s) in your instructions. For initial premium payments, the payment will be credited at the accumulation unit value next determined after we receive your premium payment and the completed application. Once the completed application is received, we will allocate the payment to the subaccount(s) and/or Fixed Interest Allocation specified by you within 2 business days. We will make inquiry to discover any missing information related to subsequent payments. We will allocate the subsequent payment(s) pro rata according to the current variable subaccount allocation unless you specify otherwise. Any fixed allocation(s) will not be considered in the pro rata calculations. If a subaccount is no longer available or requested in error, we will allocate the subsequent payment(s) proportionally among the other subaccount(s) in your current allocation or your allocation instructions For any subsequent premium payments, the payment will be credited at the accumulation unit value next determined after receipt of your premium payment and instructions. Once we allocate your premium payment to the subaccounts selected by you, we convert the premium payment into accumulation units. We divide the amount of the premium payment allocated to a particular subaccount by the value of an accumulation unit for the subaccount to determine the number of accumulation units of the subaccount to be held in 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 22 Acknowledgement Statement, neither you nor the broker-dealer may execute any financial transactions on your Contract unless they are requested in writing by you. We may require additional information before complying with your request (e.g., signature guarantee). In some states, we may require that an initial premium designated for a subaccount of Account B or the Fixed Account be allocated to a subaccount specially designated by the Company (currently, the Liquid Asset subaccount) during the free look period. After the free look period, we will convert your contract value (your initial premium plus any earnings less any expenses) into accumulation units of the subaccounts you previously selected. The accumulation units will be allocated based on the accumulation unit value next computed for each subaccount. Initial premiums designated for Fixed Interest Allocations will be allocated to a Fixed Interest Allocation with the guaranteed interest period you have chosen; however, in the future we may allocate the premiums to the specially designated subaccount during the free look period. ADMINISTRATIVE PROCEDURES We may accept a request for Contract service in writing, by telephone, or other approved electronic means, subject to our administrative procedures, which vary depending on the type of service requested and may include proper completion of certain forms, providing appropriate identifying information, and/or other administrative requirements. We will process your request at the accumulation value next determined only after you have met all administrative requirements. CONTRACT VALUE We determine your contract value on a daily basis beginning on the contract date. Your contract value is the sum of (a) the contract value in the Fixed Interest Allocations, and (b) the contract value in each subaccount in which you are invested. CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in your Fixed Interest Allocation is the sum of premium payments allocated to the Fixed Interest Allocation under the Contract, plus contract value transferred to the Fixed Interest Allocation, plus credited interest, minus any transfers and withdrawals from the Fixed Interest Allocation (including any Market Value Adjustment applied to such withdrawal), contract fees (including, in some cases, fees for optional benefit riders), and premium taxes. CONTRACT VALUE IN THE SUBACCOUNTS. On the contract date, the contract value in the subaccount in which you are invested is equal to the initial premium paid and 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 (including any rider charges) and premium taxes. CASH SURRENDER VALUE The cash surrender value is the amount you receive when you surrender the Contract. The cash surrender value will fluctuate daily based on the investment results of the subaccounts in which you are invested and 23 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 deduct any surrender charge, any charge for premium taxes, the annual contract and administrative fee (unless waived), any optional benefit riders charge, and any other charges incurred but not yet deducted. Finally, we adjust for any Market Value Adjustment. SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE You may surrender the Contract at any time while the annuitant is living and before the annuity start date. A surrender will be effective on the date your written request and the Contract are received at our Customer Service Center. We will determine and pay the cash surrender value at the price next determined after receipt of all paperwork required in order for us to process your surrender. Once paid, all benefits under the Contract will be terminated. For administrative purposes, we will transfer your money to a specially designated subaccount (currently the Liquid Asset subaccount) prior to processing the surrender. This transfer will have no effect on your cash surrender value. You may receive the cash surrender value in a single sum payment or apply it under one or more annuity options. We will usually pay the cash surrender value within 7 days. Consult your tax adviser regarding the tax consequences associated with surrendering your Contract. A surrender made before you reach age 59 1/2 may result in a 10% tax penalty. See "Federal Tax Considerations" for more details. THE SUBACCOUNTS Each of the 27 subaccounts of Account B offered under this prospectus invests in an investment portfolio with its own distinct investment objectives and policies. Each subaccount of Account B invests in a corresponding portfolio of the GCG Trust, a corresponding portfolio of the PIMCO Variable Insurance Trust, a corresponding portfolio of the ING Variable Insurance Trust, or a corresponding portfolio of the Prudential Series Fund. ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES We may make additional subaccounts available to you under the Contract. These subaccounts will invest in investment portfolios we find suitable for your Contract. We may amend the Contract to conform to applicable laws or governmental regulations. If we feel that investment in any of the investment portfolios has become inappropriate to the purposes of the Contract, we may, with approval of the SEC (and any other regulatory agency, if required) substitute another portfolio for existing and future investments. If you have elected the dollar cost averaging, systematic withdrawals, or automatic rebalancing programs or if you have other outstanding instructions, and we substitute or otherwise eliminate a portfolio subject to those instructions, we will execute your instructions using the substituted or proposed replacement portfolio, unless you request otherwise. We also reserve the right to: (i) deregister Account B under the 1940 Act; (ii) operate Account B as a management company under the 1940 Act if it is operating as a unit investment trust; (iii) operate Account B as a unit investment trust under the 1940 Act if it is operating as a managed separate account; (iv) restrict or eliminate any voting rights as to Account B; and (v) combine Account B with other accounts. We will, of course, provide you with written notice before any of these changes are effected. THE FIXED ACCOUNT The Fixed Account is a segregated asset account which contains the assets that support a contract owner's Fixed Interest Allocations. See "The Fixed Interest Allocations" for more information. OPTIONAL RIDERS Subject to state availability, you may elect one of three optional benefit riders discussed below. You may not add more than one of these three riders to your Contract. There is a separate charge for each rider. Once 24 elected, the riders generally may not be cancelled. This means once you add the rider, you may not remove it, and charges will be assessed regardless of the performance of your Contract. Please see "Charges and Fees -- Optional Rider Charges" for information on rider charges. THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE EACH RIDER THOROUGHLY AND UNDERSTAND IT COMPLETELY BEFORE YOU SELECT ANY. THE OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE RIDERS. THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)366-0066. RIDER DATE. We use the term rider date in the discussion of the optional benefit riders below. The rider date is the date an optional benefit rider becomes effective. The rider date is also the contract date if the rider was purchased at the time the Contract is issued. SPECIAL FUNDS. We use the term Special Funds in the discussion of the Minimum Guaranteed Accumulation Benefit rider (with the 20-year waiting period) and the Minimum Guaranteed Income Benefit rider. The Special Funds refer to the Liquid Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest Allocations. The Company may designate new and/or existing subaccounts as a Special Fund with 30 days notice at any time, including during the life of a rider. NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled, unless you cancel the Contract during the Contract's free look period, surrender, annuitize or otherwise terminate the Contract which automatically cancels any attached rider. Once the Contract continues beyond the free look period, you may not at any time cancel the rider, except with respect to a one-time right to cancel the twenty-year option of the Minimum Guaranteed Accumulation Benefit rider under specified conditions. The Company may, at its discretion, cancel and/or replace a rider at your request in order to renew or reset a rider. TERMINATION. The optional riders are "living benefits." This means that the guaranteed benefits offered by the riders are intended to be available to you while you are living and while your Contract is in the accumulation phase. The optional riders automatically terminate (and all benefits under the rider will cease) if you annuitize, surrender or otherwise terminate your Contract or die (first owner to die if there are multiple contract owners, or at death of annuitant if contract owner is not a natural person), unless your spouse beneficiary elects to continue the Contract, during the accumulation phase. The optional rider will also terminate if there is a change in contract ownership (other than a spousal beneficiary continuation on your death). Other circumstances which may cause a particular optional rider to terminate automatically one discussed below with the applicable rider. MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an optional benefit which provides you with an MGAB benefit intended to guarantee a minimum contract value at the end of a specified waiting period. The MGAB is a one-time adjustment to your contract value in the event your contract value on the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you protection in the event your Contract loses value during the MGAB waiting period. For a discussion of the charges we deduct under the MGAB rider, see "Optional Rider Charges." The MGAB rider offers a ten-year option and a twenty-year option, of which you may purchase only one. The ten-year option has a waiting period of ten years and guarantees that your contract value at the end of ten years will at least equal your initial premium payment, reduced pro rata for withdrawals. Transfers made within 3 years prior to the MGAB Benefit Date will also reduce the benefit pro rata. The twenty-year option has a waiting period of twenty years and guarantees that your contract value at the end of twenty years will at least equal two times your initial premium payment, reduced pro rata for withdrawals and reduced for transfers made within 3 years prior to the MGAB Benefit Date. On the MGAB Benefit Date, which is the next business day after the applicable waiting period, we calculate your Minimum Guaranteed Accumulation Benefit. CALCULATING THE MGAB. We calculate your MGAB as follows: 25 1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a calculation used to determine the MGAB. It does not represent a contract value, nor does it guarantee performance of the subaccounts in which you are invested. It is also not used in determining the amount of your annuity income, cash surrender value and death benefits. If you purchased the MGAB rider on the contract date, and (i) elected the ten-year option, your MGAB Base is equal to your initial premium plus any additional premium added to your Contract during the 2-year period after your rider date, reduced pro rata for any withdrawals and reduced for any transfers made within 3 years prior to the MGAB Benefit Date; or (ii) elected the twenty-year option, except for the Special Funds which require special calculations, your MGAB Base is equal to your initial premium, plus any additional premium added to your Contract during the 2-year period after your contract date, accumulated at the MGAB Base Rates reduced pro rata for any withdrawals and reduced for any transfers made within 3 years prior to the MGAB Benefit Date. The MGAB Base Rate for all allocations other than allocations to the Special Funds is the annual effective rate of 3.5265%. Accumulation of eligible additional premiums starts on the date the premium was received. ONLY PREMIUMS ADDED TO YOUR CONTRACT DURING THE 2-YEAR PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE BUT ANY ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus, the MGAB rider may not be appropriate for you if you plan to add substantial premium payments after your second rider anniversary. If you purchased the MGAB rider after the contract date, your MGAB Base is equal to your contract value on the rider date, plus premiums added during the 2-year period after your rider date. Withdrawals taken while MGAB rider is in effect, as well as, and transfers made within 3 years prior to the MGAB Benefit Date will reduce the value of your MGAB Base pro rata. This means that the MGAB (and the MGAB Charge Base) will be reduced by the same percent as the percent of contract value that was withdrawn (or transferred). We will look to your contract value immediately before the withdrawal or transfer when we determine this percent. For any Special Fund under the twenty-year option, if the actual interest credited to and/or the investment earnings of the contract value allocated to the Special Fund over the calculation period is less than the amount calculated under the formula above, that lesser amount becomes the increase in your MGAB Base for the Special Fund for that period. THE MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the Special Funds may limit the MGAB benefit. If you add the 20-year option rider after the contract date, any payment of premiums after the rider date, and or investments in the Special Funds, may prevent the MGAB Base from doubling over the waiting period. 2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM YOUR MGAB BASE. The contract value that we subtract includes both the contract value in the subaccounts in which you are invested and the contract value in your Fixed Interest Allocations, if any. 3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will automatically credit it to the subaccounts in which you are invested pro rata based on the proportions of your then contract value in the subaccounts on that date, unless you have previously given us other allocation instructions. If you do not have an investment in any subaccount on the MGAB Benefit Date, we will allocate the MGAB to the Liquid Asset subaccount on your behalf. After the crediting of the MGAB, the amount of your annuity income, cash surrender value and death 26 benefits will reflect the crediting of the MGAB to your contract value to the extent the contract value is used to determine such value. WITHDRAWALS AND TRANSFERS. We will reduce your MGAB Base and the MGAB Charge Base pro rata to the percentage of contract value of any withdrawals you make after the rider date but prior to the MGAB Benefit Date. Any transfers you make within three years prior to the MGAB Benefit Date will reduce the MGAB Base and the MGAB Charge Base pro rata to the percentage of contract value transferred. Transfers you make before this date will have no immediate impact on the MGAB Base. Any transfers more than 3 years prior to the MGAB Benefit Date between the subaccounts and Special Funds in which you are invested will cause your MGAB Base to be reallocated pro rata based on the percentage of contract value. Transfers to one or more Special Funds could reduce your MGAB benefit. PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the rider date if you choose the ten-year option and age 65 or younger on the rider date if you choose the twenty-year option. The waiting period must end at or before your annuity start date. The MGAB rider may be purchased (i) on the contract date, and (ii) within 30 days following the contract date. For contracts issued more than 30 days before the date this rider first became available in your state, the Company may in its discretion allow purchase of this rider during the 30-day period preceding the first contract anniversary after the date of this prospectus, or the date of state approval, whichever is later. THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date or added the MGAB rider within 30 days following the contract date, the MGAB Benefit Date is your 10th contract anniversary for the ten-year option or 20th contract anniversary for the twenty-year option. If you added the MGAB rider during the 30-day period preceding your first contract anniversary after the date of this prospectus, your MGAB Benefit Date will be the first contract anniversary occurring after 10 years (for the ten-year option) or 20 years (for the twenty-year option) after the rider date. The MGAB rider is not available if the MGAB Benefit Date would fall beyond the latest annuity start date. CANCELLATION. If you elected the twenty-year option, you have a one-time right to cancel the MGAB rider on your first contract anniversary that is at least 10 years after the rider date. If you purchased the MGAB rider during the 30-day period following the contract date, your one-time right to cancel the rider occurs on the tenth anniversary of your contract date. To cancel, you need to send written notice to our Customer Service Center at least 30 days before such anniversary date. If the MGAB rider is terminated before the MGAB Benefit Date, you will not be credited with the MGAB and we will assess the pro rata portion of the MGAB rider charge for the current quarter. NOTIFICATION. Any crediting of the MGAB will be reported in your first quarterly statement following the MGAB Benefit Date. MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional benefit which guarantees that minimum amount of annuity income will be available to you if you annuitize on the MGIB Benefit Date, regardless of fluctuating market conditions. The amount of the Minimum Guaranteed Income Benefit will depend on the amount of premiums you pay during the five contract years after you purchase the rider, the amount of contract value you allocate or transfer to the Special Funds, the MGIB Rate (7% for all portfolios except the Special Funds), the adjustments for Special Fund transfers, and the dollar amount of any withdrawals you take while the rider is in effect. For a discussion of the charges we deduct under the MGIB rider, see "Optional Rider Charges." Ordinarily, the amount of income that will be available to you on the annuity start date is based on your contract value, the annuity option you selected and the guaranteed or the then current income factors in effect on the date you annuitize. If you purchase the MGIB rider, the minimum amount of income that will be available to you upon annuitization on the MGIB Benefit Date is the greatest of: (i) your annuity income based on your contract value adjusted for any Market Value Adjustment on the MGIB Benefit Date applied to the guaranteed income factors specified in your Contract for the annuity option you selected; 27 (ii) your annuity income based on your contract value adjusted for any Market Value Adjustment on the MGIB Benefit Date applied to the then current income factors in effect for the annuity option you selected; and (iii)the MGIB annuity income based on your MGIB Base on the MGIB Benefit Date applied to the MGIB income factors specified in your rider for the MGIB annuity option you selected. Prior to applying the MGIB income factors, we will adjust the MGIB Base for any surrender charges, premium tax recovery and Market Value Adjustments that would otherwise apply at annuitization. Prior to your latest annuity start date, you may choose to exercise your right to receive payments under the MGIB rider on the MGIB Benefit Date. Payments under the rider begin on the MGIB Benefit Date. We require a 10-year waiting period before you can annuitize under the MGIB rider benefit. The MGIB must be exercised in the 30-day period prior to the end of the waiting period or any subsequent contract anniversary. At your request, the Company may in its discretion extend the latest contract annuity start date without extending the MGIB Benefit Date. DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate your MGIB annuity income as follows: 1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a calculation used to determine the MGIB. The MGIB does not represent a contract value, nor does it guarantee performance of the subaccounts in which you are invested. It is also not used in determining the amount of your cash surrender value and death benefits. Any reset of contract value under provisions of the Contract or other riders will not increase the MGIB Base or MGIB Base Maximum. (i) If you purchased the MGIB rider on the contract date, except for the Special Funds which require special calculations, the MGIB Base is equal to your initial premium, plus any additional premiums added to your Contract during the 5-year period after your contract date, accumulated at the MGIB Base Rate (7% for all portfolios except the Special Funds). Premiums paid less than 5 years prior to the earliest MGIB Benefit Date are excluded from the MGIB Base. (ii) If you purchased the MGIB rider after the contract date, except for the Special Funds which require special calculations, your MGIB Base is equal to your contract value on the rider date plus any eligible premiums added to your Contract during the 5-year period after your rider date, accumulated at the MGIB Base Rate (7% for all portfolios except the Special Funds), reduced pro rata by all withdrawals taken while the MGIB rider is in effect. Eligible additional premium payments are those added more than 5 years before the earliest MGIB Benefit Date and are included in the MGIB Base. Premiums paid after the 5th rider anniversary are excluded from the MGIB Base. (iii)For any Special Fund, if the actual earnings and/or the interest credited to the contract value allocated to the Special Fund over the calculation period is less than the amount determined under the formula above, that lesser amount becomes the change in your MGIB Base for the Special Fund. THE MGIB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the Special Funds may significantly limit the MGIB benefit. Of course, regardless of when purchased or how you invest, withdrawals will reduce the value of your MGIB Base pro rata to the percentage of the contract value withdrawn. We offer a 7% MGIB Base Rate, except for the Special Funds. The Company may at its discretion discontinue offering this rate. The MGIB Base Rate is an annual effective rate. The MGIB Base is subject to the MGIB Base Maximum. The MGIB Base Maximum is the amount calculated above until the earlier of: (i) the date the oldest contract owner reaches 28 age 80, or (ii) the date the MGIB Base reaches two times the MGIB Eligible Premiums, adjusted for any withdrawals. MGIB Eligible Premiums is the total of premiums paid more than 5 years before the earliest MGIB Benefit Date. 2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE AND PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000. Two MGIB Income Options are available under the MGIB Rider: (i) Income for Life (Single Life or Joint with 100% Survivor) and 10-30 Year Certain; or (ii) Income for a 20-30 Year Period Certain, or (iii)Any other income plan offered by the Company in connection with the MGIB rider on the MGIB Benefit Date. On the MGIB Benefit Date, we would apply the MGIB Base using the Table of Income Factors specified in the MGIB rider for the Income Option you selected. The guaranteed factors contained in the MGIB rider generally provide lower payout per $1,000 of value applied than the guaranteed factors found in your Contract. Then we compare the MGIB annuity income under the rider guarantee for the option selected with the annuity income under your Contract guarantee for the same option. The greater amount of income will be available to you on the MGIB Benefit Date. WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB Base Maximum pro rata to the percentage of contract value of any withdrawals you make. Any transfers to and from the subaccounts and Special Funds in which you are invested will cause your MGIB Base to be reallocated pro rata based on the percentage of contract value you transfer. Transfers to one or more Special Funds could reduce the MGIB Benefit. PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the rider date and the ten-year waiting period must end at or prior to the latest annuity start date. The MGIB rider must be purchased (i) on the contract date, or (ii) within thirty days after the contract date. For contracts issued more than 30 days before the date this rider first became available in your state, the Company may in its discretion allow purchase of this rider during the 30-day period preceding the first contract anniversary after the date of this prospectus, or the date of state approval, whichever is later. There is a ten year waiting period before you can annuitize under the MGIB rider. THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date or added the MGIB rider within 30 days following the contract date, the MGIB Benefit Date is the contract anniversary on or after the tenth contract anniversary when you decide to exercise your right to annuitize under the MGIB rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is the contract anniversary at least 10 years after the rider date when you decide to exercise your right to annuitize under the MGIB rider. NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may not be changed except for the following exception. If an annuitant who is not a contract owner dies prior to annuitization, a new annuitant may be named in accordance with the provisions of your Contract. The MGIB Base is unaffected and continues to accumulate. NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will provide you with notification which will include an estimate of the amount of MGIB annuity benefit available if you choose to exercise. The actual amount of the MGIB annuity benefit will be determined as of the MGIB Benefit Date. THE MGIB RIDER DOES NOT RESTRICT OR LIMITS YOUR RIGHT TO ANNUITIZE THE CONTRACT AT ANY TIME PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN THE MGIB ANNUITY BENEFIT. 29 THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an optional benefit which guarantees that if your contract value is reduced to zero you will receive periodic payments equal to all premium payments paid during the first two contract years (Eligible Payment Amount) adjusted for any prior withdrawals. To maintain this guarantee, withdrawals in any contract year may not exceed 7% of your adjusted Eligible Payment Amount. If your contract value is redeemed to zero, your periodic payments will be 7% of your Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal Account is reduced to zero. For a discussion of the charges, we deduct under the MGWB rider, see "Optional Rider Charges." Each payment you receive under the MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax. See "Withdrawals" and "Federal Tax Considerations" for more information. Your original Eligible Payment Amount depends on when you purchase the MGWB rider and is: (i) if you purchased the MGWB rider on the contract date, your premium payments received during the first two contract years; or (ii) if you purchased the MGWB rider after the contract date, your contract value on the rider date, including any subsequent premium payments received during the two-year period commencing on the rider date. THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a calculation which represents the remaining amount available for periodic payments under the MGWB rider. It does not represent a contract value, nor does it guarantee performance of the subaccounts in which you are invested. It will not affect your annuitization, surrender and death benefits. The MGWB Withdrawal Account is equal to the Eligible Payment Amount adjusted for any withdrawals. Withdrawals of up to 7% per year of the Eligible Payment Amount. Such withdrawals will reduce the value of your MGWB Withdrawal Account by the dollar amount of the withdrawal. Any withdrawals greater than 7% per year of the Eligible Payment Amount will cause a reduction in both the MGWB Withdrawal Account and the Eligible Payment Amount by the proportion that the withdrawal bears to the Contract Value at the time of the withdrawal. The MGWB Withdrawal Account is also reduced by the amount of any periodic payments paid under the MGWB rider once your contract value is zero. GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any amount permitted under your Contract so long as your contract value is greater than zero. See "Withdrawals." Making any withdrawals in any year greater than 7% per year of the Eligible Payment Amount in any year will reduce the Eligible Payment Amount for future withdrawals and payments under the MGWB rider by the proportion that the withdrawal bears to the contract value at the time of the withdrawal. The MGWB rider, will remain in force, and you may continue to make withdrawals so long as: (i) your contract value is greater than zero; (ii) your MGWB Withdrawal Account is greater than zero; (iii)your latest allowable annuity start date has not been reached; (iv) you have not elected to annuitize your Contract; and (v) you have not died (unless your spouse has elected to continue the contract), changed the ownership of the Contract or surrendered the Contract. 30 The standard Contract provision limiting withdrawals to no more than 90% of the cash surrender value is not applicable under the MGWB rider. WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment Amount, pro rata in proportion to the percentage of contract value withdrawn. If a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider terminates and no further benefits are payable under the rider. AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your contract value is reduced to zero and if the following conditions exist, your Contract is given what we refer to as Automatic Periodic Benefit Status: (i) your MGWB Withdrawal Account is greater than zero; (ii) your latest allowable annuity start date has not been reached; (iii)you have not elected to annuitize your Contract; and (iv) you have not died, changed the ownership of the Contract or surrendered the Contract. Once your Contract is given Automatic Periodic Benefit Status, we will pay you MGWB periodic payments; beginning on the next contract anniversary equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of your Eligible Payment Amount until the earliest of (i) your contract's annuity start date, (ii) the death of the owner; or (iii) until your MGWB Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by the amount of each payment. Once your Contract is given Automatic Periodic Benefit Status, we will not accept any additional premium payments in your Contract, and the Contract will not provide any benefits except those provided by the MGWB rider. Any other rider terminates. Your Contract will remain in Automatic Periodic Benefit Status until the earliest of (i) payment of all MGWB periodic payments, and (ii) payment of the Commuted Value (defined below), or (iii) the owner's death has occurred. On the contract's latest annuity start date, in lieu of making the remaining MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic payments remaining. We may, at our option, extend your annuity start date in order to continue the MGWB periodic payments. The Commuted Value is the present value of any then remaining MGWB periodic payments at the current interest rate plus 0.50%. The current interest rate will be determined by the average of the Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for periods applicable to the remaining payments. Once the last MGWB periodic payment is made or we pay you the Commuted Value, your Contract and the MGWB rider terminate. DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never withdrawn more than 7% per year of the Eligible Payment Amount and you elected the 7% Solution Enhanced Death Benefit in your Contract (or you have elected the Max 7 Death Benefit resulting in the 7% Solution Enhanced Death Benefit as the actual death benefit) the death benefit otherwise payable under the terms of your Contract will remain in force during any Automatic Periodic Benefit Status. In determining the amount of the death benefit during the Automatic Periodic Benefit Status, we deem your contract value to be zero and treat the MGWB periodic payments as withdrawals. In all cases, the death benefit payable during Automatic Periodic Benefit Status is your MGWB Withdrawal Account which equals the sum of the remaining MGWB periodic payments. If you elected the Max 7 Enhanced Death Benefit, then the 7% Solution and the Annual Ratchet components shall each be calculated as if each were the elected death benefit option. PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the rider date. The MGWB rider must be purchased (i) on the contract date or, (ii) within 30 days after the contract date, For contracts issued more than 30 days before the date this rider first became available in your state, the 31 Company may in its discretion allow purchase of this rider during the 30-day period preceding the first contract anniversary after the date of this prospectus, or the date of state approval, whichever is later. OTHER CONTRACTS We offer other variable annuity contracts that also invest in the same portfolios of the Trusts. These contracts have different charges that could effect their performance, and may offer different benefits more suitable to your needs. To obtain more information about these other contracts, contact our Customer Service Center or your registered representative. OTHER IMPORTANT PROVISIONS See "Withdrawals," "Transfers Among Your Investments," "Death Benefit Choices," "Charges and Fees," "The Annuity Options" and "Other Contract Provisions" in this prospectus for information on other important provisions in your Contract. - -------------------------------------------------------------------------------- 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 in any contract year is 15% of your contract value on the date of the withdrawal less any withdrawals during that contract year. You need to submit to us a written request specifying the Fixed Interest Allocations or subaccounts from which amounts are to be withdrawn, otherwise the withdrawal will be made on a pro rata basis from all of the subaccounts in which you are invested. If there is not enough contract value in the subaccounts, we will deduct the balance of the withdrawal from your Fixed Interest Allocations starting with the guaranteed interest periods nearest their maturity dates until we have honored your request. We will apply a Market Value Adjustment to any withdrawal from your Fixed Interest Allocation taken more than 30 days before its maturity date. We will determine the contract value as of the close of business on the day we receive your withdrawal request at our Customer Service Center. The contract value may be more or less than the premium payments made. 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. Please be aware that the benefit we pay under certain optional benefit riders will be reduced by any withdrawals you take while the rider is in effect. See "Optional Riders." We offer the following three withdrawal options: REGULAR WITHDRAWALS After the free look period, you may make regular withdrawals. Each withdrawal must be a minimum of $1,000. We will apply a Market Value Adjustment to any regular withdrawal from a Fixed Interest Allocation that is taken more than 30 days before its maturity date. SYSTEMATIC WITHDRAWALS You may choose to receive automatic systematic withdrawal payments (1) from the contract value in the subaccounts in which you are invested, or (2) from the interest earned in your Fixed Interest Allocations. Systematic withdrawals may be taken monthly, quarterly or annually. You decide when you would like systematic payments to start as long as it is at least 28 days after your contract date. You also select the date on which the systematic withdrawals will be made, but this date cannot be later than the 28th day of the month. If you have elected to receive systematic withdrawals but have not chosen a date, we will make 32 the withdrawals on the same calendar day of each month as your contract date. If your contract date is after the 28th day of the month, your systematic withdrawal will be made on the 28th day of each month. Each systematic withdrawal amount must be a minimum of $100. The amount of your systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount based on a percentage of your contract value. Both forms of systematic withdrawals are subject to the following maximum, which is calculated on each withdrawal date: MAXIMUM PERCENTAGE FREQUENCY OF CONTRACT VALUE Monthly 1.25% Quarterly 3.75% Annually 15.00% If your systematic withdrawal is a fixed dollar amount and the amount to be withdrawn would exceed the applicable maximum percentage of your contract value on any withdrawal date, we will automatically reduce the amount withdrawn so that it equals such percentage. Thus, your fixed dollar systematic withdrawals will never exceed the maximum percentage. If you want fixed dollar systematic withdrawals to exceed the maximum percentage and are willing to incur associated surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which you may add to your regular fixed dollar systematic withdrawal program. If your withdrawal is based on a percentage of your contract value and the amount to be systematically withdrawn based on that percentage would be less than $100, we will automatically increase the amount to $100 as long as it does not exceed the maximum percentage. If the systematic withdrawal would exceed the maximum percentage, we will send the amount, and then automatically cancel your systematic withdrawal option. Systematic withdrawals from Fixed Interest Allocations are limited to interest earnings during the prior month, quarter, or year, depending on the frequency you chose. Systematic withdrawals are not subject to a Market Value Adjustment, unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed below and the payments exceed interest earnings. Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature are available only in connection with Section 72(q) and 72(t) distributions. A Fixed Interest Allocation may not participate in both the systematic withdrawal option and the dollar cost averaging program at the same time. You may change the amount or percentage of your systematic withdrawal once each contract year or cancel this option at any time by sending satisfactory notice to our Customer Service Center at least 7 days before the next scheduled withdrawal date. If you submit a subsequent premium payment after you have applied for systematic withdrawals, we will not adjust future withdrawals under the systematic withdrawal program unless you specifically request that we do so. The systematic withdrawal option may commence in a contract year where a regular withdrawal has been taken but you may not change the amount or percentage of your withdrawals in any contract year during which you have previously taken a regular withdrawal. You may not elect the systematic withdrawal option if you are taking IRA withdrawals. FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal program. This feature allows you to receive a systematic withdrawal in a fixed dollar amount regardless of any surrender charges or Market Value Adjustments. Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature are available only in connection with Section 72(q) and 72(t) distributions. You choose the amount of the fixed systematic withdrawals, which may total up to a maximum of 15% of your contract value as determined on the day we receive your election of this feature. The maximum limit will not be recalculated when you make additional premium payments, unless you instruct us to do so. We will assess a 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 33 apply the surrender charge and any Market Value Adjustment directly to your contract value (rather than to the withdrawal) so that the amount of each systematic withdrawal remains fixed. Flat dollar systematic withdrawals which are intended to satisfy the requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum. Such withdrawals are subject to surrender charges and Market Value Adjustments when they exceed the applicable 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 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. - -------------------------------------------------------------------------------- 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. 34 Please be aware that the benefit we pay under an optional benefit rider may be effected by certain transfers you make while the rider is in effect. Transfers between Special Funds and other investment portfolios will result in a transfer of the Guaranteed Death Benefit in proportion to the contract value transferred. In cases where more than one Guaranteed Death Benefit exists because of such transfers, each death benefit will be combined to calculate the total death benefit. Transfers may also affect your optional rider base. See "The Annunity Contract Optional Riders." Transfers will be based on values at the end of the business day in which the transfer request is received at our Customer Service Center. The minimum amount that you may transfer is $100 or, if less, your entire contract value held in a subaccount or a Fixed Interest Allocation. To make a transfer, you must notify our Customer Service Center and all other administrative requirements must be met. Any transfer request received after 4:00 p.m. eastern time or the close of the New York Stock Exchange will be effected on the next business day. Account B and the Company will not be liable for following instructions communicated by telephone or other approved electronic means that we reasonably believe to be genuine. We require personal identifying information to process a request for transfer made over the telephone or over the internet. 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. 35 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 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. - -------------------------------------------------------------------------------- DEATH BENEFIT CHOICES - -------------------------------------------------------------------------------- DEATH BENEFIT DURING THE ACCUMULATION PHASE During the accumulation phase, a death benefit is payable when either the annuitant (when a contract owner is not an individual), the contract owner or the first of joint owners dies. Assuming you are the contract owner, your beneficiary will receive a death benefit unless the beneficiary is your surviving spouse and elects to continue the Contract. The death benefit value is calculated at the close of the business day on which we receive written notice and due proof of death, as well as any required paperwork, at our Customer Service Center. If your beneficiary elects to delay receipt of the death benefit until a date after the time of death, the amount of the benefit payable in the future may be affected. The proceeds may be received in a single sum or applied to any of the annuity options. If we do not receive a request to apply the death benefit proceeds to an annuity option, we will make a single sum distribution. We will generally pay death benefit proceeds within 7 days after our Customer Service Center has received sufficient information to make the payment. For information on required distributions under federal income tax laws, you should see "Required Distributions upon Contract Owner's Death." You may choose from the following 4 death benefit choices: (1) the Standard Death Benefit; (2) the 7% Solution Enhanced Death Benefit; (3) the Annual Ratchet Enhanced Death Benefit; and (4) the Max 7 Enhanced Death Benefit. Once you choose a death benefit, it cannot be changed. We may in the future stop or suspend offering any of the enhanced death benefit options to new Contracts. A change in ownership of the Contract may affect the amount of the death benefit and the enhanced death benefit. The MGWB rider may affect the death benefit. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death Benefits during Automatic Periodic Benefit Status." 36 STANDARD DEATH BENEFIT. You will automatically receive the Standard Death Benefit unless you elect one of the enhanced death benefits. The Standard Death Benefit under the Contract is the greatest of (i) your contract value; (ii) total premium payments reduced by a pro rata adjustment for any withdrawal; and (iii) the cash surrender value. ENHANCED DEATH BENEFITS. If the 7% Solution Enhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit or the Max 7 Enhanced Death Benefit is elected, the death benefit under the Contract is the greatest of (i) the contract value prior to death; (ii) total premium payments reduced by a pro rata adjustments for any withdrawal; (iii) the cash surrender value; and (iv) the enhanced death benefit as calculated below. The Max 7 Enhanced Death Benefit is the greater of (1) the 7% Solution Enhanced Death Benefit or (2) the Annual Ratchet Enhanced Death Benefit. Under this death benefit option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit are calculated in the same manner as if each were the elected benefit. --------------------------------------------------------------------------- HOW THE ENHANCED DEATH BENEFIT IS CALCULATED 7% SOLUTION ANNUAL RATCHET --------------------------------------------------------------------------- On each business day that occurs on On each contract anniversary that or before the contract owner turns occurs on or before the contract 80, we credit interest at the 7% owner turns age 80, we compare the annual effective rate* to the prior enhanced death benefit to the enhanced death benefit from the contract value and select the preceding day (which would be the larger amount as the new enhanced initial premium if the preceding death benefit. day is the contract date), then we add additional premiums paid since On all other days, the enhanced the preceding day, then we adjust death benefit is the amount for any withdrawals made (including determined below. We first take the any Market Value Adjustment applied enhanced death benefit from the to such withdrawals and any preceding day (which would be the associated surrender charges**) initial premium if the valuation since the preceding day. At age 80 date is the contract date) and then or at the time the maximum death we add additional premiums paid benefit is reached, the since the preceding day, then we accumulation rate used will change. then we reduce the Enhanced Death Benefit pro rata for any contract The maximum enhanced death benefit value withdrawn. That is 3 times all premium amount becomes the new enhanced death benefit. payments, as reduced by adjustments for withdrawals.*** --------------------------------------------------------------------------- * The actual interest rate used for calculating the 7% Solution Enhanced Death Benefit for the Liquid Asset and Limited Maturity Bond investment portfolios and the Fixed Account, will be the lesser of (1) 7% and (2) the interest rate, positive or negative, providing a yield on the Enhanced Death Benefit equal to the net return for the current valuation period on the contract value allocated to Special Funds. We may, with 30 days notice to you, designate any fund as a Special Fund on existing contracts with respect to new premiums added to such fund and also with respect to new transfers to such funds. Thus, selecting these investments may limit the enhanced death benefit pro rata. ** Each premium payment reduced by adjustments for any withdrawals and any associated surrender charges incurred will continue to grow at the 7% annual effective rate until maximum is reached. *** Each withdrawal reduces the enhanced death benefit and the maximum enhanced death benefit as follows: If total withdrawals in a contract year do not exceed 7% of cumulative premiums and did not exceed 7% of cumulative premiums in any prior contract year, such withdrawals will reduce the enhanced death benefit and the maximum enhanced death benefit by the amount of the withdrawal (and any associated surrender charge) including any Market Value Adjustment. Once withdrawals in any contract year exceed 7% of cumulative premiums, withdrawals will reduce the enhanced death benefit and the maximum enhanced death benefit in proportion to the reduction in contract value pro rata. Pro rata withdrawal adjustment on all death benefit options is calculated by (i) dividing the contract value withdrawn by the contract value immediately prior to the withdrawal, and then (ii) multiplying the result by the amount of the applicable death benefit immediately prior to the withdrawal. 37 The enhanced death benefits are available only at the time you purchase your Contract and only if the contract owner or annuitant (when the contract owner is other than an individual) is less than 80 years old at the time of purchase. The enhanced death benefits are not available where a Contract is owned by joint owners. DEATH BENEFIT DURING THE INCOME PHASE If any contract owner or the annuitant dies after the annuity start date, the Company will pay the beneficiary any certain benefit remaining under the annuity in effect at the time. CONTINUATION AFTER DEATH--SPOUSE If at the contract owner's death, the surviving spouse of the deceased owner is the beneficiary and such surviving spouse elects to continue the contract as his or her own the following will apply: If the guaranteed death benefit as of the date we receive due proof of death, minus the contract value also on that date, is greater than zero, we will add such difference to the contract value. Such addition will be allocated to the variable subaccounts in proportion to the contract value in the subaccounts. If there is no contract value in any subaccount, the addition will be allocated to the Liquid Asset subaccount, or its successor. The death benefit will continue to apply, with all age criteria using the surviving spouse's age as the determining age. 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 of the contract elects to continue the contract as his or her own. CONTINUATION AFTER DEATH-NON SPOUSE If the beneficiary or surviving joint owner is not the spouse of the owner, the Contract may continue in force subject to the required distribution rules of the Internal Revenue Code. See next section. REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH We will not allow any payment of benefits provided under a non-qualified Contract which do not satisfy the requirements of Section 72(s) of the Code. If any contract owner of a non-qualified Contract dies before the annuity start date, the death benefit payable to the beneficiary will be distributed as follows: (a) the death benefit must be completely distributed within 5 years of the contract owner's date of death; or (b) the beneficiary may elect, within the 1-year period after the contract owner's date of death, to receive the death benefit in the form of an annuity from us, provided that (i) such annuity is distributed in substantially equal installments over the life of such beneficiary or over a period not extending beyond the life expectancy of such beneficiary; and (ii) such distributions begin not later than 1 year after the contract owner's date of death. Notwithstanding (a) and (b) above, if the sole contract owner's beneficiary is the deceased owner's surviving spouse, then such spouse may elect to continue the Contract under the same terms as before the contract owner's death. Upon receipt of such election from the spouse at our Customer Service Center: (1) all rights of the spouse as contract owner's beneficiary under the Contract in effect prior to such election will cease; (2) the spouse will become the owner of the Contract and will also be treated as the contingent annuitant, if none has been named and only if the deceased owner was the annuitant; and (3) all rights and privileges granted by the Contract or allowed by Golden American will belong to the spouse as contract owner of the Contract. This election will be deemed to have been made by the spouse if such spouse makes a premium payment to the Contract or fails to make a timely election as described in this paragraph. If the owner's beneficiary is a nonspouse, the distribution provisions described in subparagraphs (a) and (b) above, will apply even if the annuitant and/or contingent annuitant are alive at the time of the contract owner's death. 38 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. - -------------------------------------------------------------------------------- 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 7-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+ SINCE PREMIUM PAYMENT SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0% WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. We will waive the surrender charge in most states in the following events: (i) you begin receiving qualified extended medical care on or after the first contract anniversary for at least 45 days during a 60-day period and your request for the surrender or withdrawal, together with all required documentation is received at our Customer Service Center during the term of your care or within 90 days after the last day of your care; or (ii) you are first diagnosed by a 39 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 in any contract year is 15% of your contract value on the date of withdrawal less any withdrawals during that contract year. SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a surrender charge for excess withdrawals. We consider a withdrawal to be an "excess withdrawal" when the amount you withdraw in any contract year exceeds the Free Withdrawal Amount. Where you are receiving systematic withdrawals, any combination of regular withdrawals taken and any systematic withdrawals expected to be received in a contract year will be included in determining the amount of the excess withdrawal. Such a withdrawal will be considered a partial surrender of the Contract and we will impose a surrender charge and any associated premium tax. We will deduct such charges from the contract value in proportion to the contract value in each subaccount or Fixed Interest Allocation from which the excess withdrawal was taken. In instances where the excess withdrawal equals the entire contract value in such subaccounts or Fixed Interest Allocations, we will deduct charges proportionately from all other subaccounts and Fixed Interest Allocations in which you are invested. Any withdrawal from a Fixed Interest Allocation more than 30 days before its maturity date will trigger a Market Value Adjustment. For the purpose of calculating the surrender charge for an excess withdrawal: a) we treat premiums as being withdrawn on a first-in, first-out basis; and b) amounts withdrawn which are not considered an excess withdrawal are not considered a withdrawal of any premium payments. We have included an example of how this works in Appendix C. Although we treat premium payments as being withdrawn before earnings for purpose of calculating the surrender charge for excess withdrawals, the federal tax law treats earnings as withdrawn first. PREMIUM TAXES. We may make a charge for state and local premium taxes depending on your state of residence. The tax can range from 0% to 3.5% of the premium payment. We have the right to change this amount to conform with changes in the law or if you change your state of residence. We deduct the premium tax from your contract value (or from the MGIB Base, if exercised) on the annuity start date. However, some jurisdictions impose a premium tax at the time that initial and additional premiums are paid, regardless of when the annuity payments begin. In those states we may defer collection of the premium taxes from your contract value and deduct it when you surrender the Contract, when you take an excess withdrawal or on the annuity start date. ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on each Contract anniversary, or if you surrender your Contract prior to a Contract anniversary, at the time we determine the cash surrender value payable to you. The amount deducted is $40 per Contract. This charge is waived if your contract value is $100,000 or more at the end of a contract year or the total of your premium payments is $100,000 or more or under other conditions established by Golden American. We deduct the charge proportionately from all subaccounts in which you are invested. If there is no contract value in these 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. 40 CHARGES DEDUCTED FROM THE SUBACCOUNTS MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is deducted each business day. The amount of the mortality and expense risk charge depends on the death benefit you have elected. If you have elected the Standard Death Benefit, the charge, on an annual basis, is equal to 1.15% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .003169% for each day since the previous business day. If you have elected an enhanced death benefit, the charge, on an annual basis, is equal to 1.30% for the Annual Ratchet Enhanced Death Benefit, 1.50% for the 7% Solution Enhanced Death Benefit or 1.60% for the Max 7 Enhanced Death Benefit, of the assets you have in each subaccount. The charge is deducted each business day at the rate of .003585%, .004141%, or .004419%, respectively, for each day since the previous business day. ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based administrative charge, on an annual basis, is equal to 0.15% of the assets you have in each subaccount. The charge is deducted on each business day at the rate of .000411% for each day since the previous business day. This charge is deducted daily from your assets in each subaccount. OPTIONAL RIDER CHARGES Subject to state availability, you may purchase one of three optional benefit riders that you may elect at issue. So long as the rider is in effect, we will deduct a separate quarterly charge for each optional benefit rider through a pro rata reduction of the contract value of the subaccounts in which you are invested. If there is insufficient contract value in the subaccount, we will deduct the charges from your Fixed Interest Allocations nearest their maturity date. We deduct each rider charge on each quarterly contract anniversary in arrears, meaning the first charge will be deducted on the first quarterly anniversary following the rider date. For a description of the riders and the defined terms used in connection with the riders, see "The Annuity Contract -- Optional Riders." MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for the MGAB rider is as follows: Waiting Period Quarterly Charge -------------- ---------------- 10 Year............ 0.125% of the MGAB Charge Base (0.50% annually) 20 Year............ 0.125% of the MGAB Charge Base (0.50% annually) The MGAB Charge Base is the total of (i) the MGAB Base on the rider date and (ii) premiums during the 2-year period commencing on the rider date, reduced pro rata for withdrawals and reduced for transfers made within the last 3 years prior to the MGAB Benefit Date. We will deduct charges only during your ten-year or twenty-year waiting period, as applicable. If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and MGAB Charge Base immediately prior to the surrender or annuitization. MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB rider is as follows: MGIB Base Rate Quarterly Charge -------------- ---------------- 7%.................. 0.125% of the MGIB Base (0.50% annually) The MGIB Base is the total of premiums paid more than 5 years before the earliest MGIB Benefit Date, reduced pro rata for all withdrawals taken while the MGIB rider is in effect, and accumulated at the MGIB Base Rate (7% for all portfolios except the Special Funds). If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and your MGIB Base immediately prior to the surrender or annuitization. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid during the first two contract years following the rider date. When we calculate the MGWB rider charge, we do not reduce the Eligible Payment Amount by the amount of 41 any withdrawals taken while the MGWB rider is in effect. We will deduct charges only during the period before your Contract's Automatic Periodic Benefit Status. If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and your original MGWB Eligible Payment Amount immediately prior to the surrender or annuitization. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Premium Amount. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider "for a description of the MGWB Eligible Payment Amount. We will deduct charges only during the period before your Contract's Automatic Periodic Benefit Status. If you surrender or annuitize your Contract, we will deduct a pro rata portion of the charge for the current quarter based on the current quarterly charge rate and your original MGWB Eligible Payment Amount immediately prior to the surrender or annuitization. TRUST EXPENSES There are fees and charges deducted from each investment portfolio of the Trusts. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, two portfolios deduct 12b-1 fees. For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees and Expenses" in this prospectus. Additionally, we may receive compensation from the investment advisers, administrators, distributors of the portfolios in connection with administrative, distribution, or other services and cost savings experienced by the investment advisers, administrators or distributors. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Contract. Some advisers, administrators or distributors may pay us more than others. - -------------------------------------------------------------------------------- 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 you chose. You may change an annuity option by making a written request to us at least 30 days before the annuity start date. The amount of the payments will be determined by applying your contract value, adjusted for any applicable Market Value Adjustment, on the annuity start date in accordance with the annuity option you chose. The MGIB annuity benefit may be available if you have purchased the MGIB rider, provided the waiting period and other specified conditions have been met. You may also elect an annuity option on surrender of the Contract for its cash surrender value or you may choose one or more annuity options for the payment of death benefit proceeds while it is in effect and before the annuity start date. If, at the time of the contract owner's death or the annuitant's death (if the contract owner is not an individual), no option has been chosen for paying death benefit proceeds, the beneficiary may choose an annuity option within 60 days. In all events, payments of death benefit proceeds must comply with the distribution requirements of applicable federal tax law. The minimum monthly annuity income payment that we will make is $20. We may require that a single sum payment be made if the contract value is less than $2,000 or if the calculated monthly annuity income payment is less than $20. For each annuity option we will issue a separate written agreement putting the annuity option into effect. Before we pay any annuity benefits, we require the return of your Contract. If your Contract has been lost, we will require that you complete and return the applicable lost Contract form. Various factors will affect the level of annuity benefits, such as the annuity option chosen, the applicable payment rate used and the investment performance of the portfolios and interest credited to the Fixed Interest Allocations. 42 Our current annuity options provide only for fixed payments. Fixed annuity payments are regular payments, the amount of which is fixed and guaranteed by us. Some fixed annuity options provide fixed payments either for a specified period of time or for the life of the annuitant. The amount of life income payments will depend on the form and duration of payments you chose, the age of the annuitant or beneficiary (and gender, where appropriate under applicable law) the total contract value applied to purchase a Fixed Interest Allocation, and the applicable payment rate. Our approval is needed for any option where: (1) The person named to receive payment is other than the contract owner or beneficiary; (2) The person named is not a natural person, such as a corporation; or (3) Any income payment would be less than the minimum annuity income payment allowed. SELECTING THE ANNUITY START DATE You select the annuity start date, which is the date on which the annuity payments commence. The annuity start date must be at least 3 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 3 years. If you do not select an annuity start date, it will automatically begin in the month following the annuitant's 90th birthday, or 10 years from the contract date, if later. If the annuity start date occurs when the annuitant is at an advanced age, such as over age 85, it is possible that the Contract will not be considered an annuity for federal tax purposes. For more information, see "Federal Tax Considerations" and the Statement of Additional Information. For a Contract purchased in connection with a qualified plan, other than a Roth IRA, distributions must commence not later than April 1st of the calendar year following the calendar year in which you reach age 70 1/2 or, in some cases, retire. Distributions may be made through annuitization or withdrawals. You should consult a tax adviser for tax advice before investing. FREQUENCY OF ANNUITY PAYMENTS You choose the frequency of the annuity payments. They may be monthly, quarterly, semi-annually or annually. If we do not receive written notice from you, we will make the payments monthly. There may be certain restrictions on minimum payments that we will allow. THE ANNUITY OPTIONS We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3 are fixed. Payments under Option 4 may be fixed or variable. For a fixed annuity option, the contract value in the subaccounts is transferred to the Company's general account. OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make monthly payments in equal installments for a fixed number of years based on the contract value on the annuity start date. We guarantee that each monthly payment will be at least the amount stated in your Contract. If you prefer, you may request that payments be made in annual, semi-annual or quarterly installments. We will provide you with illustrations if you ask for them. If the cash surrender value or contract value is applied under this option, a 10% penalty tax may apply to the taxable portion of each income payment until the contract owner reaches age 59 1/2. OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Under this option, we make payments for the life of the annuitant in equal monthly installments and guarantee the income for at least a period certain such as 10 or 20 years. Other periods certain may be available to you on request. You may choose a refund period instead. Under this arrangement, income is guaranteed until payments equal the amount applied. If the person named lives beyond the guaranteed period, we will continue payments until his or her death. We guarantee that each payment will be at least the amount specified in the Contract corresponding to the 43 person's age on his or her last birthday before the annuity start date. Amounts for ages not shown in the Contract are available if you ask for them. OPTION 3. JOINT LIFE INCOME. This option is available when there are 2 persons named to determine annuity payments. At least one of the persons named must be either the contract owner or beneficiary of the Contract. We guarantee monthly payments will be made as long as at least one of the named persons is living. There is no minimum number of payments. Monthly payment amounts are available if you ask for them. OPTION 4. ANNUITY PLAN. Under this option, your contract value can be applied to any other annuitization plan that we choose to offer on the annuity start date. Annuity payments under Option 4 may be fixed or variable. If variable and subject to the Investment Company Act of 1940, it will comply with the requirements of such Act. PAYMENT WHEN NAMED PERSON DIES When the person named to receive payment dies, we will pay any amounts still due as provided in the annuity agreement between you and Golden American. The amounts we will pay are determined as follows: (1) For Option 1, or any remaining guaranteed payments under Option 2, we will continue payments. Under Options 1 and 2, the discounted values of the remaining guaranteed payments may be paid in a single sum. This means we deduct the amount of the interest each remaining guaranteed payment would have earned had it not been paid out early. The discount interest rate is never less than 3% for Option 1 and 3.50% 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. - -------------------------------------------------------------------------------- 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 or in any confirmation notices. We will also send you copies of any shareholder reports of the investment portfolios in which Account B invests, as well as any other reports, notices or documents we are required by law to furnish to you. SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of any payment or determination of values on any business day (1) when the New York Stock Exchange is closed; (2) when trading on the New York Stock Exchange is restricted; (3) when an emergency exists as determined by the SEC so that the sale of securities held in Account B may not reasonably occur or so that the Company may not reasonably determine the value of Account B's net assets; or (4) during any other period when the SEC so permits for the protection of security holders. We have the right to delay payment of amounts from a Fixed Interest Allocation for up to 6 months. IN CASE OF ERRORS IN YOUR APPLICATION If an age or gender given in the application or enrollment form is misstated, the amounts payable or benefits provided by the Contract shall be those that the premium payment would have bought at the correct age or gender. 44 ASSIGNING THE CONTRACT AS COLLATERAL You may assign a non-qualified Contract as collateral security for a loan but you should understand that your rights and any beneficiary's rights may be subject to the terms of the assignment. An assignment may have federal tax consequences. You should consult a tax adviser for tax advice. You must give us satisfactory written notice at our Customer Service Center in order to make or release an assignment. We are not responsible for the validity of any assignment. 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, we include a refund of any charges deducted from your contract value. Because of the market risks associated with investing in the portfolios, the contract value returned may be greater or less than the premium payment you paid. Some states require us to return to you the amount of the paid premium (rather than the contract value) in which case you will not be subject to investment risk during the free look period. In these states, your premiums designated for investment in the subaccounts may be allocated during the free look period to a subaccount specially designated by the Company for this purpose (currently, the Liquid Asset subaccount). We may, in our discretion, require that premiums designated for investment in the subaccounts from all other states as well as premiums designated for a Fixed Interest Allocation be allocated to the specially designated subaccount during the free look period. Your Contract is void as of the day we receive your Contract and cancellation request. We determine your contract value at the close of business on the day we receive your written request. If you keep your Contract after the free look period and the investment is allocated to a subaccount specially designated by the Company, we will put your money in the subaccount(s) chosen by you, based on the accumulation unit value next computed for each subaccount, and/or in the Fixed Interest Allocation chosen by you. GROUP OR SPONSORED ARRANGEMENTS For certain group or sponsored arrangements, we may reduce any surrender, administration, and mortality and expense risk charges. We may also change the minimum initial and additional premium requirements, or offer an alternative or reduced death benefit. SELLING THE CONTRACT Directed Services, Inc. is the principal underwriter and distributor of the Contract as well as for other contracts issued through 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 6.5% commission, and passes through 100% of the commission to the broker-dealer whose registered representative sold the Contract. 45 - -------------------------------------------------------------------------------- UNDERWRITER COMPENSATION - -------------------------------------------------------------------------------- NAME OF PRINCIPAL AMOUNT OF OTHER UNDERWRITER COMMISSION TO BE PAID COMPENSATION Directed Services, Inc. Maximum of 6.5% Reimbursement of any of any initial covered expenses or additional incurred premium payments by registered except when representatives combined in connection with some annual with the trail commissions. distribution of the Contracts. - -------------------------------------------------------------------------------- Certain sales agreements may provide for a combination of a certain percentage of commission at the time of sale and an annual trail commission (which when combined could exceed 6.5% of total premium payments). We do not pay any additional commissions on the sale or exercise of any of the optional benefit riders offered in this prospectus. - -------------------------------------------------------------------------------- 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 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. 46 EXPERTS The audited financial statements of Golden American and Account B appearing in this prospectus or in the Statement of Additional Information and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing in this prospectus or in the Statement of Additional Information and in the Registration Statement and are included or incorporated by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. - -------------------------------------------------------------------------------- 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. INVESTOR CONTROL. In certain circumstances, owners of variable annuity contracts have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Contracts, such as the flexibility of a contract owner to allocate premium payments and transfer contract values, have not been explicitly addressed in published rulings. While we believe that the Contracts do not give contract owners investment control over Account B assets, we reserve the right to modify the Contracts as necessary to prevent a contract owner from being treated as the owner of the Account B assets supporting the Contract. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for federal income tax purposes, the Code requires any non-qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of your death. The non-qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to 47 assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. See "Death Benefit Choices" for additional information on required distributions from non-qualified contracts. Other rules may apply to Qualified Contracts. The following discussion assumes that the Contracts will qualify as annuity contracts for federal income tax purposes. TAX TREATMENT OF ANNUITIES IN GENERAL. We believe that if you are a natural person you will generally not be taxed on increases in the value of a Contract until a distribution occurs or until annuity payments begin. (For these purposes, the agreement to assign or pledge any portion of the contract value, and, in the case of a qualified Contract, any portion of an interest in the qualified plan, generally will be treated as a distribution.) TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON. The owner of any annuity contract who is not a natural person generally must include in income any increase in the excess of the contract value over the "investment in the contract" (generally, the premiums or other consideration you paid for the contract less any nontaxable withdrawals) during the taxable year. There are some exceptions to this rule and a prospective contract owner that is not a natural person may wish to discuss these with a tax adviser. The following discussion generally applies to Contracts owned by natural persons. WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs (including amounts paid to you under the MGWB rider), the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the contract value (unreduced by the amount of any surrender charge) immediately before the distribution over the contract owner's investment in the Contract at that time. Credits constitute earnings (not premiums) for federal tax purposes and are not included in the owner's investment in the Contract. The tax treatment of market value adjustments is uncertain. You should consult a tax adviser if you are considering taking a withdrawal from your Contract in circumstances where a market value adjustment would apply. In the case of a surrender under a non-qualified Contract, the amount received generally will be taxable only to the extent it exceeds the contract owner's investment in the Contract. PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a non-qualified Contract, there may be imposed a federal tax penalty equal to 10% of the amount treated as income. In general, however, there is no penalty on distributions: o made on or after the taxpayer reaches age 59 1/2; o made on or after the death of a contract owner; o attributable to the taxpayer's becoming disabled; or o made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer. 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 48 investment in the Contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a Contract because of your death or the death of the annuitant. Generally, such amounts are includible in the income of recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under a payment option, they are taxed in the same way as annuity payments. TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT. A transfer or assignment of ownership of a Contract, the designation of an annuitant, the selection of certain dates for commencement of the annuity phase, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. A contract owner contemplating any such transfer, assignment or exchange, should consult a tax adviser as to the tax consequences. WITHHOLDING. Annuity distributions are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same contract owner during any calendar year are treated as one non-qualified deferred annuity contract for purposes of determining the amount includible in such contract owner's income when a taxable distribution occurs. TAXATION OF QUALIFIED CONTRACTS The Contracts are designed for use with several types of qualified plans. The tax rules applicable to participants in these qualified plans vary according to the type of plan and the terms and 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) 49 tax-sheltered annuities are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is the taxable portion of any distribution from such a plan, except certain distributions that are required by the Code or distributions in a specified annuity form. The 20% withholding does not apply, however, if the contract owner chooses a "direct rollover" from the plan to another tax-qualified plan or IRA. Brief descriptions of the various types of qualified retirement plans in connection with a Contract follow. We will endorse the Contract as necessary to conform it to the requirements of such plan. CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Section 401(a) of the Code permits corporate employers to establish various types of retirement plans for employees, and permits self-employed individuals to establish these plans for themselves and their employees. These retirement plans may permit the purchase of the Contracts to accumulate retirement savings under the plans. Adverse tax or other legal consequences to the plan, to the participant, or to both may result if this Contract is assigned or transferred to any individual as a means to provide benefit payments, unless the plan complies with all legal requirements applicable to such benefits before transfer of the Contract. Employers intending to use the Contract with such plans should seek competent advice. INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA." These IRAs are subject to limits on the amount that can be contributed, the deductible amount of the contribution, the persons who may be eligible, and the time when distributions commence. Also, distributions from certain other types of qualified retirement plans may be "rolled over" or transferred on a tax-deferred basis into an IRA. There are significant restrictions on rollover or transfer contributions from Savings Incentive Match Plans (SIMPLE), under which certain employers may provide contributions to IRAs on behalf of their employees, subject to special restrictions. Employers may establish Simplified Employee Pension (SEP) Plans to provide IRA contributions on behalf of their employees. Sales of the Contract for use with IRAs may be subject to special requirements of the IRS. ROTH IRA Section 408A of the Code permits certain eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to certain limitations, are not deductible, and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and other special rules may apply. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years in which the conversion was made. TAX SHELTERED ANNUITIES Section 403(b) of the Code allows employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the premium payments made, within certain limits, on a Contract that will provide an annuity for the employee's retirement. These premium payments may be subject to FICA (Social Security) tax. Distributions of (1) salary reduction contributions made in years beginning after December 31, 1988; (2) earnings on those contributions; and (3) earnings on amounts held as of the last year beginning before January 1, 1989, are not allowed prior to age 59 1/2, separation from service, death or disability. Salary reduction contributions may also be distributed upon hardship, but would generally be subject to penalties. ENHANCED DEATH BENEFIT The Contract includes an Enhanced Death Benefit that in some cases may exceed the greater of the premium payments or the contract value. The Internal Revenue Service has not ruled whether an Enhanced Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any Code section 401(a) pension or profit-sharing plan or Code section 403(b) tax-sheltered annuity. Employers using the Contract may want to consult their tax adviser regarding such limitation. Further, the Internal Revenue 50 Service has not addressed in a ruling of general applicability whether a death benefit provision such as the Enhanced Death Benefit provision in the Contract comports with IRA or Roth IRA qualification requirements. OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the federal tax consequences under the Contracts are not exhaustive, and special rules are provided with respect to other tax situations not discussed in this prospectus. Further, the federal income tax consequences discussed herein reflect our understanding of current law, and the law may change. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of distributions under a Contract depend on the individual circumstances of each contract owner or recipient of the distribution. A competent tax adviser should be consulted for further information. POSSIBLE CHANGES IN TAXATION Although the likelihood of legislative change is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or other means. It is also possible that any change could be retroactive (that is, effective before the date of the change). You should consult a tax adviser with respect to legislative developments and their effect on the Contract. 51 - -------------------------------------------------------------------------------- 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 For the | Period For the For the For the Period | January 1, Period Year Year October 25, | 1997 August 14, Ended Ended 1997 through | through 1996 through December 31, December 31, December 31, | October 24, December 31, 1999 1998 1997 | 1997 1996 ------------ ------------ ------------ | ----------- ------------ Annuity and Interest | Sensitive Life | Product Charges......... $ 82,935 $ 39,119 $ 3,834 | $ 18,288 $ 8,768 Net Income before | Federal Income Tax ..... $ 19,737 $ 10,353 $ (279) | $ (608) $ 570 Net Income (Loss)........... $ 11,214 $ 5,074 $ (425) | $ 729 $ 350 Total Assets................ $ 9,392,857 $ 4,754,623 $ 2,446,395 | N/A $ 1,677,899 Total Liabilities........... $ 8,915,008 $ 4,400,729 $ 2,219,082 | N/A $ 1,537,415 Total Stockholder's Equity.. $ 477,849 $ 353,894 $ 227,313 | N/A $ 140,484 Pre-Acquisition --------------- For the Period January 1, 1996 through August 13, 1996 --------------- Annuity and Interest Sensitive Life Product Charges......... $ 12,259 Net Income before Federal Income Tax...... $ 1,736 Net Income (Loss)........... $ 3,199 Total Assets................ N/A Total Liabilities........... N/A Total Stockholder's Equity.. N/A
52 BUSINESS ENVIRONMENT The current business and regulatory environment presents many challenges to the insurance industry. The variable annuity competitive environment remains intense and is dominated by a number of large highly rated insurance companies. Increasing competition from traditional insurance carriers as well as banks and mutual fund companies offers consumers many choices. However, overall demand for variable insurance products remains strong for several reasons including: strong stock market performance over the last four years; relatively low interest rates; an aging U.S. population that is increasingly concerned about retirement, estate planning, and maintaining their standard of living in retirement; and potential reductions in government and employer-provided benefits at retirement, as well as lower public confidence in the adequacy of those benefits. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze Golden American Life Insurance Company's ("Golden American") consolidated results of operations. In addition, some analysis and information regarding financial condition and liquidity and capital resources is also provided. This analysis should be read jointly with the consolidated financial statements, related notes, and the Cautionary Statement Regarding Forward-Looking Statements, which appear elsewhere in this report. Golden American reports financial results on a consolidated basis. The consolidated financial statements include the accounts of Golden American and its wholly owned subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and collectively with Golden American, the "Companies"). RESULTS OF OPERATION MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable") shareholders approved an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI"), and ING Groep N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc., Equitable Investment Services, Inc. (subsequently dissolved), Directed Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II, and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware corporation. For financial statement purposes, the change in control of the Companies through the ING merger was accounted for as a purchase effective October 25, 1997. This merger resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the merger date. As a result, the Companies' financial statements for periods after October 24, 1997 are presented on the Post-Merger new basis of accounting. The purchase price was allocated to EIC and its subsidiaries with $227.6 million allocated to the Companies. Goodwill of $1.4 billion was established for the excess of the merger cost over the fair value of the assets and liabilities of EIC with $151.1 million attributed to the Companies. Goodwill resulting from the merger is being amortized over 40 years on a straight-line basis. The carrying value will be reviewed periodically for any indication of impairment in value. CHANGE IN CONTROL -- ACQUISITION. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its wholly owned subsidiaries, Golden American and DSI. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. 53 For financial statement purposes, the change in control of Golden American through the acquisition of BT Variable was accounted for as a purchase effective August 14, 1996. This acquisition resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the acquisition date. As a result, the Companies' financial statements included for the period January 1, 1997 through October 24, 1997 are presented on the Post-Acquisition basis of accounting. The purchase price was allocated to the three companies purchased - BT Variable, DSI, and Golden American. The allocation of the purchase price to Golden American was approximately $139.9 million. Goodwill of $41.1 million was established for the excess of the acquisition cost over the fair value of the assets and liabilities and attributed to Golden American. At June 30, 1997, goodwill was increased by $1.8 million, due to the adjustment of the value of a receivable existing at the acquisition date. Before the ING merger, goodwill resulting from the acquisition was being amortized over 25 years on a straight-line basis. 1999 COMPARED TO 1998 PREMIUMS PERCENTAGE DOLLAR FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998 ---- ------ ------ ---- (Dollars in millions) Variable annuity premiums: Separate account............... $2,511.7 71.9% $1,050.5 $1,461.2 Fixed account.................. 770.7 30.9 182.0 588.7 -------- ----- -------- -------- Total variable annuity premiums.... 3,282.4 60.1 1,232.5 2,049.9 Variable life premiums............. 8.6 (37.8) (5.2) 13.8 -------- ----- -------- -------- Total premiums..................... $3,291.0 59.5% $1,227.3 $2,063.7 ======== ===== ======== ======== For the Companies' variable insurance contracts, premiums collected are not reported as revenues, but as deposits to insurance liabilities. Revenues for these products are recognized over time in the form of investment spread and product charges. Variable annuity separate account premiums increased 71.9% in 1999. The fixed account portion of the Companies' variable annuity premiums increased 30.9% in 1999. These increases resulted from increased sales of the Premium Plus variable annuity product. Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American discontinued offering variable life products. Premiums, net of reinsurance, for variable products from two significant broker/dealers each having at least ten percent of total sales for the year ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to $528.9 million, or 26%, from two significant broker/dealers for the year ended December 31, 1998. REVENUES PERCENTAGE DOLLAR FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998 ---- ------ ------ ---- (Dollars in millions) Annuity and interest sensitive life product charges.................... $ 82.9 112.0% $43.8 $39.1 Management fee revenue................. 10.1 112.5 5.3 4.8 Net investment income.................. 59.2 39.3 16.7 42.5 Realized gains (losses) on investments. (2.9) 96.1 (1.4) (1.5) Other income........................... 10.8 94.4 5.2 5.6 -------- ----- ----- ----- $ 160.1 77.0% $69.6 $90.5 ======== ===== ===== ===== 54 Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999. Annuity and interest sensitive life product charges increased 112.0%, or $43.8 million, to $82.9 million in 1999, primarily due to additional fees earned from the increasing block of business in the separate accounts. Golden American provides certain managerial and supervisory services to DSI. The fee paid to Golden American for these services, which is calculated as a percentage of average assets in the variable separate accounts, was $10.1 million for 1999 and $4.8 million for 1998. Net investment income increased 39.3%, or $16.7 million, to $59.2 million in 1999 from $42.5 million in 1998, due to growth in invested assets from December 31, 1998, increasing interest rates, and a relative increase in below investment grade investments. During 1999, the Company had net realized losses on investments of $2.9 million, which includes a $1.6 million write down of two impaired fixed maturities, compared to net realized losses on investments of $1.5 million in 1998 which included a $1.0 million write down of two impaired fixed maturities. Other income increased $5.2 million to $10.8 million in 1999, due primarily to income received under a modified coinsurance agreement with an unaffiliated reinsurer. EXPENSES
PERCENTAGE DOLLAR FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998 ---- ------ ------ ---- (Dollars in millions) Insurance benefits and expenses: Annuity and interest sensitive life benefits: Interest credited to account balances ... $ 175.9 85.4% $ 81.0 $ 94.9 Benefit claims incurred in excess of account balances ...................... 6.3 200.2 4.2 2.1 Underwriting, acquisition, and insurance expenses: Commissions ............................. 188.4 55.5 67.2 121.2 General expenses ........................ 60.2 60.2 22.6 37.6 Insurance taxes, state licenses, and fees 4.0 (4.0) (0.1) 4.1 Policy acquisition costs deferred ....... (346.4) 75.1 (148.6) (197.8) Amortization: Deferred policy acquisition costs ..... 33.1 543.3 28.0 5.1 Value of purchased insurance in force . 6.2 32.0 1.5 4.7 Goodwill .............................. 3.8 -- -- 3.8 -------- ----- -------- -------- $ 131.5 73.7% $ 55.8 $ 75.7 ======== ===== ======== ========
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999 from $75.7 million in 1998. Interest credited to account balances increased 85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit on the Premium Plus variable annuity product increased $69.3 million to $123.8 million at December 31, 1999. The bonus interest on the fixed account increased $3.0 million to $10.9 million at December 31, 1999. The remaining increase in interest credited relates to higher account balances associated with the Companies' fixed account options within the variable products. Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in 1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million, in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes, state licenses, and fees are generally related to changes in the level and composition of variable product sales. Insurance taxes, state licenses, and fees are impacted by several other factors, which include an increase in FICA taxes primarily due to bonuses and expenses for the triennial insurance department examination of Golden American, which were offset by a decrease in 1999 of guaranty fund assessments paid. Most costs incurred as the result of sales have been deferred, thus having very little impact on current earnings. 55 General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million in 1998. Management expects general expenses to continue to increase in 2000 as a result of the emphasis on expanding the salaried wholesaler distribution network and the growth in sales. The Companies use a network of wholesalers to distribute products, and the salaries and sales bonuses of these wholesalers are included in general expenses. The portion of these salaries and related expenses that varies directly with production levels is deferred thus having little impact on current earnings. The increase in general expenses was partially offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an affiliate, Southland Life Insurance Company, an affiliate, and United Life & Annuity Insurance Company, an affiliate, for certain advisory, computer, and other resources and services provided by Golden American. The Companies' previous balances of deferred policy acquisition costs ("DPAC"), value of purchased insurance in force ("VPIF"), and unearned revenue reserve were eliminated and a new asset of $44.3 million representing VPIF was established for all policies in force at the merger date. During 1999, VPIF was adjusted to increase amortization by $0.7 million to reflect changes in the assumptions related to the timing of estimated gross profits. During 1998, VPIF decreased $2.7 million to adjust the value of other receivables and increased $0.2 million as a result of an adjustment to the merger costs. During 1998, VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in the assumptions related to the timing of future gross profits. Amortization of DPAC increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth in policy acquisition costs deferred from $197.8 million at December 31, 1998 to $346.4 million at December 31, 1999, which was generated by expenses associated with the large sales volume experienced since December 31, 1998. Based on current conditions and assumptions as to the impact of future events on acquired policies in force, the expected approximate net amortization relating to VPIF as of December 31, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may vary based upon changes in assumptions and experience. Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in 1998. Interest expense on a $25 million surplus note issued December 1996 and expiring December 2026 was $2.1 million for the year ended December 31, 1999, unchanged from the same period of 1998. Interest expense on a $60 million surplus note issued in December 1998 and expiring December 2028 was $4.3 million for the year ended December 31, 1999. Interest expense on a $75 million surplus note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million for the year ended December 31, 1999. Golden American also paid $0.8 million in 1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING AIH") for interest on a reciprocal loan agreement. Interest expense on a revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3 million for the years ended December 31, 1999 and 1998, respectively. In addition, Golden American incurred interest expense of $0.2 million in 1998 on a line of credit with Equitable. INCOME. Net income for 1999 was $11.2 million, an increase of $6.1 million from $5.1 million for 1998. Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from comprehensive income of $3.9 million for 1998. 56 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 ========== ========== ========== | ==========
For the Companies' variable contracts, premiums collected are not reported as revenues, but are reported as deposits to insurance liabilities. Revenues for these products are recognized over time in the form of investment income and product charges. Variable annuity separate account premiums increased 419.7% in 1998 primarily due to increased sales of the Premium Plus product introduced in October of 1997 and the increased sales levels of the Companies' other products. The fixed account portion of the Companies' variable annuity premiums increased 85.1% in 1998. Variable life premiums decreased 11.4% in 1998. Total premiums increased 238.7% in 1998. During 1998, the Companies' sales were further diversified among broker/dealers. Premiums, net of reinsurance, for variable products from two significant broker/dealers having at least ten percent of total sales for the year ended December 31, 1998 totaled $528.9 million, or 26% of premiums ($328.2 million, or 53% from two significant broker/dealers for the year ended December 31, 1997). REVENUES
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION ----------------- ----------------- ----------------- | ---------------- For the Period | For the Period For the Year For the Year October 25, 1997 | January 1, 1997 ended ended through | through December 31, 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 ========== ========== ========== | ==========
57 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 in 1997. The extra credit bonus on the Premium Plus product introduced in October of 1997 generated a $51.6 million increase in interest credited during 1998 compared to 1997. The remaining increase in interest credited related to higher account balances associated with the Companies' fixed account option within its variable products. Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in 1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3 million in 1997. Changes in commissions and insurance taxes are generally related to changes in the level of variable product sales. Insurance taxes are impacted by several other factors, which include an increase in FICA taxes primarily due to bonuses. Most costs 58 incurred as the result of new sales including the extra credit bonus were deferred, thus having very little impact on current earnings. General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3 million in 1997. Management expects general expenses to continue to increase in 1999 as a result of the emphasis on expanding the salaried wholesaler distribution network. The Companies use a network of wholesalers to distribute products and the salaries of these wholesalers are included in general expenses. The portion of these salaries and related expenses that varies with production levels is deferred thus having little impact on current earnings. The increase in general expenses was partially offset by reimbursements received from Equitable Life, an affiliate, for certain advisory, computer and other resources and services provided by Golden American. At the merger date, the Companies' deferred policy acquisition costs ("DPAC"), previous balance of value of purchased insurance in force ("VPIF") and unearned revenue reserve were eliminated and a new asset of $44.3 million representing VPIF was established for all policies in force at the merger date. During 1998, VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in the assumptions related to the timing of future gross profits. VPIF decreased $2.6 million in the second quarter of 1998 to adjust the value of other receivables recorded at the time of merger and increased $0.2 million in the first quarter of 1998 as the result of an adjustment to the merger costs. The amortization of VPIF and DPAC increased $1.1 million, or 13.0%, in 1998. During the second quarter of 1997, VPIF was adjusted by $2.3 million to reflect narrower spreads than the gross profit model assumed. Amortization of goodwill for the year ended December 31, 1998 totaled $3.8 million compared to $2.0 million for the year ended December 31, 1997. Interest expense on the $25 million surplus note issued December 1996 and expiring December 2026 was $2.1 million for the year ended December 31, 1998, unchanged from the same period of 1997. In addition, Golden American incurred interest expense of $0.2 million in 1998 compared to $0.5 million in 1997 on the line of credit with Equitable which was repaid with a capital contribution. Golden American also paid $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING AIH") for interest on the reciprocal loan agreement. Interest expense on the revolving note payable with SunTrust Bank, Atlanta was $0.3 million for the year ended December 31, 1998. INCOME. Net income for 1998 was $5.1 million, an increase of $4.8 million from $0.3 million in 1997. Comprehensive income for 1998 was $3.9 million, an increase of $1.8 million from $2.1 million in 1997. FINANCIAL CONDITION RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating Services ("Standard & Poor's"). INVESTMENTS. The financial statement carrying value and amortized cost basis of the Companies' total investments grew 15.5% and 17.5%, respectively, in 1999. All of the Companies' investments, other than mortgage loans on real estate, are carried at fair value in the Companies' financial statements. Therefore, growth in the carrying value of the Companies' investment portfolio was due to 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 December 31, 1999, the Companies investments had a yield of 6.6%. The Companies estimate the total investment portfolio, excluding policy loans, had a fair value approximately equal to 97.6% of amortized cost value at December 31, 1999. 59 FIXED MATURITIES: At December 31, 1999, the Companies had fixed maturities with an amortized cost of $858.1 million and an estimated fair value of $835.3 million. The Companies classify 100% of securities as available for sale. Net unrealized depreciation of fixed maturities of $22.8 million was comprised of gross appreciation of $0.9 million and gross depreciation of $23.7 million. Net unrealized holding losses on these securities, net of adjustments to VPIF, DPAC, and deferred income taxes of $7.0 million were included in stockholder's equity at December 31, 1999. The individual securities in the Companies' fixed maturities portfolio (at amortized cost) include investment grade securities, which include securities issued by the U.S. government, its agencies, and corporations that are rated at least A- by Standard & Poor's ($558.0 million or 65.0%), that are rated BBB+ to BBB- by Standard & Poor's ($123.5 million or 14.4%), and below investment grade securities, which are securities issued by corporations that are rated BB+ to B- by Standard & Poor's ($64.6 million or 7.5%). Securities not rated by Standard & Poor's had a National Association of Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, or 5 ($112.0 million or 13.1%). The Companies' fixed maturity investment portfolio had a combined yield at amortized cost of 6.6% at December 31, 1999. Fixed maturities rated BBB+ to BBB- may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities. At December 31, 1999, the amortized cost value of the Companies' total investment in below investment grade securities, excluding mortgage-backed securities, was $72.3 million, or 6.9%, of the Companies' investment portfolio. The Companies intend to purchase additional below investment grade securities, but do not expect the percentage of the portfolio invested in such securities to exceed 10% of the investment portfolio. At December 31, 1999, the yield at amortized cost on the Companies' below investment grade portfolio was 7.8% compared to 6.5% for the Companies' investment grade corporate bond portfolio. The Companies estimate the fair value of the below investment grade portfolio was $69.1 million, or 95.5% of amortized cost value, at December 31, 1999. Below investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss upon default by the borrower is significantly greater with respect to below investment grade securities than with other corporate debt securities. Below investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as a recession or increasing interest rates, than are investment grade issuers. The Companies attempt to reduce the overall risk in the below investment grade portfolio, as in all investments, through careful credit analysis, strict investment policy guidelines, and diversification by company and by industry. The Companies analyze the investment portfolio, including below investment grade securities, at least quarterly in order to determine if the Companies' ability to realize the carrying value on any investment has been impaired. For debt and equity securities, if impairment in value is determined to be other than temporary (i.e. if it is probable the Companies will be unable to collect all amounts due according to the contractual terms of the security), the cost basis of the impaired security is written down to fair value, which becomes the new cost basis. The amount of the write-down is included in earnings as a realized loss. Future events may occur, or additional or updated information may be received, which may necessitate future write-downs of securities in the Companies' portfolio. Significant write-downs in the carrying value of investments could materially adversely affect the Companies' net income in future periods. In 1999, fixed maturities designated as available for sale with a combined amortized cost of $221.8 million were sold, called, or repaid by their issuers. In total, net pre-tax losses from sales, calls, and repayments of fixed maturities amounted to $1.3 million in 1999, excluding the $1.6 million pre-tax loss on the write-down of two bonds in 1999. 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 60 their combined net realizable value of $2.9 million. During the second quarter of 1999, further information was received regarding these bonds and Golden American determined that the carrying value of the two bonds exceeded their estimated net realizable value. As a result, at June 30, 1999, Golden American recognized a total pre-tax loss of approximately $1.6 million to further reduce the carrying value of the bonds to their combined net realizable value of $1.1 million. EQUITY SECURITIES: Equity securities represent 1.4% of the Companies' investment portfolio. At December 31, 1999, the Companies owned equity securities with a cost of $15.0 million and an estimated fair value of $17.3 million. Net unrealized appreciation of equity securities was comprised entirely of gross appreciation of $2.3 million. Equity securities are primarily comprised of investments in shares of the mutual funds underlying the Companies' registered separate accounts. MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.5% of the Companies' investment portfolio. Mortgages outstanding at amortized cost were $100.1 million at December 31, 1999 with an estimated fair value of $95.5 million. The Companies' mortgage loan portfolio includes 58 loans with an average size of $1.7 million and average seasoning of 0.7 years if weighted by the number of loans. The Companies' mortgage loans on real estate are typically secured by occupied buildings in major metropolitan locations and not speculative developments and are diversified by type of property and geographic location. Mortgage loans on real estate have been analyzed by geographical location with concentrations by state identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations of mortgage loans on real estate in any state exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10% in 1999 and 8% in 1998). At December 31, 1999, the yield on the Companies' mortgage loan portfolio was 7.3%. At December 31, 1999, no mortgage loan on real estate was delinquent by 90 days or more. The Companies' loan investment strategy is consistent with other life insurance subsidiaries of ING in the United States. The insurance subsidiaries of EIC have experienced a historically low default rate in their mortgage loan portfolios. OTHER ASSETS. Accrued investment income increased $1.6 million during 1999, due to an increase in the overall size of the portfolio resulting from the investment of premiums allocated to the fixed account options of the Companies' variable insurance products. DPAC represents certain deferred costs of acquiring new insurance business, principally first year commissions and interest bonuses, premium credit, 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 December 31, 1999, the Companies had DPAC and VPIF balances of $529.0 million and $31.7 million, respectively. During 1998, VPIF decreased $2.7 million to adjust the value of other receivables and increased $0.2 million as a result of an adjustment to the merger costs. Property and equipment increased $6.5 million, or 89.0%, during 1999, due to leasehold improvements, the purchase of furniture and other equipment for Golden American's new offices in West Chester, Pennsylvania, and growth in the business. Goodwill totaling $151.1 million, representing the excess of the acquisition cost over the fair value of net assets acquired, was established at the merger date. Accumulated amortization of goodwill as of December 31, 1999 was $8.2 million. Other assets increased $1.8 million during 1999, due to increases in a receivable from the separate account and accounts receivable. 61 At December 31, 1999, the Companies had $7.6 billion of separate account assets compared to $3.4 billion at December 31, 1998. The increase in separate account assets resulted from market appreciation, increased transfer activity, and growth in sales of the Companies' variable annuity products, net of redemptions. At December 31, 1999, the Companies had total assets of $9.4 billion, a 97.6% increase from December 31, 1998. LIABILITIES. Future policy benefits for annuity and interest sensitive life products increased $152.6 million, or 17.3%, to $1.0 billion reflecting premium growth in the Companies' fixed account options of the variable products, net of transfers to the separate accounts. Market appreciation, increased transfer activity, and premiums, net of redemptions, accounted for the $4.2 billion, or 122.7%, increase in separate account liabilities to $7.6 billion at December 31, 1999. On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note to Equitable Life, which matures on December 29, 2029. On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note to First Columbine Life Insurance Company, an affiliate, which matures on December 7, 2029. On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note to ING AIH, which matures on September 29, 2029. On December 30, 1999, ING AIH assigned the surplus note to Equitable Life. On December 30, 1998, Golden American issued a $60 million, 7.25% surplus note to Equitable Life, which matures on December 29, 2028. On December 17, 1996, Golden American issued a $25 million, 8.25% surplus note to Equitable, which matures on December 17, 2026. As a result of the merger, the surplus note is now payable to EIC. Other liabilities increased $21.7 million from $34.7 million at December 31, 1998, due primarily to increases in remittances to be applied, outstanding checks, accrued interest payable, and pension liability. In conjunction with the volume of variable annuity sales, the Companies' total liabilities increased $4.5 billion, or 102.6%, during 1999 and totaled $8.9 billion at December 31, 1999. The effects of inflation and changing prices on the Companies' financial position are not material since insurance assets and liabilities are both primarily monetary and remain in balance. An effect of inflation, which has been low in recent years, is a decline in stockholder's equity when monetary assets exceed monetary liabilities. STOCKHOLDER'S EQUITY. Additional paid-in capital increased $121.0 million, or 34.8%, from December 31, 1998 to $468.6 million at December 31, 1999, due to capital contributions from the Parent. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability of the Companies to generate sufficient cash flows to meet the cash requirements of operating, investing, and financing activities. The Companies' principal sources of cash are variable annuity premiums and product charges, investment income, maturing investments, proceeds from debt issuance, and capital contributions made by the Parent. Primary uses of these funds are payments of commissions and operating expenses, interest and premium credits, investment purchases, repayment of debt, as well as withdrawals and surrenders. Net cash used in operating activities was $73.4 million in 1999 compared to $63.9 million in 1998. The Companies have predominantly had negative cash flows from operating activities since Golden American started issuing variable insurance products in 1989. These negative operating cash flows result primarily from the funding of commissions and other deferrable expenses related to the continued growth in the variable annuity products. 62 Net cash used in investing activities was $177.5 million during 1999 as compared to $390.0 million in 1998. This decrease is primarily due to greater net purchases of fixed maturities, equity securities, and mortgage loans on real estate during 1998 than in 1999. Net purchases of fixed maturities reached $124.0 million in 1999 versus $331.3 million in 1998. Net purchases of mortgage loans on real estate declined to $3.1 million from $12.6 million in the prior year. Net cash provided by financing activities was $258.6 million during 1999 as compared to $439.5 million during the prior year. In 1999, net cash provided by financing activities was positively impacted by net fixed account deposits of $626.5 million compared to $520.8 million in 1998 and by a $6.7 million increase in net borrowings in 1999 compared to 1998. This increase was offset by net reallocations to the Companies' separate accounts, which increased to $650.3 million from $239.7 million during the prior year. In 1999, another important source of cash provided by financing activities was $121.0 million in capital contributions from the Parent compared to $103.8 million in 1998. Another source of cash provided by financing activities during 1999 was $160.0 million in proceeds from surplus notes compared to $60.0 million in 1998 The Companies' liquidity position is managed by maintaining adequate levels of liquid assets, such as cash or cash equivalents and short-term investments. Additional sources of liquidity include borrowing facilities to meet short-term cash requirements. Golden American maintains a $65.0 million reciprocal loan agreement with ING AIH, which expires on December 31, 2007. In addition, the Companies have established an $85.0 million revolving note facility with SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes these sources of liquidity are adequate to meet the Companies' short-term cash obligations. Based on current trends, the Companies expect to continue to use net cash in operating activities, given the continued growth of the variable annuity sales. It is anticipated that a continuation of capital contributions from the Parent, the issuance of additional surplus notes, and/or modified coinsurance agreements will cover these net cash outflows. ING AIH is committed to the sustained growth of Golden American. During 2000, ING AIH will maintain Golden American's statutory capital and surplus at the end of each quarter at a level such that: 1) the ratio of Total Adjusted Capital divided by Company Action Level Risk Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds the "Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3, Line 13A of Golden American's statutory statement. During the first quarter of 1999, Golden American's operations were moved to a new site in West Chester, Pennsylvania. During 1999, Golden American occupied 105,000 square feet of leased space; its affiliate occupies 20,000 square feet. Previously, Golden American's home office operations were housed in leased locations in Wilmington, Delaware and locations in Pennsylvania. Golden American's New York subsidiary is housed in leased space in New York, New York. The Companies intend to spend approximately $2.4 million on capital needs for 2000. The ability of Golden American to pay dividends to its Parent is restricted. Prior approval of insurance regulatory authorities is required for payment of dividends to the stockholder which exceed an annual limit. During 2000, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder, Golden American, unless a notice of its intent to declare a dividend and the amount of the dividend has been filed with the New York Insurance Department at least thirty days in advance of the proposed declaration. If the Superintendent of the New York Insurance Department finds the financial condition of First Golden does not warrant the distribution, the Superintendent may disapprove the distribution by giving written notice to First Golden within thirty days after the filing. The management of First Golden does not anticipate paying dividends to Golden American during 2000. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to monitor the capitalization of insurance companies based upon the type and mixture of risks 63 inherent in a company's operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. The Companies have complied with the NAIC's risk-based capital reporting requirements. Amounts reported indicate that the Companies have total adjusted capital well above all required capital levels. Reinsurance: At December 31, 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. The reinsurance treaties that covered the nonstandard minimum guaranteed death benefits for new business have been terminated for business issued after December 31, 1999. The Companies are currently pursuing alternative reinsurance arrangements for new business issued after December 31, 1999. There can be no assurance that such alternative arrangements will be available. The reinsurance covering business in force at December 31, 1999 will continue to apply in the future. Impact of Year 2000: In prior years, the Companies discussed the nature and progress of plans to become Year 2000 ready. In late 1999, the Companies completed remediation and testing of systems. As a result of those planning and implementation efforts, the Companies experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date change. Golden American expensed approximately $264,000 during 1999 in connection with remediating systems. The Companies are not aware of any material problems resulting from Year 2000 issues, either with products, internal systems, or the products and services of third parties. The Companies will continue to monitor mission critical computer applications and those of suppliers and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. MARKET RISK AND RISK MANAGEMENT Asset/liability management is integrated into many aspects of the Companies' operations, including investment decisions, product development, and crediting rates determination. As part of the risk management process, different economic scenarios are modeled, including cash flow testing required for insurance regulatory purposes, to determine that existing assets are adequate to meet projected liability cash flows. Key variables include contractholder behavior and the variable separate accounts' performance. Contractholders bear the majority of the investment risks related to the variable insurance products. Therefore, the risks associated with the investments supporting the variable separate accounts are assumed by contractholders, not by the Companies (subject to, among other things, certain minimum guarantees). The Companies' products also provide certain minimum death benefits that depend on the performance of the variable separate accounts. Currently, the majority of death benefit risks are reinsured, which protects the Companies from adverse mortality experience and prolonged capital market decline. A surrender, partial withdrawal, transfer, or annuitization made prior to the end of a guarantee period from the fixed account may be subject to a market value adjustment. As the majority of the liabilities in the fixed account are subject to market value adjustment, the Companies do not face a material amount of market risk volatility. The fixed account liabilities are supported by a portfolio principally composed of fixed rate investments that can generate predictable, steady rates of return. The portfolio management strategy for the fixed account considers the assets available for sale. This enables the Companies to respond to changes in market interest rates, changes in prepayment risk, changes in relative values of asset sectors and individual securities and loans, changes in credit quality outlook, and other relevant factors. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risks, as well as other risks. The Companies' asset/liability management discipline includes strategies to minimize exposure to loss as interest rates and economic and market conditions change. On the basis of these analyses, management believes there is no material solvency risk to the Companies. With respect to a 10% drop in equity values from year end 1999 levels, variable separate account funds, which represent 88% of the in force, pass the risk in underlying fund performance to the contractholder 64 (except for certain minimum guarantees). With respect to interest rate movements up or down 100 basis points from year end 1999 levels, the remaining 12% of the in force are fixed account funds and almost all of these have market value adjustments which provide significant protection against changes in interest rates. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Any forward-looking statement contained herein or in any other oral or written statement by the Companies or any of their officers, directors, or employees is qualified by the fact that actual results of the Companies may differ materially from such statement, among other risks and uncertainties inherent in the Companies' business, due to the following important factors: 1. Prevailing interest rate levels and stock market performance, which may affect the ability of the Companies to sell their products, the market value and liquidity of the Companies' investments, fee revenue, and the lapse rate of the Companies' policies, notwithstanding product design features intended to enhance persistency of the Companies' products. 2. Changes in the federal income tax laws and regulations, which may affect the tax status of the Companies' products. 3. Changes in the regulation of financial services, including bank sales and underwriting of insurance products, which may affect the competitive environment for the Companies' products. 4. Increasing competition in the sale of the Companies' products. 5. Other factors that could affect the performance of the Companies, including, but not limited to, market conduct claims, litigation, insurance industry insolvencies, availability of competitive reinsurance on new business, investment performance of the underlying portfolios of the variable products, variable product design, and sales volume by significant sellers of the Companies' variable products. OTHER INFORMATION SEGMENT INFORMATION. During the period since the acquisition by Bankers Trust, September 30, 1992 to date of this Prospectus, Golden American's operations consisted of one business segment, the sale of variable insurance products. Golden American and its affiliate DSI are party to in excess of 480 sales agreements with broker-dealers, five of whom, Locust Street Securities, Inc., Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network Securities, Inc. and Multi-Financial Securities Corporation, are affiliates of Golden American. As of December 31, 1999, two broker-dealers produce 10% or more of Golden American's product sales. REINSURANCE. Golden American reinsured its mortality risk associated with the Contract's guaranteed death benefit on Contracts issued through December 31, 1999 with one or more appropriately licensed insurance companies. Golden American is currently pursuing alternative reinsurance arrangements for new business. Golden American also, effective June 1, 1994, entered into a reinsurance agreement on a modified coinsurance basis with an affiliate of a broker-dealer which distributes Golden American's products with respect to 25% of the business produced by that broker-dealer. RESERVES. In accordance with the life insurance laws and regulations under which Golden American operates, it is obligated to carry on its books, as liabilities, actuarially determined reserves to meet its obligations on outstanding Contracts. Reserves, based on valuation mortality tables in general use in the United States, where applicable, are computed to equal amounts which, together with interest on such reserves computed annually at certain assumed rates, make adequate provision according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of Golden American. COMPETITION. Golden American is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities marketing insurance products comparable to those of Golden American. There are approximately 2,350 stock, mutual and other types of 65 insurers in the life insurance business in the United States, a substantial number of which are significantly larger than Golden American. Pursuant to a service agreement between Golden American and Equitable Life, Equitable Life provides certain administrative, financial and other services to Golden American. Equitable Life billed Golden American and its subsidiary First Golden American Life Insurance Company of New York ("First Golden"), $1.3 million and $1.1 million, for the years ended December 31, 1999 and 1998, respectively, under this service agreement. Golden American provides to DSI certain of its personnel to perform management, administrative and clerical services and the use of certain facilities. Golden American charges DSI for such expenses and all other general and administrative costs, first on the basis of direct charges when identifiable, and the remainder allocated based on the estimated amount of time spent by Golden American's employees on behalf of DSI. In the opinion of management, this method of cost allocation is reasonable. In 1995, the service agreement between DSI and Golden American was amended to provide for a management fee from DSI to Golden American for managerial and supervisory services provided by Golden American. This fee, calculated as a percentage of average assets in the variable separate accounts, was $10.1 million and $4.8 million for the years 1999 and 1998, respectively. Since January 1, 1998, Golden American and First Golden have had an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management and accounting services for a fee, payable quarterly. For the years ended December 31, 1999 and 1998, Golden American and First Golden incurred fees of $2.2 million and $1.5 million, respectively, under this agreement. Since 1997, Golden American has provided certain advisory, computer and other resources and services to Equitable Life. Revenues for these services totaled $6.1 million for 1999 and $5.8 million for 1998. The Companies provide resources and services to DSI. Revenues for these services totaled $0.4 million of 1999. Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services totaled $0.2 million for 1999 and $0.1 million for 1998. Golden American provides resources and services to United Life & Annuity Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $0.5 million in 1999. The Companies provide resources and services to Security Life of Denver Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies totaled $0.2 million in 1999. The Companies provide resources and services to Southland Life Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies totaled $0.1 million in 1999. DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) of the variable insurance products issued by Golden American which as of December 31, 1999, are sold primarily through two broker/dealer institutions. For the years 1999 and 1998, commissions paid by Golden American to DSI (including commissions paid by First Golden) aggregated $181.5 million and $117.5 million, respectively. EMPLOYEES. Golden American, as a result of its Service Agreement with Bankers Trust (Delaware) and EIC Variable, had very few direct employees. Instead, various management services were provided by Bankers Trust (Delaware), EIC Variable and Bankers Trust New York Corporation, as described above under "Service Agreement." The cost of these services were allocated to Golden American. Since August 14, 1996, Golden American has hired individuals to perform various management services and has looked to Equitable of Iowa and its affiliates for certain other management services. 66 Certain officers of Golden American are also officers of DSI, and their salaries are allocated among both companies. Certain officers of Golden American are also officers of other Equitable of Iowa subsidiaries. See "Directors and Executive Officers." PROPERTIES. Golden American's principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380, where all of Golden American's records are maintained. This office space is leased. STATE REGULATION. Golden American is subject to the laws of the State of Delaware governing insurance companies and to the regulations of the Delaware Insurance Department (the "Insurance Department"). A detailed financial statement in the prescribed form (the "Annual Statement") is filed with the Insurance Department each year covering Golden American's operations for the preceding year and its financial condition as of the end of that year. Regulation by the Insurance Department includes periodic examination to determine contract liabilities and reserves so that the Insurance Department may certify that these items are correct. Golden American's books and accounts are subject to review by the Insurance Department at all times. A full examination of Golden American's operations is conducted periodically by the Insurance Department and under the auspices of the NAIC. In addition, Golden American is subject to regulation under the insurance laws of all jurisdictions in which it operates. The laws of the various jurisdictions establish supervisory agencies with broad administrative powers with respect to various matters, including licensing to transact business, overseeing trade practices, licensing agents, approving contract forms, establishing reserve requirements, fixing maximum interest rates on life insurance contract loans and minimum rates for accumulation of surrender values, prescribing the form and content of required financial statements and regulating the type and amounts of investments permitted. Golden American is required to file the Annual Statement with supervisory agencies in each of the jurisdictions in which it does business, and its operations and accounts are subject to examination by these agencies at regular intervals. The NAIC has adopted several regulatory initiatives designed to improve the surveillance and financial analysis regarding the solvency of insurance companies in general. These initiatives include the development and implementation of a risk-based capital formula for determining adequate levels of capital and surplus. Insurance companies are required to calculate their risk-based capital in accordance with this formula and to include the results in their Annual Statement. It is anticipated that these standards will have no significant effect upon Golden American. For additional information about the Risk-Based Capital adequacy monitoring system and Golden American, see "Management's Discussion and Analysis Results of Operations." In addition, many states regulate affiliated groups of insurers, such as Golden American, and its affiliates, under insurance holding company legislation. Under such laws, inter-company transfers of assets and dividend payments from insurance subsidiaries may be subject to prior notice or approval, depending on the size of the transfers and payments in relation to the financial positions of the companies involved. Under insurance guaranty fund laws in most states, insurers doing business therein can be assessed (up to prescribed limits) for contract owner losses incurred by other insurance companies which have become insolvent. Most of these laws provide that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. For information regarding Golden American's estimated liability for future guaranty fund assessments, see Note 11 of Notes to Financial Statements. Although the federal government generally does not directly regulate the business of insurance, federal initiatives often have an impact on the business in a variety of ways. Certain insurance products of Golden American are subject to various federal securities laws and regulations. In addition, current and proposed federal measures which may significantly affect the insurance business include regulation of insurance company solvency, employee benefit regulation, removal of barriers preventing banks from engaging in the insurance business, tax law changes affecting the taxation of insurance companies and the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles. 67 DIRECTORS AND OFFICERS NAME (AGE) POSITION(S) WITH THE COMPANY - -------------------------- ---------------------------------------------------- Barnett Chernow (50) President and Director Myles R. Tashman (57) Director, Executive Vice President, General Counsel and Secretary Michael W. Cunningham (51) Director Mark A. Tullis (44) Director Phillip R. Lowery (46) Director James R. McInnis (52) Executive Vice President and Chief Marketing Officer Stephen J. Preston (42) Executive Vice President and Chief Actuary E. Robert Koster (41) Senior Vice President and Chief Financial Officer Patricia M. Corbett (35) Treasurer and Assistant V.P. David L. Jacobson (50) Senior Vice President and Assistant Secretary William L. Lowe (36) Senior Vice President, Sales and Marketing Ronald R. Blasdell (46) Senior Vice President, Project Implementation Steven G. Mandel (40) Senior Vice President and Chief Information Officer Gary F. Haynes (55) Senior Vice President, Operations Each director is elected to serve for one year or until the next annual meeting of shareholders or until his or her successor is elected. Some directors are directors of insurance company subsidiaries of Golden American's parent, Equitable of Iowa. Golden American's directors and senior executive officers and their principal positions for the past five years are listed below: Mr. Barnett Chernow became President of Golden American and First Golden in April, 1998. From, 1996 to 1998, Mr. Chernow served as Executive V.P. of First Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President of Golden American. He was elected to serve as a director of First Golden in June, 1996 and Golden American in April, 1998. Mr. Myles R. Tashman joined Golden American in August 1994 as Senior Vice President and was named Executive Vice President, General Counsel and Secretary effective January 1, 1996. He was elected to serve as a Director of Golden American in January 1998. He also serves as a Director, Executive Vice President, General Counsel and Secretary of First Golden. Mr. Michael W. Cunningham became a Director of Golden American and First Golden in April 1999. Also, he has served as a Director of Life of Georgia and Security Life of Denver since 1995. Currently, he serves as Executive Vice President and Chief Financial Officer of ING North America Insurance Corporation, and has worked for them since 1991. Mr. Mark A. Tullis became a Director of Golden American and First Golden in December 1999. He has served as Executive Vice President, Strategy and Operations for ING Americas Region since September 1999. From June, 1994 to August, 1999, he was with Pimerica, serving as Executive Vice President at the time of his departure. Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and First Golden in December 1999. He has served as Executive Vice President and Chief Actuary for ING Americas Region since 1990. Mr. James R. McInnis joined Golden American and First Golden in December, 1997 as Executive Vice President. From 1982 through November, 1997, he held several positions with the Endeavor Group and was President upon his departure. Mr. E. Robert Koster was elected Senior Vice President and Chief Financial Officer of Golden American and First Golden in September 1998. From August, 1984 to September, 1998 he has held various positions with ING companies in The Netherlands. Ms. Patricia M. Corbett was elected Treasurer of Golden American in December 1998. She joined Equitable Life Insurance Company of Iowa in 1987 and is currently Treasurer and Assistant Vice President of Equitable Life and USG Annuity & Life Company. 68 Mr. David L. Jacobson joined Golden American in November 1993 as Vice President and Assistant Secretary and became Senior Vice President in December, 1993. He was elected Senior Vice President and Assistant Secretary for First Golden in June, 1996. Mr. Stephen J. Preston joined Golden American in December, 1993 as Senior Vice President, Chief Actuary and Controller. He became an Executive Vice President and Chief Actuary in June, 1998. He was elected Senior Vice President and Chief Actuary of First Golden in June, 1996 and elected Executive Vice President in June, 1998. Mr. William L. Lowe joined Equitable Life as Vice President, Sales & Marketing in January, 1994. He became a Senior Vice President, Sales & Marketing, of Golden American in August 1997. He was also President of Equitable of Iowa Securities Network, Inc. until October, 1998. Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior Vice President and Chief Information Officer in June, 1998. Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became Senior Vice President, Project Implementation in June, 1998. Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice President, Operations. From August, 1995 to February, 1998 he was with F&G Life Insurance Company; serving as Senior Vice President, Operations at the time of his departure. He served as Senior Vice President Operations with Golden American from July, 1994 to August, 1995. COMPENSATION TABLE AND OTHER INFORMATION The following sets forth information with respect to the Chief Executive Officer of Golden American as well as the annual salary and bonus for the next five highly compensated executive officers for the fiscal year ended December 31, 1999. Certain executive officers of Golden American are also officers of DSI and First Golden. The salaries of such individuals are allocated among Golden American, DSI and First Golden pursuant to an arrangement among these companies. EXECUTIVE COMPENSATION TABLE The following table sets forth information with respect to the annual salary and bonus for Golden American's Chief Executive Officer, the four other most highly compensated executive officers and the two most highly compensated former executive officers for the fiscal year ended December 31, 1999. 69
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------- ----------------------- RESTRICTED SECURITIES NAME AND STOCK AWARDS UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS 1 OPTIONS 2 OPTIONS COMPENSATION 3 - ------------------ ---- ------ ------- --------- ------- -------------- Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $ 20,464 4 President 1998 $ 284,171 $ 105,375 8,000 1997 $ 234,167 $ 31,859 $ 277,576 4,000 James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $ 15,663 4 Executive Vice 1998 $ 250,004 $ 626,245 2,000 President Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $ 14,598 4 Executive Vice 1998 $ 189,337 $ 54,425 3,500 President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000 Counsel and Secretary Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $ 12,564 4 Executive Vice 1998 $ 173.870 $ 32,152 3,500 President and Chief 1997 $ 160,758 $ 16,470 Actuary Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $ 11,551 4 Senior Vice 1998 $ 139,169 $ 25,833 President 1997 $ 129,167 $ 25,000 R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $ 23,921 4 Former Chief Executive Officer Keith Glover............. 1999 $ 87,475 $ 761,892 $ 558,541 4, 5 Former Executive 1998 $ 250,000 $ 145,120 3,900 Vice President
- -------------------- 1 The amount shown relates to bonuses paid in 1999, 1998, and 1997. 2 Restricted stock awards granted to executive officers vested on October 24, 1997 with the change in control of Equitable of Iowa. 3 Other compensation for 1999 includes reimbursements to named employee for participation in company sponsored programs such as tuition reimbursement, PC purchase assistance program, and other miscellaneous payments or reimbursements. For 1999, Mr. Chernow received $2,464; Mr. McInnis received $636; Mr. Tashman received $2,598; Mr. Preston received $564; Mr. Mandel received $2,251; Mr. Armstrong received $1,421; and Mr. Glover received $3,089. 4 Other compensation for 1999 includes a business allowance for each named executive which is required to be applied to specific business expenses of the named executive. 5 In connection with the termination of his employment, Mr. Glover received payments and benefits totaling $555,452. 70 OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT % OF TOTAL ASSUMED ANNUAL NUMBER OF OPTIONS RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3 OPTIONS IN FISCAL OR BASE EXPIRATION ---------------------- NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10% - ---- ----------- ------ --------- ------ ---- ----- Barnett Chernow.......... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191 4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664 James R. McInnis......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312 3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302 Myles R. Tashman......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514 Stephen J. Preston....... 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113 Steven G. Mandel......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955 R. Brock Armstrong....... 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
- ---------------- 1 Stock appreciation rights granted in 1999 to the officers of Golden American have a three-year vesting period and an expiration date as shown. 2 The base price was equal to the fair market value of ING's stock on the date of grant. 3 Total dollar gains based on indicated rates of appreciation of share price over the total term of the rights. 71 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholder Golden American Life Insurance Company We have audited the accompanying consolidated balance sheets of Golden American Life Insurance Company as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years ended December 31, 1999 and 1998 and for the periods from October 25, 1997 through December 31, 1997, and January 1, 1997 through October 24, 1997. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Golden American Life Insurance Company at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the years ended December 31, 1999 and 1998 and for the periods from October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, in conformity with accounting principles generally accepted in the United States. s/Ernst & Young LLP Des Moines, Iowa February 4, 2000 72 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) POST-MERGER --------------------------- December 31, December 31, 1999 1998 ------------ ------------ ASSETS Investments: Fixed maturities, available for sale, at fair value (Cost: 1999 - $858,052; 1998 - $739,772)....................... $835,321 $741,985 Equity securities, at fair value (cost: 1999 - $14,952; 1998 - $14,437)........ 17,330 11,514 Mortgage loans on real estate............ 100,087 97,322 Policy loans............................. 14,157 11,772 Short-term investments................... 80,191 41,152 ---------- ---------- Total investments........................... 1,047,086 903,745 Cash and cash equivalents................... 14,380 6,679 Reinsurance recoverable..................... 14,834 7,586 Due from affiliates......................... 637 2,983 Accrued investment income................... 11,198 9,645 Deferred policy acquisition costs........... 528,957 204,979 Value of purchased insurance in force....... 31,727 35,977 Current income taxes recoverable............ 35 628 Deferred income tax asset................... 21,943 31,477 Property and equipment, less allowances for depreciation of $3,229 in 1999 and $801 in 1998.................................. 13,888 7,348 Goodwill, less accumulated amortization of $8,186 in 1999 and $4,408 in 1998........ 142,941 146,719 Other assets................................ 2,514 743 Separate account assets..................... 7,562,717 3,396,114 ---------- ---------- Total assets................................ $9,392,857 $4,754,623 ========== ========== See accompanying notes. 73 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS - CONTINUED (Dollars in thousands, except per share data) POST-MERGER ----------------------------- December 31, December 31, 1999 1998 -------------- ------------ LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals: Future policy benefits: Annuity and interest sensitive life products....................... $1,033,701 $881,112 Unearned revenue reserve.............. 6,300 3,840 Other policy claims and benefits......... 8 -- ---------- ---------- 1,040,009 884,952 Surplus notes.............................. 245,000 85,000 Revolving note payable..................... 1,400 -- Due to affiliates.......................... 9,547 -- Other liabilities.......................... 56,335 34,663 Separate account liabilities............... 7,562,717 3,396,114 ---------- ---------- 8,915,008 4,400,729 Commitments and contingencies Stockholder's equity: Common stock, par value $10 per share, authorized, issued, and outstanding 250,000 shares........................ 2,500 2,500 Additional paid-in capital............... 468,640 347,640 Accumulated other comprehensive loss..... (9,154) (895) Retained earnings........................ 15,863 4,649 ---------- ---------- Total stockholder's equity................. 477,849 353,894 ---------- ---------- Total liabilities and stockholder's equity. $9,392,857 $4,754,623 ========== ========== See accompanying notes. 74
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) POST- POST-MERGER ACQUISITION --------------------------------------------|------------- For the period |or the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | hrough December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 --------------------------------------------|-------------- Revenues | Annuity and interest | sensitive life product | charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288 Management fee revenue........... 10,136 4,771 508 | 2,262 Net investment income............ 59,169 42,485 5,127 | 21,656 Realized gains (losses) | on investments................ (2,923) (1,491) 15 | 151 Other income..................... 10,827 5,569 236 | 426 -------- ------- ------- | ------- 160,144 90,453 9,720 | 42,783 | Insurance benefits and expenses: | Annuity and interest sensitive | life benefits: | Interest credited to account | balances..................... 175,851 94,845 7,413 | 19,276 Benefit claims incurred in | excess of account balances... 6,370 2,123 -- | 125 Underwriting, acquisition, and | insurance expenses: | Commissions.................... 188,383 121,171 9,437 | 26,818 General expenses............... 60,194 37,577 3,350 | 13,907 Insurance taxes, state | licenses, and fees........... 3,976 4,140 450 | 1,889 Policy acquisition costs | deferred..................... (346,396) (197,796) (13,678) | (29,003) Amortization: | Deferred policy acquisition | costs....................... 33,119 5,148 892 | 1,674 Value of purchased insurance | in force.................... 6,238 4,724 948 | 5,225 Goodwill...................... 3,778 3,778 630 | 1,398 -------- ------- ------- | ------- 131,513 75,710 9,442 | 41,309 | Interest expense.................... 8,894 4,390 557 | 2,082 -------- ------- ------- | ------- 140,407 80,100 9,999 | 43,391 -------- ------- ------- | ------- Income (loss) before income taxes... 19,737 10,353 (279) | (608) | Income taxes........................ 8,523 5,279 146 | (1,337) -------- ------- ------- | ------- | Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729 ======== ======= ======= | =======
See accompanying notes. 75
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Dollars in thousands) Accumulated Additional Other Total Common Paid-in Comprehensive Retained Stockholder's Stock Capital Income (Loss) Earnings Equity ------------------------------------------------------------ PRE-ACQUISITION ------------------------------------------------------------ Balance at January 1, 1997..... $2,500 $137,372 $ 262 $ 350 $140,484 Comprehensive income: Net income................... -- -- -- 729 729 Change in net unrealized investment gains (losses)... -- -- 1,543 -- 1,543 -------- Comprehensive income........... 2,272 Contribution of Capital........ -- 1,121 -- -- 1,121 ------ -------- ------- ------- -------- Balance at October 24, 1997.... $2,500 $138,493 $ 1,805 $ 1,079 $143,877 ====== ======== ======= ======= ======== ----------------------------------------------------------- POST-MERGER ----------------------------------------------------------- Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497 Comprehensive income: Net loss..................... -- -- -- $ (425) (425) Change in net unrealized investment gains (losses). -- -- $ 241 -- 241 -------- Comprehensive loss............. (184) ------ -------- ------- ------- -------- Balance at December 31,1997.... 2,500 224,997 241 (425) $227,313 Comprehensive income: Net income................... -- -- -- 5,074 5,074 Change in net unrealized investment gains (losses). -- -- (1,136) -- (1,136) -------- Comprehensive income.......... 3,938 Contribution of Capital........ -- 122,500 -- -- 122,500 Other.......................... -- 143 -- -- 143 ------ -------- ------- ------- -------- Balance at December 31,1998.... 2,500 224,997 (895) 4,649 353,894 Comprehensive income: Net income................... -- -- -- 11,214 11,214 Change in net unrealized investment gains (losses). -- -- (8,259) -- (8,259) -------- Comprehensive income........... 2,955 Contribution of Capital........ -- 121,000 -- -- 121,000 ------ -------- ------- ------- -------- Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849 ====== ======== ======= ======= ========
See accompanying notes. 76
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) | POST- POST-MERGER | ACQUISITION -------------------------------------------|--------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- OPERATING ACTIVITIES | Net income (loss)................................. $11,214 $5,074 $(425) | $729 Adjustments to reconcile net income (loss) to net | cash provided by (used in) operations: | Adjustments related to annuity and | interest sensitive life products: | Interest credited and other charges on | interest sensitive products................ 175,851 94,845 7,413 | 19,276 Charges for mortality and administration..... 524 (233) (62) | (99) Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292 Increase (decrease) in policy liabilities and | accruals..................................... 8 (10) 10 | -- Decrease (increase) in accrued investment | income....................................... (1,553) (3,222) 1,205 | (3,489) Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003) Amortization of deferred policy | acquisition costs............................ 33,119 5,148 892 | 1,674 Amortization of value of purchased | insurance in force........................... 6,238 4,724 948 | 5,225 Change in other assets, due to/from | affiliates, other liabilities, and accrued | income taxes................................. 24,845 9,979 4,205 | (8,944) Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203 Provision for deferred income taxes............ 8,523 5,279 146 | 316 Realized (gains) losses on investments......... 2,923 1,491 (15) | (151) -------- -------- ------- | --------- Net cash provided by (used in) operating | activities..................................... (73,394) (63,923) 3,127 | (7,971) | INVESTING ACTIVITIES | Sale, maturity, or repayment of investments: | Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622 Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828 Short-term investments - net................... -- -- -- | 11,415 -------- -------- ------- | --------- 227,119 149,044 11,515 | 56,865 Acquisition of investments: | Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173) Equity securities.............................. -- (10,000) (1) | (4,865) Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481) Policy loans - net............................. (2,385) (2,940) (328) | (3,870) Short-term investments - net................... (39,039) (26,692) (13,244) | -- -------- -------- ------- | --------- (395,670) (532,545) (57,378) | (208,389) Net purchase of property and equipment............ (8,968) (6,485) (252) | (875) -------- -------- ------- | --------- Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
See accompanying notes. 77
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) | POST- POST-MERGER | ACQUISITION -------------------------------------------|--------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- FINANCING ACTIVITIES | Proceeds from reciprocal loan agreement | borrowings.............................. $396,350 $500,722 -- | -- Repayment of reciprocal loan agreement | borrowings.............................. (396,350) (500,722) -- | -- Proceeds from revolving note payable....... 220,295 108,495 -- | -- Repayment of revolving note payable........ (218,895) (108,495) -- | -- Proceeds from surplus note................. 160,000 60,000 -- | -- Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124 Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977) Receipts from annuity and interest | sensitive life policies credited to | account balances........................ 773,685 593,428 62,306 | 261,549 Return of account balances on annuity | and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931) Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069) Contributions of capital by parent......... 121,000 103,750 -- | 1,011 -------- -------- ------- | --------- Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707 -------- -------- ------- | --------- | Increase (decrease) in cash and cash | equivalents............................. 7,701 (14,360) 3,863 | 11,337 Cash and cash equivalents at | beginning of period..................... 6,679 21,039 17,176 | 5,839 -------- -------- ------- | --------- Cash and cash equivalents at | end of period........................... $14,380 $6,679 $21,039 | $17,176 ======== ========= ======= | ========= | SUPPLEMENTAL DISCLOSURE | OF CASH FLOW INFORMATION | Cash paid during the period for: | Interest................................ $6,392 $4,305 $295 | $1,912 Income taxes............................ -- 99 -- | 283 Non-cash financing activities: | Non-cash adjustment to additional | paid-in capital for adjusted merger | costs................................. -- 143 -- | -- Contribution of property and | equipment from EIC Variable, | Inc. net of $353 of accumulated | depreciation.......................... -- -- -- | 110 Contribution of capital from parent to | repay line of credit borrowings....... -- 18,750 -- | --
See accompanying notes. 78 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include Golden American Life Insurance Company ("Golden American") and its wholly owned subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and collectively with Golden American, the "Companies"). All significant intercompany accounts and transactions have been eliminated. ORGANIZATION Golden American, a wholly owned subsidiary of Equitable of Iowa Companies, Inc., offers variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. First Golden is licensed to sell insurance products in New York and Delaware. The Companies' products are marketed by broker/dealers, financial institutions, and insurance agents. The Companies' primary customers are consumers and corporations. On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation, acquired all of the outstanding capital stock of Equitable of Iowa Companies ("Equitable") according to the terms of an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. See Note 6 for additional information regarding the merger. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its wholly owned subsidiaries, Golden American and Directed Services, Inc. ("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for additional information regarding the acquisition. For financial statement purposes, the ING merger was accounted for as a purchase effective October 25, 1997 and the change in control of Golden American through the acquisition of BT Variable, Inc. ("BT Variable") was accounted for as a purchase effective August 14, 1996. The merger and acquisition resulted in new bases of accounting reflecting estimated fair values of assets and liabilities at their respective dates. As a result, the Companies' financial statements included for the periods after October 24, 1997 are presented on the Post-Merger new basis of accounting and for the period January 1, 1997 through October 24, 1997 are presented on the Post-Acquisition basis of accounting. INVESTMENTS Fixed Maturities: The Companies account for their investments under the Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires fixed maturities to be designated as either "available for sale," "held for investment," or "trading." Sales of fixed maturities designated as "available for sale" are not restricted by SFAS No. 115. Available for sale securities are reported at fair value and unrealized gains and losses on these securities are included directly in stockholder's equity, after adjustment for related changes in value of purchased insurance in force ("VPIF"), deferred policy acquisition costs ("DPAC"), and deferred income taxes. At December 31, 1999 and 1998, all of the Companies' fixed maturities are designated as available for sale, although the Companies are not precluded from designating fixed maturities as held for investment or trading at some future date. Securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Premiums and discounts are amortized/accrued utilizing a method which results in a constant 79 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) yield over the securities' expected lives. Amortization/accrual of premiums and discounts on mortgage and other asset-backed securities incorporates a prepayment assumption to estimate the securities' expected lives. Equity Securities: Equity securities are reported at estimated fair value if readily marketable. The change in unrealized appreciation and depreciation of marketable equity securities (net of related deferred income taxes, if any) is included directly in stockholder's equity. Equity securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Mortgage Loans On Real Estate: Mortgage loans on real estate are reported at cost adjusted for amortization of premiums and accrual of discounts. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable the Companies will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or to the loan's observable market price, or the fair value of the underlying collateral. The carrying value of impaired loans is reduced by the establishment of a valuation allowance, which is adjusted at each reporting date for significant changes in the calculated value of the loan. Changes in this valuation allowance are charged or credited to income. Other Investments: Policy loans are reported at unpaid principal. Short-term investments are reported at cost, adjusted for amortization of premiums and accrual of discounts. Realized Gains And Losses: Realized gains and losses are determined on the basis of specific identification. Fair Values: Estimated fair values, as reported herein, of conventional mortgage-backed securities not actively traded in a liquid market are estimated using a third party pricing process. This pricing process uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Estimated fair values of publicly traded fixed maturities are reported by an independent pricing service. Fair values of private placement bonds are estimated using a matrix that assumes a spread (based on interest rates and a risk assessment of the bonds) over U.S. Treasury bonds. Estimated fair values of equity securities, which consist of the Companies' investment in its registered separate accounts, are based upon the quoted fair value of the securities comprising the individual portfolios underlying the separate accounts. CASH AND CASH EQUIVALENTS For purposes of the accompanying Statements of Cash Flows, the Companies consider all demand deposits and interest-bearing accounts not related to the investment function to be cash equivalents. All interest-bearing accounts classified as cash equivalents have original maturities of three months or less. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring new insurance business, principally first year commissions and interest bonuses, premium credit, and other expenses related to the production of new business, have been deferred. Acquisition costs for variable insurance products are being amortized generally in proportion to the present value (using the assumed crediting rate) of expected future gross profits. This amortization is adjusted retrospectively when the Companies revise their estimate of current or future gross profits to be realized from a group of products. DPAC is adjusted to reflect the pro forma impact of unrealized gains and losses on fixed maturities the Companies have designated as "available for sale" under SFAS No. 115. 80 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) VALUE OF PURCHASED INSURANCE IN FORCE As a result of the merger and acquisition, a portion of the purchase price related to each transaction was allocated to the right to receive future cash flows from existing insurance contracts. This allocated cost represents VPIF, which reflects the value of those purchased policies calculated by discounting actuarially determined expected future cash flows at the discount rate determined by the purchaser. Amortization of VPIF is charged to expense in proportion to expected gross profits of the underlying business. This amortization is adjusted retrospectively when the Companies revise the estimate of current or future gross profits to be realized from the insurance contracts acquired. VPIF is adjusted to reflect the pro forma impact of unrealized gains and losses on available for sale fixed maturities. See Notes 6 and 7 for additional information on VPIF resulting from the merger and acquisition. PROPERTY AND EQUIPMENT Property and equipment primarily represent leasehold improvements, office furniture, certain other equipment, and capitalized computer software and are not considered to be significant to the Companies' overall operations. Property and equipment are reported at cost less allowances for depreciation. Depreciation expense is computed primarily on the basis of the straight-line method over the estimated useful lives of the assets. GOODWILL Goodwill was established as a result of the merger and is being amortized over 40 years on a straight-line basis. Goodwill established as a result of the acquisition was being amortized over 25 years on a straight-line basis. See Notes 6 and 7 for additional information on the merger and acquisition. FUTURE POLICY BENEFITS Future policy benefits for divisions of the variable products with fixed interest guarantees are established utilizing the retrospective deposit accounting method. Policy reserves represent the premiums received plus accumulated interest, less mortality and administration charges. Interest credited to these policies ranged from 3.00% to 11.00% during 1999, 3.00% to 10.00% during 1998, and 3.30% to 8.25% during 1997. The unearned revenue reserve represents unearned distribution fees. These distribution fees have been deferred and are amortized over the life of the contracts in proportion to expected gross profits. SEPARATE ACCOUNTS Assets and liabilities of the separate accounts reported in the accompanying Balance Sheets represent funds separately administered principally for variable contracts. Contractholders, rather than the Companies, bear the investment risk for the variable insurance products. At the direction of the contractholders, the separate accounts invest the premiums from the sale of variable insurance products in shares of specified mutual funds. The assets and liabilities of the separate accounts are clearly identified and segregated from other assets and liabilities of the Companies. The portion of the separate account assets equal to the reserves and other liabilities of variable contracts cannot be charged with liabilities arising out of any other business the Companies may conduct. Variable separate account assets are carried at fair value of the underlying investments and generally represent contractholder investment values maintained in the accounts. Variable separate account liabilities represent account balances for the variable contracts invested in the separate accounts; the fair value of these liabilities is equal to their carrying amount. Net investment income and realized and unrealized capital gains and losses related to separate account assets are not reflected in the accompanying Statements of Operations. 81 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Product charges recorded by the Companies from variable insurance products consist of charges applicable to each contract for mortality and expense risk, cost of insurance, contract administration, and surrender charges. In addition, some variable annuity and all variable life contracts provide for a distribution fee collected for a limited number of years after each premium deposit. Revenue recognition of collected distribution fees is amortized over the life of the contract in proportion to its expected gross profits. The balance of unrecognized revenue related to the distribution fees is reported as an unearned revenue reserve. DEFERRED INCOME TAXES Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred tax assets or liabilities are adjusted to reflect the pro forma impact of unrealized gains and losses on equity securities and fixed maturities the Companies have designated as available for sale under SFAS No. 115. Changes in deferred tax assets or liabilities resulting from this SFAS No. 115 adjustment are charged or credited directly to stockholder's equity. Deferred income tax expenses or credits reflected in the Companies' Statements of Operations are based on the changes in the deferred tax asset or liability from period to period (excluding the SFAS No. 115 adjustment). DIVIDEND RESTRICTIONS Golden American's ability to pay dividends to its Parent is restricted. Prior approval of insurance regulatory authorities is required for payment of dividends to the stockholder which exceed an annual limit. During 2000, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder, Golden American, unless a notice of its intent to declare a dividend and the amount of the dividend has been filed with the New York Insurance Department at least thirty days in advance of the proposed declaration. If the Superintendent of the New York Insurance Department finds the financial condition of First Golden does not warrant the distribution, the Superintendent may disapprove the distribution by giving written notice to First Golden within thirty days after the filing. SEGMENT REPORTING The Companies manage their business as one segment, the sale of variable insurance products designed to meet customer needs for tax-advantaged saving for retirement and protection from death. Variable insurance products are sold to consumers and corporations throughout the United States. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management is required to utilize historical experience and assumptions about future events and circumstances in order to develop estimates of material reported amounts and disclosures. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates and assumptions are: (1) estimates of fair values of investments in securities and other financial instruments, as well as fair values of policyholder liabilities, (2) policyholder liabilities, (3) deferred policy acquisition costs and value of purchased insurance in force, (4) fair values of assets and liabilities recorded as a result of merger and acquisition transactions, (5) asset valuation allowances, (6) guaranty fund assessment accruals, (7) deferred tax benefits (liabilities), and (8) estimates for commitments and contingencies including legal matters, if a liability is anticipated and can be reasonably estimated. Estimates and assumptions 82 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) regarding all of the preceding items are inherently subject to change and are reassessed periodically. Changes in estimates and assumptions could materially impact the financial statements. RECLASSIFICATIONS Certain amounts for the periods ended in the 1998 and 1997 financial statements have been reclassified to conform to the 1999 financial statement presentation. 2. BASIS OF FINANCIAL REPORTING The financial statements of the Companies differ from related statutory-basis financial statements principally as follows: (1) acquisition costs of acquiring new business are deferred and amortized over the life of the policies rather than charged to operations as incurred; (2) an asset representing the present value of future cash flows from insurance contracts acquired was established as a result of the merger/acquisition and is amortized and charged to expense; (3) future policy benefit reserves for divisions with fixed interest guarantees of the variable insurance products are based on full account values, rather than the greater of cash surrender value or amounts derived from discounting methodologies utilizing statutory interest rates; (4) reserves are reported before reduction for reserve credits related to reinsurance ceded and a receivable is established, net of an allowance for uncollectible amounts, for these credits rather than presented net of these credits; (5) fixed maturity investments are designated as "available for sale" and valued at fair value with unrealized appreciation/depreciation, net of adjustments to value of purchased insurance in force, deferred policy acquisition costs, and deferred income taxes (if applicable), credited/charged directly to stockholder's equity rather than valued at amortized cost; (6) the carrying value of fixed maturities is reduced to fair value by a charge to realized losses in the Statements of Operations when declines in carrying value are judged to be other than temporary, rather than through the establishment of a formula-determined statutory investment reserve (carried as a liability), changes in which are charged directly to surplus; (7) deferred income taxes are provided for the difference between the financial statement and income tax bases of assets and liabilities; (8) net realized gains or losses attributed to changes in the level of interest rates in the market are recognized when the sale is completed rather than deferred and amortized over the remaining life of the fixed maturity security; (9) a liability is established for anticipated guaranty fund assessments, net of related anticipated premium tax credits, rather than capitalized when assessed and amortized in accordance with procedures permitted by insurance regulatory authorities; (10) revenues for variable insurance products consist of policy charges applicable to each contract for the cost of insurance, policy administration charges, amortization of policy initiation fees, and surrender charges assessed rather than premiums received; (11) the financial statements of Golden American's wholly owned subsidiary are consolidated rather than recorded at the equity in net assets; (12) surplus notes are reported as liabilities rather than as surplus; and (13) assets and liabilities are restated to fair values when a change in ownership occurs, with provisions for goodwill and other intangible assets, rather than continuing to be presented at historical cost. The net loss for Golden American as determined in accordance with statutory accounting practices was $85,578,000 in 1999, $68,002,000 in 1998, and $428,000 in 1997. Total statutory capital and surplus was $368,928,000 at December 31, 1999 and $183,045,000 at December 31, 1998. 83 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS INVESTMENT RESULTS Major categories of net investment income are summarized below:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488 Equity securities.............. 515 -- 3 | -- Mortgage loans on real estate.. 7,074 6,616 879 | 3,070 Policy loans................... 485 619 59 | 482 Short-term investments......... 2,583 1,311 129 | 443 Other, net..................... 388 246 (154) | 24 ------- ------- ------- | ------- Gross investment income........ 61,397 44,016 5,359 | 22,507 Less investment expenses....... (2,228) (1,531) (232) | (851) ------- ------- ------- | ------- Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656 ======= ======= ======= | =======
Realized gains (losses) on investments follows:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Fixed maturities, available for | sale.......................... $(2,910) $(1,428) $ 25 | $ 151 Mortgage loans on real estate... (13) (63) (10) | -- ------- ------- ------- | ------- Realized gains (losses) on | investments................... $(2,923) $(1,491) $15 | $151 ======= ======= ======= | ========
The change in unrealized appreciation (depreciation) of securities at fair value follows:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | | Fixed maturities, available for | sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197 Equity securities................ 5,301 (2,390) (68) | (462) -------- -------- -------- | -------- Unrealized appreciation | (depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735 ======== ======== ======== | ========
84 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized gains and losses, and estimated fair values of fixed maturities, all of which are designated as available for sale, follows:
POST-MERGER --------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- --------- (Dollars in thousands) December 31, 1999 ----------------------------- U.S. government and governmental agencies and authorities............ $ 21,363 -- $ (260) $ 21,103 Public utilities.............. 53,754 $ 25 (2,464) 51,315 Corporate securities.......... 396,494 53 (12,275) 384,272 Other asset-backed securities. 207,044 850 (4,317) 203,577 Mortgage-backed securities.... 179,397 39 (4,382) 175,054 -------- ------ -------- -------- Total......................... $858,052 $ 967 $(23,698) $835,321 ======== ====== ======== ======== December 31, 1998 ----------------------------- U. S. government and governmental agencies and authorities............ $ 13,568 $ 182 $ (8) $ 13,742 Foreign governments........... 2,028 8 -- 2,036 Public utilities.............. 67,710 546 (447) 67,809 Corporate securities.......... 365,569 4,578 (2,658) 367,489 Other asset-backed securities. 99,877 281 (1,046) 99,112 Mortgage-backed securities.... 191,020 1,147 (370) 191,797 -------- ------ -------- -------- Total......................... $739,772 $6,742 $ (4,529) $741,985 ======== ====== ======== ======== Foreign governments....................... .......
Short-term investments with maturities of 30 days or less have been excluded from the above schedules. Amortized cost approximates fair value for these securities. At December 31, 1999, net unrealized investment loss on fixed maturities designated as available for sale totaled $22,731,000. Depreciation of $6,955,000 was included in stockholder's equity at December 31, 1999 (net of adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to deferred income taxes). At December 31, 1998, net unrealized investment gains on fixed maturities designated as available for sale totaled $2,213,000. Appreciation of $1,005,000 was included in stockholder's equity at December 31, 1998 (net of adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to deferred income taxes). At December 31, 1999, net unrealized appreciation on equity securities was comprised entirely of gross appreciation of $2,378,000. At December 31, 1998, net unrealized depreciation of equity securities was comprised entirely of gross depreciation of $2,923,000. Amortized cost and estimated fair value of fixed maturities designated as available for sale, by contractual maturity, at December 31, 1999 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 85 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) POST-MERGER ------------------------- Amortized Estimated December 31, 1999 Cost Fair Value - --------------------------------------------------------------------- (Dollars in thousands) Due within one year..................... $ 25,317 $ 25,186 Due after one year through five years... 355,205 344,998 Due after five years through ten years.. 83,004 78,976 Due after ten years..................... 8,085 7,530 -------- -------- 471,611 456,690 Other asset-backed securities........... 207,044 203,577 Mortgage-backed securities.............. 179,397 175,054 -------- -------- Total................................... $858,052 $835,321 ======== ======== An analysis of sales, maturities, and principal repayments of the Companies' fixed maturities portfolio follows:
Gross Gross Proceeds Amortized Realized Realized from Cost Gains Losses Sale --------- -------- -------- -------- (Dollars in thousands) POST-MERGER: For the year ended December 31, 1999: Scheduled principal repayments, calls, and tenders.......................... $141,346 $216 $(174) $141,388 Sales................................... 80,472 141 (1,454) 79,159 -------- ---- ------- -------- Total................................... $221,818 $357 $(1,628) $220,547 ======== ==== ======= ======== For the year ended December 31, 1998: Scheduled principal repayments, calls, and tenders.......................... $102,504 $60 $(3) $102,561 Sales................................... 43,204 518 (1,030) 42,692 -------- ---- ------- -------- Total................................... $145,708 $578 $(1,033) $145,253 ======== ==== ======= ======== For the period October 25, 1997 through December 31, 1997: Scheduled principal repayments, calls, and tenders.......................... $6,708 $2 -- $6,710 Sales................................... 3,138 23 -- 3,161 -------- ---- ------- -------- Total................................... $9,846 $25 -- $9,871 ======== ==== ======= ======== POST-ACQUISITION: For the period January 1, 1997 through October 24, 1997: Scheduled principal repayments, calls, and tenders.......................... $25,419 -- -- $25,419 Sales................................... 14,052 $153 $(2) 14,203 -------- ---- ------- -------- Total................................... $39,471 $153 $(2) $39,622 ======== ==== ======= ========
86 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) Investment Valuation Analysis: The Companies analyze the investment portfolio at least quarterly in order to determine if the carrying value of any investment has been impaired. The carrying value of debt and equity securities is written down to fair value by a charge to realized losses when an impairment in value appears to be other than temporary. During the fourth quarter of 1998, Golden American determined that the carrying value of two bonds exceeded their estimated net realizable value. As a result, at December 31, 1998, Golden American recognized a total pre-tax loss of $973,000 to reduce the carrying value of the bonds to their combined net realizable value of $2,919,000. During the second quarter of 1999, further information was received regarding these bonds and Golden American determined that the carrying value of the two bonds exceeded their estimated net realizable value. As a result, at June 30, 1999, Golden American recognized a total pre-tax loss of $1,639,000 to further reduce the carrying value of the bonds to their combined net realizable value of $1,137,000. During 1997, no investments were identified as having an other than temporary impairment. Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits covering bonds with a par value of $6,470,000 were on deposit with regulatory authorities pursuant to certain statutory requirements. Investment Diversifications: The Companies' investment policies related to the investment portfolio require diversification by asset type, company, and industry and set limits on the amount which can be invested in an individual issuer. Such policies are at least as restrictive as those set forth by regulatory authorities. The following percentages relate to holdings at December 31, 1999 and December 31, 1998. Fixed maturities included investments in basic industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities (22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real estate have been analyzed by geographical location with concentrations by state identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations of mortgage loans on real estate in any state exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10% in 1999, 8% in 1998). Equity securities are not significant to the Companies' overall investment portfolio. No investment in any person or its affiliates (other than bonds issued by agencies of the United States government) exceeded ten percent of stockholder's equity at December 31, 1999. 4. COMPREHENSIVE INCOME Comprehensive income includes all changes in stockholder's equity during a period except those resulting from investments by and distributions to the stockholder. Total comprehensive income (loss) for the Companies includes $(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for the year ended December 31, 1998 and $159,000, and $536,000, respectively, for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997). Other comprehensive income excludes net investment gains (losses) included in net income, which merely represent transfers from unrealized to realized gains and losses. These amounts total $(1,468,000) in 1999 and $(2,133,000) in 1998. Such amounts, which have been measured through the date of sale, are net of income taxes and adjustments to VPIF and DPAC totaling $(1,441,000) in 1999 and $705,000 in 1998. 5. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of estimated fair value of all financial instruments, including both assets and liabilities recognized and not recognized in a 87 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) company's balance sheet, unless specifically exempted. SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," requires additional disclosures about derivative financial instruments. Most of the Companies' investments, investment contracts, and debt fall within the standards' definition of a financial instrument. Fair values for the Companies' insurance contracts other than investment contracts are not required to be disclosed. In cases where quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accounting, actuarial, and regulatory bodies are continuing to study the methodologies to be used in developing fair value information, particularly as it relates to such things as liabilities for insurance contracts. Accordingly, care should be exercised in deriving conclusions about the Companies' business or financial condition based on the information presented herein. The Companies closely monitor the composition and yield of invested assets, the duration and interest credited on insurance liabilities, and resulting interest spreads and timing of cash flows. These amounts are taken into consideration in the Companies' overall management of interest rate risk, which attempts to minimize exposure to changing interest rates through the matching of investment cash flows with amounts expected to be due under insurance contracts. These assumptions may not result in values consistent with those obtained through an actuarial appraisal of the Companies' business or values that might arise in a negotiated transaction. The following compares carrying values as shown for financial reporting purposes with estimated fair values:
POST-MERGER ----------------------------------------------- December 31, 1999 December 31, 1998 ---------------------- --------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value -------- --------- -------- --------- (Dollars in thousands) ASSETS Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985 Equity securities..................... 17,330 17,330 11,514 11,514 Mortgage loans on real estate......... 100,087 95,524 97,322 99,762 Policy loans.......................... 14,157 14,157 11,772 11,772 Short-term investments................ 80,191 80,191 41,152 41,152 Cash and cash equivalents............. 14,380 14,380 6,679 6,679 Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114 LIABILITIES Annuity products...................... 1,017,105 953,546 869,009 827,597 Surplus notes......................... 245,000 226,100 85,000 90,654 Revolving note payable................ 1,400 1,400 -- -- Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
The following methods and assumptions were used by the Companies in estimating fair values. Fixed maturities: Estimated fair values of conventional mortgage-backed securities not actively traded in a liquid market and publicly traded securities are estimated using a third party pricing process. This pricing 88 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) process uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Equity securities: Estimated fair values of equity securities, which consist of the Companies' investment in the portfolios underlying its separate accounts, are based upon the quoted fair value of individual securities comprising the individual portfolios. For equity securities not actively traded, estimated fair values are based upon values of issues of comparable returns and quality. Mortgage loans on real estate: Fair values are estimated by discounting expected cash flows, using interest rates currently offered for similar loans. Policy loans: Carrying values approximate the estimated fair value for policy loans. Short-term investments and cash and cash equivalents: Carrying values reported in the Companies' historical cost basis balance sheet approximate estimated fair value for these instruments due to their short-term nature. Separate account assets: Separate account assets are reported at the quoted fair values of the individual securities in the separate accounts. Annuity products: Estimated fair values of the Companies' liabilities for future policy benefits for the divisions of the variable annuity products with fixed interest guarantees and for supplemental contracts without life contingencies are stated at cash surrender value, the cost the Companies would incur to extinguish the liability. Surplus notes: Estimated fair value of the Companies' surplus notes were based upon discounted future cash flows using a discount rate approximating the current market value. Revolving note payable: Carrying value reported in the Companies' historical cost basis balance sheet approximates estimated fair value for this instrument, as the agreement carries a variable interest rate provision. Separate account liabilities: Separate account liabilities are reported at full account value in the Companies' historical cost balance sheet. Estimated fair values of separate account liabilities are equal to their carrying amount. 6. MERGER Transaction: On October 23, 1997, Equitable's shareholders approved the Merger Agreement dated July 7, 1997 among Equitable, PFHI, and ING. On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn, owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II, and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. All costs of the merger, including expenses to terminate certain benefit plans, were paid by the Parent. 89 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 6. MERGER (continued) Accounting Treatment: The merger was accounted for as a purchase resulting in a new basis of accounting, reflecting estimated fair values for assets and liabilities at October 24, 1997. The purchase price was allocated to EIC and its subsidiaries with $227,497,000 allocated to the Companies. Goodwill was established for the excess of the merger cost over the fair value of the net assets and attributed to EIC and its subsidiaries including Golden American and First Golden. The amount of goodwill allocated to the Companies relating to the merger was $151,127,000 at the merger date and is being amortized over 40 years on a straight-line basis. The carrying value of goodwill will be reviewed periodically for any indication of impairment in value. The Companies' DPAC, previous balance of VPIF, and unearned revenue reserve, as of the merger date, were eliminated and a new asset of $44,297,000 representing VPIF was established for all policies in force at the merger date. Value of Purchased Insurance In Force: As part of the merger, a portion of the acquisition cost was allocated to the right to receive future cash flows from insurance contracts existing with the Companies at the merger date. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flow at the discount rate determined by ING. An analysis of the VPIF asset follows:
POST-MERGER ------------------------------------------------- For the period For the year For the year October 25, 1997 ended ended through December 31, December 31, December 31, 1997 ------------------------------------------------- (Dollars in thousands) Beginning balance........................ $35,977 $43,174 $44,297 ------- ------- ------- Imputed interest......................... 2,373 2,802 1,004 Amortization............................. (7,930) (7,753) (1,952) Changes in assumptions of timing of gross profits.......................... (681) 227 -- ------- ------- ------- Net amortization......................... (6,238) (4,724) (948) Adjustment for unrealized gains (losses) on available for sale securities....... 1,988 (28) (175) Adjustment for other receivables and merger costs........................... -- (2,445) -- ------- ------- ------- Ending balance........................... $31,727 $35,977 $43,174 ======= ======= =======
90 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 6. MERGER (continued) Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for the year ended December 31, 1999, 7.38% for the year ended December 31, 1998, and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999, VPIF was adjusted to increase amortization by $681,000 to reflect changes in the assumptions related to the timing of estimated gross profits. The amortization of VPIF, net of imputed interest, is charged to expense. VPIF decreased $2,664,000 during 1998 to adjust the value of other receivables and increased $219,000 in 1998 as a result of an adjustment to the merger costs. VPIF is adjusted for the unrealized gains (losses) on available for sale securities; such changes are included directly in stockholder's equity. Based on current conditions and assumptions as to the impact of future events on acquired policies in force, the expected approximate net amortization relating to VPIF as of December 31, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in 2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary based upon changes in assumptions and experience. 7. ACQUISITION Transaction: On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable from Whitewood, a wholly owned subsidiary of Bankers Trust Company ("Bankers Trust"), according to the terms of the Purchase Agreement dated May 3, 1996 between Equitable and Whitewood. In exchange for the outstanding capital stock of BT Variable, Equitable paid the sum of $93,000,000 in cash to Whitewood in accordance with the terms of the Purchase Agreement. Equitable also paid the sum of $51,000,000 in cash to Bankers Trust to retire certain debt owed by BT Variable to Bankers Trust pursuant to a revolving credit arrangement. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. Accounting Treatment: The acquisition was accounted for as a purchase resulting in a new basis of accounting, which reflected estimated fair values for assets and liabilities at August 13, 1996. The purchase price was allocated to the three companies purchased - BT Variable, DSI, and Golden American. The allocation of the purchase price to Golden American was approximately $139,872,000. Goodwill was established for the excess of the purchase price over the fair value of the net assets acquired and attributed to Golden American. The amount of goodwill relating to the acquisition was $41,113,000 and was amortized over 25 years on a straight-line basis until the October 24, 1997 merger with ING. Golden American's DPAC, previous balance of VPIF, and unearned revenue reserve, as of the acquisition date, were eliminated and an asset of $85,796,000 representing VPIF was established for all policies in force at the acquisition date. Value of Purchased Insurance In Force: As part of the acquisition, a portion of the acquisition cost was allocated to the right to receive future cash flows from the insurance contracts existing with Golden American at the date of acquisition. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flows at the discount rate determined by Equitable. 91 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 7. ACQUISITION (continued) An analysis of the VPIF asset follows:
POST-ACQUISITION ---------------- For the period January 1, 1997 through October 24, 1997 ---------------- (Dollars in thousands) Beginning balance............ $ 83,051 -------- Imputed interest............. 5,138 Amortization................. (12,656) Changes in assumption of timing of gross profits.... 2,293 -------- Net amortization............. (5,225) Adjustment for unrealized gains on available for sale securities............ (373) -------- Ending balance............... $ 77,453 ========
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to 7.80% for the period January 1, 1997 through October 24, 1997. The amortization of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted for the unrealized gains on available for sale securities; such changes were included directly in stockholder's equity. 8. INCOME TAXES Golden American files a consolidated federal income tax return. Under the Internal Revenue Code, a newly acquired insurance company cannot file as part of the Parent's consolidated tax return for 5 years. At December 31, 1999, the Companies have net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $161,799,000. Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL carryforwards are available to offset future taxable income of the Companies through the years 2011, 2012, 2013, and 2014, respectively. INCOME TAX EXPENSE (BENEFIT) Income tax expense (benefit) included in the consolidated financial statements follows: POST-MERGER |POST-ACQUISITION --------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Current -- -- -- | $ 12 Deferred $8,523 $5,279 $146 | (1,349) ------ ------ ---- | ------- $8,523 $5,279 $146 | $(1,337) ====== ====== ==== | ======= 92 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 8. INCOME TAXES (continued) The effective tax rate on income (loss) before income taxes is different from the prevailing federal income tax rate. A reconciliation of this difference follows:
POST-MERGER |POST-ACQUISITION ---------------------------------------------|----------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | ------------- (Dollars in thousands) | Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608) ======= ======= ===== ======= | Income tax (benefit) at federal | statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213) Tax effect (decrease) of: | Goodwill amortization............ 1,322 1,322 220 | -- Compensatory stock option and restricted stock expense....... -- -- -- | (1,011) Meals and entertainment.......... 199 157 23 | 53 Other items...................... 94 176 1 | (166) ------- ------- ------- | -------- Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337) ======= ======= ======= | ========
93 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 8. INCOME TAXES (continued) DEFERRED INCOME TAXES The tax effect of temporary differences giving rise to the Companies' deferred income tax assets and liabilities at December 31, 1999 and 1998 follows: POST-MERGER ---------------------------- December 31, December 31, 1999 1998 ------------ ------------ (Dollars in thousands) Deferred tax assets: Net unrealized depreciation of securities at fair value............................ -- $1,023 Net unrealized depreciation of available for sale fixed maturities................ $3,745 -- Future policy benefitS..................... 133,494 66,273 Goodwill................................... 16,323 16,323 Net operating loss carryforwards........... 56,630 17,821 Other...................................... 1,333 1,272 ------- ------- 211,525 102,712 Deferred tax liabilities: Net unrealized appreciation of securities at fair value............................ (832) -- Net unrealized appreciation of available for sale fixed maturities................ -- (332) Fixed maturity securities.................. (17,774) (1,034) Deferred policy acquisition costs.......... (154,706) (55,520) Mortgage loans on real estate.............. (715) (845) Value of purchased insurance in force...... (10,462) (12,592) Other...................................... (1,348) (912) ------- ------- (185,837) (71,235) ------- ------- Valuation allowance........................... (3,745) -- ------- ------- Deferred income tax asset..................... $21,943 $31,477 ======= ======= At December 31, 1999, the Company reported, for financial statement purposes, unrealized losses on certain investments which have not been recognized for tax purposes. The Companies have established a valuation allowance against the deferred income tax assets associated with unrealized depreciation on fixed maturities available for sale as the Companies are uncertain as to whether their capital losses, if ever realized, could be utilized to offset future capital gains. 94 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION DEFINED BENEFIT PLANS In 1999 and 1998, the Companies were allocated their share of the pension liability associated with their employees. The Companies' employees are covered by the employee retirement plan of an affiliate, Equitable Life. Further, Equitable Life sponsors a defined contribution plan that is qualified under Internal Revenue Code Section 401(k). The following tables summarize the benefit obligations and the funded status for pension benefits over the two-year period ended December 31, 1999: 1999 1998 ----------------------------------- (Dollars in thousands) Change in benefit obligation: Benefit obligation at January 1... $ 4,454 $956 Service cost...................... 1,500 1,138 Interest cost..................... 323 97 Actuarial (gain) loss............. (2,056) 2,266 Benefit payments.................. -- (3) ------- ------- Benefit obligation at December 31. $ 4,221 $ 4,454 ======= ======= Funded status: Funded status at December 31...... $(4,221) $(4,454) Unrecognized net loss............. 210 2,266 ------- ------- Net amount recognized............. $(4,011) $(2,188) ======= ======= The Companies' plan assets were held by Equitable Life, an affiliate. During 1998, the Equitable Life Employee Pension Plan began investing in an undivided interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit and Trust Company holds the Master Trust's investment assets. The weighted-average assumptions used in the measurement of the Companies' benefit obligation follows: December 31 1999 1998 - ----------------------------------------------------------------- Discount rate.................... 8.00% 6.75% Expected return on plan assets... 9.25 9.50 Rate of compensation increase.... 5.00 4.00 95 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued) The following table provides the net periodic benefit cost for the fiscal years 1999, 1998, and 1997:
POST-MERGER |POST-ACQUISITION ----------------------------------------------|--------------------- For the year For the year For the period | For the period ended ended October 25, 1997 | January 1, 1997 December 31, December 31, through | through 1999 1998 December 31, 1997 |October 24, 1997 ----------------------------------------------|--------------------- (Dollars in thousands) | Service cost................ $1,500 $1,138 $114 | $568 Interest cost............... 323 97 10 | 15 Amortization of net loss.... -- -- -- | 1 ------ ------ ---- | ---- Net periodic benefit cost... $1,823 $1,235 $124 | $584 ====== ====== ==== | ====
There were no gains or losses resulting from curtailments or settlements during 1999, 1998, or 1997. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $4,221,000, $2,488,000, and $0, respectively, as of December 31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31, 1998. During 1997, ING approved the 1997 Phantom Plan for certain key employees. The Phantom Plan is similar to a standard stock option plan; however, the phantom share option entitles the holder to a cash benefit in Dutch Guilders linked to the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The plan participants are entitled to any appreciation in the value of ING ordinary shares over the Phantom Plan option price (strike price) of 53.85 Euros for options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May 26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the ordinary shares themselves. Options are granted at fair value on the date of grant. Options in the Phantom Plan are subject to forfeiture to ING should the individuals terminate their relationship with ING before the three-year initial retention period has elapsed. All options expire five years from the date of grant. On July 1, 1999, ING issued 34,750 options to employees of Golden American related to this plan at a strike price of 53.85 Euros. On May 26, 1998, ING issued 42,400 options related to this plan at a strike price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was higher than the ING share price, there was no compensation expense related to these options in 1998. On May 23, 1997, ING issued 3,500 options related to this plan at a strike price of 85.10 Dutch Guilders. Since the strike price was lower than the ING share price at December 31, 1998, Golden American incurred $46,000 of compensation expense related to these options during 1998. No expense was recognized in 1999 related to the above options. As of December 31, 1999, 58,250 options remain outstanding. 10. RELATED PARTY TRANSACTIONS Operating Agreements: DSI, an affiliate, acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) and distributor of the variable insurance products issued by the Companies. DSI is authorized to enter into agreements with broker/dealers to 96 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) distribute the Companies' variable insurance products and appoint representatives of the broker/dealers as agents. For the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the Companies paid commissions to DSI totaling $181,536,000, $117,470,000, $9,931,000, and $26,419,000, respectively. Golden American provides certain managerial and supervisory services to DSI. The fee paid by DSI for these services is calculated as a percentage of average assets in the variable separate accounts. For the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000, $508,000, and $2,262,000, respectively. Effective January 1, 1998, the Companies have an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management and accounting services. Under the agreement, the Companies record a fee based on the value of the assets under management. The fee is payable quarterly. For the years ended December 31, 1999 and 1998, the Companies incurred fees of $2,227,000 and $1,504,000, respectively, under this agreement. Prior to 1998, the Companies had a service agreement with Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided investment management services. Payments for these services totaled $200,000 and $768,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. Golden American has a guaranty agreement with Equitable Life, an affiliate. In consideration of an annual fee, payable June 30, Equitable Life guarantees to Golden American that it will make funds available, if needed, to Golden American to pay the contractual claims made under the provisions of Golden American's life insurance and annuity contracts. The agreement is not, and nothing contained therein or done pursuant thereto by Equitable Life shall be deemed to constitute, a direct or indirect guaranty by Equitable Life of the payment of any debt or other obligation, indebtedness, or liability, of any kind or character whatsoever, of Golden American. The agreement does not guarantee the value of the underlying assets held in separate accounts in which funds of variable life insurance and variable annuity policies have been invested. The calculation of the annual fee is based on risk based capital. As Golden American's risk based capital level was above required amounts, no annual fee was payable in 1999 or in 1998. Golden American provides certain advisory, computer, and other resources and services to Equitable Life. Revenues for these services, which reduced general expenses incurred by Golden American, totaled $6,107,000 and $5,833,000 for the years ended December 31, 1999 and 1998, respectively ($1,338,000 and $2,992,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). The Companies have a service agreement with Equitable Life in which Equitable Life provides administrative and financial related services. Under this agreement, the Companies incurred expenses of $1,251,000 and $1,058,000 for the years ended December 31, 1999 and 1998, respectively ($13,000 and $16,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). First Golden provides resources and services to DSI. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $387,000 in 1999 and $75,000 in 1998. Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $244,000 in 1999. 97 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) Golden American provides resources and services to United Life & Annuity Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $460,000 in 1999. The Companies provide resources and services to Security Life of Denver Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $216,000 in 1999. The Companies provide resources and services to Southland Life Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $103,000 in 1999. In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total premiums, net of reinsurance, for variable products sold through five affiliates as noted in the following table:
POST-MERGER |POST-ACQUISITION ----------------------------------------------|----------------- | For the year For the year For the period | For the period ended ended October 25, 1997 |January 1, 1997 December 31, December 31, through | through 1999 1998 December 31, 1997|October 24, 1997 ------------ ------------ -----------------|---------------- (Dollars in millions) | LSSI.................................. $168.5 $122.9 $9.3 | $16.9 Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2 DSI................................... 2.5 13.6 2.1 | 0.4 Multi-Financial Securities Corporation 44.1 13.4 -- | -- IFG Network Securities, Inc........... 25.8 3.7 -- | -- ------ ------ ----- | ----- Total................................. $329.0 $198.5 $13.3 | $18.5 ====== ====== ===== | =====
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate, to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH, Golden American must obtain the approval from the Department of Insurance of the State of Delaware. Interest on any Golden American borrowings is charged at the rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, Golden American incurred interest expense of $815,000 in 1999 and $1,765,000 in 1998. At December 31, 1999 and 1998, Golden American did not have any borrowings or receivables from ING AIH under this agreement. Line of Credit: Golden American maintained a line of credit agreement with Equitable to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective December 1, 1996 and expired December 31, 1997, Golden American could borrow up to $25,000,000. Interest on any borrowings was charged at the rate of Equitable's monthly average aggregate cost of short-term funds plus 1.00%. Under this agreement, Golden American incurred interest expense of $211,000 for the year ended December 31, 1998 ($213,000 for the period October 25, 1997 through December 31, 1997 and $362,000 for the period January 1, 1997 through October 24, 1997). The outstanding balance was paid by a capital contribution and with funds borrowed from ING AIH. 98 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus note in the amount of $50,000,000 to Equitable Life. The note matures on December 29, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred no interest in 1999. On December 8, 1999, Golden American issued a 7.979% surplus note in the amount of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an affiliate. The note matures on December 7, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American paid no interest in 1999. On September 30, 1999, Golden American issued a 7.75% surplus note in the amount of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH assigned the note to Equitable Life. On December 30, 1998, Golden American issued a 7.25% surplus note in the amount of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $4,350,000 in 1999. Golden American incurred no interest in 1998. On December 17, 1996, Golden American issued an 8.25% surplus note in the amount of $25,000,000 to Equitable. The note matures on December 17, 2026. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors of Golden American. Any payment of principal made is subject to the prior approval of the Delaware Insurance Commissioner. Golden American incurred interest totaling $2,063,000 in 1999, unchanged from 1998 ($344,000 and $1,720,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). On December 17, 1996, Golden American contributed the $25,000,000 to First Golden acquiring 200,000 shares of common stock (100% of outstanding stock). Stockholder'S Equity: During 1999 and 1998, Golden American received capital contributions from its Parent of $121,000,000 and $122,500,000, respectively. 11. COMMITMENTS AND CONTINGENCIES Reinsurance: At December 31, 1999, the Companies had reinsurance treaties with four unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks under its variable contracts. Golden American remains liable to the extent reinsurers do not meet their obligations under the reinsurance agreements. Reinsurance ceded in force for life mortality risks were $119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000 and $7,586,000, respectively, for reserve credits, reinsurance claims, or 99 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 11. COMMITMENTS AND CONTINGENCIES (continued) other receivables from these reinsurers comprised of $493,000 and $439,000, respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000, respectively, for a payable for reinsurance premiums, and $15,542,000 and $7,690,000, respectively, for a receivable from an unaffiliated reinsurer. Included in the accompanying financial statements are net considerations to reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. Effective June 1, 1994, Golden American entered into a modified coinsurance agreement with an unaffiliated reinsurer. The accompanying financial statements are presented net of the effects of the treaty which increased income by $1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. The reinsurance treaties that covered the nonstandard minimum guaranteed death benefits for new business have been terminated for business issued after December 31, 1999. The Companies are currently pursuing alternative reinsurance arrangements for new business issued after December 31, 1999. There can be no assurance that such alternative arrangements will be available. The reinsurance covering business in force at December 31, 1999 will continue to apply in the future. Guaranty Fund Assessments: Assessments are levied on the Companies by life and health guaranty associations in most states in which the Companies are licensed to cover losses of policyholders of insolvent or rehabilitated insurers. In some states, these assessments can be partially recovered through a reduction in future premium taxes. The Companies cannot predict whether and to what extent legislative initiatives may affect the right to offset. The associated cost for a particular insurance company can vary significantly based upon its fixed account premium volume by line of business and state premiums as well as its potential for premium tax offset. The Companies have established an undiscounted reserve to cover such assessments, review information regarding known failures, and revise estimates of future guaranty fund assessments. Accordingly, the Companies accrued and charged to expense an additional $3,000 and $1,123,000 for the years ended December 31, 1999 and 1998, respectively, $141,000 for the period October 25, 1997 through December 31, 1997 and $446,000 for the period January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the Companies have an undiscounted reserve of $2,444,000 and $2,446,000, respectively, to cover estimated future assessments (net of related anticipated premium tax credits) and has established an asset totaling $618,000 and $586,000, respectively, for assessments paid which may be recoverable through future premium tax offsets. The Companies believe this reserve is sufficient to cover expected future guaranty fund assessments based upon previous premiums and known insolvencies at this time. Litigation: The Companies, like other insurance companies, may be named or otherwise involved in lawsuits, including class action lawsuits and arbitrations. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement or award payments have been made. The Companies currently believe no pending or threatened lawsuits or actions exist that are reasonably likely to have a material adverse impact on the Companies. Vulnerability from Concentrations: The Companies have various concentrations in the investment portfolio (see Note 3 for further information). The Companies' asset growth, net investment income, and cash flow are primarily generated from the sale of variable insurance products and associated future policy benefits and separate account liabilities. Substantial changes in tax laws that would make these products less attractive to consumers and extreme fluctuations in interest rates or stock market returns, which may result in higher lapse experience than assumed, could cause a severe impact to the Companies' financial condition. Two broker/dealers, each having at least ten percent of total sales, generated 28% of the Companies' sales in 1999 100 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 11. COMMITMENTS AND CONTINGENCIES (continued) (26% and 53% by two broker/dealers during 1998 and 1997, respectively). The Premium Plus product generated 79% of the Companies' sales during 1999 (63% during 1998 and 11% during 1997). Leases: The Companies lease their home office space, certain other equipment, and capitalized computer software under operating leases which expire through 2018. During the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000, respectively. At December 31, 1999, minimum rental payments due under all non-cancelable operating leases with initial terms of one year or more are: 2000 - - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 - $2,419,000, and 2005 and thereafter - $42,852,000. Revolving Note Payable: To enhance short-term liquidity, the Companies established a revolving note payable effective July 27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). The note was approved by the Boards of Directors of Golden American and First Golden on August 5, 1998 and September 29, 1998, respectively. As of July 31, 1999, the SunTrust Bank, Atlanta revolving note facility was extended to July 31, 2000. The total amount the Companies may have outstanding is $85,000,000, of which Golden American and First Golden have individual credit sublimits of $75,000,000 and $10,000,000, respectively. The note accrues interest at an annual rate equal to: (1) the cost of funds for the Bank for the period applicable for the advance plus 0.25% or (2) a rate quoted by the Bank to the Companies for the advance. The terms of the agreement require the Companies to maintain the minimum level of Company Action Level Risk Based Capital as established by applicable state law or regulation. During the years ended December 31, 1999 and 1998, the Companies incurred interest expense of $198,000 and $352,000, respectively. 101 This page intentionally left blank. - -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS ITEM PAGE Introduction........................................................... 1 Description of Golden American Life Insurance Company.................. 1 Safekeeping of Assets.................................................. 1 The Administrator...................................................... 1 Independent Auditors................................................... 1 Distribution of Contracts.............................................. 1 Performance Information................................................ 2 IRA Partial Withdrawal Option.......................................... 10 Other Information...................................................... 10 Financial Statements of Separate Account B............................. 11 PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS SHOWN ON THE PROSPECTUS COVER. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT B. Please Print or Type: -------------------------------------------------- NAME -------------------------------------------------- SOCIAL SECURITY NUMBER -------------------------------------------------- STREET ADDRESS -------------------------------------------------- CITY, STATE, ZIP 106951 DVA PLUS-4 (05/00) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 103 This page intentionally left blank. APPENDIX A CONDENSED FINANCIAL INFORMATION Except for the Investors, Large Cap Value, All Cap, ING Global Brand Names and the Prudential Jennison subaccounts which had not commenced operations as of December 31, 19989, the following tables give (1) the accumulation unit value ("AUV"), (2) the total number of accumulation units, and (3) the total accumulation unit value, for each subaccount of Golden American Separate Account B available under the Contract for the indicated periods. The date on which the subaccount became available to investors and the starting accumulation unit value are indicated on the last row of each table. The Managed Global subaccount commenced operations initially as a subaccount of another separate account, the Managed Global Account of Separate Account D of Golden American; however, at the time of conversion the value of an accumulation unit did not change. LIQUID ASSET
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $15.04 683,989 $10,287 $14.79 621,814 $9,199 1998 14.54 489,531 7,118 14.33 334,799 4,796 1997 14.02 227,427 3,188 13.83 116,454 1,611 1996 13.52 76,505 1,033 13.35 84,960 1,134 1995 13.03 37,887 494 12.89 62,084 801 10/2/95 12.89 -- -- 12.76 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $14.55 3,273,236 $47,632 1998 14.11 2,069.093 29,200 1997 13.65 1,070,045 14,601 1996 13.19 383,231 5,054 1995 12.76 93,239 1,190 10/2/95 12.63 -- -- - ------------------------------------------------------------------
LIMITED MATURITY BOND
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $17.00 279,468 $4,751 $16.72 196,970 $3,294 1998 17.02 263,074 4,478 16.77 143,896 2,413 1997 16.13 139,323 2,247 15.91 78,553 1,250 1996 15.31 83,927 1,285 15.13 46,293 701 1995 14.86 26,976 401 14.71 11,834 174 10/2/95 14.49 -- -- 14.35 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $16.45 956,859 $15,738 1998 16.52 762,668 12,599 1997 15.70 452,478 7,105 1996 14.95 349,417 5,224 1995 14.56 136,553 1,988 10/2/95 14.20 -- -- - ------------------------------------------------------------------
GLOBAL FIXED INCOME
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $11.88 35,081 $417 $11.79 10,884 $128 1998 13.17 6,337 83 13.09 6,154 81 5/1/98 12.17 -- -- 12.11 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $11.70 156,865 $1,835 1998 13.00 38,751 504 5/1/98 12.04 -- -- - ------------------------------------------------------------------
A1 FULLY MANAGED
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $22.01 549,088 $12,084 $21.65 415,146 $8,987 1998 20.84 544,623 11,351 20.53 441,532 9,066 1997 19.93 418,686 8,345 19.66 441,532 6,706 1996 17.50 203,891 3,568 17.29 173,475 2,999 1995 15.23 49,153 748 15.07 13,988 211 10/2/95 14.77 -- -- 14.62 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $21.29 2,299,379 $48,961 1998 20.23 2,262,811 45,771 1997 19.40 1,737,950 33,720 1996 17.08 952,517 16,273 1995 14.91 184,364 2,750 10/2/95 14.47 -- -- - ------------------------------------------------------------------
TOTAL RETURN
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $18.20 831,642 $15,135 $18.06 649,492 $11,730 1998 17.83 616,433 10,989 17.72 422,146 7,479 1997 16.18 224,763 3,636 16.10 140,222 2,258 1/20/97 13.76 -- -- 13.76 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $17.91 3,791,001 $67,903 1998 17.60 2,547,293 44,830 1997 16.02 720,866 11,548 1/20/97 13.76 -- -- - ------------------------------------------------------------------
EQUITY INCOME
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $21.83 381,468 $8,327 $21.47 314,307 $6,750 1998 22.27 395,764 8,812 21.94 299,456 6,569 1997 20.83 328,740 6,847 20.55 223,101 4,585 1996 17.96 289,954 5,207 17.75 150,732 2,675 1995 16.72 104,463 1,747 16.55 21,073 348 10/2/95 16.10 -- -- 15.94 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $21.12 1,884,822 $39,813 1998 21.61 1,762,451 38,088 1997 20.28 1,472,723 29,860 1996 17.54 1,117,238 19,593 1995 16.38 370,515 6,068 10/2/95 15.78 -- -- - ------------------------------------------------------------------
VALUE EQUITY
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $18.28 433,555 $7,924 $18.14 426,697 $7,742 1998 18.41 454,942 8,377 18.31 500,101 9,155 1997 18.36 372,681 6,843 18.28 410,757 7,509 1996 14.61 181,354 2,649 14.57 249,994 3,642 1995 13.37 34,272 458 13.36 23,394 313 10/2/95 12.43 -- -- 12.41 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $18.01 1,929,405 $34,747 1998 18.20 2,253,141 41,004 1997 18.20 1,749,956 31,853 1996 14.53 1,052,064 15,282 1995 13.34 179,453 2,394 10/2/95 12.40 -- -- - ------------------------------------------------------------------
A2 RISING DIVIDENDS
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $26.07 1,251,144 $32,623 $25.83 1,054,275 $27,235 1998 22.79 1,199,087 $27,323 22.61 1,050,285 23,747 1997 20.22 795,321 16,079 20.09 739,017 14,847 1996 15.77 297,973 4,699 15.69 355,191 5,575 1995 13.24 22,934 304 13.19 36,100 476 10/2/95 12.16 -- -- 12.12 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $25.59 6,721,737 $172,024 1998 22.43 5,893,538 132,211 1997 19.96 3,670,022 73,267 1996 15.62 1,663,079 25,976 1995 13.15 300,820 3,956 10/2/95 12.09 -- -- - ------------------------------------------------------------------
MANAGED GLOBAL
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $24.23 605,044 $14,658 $23.97 545,896 $13,083 1998 15.02 649,216 9,753 14.88 512,728 7,631 1997 11.76 525,356 6,180 11.67 438,611 5,120 1996 10.62 226,224 2,402 10.55 231,774 2,446 1995 9.58 26,722 256 9.53 27,492 262 10/2/95 9.32 -- -- 9.28 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $23.71 3,259,862 $77,287 1998 14.75 3,338,928 49,237 1997 11.58 2,719,073 31,494 1996 10.49 1,375,023 14,422 1995 9.49 208,957 1,983 10/2/95 9.24 -- -- - ------------------------------------------------------------------
RESEARCH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $28.25 565,925 $15,988 $28.04 458,015 $12,842 1998 23.03 437,189 10,068 22.89 335,512 7,680 1997 18.95 223,067 4,227 18.87 142,676 2,692 1/20/97 16.43 -- -- 16.43 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $27.80 3,126,054 $86,919 1998 22.73 2,179,744 49,553 1997 18.77 786,122 14,752 1/20/97 16.43 -- -- - ------------------------------------------------------------------
CAPITAL APPRECIATION
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $30.46 431,150 $13,132 $30.11 391,380 $11,785 1998 24.75 413,115 10,233 24.50 370,619 9,080 1997 22.24 353,774 7,868 22.05 286,892 6,326 1996 17.46 162,558 2,839 17.34 174,592 3,028 1995 14.71 24,117 355 14.63 16,369 239 10/2/95 14.31 -- -- 14.23 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $29.77 2,494,266 $74,243 1998 24.26 2,345,157 56,884 1997 21.87 1,751,491 38,297 1996 17.22 1,106,359 19,054 1995 14.55 326,610 4,752 10/2/95 14.16 -- -- - ------------------------------------------------------------------
A3 CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $21.18 598,663 $12,678 $21.06 524,742 $11,051 1998 17.08 537,480 9,180 17.01 444,973 7,569 1997 15.45 325,440 5,027 15.41 226,587 3,491 1996 12.50 50,199 627 12.49 38,037 475 9/3/96 10.94 -- -- 10.94 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $20.94 3,125,440 $65,439 1998 16.94 2,202,441 37,304 1997 15.36 1,127,105 17,318 1996 12.47 173,758 2,167 9/3/96 10.94 -- -- - ------------------------------------------------------------------
STRATEGIC EQUITY
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $22.06 455,696 $10,053 $21.92 365,555 $8,013 1998 14.30 508,588 7,272 14.23 589,815 8,393 1997 14.36 406,747 5,840 14.31 534,105 7,643 1996 11.81 370,536 4,374 11.78 231,567 2,729 1995 10.01 76,095 762 10.01 47,478 475 10/2/95 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $21.78 1,611,499 $35,103 1998 14.16 1,566,193 22,178 1997 14.26 1,345,085 19,186 1996 11.76 968,694 11,396 1995 10.01 152,633 1,528 10/2/95 10.00 -- -- - ------------------------------------------------------------------
MID-CAP GROWTH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $39.97 287,598 $11,494 $39.59 294,064 $11,643 1998 22.60 173,070 3,912 22.43 183,243 4,109 1997 18.64 85,870 1,600 18.52 112,382 2,081 1996 15.77 29,878 471 15.70 28,223 443 9/3/96 14.64 -- -- 14.64 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $39.34 1,649,358 $64,879 1998 22.31 992,373 22,143 1997 18.45 503,083 9,284 1996 15.66 56,163 880 9/3/96 14.64 -- -- - ------------------------------------------------------------------
SMALL CAP
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $22.96 453,438 $10,411 $22.82 580,175 $13,240 1998 15.44 446,934 6,900 15.37 525,379 8,074 1997 12.92 401,090 5,183 12.88 445,138 5,735 1996 11.86 198,338 2,352 11.84 227,347 2,692 1/2/96 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $22.68 2,653,814 $60,197 1998 15.30 2,474,802 37,859 1997 12.84 2,029,658 26,068 1996 11.82 1,316,663 15,569 1/2/96 10.00 -- -- - ------------------------------------------------------------------
A4 GROWTH
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $28.78 758,379 $21,827 $28.62 737,375 $21,104 1998 16.36 362,210 5,926 16.29 284,480 4,636 1997 13.06 161,235 2,106 13.03 132,596 1,728 1/20/97 11.99 -- -- 11.99 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $28.46 4,445,942 $126,509 1998 16.22 1,635,638 26,538 1997 12.99 718,807 9,340 1/20/97 11.99 -- -- - ------------------------------------------------------------------
REAL ESTATE
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $20.96 136,122 $2,854 $20.62 92,387 $1,905 1998 22.07 170,494 3,763 21.74 125,630 2,731 1997 25.82 173,241 4,473 25.48 113,110 2,882 1996 21.30 54,229 1,155 21.04 42,710 899 1995 15.94 2,716 43 15.78 2,910 46 10/2/95 15.06 -- -- 14.91 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $20.28 583,100 $11,828 1998 21.42 797,901 17,090 1997 25.14 888,507 22,334 1996 20.79 384,928 8,004 1995 15.61 61,143 955 10/2/95 14.76 -- -- - ------------------------------------------------------------------
HARD ASSETS
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $17.66 112,564 $1,988 $17.37 62,935 $1,093 1998 14.50 146,678 2,126 14.28 74,676 1,067 1997 20.85 154,417 3,219 20.57 81,681 1,680 1996 19.89 94,213 1,873 19.65 43,232 850 1995 15.11 24,828 375 14.96 2,847 42 10/2/95 14.86 -- -- 14.71 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $17.09 518,280 $8,856 1998 14.07 574,275 8,080 1997 20.29 632,371 12,834 1996 19.42 341,711 6,635 1995 14.80 26,605 394 10/2/95 14.57 -- -- - ------------------------------------------------------------------
DEVELOPING WORLD
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $11.62 683 $8 $11.61 33,523 $389 1998 7.29 617 5 7.28 12,180 89 5/1/98 10.42 -- -- 10.42 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $11.58 292,097 $3,382 1998 7.27 49,393 359 5/1/98 10.42 -- -- - ------------------------------------------------------------------
A5 EMERGING MARKETS
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $12.01 359,966 $4,323 $11.90 244,574 $2,910 1998 6.56 266,800 1,751 6.51 249,607 1,625 1997 8.75 249,197 2,182 8.70 215,512 1,875 1996 9.78 97,857 957 9.74 102,267 995 1995 9.23 15,670 145 9.20 12,465 115 10/2/95 9.50 -- -- 9.47 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $11.79 1,046,228 $12,331 1998 6.46 1,170,656 7,563 1997 8.64 1,131,253 9,779 1996 9.69 679,247 6,581 1995 9.17 160,820 1,475 10/2/95 9.44 -- -- - ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $10.27 400,821 $4,115 $10.24 229,047 $2,345 1998 10.09 213,774 2,157 10.08 118,295 1,192 5/1/98 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $10.21 1,634,648 $16,695 1998 10.07 630,858 6,353 5/1/98 10.00 -- -- - ------------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
- ---------------------------------------------------------------------------------------------------------------------- STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------- TOTAL # OF TOTAL # OF ACCUMULATION ACCUMULATION AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 $13.16 284,260 $3,742 $13.13 187,840 $2,467 1998 11.12 112,706 1,253 11.11 53,016 589 5/1/98 10.00 -- -- 10.00 -- -- - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------ 7% SOLUTION ENHANCED DEATH BENEFIT - ------------------------------------------------------------------ TOTAL # OF ACCUMULATION AUV AT UNITS AT TOTAL YEAR END (AND YEAR END (AND AUV AT AT BEGINNING OF AT BEGINNING OF YEAR END FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) - ------------------------------------------------------------------ 1999 $13.10 1,952,379 $25,572 1998 11.10 474,542 5,268 5/1/98 10.00 -- -- - ------------------------------------------------------------------
A6 APPENDIX B MARKET VALUE ADJUSTMENT EXAMPLES EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT Assume $100,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into the guaranteed interest period; that the then Index Rate for a 7-year guaranteed interest period ("J") is 8%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. CALCULATE THE MARKET VALUE ADJUSTMENT 1. The contract value of the Fixed Interest Allocation on the date of surrender is 3 $124,230 ($100,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 2,555/365 3. Market Value Adjustment = $124,230 x [((1.07/1.0825) -1] = $9,700 Therefore, the amount paid to you on full surrender ignoring any surrender charge is $114,530 ($124,230 - $9,700 ). EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT Assume $100,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into the guaranteed interest period; that the then Index Rate for a 7-year guaranteed interest period ("J") is 6%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. CALCULATE THE MARKET VALUE ADJUSTMENT 1. The contract value of the Fixed Interest Allocation on the date of surrender is 3 $124,230 ($100,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 2,555/365 3. Market Value Adjustment = $124,230 x [((1.07/1.0625) -1] = $6,270 Therefore, the amount paid to you on full surrender ignoring any surrender charge is $130,500 ($124,230 + $6,270 ). EXAMPLE #3: WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT Assume $200,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate ("I") of 7%; that a withdrawal of $114,530 is requested 3 years into the guaranteed interest period; that the then Index Rate ("J") for a 7-year guaranteed interest period is 8%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. B1 First calculate the amount that must be withdrawn from the Fixed Interest Allocation to provide the amount requested. 1. The contract value of the Fixed Interest Allocation on the date of withdrawal is 3 $248,459 ( $200,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 3. Amount that must be withdrawn = 2,555/365 [ $114,530 / ((1.07/1.0825) ) ] = $124,230 Then calculate the Market Value Adjustment on that amount. 4. Market Value Adjustment = 2,555/365 $124,230 x [((1.07/1.0825) ) -1] = $9,700 Therefore, the amount of the withdrawal paid to you ignoring any surrender charge is $114,530, as requested. The Fixed Interest Allocation will be reduced by the amount of the withdrawal, $114,530, and also reduced by the Market Value Adjustment of $9,700, for a total reduction in the Fixed Interest Allocation of $124,230. EXAMPLE #4: WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT Assume $200,000 was allocated to a Fixed Interest Allocation with a guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an initial Index Rate of 7%; that a withdrawal of $130,500 requested 3 years into the guaranteed interest period; that the then Index Rate ("J") for a 7-year guaranteed interest period is 6%; and that no prior transfers or withdrawals affecting this Fixed Interest Allocation have been made. First calculate the amount that must be withdrawn from the Fixed Interest Allocation to provide the amount requested. 1. The contract value of Fixed Interest Allocation on the date of surrender is 3 $248,459 ( $200,000 x 1.075 ) 2. N = 2,555 ( 365 x 7 ) 3. Amount that must be withdrawn = 2,555/365 [$130,500 /((1.07/1.0625) )] = $124,230 Then calculate the Market Value Adjustment on that amount. 2,555/365 4. Market Value Adjustment = $124,230 x [((1.07/1.0625) ) -1] = $6,270 Therefore, the amount of the withdrawal paid to you ignoring any surrender charge is $130,500, as requested. The Fixed Interest Allocation will be reduced by the amount of the withdrawal, $130,500, but increased by the Market Value Adjustment of $6,270, for a total reduction in the Fixed Interest Allocation of $124,230. B2 APPENDIX C SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE The following assumes you made an initial premium payment of $25,000 and additional premium payments of $25,000 in each of the second and third contract years, for total premium payments under the Contract of $75,000. It also assumes a withdrawal at the beginning of the fifth contract year of 30% of the contract value of $90,000. In this example, $13,500 (15% of $90,000) is the maximum free withdrawal amount that you may withdraw during the contract year without a surrender charge. The total withdrawal would be $27,000 ($90,000 x .30). Therefore, $13,500 ($27,000 - $13,500) is considered an excess withdrawal and would be subject to a 4% surrender charge of $540 ($13,500 x .04). This example does not take into account any Market Value Adjustment or deduction of any premium taxes. C1 This page intentionally left blank. This page intentionally left blank. ING VARIABLE ANNUITIES GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company is a stock company domiciled in Delaware - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 106951 DVA PLUS-4 05/01/2000 PART B STATEMENT OF ADDITIONAL INFORMATION FORM ONE VERSION A Statement of Additional Information GOLDENSELECT DVA PLUS DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT ISSUED BY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY This Statement of Additional Information is not a prospectus. The information contained herein should be read in conjunction with the Prospectus for the Golden American Life Insurance Company Deferred Variable Annuity Contract, which is referred to herein. The Prospectus sets forth information that a prospective investor ought to know before investing. For a copy of the Prospectus, send a written request to Golden American Life Insurance Company, Customer Service Center, P.O. Box 2700, West Chester, Pennsylvania 19380-1478 or telephone 1-800-366-0066. DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: May 1, 2000 TABLE OF CONTENTS ITEM PAGE Introduction 1 Description of Golden American Life Insurance Company 1 Safekeeping of Assets 1 The Administrator 1 Independent Auditors 1 Distribution of Contracts 1 Performance Information 2 IRA Partial Withdrawal Option 10 Other Information 10 Financial Statements of Separate Account B 11 INTRODUCTION This Statement of Additional Information provides background information regarding Separate Account B. DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company ("Golden American") is a stock life insurance company organized under the laws of the State of Delaware. On August 13, 1996, Equitable of Iowa Companies, Inc. (formerly Equitable of Iowa Companies) ("Equitable of Iowa") acquired all of the interest in Golden American and Directed Services, Inc. On October 24, 1997, Equitable of Iowa and ING Groep, N.V. ("ING") completed a merger agreement, and Equitable of Iowa became a wholly owned subsidiary of ING. ING, headquartered in The Netherlands, is a global financial services holding company with approximately $495.0 billion in assets as of December 31, 1999. As of December 31, 1999, Golden American had approximately $477.8 million in stockholder's equity and approximately $9.4 billion in total assets, including approximately $7.6 billion of separate account assets. Golden American is authorized to do business in all jurisdictions except New York. Golden American offers variable insurance products. Golden American formed a subsidiary, First Golden American Life Insurance Company of New York ("First Golden"), which is licensed to do variable annuity business in the states of New York and Delaware. SAFEKEEPING OF ASSETS Golden American acts as its own custodian for Separate Account B. THE ADMINISTRATOR Effective January 1, 1997, Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American became parties to a service agreement pursuant to which Equitable Life agreed to provide certain accounting, actuarial, tax, underwriting, sales, management and other services to Golden American. Expenses incurred by Equitable Life in relation to this service agreement were reimbursed by Golden American on an allocated cost basis. No charges were billed to Golden American by Equitable Life pursuant to the service agreement in 1997. Equitable Life billed Golden American $364,086 and $892,903 pursuant to the service agreement in 1999 and 1998, respectively. INDEPENDENT AUDITORS Ernst & Young LLP, independent auditors, performs annual audits of Golden American and Separate Account B. DISTRIBUTION OF CONTRACTS The offering of contracts under the prospectus associated with this Statement of Additional Information is continuous. Directed Services, Inc., an affiliate of Golden American, 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 (the "variable insurance products") issued by Golden American. The variable insurance products were sold primarily through two broker/dealer institutions, during the year ended December 31, 1997, through two broker/dealer institutions 1 during the year ended December 31, 1998 and through two broker/dealer institutions during the year ended December 31, 1999. For the years ended 1999, 1998 and 1997 commissions paid by Golden American, including amounts paid by its subsidiary, First Golden American Life Insurance Company of New York, to Directed Services, Inc. aggregated $181,536,000, $117,470,000 and $36,350,000, respectively. All commissions received by the distributor were passed through to the broker-dealers who sold the contracts. Directed Services, Inc. is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478. Under a management services agreement, last amended in 1995, Golden American provides to Directed Services, Inc. certain of its personnel to perform management, administrative and clerical services and the use of certain facilities. Golden American charges Directed Services, Inc. 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 Directed Services, Inc. In the opinion of management, this method of cost allocation is reasonable. This fee, calculated as a percentage of average assets in the variable separate accounts, was $10,136,000, $4,771,000 and $2,770,000 for the years ended 1999, 1998 and 1997, respectively. PERFORMANCE INFORMATION Performance information for the subaccounts of Separate Account B, including yields, standard annual returns and other non-standard measures of performance of all subaccounts, may appear in reports or promotional literature to current or prospective owners. Such non-standard measures of performance will be computed, or accompanied by performance data computed, in accordance with standards defined by the SEC. Negative values are denoted by minus signs ("-"). Performance information for measures other than total return do not reflect any applicable premium tax that can range from 0% to 3.5%. As described in the prospectus, four death benefit options are available. The following performance values reflect the election at issue of the 7% Solution Enhanced Death Benefit, thus providing values reflecting the highest aggregate contract charges. In addition, the performance values reflect the selection of the most costly optional benefit rider. If one of the other death benefit options had been elected, or if another optional benefit rider or no rider had been elected, the historical performance values would be higher than those represented in the examples. SEC STANDARD MONEY MARKET SUBACCOUNT YIELDS Current yield for the Liquid Asset Subaccount will be based on the change in the value of a hypothetical investment (exclusive of capital changes or income other than investment income) over a particular 7-day period, less a pro rata share of subaccount expenses which includes deductions for the mortality and expense risk charge and the administrative charge accrued over that period (the "base period"), and stated as a percentage of the investment at the start of the base period (the "base period return"). The base period return is then annualized by multiplying by 365/7, with the resulting yield figure carried to at least the nearest hundredth of one percent. Calculation of "effective yield" begins with the same "base period return" used in the calculation of yield, which is then annualized to reflect weekly compounding pursuant to the following formula: Effective Yield = [(Base Period Return) +1) ^ 365/7] - 1 The current yield and effective yield of the Liquid Asset Subaccount for the 7-day period December 25, 1999 to December 31, 1999 were 3.99% and 4.07%, respectively. 2 SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS Quotations of yield for the remaining subaccounts will be based on all investment income per subaccount earned during a particular 30-day period, less expenses accrued during the period ("net investment income"), and will be computed by dividing net investment income by the value of an accumulation unit on the last day of the period, according to the following formula: Yield = 2 x [((a - b)/(c x d) + 1)^6 - 1] Where: [a] equals the net investment income earned during the period by the investment portfolio attributable to shares owned by a subaccount [b] equals the expenses accrued for the period (net of reimbursements) [c] equals the average daily number of units outstanding during the period based on the accumulation unit value [d] equals the value (maximum offering price) per accumulation unit value on the last day of the period Yield on subaccounts of Separate Account B is earned from the increase in net asset value of shares of the investment portfolio in which the subaccount invests and from dividends declared and paid by the investment portfolio, which are automatically reinvested in shares of the investment portfolio. SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR ALL SUBACCOUNTS Quotations of average annual total return for any subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a contract over a period of one, five and 10 years (or, if less, up to the life of the subaccount), calculated pursuant to the formula: P(1+T)^(n)=ERV Where: (1) [P] equals a hypothetical initial premium payment of $1,000 (2) [T] equals an average annual total return (3) [n] equals the number of years (4) [ERV] equals the ending redeemable value of a hypothetical $1,000 initial premium payment made at the beginning of the period (or fractional portion thereof) All total return figures reflect the deduction of the maximum sales load, the administrative charges, the mortality and expense risk charges and maximum optional benefit rider charge. The Securities and Exchange Commission (the "SEC") requires that an assumption be made that the contract owner surrenders the entire contract at the end of the one, five and 10 year periods (or, if less, up to the life of the security) for which performance is required to be calculated. This assumption may not be consistent with the typical contract owner's intentions in purchasing a contract and may adversely affect returns. Quotations of total return may simultaneously be shown for other periods, as well as quotations of total return that do not take into account certain contractual charges such as sales load. 3 Except for the All Cap, Investors, Large Cap Value, ING Global Brand Names and Prudential Jennison subaccounts which had not commenced operations as of December 31, 1999, Average Annual Total Return for the Subaccounts is presented on a standardized basis, which includes deductions for the maximum mortality and expense risk charge for the 7% Solution Enhanced Death Benefit of 1.40%, administrative charges of 0.15%, contract administration charge annualized at 0.06%, an optional rider charge annualized at 0.75% for all portfolios except Liquid Asset and Limited Maturity Bond which are annualized at 0.50%, and applicable surrender charge of 7% for the one year period and 3% for the five year period, for the year ending December 31, 1999 were as follows: Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Standardized with Rider Charge ------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset -4.45% 2.19% 2.64%* 2.93%* 1/25/89 Limited Maturity Bond -7.99% 3.20% 3.72%* 4.09%* 1/25/89 Global Fixed Income -17.60% 1.74%* n/a 1.93%* 10/7/94 Fully Managed -2.32% 10.12% 6.99%* 6.54%* 1/25/89 Total Return -5.81% 11.77%* n/a 10.89%* 10/7/94 Equity Income -9.82% 7.49% 6.41%* 6.50%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -8.61% n/a n/a 11.50% 1/1/95 Rising Dividends 6.47% 19.37% n/a 15.65% 10/4/93 Managed Global 53.00% 20.46%* n/a 12.02%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 14.66% 22.56%* n/a 20.83%* 10/7/94 Capital Appreciation 15.07% 20.42% n/a 14.76%* 5/4/92 Capital Growth 15.95% n/a n/a 20.46% 4/1/96 Strategic Equity 46.07% n/a n/a 18.99% 10/2/95 Mid-Cap Growth 68.49% 29.80%* n/a 29.20%* 10/7/94 Small Cap 40.57% n/a n/a 21.48% 1/2/96 Growth 67.62% n/a n/a 30.93%* 4/1/96 Real Estate -12.86% 7.25% 7.04%* 6.06%* 1/25/89 Hard Assets 13.85% 3.47% 3.13%* 4.38%* 1/25/90 Developing World 51.45% n/a n/a 3.80% 2/18/98 Emerging Markets 74.69% 1.06% n/a 1.73% 10/04/93 THE PIMCO TRUST High Yield Bond -6.16%* n/a n/a -3.55%* 5/1/98 StocksPLUS Growth and Income 10.37%* n/a n/a 13.09%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. The same Subaccounts presented on a standardized basis, which includes deductions for the maximum mortality and expense risk charge for the 7% Solution Enhanced Death Benefit of 1.40%, administrative charges of 0.15%, contract administration charge annualized at 0.06%, and 4 applicable surrender charge, but without the rider charge, for the year ending December 31, 1999 were as follows, respectively: Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Standardized without Rider Charge ---------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset -3.94% 2.71% 3.15%* 3.45%* 1/25/89 Limited Maturity Bond -7.49% 3.73% 4.23%* 4.61%* 1/25/89 Global Fixed Income -17.09% 2.29%* n/a 2.48%* 10/7/94 Fully Managed -1.79% 10.60% 7.54%* 7.11%* 1/25/89 Total Return -5.28% 12.24%* n/a 11.37%* 10/7/94 Equity Income -9.32% 7.99% 6.95%* 7.04%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -8.10% n/a n/a 11.94% 1/1/95 Rising Dividends 7.02% 19.81% n/a 16.13% 10/4/93 Managed Global 53.72% 21.03%* n/a 12.69%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 15.25% 22.98%* n/a 21.28%* 10/7/94 Capital Appreciation 15.66% 20.86% n/a 15.26%* 5/4/92 Capital Growth 16.56% n/a n/a 20.94% 4/1/96 Strategic Equity 46.77% n/a n/a 19.53% 10/2/95 Mid-Cap Growth 69.23% 30.26%* n/a 29.67%* 10/7/94 Small Cap 41.22% n/a n/a 22.01% 1/2/96 Growth 68.32% n/a n/a 31.46%* 4/1/96 Real Estate -12.35% 7.72% 7.57%* 6.64%* 1/25/89 Hard Assets 14.40% 4.00% 3.78%* 4.98%* 1/25/89 Developing World 52.10% n/a n/a 4.55%* 2/18/98 Emerging Markets 75.38% 1.83% n/a 2.46% 10/4/93 THE PIMCO TRUST High Yield Bond -5.63%* n/a n/a -2.98%* 5/1/98 StocksPLUS 10.94%* n/a n/a 13.69%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR ALL SUBACCOUNTS Quotations of non-standard average annual total return for any subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a contract over a period of one, five and 10 years (or, if less, up to the life of the subaccount), calculated pursuant to the formula: P(1+T)^(n)]=ERV 5 Where: (1) [P] equals a hypothetical initial premium payment of $1,000 (2) [T] equals an average annual total return (3) [n] equals the number of years (4) [ERV] equals the ending redeemable value of a hypothetical $1,000 initial premium payment made at the beginning of the period (or fractional portion thereof) assuming certain loading and charges are zero. All total return figures reflect the deduction of the mortality and expense risk charge for the 7% Solution Enhanced Death Benefit, the administrative charges and the optional benefit rider charge but not the deduction of the maximum sales load and the annual contract fee. Except for the All Cap, Investors, Large Cap Value, ING Global Brand Names and Prudential Jennison subaccounts which had not commenced operations as of December 31, 1999, Average Annual Total Return for the Subaccounts presented on a non-standardized basis, which includes deductions for the maximum mortality and expense risk charge for the 7% Solution Enhanced Death Benefit of 1.40%, administrative charges of 0.15%, and rider charge annualized at 0.75% for all portfolios except Liquid Asset and Limited Maturity Bond which are annualized at 0.50%, for the year ending December 31, 1999 were as follows, respectively: 6 Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Non-Standardized with Rider Charge ----------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset 2.60% 2.96% 2.69%* 2.97%* 1/25/89 Limited Maturity Bond -0.93% 3.95% 3.76%* 4.14%* 1/25/89 Global Fixed Income -10.54% 2.53%* n/a 2.50%* 10/7/94 Fully Managed 4.74% 10.70% 7.04%* 6.58%* 1/25/89 Total Return 1.25% 12.32%* n/a 11.30%* 10/7/94 Equity Income -2.76% 8.13% 6.46%* 6.54%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -1.55% n/a n/a 12.05% 1/1/95 Rising Dividends 13.53% 19.80% n/a 15.77% 10/4/93 Managed Global 60.06% 20.89%* n/a 12.08%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 21.72% 22.95%* n/a 21.13%* 10/7/94 Capital Appreciation 22.13% 20.84% n/a 14.80%* 5/4/92 Capital Growth 23.01% n/a n/a 21.29%* 4/1/96 Strategic Equity 53.13% n/a n/a 19.58% 10/2/95 Mid-Cap Growth 75.55% 30.12%* n/a 29.44%* 10/7/94 Small Cap 47.63% n/a n/a 22.22% 1/2/96 Growth 74.68% n/a n/a 31.60%* 4/1/96 Real Estate -5.80% 7.89% 7.08%* 6.10%* 1/25/89 Hard Assets 20.91% 4.21% 3.19% 4.43%* 1/25/89 Developing World 58.50% n/a n/a 7.42% 2/18/98 Emerging Markets 81.74% 1.89% n/a 1.94% 10/4/93 THE PIMCO TRUST High Yield Bond 0.90%* n/a n/a 0.71%* 5/1/98 StocksPLUS Growth and Income 17.43%* n/a n/a 16.93%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. The same Subaccounts presented on a non-standardized basis, which includes deductions for the maximum mortality and expense risk charge for the 7% Solution Enhanced Death Benefit of 1.40%, administrative charges of 0.15%, but without the rider charge, for the year ending December 31, 1999 were as follows: 7 Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Non-Standardized without Rider Charge -------------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset 3.11% 3.47% 3.20%* 3.49%* 1/25/89 Limited Maturity Bond -0.44% 4.47% 4.28%* 4.66%* 1/25/89 Global Fixed Income -10.03% 3.06%* n/a 3.04%* 10/7/94 Fully Managed 5.27% 11.17% 7.59%* 7.16%* 1/25/89 Total Return 1.78% 12.78%* n/a 11.78%* 10/7/94 Equity Income -2.26% 8.62% 7.00%* 7.08%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -1.04% n/a n/a 12.49% 1/1/95 Rising Dividends 14.08% 20.23% n/a 16.24% 10/4/93 Managed Global 60.78% 21.45%* n/a 12.74% 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 22.31% 23.37%* n/a 21.57%* 10/7/94 Capital Appreciation 22.71% 21.27% n/a 15.30%* 5/4/92 Capital Growth 23.61% n/a n/a 21.76% 4/1/96 Strategic Equity 53.83% n/a n/a 20.11% 10/2/95 Mid-Cap Growth 76.29% 30.58%* n/a 29.90%* 10/7/94 Small Cap 48.28% n/a n/a 22.74% 1/2/96 Growth 75.38% n/a n/a 32.13%* 4/1/96 Real Estate -5.30% 8.34% 7.61%* 6.68%* 1/25/89 Hard Assets 21.45% 4.72% 3.84%* 5.02%* 1/25/89 Developing World 59.16% n/a n/a 8.15% 2/18/98 Emerging Markets 82.44% 2.63% n/a 2.67% 10/4/93 THE PIMCO TRUST High Yield Bond 1.43%* n/a n/a 1.27%* 5/1/98 StocksPLUS Growth and Income 17.99%* n/a n/a 17.52%* 5/1/98 ING VARIABLEINCURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. Performance information for a subaccount may be compared, in reports and promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market Institutional Averages, or other indices that measure performance of a pertinent group of securities so that investors may compare a subaccount's results with those of a group of securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of 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 by overall performance, investment objectives, and assets, or tracked by other services, companies, publications, or persons who rank such investment companies on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the contract. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. 8 Performance information for any subaccount reflects only the performance of a hypothetical contract under which contract value is allocated to a subaccount during a particular time period on which the calculations are based. Performance information should be considered in light of the investment objectives and policies, characteristics and quality of the investment portfolio of the Trust in which the Separate Account B subaccounts invest, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. Reports and promotional literature may also contain other information including the ranking of any subaccount derived from rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by other rating services, companies, publications, or other persons who rank separate accounts or other investment products on overall performance or other criteria. PUBLISHED RATINGS From time to time, the rating of Golden American as an insurance company by A.M. Best may be referred to in advertisements or in reports to contract owners. Each year the A.M. Best Company reviews the financial status of thousands of insurers, culminating in the assignment of Best's Ratings. These ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. Best's ratings range from A+ + to F. An A++ and A+ ratings mean, in the opinion of A.M. Best, that the insurer has demonstrated the strongest ability to meet its respective policyholder and other contractual obligations. ACCUMULATION UNIT VALUE The calculation of the Accumulation Unit Value ("AUV") is discussed in the prospectus for the Contracts under Performance Information. Note that in your Contract, accumulation unit value is referred to as the Index of Investment Experience. The following illustrations show a calculation of a new AUV and the purchase of Units (using hypothetical examples). Note that the examples below are calculated for a Contract issued with the 7% Solution Enhanced Death Benefit Option, the death benefit option with the highest mortality and expense risk charge. The mortality and expense risk charge associated with the 7% Solution Enhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit Option and the Standard Death Benefit are lower than that used in the examples and would result in higher AUV's or contract values. ILLUSTRATION OF CALCULATION OF AUV EXAMPLE 1. 1. AUV, beginning of period $ 10.00 2. Value of securities, beginning of period $ 10.00 3. Change in value of securities $ 0.10 4. Gross investment return (3) divided by (2) 0.01 5. Less daily mortality and expense charge 0.00003863 6. Less asset based administrative charge 0.00000411 7. Net investment return (4) minus (5) minus (6) 0.00995726 8. Net investment factor (1.000000) plus (7) 1.00995726 9. AUV, end of period (1) multiplied by (8) $ 10.09957261 9 ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX) EXAMPLE 2. 1. Initial Premium Payment $ 1,000 2. AUV on effective date of purchase (see Example 1) $ 10.00 3. Number of Units purchased (1) divided by (2) 100 4. AUV for valuation date following purchase (see Example 1) $ 10.09957261 5. Contract Value in account for valuation date following purchase (3) multiplied by (4) $ 1,009.96 IRA PARTIAL WITHDRAWAL OPTION If the contract owner has an IRA contract and will attain age 70 1/2 in the current calendar year, distributions will be made in accordance with the requirements of Federal tax law. This option is available to assure that the required minimum distributions from qualified plans under the Internal Revenue Code (the "Code") are made. Under the Code, distributions must begin no later than April 1st of the calendar year following the calendar year in which the contract owner attains age 70 1/2. If the required minimum distribution is notwithdrawn, there may be a penalty tax in an amount equal to 50% of the difference between the amount required to be withdrawn and the amount actually withdrawn. Even if the IRA Partial Withdrawal Option is not elected, distributions must nonetheless be made in accordance with the requirements of Federal tax law. Golden American notifies the contract owner of these regulations with a letter mailed on January 1st of the calendar year in which the contract owner reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and supplies an election form. If electing this option, the owner specifies whether the withdrawal amount will be based on a life expectancy calculated on a single life basis (contract owner's life only) or, if the contract owner is married, on a joint life basis (contract owner's and spouse's lives combined). The contract owner selects the payment mode on a monthly, quarterly or annual basis. If the payment mode selected on the election form is more frequent than annually, the payments in the first calendar year in which the option is in effect will be based on the amount of payment modes remaining when Golden American receives the completed election form. Golden American calculates the IRA Partial Withdrawal amount each year based on the minimum distribution rules. We do this by dividing the contract value by the life expectancy. In the first year withdrawals begin, we use the contract value as of the date of the first payment. Thereafter, we use the contract value on December 31st of each year. The life expectancy is recalculated each year. Certain minimum distribution rules govern payouts if the designated beneficiary is other than the contract owner's spouse and the beneficiary is more than ten years younger than the contract owner. OTHER INFORMATION Registration statements have been filed with the SEC under the Securities Act of 1933, as amended, with respect to the Contracts discussed in this Statement of Additional Information. Not all of the information set forth in the registration statements, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC. 10 FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B The audited financial statements of Separate Account B are listed below and are included in this Statement of Additional Information: Report of Independent Auditors Audited Financial Statements Statement of Net Assets as of December 31, 1999 Statements of Operations for the year ended December 31, 1999 Statements of Changes in Net Assets for the years ended December 31, 1999 and 1998 Notes to Financial Statements 11 FINANCIAL STATEMENTS GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B YEAR ENDED DECEMBER 31, 1999 WITH REPORT OF INDEPENDENT AUDITORS GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS Report of Independent Auditors................................................1 Audited Financial Statements Statement of Net Assets.......................................................2 Statements of Operations......................................................3 Statements of Changes in Net Assets..........................................10 Notes to Financial Statements................................................17 Report of Independent Auditors The Board of Directors Golden American Life Insurance Company We have audited the accompanying statement of net assets of Golden American Life Insurance Company Separate Account B (comprised of the Liquid Asset, Limited Maturity Bond, Hard Assets, All-Growth, Real Estate, Fully Managed, Equity Income, Capital Appreciation, Rising Dividends, Emerging Markets, Market Manager, Value Equity, Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth, Capital Growth, Research, Total Return, Growth, Global Fixed Income, Developing World, Growth Opportunities, PIMCO High Yield Bond, PIMCO StocksPLUS Growth and Income, Appreciation, Smith Barney High Income, Smith Barney Large Cap Value, Smith Barney International Equity, Smith Barney Money Market, International Equity, Asset Allocation, Equity, Growth & Income, and High Quality Bond Divisions) as of December 31, 1999, and the related statements of operations and changes in net assets for in the periods disclosed in the financial statements. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the mutual funds' transfer agents. 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 financial position of Golden American Life Insurance Company Separate Account B at December 31, 1999, and the results of its operations and changes in its net assets for the periods described above, in conformity with accounting principles generally accepted in the United States. Des Moines, Iowa February 25, 2000 1
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENT OF NET ASSETS DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) ASSETS COMBINED ---------------- Investments at net asset value: The GCG Trust: Liquid Asset Series, 522,325,545 shares (cost - $522,326)........................................... $522,326 Limited Maturity Bond Series, 14,433,887 shares (cost - $154,603)................................... 150,401 Hard Assets Series, 3,310,341 shares (cost - $37,918)............................................... 38,929 All-Growth Series, 5,797,423 shares (cost - $94,713)................................................ 145,863 Real Estate Series, 4,593,787 shares (cost - $70,855)............................................... 55,677 Fully Managed Series, 17,755,369 shares (cost - $265,708)........................................... 267,218 Equity Income Series, 24,135,542 shares (cost - $297,021)........................................... 271,284 Capital Appreciation Series, 20,078,304 shares (cost - $350,171).................................... 401,967 Rising Dividends Series, 32,733,235 shares (cost - $673,802)........................................ 813,094 Emerging Markets Series, 2,895,632 shares (cost - $27,343).......................................... 35,472 Market Manager Series, 377,319 shares (cost - $4,795)............................................... 7,320 Value Equity Series, 8,851,843 shares (cost - $143,594)............................................. 137,380 Strategic Equity Series, 9,901,055 shares (cost - $141,166)......................................... 197,526 Small Cap Series, 13,840,816 shares (cost - $249,047)............................................... 324,429 Managed Global Series, 9,085,422 shares (cost - $154,794)........................................... 181,345 Mid-Cap Growth Series, 18,222,880 shares (cost - $408,884).......................................... 539,215 Capital Growth Series, 23,231,448 shares (cost - $371,151).......................................... 430,246 Research Series, 25,665,469 shares (cost - $520,404)................................................ 636,760 Total Return Series, 28,821,536 shares (cost - $458,931)............................................ 455,380 Growth Series, 43,852,669 shares (cost - $866,601).................................................. 1,205,510 Global Fixed Income Series, 2,113,119 shares (cost - $21,930)....................................... 21,258 Developing World Series, 4,470,012 shares (cost - $44,018).......................................... 51,673 Growth Opportunities Series, 598,117 shares (cost - $6,203)......................................... 6,663 PIMCO Variable Insurance Trust: PIMCO High Yield Bond Portfolio, 15,910,545 shares (cost - $150,798)................................ 146,059 PIMCO StocksPLUS Growth and Income Portfolio, 16,314,904 shares (cost - $215,031)................... 221,230 Greenwich Street Series Fund Inc.: Appreciation Portfolio, 42,012 shares (cost - $864)................................................. 983 Travelers Series Fund Inc.: Smith Barney High Income Portfolio, 45,269 shares (cost - $600)..................................... 547 Smith Barney Large Cap Value Portfolio, 32,943 shares (cost - $680)................................. 643 Smith Barney International Equity Portfolio, 23,358 shares (cost - $330)............................ 537 Smith Barney Money Market Portfolio, 579,382 shares (cost - $579)................................... 579 Warburg Pincus Trust: International Equity Portfolio, 10,513,073 shares (cost - $149,816)................................. 175,569 The Galaxy VIP Fund: Asset Allocation Portfolio, 7,851 shares (cost - $132).............................................. 133 Equity Portfolio, 13,379 shares (cost - $292)....................................................... 297 Growth & Income Portfolio, 9,830 shares (cost - $105)............................................... 107 High Quality Bond Portfolio, 2,818 shares (cost - $27).............................................. 27 ---------------- TOTAL ASSETS (cost - $6,405,232).................................................................... 7,443,647 LIABILITY Payable to Golden American Life Insurance Company (all pertaining to Market Manager Division).......... 236 ---------------- TOTAL NET ASSETS..................................................................................... $7,443,411 ================ NET ASSETS For variable annuity insurance contracts............................................................... $7,446,504 Retained in Separate Account B by Golden American Life Insurance Company............................... 3,093 ---------------- TOTAL NET ASSETS..................................................................................... $7,443,411 ================ 2
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (DOLLARS IN THOUSANDS) LIMITED LIQUID MATURITY HARD ALL- REAL ASSET BOND ASSETS GROWTH ESTATE DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $15,368 $5,178 $257 $22,107 $2,278 Capital gains distributions ................ -- -- -- 5,823 1,527 --------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 15,368 5,178 257 27,930 3,805 Expenses: Mortality and expense risk and other charges 4,755 1,698 494 1,297 818 Annual administrative charges .............. 94 37 16 46 27 Minimum death benefit guarantee charges .... 8 1 1 1 1 Contingent deferred sales charges .......... 3,171 129 119 89 112 Other contract charges ..................... 7 3 2 3 1 Amortization of deferred charges related to: Deferred sales load ...................... 553 275 85 326 159 Premium taxes ............................ 18 2 -- 2 1 --------------------------------------------------------------------- TOTAL EXPENSES .............................. 8,606 2,145 717 1,764 1,119 --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 6,762 3,033 (460) 26,166 2,686 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... -- (153) (9,098) 12,611 452 Net unrealized appreciation (depreciation) of investments ........................... -- (3,486) 15,365 41,917 (6,895) --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $6,762 $(606) $5,807 $80,694 $(3,757) ===================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 3
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) FULLY EQUITY CAPITAL RISING EMERGING MANAGED INCOME APPRECIATION DIVIDENDS MARKETS DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $10,485 $13,369 $6,809 $4,048 $350 Capital gains distributions ................ 9,191 14,763 35,936 16,664 -- -------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 19,676 28,132 42,745 20,712 350 Expenses: Mortality and expense risk and other charges 3,284 3,262 3,945 9,409 321 Annual administrative charges .............. 102 143 113 209 14 Minimum death benefit guarantee charges .... 1 6 1 1 1 Contingent deferred sales charges .......... 170 137 246 725 27 Other contract charges ..................... 6 9 8 13 1 Amortization of deferred charges related to: Deferred sales load ...................... 570 1,165 763 776 100 Premium taxes ............................ 2 2 3 3 1 -------------------------------------------------------------------- TOTAL EXPENSES .............................. 4,135 4,724 5,079 11,136 465 -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 15,541 23,408 37,666 9,576 (115) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 4,586 604 12,525 12,658 (839) Net unrealized appreciation (depreciation) of investments ........................... (8,712) (30,854) 16,816 60,461 17,638 -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $11,415 $(6,842) $67,007 $82,695 $16,684 ==================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 4
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MARKET VALUE STRATEGIC SMALL MANAGED MANAGER EQUITY EQUITY CAP GLOBAL DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $110 $1,231 $211 $6,243 $9,130 Capital gains distributions ................ 973 2,440 549 2,817 15,707 --------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 1,083 3,671 760 9,060 24,837 Expenses: Mortality and expense risk and other charges -- 1,869 1,454 2,692 1,667 Annual administrative charges .............. -- 52 29 57 54 Minimum death benefit guarantee charges .... -- -- -- -- 1 Contingent deferred sales charges .......... -- 129 252 157 195 Other contract charges ..................... -- 2 1 2 4 Amortization of deferred charges related to: Deferred sales load ...................... 40 151 75 82 397 Premium taxes ............................ -- -- 1 1 1 --------------------------------------------------------------------- TOTAL EXPENSES .............................. 40 2,203 1,812 2,991 2,319 --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 1,043 1,468 (1,052) 6,069 22,518 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 861 5,066 5,704 30,614 42,644 Net unrealized appreciation (depreciation) of investments ........................... (880) (9,606) 54,916 54,213 6,404 --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $1,024 $(3,072) $59,568 $90,896 $71,566 ===================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 5
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MID-CAP CAPITAL TOTAL GROWTH GROWTH RESEARCH RETURN GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $41,872 $22,161 $7,421 $12,635 $12,825 Capital gains distributions ................ 2,355 669 2,686 1,756 1,124 ------------------------------------------------------------------ TOTAL INVESTMENT INCOME ..................... 44,227 22,830 10,107 14,391 13,949 Expenses: Mortality and expense risk and other charges 3,582 4,167 6,574 5,403 7,294 Annual administrative charges .............. 59 91 117 106 102 Minimum death benefit guarantee charges .... -- -- -- -- 1 Contingent deferred sales charges .......... 244 294 380 297 405 Other contract charges ..................... 2 1 3 1 3 Amortization of deferred charges related to: Deferred sales load ...................... 68 68 110 83 95 Premium taxes ............................ 1 -- 1 1 1 ------------------------------------------------------------------ TOTAL EXPENSES .............................. 3,956 4,621 7,185 5,891 7,901 ------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) ................ 40,271 18,209 2,922 8,500 6,048 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 27,166 3,969 2,750 531 46,796 Net unrealized appreciation (depreciation) of investments ........................... 122,970 50,167 99,090 (4,991) 324,922 ------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $190,407 $72,345 $104,762 $4,040 $377,766 ================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 6
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) PIMCO PIMCO GLOBAL HIGH STOCKSPLUS FIXED DEVELOPING GROWTH YIELD GROWTH AND INCOME WORLD OPPORTUNITIES BOND INCOME DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $345 $1,400 $162 $8,321 $12,203 Capital gains distributions ................ -- -- 130 -- 6,865 ------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 345 1,400 292 8,321 19,068 Expenses: Mortality and expense risk and other charges 237 260 95 1,537 2,030 Annual administrative charges .............. 3 4 1 19 20 Minimum death benefit guarantee charges .... -- -- -- -- -- Contingent deferred sales charges .......... 22 11 2 68 95 Other contract charges ..................... -- -- -- -- -- Amortization of deferred charges related to: Deferred sales load ...................... 2 -- 1 13 16 Premium taxes ............................ -- -- -- -- -- ------------------------------------------------------------------- TOTAL EXPENSES .............................. 264 275 99 1,637 2,161 ------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 81 1,125 193 6,684 16,907 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... (939) 2,134 732 (974) 4,397 Net unrealized appreciation (depreciation) of investments ........................... (662) 7,506 111 (4,721) 1,944 ------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $(1,520) $10,765 $1,036 $989 $23,248 =================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 7
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) SMITH SMITH SMITH SMITH BARNEY BARNEY BARNEY BARNEY HIGH LARGE CAP INTERNATIONAL MONEY APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $7 $53 $10 $1 $11 Capital gains distributions ................ 17 -- 21 -- -- -------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 24 53 31 1 11 Expenses: Mortality and expense risk and other charges 14 9 10 5 3 Annual administrative charges .............. 1 1 1 -- -- Minimum death benefit guarantee charges .... -- -- -- -- -- Contingent deferred sales charges .......... 2 -- 1 -- -- Other contract charges ..................... -- -- -- -- -- Amortization of deferred charges related to: Deferred sales load ...................... -- -- -- -- -- Premium taxes ............................ -- -- -- -- -- -------------------------------------------------------------------- TOTAL EXPENSES .............................. 17 10 12 5 3 -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 7 43 19 (4) 8 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 23 (48) 10 20 -- Net unrealized appreciation (depreciation) of investments ........................... 76 10 (47) 214 -- -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $106 $5 $(18) $230 $8 ==================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 8
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) INTERNATIONAL ASSET GROWTH & HIGH QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION(b) DIVISION(b) DIVISION(a) DIVISION(c) COMBINED ------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) Income: Dividends ...................................... $1,432 $1 -- -- -- $218,034 Capital gains distributions .................... -- 1 $7 $1 -- 122,022 ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME ......................... 1,432 2 7 1 -- 340,056 Expenses: Mortality and expense risk and other charges ... 1,371 -- -- -- -- 69,556 Annual administrative charges .................. 21 -- -- -- -- 1,539 Minimum death benefit guarantee charges ........ -- -- -- -- -- 24 Contingent deferred sales charges .............. 87 -- -- -- -- 7,566 Other contract charges ......................... -- -- -- -- -- 72 Amortization of deferred charges related to: Deferred sales load .......................... -- -- -- -- -- 5,973 Premium taxes ................................ 1 -- -- -- -- 42 ------------------------------------------------------------------------------ TOTAL EXPENSES .................................. 1,480 -- -- -- -- 84,772 ------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) .................... (48) 2 7 1 -- 255,284 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ........ 30,975 -- -- -- $(1) 235,776 Net unrealized appreciation (depreciation) of investments ............................... 24,199 1 5 2 -- 828,093 ------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $55,126 $3 $12 $3 $(1) $1,319,153 ============================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 9
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (DOLLARS IN THOUSANDS) LIMITED LIQUID MATURITY HARD ALL- REAL ASSET BOND ASSETS GROWTH ESTATE DIVISION DIVISION DIVISION DIVISION DIVISION ----------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $57,254 $52,467 $45,503 $71,738 $74,700 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 3,131 1,782 2,033 (905) 8,244 Net realized gain (loss) on investments ..... -- 872 (6,941) 330 3,708 Net unrealized appreciation (depreciation) of investments ............................ -- 739 (8,620) 6,240 (24,689) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 3,131 3,393 (13,528) 5,665 (12,737) Changes from principal transactions: Purchase payments ........................... 227,924 42,180 7,508 15,762 24,639 Contract distributions and terminations ..... (38,803) (9,265) (4,524) (9,206) (6,988) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (73,759) 14,051 (5,266) (2,159) (10,631) Addition to assets retained in the Account by Golden American Life Insurance Company .... 12 6 10 7 12 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 115,374 46,972 (2,272) 4,404 7,032 ---------------------------------------------------------------------- Total increase (decrease) ..................... 118,505 50,365 (15,800) 10,069 (5,705) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 175,759 102,832 29,703 81,807 68,995 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 6,762 3,033 (460) 26,166 2,686 Net realized gain (loss) on investments ..... -- (153) (9,098) 12,611 452 Net unrealized appreciation (depreciation) of investments ............................ -- (3,486) 15,365 41,917 (6,895) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 6,762 (606) 5,807 80,694 (3,757) Changes from principal transactions: Purchase payments ........................... 466,501 67,604 7,898 9,526 9,108 Contract distributions and terminations ..... (123,045) (15,384) (5,361) (15,134) (9,074) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (3,655) (4,046) 881 (11,033) (9,597) Addition to assets retained in the Account by Golden American Life Insurance Company .... 4 1 1 3 2 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 339,805 48,175 3,419 (16,638) (9,561) ---------------------------------------------------------------------- Total increase (decrease) ..................... 346,567 47,569 9,226 64,056 (13,318) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $522,326 $150,401 $38,929 $145,863 $55,677 ====================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 10
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) FULLY EQUITY CAPITAL RISING EMERGING MANAGED INCOME APPRECIATION DIVIDENDS MARKETS DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $158,650 $261,869 $187,817 $215,943 $34,501 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 15,626 23,815 18,956 12,920 (524) Net realized gain (loss) on investments ..... 1,704 2,288 6,551 3,842 (3,524) Net unrealized appreciation (depreciation) of investments ............................ (10,501) (10,125) (3,987) 17,344 (4,266) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 6,829 15,978 21,520 34,106 (8,314) Changes from principal transactions: Purchase payments ........................... 74,467 34,793 63,892 216,682 2,520 Contract distributions and terminations ..... (19,367) (39,339) (26,711) (26,449) (2,973) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 5,756 581 10,035 60,274 (3,483) Addition to assets retained in the Account by Golden American Life Insurance Company..... 31 28 25 60 3 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 60,887 (3,937) 47,241 250,567 (3,933) ---------------------------------------------------------------------- Total increase (decrease) ..................... 67,716 12,041 68,761 284,673 (12,247) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 226,366 273,910 256,578 500,616 22,254 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 15,541 23,408 37,666 9,576 (115) Net realized gain (loss) on investments ..... 4,586 604 12,525 12,658 (839) Net unrealized appreciation (depreciation) of investments ............................ (8,712) (30,854) 16,816 60,461 17,638 ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 11,415 (6,842) 67,007 82,695 16,684 Changes from principal transactions: Purchase payments ........................... 62,680 62,880 107,357 245,047 1,445 Contract distributions and terminations ..... (30,839) (54,241) (44,732) (59,723) (3,546) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (2,413) (4,436) 15,746 44,445 (1,366) Addition to assets retained in the Account by Golden American Life Insurance Company .... 9 13 11 14 1 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 29,437 4,216 78,382 229,783 (3,466) ---------------------------------------------------------------------- Total increase (decrease) ..................... 40,852 (2,626) 145,389 312,478 13,218 ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $267,218 $271,284 $401,967 $813,094 $35,472 ====================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 11
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MARKET VALUE STRATEGIC SMALL MANAGED MANAGER EQUITY EQUITY CAP GLOBAL DIVISION DIVISION DIVISION DIVISION DIVISION ----------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $6,716 $77,025 $50,437 $52,725 $104,681 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 299 1,994 3,586 (1,343) 3,296 Net realized gain (loss) on investments ..... 135 1,237 1,365 2,148 7,634 Net unrealized appreciation (depreciation) of investments ............................ 1,090 (4,208) (6,078) 15,952 16,611 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 1,524 (977) (1,127) 16,757 27,541 Changes from principal transactions: Purchase payments ........................... (36) 51,484 25,972 44,851 11,958 Contract distributions and terminations ..... (188) (7,869) (5,201) (6,104) (13,329) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (309) 6,521 1,265 16,010 (176) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- 10 2 6 9 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (533) 50,146 22,038 54,763 (1,538) ---------------------------------------------------------------------------- Total increase (decrease) ..................... 991 49,169 20,911 71,520 26,003 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 7,707 126,194 71,348 124,245 130,684 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 1,043 1,468 (1,052) 6,069 22,518 Net realized gain (loss) on investments ..... 861 5,066 5,704 30,614 42,644 Net unrealized appreciation (depreciation) of investments ............................ (880) (9,606) 54,916 54,213 6,404 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 1,024 (3,072) 59,568 90,896 71,566 Changes from principal transactions: Purchase payments ........................... 77 33,542 56,281 94,650 8,846 Contract distributions and terminations ..... (1,399) (13,124) (11,518) (11,971) (21,244) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (325) (6,161) 21,844 26,607 (8,510) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- 1 3 2 3 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (1,647) 14,258 66,610 109,288 (20,905) ---------------------------------------------------------------------------- Total increase (decrease) ..................... (623) 11,186 126,178 200,184 50,661 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $7,084 $137,380 $197,526 $324,429 $181,345 ============================================================================ (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 12
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MID-CAP CAPITAL TOTAL GROWTH GROWTH RESEARCH RETURN GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION ---------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $20,361 $44,922 $34,402 $26,231 $23,178 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 3,991 2,904 10,068 9,099 4,697 Net realized gain (loss) on investments ..... 899 911 972 185 (807) Net unrealized appreciation (depreciation) of investments ............................ 6,574 7,679 16,878 1,028 15,417 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 11,464 11,494 27,918 10,312 19,307 Changes from principal transactions: Purchase payments ........................... 66,121 105,760 167,295 156,492 77,977 Contract distributions and terminations ..... (3,065) (7,503) (6,740) (7,889) (3,834) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 21,962 24,270 60,643 42,666 26,430 Addition to assets retained in the Account by Golden American Life Insurance Company .... 1 7 11 23 10 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 85,019 122,534 221,209 191,292 100,583 ---------------------------------------------------------------------------- Total increase (decrease) ..................... 96,483 134,028 249,127 201,604 119,890 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 116,844 178,950 283,529 227,835 143,068 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 40,271 18,209 2,922 8,500 6,048 Net realized gain (loss) on investments ..... 27,166 3,969 2,750 531 46,796 Net unrealized appreciation (depreciation) of investments ............................ 122,970 50,167 99,090 (4,991) 324,922 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 190,407 72,345 104,762 4,040 377,766 Changes from principal transactions: Purchase payments ........................... 167,461 158,765 232,103 191,000 444,759 Contract distributions and terminations ..... (15,116) (16,970) (24,594) (22,055) (28,748) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 79,613 37,151 40,954 54,551 268,657 Addition to assets retained in the Account by Golden American Life Insurance Company .... 6 5 6 9 8 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 231,964 178,951 248,469 223,505 684,676 ---------------------------------------------------------------------------- Total increase (decrease) ..................... 422,371 251,296 353,231 227,545 1,062,442 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $539,215 $430,246 $636,760 $455,380 $1,205,510 ============================================================================ (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 13
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) PIMCO PIMCO GLOBAL HIGH STOCKSPLUS FIXED DEVELOPING GROWTH YIELD GROWTH AND INCOME WORLD OPPORTUNITIES BOND INCOME DIVISION DIVISION(a) DIVISION(a) DIVISION(c) DIVISION(b) ---------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $206 -- -- -- -- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 174 $(22) $(8) $817 $814 Net realized gain (loss) on investments ..... 216 (266) (235) (318) (97) Net unrealized appreciation (depreciation) of investments ............................ -- 149 349 (18) 4,255 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 390 (139) 106 481 4,972 Changes from principal transactions: Purchase payments ........................... 5,820 2,757 4,097 32,399 29,368 Contract distributions and terminations ..... (219) (34) (45) (912) (361) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 3,331 1,928 (27) 14,150 17,822 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- 1 --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 8,932 4,651 4,025 45,637 46,830 --------------------------------------------------------------------------- Total increase (decrease) ..................... 9,322 4,512 4,131 46,118 51,802 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 9,528 4,512 4,131 46,118 51,802 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 81 1,125 193 6,684 16,907 Net realized gain (loss) on investments ..... (939) 2,134 732 (974) 4,397 Net unrealized appreciation (depreciation) of investments ............................ (662) 7,506 111 (4,721) 1,944 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. (1,520) 10,765 1,036 989 23,248 Changes from principal transactions: Purchase payments ........................... 10,947 14,639 1,833 73,017 122,580 Contract distributions and terminations ..... (1,341) (740) (256) (6,247) (5,161) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 3,644 22,497 (81) 32,181 28,758 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- 1 3 --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 13,250 36,396 1,496 98,952 146,180 --------------------------------------------------------------------------- Total increase (decrease) ..................... 11,730 47,161 2,532 99,941 169,428 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $21,258 $51,673 $6,663 $146,059 $221,230 =========================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 14
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) SMITH SMITH SMITH SMITH BARNEY BARNEY BARNEY BARNEY HIGH LARGE CAP INTERNATIONAL MONEY APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $263 $209 $215 $96 $181 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 30 36 14 (3) 14 Net realized gain (loss) on investments ..... 3 8 2 (1) -- Net unrealized appreciation (depreciation) of investments ............................ 52 (66) 3 (2) -- --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 85 (22) 19 (6) 14 Changes from principal transactions: Purchase payments ........................... 595 530 429 178 565 Contract distributions and terminations ..... (21) (15) (5) (4) (25) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 52 104 43 62 (417) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- -- --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 626 619 467 236 123 --------------------------------------------------------------------------- Total increase (decrease) ..................... 711 597 486 230 137 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 974 806 701 326 318 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 7 43 19 (4) 8 Net realized gain (loss) on investments ..... 23 (48) 10 20 -- Net unrealized appreciation (depreciation) of investments ............................ 76 10 (47) 214 -- --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 106 5 (18) 230 8 Changes from principal transactions: Purchase payments ........................... 40 3 42 18 210 Contract distributions and terminations ..... (149) (77) (59) (5) (11) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 12 (190) (23) (32) 54 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- -- --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (97) (264) (40) (19) 253 --------------------------------------------------------------------------- Total increase (decrease) ..................... 9 (259) (58) 211 261 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $983 $547 $643 $537 $579 =========================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 15
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) HIGH INTERNATIONAL ASSET GROWTH & QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION(e) DIVISION(e) DIVISION(d) DIVISION(f) COMBINED ------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ..................... $1,981 -- -- -- -- $1,604,271 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) .................. (179) -- -- -- -- 125,356 Net realized gain (loss) on investments ....... (556) -- -- -- -- 22,265 Net unrealized appreciation (depreciation) of investments .............................. 1,647 -- -- -- -- 39,447 ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................... 912 -- -- -- -- 187,068 Changes from principal transactions: Purchase payments ............................. 41,775 -- -- -- -- 1,536,754 Contract distributions and terminations ....... (940) -- -- -- -- (247,928) Transfer payments from (to) Fixed Accounts and other Divisions ......................... 6,037 -- -- -- -- 237,766 Addition to assets retained in the Account by Golden American Life Insurance Company ....... -- -- -- -- -- 274 ------------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ................. 46,872 -- -- -- -- 1,526,866 ------------------------------------------------------------------------------- Total increase (decrease) ....................... 47,784 -- -- -- -- 1,713,934 ------------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ................. 49,765 -- -- -- -- 3,318,205 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) .................. (48) $2 $7 $1 -- 255,284 Net realized gain (loss) on investments ....... 30,975 -- -- -- $(1) 235,776 Net unrealized appreciation (depreciation) of investments .............................. 24,199 1 5 2 -- 828,093 ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................... 55,126 3 12 3 (1) 1,319,153 Changes from principal transactions: Purchase payments ............................. 55,479 127 281 98 127 2,706,971 Contract distributions and terminations ....... (3,729) -- -- -- (4) (545,597) Transfer payments from (to) Fixed Accounts and other Divisions ......................... 18,928 3 4 6 (95) 644,573 Addition to assets retained in the Account by Golden American Life Insurance Company ...... -- -- -- -- -- 106 ------------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ................. 70,678 130 285 104 28 2,806,053 ------------------------------------------------------------------------------- Total increase (decrease) ....................... 125,804 133 297 107 27 4,125,206 ------------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ................. $175,569 $133 $297 $107 $27 $7,443,411 =============================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 16
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1 - ORGANIZATION Golden American Life Insurance Company Separate Account B (the "Account") was established by Golden American Life Insurance Company ("Golden American") to support the operations of variable annuity contracts ("Contracts"). Golden American is primarily engaged in the issuance of variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. The Account is registered as a unit investment trust with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. Golden American provides for variable accumulation and benefits under the Contracts by crediting annuity considerations to one or more divisions within the Account or the Golden American Guaranteed Interest Division, the Golden American Fixed Interest Division, and the Fixed Separate Account, which are not part of the Account, as directed by the Contractowners. The portion of the Account's assets applicable to Contracts will not be chargeable with liabilities arising out of any other business Golden American may conduct, but obligations of the Account, including the promise to make benefit payments, are obligations of Golden American. The assets and liabilities of the Account are clearly identified and distinguished from the other assets and liabilities of Golden American. During 1999, the Account had GoldenSelect Contracts and Granite PrimElite Contracts. GoldenSelect Contracts sold by Golden American during 1999 include DVA 100, DVA Series 100, DVA Plus, Access, Premium Plus, ESII, and Value. During 1999, the Account had GoldenSelect Contracts (DVA 80) which were no longer being sold. At December 31, 1999, the Account had, under GoldenSelect Contracts, thirty-one investment divisions: Liquid Asset, Limited Maturity Bond, Hard Assets, All-Growth, Real Estate, Fully Managed, Equity Income (formerly Multiple Allocation), Capital Appreciation, Rising Dividends, Emerging Markets, Market Manager, Value Equity, Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth, Capital Growth (formerly Growth & Income), Research, Total Return, Growth (formerly Value + Growth), Global Fixed Income, Developing World, Growth Opportunities, PIMCO High Yield Bond, PIMCO StocksPLUS Growth and Income, International Equity, Asset Allocation, Equity, Growth & Income, and High Quality Bond Divisions ("Divisions"). The Account also had, under Granite PrimElite Contracts, eight investments divisions: Mid-Cap Growth, Research, Total Return, Appreciation, Smith Barney High Income, Smith Barney Large Cap Value, Smith Barney International Equity, and Smith Barney Money Market Divisions (collectively with the divisions noted above, "Divisions"). The assets in each Division are invested in shares of a designated series ("Series," which may also be referred to as "Portfolio") of mutual funds, The GCG Trust, PIMCO Variable Insurance Trust, Greenwich Street Series Fund Inc., Travelers Series Fund Inc., Warburg Pincus Trust, or The Galaxy VIP Fund (the "Trusts"). The Account also includes The Fund For Life Division, which is not included in the accompanying financial statements, and which ceased to accept new Contracts effective December 31, 1994. Prior to August 14, 1998, the Account also had certain investment divisions available from the Equi-Select Series Trust. In an effort to consolidate operations, Golden American requested permission from the Securities and Exchange Commission ("SEC") to substitute shares of each Portfolio of the Equi-Select Series Trust with shares of a similar Series of The GCG Trust. On August 14, 1998, after approval from the SEC, shares of each Portfolio of the Equi-Select Series Trust were substituted with shares of a similar Series of The GCG Trust. The consolidation resulted in the following Series being substituted from The GCG Trust: Equi-Select Series Trust The GCG Trust Investment Division Investment Division - ------------------------------- ---------------------------------------------- International Fixed Income Global Fixed Income OTC Mid-Cap Growth Research Research Total Return Total Return Value + Growth Growth (formerly Value + Growth) Growth & Income Capital Growth (formerly Growth & Income) 17 NOTE 1 - ORGANIZATION (CONTINUED) The Market Manager Division was open for investment for only a brief period during 1994 and 1995. This Division is now closed and Contractowners are not permitted to direct their investments into this Division. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies of the Account: USE OF ESTIMATES: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVESTMENTS: Investments are made in shares of a Series or Portfolio of the Trusts and are valued at the net asset value per share of the respective Series or Portfolio of the Trusts. Investment transactions in each Series or Portfolio of the Trusts are recorded on the trade date. Distributions of net investment income and capital gains from each Series or Portfolio of the Trusts are recognized on the ex-distribution date. Realized gains and losses on redemptions of the shares of the Series or Portfolio of the Trusts are determined on the specific identification basis. FEDERAL INCOME TAXES: Operations of the Account form a part of, and are taxed with, the total operations of Golden American which is taxed as a life insurance company under the Internal Revenue Code. Earnings and realized capital gains of the Account attributable to the Contractowners are excluded in the determination of the federal income tax liability of Golden American. NOTE 3 - CHARGES AND FEES DVA Plus, Access, and the Premium Plus each have three different death benefit options referred to as Standard, Annual Ratchet, and 7% Solution; however, in the state of Washington, the 5.5% Solution is offered instead of the 7% Solution. Granite PrimElite has two death benefit options referred to as Standard and Annual Ratchet. Golden American discontinued external sales of DVA 80 in May 1991. Golden American has also discontinued external sales of DVA 100. Under the terms of the Contract, certain charges are allocated to the Contracts to cover Golden American's expenses in connection with the issuance and administration of the Contracts. Following is a summary of these charges: MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and expense risks related to the operations of the Account and, in accordance with the terms of the Contracts, deducts a daily charge from the assets of the Account. Daily charges deducted at annual rates to cover these risks follows: SERIES ANNUAL RATES --------- ------------ DVA 80.................................................. 0.80% DVA 100................................................. 0.90 DVA Series 100.......................................... 1.25 DVA Plus - Standard..................................... 1.10 DVA Plus - Annual Ratchet............................... 1.25 DVA Plus - 5.5% Solution................................ 1.25 DVA Plus - 7% Solution.................................. 1.40 Access - Standard....................................... 1.25 Access - Annual Ratchet................................. 1.40 Access - 5.5% Solution.................................. 1.40 Access - 7% Solution.................................... 1.55 Premium Plus - Standard................................. 1.25 Premium Plus - Annual Ratchet........................... 1.40 Premium Plus - 5.5% Solution............................ 1.40 Premium Plus - 7% Solution.............................. 1.55 ESII.................................................... 1.25 Granite PrimElite - Standard............................ 1.10 Granite PrimElite - Annual Ratchet...................... 1.25 Value................................................... 0.75 18 NOTE 3 - CHARGES AND FEES (CONTINUED) ASSET BASED ADMINISTRATIVE CHARGES: A daily charge at an annual rate of 0.10% is deducted from assets attributable to DVA 100 and DVA Series 100 Contracts. A daily charge at an annual rate of 0.15% is deducted from the assets attributable to the DVA Plus, Access, Premium Plus, ESII, Value, and Granite PrimElite Contracts. ADMINISTRATIVE CHARGES: An administrative charge is deducted from the accumulation value of Deferred Annuity Contracts to cover ongoing administrative expenses. The charge is $30 per Contract year for ES II and Value contracts. For all other Contracts the charge is $40. The charge is incurred at the beginning of the Contract processing period and deducted at the end of the Contract processing period. This charge had been waived for certain offerings of the Contracts. MINIMUM DEATH BENEFIT GUARANTEE CHARGES: For certain Contracts, a minimum death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death benefit per Contract year is deducted from the accumulation value of Deferred Annuity Contracts on each Contract anniversary date. CONTINGENT DEFERRED SALES CHARGES: Under DVA Plus, Premium Plus, ES II, Value, and Granite PrimElite Contracts, a contingent deferred sales charge ("Surrender Charge") is imposed as a percentage of each premium payment if the Contract is surrendered or an excess partial withdrawal is taken. The following table reflects the surrender charge that is assessed based upon the date a premium payment is received.
Complete Years Elapsed Since Premium Payment Surrender Charge - -------------------------------------------------------------------------------------------------------------------------------- DVA PLUS PREMIUM PLUS ES II VALUE GRANITE PRIMELITE -------- ------------ ----- ----- ----------------- 0............. 7% 8% 8% 6% 7% 1............. 7 8 7 6 7 2............. 6 8 6 6 6 3............. 5 8 5 5 5 4............. 4 7 4 4 4 5............. 3 6 3 3 3 6............. 1 5 2 1 1 7............. -- 3 1 -- -- 8............. -- 1 -- -- -- 9+............ -- -- -- -- --
OTHER CONTRACT CHARGES: Under DVA 80, DVA 100, and DVA Series 100 Contracts, a charge is deducted from the accumulation value for Contracts taking more than one conventional partial withdrawal during a Contract year. For DVA 80 and DVA 100 Contracts, annual distribution fees are deducted from the Contract accumulation values. DEFERRED SALES LOAD: Under Contracts offered prior to October 1995, a sales load of up to 7.5 % was assessed against each premium payment for sales-related expenses as specified in the Contracts. For DVA Series 100, the sales load is deducted in equal annual installments over the period the Contract is in force, not to exceed 10 years. For DVA 80 and DVA 100 Contracts, although the sales load is chargeable to each premium when it is received by Golden American, the amount of such charge is initially advanced by Golden American to Contractowners and included in the accumulation value and then deducted in equal installments on each Contract anniversary date over a period of six years. Upon surrender of the Contract, the unamortized deferred sales load is deducted from the accumulation value. In addition, when partial withdrawal limits are exceeded, a portion of the unamortized deferred sales load is deducted. PREMIUM TAXES: For certain Contracts, premium taxes are deducted, where applicable, from the accumulation value of each Contract. The amount and timing of the deduction depend on the annuitant's state of residence and currently ranges up to 3.5% of premiums. FEES WAIVED BY GOLDEN AMERICAN: Certain charges and fees for various types of Contracts are currently waived by Golden American. Golden American reserves the right to discontinue these waivers at its discretion or to conform with changes in the law. 19 NOTE 3 - CHARGES AND FEES (CONTINUED) A summary of the net assets retained in the Account, representing the unamortized deferred sales load and premium taxes advanced by Golden American previously noted, follows:
YEAR ENDED DECEMBER 31 -------------------------------------------- 1999 1998 -------------------- ------------------- (DOLLARS IN THOUSANDS) Balance at beginning of year............................ $9,003 $17,009 Sales load advanced..................................... 105 274 Amortization of deferred sales load and premium tax..... (6,015) (8,280) -------------------- ------------------- Balance at end of year.................................. $3,093 $9,003 ==================== ===================
NOTE 4 - PURCHASES AND SALES OF INVESTMENT SECURITIES The aggregate cost of purchases and proceeds from sales of investments follows:
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------- 1999 1998 ---------------------------- ------------------------------- PURCHASES SALES PURCHASES SALES ---------------------------- ------------------------------- (DOLLARS IN THOUSANDS) The GCG Trust: Liquid Asset Series.................................. $1,632,496 $1,285,868 $570,537 $452,115 Limited Maturity Bond Series......................... 81,290 30,122 71,742 22,970 Hard Assets Series................................... 41,433 38,490 17,730 17,975 All-Growth Series.................................... 46,095 36,607 16,647 13,146 Real Estate Series................................... 20,497 27,401 29,007 13,733 Fully Managed Series................................. 68,756 23,879 83,688 7,148 Equity Income Series................................. 70,767 43,280 52,037 32,159 Capital Appreciation Series.......................... 148,975 33,036 83,259 17,034 Rising Dividends Series.............................. 261,711 22,554 270,955 7,361 Emerging Markets Series.............................. 9,244 12,838 2,644 7,107 Market Manager Series................................ 1,084 1,813 342 292 Value Equity Series.................................. 43,808 28,137 58,297 6,136 Strategic Equity Series.............................. 90,233 24,704 31,008 5,375 Small Cap Series..................................... 225,813 110,509 63,182 9,735 Managed Global Series................................ 178,228 176,669 41,119 39,355 Mid-Cap Growth Series................................ 391,543 119,357 97,494 8,444 Capital Growth Series................................ 220,384 23,307 132,350 6,850 Research Series...................................... 270,703 19,426 237,915 6,540 Total Return Series.................................. 236,379 4,467 202,032 1,560 Growth Series........................................ 860,731 170,066 119,241 13,912 Global Fixed Income Series........................... 26,185 12,857 14,270 5,161 Developing World Series.............................. 58,318 20,799 7,293 2,662 Growth Opportunities Series.......................... 7,288 5,600 7,214 3,196 PIMCO Variable Insurance Trust: PIMCO High Yield Bond Portfolio...................... 124,005 18,385 52,726 6,256 PIMCO StocksPLUS Growth and Income Portfolio......... 188,819 25,749 49,898 2,237 Greenwich Street Series Fund Inc.: Appreciation Portfolio............................... 111 202 739 82 Travelers Series Fund Inc.: Smith Barney High Income Portfolio................... 98 320 878 222 Smith Barney Large Cap Value Portfolio............... 167 189 513 32 Smith Barney International Equity Portfolio.......... 44 67 245 12 Smith Barney Money Market Portfolio.................. 483 222 630 494 Warburg Pincus Trust: International Equity Portfolio....................... 696,223 625,613 370,938 324,226 The Galaxy VIP Fund: Asset Allocation Portfolio........................... 141 9 -- -- Equity Portfolio..................................... 292 -- -- -- Growth & Income Portfolio............................ 105 -- -- -- High Quality Bond Portfolio.......................... 127 99 -- -- ---------------------------------------------------------------- COMBINED.................................................. $6,002,576 $2,942,641 $2,686,570 $1,033,527 ================================================================ 20
NOTE 5 - SUMMARY OF CHANGES FROM UNIT TRANSACTIONS Contractowners' transactions shown in the following table reflect gross inflows ("Purchases") and outflows ("Sales") in units for each Division. The activity includes Contractowners electing to update a DVA 100 or DVA Series 100 Contract to a DVA PLUS Contract. Updates to DVA PLUS Contracts resulted in both a sale (surrender of the old Contract) and a purchase (acquisition of the new Contract). All of the purchases transactions for the Market Manager Division resulted from such updates.
YEAR ENDED DECEMBER 31 --------------------------------------------------------------------------- 1999 1998 ---------------------------------- ---------------------------------- PURCHASES SALES PURCHASES SALES ---------------------------------- ---------------------------------- Liquid Asset Division............................ 124,478,649 101,109,842 46,713,872 38,496,936 Limited Maturity Bond Division................... 6,043,778 3,110,174 5,263,273 2,390,944 Hard Assets Division............................. 2,900,594 2,714,660 1,390,271 1,503,254 All-Growth Division.............................. 1,593,344 2,299,652 1,876,296 1,557,867 Real Estate Division............................. 1,107,500 1,561,932 1,269,259 1,003,769 Fully Managed Division........................... 3,844,658 2,421,187 4,432,536 1,393,191 Equity Income Division........................... 4,105,827 3,799,977 2,439,316 2,628,892 Capital Appreciation Division.................... 6,021,915 3,037,582 3,704,327 1,712,022 Rising Dividends Division........................ 12,519,925 3,029,038 13,285,423 1,798,264 Emerging Markets Division........................ 1,467,567 1,902,732 737,697 1,279,884 Market Manager Division.......................... 435 75,755 16,579 26,443 Value Equity Division............................ 2,852,986 2,154,579 3,639,566 936,377 Strategic Equity Division........................ 6,344,054 2,305,045 2,329,825 828,876 Small Cap Division............................... 14,347,399 8,174,181 5,737,867 1,727,666 Managed Global Division.......................... 9,633,015 10,824,049 3,637,963 3,808,355 Mid-Cap Growth Division.......................... 14,316,514 5,846,579 5,201,859 1,073,702 Capital Growth Division.......................... 12,561,878 2,575,149 8,700,243 1,061,928 Research Division................................ 12,204,579 1,771,319 11,776,149 1,145,700 Total Return Division............................ 13,447,324 976,323 11,841,572 542,519 Growth Division.................................. 46,544,853 13,013,005 8,862,606 1,834,396 Global Fixed Income Division..................... 2,406,215 1,322,576 1,199,981 486,199 Developing World Division........................ 6,615,294 2,774,781 1,034,819 414,729 Growth Opportunities Division.................... 726,528 570,950 801,993 373,469 PIMCO High Yield Bond Division................... 12,707,468 2,989,676 5,575,890 995,489 PIMCO StocksPLUS Growth and Income Division............................... 15,418,741 3,191,901 5,235,676 567,893 Appreciation Division............................ 5,856 11,558 45,518 5,062 Smith Barney High Income Division................ 3,730 23,271 59,777 15,706 Smith Barney Large Cap Value Division............ 6,907 9,522 25,818 1,496 Smith Barney International Equity Division....... 2,838 2,934 13,627 659 Smith Barney Money Market Division............... 40,398 19,082 55,074 43,687 International Equity Division.................... 63,405,114 56,947,666 34,755,360 31,779,305 Asset Allocation Division........................ 13,289 844 -- -- Equity Division.................................. 26,039 835 -- -- Growth & Income Division......................... 11,266 1,139 -- -- High Quality Bond Division....................... 12,671 9,915 -- -- ---------------------------------- ---------------------------------- COMBINED......................................... 397,739,148 240,579,410 191,660,032 101,434,679 ================================== ==================================
21 NOTE 6 - NET ASSETS Investments at net asset value less the payable to Golden American for charges and fees at December 31, 1999 consisted of the following:
LIMITED LIQUID MATURITY HARD ALL- REAL FULLY ASSET BOND ASSETS GROWTH ESTATE MANAGED DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $506,425 $133,838 $30,475 $47,531 $41,701 $197,026 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 15,901 20,765 7,443 47,182 29,154 68,682 Net unrealized appreciation (depreciation) of investments... -- (4,202) 1,011 51,150 (15,178) 1,510 -------------------------------------------------------------------------------------------- $522,326 $150,401 $38,929 $145,863 $55,677 $267,218 ============================================================================================
EQUITY CAPITAL RISING EMERGING MARKET VALUE INCOME APPRECIATION DIVIDENDS MARKETS MANAGER EQUITY DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $138,807 $225,256 $624,736 $43,209 $595 $123,500 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 158,214 124,915 49,066 (15,866) 3,964 20,094 Net unrealized appreciation (depreciation) of investments... (25,737) 51,796 139,292 8,129 2,525 (6,214) -------------------------------------------------------------------------------------------- $271,284 $401,967 $813,094 $35,472 $7,084 $137,380 ============================================================================================
STRATEGIC SMALL MANAGED MID-CAP CAPITAL EQUITY CAP GLOBAL GROWTH GROWTH RESEARCH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $128,188 $212,831 $69,455 $335,683 $341,923 $502,872 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 12,978 36,216 85,339 73,201 29,228 17,532 Net unrealized appreciation (depreciation) of investments... 56,360 75,382 26,551 130,331 59,095 116,356 -------------------------------------------------------------------------------------------- $197,526 $324,429 $181,345 $539,215 $430,246 $636,760 ============================================================================================
PIMCO GLOBAL HIGH TOTAL FIXED DEVELOPING GROWTH YIELD RETURN GROWTH INCOME WORLD OPPORTUNITIES BOND DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $439,911 $809,489 $22,390 $41,047 $5,521 $144,589 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 19,020 57,112 (460) 2,971 682 6,209 Net unrealized appreciation (depreciation) of investments... (3,551) 338,909 (672) 7,655 460 (4,739) -------------------------------------------------------------------------------------------- $455,380 $1,205,510 $21,258 $51,673 $6,663 $146,059 ============================================================================================ 22
NOTE 6 - NET ASSETS (CONTINUED)
PIMCO SMITH SMITH SMITH SMITH STOCKSPLUS BARNEY BARNEY BARNEY BARNEY GROWTH AND HIGH LARGE CAP INTERNATIONAL MONEY INCOME APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions................... $193,010 $785 $561 $636 $318 $557 Accumulated net investment income (loss) and net realized gain (loss) on investments....... 22,021 79 39 44 12 22 Net unrealized appreciation (depreciation) of investments.... 6,199 119 (53) (37) 207 -- ------------------------------------------------------------------------------------------- $221,230 $983 $547 $643 $537 $579 ===========================================================================================
INTERNATIONAL ASSET GROWTH & HIGH QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION DIVISION DIVISION DIVISION COMBINED ------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions................... $119,555 $130 $285 $104 $28 $5,482,967 Accumulated net investment income (loss) and net realized gain (loss) on investments....... 30,261 2 7 1 (1) 922,029 Net unrealized appreciation (depreciation) of investments.... 25,753 1 5 2 -- 1,038,415 ------------------------------------------------------------------------------------------- $175,569 $133 $297 $107 $27 $7,443,411 ===========================================================================================
NOTE 7 - UNIT VALUES Accumulation unit value information for units outstanding, by Contract type, as of December 31, 1999 follows:
UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) LIQUID ASSET Currently payable annuity products: DVA 80................................................................. 2,484 $15.78 $39 DVA 100................................................................ 3,692 15.44 57 Contracts in accumulation period: DVA 80................................................................. 428,664 15.78 6,766 DVA 100................................................................ 2,108,284 15.44 32,553 DVA Series 100......................................................... 65,836 14.85 978 DVA Plus - Standard.................................................... 683,989 15.04 10,287 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 13,701,797 14.79 202,706 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 7,668,618 14.55 111,594 Access - 7% Solution, Premium Plus - 7% Solution....................... 11,002,421 14.29 157,230 Value.................................................................. 7,391 15.61 116 ------------------- 522,326 23
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) LIMITED MATURITY BOND Currently payable annuity products: DVA 80................................................................. 5,775 $17.82 $103 DVA 100................................................................ 13,160 17.44 229 Contracts in accumulation period: DVA 80................................................................. 55,752 17.82 994 DVA 100................................................................ 1,611,603 17.44 28,100 DVA Series 100......................................................... 15,728 16.77 264 DVA Plus - Standard.................................................... 279,468 17.00 4,751 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,938,050 16.72 49,127 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,835,680 16.45 30,192 Access - 7% Solution, Premium Plus - 7% Solution....................... 2,267,799 16.15 36,630 Value.................................................................. 655 17.65 11 ------------------- 150,401 HARD ASSETS Currently payable annuity products: DVA 80................................................................. 64 18.54 1 DVA 100................................................................ 4,504 18.13 82 Contracts in accumulation period: DVA 80................................................................. 47,623 18.54 883 DVA 100................................................................ 442,621 18.13 8,025 DVA Series 100......................................................... 21,674 17.44 378 DVA Plus - Standard.................................................... 112,564 17.66 1,988 DVA Plus - Annual Ratchet & 5.5% Solution, Access- Standard, Premium Plus - Standard, ES II............................. 355,052 17.37 6,168 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 696,931 17.09 11,909 Access - 7% Solution, Premium Plus - 7% Solution....................... 565,255 16.78 9,486 Value.................................................................. 497 18.33 9 ------------------- 38,929 24
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) ALL-GROWTH Currently payable annuity products: DVA 100................................................................ 10,034 $33.33 $334 Contracts in accumulation period: DVA 80................................................................. 30,780 34.07 1,049 DVA 100................................................................ 1,659,536 33.33 55,306 DVA Series 100......................................................... 17,272 32.06 554 DVA Plus - Standard.................................................... 177,295 32.46 5,755 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 680,978 31.93 21,744 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,363,281 31.41 42,819 Access - 7% Solution, Premium Plus - 7% Solution....................... 593,365 30.85 18,302 ------------------- 145,863 REAL ESTATE Currently payable annuity products: DVA 80................................................................. 337 22.00 7 DVA 100................................................................ 4,675 21.52 101 Contracts in accumulation period: DVA 80................................................................. 17,562 22.00 387 DVA 100................................................................ 698,949 21.52 15,043 DVA Series 100......................................................... 7,595 20.70 157 DVA Plus - Standard.................................................... 136,122 20.96 2,854 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 534,577 20.62 11,024 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 742,363 20.28 15,059 Access - 7% Solution, Premium Plus - 7% Solution....................... 554,454 19.92 11,045 ------------------- 55,677 FULLY MANAGED Currently payable annuity products: DVA 80................................................................. 1,025 23.10 24 DVA 100................................................................ 42,440 22.59 959 Contracts in accumulation period: DVA 80................................................................. 55,124 23.10 1,273 DVA 100................................................................ 2,723,900 22.59 61,541 DVA Series 100......................................................... 28,071 21.73 610 DVA Plus - Standard.................................................... 549,088 22.01 12,084 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,546,588 21.65 55,126 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,304,306 21.29 70,358 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,118,319 20.91 65,207 Value.................................................................. 1,564 22.85 36 ------------------- 267,218 25
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) EQUITY INCOME Currently payable annuity products: DVA 80................................................................. 10,512 $22.91 $241 DVA 100................................................................ 54,038 22.41 1,211 Contracts in accumulation period: DVA 80................................................................. 217,136 22.91 4,975 DVA 100................................................................ 4,960,030 22.41 111,166 DVA Series 100......................................................... 52,427 21.56 1,130 DVA Plus - Standard.................................................... 381,468 21.83 8,327 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,014,453 21.47 43,259 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,523,887 21.12 53,311 Access - 7% Solution, Premium Plus - 7% Solution....................... 2,294,950 20.74 47,606 Value.................................................................. 2,555 22.66 58 ------------------- 271,284 CAPITAL APPRECIATION Currently payable annuity products: DVA 100................................................................ 34,146 31.01 1,059 Contracts in accumulation period: DVA 80................................................................. 54,304 31.50 1,710 DVA 100................................................................ 3,000,104 31.01 93,047 DVA Series 100......................................................... 29,781 30.18 899 DVA Plus - Standard.................................................... 431,150 30.46 13,132 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,412,721 30.11 72,649 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,839,680 29.77 114,290 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,574,164 29.38 104,999 Value.................................................................. 5,832 31.26 182 ------------------- 401,967 RISING DIVIDENDS Currently payable annuity products: DVA 80................................................................. 2,751 26.79 74 DVA 100................................................................ 11,516 26.46 305 Contracts in accumulation period: DVA 80................................................................. 45,744 26.79 1,225 DVA 100................................................................ 3,156,396 26.46 83,505 DVA Series 100......................................................... 62,149 25.88 1,608 DVA Plus - Standard.................................................... 1,251,144 26.07 32,623 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 7,496,161 25.83 193,646 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 10,160,317 25.59 260,024 Access - 7% Solution, Premium Plus - 7% Solution....................... 9,473,482 25.31 239,807 Value.................................................................. 10,416 26.62 277 ------------------- 813,094 26
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) EMERGING MARKETS Currently payable annuity products: DVA 100................................................................ 20,476 $12.18 $249 Contracts in accumulation period: DVA 80................................................................. 66,912 12.34 826 DVA 100................................................................ 1,114,771 12.18 13,583 DVA Series 100......................................................... 19,565 11.92 233 DVA Plus - Standard.................................................... 359,966 12.01 4,323 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 272,783 11.90 3,246 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,053,099 11.79 12,412 Access - 7% Solution, Premium Plus - 7% Solution....................... 51,466 11.66 600 ------------------- 35,472 MARKET MANAGER Contracts in accumulation period: DVA 100................................................................ 265,157 27.61 7,320 ------------------- 7,320 VALUE EQUITY Currently payable annuity products: DVA 80................................................................. 353 18.67 7 DVA 100................................................................ 8,027 18.49 148 Contracts in accumulation period: DVA 80................................................................. 16,820 18.67 314 DVA 100................................................................ 642,103 18.49 11,870 DVA Series 100......................................................... 13,030 18.16 237 DVA Plus - Standard.................................................... 433,555 18.28 7,924 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 1,825,971 18.14 33,129 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,709,066 18.01 48,787 Access - 7% Solution, Premium Plus - 7% Solution....................... 1,956,244 17.84 34,902 Value.................................................................. 3,333 18.58 62 ------------------- 137,380 STRATEGIC EQUITY Currently payable annuity products: DVA 100................................................................ 31,558 22.27 703 Contracts in accumulation period: DVA 80................................................................. 18,395 22.46 413 DVA 100................................................................ 387,984 22.27 8,642 DVA Series 100......................................................... 6,159 21.94 135 DVA Plus - Standard.................................................... 455,696 22.06 10,053 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,450,796 21.92 53,725 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,655,079 21.78 57,835 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,050,564 21.61 65,934 Value.................................................................. 3,862 22.37 86 ------------------- 197,526 27
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) SMALL CAP Currently payable annuity products: DVA 100................................................................ 3,735 $23.19 $87 Contracts in accumulation period: DVA 80................................................................. 21,044 23.38 492 DVA 100................................................................ 502,932 23.19 11,664 DVA Series 100......................................................... 14,018 22.87 320 DVA Plus - Standard.................................................... 453,438 22.96 10,411 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,053,919 22.82 115,340 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 4,514,345 22.68 102,399 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,698,983 22.55 83,400 Value.................................................................. 13,606 23.28 316 ------------------- 324,429 MANAGED GLOBAL Currently payable annuity products: DVA 100................................................................ 11,683 24.68 288 Contracts in accumulation period: DVA 80................................................................. 33,553 25.04 840 DVA 100................................................................ 2,703,999 24.68 66,747 DVA Series 100......................................................... 38,870 24.08 936 DVA Plus - Standard.................................................... 605,044 24.23 14,658 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 676,401 23.97 16,211 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,306,922 23.71 78,402 Access - 7% Solution, Premium Plus - 7% Solution....................... 139,357 23.42 3,263 ------------------- 181,345 MID-CAP GROWTH Contracts in accumulation period: DVA 80................................................................. 5,425 40.92 222 DVA 100................................................................ 328,684 40.50 13,310 DVA Series 100......................................................... 9,549 39.75 380 DVA Plus - Standard.................................................... 287,598 39.97 11,494 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,873,150 39.59 192,951 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,717,260 39.34 146,221 Granite PrimElite - Standard........................................... 3,692 39.97 148 Granite PrimElite - Annual Ratchet..................................... 27,138 39.59 1,075 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,433,019 39.02 172,992 Value.................................................................. 10,373 40.71 422 ------------------- 539,215 28
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) CAPITAL GROWTH Contracts in accumulation period: DVA 80................................................................. 3,348 $21.54 $72 DVA 100................................................................ 390,759 21.38 8,354 DVA Series 100......................................................... 11,902 21.10 251 DVA Plus - Standard.................................................... 598,663 21.18 12,678 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,870,532 21.06 123,629 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 6,210,698 20.94 130,038 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,450,249 20.82 155,103 Value.................................................................. 5,650 21.46 121 ------------------- 430,246 RESEARCH Contracts in accumulation period: DVA 80................................................................. 6,633 28.93 192 DVA 100................................................................ 431,562 28.62 12,353 DVA Series 100......................................................... 18,345 28.10 515 DVA Plus - Standard.................................................... 565,925 28.25 15,988 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 6,431,948 28.04 180,345 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 7,240,463 27.80 201,318 Granite PrimElite - Standard........................................... 2,544 28.25 72 Granite PrimElite - Annual Ratchet..................................... 37,387 28.04 1,048 Access - 7% Solution, Premium Plus - 7% Solution....................... 8,143,207 27.58 224,622 Value.................................................................. 10,661 28.78 307 ------------------- 636,760 TOTAL RETURN Contracts in accumulation period: DVA 80................................................................. 9,043 18.64 168 DVA 100................................................................ 399,197 18.44 7,361 DVA Series 100......................................................... 5,119 18.10 93 DVA Plus - Standard.................................................... 831,642 18.20 15,135 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,274,089 18.06 149,429 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 6,739,205 17.91 120,710 Granite PrimElite - Standard........................................... 4,770 18.20 87 Granite PrimElite - Annual Ratchet..................................... 33,383 18.06 603 Access - 7% Solution, Premium Plus - 7% Solution....................... 9,101,947 17.77 161,738 Value.................................................................. 3,045 18.54 56 ------------------- 455,380 29
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) GROWTH Contracts in accumulation period: DVA 80................................................................. 47,480 $29.27 $1,390 DVA 100................................................................ 818,663 29.05 23,785 DVA Series 100......................................................... 28,942 28.67 830 DVA Plus - Standard.................................................... 758,379 28.78 21,827 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 14,289,972 28.62 408,990 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 11,168,535 28.46 317,801 Access - 7% Solution, Premium Plus - 7% Solution....................... 15,200,894 28.29 430,081 Value.................................................................. 27,642 29.16 806 ------------------- 1,205,510 GLOBAL FIXED INCOME Contracts in accumulation period: DVA 100................................................................ 24,119 12.04 291 DVA Plus - Standard.................................................... 35,081 11.88 417 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 753,003 11.79 8,880 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 382,609 11.70 4,475 Access - 7% Solution, Premium Plus - 7% Solution....................... 619,047 11.60 7,183 Value.................................................................. 982 12.11 12 ------------------- 21,258 DEVELOPING WORLD Contracts in accumulation period: DVA 80................................................................. 390 11.74 5 DVA 100................................................................ 21,139 11.70 247 DVA Series 100......................................................... 27,991 11.64 326 DVA Plus - Standard.................................................... 683 11.62 8 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,133,907 11.61 24,775 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 926,115 11.58 10,722 Access - 7% Solution, Premium Plus - 7% Solution....................... 1,344,878 11.54 15,526 Value.................................................................. 5,500 11.72 64 ------------------- 51,673 GROWTH OPPORTUNITIES Contracts in accumulation period: DVA 100................................................................ 12,750 11.52 147 DVA Plus - Standard.................................................... 9,739 11.47 112 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 215,681 11.44 2,466 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 142,128 11.40 1,621 Access - 7% Solution, Premium Plus - 7% Solution....................... 203,804 11.37 2,317 ------------------- 6,663 30
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) PIMCO HIGH YIELD BOND Contracts in accumulation period: DVA 80................................................................. 1,147 $10.34 $12 DVA 100................................................................ 151,044 10.31 1,557 DVA Series 100......................................................... 951 10.25 10 DVA Plus - Standard.................................................... 400,821 10.27 4,115 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,053,973 10.24 51,749 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,194,935 10.21 32,631 Access - 7% Solution, Premium Plus - 7% Solution....................... 5,486,600 10.19 55,895 Value.................................................................. 8,722 10.33 90 ------------------- 146,059 PIMCO STOCKSPLUS GROWTH AND INCOME Contracts in accumulation period: DVA 80................................................................. 651 13.26 9 DVA 100................................................................ 116,144 13.22 1,535 DVA Series 100......................................................... 292 13.14 4 DVA Plus - Standard.................................................... 284,260 13.16 3,742 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,797,771 13.13 62,999 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 4,371,570 13.10 57,257 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,320,301 13.06 95,636 Value.................................................................. 3,634 13.24 48 ------------------- 221,230 APPRECIATION Contracts in accumulation period: Granite PrimElite - Standard........................................... 711 18.47 13 Granite PrimElite - Annual Ratchet..................................... 52,802 18.36 970 ------------------- 983 SMITH BARNEY HIGH INCOME Contracts in accumulation period: Granite PrimElite - Standard........................................... 5,981 13.84 83 Granite PrimElite - Annual Ratchet..................................... 33,782 13.74 464 ------------------- 547 SMITH BARNEY LARGE CAP VALUE Contracts in accumulation period: Granite PrimElite - Standard........................................... 4,123 19.11 79 Granite PrimElite - Annual Ratchet..................................... 29,721 18.98 564 ------------------- 643 SMITH BARNEY INTERNATIONAL EQUITY Contracts in accumulation period: Granite PrimElite - Standard........................................... 2,572 23.78 61 Granite PrimElite - Annual Ratchet..................................... 20,133 23.61 476 ------------------- 537 SMITH BARNEY MONEY MARKET Contracts in accumulation period: Granite PrimElite - Standard........................................... 10,885 11.82 129 Granite PrimElite - Annual Ratchet..................................... 38,389 11.74 450 ------------------- 579 31
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - ------------------------------------------------------------------------------- ------------------------------------------------ (IN THOUSANDS) INTERNATIONAL EQUITY Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,666,041 $15.57 $72,629 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,959,322 15.59 30,538 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,663,701 15.50 72,274 Value.................................................................. 8,033 15.97 128 ------------------- 175,569 ASSET ALLOCATION Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,460 10.70 48 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 832 10.70 9 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,153 10.70 76 ------------------- 133 EQUITY Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,936 11.79 105 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 11,848 11.79 140 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,420 11.78 52 ------------------- 297 GROWTH & INCOME Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,512 10.55 90 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,122 10.55 12 Access - 7% Solution, Premium Plus - 7% Solution....................... 493 10.54 5 ------------------- 107 HIGH QUALITY BOND Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,756 9.93 27 ------------------- 27 --------------- ------------------- COMBINED.................................................................. 340,258,685 $7,443,647 =============== =================== 32
FORM ONE VERSION B Statement of Additional Information GOLDENSELECT GRANITE PRIMELITE DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT ISSUED BY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY This Statement of Additional Information is not a prospectus. The information contained herein should be read in conjunction with the Prospectus for the Golden American Life Insurance Company Deferred Variable Annuity Contract, which is referred to herein. The Prospectus sets forth information that a prospective investor ought to know before investing. For a copy of the Prospectus, send a written request to Golden American Life Insurance Company, Customer Service Center, P.O. Box 2700, West Chester, Pennsylvania 19380-1478 or telephone 1-800-366-0066. DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 2000 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................................................. 2 Performance Information................................................... 2 IRA Partial Withdrawal Option............................................. 7 Other Information......................................................... 8 Financial Statements of Golden American Life Insurance Company............ 8 Financial Statements of Separate Account B................................ 8 INTRODUCTION This Statement of Additional Information provides background information regarding Separate Account B. DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company ("Golden American") is a stock life insurance company organized under the laws of the State of Delaware. On August 13, 1996, Equitable of Iowa Companies, Inc. (formerly Equitable of Iowa Companies) ("Equitable of Iowa") acquired all of the interest in Golden American and Directed Services, Inc. On October 24, 1997, Equitable of Iowa and ING Groep N.V. ("ING") completed a merger agreement, and Equitable of Iowa became a wholly owned subsidiary of ING. ING, headquartered in The Netherlands, is a global financial services holding company with approximately $495 billion in assets as of December 31, 1999. As of December 31, 1999, Golden American had approximately $477.8 million in stockholder's equity and approximately $9.4 billion in total assets, including approximately $7.6 billion of separate account assets. Golden American is authorized to do business in all jurisdictions except New York. Golden American offers variable insurance products. Golden American formed a subsidiary, First Golden American Life Insurance Company of New York ("First Golden"), which is licensed to do variable annuity business in the states of New York and Delaware. SAFEKEEPING OF ASSETS Golden American acts as its own custodian for Separate Account B. THE ADMINISTRATOR Effective January 1, 1997, Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American became parties to a service agreement pursuant to which Equitable Life agreed to provide certain accounting, actuarial, tax, underwriting, sales, management and other services to Golden American. Expenses incurred by Equitable Life in relation to this service agreement were reimbursed by Golden American on an allocated cost basis. No charges were billed to Golden American by Equitable Life pursuant to the service agreement in 1997. Equitable Life billed Golden American $364,086 and $892,903 pursuant to the service agreement in 1999 and 1998, respectively. INDEPENDENT AUDITORS Ernst & Young LLP, independent auditors, performs annual audits of Golden American and Separate Account B. 1 DISTRIBUTION OF CONTRACTS The offering of contracts under the prospectus associated with this Statement of Additional Information is continuous. Directed Services, Inc., an affiliate of Golden American, 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 (the "variable insurance products") issued by Golden American. The variable insurance products were sold primarily through two broker/dealer institutions during the year ended December 31, 1997, through two broker/dealer institutions during the year ended December 31, 1998, and through two broker/dealer institutions during the year ended December 31, 1999. For the years ended 1999, 1998 and 1997 commissions paid by Golden American to Directed Services, Inc. aggregated $181,536,000 $117,470,000 and $36,350,000, respectively. All commissions received by the distributor were passed through to the broker-dealers who sold the contracts. Directed Services, Inc. is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478. Under a management services agreement, last amended in 1995, Golden American provides to Directed Services, Inc. certain of its personnel to perform management, administrative and clerical services and the use of certain facilities. Golden American charges Directed Services, Inc. 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 Directed Services, Inc. In the opinion of management, this method of cost allocation is reasonable. This fee, calculated as a percentage of average assets in the variable separate accounts, was $10,136,000, $4,771,000 and $2,770,000 for the years ended 1999, 1998 and 1997, respectively. PERFORMANCE INFORMATION Performance information for the subaccounts of Separate Account B, including yields, standard annual returns and other non-standard measures of performance of all subaccounts, may appear in reports or promotional literature to current or prospective owners. Such non-standard measures of performance will be computed, or accompanied by performance data computed, in accordance with criteria defined by the SEC. Negative values are denoted by minus signs ("-"). Performance information for measures other than total return do not reflect any applicable premium tax that can range from 0% to 3.5%. As described in the prospectus, three death benefit options are available. The following performance values reflect the election at issue of the 7% Solution Enhanced Death Benefit Option providing values reflecting the highest aggregate contract charges. If one of the other death benefit options had been elected, the historical performance values would be higher than those represented in the examples. SEC STANDARD MONEY MARKET SUBACCOUNT YIELDS Current yield for the Liquid Asset Subaccount will be based on the change in the value of a hypothetical investment (exclusive of capital changes or income other than investment income) over a particular 7-day period, less a pro-rata share of subaccount expenses accrued over that period (the "base period"), and stated as a percentage of the investment at the start of the base period (the "base period return"). The base period return is then annualized by 2 multiplying by 365/7, with the resulting yield figure carried to at least the nearest hundredth of one percent. Calculation of "effective yield" begins with the same "base period return" used in the calculation of yield, which is then annualized to reflect weekly compounding pursuant to the following formula: Effective Yield = [(Base Period Return) +1)^365/7] - 1 The current yield and effective yield of the Smith Barney Money Market Subaccount for the 7-day period December 25, 1999 to December 31, 1999 were 3.89% and 3.97%, respectively. SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS Quotations of yield for the remaining subaccounts will be based on all investment income per subaccount earned during a particular 30-day period, less expenses accrued during the period ("net investment income"), and will be computed by dividing net investment income by the value of an accumulation unit on the last day of the period, according to the following formula: Yield = 2 x [((a - b)/(c x d) + 1)^6 - 1] Where: [a] equals the net investment income earned during the period by the investment portfolio attributable to shares owned by a subaccount [b] equals the expenses accrued for the period (net of reimbursements) [c] equals the average daily number of units outstanding during the period based on the accumulation unit value [d] equals the value (maximum offering price) per accumulation unit value on the last day of the period Yield on subaccounts of Separate Account B is earned from the increase in net asset value of shares of the investment portfolio in which the subaccount invests and from dividends declared and paid by the investment portfolio, which are automatically reinvested in shares of the investment portfolio. SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR ALL SUBACCOUNTS Quotations of average annual total return for any subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a contract over a period of one, five and 10 years (or, if less, up to the life of the subaccount), calculated pursuant to the formula: P(1+T)^(n)=ERV Where: (1) [P] equals a hypothetical initial premium payment of $1,000 (2) [T] equals an average annual total return (3) [n] equals the number of years (4) [ERV] equals the ending redeemable value of a hypothetical $1,000 initial premium payment made at the beginning of the period (or fractional portion thereof) 3 All total return figures reflect the deduction of the maximum sales load, the administrative charges, and the mortality and expense risk charges. The Securities and Exchange Commission (the "SEC") requires that an assumption be made that the contract owner surrenders the entire contract at the end of the one, five and 10 year periods (or, if less, up to the life of the security) for which performance is required to be calculated. This assumption may not be consistent with the typical contract owner's intentions in purchasing a contract and may adversely affect returns. Quotations of total return may simultaneously be shown for other periods, as well as quotations of total return that do not take into account certain contractual charges such as sales load. Hypothetical Average Annual Total Return for the subaccounts presented on a standardized basis, which includes deductions for the mortality and expense risk charge, administrative charge, contract charge and surrender charge for the period ending December 31, 1999 were as follows: Average Annual Total Return for Periods Ending 12/31/99 - Standardized - ----------------------------------------------------------------------
From Inception 1 Year 5 Years 10 Years Inception Date THE GCG TRUST Total Return -5.15% 12.40%* n/a 11.54%* 10/7/94 Research 15.42% 23.17%* n/a 21.46%* 10/7/94 Mid-Cap Growth 69.48% 30.41%* n/a 29.82%* 10/7/94 TRAVELERS SERIES FUND, INC. Smith Barney Large Cap Value -8.46% n/a n/a 13.90% 4/5/95 Smith Barney International Equity 58.31% n/a n/a 19.26% 3/27/95 Smith Barney High Income -5.94% n/a n/a 6.29% 4/28/95 Smith Barney Money Market -3.79% n/a n/a 2.70% 5/24/95 GREENWICH STREET SERIES FUND Appreciation 4.44% n/a n/a 16.53% 3/22/96
- ------------------------- * Total return calculation reflects partial waiver of fees and expenses. NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR ALL SUBACCOUNTS Quotations of non-standard average annual total return for any subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a contract over a period of one, five and 10 years (or, if less, up to the life of the subaccount), calculated pursuant to the formula: P(1+T)^(n)=ERV Where: (1) [P] equals a hypothetical initial premium payment of $1,000 (2) [T] equals an average annual total return (3) [n] equals the number of years (4) [ERV] equals the ending redeemable value of a hypothetical $1,000 initial premium payment made at the beginning of the period (or fractional portion thereof) assuming certain loading and charges are zero. 4 All total return figures reflect the deduction of the mortality and expense risk charge and the administrative charges, but not the deduction of the maximum sales load and the annual contract fee. Nonstandard Total Return The Company may also advertise performance data which will be calculated in the same manner as described above but which will not reflect the deduction of any Withdrawal Charge or Annual Contract Maintenance Charge. Hypothetical Total Return for the subaccounts presented on a non-standardized basis, which includes deductions for the mortality and expense risk charge and the administrative charge for the period ending December 31, 1999 were as follows: Average Annual Total Return for Periods Ending 12/31/99 - Non-Standardized - --------------------------------------------------------------------------
From Inception 1 Year 5 Years 10 Years Inception Date THE GCG TRUST Total Return 1.93% 12.96%* n/a 11.95%* 10/7/94 Research 22.49% 23.56%* n/a 21.76%* 10/7/94 Mid-Cap Growth 76.56% 30.74%* n/a 30.06%* 10/7/94 TRAVELERS SERIES FUND, INC. Smith Barney Large Cap Value -1.38% n/a n/a 14.46% 4/5/95 Smith Barney International Equity 65.39% n/a n/a 19.75% 3/27/95 Smith Barney High Income 1.14% n/a n/a 7.02% 4/28/95 Smith Barney Money Market 3.29% n/a n/a 3.54% 5/24/95 GREENWICH STREET SERIES FUND Appreciation 11.51% n/a n/a 17.44% 3/22/96
- ------------------------- * Total return calculation reflects partial waiver of fees and expenses. Performance information for a subaccount may be compared, in reports and promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market Institutional Averages, or other indices that measure performance of a pertinent group of securities so that investors may compare a subaccount's results with those of a group of securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of 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 by overall performance, investment objectives, and assets, or tracked by other services, companies, publications, or persons who rank such investment companies on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the contract. Unmanaged indices may 5 assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for any subaccount reflects only the performance of a hypothetical contract under which contract value is allocated to a subaccount during a particular time period on which the calculations are based. Performance information should be considered in light of the investment objectives and policies, characteristics and quality of the investment portfolio of the Trust in which the Separate Account B subaccounts invest, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. Reports and promotional literature may also contain other information including the ranking of any subaccount derived from rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by other rating services, companies, publications, or other persons who rank separate accounts or other investment products on overall performance or other criteria. PUBLISHED RATINGS From time to time, the rating of Golden American as an insurance company by A.M. Best may be referred to in advertisements or in reports to contract owners. Each year the A.M. Best Company reviews the financial status of thousands of insurers, culminating in the assignment of Best's Ratings. These ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. Best's ratings range from A+ + to F. An A++ and A+ ratings mean, in the opinion of A.M. Best, that the insurer has demonstrated the strongest ability to meet its respective policyholder and other contractual obligations. ACCUMULATION UNIT VALUE The calculation of the Accumulation Unit Value ("AUV") is discussed in the prospectus for the Contracts under Performance Information. Note that in your Contract, accumulation unit value is referred to as the Index of Investment Experience. The following illustrations show a calculation of a new AUV and the purchase of Units (using hypothetical examples). ILLUSTRATION OF CALCULATION OF AUV EXAMPLE 1. 1. AUV, beginning of period $ 10.00 2. Value of securities, beginning of period $ 10.00 3. Change in value of securities $ 0.10 4. Gross investment return (3) divided by (2) 0.01 5. Less daily mortality and expense charge 0.00003446 6. Less asset based administrative charge 0.00000411 7. Net investment return (4) minus (5) minus (6) 0.00995726 8. Net investment factor (1.000000) plus (7) 1.00995726 9. AUV, end of period (1) multiplied by (8) $ 10.09957261 6 ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX) EXAMPLE 2. 1. Initial Premium Payment $ 1,000 2. AUV on effective date of purchase (see Example 1) $ 10.00 3. Number of Units purchased [(1) divided by (2)] 100 4. AUV for valuation date following purchase (see Example 1) $ 10.09957261 5. Contract Value in account for valuation date following purchase [(3) multiplied by (4)] $ 1,009.96 IRA PARTIAL WITHDRAWAL OPTION If the contract owner has an IRA contract and will attain age 70 1/2 in the current calendar year, distributions will be made in accordance with the requirements of Federal tax law. This option is available to assure that the required minimum distributions from qualified plans under the Internal Revenue Code (the "Code") are made. Under the Code, distributions must begin no later than April 1st of the calendar year following the calendar year in which the contract owner attains age 70 1/2. If the required minimum distribution is not withdrawn, there may be a penalty tax in an amount equal to 50% of the difference between the amount required to be withdrawn and the amount actually withdrawn. Even if the IRA Partial Withdrawal Option is not elected, distributions must nonetheless be made in accordance with the requirements of Federal tax law. Golden American notifies the contract owner of these regulations with a letter mailed on January 1st of the calendar year in which the contract owner reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and supplies an election form. If electing this option, the owner specifies whether the withdrawal amount will be based on a life expectancy calculated on a single life basis (contract owner's life only) or, if the contract owner is married, on a joint life basis (contract owner's and spouse's lives combined). The contract owner selects the payment mode on a monthly, quarterly or annual basis. If the payment mode selected on the election form is more frequent than annually, the payments in the first calendar year in which the option is in effect will be based on the amount of payment modes remaining when Golden American receives the completed election form. Golden American calculates the IRA Partial Withdrawal amount each year based on the minimum distribution rules. We do this by dividing the contract value by the life expectancy. In the first year withdrawals begin, we use the contract value as of the date of the first payment. Thereafter, we use the contract value on December 31st of each year. The life expectancy is recalculated each year. Certain minimum distribution rules govern payouts if the designated beneficiary is other than the contract owner's spouse and the beneficiary is more than ten years younger than the contract owner. OTHER INFORMATION Registration statements have been filed with the SEC under the Securities Act of 1933, as amended, with respect to the Contracts discussed in this Statement of Additional Information. Not all of the information set forth in the registration statements, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained 7 in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC. FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY The audited financial statements of Golden American Life Insurance Company are listed below and are included in this Statement of Additional Information: Report of Independent Auditors Audited Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Stockholder's Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B The audited financial statements of Separate Account B are listed below and are included in this Statement of Additional Information: Report of Independent Auditors Audited Financial Statements Statement of Net Assets as of December 31, 1999 Statements of Operations for the year ended December 31, 1999 Statements of Changes in Net Assets for the years ended December 31, 1999 and 1998 Notes to Financial Statements 8 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholder Golden American Life Insurance Company We have audited the accompanying consolidated balance sheets of Golden American Life Insurance Company as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years ended December 31, 1999 and 1998 and for the periods from October 25, 1997 through December 31, 1997, and January 1, 1997 through October 24, 1997. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Golden American Life Insurance Company at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the years ended December 31, 1999 and 1998 and for the periods from October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, in conformity with accounting principles generally accepted in the United States. s/Ernst & Young LLP Des Moines, Iowa February 4, 2000 9 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) POST-MERGER --------------------------- December 31, December 31, 1999 1998 ------------ ------------ ASSETS Investments: Fixed maturities, available for sale, at fair value (Cost: 1999 - $858,052; 1998 - $739,772)....................... $835,321 $741,985 Equity securities, at fair value (cost: 1999 - $14,952; 1998 - $14,437)........ 17,330 11,514 Mortgage loans on real estate............ 100,087 97,322 Policy loans............................. 14,157 11,772 Short-term investments................... 80,191 41,152 ---------- ---------- Total investments........................... 1,047,086 903,745 Cash and cash equivalents................... 14,380 6,679 Reinsurance recoverable..................... 14,834 7,586 Due from affiliates......................... 637 2,983 Accrued investment income................... 11,198 9,645 Deferred policy acquisition costs........... 528,957 204,979 Value of purchased insurance in force....... 31,727 35,977 Current income taxes recoverable............ 35 628 Deferred income tax asset................... 21,943 31,477 Property and equipment, less allowances for depreciation of $3,229 in 1999 and $801 in 1998.................................. 13,888 7,348 Goodwill, less accumulated amortization of $8,186 in 1999 and $4,408 in 1998........ 142,941 146,719 Other assets................................ 2,514 743 Separate account assets..................... 7,562,717 3,396,114 ---------- ---------- Total assets................................ $9,392,857 $4,754,623 ========== ========== See accompanying notes. 10 GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS - CONTINUED (Dollars in thousands, except per share data) POST-MERGER ----------------------------- December 31, December 31, 1999 1998 -------------- ------------ LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals: Future policy benefits: Annuity and interest sensitive life products....................... $1,033,701 $881,112 Unearned revenue reserve.............. 6,300 3,840 Other policy claims and benefits......... 8 -- ---------- ---------- 1,040,009 884,952 Surplus notes.............................. 245,000 85,000 Revolving note payable..................... 1,400 -- Due to affiliates.......................... 9,547 -- Other liabilities.......................... 56,335 34,663 Separate account liabilities............... 7,562,717 3,396,114 ---------- ---------- 8,915,008 4,400,729 Commitments and contingencies Stockholder's equity: Common stock, par value $10 per share, authorized, issued, and outstanding 250,000 shares........................ 2,500 2,500 Additional paid-in capital............... 468,640 347,640 Accumulated other comprehensive loss..... (9,154) (895) Retained earnings........................ 15,863 4,649 ---------- ---------- Total stockholder's equity................. 477,849 353,894 ---------- ---------- Total liabilities and stockholder's equity. $9,392,857 $4,754,623 ========== ========== See accompanying notes. 11
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) POST- POST-MERGER ACQUISITION --------------------------------------------|------------- For the period |or the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | hrough December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 --------------------------------------------|-------------- Revenues | Annuity and interest | sensitive life product | charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288 Management fee revenue........... 10,136 4,771 508 | 2,262 Net investment income............ 59,169 42,485 5,127 | 21,656 Realized gains (losses) | on investments................ (2,923) (1,491) 15 | 151 Other income..................... 10,827 5,569 236 | 426 -------- ------- ------- | ------- 160,144 90,453 9,720 | 42,783 | Insurance benefits and expenses: | Annuity and interest sensitive | life benefits: | Interest credited to account | balances..................... 175,851 94,845 7,413 | 19,276 Benefit claims incurred in | excess of account balances... 6,370 2,123 -- | 125 Underwriting, acquisition, and | insurance expenses: | Commissions.................... 188,383 121,171 9,437 | 26,818 General expenses............... 60,194 37,577 3,350 | 13,907 Insurance taxes, state | licenses, and fees........... 3,976 4,140 450 | 1,889 Policy acquisition costs | deferred..................... (346,396) (197,796) (13,678) | (29,003) Amortization: | Deferred policy acquisition | costs....................... 33,119 5,148 892 | 1,674 Value of purchased insurance | in force.................... 6,238 4,724 948 | 5,225 Goodwill...................... 3,778 3,778 630 | 1,398 -------- ------- ------- | ------- 131,513 75,710 9,442 | 41,309 | Interest expense.................... 8,894 4,390 557 | 2,082 -------- ------- ------- | ------- 140,407 80,100 9,999 | 43,391 -------- ------- ------- | ------- Income (loss) before income taxes... 19,737 10,353 (279) | (608) | Income taxes........................ 8,523 5,279 146 | (1,337) -------- ------- ------- | ------- | Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729 ======== ======= ======= | =======
See accompanying notes. 12
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Dollars in thousands) Accumulated Additional Other Total Common Paid-in Comprehensive Retained Stockholder's Stock Capital Income (Loss) Earnings Equity ------------------------------------------------------------ PRE-ACQUISITION ------------------------------------------------------------ Balance at January 1, 1997..... $2,500 $137,372 $ 262 $ 350 $140,484 Comprehensive income: Net income................... -- -- -- 729 729 Change in net unrealized investment gains (losses)... -- -- 1,543 -- 1,543 -------- Comprehensive income........... 2,272 Contribution of Capital........ -- 1,121 -- -- 1,121 ------ -------- ------- ------- -------- Balance at October 24, 1997.... $2,500 $138,493 $ 1,805 $ 1,079 $143,877 ====== ======== ======= ======= ======== ----------------------------------------------------------- POST-MERGER ----------------------------------------------------------- Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497 Comprehensive income: Net loss..................... -- -- -- $ (425) (425) Change in net unrealized investment gains (losses). -- -- $ 241 -- 241 -------- Comprehensive loss............. (184) ------ -------- ------- ------- -------- Balance at December 31,1997.... 2,500 224,997 241 (425) $227,313 Comprehensive income: Net income................... -- -- -- 5,074 5,074 Change in net unrealized investment gains (losses). -- -- (1,136) -- (1,136) -------- Comprehensive income.......... 3,938 Contribution of Capital........ -- 122,500 -- -- 122,500 Other.......................... -- 143 -- -- 143 ------ -------- ------- ------- -------- Balance at December 31,1998.... 2,500 224,997 (895) 4,649 353,894 Comprehensive income: Net income................... -- -- -- 11,214 11,214 Change in net unrealized investment gains (losses). -- -- (8,259) -- (8,259) -------- Comprehensive income........... 2,955 Contribution of Capital........ -- 121,000 -- -- 121,000 ------ -------- ------- ------- -------- Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849 ====== ======== ======= ======= ========
See accompanying notes. 13
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) | POST- POST-MERGER | ACQUISITION -------------------------------------------|--------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- OPERATING ACTIVITIES | Net income (loss)................................. $11,214 $5,074 $(425) | $729 Adjustments to reconcile net income (loss) to net | cash provided by (used in) operations: | Adjustments related to annuity and | interest sensitive life products: | Interest credited and other charges on | interest sensitive products................ 175,851 94,845 7,413 | 19,276 Charges for mortality and administration..... 524 (233) (62) | (99) Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292 Increase (decrease) in policy liabilities and | accruals..................................... 8 (10) 10 | -- Decrease (increase) in accrued investment | income....................................... (1,553) (3,222) 1,205 | (3,489) Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003) Amortization of deferred policy | acquisition costs............................ 33,119 5,148 892 | 1,674 Amortization of value of purchased | insurance in force........................... 6,238 4,724 948 | 5,225 Change in other assets, due to/from | affiliates, other liabilities, and accrued | income taxes................................. 24,845 9,979 4,205 | (8,944) Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203 Provision for deferred income taxes............ 8,523 5,279 146 | 316 Realized (gains) losses on investments......... 2,923 1,491 (15) | (151) -------- -------- ------- | --------- Net cash provided by (used in) operating | activities..................................... (73,394) (63,923) 3,127 | (7,971) | INVESTING ACTIVITIES | Sale, maturity, or repayment of investments: | Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622 Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828 Short-term investments - net................... -- -- -- | 11,415 -------- -------- ------- | --------- 227,119 149,044 11,515 | 56,865 Acquisition of investments: | Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173) Equity securities.............................. -- (10,000) (1) | (4,865) Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481) Policy loans - net............................. (2,385) (2,940) (328) | (3,870) Short-term investments - net................... (39,039) (26,692) (13,244) | -- -------- -------- ------- | --------- (395,670) (532,545) (57,378) | (208,389) Net purchase of property and equipment............ (8,968) (6,485) (252) | (875) -------- -------- ------- | --------- Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
See accompanying notes. 14
GOLDEN AMERICAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) | POST- POST-MERGER | ACQUISITION -------------------------------------------|--------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- FINANCING ACTIVITIES | Proceeds from reciprocal loan agreement | borrowings.............................. $396,350 $500,722 -- | -- Repayment of reciprocal loan agreement | borrowings.............................. (396,350) (500,722) -- | -- Proceeds from revolving note payable....... 220,295 108,495 -- | -- Repayment of revolving note payable........ (218,895) (108,495) -- | -- Proceeds from surplus note................. 160,000 60,000 -- | -- Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124 Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977) Receipts from annuity and interest | sensitive life policies credited to | account balances........................ 773,685 593,428 62,306 | 261,549 Return of account balances on annuity | and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931) Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069) Contributions of capital by parent......... 121,000 103,750 -- | 1,011 -------- -------- ------- | --------- Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707 -------- -------- ------- | --------- | Increase (decrease) in cash and cash | equivalents............................. 7,701 (14,360) 3,863 | 11,337 Cash and cash equivalents at | beginning of period..................... 6,679 21,039 17,176 | 5,839 -------- -------- ------- | --------- Cash and cash equivalents at | end of period........................... $14,380 $6,679 $21,039 | $17,176 ======== ========= ======= | ========= | SUPPLEMENTAL DISCLOSURE | OF CASH FLOW INFORMATION | Cash paid during the period for: | Interest................................ $6,392 $4,305 $295 | $1,912 Income taxes............................ -- 99 -- | 283 Non-cash financing activities: | Non-cash adjustment to additional | paid-in capital for adjusted merger | costs................................. -- 143 -- | -- Contribution of property and | equipment from EIC Variable, | Inc. net of $353 of accumulated | depreciation.......................... -- -- -- | 110 Contribution of capital from parent to | repay line of credit borrowings....... -- 18,750 -- | --
See accompanying notes. 15 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include Golden American Life Insurance Company ("Golden American") and its wholly owned subsidiary, First Golden American Life Insurance Company of New York ("First Golden," and collectively with Golden American, the "Companies"). All significant intercompany accounts and transactions have been eliminated. ORGANIZATION Golden American, a wholly owned subsidiary of Equitable of Iowa Companies, Inc., offers variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. First Golden is licensed to sell insurance products in New York and Delaware. The Companies' products are marketed by broker/dealers, financial institutions, and insurance agents. The Companies' primary customers are consumers and corporations. On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation, acquired all of the outstanding capital stock of Equitable of Iowa Companies ("Equitable") according to the terms of an Agreement and Plan of Merger ("Merger Agreement") dated July 7, 1997 among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. See Note 6 for additional information regarding the merger. On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its wholly owned subsidiaries, Golden American and Directed Services, Inc. ("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for additional information regarding the acquisition. For financial statement purposes, the ING merger was accounted for as a purchase effective October 25, 1997 and the change in control of Golden American through the acquisition of BT Variable, Inc. ("BT Variable") was accounted for as a purchase effective August 14, 1996. The merger and acquisition resulted in new bases of accounting reflecting estimated fair values of assets and liabilities at their respective dates. As a result, the Companies' financial statements included for the periods after October 24, 1997 are presented on the Post-Merger new basis of accounting and for the period January 1, 1997 through October 24, 1997 are presented on the Post-Acquisition basis of accounting. INVESTMENTS Fixed Maturities: The Companies account for their investments under the Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires fixed maturities to be designated as either "available for sale," "held for investment," or "trading." Sales of fixed maturities designated as "available for sale" are not restricted by SFAS No. 115. Available for sale securities are reported at fair value and unrealized gains and losses on these securities are included directly in stockholder's equity, after adjustment for related changes in value of purchased insurance in force ("VPIF"), deferred policy acquisition costs ("DPAC"), and deferred income taxes. At December 31, 1999 and 1998, all of the Companies' fixed maturities are designated as available for sale, although the Companies are not precluded from designating fixed maturities as held for investment or trading at some future date. Securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Premiums and discounts are amortized/accrued utilizing a method which results in a constant 16 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) yield over the securities' expected lives. Amortization/accrual of premiums and discounts on mortgage and other asset-backed securities incorporates a prepayment assumption to estimate the securities' expected lives. Equity Securities: Equity securities are reported at estimated fair value if readily marketable. The change in unrealized appreciation and depreciation of marketable equity securities (net of related deferred income taxes, if any) is included directly in stockholder's equity. Equity securities determined to have a decline in value that is other than temporary are written down to estimated fair value, which becomes the new cost basis by a charge to realized losses in the Companies' Statements of Operations. Mortgage Loans On Real Estate: Mortgage loans on real estate are reported at cost adjusted for amortization of premiums and accrual of discounts. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable the Companies will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or to the loan's observable market price, or the fair value of the underlying collateral. The carrying value of impaired loans is reduced by the establishment of a valuation allowance, which is adjusted at each reporting date for significant changes in the calculated value of the loan. Changes in this valuation allowance are charged or credited to income. Other Investments: Policy loans are reported at unpaid principal. Short-term investments are reported at cost, adjusted for amortization of premiums and accrual of discounts. Realized Gains And Losses: Realized gains and losses are determined on the basis of specific identification. Fair Values: Estimated fair values, as reported herein, of conventional mortgage-backed securities not actively traded in a liquid market are estimated using a third party pricing process. This pricing process uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Estimated fair values of publicly traded fixed maturities are reported by an independent pricing service. Fair values of private placement bonds are estimated using a matrix that assumes a spread (based on interest rates and a risk assessment of the bonds) over U.S. Treasury bonds. Estimated fair values of equity securities, which consist of the Companies' investment in its registered separate accounts, are based upon the quoted fair value of the securities comprising the individual portfolios underlying the separate accounts. CASH AND CASH EQUIVALENTS For purposes of the accompanying Statements of Cash Flows, the Companies consider all demand deposits and interest-bearing accounts not related to the investment function to be cash equivalents. All interest-bearing accounts classified as cash equivalents have original maturities of three months or less. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring new insurance business, principally first year commissions and interest bonuses, premium credit, and other expenses related to the production of new business, have been deferred. Acquisition costs for variable insurance products are being amortized generally in proportion to the present value (using the assumed crediting rate) of expected future gross profits. This amortization is adjusted retrospectively when the Companies revise their estimate of current or future gross profits to be realized from a group of products. DPAC is adjusted to reflect the pro forma impact of unrealized gains and losses on fixed maturities the Companies have designated as "available for sale" under SFAS No. 115. 17 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) VALUE OF PURCHASED INSURANCE IN FORCE As a result of the merger and acquisition, a portion of the purchase price related to each transaction was allocated to the right to receive future cash flows from existing insurance contracts. This allocated cost represents VPIF, which reflects the value of those purchased policies calculated by discounting actuarially determined expected future cash flows at the discount rate determined by the purchaser. Amortization of VPIF is charged to expense in proportion to expected gross profits of the underlying business. This amortization is adjusted retrospectively when the Companies revise the estimate of current or future gross profits to be realized from the insurance contracts acquired. VPIF is adjusted to reflect the pro forma impact of unrealized gains and losses on available for sale fixed maturities. See Notes 6 and 7 for additional information on VPIF resulting from the merger and acquisition. PROPERTY AND EQUIPMENT Property and equipment primarily represent leasehold improvements, office furniture, certain other equipment, and capitalized computer software and are not considered to be significant to the Companies' overall operations. Property and equipment are reported at cost less allowances for depreciation. Depreciation expense is computed primarily on the basis of the straight-line method over the estimated useful lives of the assets. GOODWILL Goodwill was established as a result of the merger and is being amortized over 40 years on a straight-line basis. Goodwill established as a result of the acquisition was being amortized over 25 years on a straight-line basis. See Notes 6 and 7 for additional information on the merger and acquisition. FUTURE POLICY BENEFITS Future policy benefits for divisions of the variable products with fixed interest guarantees are established utilizing the retrospective deposit accounting method. Policy reserves represent the premiums received plus accumulated interest, less mortality and administration charges. Interest credited to these policies ranged from 3.00% to 11.00% during 1999, 3.00% to 10.00% during 1998, and 3.30% to 8.25% during 1997. The unearned revenue reserve represents unearned distribution fees. These distribution fees have been deferred and are amortized over the life of the contracts in proportion to expected gross profits. SEPARATE ACCOUNTS Assets and liabilities of the separate accounts reported in the accompanying Balance Sheets represent funds separately administered principally for variable contracts. Contractholders, rather than the Companies, bear the investment risk for the variable insurance products. At the direction of the contractholders, the separate accounts invest the premiums from the sale of variable insurance products in shares of specified mutual funds. The assets and liabilities of the separate accounts are clearly identified and segregated from other assets and liabilities of the Companies. The portion of the separate account assets equal to the reserves and other liabilities of variable contracts cannot be charged with liabilities arising out of any other business the Companies may conduct. Variable separate account assets are carried at fair value of the underlying investments and generally represent contractholder investment values maintained in the accounts. Variable separate account liabilities represent account balances for the variable contracts invested in the separate accounts; the fair value of these liabilities is equal to their carrying amount. Net investment income and realized and unrealized capital gains and losses related to separate account assets are not reflected in the accompanying Statements of Operations. 18 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Product charges recorded by the Companies from variable insurance products consist of charges applicable to each contract for mortality and expense risk, cost of insurance, contract administration, and surrender charges. In addition, some variable annuity and all variable life contracts provide for a distribution fee collected for a limited number of years after each premium deposit. Revenue recognition of collected distribution fees is amortized over the life of the contract in proportion to its expected gross profits. The balance of unrecognized revenue related to the distribution fees is reported as an unearned revenue reserve. DEFERRED INCOME TAXES Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred tax assets or liabilities are adjusted to reflect the pro forma impact of unrealized gains and losses on equity securities and fixed maturities the Companies have designated as available for sale under SFAS No. 115. Changes in deferred tax assets or liabilities resulting from this SFAS No. 115 adjustment are charged or credited directly to stockholder's equity. Deferred income tax expenses or credits reflected in the Companies' Statements of Operations are based on the changes in the deferred tax asset or liability from period to period (excluding the SFAS No. 115 adjustment). DIVIDEND RESTRICTIONS Golden American's ability to pay dividends to its Parent is restricted. Prior approval of insurance regulatory authorities is required for payment of dividends to the stockholder which exceed an annual limit. During 2000, Golden American cannot pay dividends to its Parent without prior approval of statutory authorities. Under the provisions of the insurance laws of the State of New York, First Golden cannot distribute any dividends to its stockholder, Golden American, unless a notice of its intent to declare a dividend and the amount of the dividend has been filed with the New York Insurance Department at least thirty days in advance of the proposed declaration. If the Superintendent of the New York Insurance Department finds the financial condition of First Golden does not warrant the distribution, the Superintendent may disapprove the distribution by giving written notice to First Golden within thirty days after the filing. SEGMENT REPORTING The Companies manage their business as one segment, the sale of variable insurance products designed to meet customer needs for tax-advantaged saving for retirement and protection from death. Variable insurance products are sold to consumers and corporations throughout the United States. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management is required to utilize historical experience and assumptions about future events and circumstances in order to develop estimates of material reported amounts and disclosures. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates and assumptions are: (1) estimates of fair values of investments in securities and other financial instruments, as well as fair values of policyholder liabilities, (2) policyholder liabilities, (3) deferred policy acquisition costs and value of purchased insurance in force, (4) fair values of assets and liabilities recorded as a result of merger and acquisition transactions, (5) asset valuation allowances, (6) guaranty fund assessment accruals, (7) deferred tax benefits (liabilities), and (8) estimates for commitments and contingencies including legal matters, if a liability is anticipated and can be reasonably estimated. Estimates and assumptions 19 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (continued) regarding all of the preceding items are inherently subject to change and are reassessed periodically. Changes in estimates and assumptions could materially impact the financial statements. RECLASSIFICATIONS Certain amounts for the periods ended in the 1998 and 1997 financial statements have been reclassified to conform to the 1999 financial statement presentation. 2. BASIS OF FINANCIAL REPORTING The financial statements of the Companies differ from related statutory-basis financial statements principally as follows: (1) acquisition costs of acquiring new business are deferred and amortized over the life of the policies rather than charged to operations as incurred; (2) an asset representing the present value of future cash flows from insurance contracts acquired was established as a result of the merger/acquisition and is amortized and charged to expense; (3) future policy benefit reserves for divisions with fixed interest guarantees of the variable insurance products are based on full account values, rather than the greater of cash surrender value or amounts derived from discounting methodologies utilizing statutory interest rates; (4) reserves are reported before reduction for reserve credits related to reinsurance ceded and a receivable is established, net of an allowance for uncollectible amounts, for these credits rather than presented net of these credits; (5) fixed maturity investments are designated as "available for sale" and valued at fair value with unrealized appreciation/depreciation, net of adjustments to value of purchased insurance in force, deferred policy acquisition costs, and deferred income taxes (if applicable), credited/charged directly to stockholder's equity rather than valued at amortized cost; (6) the carrying value of fixed maturities is reduced to fair value by a charge to realized losses in the Statements of Operations when declines in carrying value are judged to be other than temporary, rather than through the establishment of a formula-determined statutory investment reserve (carried as a liability), changes in which are charged directly to surplus; (7) deferred income taxes are provided for the difference between the financial statement and income tax bases of assets and liabilities; (8) net realized gains or losses attributed to changes in the level of interest rates in the market are recognized when the sale is completed rather than deferred and amortized over the remaining life of the fixed maturity security; (9) a liability is established for anticipated guaranty fund assessments, net of related anticipated premium tax credits, rather than capitalized when assessed and amortized in accordance with procedures permitted by insurance regulatory authorities; (10) revenues for variable insurance products consist of policy charges applicable to each contract for the cost of insurance, policy administration charges, amortization of policy initiation fees, and surrender charges assessed rather than premiums received; (11) the financial statements of Golden American's wholly owned subsidiary are consolidated rather than recorded at the equity in net assets; (12) surplus notes are reported as liabilities rather than as surplus; and (13) assets and liabilities are restated to fair values when a change in ownership occurs, with provisions for goodwill and other intangible assets, rather than continuing to be presented at historical cost. The net loss for Golden American as determined in accordance with statutory accounting practices was $85,578,000 in 1999, $68,002,000 in 1998, and $428,000 in 1997. Total statutory capital and surplus was $368,928,000 at December 31, 1999 and $183,045,000 at December 31, 1998. 20 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS INVESTMENT RESULTS Major categories of net investment income are summarized below:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488 Equity securities.............. 515 -- 3 | -- Mortgage loans on real estate.. 7,074 6,616 879 | 3,070 Policy loans................... 485 619 59 | 482 Short-term investments......... 2,583 1,311 129 | 443 Other, net..................... 388 246 (154) | 24 ------- ------- ------- | ------- Gross investment income........ 61,397 44,016 5,359 | 22,507 Less investment expenses....... (2,228) (1,531) (232) | (851) ------- ------- ------- | ------- Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656 ======= ======= ======= | =======
Realized gains (losses) on investments follows:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Fixed maturities, available for | sale.......................... $(2,910) $(1,428) $ 25 | $ 151 Mortgage loans on real estate... (13) (63) (10) | -- ------- ------- ------- | ------- Realized gains (losses) on | investments................... $(2,923) $(1,491) $15 | $151 ======= ======= ======= | ========
The change in unrealized appreciation (depreciation) of securities at fair value follows:
POST-MERGER |POST-ACQUISITION -------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | | Fixed maturities, available for | sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197 Equity securities................ 5,301 (2,390) (68) | (462) -------- -------- -------- | -------- Unrealized appreciation | (depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735 ======== ======== ======== | ========
21 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized gains and losses, and estimated fair values of fixed maturities, all of which are designated as available for sale, follows:
POST-MERGER --------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- --------- (Dollars in thousands) December 31, 1999 ----------------------------- U.S. government and governmental agencies and authorities............ $ 21,363 -- $ (260) $ 21,103 Public utilities.............. 53,754 $ 25 (2,464) 51,315 Corporate securities.......... 396,494 53 (12,275) 384,272 Other asset-backed securities. 207,044 850 (4,317) 203,577 Mortgage-backed securities.... 179,397 39 (4,382) 175,054 -------- ------ -------- -------- Total......................... $858,052 $ 967 $(23,698) $835,321 ======== ====== ======== ======== December 31, 1998 ----------------------------- U. S. government and governmental agencies and authorities............ $ 13,568 $ 182 $ (8) $ 13,742 Foreign governments........... 2,028 8 -- 2,036 Public utilities.............. 67,710 546 (447) 67,809 Corporate securities.......... 365,569 4,578 (2,658) 367,489 Other asset-backed securities. 99,877 281 (1,046) 99,112 Mortgage-backed securities.... 191,020 1,147 (370) 191,797 -------- ------ -------- -------- Total......................... $739,772 $6,742 $ (4,529) $741,985 ======== ====== ======== ======== Foreign governments....................... .......
Short-term investments with maturities of 30 days or less have been excluded from the above schedules. Amortized cost approximates fair value for these securities. At December 31, 1999, net unrealized investment loss on fixed maturities designated as available for sale totaled $22,731,000. Depreciation of $6,955,000 was included in stockholder's equity at December 31, 1999 (net of adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to deferred income taxes). At December 31, 1998, net unrealized investment gains on fixed maturities designated as available for sale totaled $2,213,000. Appreciation of $1,005,000 was included in stockholder's equity at December 31, 1998 (net of adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to deferred income taxes). At December 31, 1999, net unrealized appreciation on equity securities was comprised entirely of gross appreciation of $2,378,000. At December 31, 1998, net unrealized depreciation of equity securities was comprised entirely of gross depreciation of $2,923,000. Amortized cost and estimated fair value of fixed maturities designated as available for sale, by contractual maturity, at December 31, 1999 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 22 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) POST-MERGER ------------------------- Amortized Estimated December 31, 1999 Cost Fair Value - --------------------------------------------------------------------- (Dollars in thousands) Due within one year..................... $ 25,317 $ 25,186 Due after one year through five years... 355,205 344,998 Due after five years through ten years.. 83,004 78,976 Due after ten years..................... 8,085 7,530 -------- -------- 471,611 456,690 Other asset-backed securities........... 207,044 203,577 Mortgage-backed securities.............. 179,397 175,054 -------- -------- Total................................... $858,052 $835,321 ======== ======== An analysis of sales, maturities, and principal repayments of the Companies' fixed maturities portfolio follows:
Gross Gross Proceeds Amortized Realized Realized from Cost Gains Losses Sale --------- -------- -------- -------- (Dollars in thousands) POST-MERGER: For the year ended December 31, 1999: Scheduled principal repayments, calls, and tenders.......................... $141,346 $216 $(174) $141,388 Sales................................... 80,472 141 (1,454) 79,159 -------- ---- ------- -------- Total................................... $221,818 $357 $(1,628) $220,547 ======== ==== ======= ======== For the year ended December 31, 1998: Scheduled principal repayments, calls, and tenders.......................... $102,504 $60 $(3) $102,561 Sales................................... 43,204 518 (1,030) 42,692 -------- ---- ------- -------- Total................................... $145,708 $578 $(1,033) $145,253 ======== ==== ======= ======== For the period October 25, 1997 through December 31, 1997: Scheduled principal repayments, calls, and tenders.......................... $6,708 $2 -- $6,710 Sales................................... 3,138 23 -- 3,161 -------- ---- ------- -------- Total................................... $9,846 $25 -- $9,871 ======== ==== ======= ======== POST-ACQUISITION: For the period January 1, 1997 through October 24, 1997: Scheduled principal repayments, calls, and tenders.......................... $25,419 -- -- $25,419 Sales................................... 14,052 $153 $(2) 14,203 -------- ---- ------- -------- Total................................... $39,471 $153 $(2) $39,622 ======== ==== ======= ========
23 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 3. INVESTMENT OPERATIONS (continued) Investment Valuation Analysis: The Companies analyze the investment portfolio at least quarterly in order to determine if the carrying value of any investment has been impaired. The carrying value of debt and equity securities is written down to fair value by a charge to realized losses when an impairment in value appears to be other than temporary. During the fourth quarter of 1998, Golden American determined that the carrying value of two bonds exceeded their estimated net realizable value. As a result, at December 31, 1998, Golden American recognized a total pre-tax loss of $973,000 to reduce the carrying value of the bonds to their combined net realizable value of $2,919,000. During the second quarter of 1999, further information was received regarding these bonds and Golden American determined that the carrying value of the two bonds exceeded their estimated net realizable value. As a result, at June 30, 1999, Golden American recognized a total pre-tax loss of $1,639,000 to further reduce the carrying value of the bonds to their combined net realizable value of $1,137,000. During 1997, no investments were identified as having an other than temporary impairment. Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits covering bonds with a par value of $6,470,000 were on deposit with regulatory authorities pursuant to certain statutory requirements. Investment Diversifications: The Companies' investment policies related to the investment portfolio require diversification by asset type, company, and industry and set limits on the amount which can be invested in an individual issuer. Such policies are at least as restrictive as those set forth by regulatory authorities. The following percentages relate to holdings at December 31, 1999 and December 31, 1998. Fixed maturities included investments in basic industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities (22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real estate have been analyzed by geographical location with concentrations by state identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations of mortgage loans on real estate in any state exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by collateral type with significant concentrations identified in office buildings (34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10% in 1999, 8% in 1998). Equity securities are not significant to the Companies' overall investment portfolio. No investment in any person or its affiliates (other than bonds issued by agencies of the United States government) exceeded ten percent of stockholder's equity at December 31, 1999. 4. COMPREHENSIVE INCOME Comprehensive income includes all changes in stockholder's equity during a period except those resulting from investments by and distributions to the stockholder. Total comprehensive income (loss) for the Companies includes $(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for the year ended December 31, 1998 and $159,000, and $536,000, respectively, for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997). Other comprehensive income excludes net investment gains (losses) included in net income, which merely represent transfers from unrealized to realized gains and losses. These amounts total $(1,468,000) in 1999 and $(2,133,000) in 1998. Such amounts, which have been measured through the date of sale, are net of income taxes and adjustments to VPIF and DPAC totaling $(1,441,000) in 1999 and $705,000 in 1998. 5. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of estimated fair value of all financial instruments, including both assets and liabilities recognized and not recognized in a 24 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) company's balance sheet, unless specifically exempted. SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," requires additional disclosures about derivative financial instruments. Most of the Companies' investments, investment contracts, and debt fall within the standards' definition of a financial instrument. Fair values for the Companies' insurance contracts other than investment contracts are not required to be disclosed. In cases where quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accounting, actuarial, and regulatory bodies are continuing to study the methodologies to be used in developing fair value information, particularly as it relates to such things as liabilities for insurance contracts. Accordingly, care should be exercised in deriving conclusions about the Companies' business or financial condition based on the information presented herein. The Companies closely monitor the composition and yield of invested assets, the duration and interest credited on insurance liabilities, and resulting interest spreads and timing of cash flows. These amounts are taken into consideration in the Companies' overall management of interest rate risk, which attempts to minimize exposure to changing interest rates through the matching of investment cash flows with amounts expected to be due under insurance contracts. These assumptions may not result in values consistent with those obtained through an actuarial appraisal of the Companies' business or values that might arise in a negotiated transaction. The following compares carrying values as shown for financial reporting purposes with estimated fair values:
POST-MERGER ----------------------------------------------- December 31, 1999 December 31, 1998 ---------------------- --------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value -------- --------- -------- --------- (Dollars in thousands) ASSETS Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985 Equity securities..................... 17,330 17,330 11,514 11,514 Mortgage loans on real estate......... 100,087 95,524 97,322 99,762 Policy loans.......................... 14,157 14,157 11,772 11,772 Short-term investments................ 80,191 80,191 41,152 41,152 Cash and cash equivalents............. 14,380 14,380 6,679 6,679 Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114 LIABILITIES Annuity products...................... 1,017,105 953,546 869,009 827,597 Surplus notes......................... 245,000 226,100 85,000 90,654 Revolving note payable................ 1,400 1,400 -- -- Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
The following methods and assumptions were used by the Companies in estimating fair values. Fixed maturities: Estimated fair values of conventional mortgage-backed securities not actively traded in a liquid market and publicly traded securities are estimated using a third party pricing process. This pricing 25 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) process uses a matrix calculation assuming a spread over U.S. Treasury bonds based upon the expected average lives of the securities. Equity securities: Estimated fair values of equity securities, which consist of the Companies' investment in the portfolios underlying its separate accounts, are based upon the quoted fair value of individual securities comprising the individual portfolios. For equity securities not actively traded, estimated fair values are based upon values of issues of comparable returns and quality. Mortgage loans on real estate: Fair values are estimated by discounting expected cash flows, using interest rates currently offered for similar loans. Policy loans: Carrying values approximate the estimated fair value for policy loans. Short-term investments and cash and cash equivalents: Carrying values reported in the Companies' historical cost basis balance sheet approximate estimated fair value for these instruments due to their short-term nature. Separate account assets: Separate account assets are reported at the quoted fair values of the individual securities in the separate accounts. Annuity products: Estimated fair values of the Companies' liabilities for future policy benefits for the divisions of the variable annuity products with fixed interest guarantees and for supplemental contracts without life contingencies are stated at cash surrender value, the cost the Companies would incur to extinguish the liability. Surplus notes: Estimated fair value of the Companies' surplus notes were based upon discounted future cash flows using a discount rate approximating the current market value. Revolving note payable: Carrying value reported in the Companies' historical cost basis balance sheet approximates estimated fair value for this instrument, as the agreement carries a variable interest rate provision. Separate account liabilities: Separate account liabilities are reported at full account value in the Companies' historical cost balance sheet. Estimated fair values of separate account liabilities are equal to their carrying amount. 6. MERGER Transaction: On October 23, 1997, Equitable's shareholders approved the Merger Agreement dated July 7, 1997 among Equitable, PFHI, and ING. On October 24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding capital stock of Equitable according to the Merger Agreement. PFHI is a wholly owned subsidiary of ING, a global financial services holding company based in The Netherlands. Equitable, an Iowa corporation, in turn, owned all the outstanding capital stock of Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American and their wholly owned subsidiaries. In addition, Equitable owned all the outstanding capital stock of Locust Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II, and Equitable of Iowa Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange for the outstanding capital stock of Equitable, ING paid total consideration of approximately $2.1 billion in cash and stock and assumed approximately $400 million in debt. As a result of this transaction, Equitable was merged into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. All costs of the merger, including expenses to terminate certain benefit plans, were paid by the Parent. 26 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 6. MERGER (continued) Accounting Treatment: The merger was accounted for as a purchase resulting in a new basis of accounting, reflecting estimated fair values for assets and liabilities at October 24, 1997. The purchase price was allocated to EIC and its subsidiaries with $227,497,000 allocated to the Companies. Goodwill was established for the excess of the merger cost over the fair value of the net assets and attributed to EIC and its subsidiaries including Golden American and First Golden. The amount of goodwill allocated to the Companies relating to the merger was $151,127,000 at the merger date and is being amortized over 40 years on a straight-line basis. The carrying value of goodwill will be reviewed periodically for any indication of impairment in value. The Companies' DPAC, previous balance of VPIF, and unearned revenue reserve, as of the merger date, were eliminated and a new asset of $44,297,000 representing VPIF was established for all policies in force at the merger date. Value of Purchased Insurance In Force: As part of the merger, a portion of the acquisition cost was allocated to the right to receive future cash flows from insurance contracts existing with the Companies at the merger date. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flow at the discount rate determined by ING. An analysis of the VPIF asset follows:
POST-MERGER ------------------------------------------------- For the period For the year For the year October 25, 1997 ended ended through December 31, December 31, December 31, 1997 ------------------------------------------------- (Dollars in thousands) Beginning balance........................ $35,977 $43,174 $44,297 ------- ------- ------- Imputed interest......................... 2,373 2,802 1,004 Amortization............................. (7,930) (7,753) (1,952) Changes in assumptions of timing of gross profits.......................... (681) 227 -- ------- ------- ------- Net amortization......................... (6,238) (4,724) (948) Adjustment for unrealized gains (losses) on available for sale securities....... 1,988 (28) (175) Adjustment for other receivables and merger costs........................... -- (2,445) -- ------- ------- ------- Ending balance........................... $31,727 $35,977 $43,174 ======= ======= =======
27 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 6. MERGER (continued) Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for the year ended December 31, 1999, 7.38% for the year ended December 31, 1998, and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999, VPIF was adjusted to increase amortization by $681,000 to reflect changes in the assumptions related to the timing of estimated gross profits. The amortization of VPIF, net of imputed interest, is charged to expense. VPIF decreased $2,664,000 during 1998 to adjust the value of other receivables and increased $219,000 in 1998 as a result of an adjustment to the merger costs. VPIF is adjusted for the unrealized gains (losses) on available for sale securities; such changes are included directly in stockholder's equity. Based on current conditions and assumptions as to the impact of future events on acquired policies in force, the expected approximate net amortization relating to VPIF as of December 31, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in 2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary based upon changes in assumptions and experience. 7. ACQUISITION Transaction: On August 13, 1996, Equitable acquired all of the outstanding capital stock of BT Variable from Whitewood, a wholly owned subsidiary of Bankers Trust Company ("Bankers Trust"), according to the terms of the Purchase Agreement dated May 3, 1996 between Equitable and Whitewood. In exchange for the outstanding capital stock of BT Variable, Equitable paid the sum of $93,000,000 in cash to Whitewood in accordance with the terms of the Purchase Agreement. Equitable also paid the sum of $51,000,000 in cash to Bankers Trust to retire certain debt owed by BT Variable to Bankers Trust pursuant to a revolving credit arrangement. After the acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden American and DSI were transferred to Equitable, while the remainder of its net assets were contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was dissolved. Accounting Treatment: The acquisition was accounted for as a purchase resulting in a new basis of accounting, which reflected estimated fair values for assets and liabilities at August 13, 1996. The purchase price was allocated to the three companies purchased - BT Variable, DSI, and Golden American. The allocation of the purchase price to Golden American was approximately $139,872,000. Goodwill was established for the excess of the purchase price over the fair value of the net assets acquired and attributed to Golden American. The amount of goodwill relating to the acquisition was $41,113,000 and was amortized over 25 years on a straight-line basis until the October 24, 1997 merger with ING. Golden American's DPAC, previous balance of VPIF, and unearned revenue reserve, as of the acquisition date, were eliminated and an asset of $85,796,000 representing VPIF was established for all policies in force at the acquisition date. Value of Purchased Insurance In Force: As part of the acquisition, a portion of the acquisition cost was allocated to the right to receive future cash flows from the insurance contracts existing with Golden American at the date of acquisition. This allocated cost represents VPIF reflecting the value of those purchased policies calculated by discounting the actuarially determined expected future cash flows at the discount rate determined by Equitable. 28 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 7. ACQUISITION (continued) An analysis of the VPIF asset follows:
POST-ACQUISITION ---------------- For the period January 1, 1997 through October 24, 1997 ---------------- (Dollars in thousands) Beginning balance............ $ 83,051 -------- Imputed interest............. 5,138 Amortization................. (12,656) Changes in assumption of timing of gross profits.... 2,293 -------- Net amortization............. (5,225) Adjustment for unrealized gains on available for sale securities............ (373) -------- Ending balance............... $ 77,453 ========
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to 7.80% for the period January 1, 1997 through October 24, 1997. The amortization of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted for the unrealized gains on available for sale securities; such changes were included directly in stockholder's equity. 8. INCOME TAXES Golden American files a consolidated federal income tax return. Under the Internal Revenue Code, a newly acquired insurance company cannot file as part of the Parent's consolidated tax return for 5 years. At December 31, 1999, the Companies have net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $161,799,000. Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL carryforwards are available to offset future taxable income of the Companies through the years 2011, 2012, 2013, and 2014, respectively. INCOME TAX EXPENSE (BENEFIT) Income tax expense (benefit) included in the consolidated financial statements follows: POST-MERGER |POST-ACQUISITION --------------------------------------------|---------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | -------------- (Dollars in thousands) | Current -- -- -- | $ 12 Deferred $8,523 $5,279 $146 | (1,349) ------ ------ ---- | ------- $8,523 $5,279 $146 | $(1,337) ====== ====== ==== | ======= 29 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 8. INCOME TAXES (continued) The effective tax rate on income (loss) before income taxes is different from the prevailing federal income tax rate. A reconciliation of this difference follows:
POST-MERGER |POST-ACQUISITION ---------------------------------------------|----------------- For the period | For the period October 25, | January 1, For the year For the year 1997 | 1997 ended ended through | through December 31, December 31, December 31, | October 24, 1999 1998 1997 | 1997 ------------ ------------ -------------- | ------------- (Dollars in thousands) | Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608) ======= ======= ===== ======= | Income tax (benefit) at federal | statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213) Tax effect (decrease) of: | Goodwill amortization............ 1,322 1,322 220 | -- Compensatory stock option and restricted stock expense....... -- -- -- | (1,011) Meals and entertainment.......... 199 157 23 | 53 Other items...................... 94 176 1 | (166) ------- ------- ------- | -------- Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337) ======= ======= ======= | ========
30 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 8. INCOME TAXES (continued) DEFERRED INCOME TAXES The tax effect of temporary differences giving rise to the Companies' deferred income tax assets and liabilities at December 31, 1999 and 1998 follows: POST-MERGER ---------------------------- December 31, December 31, 1999 1998 ------------ ------------ (Dollars in thousands) Deferred tax assets: Net unrealized depreciation of securities at fair value............................ -- $1,023 Net unrealized depreciation of available for sale fixed maturities................ $3,745 -- Future policy benefitS..................... 133,494 66,273 Goodwill................................... 16,323 16,323 Net operating loss carryforwards........... 56,630 17,821 Other...................................... 1,333 1,272 ------- ------- 211,525 102,712 Deferred tax liabilities: Net unrealized appreciation of securities at fair value............................ (832) -- Net unrealized appreciation of available for sale fixed maturities................ -- (332) Fixed maturity securities.................. (17,774) (1,034) Deferred policy acquisition costs.......... (154,706) (55,520) Mortgage loans on real estate.............. (715) (845) Value of purchased insurance in force...... (10,462) (12,592) Other...................................... (1,348) (912) ------- ------- (185,837) (71,235) ------- ------- Valuation allowance........................... (3,745) -- ------- ------- Deferred income tax asset..................... $21,943 $31,477 ======= ======= At December 31, 1999, the Company reported, for financial statement purposes, unrealized losses on certain investments which have not been recognized for tax purposes. The Companies have established a valuation allowance against the deferred income tax assets associated with unrealized depreciation on fixed maturities available for sale as the Companies are uncertain as to whether their capital losses, if ever realized, could be utilized to offset future capital gains. 31 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION DEFINED BENEFIT PLANS In 1999 and 1998, the Companies were allocated their share of the pension liability associated with their employees. The Companies' employees are covered by the employee retirement plan of an affiliate, Equitable Life. Further, Equitable Life sponsors a defined contribution plan that is qualified under Internal Revenue Code Section 401(k). The following tables summarize the benefit obligations and the funded status for pension benefits over the two-year period ended December 31, 1999: 1999 1998 ----------------------------------- (Dollars in thousands) Change in benefit obligation: Benefit obligation at January 1... $ 4,454 $956 Service cost...................... 1,500 1,138 Interest cost..................... 323 97 Actuarial (gain) loss............. (2,056) 2,266 Benefit payments.................. -- (3) ------- ------- Benefit obligation at December 31. $ 4,221 $ 4,454 ======= ======= Funded status: Funded status at December 31...... $(4,221) $(4,454) Unrecognized net loss............. 210 2,266 ------- ------- Net amount recognized............. $(4,011) $(2,188) ======= ======= The Companies' plan assets were held by Equitable Life, an affiliate. During 1998, the Equitable Life Employee Pension Plan began investing in an undivided interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit and Trust Company holds the Master Trust's investment assets. The weighted-average assumptions used in the measurement of the Companies' benefit obligation follows: December 31 1999 1998 - ----------------------------------------------------------------- Discount rate.................... 8.00% 6.75% Expected return on plan assets... 9.25 9.50 Rate of compensation increase.... 5.00 4.00 32 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued) The following table provides the net periodic benefit cost for the fiscal years 1999, 1998, and 1997:
POST-MERGER |POST-ACQUISITION ----------------------------------------------|--------------------- For the year For the year For the period | For the period ended ended October 25, 1997 | January 1, 1997 December 31, December 31, through | through 1999 1998 December 31, 1997 |October 24, 1997 ----------------------------------------------|--------------------- (Dollars in thousands) | Service cost................ $1,500 $1,138 $114 | $568 Interest cost............... 323 97 10 | 15 Amortization of net loss.... -- -- -- | 1 ------ ------ ---- | ---- Net periodic benefit cost... $1,823 $1,235 $124 | $584 ====== ====== ==== | ====
There were no gains or losses resulting from curtailments or settlements during 1999, 1998, or 1997. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $4,221,000, $2,488,000, and $0, respectively, as of December 31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31, 1998. During 1997, ING approved the 1997 Phantom Plan for certain key employees. The Phantom Plan is similar to a standard stock option plan; however, the phantom share option entitles the holder to a cash benefit in Dutch Guilders linked to the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The plan participants are entitled to any appreciation in the value of ING ordinary shares over the Phantom Plan option price (strike price) of 53.85 Euros for options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May 26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the ordinary shares themselves. Options are granted at fair value on the date of grant. Options in the Phantom Plan are subject to forfeiture to ING should the individuals terminate their relationship with ING before the three-year initial retention period has elapsed. All options expire five years from the date of grant. On July 1, 1999, ING issued 34,750 options to employees of Golden American related to this plan at a strike price of 53.85 Euros. On May 26, 1998, ING issued 42,400 options related to this plan at a strike price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was higher than the ING share price, there was no compensation expense related to these options in 1998. On May 23, 1997, ING issued 3,500 options related to this plan at a strike price of 85.10 Dutch Guilders. Since the strike price was lower than the ING share price at December 31, 1998, Golden American incurred $46,000 of compensation expense related to these options during 1998. No expense was recognized in 1999 related to the above options. As of December 31, 1999, 58,250 options remain outstanding. 10. RELATED PARTY TRANSACTIONS Operating Agreements: DSI, an affiliate, acts as the principal underwriter (as defined in the Securities Act of 1933 and the Investment Company Act of 1940, as amended) and distributor of the variable insurance products issued by the Companies. DSI is authorized to enter into agreements with broker/dealers to 33 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) distribute the Companies' variable insurance products and appoint representatives of the broker/dealers as agents. For the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the Companies paid commissions to DSI totaling $181,536,000, $117,470,000, $9,931,000, and $26,419,000, respectively. Golden American provides certain managerial and supervisory services to DSI. The fee paid by DSI for these services is calculated as a percentage of average assets in the variable separate accounts. For the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000, $508,000, and $2,262,000, respectively. Effective January 1, 1998, the Companies have an asset management agreement with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM provides asset management and accounting services. Under the agreement, the Companies record a fee based on the value of the assets under management. The fee is payable quarterly. For the years ended December 31, 1999 and 1998, the Companies incurred fees of $2,227,000 and $1,504,000, respectively, under this agreement. Prior to 1998, the Companies had a service agreement with Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided investment management services. Payments for these services totaled $200,000 and $768,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. Golden American has a guaranty agreement with Equitable Life, an affiliate. In consideration of an annual fee, payable June 30, Equitable Life guarantees to Golden American that it will make funds available, if needed, to Golden American to pay the contractual claims made under the provisions of Golden American's life insurance and annuity contracts. The agreement is not, and nothing contained therein or done pursuant thereto by Equitable Life shall be deemed to constitute, a direct or indirect guaranty by Equitable Life of the payment of any debt or other obligation, indebtedness, or liability, of any kind or character whatsoever, of Golden American. The agreement does not guarantee the value of the underlying assets held in separate accounts in which funds of variable life insurance and variable annuity policies have been invested. The calculation of the annual fee is based on risk based capital. As Golden American's risk based capital level was above required amounts, no annual fee was payable in 1999 or in 1998. Golden American provides certain advisory, computer, and other resources and services to Equitable Life. Revenues for these services, which reduced general expenses incurred by Golden American, totaled $6,107,000 and $5,833,000 for the years ended December 31, 1999 and 1998, respectively ($1,338,000 and $2,992,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). The Companies have a service agreement with Equitable Life in which Equitable Life provides administrative and financial related services. Under this agreement, the Companies incurred expenses of $1,251,000 and $1,058,000 for the years ended December 31, 1999 and 1998, respectively ($13,000 and $16,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). First Golden provides resources and services to DSI. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $387,000 in 1999 and $75,000 in 1998. Golden American provides resources and services to ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $244,000 in 1999. 34 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) Golden American provides resources and services to United Life & Annuity Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by Golden American, totaled $460,000 in 1999. The Companies provide resources and services to Security Life of Denver Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $216,000 in 1999. The Companies provide resources and services to Southland Life Insurance Company, an affiliate. Revenues for these services, which reduce general expenses incurred by the Companies, totaled $103,000 in 1999. In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total premiums, net of reinsurance, for variable products sold through five affiliates as noted in the following table:
POST-MERGER |POST-ACQUISITION ----------------------------------------------|----------------- | For the year For the year For the period | For the period ended ended October 25, 1997 |January 1, 1997 December 31, December 31, through | through 1999 1998 December 31, 1997|October 24, 1997 ------------ ------------ -----------------|---------------- (Dollars in millions) | LSSI.................................. $168.5 $122.9 $9.3 | $16.9 Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2 DSI................................... 2.5 13.6 2.1 | 0.4 Multi-Financial Securities Corporation 44.1 13.4 -- | -- IFG Network Securities, Inc........... 25.8 3.7 -- | -- ------ ------ ----- | ----- Total................................. $329.0 $198.5 $13.3 | $18.5 ====== ====== ===== | =====
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate, to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH, Golden American must obtain the approval from the Department of Insurance of the State of Delaware. Interest on any Golden American borrowings is charged at the rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, Golden American incurred interest expense of $815,000 in 1999 and $1,765,000 in 1998. At December 31, 1999 and 1998, Golden American did not have any borrowings or receivables from ING AIH under this agreement. Line of Credit: Golden American maintained a line of credit agreement with Equitable to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective December 1, 1996 and expired December 31, 1997, Golden American could borrow up to $25,000,000. Interest on any borrowings was charged at the rate of Equitable's monthly average aggregate cost of short-term funds plus 1.00%. Under this agreement, Golden American incurred interest expense of $211,000 for the year ended December 31, 1998 ($213,000 for the period October 25, 1997 through December 31, 1997 and $362,000 for the period January 1, 1997 through October 24, 1997). The outstanding balance was paid by a capital contribution and with funds borrowed from ING AIH. 35 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 10. RELATED PARTY TRANSACTIONS (continued) Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus note in the amount of $50,000,000 to Equitable Life. The note matures on December 29, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred no interest in 1999. On December 8, 1999, Golden American issued a 7.979% surplus note in the amount of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an affiliate. The note matures on December 7, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American paid no interest in 1999. On September 30, 1999, Golden American issued a 7.75% surplus note in the amount of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH assigned the note to Equitable Life. On December 30, 1998, Golden American issued a 7.25% surplus note in the amount of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors, other than surplus note holders, of Golden American. Any payment of principal and/or interest made is subject to the prior approval of the Delaware Insurance Commissioner. Under this agreement, Golden American incurred interest expense of $4,350,000 in 1999. Golden American incurred no interest in 1998. On December 17, 1996, Golden American issued an 8.25% surplus note in the amount of $25,000,000 to Equitable. The note matures on December 17, 2026. Payment of the note and related accrued interest is subordinate to payments due to policyholders, claimant, and beneficiary claims, as well as debts owed to all other classes of debtors of Golden American. Any payment of principal made is subject to the prior approval of the Delaware Insurance Commissioner. Golden American incurred interest totaling $2,063,000 in 1999, unchanged from 1998 ($344,000 and $1,720,000 for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively). On December 17, 1996, Golden American contributed the $25,000,000 to First Golden acquiring 200,000 shares of common stock (100% of outstanding stock). Stockholder'S Equity: During 1999 and 1998, Golden American received capital contributions from its Parent of $121,000,000 and $122,500,000, respectively. 11. COMMITMENTS AND CONTINGENCIES Reinsurance: At December 31, 1999, the Companies had reinsurance treaties with four unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks under its variable contracts. Golden American remains liable to the extent reinsurers do not meet their obligations under the reinsurance agreements. Reinsurance ceded in force for life mortality risks were $119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000 and $7,586,000, respectively, for reserve credits, reinsurance claims, or 36 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 11. COMMITMENTS AND CONTINGENCIES (continued) other receivables from these reinsurers comprised of $493,000 and $439,000, respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000, respectively, for a payable for reinsurance premiums, and $15,542,000 and $7,690,000, respectively, for a receivable from an unaffiliated reinsurer. Included in the accompanying financial statements are net considerations to reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. Effective June 1, 1994, Golden American entered into a modified coinsurance agreement with an unaffiliated reinsurer. The accompanying financial statements are presented net of the effects of the treaty which increased income by $1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, respectively. The reinsurance treaties that covered the nonstandard minimum guaranteed death benefits for new business have been terminated for business issued after December 31, 1999. The Companies are currently pursuing alternative reinsurance arrangements for new business issued after December 31, 1999. There can be no assurance that such alternative arrangements will be available. The reinsurance covering business in force at December 31, 1999 will continue to apply in the future. Guaranty Fund Assessments: Assessments are levied on the Companies by life and health guaranty associations in most states in which the Companies are licensed to cover losses of policyholders of insolvent or rehabilitated insurers. In some states, these assessments can be partially recovered through a reduction in future premium taxes. The Companies cannot predict whether and to what extent legislative initiatives may affect the right to offset. The associated cost for a particular insurance company can vary significantly based upon its fixed account premium volume by line of business and state premiums as well as its potential for premium tax offset. The Companies have established an undiscounted reserve to cover such assessments, review information regarding known failures, and revise estimates of future guaranty fund assessments. Accordingly, the Companies accrued and charged to expense an additional $3,000 and $1,123,000 for the years ended December 31, 1999 and 1998, respectively, $141,000 for the period October 25, 1997 through December 31, 1997 and $446,000 for the period January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the Companies have an undiscounted reserve of $2,444,000 and $2,446,000, respectively, to cover estimated future assessments (net of related anticipated premium tax credits) and has established an asset totaling $618,000 and $586,000, respectively, for assessments paid which may be recoverable through future premium tax offsets. The Companies believe this reserve is sufficient to cover expected future guaranty fund assessments based upon previous premiums and known insolvencies at this time. Litigation: The Companies, like other insurance companies, may be named or otherwise involved in lawsuits, including class action lawsuits and arbitrations. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement or award payments have been made. The Companies currently believe no pending or threatened lawsuits or actions exist that are reasonably likely to have a material adverse impact on the Companies. Vulnerability from Concentrations: The Companies have various concentrations in the investment portfolio (see Note 3 for further information). The Companies' asset growth, net investment income, and cash flow are primarily generated from the sale of variable insurance products and associated future policy benefits and separate account liabilities. Substantial changes in tax laws that would make these products less attractive to consumers and extreme fluctuations in interest rates or stock market returns, which may result in higher lapse experience than assumed, could cause a severe impact to the Companies' financial condition. Two broker/dealers, each having at least ten percent of total sales, generated 28% of the Companies' sales in 1999 37 GOLDEN AMERICAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 11. COMMITMENTS AND CONTINGENCIES (continued) (26% and 53% by two broker/dealers during 1998 and 1997, respectively). The Premium Plus product generated 79% of the Companies' sales during 1999 (63% during 1998 and 11% during 1997). Leases: The Companies lease their home office space, certain other equipment, and capitalized computer software under operating leases which expire through 2018. During the years ended December 31, 1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and January 1, 1997 through October 24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000, respectively. At December 31, 1999, minimum rental payments due under all non-cancelable operating leases with initial terms of one year or more are: 2000 - - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 - $2,419,000, and 2005 and thereafter - $42,852,000. Revolving Note Payable: To enhance short-term liquidity, the Companies established a revolving note payable effective July 27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). The note was approved by the Boards of Directors of Golden American and First Golden on August 5, 1998 and September 29, 1998, respectively. As of July 31, 1999, the SunTrust Bank, Atlanta revolving note facility was extended to July 31, 2000. The total amount the Companies may have outstanding is $85,000,000, of which Golden American and First Golden have individual credit sublimits of $75,000,000 and $10,000,000, respectively. The note accrues interest at an annual rate equal to: (1) the cost of funds for the Bank for the period applicable for the advance plus 0.25% or (2) a rate quoted by the Bank to the Companies for the advance. The terms of the agreement require the Companies to maintain the minimum level of Company Action Level Risk Based Capital as established by applicable state law or regulation. During the years ended December 31, 1999 and 1998, the Companies incurred interest expense of $198,000 and $352,000, respectively. 38 FINANCIAL STATEMENTS GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B YEAR ENDED DECEMBER 31, 1999 WITH REPORT OF INDEPENDENT AUDITORS GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS Report of Independent Auditors................................................1 Audited Financial Statements Statement of Net Assets.......................................................2 Statements of Operations......................................................3 Statements of Changes in Net Assets..........................................10 Notes to Financial Statements................................................17 Report of Independent Auditors The Board of Directors Golden American Life Insurance Company We have audited the accompanying statement of net assets of Golden American Life Insurance Company Separate Account B (comprised of the Liquid Asset, Limited Maturity Bond, Hard Assets, All-Growth, Real Estate, Fully Managed, Equity Income, Capital Appreciation, Rising Dividends, Emerging Markets, Market Manager, Value Equity, Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth, Capital Growth, Research, Total Return, Growth, Global Fixed Income, Developing World, Growth Opportunities, PIMCO High Yield Bond, PIMCO StocksPLUS Growth and Income, Appreciation, Smith Barney High Income, Smith Barney Large Cap Value, Smith Barney International Equity, Smith Barney Money Market, International Equity, Asset Allocation, Equity, Growth & Income, and High Quality Bond Divisions) as of December 31, 1999, and the related statements of operations and changes in net assets for in the periods disclosed in the financial statements. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the mutual funds' transfer agents. 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 financial position of Golden American Life Insurance Company Separate Account B at December 31, 1999, and the results of its operations and changes in its net assets for the periods described above, in conformity with accounting principles generally accepted in the United States. Des Moines, Iowa February 25, 2000 1
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENT OF NET ASSETS DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) ASSETS COMBINED ---------------- Investments at net asset value: The GCG Trust: Liquid Asset Series, 522,325,545 shares (cost - $522,326)........................................... $522,326 Limited Maturity Bond Series, 14,433,887 shares (cost - $154,603)................................... 150,401 Hard Assets Series, 3,310,341 shares (cost - $37,918)............................................... 38,929 All-Growth Series, 5,797,423 shares (cost - $94,713)................................................ 145,863 Real Estate Series, 4,593,787 shares (cost - $70,855)............................................... 55,677 Fully Managed Series, 17,755,369 shares (cost - $265,708)........................................... 267,218 Equity Income Series, 24,135,542 shares (cost - $297,021)........................................... 271,284 Capital Appreciation Series, 20,078,304 shares (cost - $350,171).................................... 401,967 Rising Dividends Series, 32,733,235 shares (cost - $673,802)........................................ 813,094 Emerging Markets Series, 2,895,632 shares (cost - $27,343).......................................... 35,472 Market Manager Series, 377,319 shares (cost - $4,795)............................................... 7,320 Value Equity Series, 8,851,843 shares (cost - $143,594)............................................. 137,380 Strategic Equity Series, 9,901,055 shares (cost - $141,166)......................................... 197,526 Small Cap Series, 13,840,816 shares (cost - $249,047)............................................... 324,429 Managed Global Series, 9,085,422 shares (cost - $154,794)........................................... 181,345 Mid-Cap Growth Series, 18,222,880 shares (cost - $408,884).......................................... 539,215 Capital Growth Series, 23,231,448 shares (cost - $371,151).......................................... 430,246 Research Series, 25,665,469 shares (cost - $520,404)................................................ 636,760 Total Return Series, 28,821,536 shares (cost - $458,931)............................................ 455,380 Growth Series, 43,852,669 shares (cost - $866,601).................................................. 1,205,510 Global Fixed Income Series, 2,113,119 shares (cost - $21,930)....................................... 21,258 Developing World Series, 4,470,012 shares (cost - $44,018).......................................... 51,673 Growth Opportunities Series, 598,117 shares (cost - $6,203)......................................... 6,663 PIMCO Variable Insurance Trust: PIMCO High Yield Bond Portfolio, 15,910,545 shares (cost - $150,798)................................ 146,059 PIMCO StocksPLUS Growth and Income Portfolio, 16,314,904 shares (cost - $215,031)................... 221,230 Greenwich Street Series Fund Inc.: Appreciation Portfolio, 42,012 shares (cost - $864)................................................. 983 Travelers Series Fund Inc.: Smith Barney High Income Portfolio, 45,269 shares (cost - $600)..................................... 547 Smith Barney Large Cap Value Portfolio, 32,943 shares (cost - $680)................................. 643 Smith Barney International Equity Portfolio, 23,358 shares (cost - $330)............................ 537 Smith Barney Money Market Portfolio, 579,382 shares (cost - $579)................................... 579 Warburg Pincus Trust: International Equity Portfolio, 10,513,073 shares (cost - $149,816)................................. 175,569 The Galaxy VIP Fund: Asset Allocation Portfolio, 7,851 shares (cost - $132).............................................. 133 Equity Portfolio, 13,379 shares (cost - $292)....................................................... 297 Growth & Income Portfolio, 9,830 shares (cost - $105)............................................... 107 High Quality Bond Portfolio, 2,818 shares (cost - $27).............................................. 27 ---------------- TOTAL ASSETS (cost - $6,405,232).................................................................... 7,443,647 LIABILITY Payable to Golden American Life Insurance Company (all pertaining to Market Manager Division).......... 236 ---------------- TOTAL NET ASSETS..................................................................................... $7,443,411 ================ NET ASSETS For variable annuity insurance contracts............................................................... $7,446,504 Retained in Separate Account B by Golden American Life Insurance Company............................... 3,093 ---------------- TOTAL NET ASSETS..................................................................................... $7,443,411 ================ 2
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (DOLLARS IN THOUSANDS) LIMITED LIQUID MATURITY HARD ALL- REAL ASSET BOND ASSETS GROWTH ESTATE DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $15,368 $5,178 $257 $22,107 $2,278 Capital gains distributions ................ -- -- -- 5,823 1,527 --------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 15,368 5,178 257 27,930 3,805 Expenses: Mortality and expense risk and other charges 4,755 1,698 494 1,297 818 Annual administrative charges .............. 94 37 16 46 27 Minimum death benefit guarantee charges .... 8 1 1 1 1 Contingent deferred sales charges .......... 3,171 129 119 89 112 Other contract charges ..................... 7 3 2 3 1 Amortization of deferred charges related to: Deferred sales load ...................... 553 275 85 326 159 Premium taxes ............................ 18 2 -- 2 1 --------------------------------------------------------------------- TOTAL EXPENSES .............................. 8,606 2,145 717 1,764 1,119 --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 6,762 3,033 (460) 26,166 2,686 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... -- (153) (9,098) 12,611 452 Net unrealized appreciation (depreciation) of investments ........................... -- (3,486) 15,365 41,917 (6,895) --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $6,762 $(606) $5,807 $80,694 $(3,757) ===================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 3
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) FULLY EQUITY CAPITAL RISING EMERGING MANAGED INCOME APPRECIATION DIVIDENDS MARKETS DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $10,485 $13,369 $6,809 $4,048 $350 Capital gains distributions ................ 9,191 14,763 35,936 16,664 -- -------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 19,676 28,132 42,745 20,712 350 Expenses: Mortality and expense risk and other charges 3,284 3,262 3,945 9,409 321 Annual administrative charges .............. 102 143 113 209 14 Minimum death benefit guarantee charges .... 1 6 1 1 1 Contingent deferred sales charges .......... 170 137 246 725 27 Other contract charges ..................... 6 9 8 13 1 Amortization of deferred charges related to: Deferred sales load ...................... 570 1,165 763 776 100 Premium taxes ............................ 2 2 3 3 1 -------------------------------------------------------------------- TOTAL EXPENSES .............................. 4,135 4,724 5,079 11,136 465 -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 15,541 23,408 37,666 9,576 (115) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 4,586 604 12,525 12,658 (839) Net unrealized appreciation (depreciation) of investments ........................... (8,712) (30,854) 16,816 60,461 17,638 -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $11,415 $(6,842) $67,007 $82,695 $16,684 ==================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 4
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MARKET VALUE STRATEGIC SMALL MANAGED MANAGER EQUITY EQUITY CAP GLOBAL DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $110 $1,231 $211 $6,243 $9,130 Capital gains distributions ................ 973 2,440 549 2,817 15,707 --------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 1,083 3,671 760 9,060 24,837 Expenses: Mortality and expense risk and other charges -- 1,869 1,454 2,692 1,667 Annual administrative charges .............. -- 52 29 57 54 Minimum death benefit guarantee charges .... -- -- -- -- 1 Contingent deferred sales charges .......... -- 129 252 157 195 Other contract charges ..................... -- 2 1 2 4 Amortization of deferred charges related to: Deferred sales load ...................... 40 151 75 82 397 Premium taxes ............................ -- -- 1 1 1 --------------------------------------------------------------------- TOTAL EXPENSES .............................. 40 2,203 1,812 2,991 2,319 --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 1,043 1,468 (1,052) 6,069 22,518 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 861 5,066 5,704 30,614 42,644 Net unrealized appreciation (depreciation) of investments ........................... (880) (9,606) 54,916 54,213 6,404 --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $1,024 $(3,072) $59,568 $90,896 $71,566 ===================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 5
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MID-CAP CAPITAL TOTAL GROWTH GROWTH RESEARCH RETURN GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $41,872 $22,161 $7,421 $12,635 $12,825 Capital gains distributions ................ 2,355 669 2,686 1,756 1,124 ------------------------------------------------------------------ TOTAL INVESTMENT INCOME ..................... 44,227 22,830 10,107 14,391 13,949 Expenses: Mortality and expense risk and other charges 3,582 4,167 6,574 5,403 7,294 Annual administrative charges .............. 59 91 117 106 102 Minimum death benefit guarantee charges .... -- -- -- -- 1 Contingent deferred sales charges .......... 244 294 380 297 405 Other contract charges ..................... 2 1 3 1 3 Amortization of deferred charges related to: Deferred sales load ...................... 68 68 110 83 95 Premium taxes ............................ 1 -- 1 1 1 ------------------------------------------------------------------ TOTAL EXPENSES .............................. 3,956 4,621 7,185 5,891 7,901 ------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) ................ 40,271 18,209 2,922 8,500 6,048 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 27,166 3,969 2,750 531 46,796 Net unrealized appreciation (depreciation) of investments ........................... 122,970 50,167 99,090 (4,991) 324,922 ------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $190,407 $72,345 $104,762 $4,040 $377,766 ================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 6
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) PIMCO PIMCO GLOBAL HIGH STOCKSPLUS FIXED DEVELOPING GROWTH YIELD GROWTH AND INCOME WORLD OPPORTUNITIES BOND INCOME DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $345 $1,400 $162 $8,321 $12,203 Capital gains distributions ................ -- -- 130 -- 6,865 ------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 345 1,400 292 8,321 19,068 Expenses: Mortality and expense risk and other charges 237 260 95 1,537 2,030 Annual administrative charges .............. 3 4 1 19 20 Minimum death benefit guarantee charges .... -- -- -- -- -- Contingent deferred sales charges .......... 22 11 2 68 95 Other contract charges ..................... -- -- -- -- -- Amortization of deferred charges related to: Deferred sales load ...................... 2 -- 1 13 16 Premium taxes ............................ -- -- -- -- -- ------------------------------------------------------------------- TOTAL EXPENSES .............................. 264 275 99 1,637 2,161 ------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 81 1,125 193 6,684 16,907 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... (939) 2,134 732 (974) 4,397 Net unrealized appreciation (depreciation) of investments ........................... (662) 7,506 111 (4,721) 1,944 ------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $(1,520) $10,765 $1,036 $989 $23,248 =================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 7
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) SMITH SMITH SMITH SMITH BARNEY BARNEY BARNEY BARNEY HIGH LARGE CAP INTERNATIONAL MONEY APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $7 $53 $10 $1 $11 Capital gains distributions ................ 17 -- 21 -- -- -------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 24 53 31 1 11 Expenses: Mortality and expense risk and other charges 14 9 10 5 3 Annual administrative charges .............. 1 1 1 -- -- Minimum death benefit guarantee charges .... -- -- -- -- -- Contingent deferred sales charges .......... 2 -- 1 -- -- Other contract charges ..................... -- -- -- -- -- Amortization of deferred charges related to: Deferred sales load ...................... -- -- -- -- -- Premium taxes ............................ -- -- -- -- -- -------------------------------------------------------------------- TOTAL EXPENSES .............................. 17 10 12 5 3 -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 7 43 19 (4) 8 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 23 (48) 10 20 -- Net unrealized appreciation (depreciation) of investments ........................... 76 10 (47) 214 -- -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $106 $5 $(18) $230 $8 ==================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 8
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) INTERNATIONAL ASSET GROWTH & HIGH QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION(b) DIVISION(b) DIVISION(a) DIVISION(c) COMBINED ------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) Income: Dividends ...................................... $1,432 $1 -- -- -- $218,034 Capital gains distributions .................... -- 1 $7 $1 -- 122,022 ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME ......................... 1,432 2 7 1 -- 340,056 Expenses: Mortality and expense risk and other charges ... 1,371 -- -- -- -- 69,556 Annual administrative charges .................. 21 -- -- -- -- 1,539 Minimum death benefit guarantee charges ........ -- -- -- -- -- 24 Contingent deferred sales charges .............. 87 -- -- -- -- 7,566 Other contract charges ......................... -- -- -- -- -- 72 Amortization of deferred charges related to: Deferred sales load .......................... -- -- -- -- -- 5,973 Premium taxes ................................ 1 -- -- -- -- 42 ------------------------------------------------------------------------------ TOTAL EXPENSES .................................. 1,480 -- -- -- -- 84,772 ------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) .................... (48) 2 7 1 -- 255,284 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ........ 30,975 -- -- -- $(1) 235,776 Net unrealized appreciation (depreciation) of investments ............................... 24,199 1 5 2 -- 828,093 ------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $55,126 $3 $12 $3 $(1) $1,319,153 ============================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 9
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (DOLLARS IN THOUSANDS) LIMITED LIQUID MATURITY HARD ALL- REAL ASSET BOND ASSETS GROWTH ESTATE DIVISION DIVISION DIVISION DIVISION DIVISION ----------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $57,254 $52,467 $45,503 $71,738 $74,700 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 3,131 1,782 2,033 (905) 8,244 Net realized gain (loss) on investments ..... -- 872 (6,941) 330 3,708 Net unrealized appreciation (depreciation) of investments ............................ -- 739 (8,620) 6,240 (24,689) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 3,131 3,393 (13,528) 5,665 (12,737) Changes from principal transactions: Purchase payments ........................... 227,924 42,180 7,508 15,762 24,639 Contract distributions and terminations ..... (38,803) (9,265) (4,524) (9,206) (6,988) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (73,759) 14,051 (5,266) (2,159) (10,631) Addition to assets retained in the Account by Golden American Life Insurance Company .... 12 6 10 7 12 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 115,374 46,972 (2,272) 4,404 7,032 ---------------------------------------------------------------------- Total increase (decrease) ..................... 118,505 50,365 (15,800) 10,069 (5,705) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 175,759 102,832 29,703 81,807 68,995 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 6,762 3,033 (460) 26,166 2,686 Net realized gain (loss) on investments ..... -- (153) (9,098) 12,611 452 Net unrealized appreciation (depreciation) of investments ............................ -- (3,486) 15,365 41,917 (6,895) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 6,762 (606) 5,807 80,694 (3,757) Changes from principal transactions: Purchase payments ........................... 466,501 67,604 7,898 9,526 9,108 Contract distributions and terminations ..... (123,045) (15,384) (5,361) (15,134) (9,074) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (3,655) (4,046) 881 (11,033) (9,597) Addition to assets retained in the Account by Golden American Life Insurance Company .... 4 1 1 3 2 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 339,805 48,175 3,419 (16,638) (9,561) ---------------------------------------------------------------------- Total increase (decrease) ..................... 346,567 47,569 9,226 64,056 (13,318) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $522,326 $150,401 $38,929 $145,863 $55,677 ====================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 10
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) FULLY EQUITY CAPITAL RISING EMERGING MANAGED INCOME APPRECIATION DIVIDENDS MARKETS DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $158,650 $261,869 $187,817 $215,943 $34,501 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 15,626 23,815 18,956 12,920 (524) Net realized gain (loss) on investments ..... 1,704 2,288 6,551 3,842 (3,524) Net unrealized appreciation (depreciation) of investments ............................ (10,501) (10,125) (3,987) 17,344 (4,266) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 6,829 15,978 21,520 34,106 (8,314) Changes from principal transactions: Purchase payments ........................... 74,467 34,793 63,892 216,682 2,520 Contract distributions and terminations ..... (19,367) (39,339) (26,711) (26,449) (2,973) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 5,756 581 10,035 60,274 (3,483) Addition to assets retained in the Account by Golden American Life Insurance Company..... 31 28 25 60 3 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 60,887 (3,937) 47,241 250,567 (3,933) ---------------------------------------------------------------------- Total increase (decrease) ..................... 67,716 12,041 68,761 284,673 (12,247) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 226,366 273,910 256,578 500,616 22,254 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 15,541 23,408 37,666 9,576 (115) Net realized gain (loss) on investments ..... 4,586 604 12,525 12,658 (839) Net unrealized appreciation (depreciation) of investments ............................ (8,712) (30,854) 16,816 60,461 17,638 ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 11,415 (6,842) 67,007 82,695 16,684 Changes from principal transactions: Purchase payments ........................... 62,680 62,880 107,357 245,047 1,445 Contract distributions and terminations ..... (30,839) (54,241) (44,732) (59,723) (3,546) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (2,413) (4,436) 15,746 44,445 (1,366) Addition to assets retained in the Account by Golden American Life Insurance Company .... 9 13 11 14 1 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 29,437 4,216 78,382 229,783 (3,466) ---------------------------------------------------------------------- Total increase (decrease) ..................... 40,852 (2,626) 145,389 312,478 13,218 ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $267,218 $271,284 $401,967 $813,094 $35,472 ====================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 11
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MARKET VALUE STRATEGIC SMALL MANAGED MANAGER EQUITY EQUITY CAP GLOBAL DIVISION DIVISION DIVISION DIVISION DIVISION ----------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $6,716 $77,025 $50,437 $52,725 $104,681 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 299 1,994 3,586 (1,343) 3,296 Net realized gain (loss) on investments ..... 135 1,237 1,365 2,148 7,634 Net unrealized appreciation (depreciation) of investments ............................ 1,090 (4,208) (6,078) 15,952 16,611 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 1,524 (977) (1,127) 16,757 27,541 Changes from principal transactions: Purchase payments ........................... (36) 51,484 25,972 44,851 11,958 Contract distributions and terminations ..... (188) (7,869) (5,201) (6,104) (13,329) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (309) 6,521 1,265 16,010 (176) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- 10 2 6 9 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (533) 50,146 22,038 54,763 (1,538) ---------------------------------------------------------------------------- Total increase (decrease) ..................... 991 49,169 20,911 71,520 26,003 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 7,707 126,194 71,348 124,245 130,684 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 1,043 1,468 (1,052) 6,069 22,518 Net realized gain (loss) on investments ..... 861 5,066 5,704 30,614 42,644 Net unrealized appreciation (depreciation) of investments ............................ (880) (9,606) 54,916 54,213 6,404 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 1,024 (3,072) 59,568 90,896 71,566 Changes from principal transactions: Purchase payments ........................... 77 33,542 56,281 94,650 8,846 Contract distributions and terminations ..... (1,399) (13,124) (11,518) (11,971) (21,244) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (325) (6,161) 21,844 26,607 (8,510) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- 1 3 2 3 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (1,647) 14,258 66,610 109,288 (20,905) ---------------------------------------------------------------------------- Total increase (decrease) ..................... (623) 11,186 126,178 200,184 50,661 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $7,084 $137,380 $197,526 $324,429 $181,345 ============================================================================ (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 12
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MID-CAP CAPITAL TOTAL GROWTH GROWTH RESEARCH RETURN GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION ---------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $20,361 $44,922 $34,402 $26,231 $23,178 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 3,991 2,904 10,068 9,099 4,697 Net realized gain (loss) on investments ..... 899 911 972 185 (807) Net unrealized appreciation (depreciation) of investments ............................ 6,574 7,679 16,878 1,028 15,417 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 11,464 11,494 27,918 10,312 19,307 Changes from principal transactions: Purchase payments ........................... 66,121 105,760 167,295 156,492 77,977 Contract distributions and terminations ..... (3,065) (7,503) (6,740) (7,889) (3,834) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 21,962 24,270 60,643 42,666 26,430 Addition to assets retained in the Account by Golden American Life Insurance Company .... 1 7 11 23 10 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 85,019 122,534 221,209 191,292 100,583 ---------------------------------------------------------------------------- Total increase (decrease) ..................... 96,483 134,028 249,127 201,604 119,890 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 116,844 178,950 283,529 227,835 143,068 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 40,271 18,209 2,922 8,500 6,048 Net realized gain (loss) on investments ..... 27,166 3,969 2,750 531 46,796 Net unrealized appreciation (depreciation) of investments ............................ 122,970 50,167 99,090 (4,991) 324,922 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 190,407 72,345 104,762 4,040 377,766 Changes from principal transactions: Purchase payments ........................... 167,461 158,765 232,103 191,000 444,759 Contract distributions and terminations ..... (15,116) (16,970) (24,594) (22,055) (28,748) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 79,613 37,151 40,954 54,551 268,657 Addition to assets retained in the Account by Golden American Life Insurance Company .... 6 5 6 9 8 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 231,964 178,951 248,469 223,505 684,676 ---------------------------------------------------------------------------- Total increase (decrease) ..................... 422,371 251,296 353,231 227,545 1,062,442 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $539,215 $430,246 $636,760 $455,380 $1,205,510 ============================================================================ (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 13
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) PIMCO PIMCO GLOBAL HIGH STOCKSPLUS FIXED DEVELOPING GROWTH YIELD GROWTH AND INCOME WORLD OPPORTUNITIES BOND INCOME DIVISION DIVISION(a) DIVISION(a) DIVISION(c) DIVISION(b) ---------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $206 -- -- -- -- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 174 $(22) $(8) $817 $814 Net realized gain (loss) on investments ..... 216 (266) (235) (318) (97) Net unrealized appreciation (depreciation) of investments ............................ -- 149 349 (18) 4,255 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 390 (139) 106 481 4,972 Changes from principal transactions: Purchase payments ........................... 5,820 2,757 4,097 32,399 29,368 Contract distributions and terminations ..... (219) (34) (45) (912) (361) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 3,331 1,928 (27) 14,150 17,822 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- 1 --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 8,932 4,651 4,025 45,637 46,830 --------------------------------------------------------------------------- Total increase (decrease) ..................... 9,322 4,512 4,131 46,118 51,802 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 9,528 4,512 4,131 46,118 51,802 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 81 1,125 193 6,684 16,907 Net realized gain (loss) on investments ..... (939) 2,134 732 (974) 4,397 Net unrealized appreciation (depreciation) of investments ............................ (662) 7,506 111 (4,721) 1,944 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. (1,520) 10,765 1,036 989 23,248 Changes from principal transactions: Purchase payments ........................... 10,947 14,639 1,833 73,017 122,580 Contract distributions and terminations ..... (1,341) (740) (256) (6,247) (5,161) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 3,644 22,497 (81) 32,181 28,758 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- 1 3 --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 13,250 36,396 1,496 98,952 146,180 --------------------------------------------------------------------------- Total increase (decrease) ..................... 11,730 47,161 2,532 99,941 169,428 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $21,258 $51,673 $6,663 $146,059 $221,230 =========================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 14
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) SMITH SMITH SMITH SMITH BARNEY BARNEY BARNEY BARNEY HIGH LARGE CAP INTERNATIONAL MONEY APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $263 $209 $215 $96 $181 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 30 36 14 (3) 14 Net realized gain (loss) on investments ..... 3 8 2 (1) -- Net unrealized appreciation (depreciation) of investments ............................ 52 (66) 3 (2) -- --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 85 (22) 19 (6) 14 Changes from principal transactions: Purchase payments ........................... 595 530 429 178 565 Contract distributions and terminations ..... (21) (15) (5) (4) (25) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 52 104 43 62 (417) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- -- --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 626 619 467 236 123 --------------------------------------------------------------------------- Total increase (decrease) ..................... 711 597 486 230 137 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 974 806 701 326 318 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 7 43 19 (4) 8 Net realized gain (loss) on investments ..... 23 (48) 10 20 -- Net unrealized appreciation (depreciation) of investments ............................ 76 10 (47) 214 -- --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 106 5 (18) 230 8 Changes from principal transactions: Purchase payments ........................... 40 3 42 18 210 Contract distributions and terminations ..... (149) (77) (59) (5) (11) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 12 (190) (23) (32) 54 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- -- --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (97) (264) (40) (19) 253 --------------------------------------------------------------------------- Total increase (decrease) ..................... 9 (259) (58) 211 261 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $983 $547 $643 $537 $579 =========================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 15
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) HIGH INTERNATIONAL ASSET GROWTH & QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION(e) DIVISION(e) DIVISION(d) DIVISION(f) COMBINED ------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ..................... $1,981 -- -- -- -- $1,604,271 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) .................. (179) -- -- -- -- 125,356 Net realized gain (loss) on investments ....... (556) -- -- -- -- 22,265 Net unrealized appreciation (depreciation) of investments .............................. 1,647 -- -- -- -- 39,447 ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................... 912 -- -- -- -- 187,068 Changes from principal transactions: Purchase payments ............................. 41,775 -- -- -- -- 1,536,754 Contract distributions and terminations ....... (940) -- -- -- -- (247,928) Transfer payments from (to) Fixed Accounts and other Divisions ......................... 6,037 -- -- -- -- 237,766 Addition to assets retained in the Account by Golden American Life Insurance Company ....... -- -- -- -- -- 274 ------------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ................. 46,872 -- -- -- -- 1,526,866 ------------------------------------------------------------------------------- Total increase (decrease) ....................... 47,784 -- -- -- -- 1,713,934 ------------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ................. 49,765 -- -- -- -- 3,318,205 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) .................. (48) $2 $7 $1 -- 255,284 Net realized gain (loss) on investments ....... 30,975 -- -- -- $(1) 235,776 Net unrealized appreciation (depreciation) of investments .............................. 24,199 1 5 2 -- 828,093 ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................... 55,126 3 12 3 (1) 1,319,153 Changes from principal transactions: Purchase payments ............................. 55,479 127 281 98 127 2,706,971 Contract distributions and terminations ....... (3,729) -- -- -- (4) (545,597) Transfer payments from (to) Fixed Accounts and other Divisions ......................... 18,928 3 4 6 (95) 644,573 Addition to assets retained in the Account by Golden American Life Insurance Company ...... -- -- -- -- -- 106 ------------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ................. 70,678 130 285 104 28 2,806,053 ------------------------------------------------------------------------------- Total increase (decrease) ....................... 125,804 133 297 107 27 4,125,206 ------------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ................. $175,569 $133 $297 $107 $27 $7,443,411 =============================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 16
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1 - ORGANIZATION Golden American Life Insurance Company Separate Account B (the "Account") was established by Golden American Life Insurance Company ("Golden American") to support the operations of variable annuity contracts ("Contracts"). Golden American is primarily engaged in the issuance of variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. The Account is registered as a unit investment trust with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. Golden American provides for variable accumulation and benefits under the Contracts by crediting annuity considerations to one or more divisions within the Account or the Golden American Guaranteed Interest Division, the Golden American Fixed Interest Division, and the Fixed Separate Account, which are not part of the Account, as directed by the Contractowners. The portion of the Account's assets applicable to Contracts will not be chargeable with liabilities arising out of any other business Golden American may conduct, but obligations of the Account, including the promise to make benefit payments, are obligations of Golden American. The assets and liabilities of the Account are clearly identified and distinguished from the other assets and liabilities of Golden American. During 1999, the Account had GoldenSelect Contracts and Granite PrimElite Contracts. GoldenSelect Contracts sold by Golden American during 1999 include DVA 100, DVA Series 100, DVA Plus, Access, Premium Plus, ESII, and Value. During 1999, the Account had GoldenSelect Contracts (DVA 80) which were no longer being sold. At December 31, 1999, the Account had, under GoldenSelect Contracts, thirty-one investment divisions: Liquid Asset, Limited Maturity Bond, Hard Assets, All-Growth, Real Estate, Fully Managed, Equity Income (formerly Multiple Allocation), Capital Appreciation, Rising Dividends, Emerging Markets, Market Manager, Value Equity, Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth, Capital Growth (formerly Growth & Income), Research, Total Return, Growth (formerly Value + Growth), Global Fixed Income, Developing World, Growth Opportunities, PIMCO High Yield Bond, PIMCO StocksPLUS Growth and Income, International Equity, Asset Allocation, Equity, Growth & Income, and High Quality Bond Divisions ("Divisions"). The Account also had, under Granite PrimElite Contracts, eight investments divisions: Mid-Cap Growth, Research, Total Return, Appreciation, Smith Barney High Income, Smith Barney Large Cap Value, Smith Barney International Equity, and Smith Barney Money Market Divisions (collectively with the divisions noted above, "Divisions"). The assets in each Division are invested in shares of a designated series ("Series," which may also be referred to as "Portfolio") of mutual funds, The GCG Trust, PIMCO Variable Insurance Trust, Greenwich Street Series Fund Inc., Travelers Series Fund Inc., Warburg Pincus Trust, or The Galaxy VIP Fund (the "Trusts"). The Account also includes The Fund For Life Division, which is not included in the accompanying financial statements, and which ceased to accept new Contracts effective December 31, 1994. Prior to August 14, 1998, the Account also had certain investment divisions available from the Equi-Select Series Trust. In an effort to consolidate operations, Golden American requested permission from the Securities and Exchange Commission ("SEC") to substitute shares of each Portfolio of the Equi-Select Series Trust with shares of a similar Series of The GCG Trust. On August 14, 1998, after approval from the SEC, shares of each Portfolio of the Equi-Select Series Trust were substituted with shares of a similar Series of The GCG Trust. The consolidation resulted in the following Series being substituted from The GCG Trust: Equi-Select Series Trust The GCG Trust Investment Division Investment Division - ------------------------------- ---------------------------------------------- International Fixed Income Global Fixed Income OTC Mid-Cap Growth Research Research Total Return Total Return Value + Growth Growth (formerly Value + Growth) Growth & Income Capital Growth (formerly Growth & Income) 17 NOTE 1 - ORGANIZATION (CONTINUED) The Market Manager Division was open for investment for only a brief period during 1994 and 1995. This Division is now closed and Contractowners are not permitted to direct their investments into this Division. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies of the Account: USE OF ESTIMATES: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVESTMENTS: Investments are made in shares of a Series or Portfolio of the Trusts and are valued at the net asset value per share of the respective Series or Portfolio of the Trusts. Investment transactions in each Series or Portfolio of the Trusts are recorded on the trade date. Distributions of net investment income and capital gains from each Series or Portfolio of the Trusts are recognized on the ex-distribution date. Realized gains and losses on redemptions of the shares of the Series or Portfolio of the Trusts are determined on the specific identification basis. FEDERAL INCOME TAXES: Operations of the Account form a part of, and are taxed with, the total operations of Golden American which is taxed as a life insurance company under the Internal Revenue Code. Earnings and realized capital gains of the Account attributable to the Contractowners are excluded in the determination of the federal income tax liability of Golden American. NOTE 3 - CHARGES AND FEES DVA Plus, Access, and the Premium Plus each have three different death benefit options referred to as Standard, Annual Ratchet, and 7% Solution; however, in the state of Washington, the 5.5% Solution is offered instead of the 7% Solution. Granite PrimElite has two death benefit options referred to as Standard and Annual Ratchet. Golden American discontinued external sales of DVA 80 in May 1991. Golden American has also discontinued external sales of DVA 100. Under the terms of the Contract, certain charges are allocated to the Contracts to cover Golden American's expenses in connection with the issuance and administration of the Contracts. Following is a summary of these charges: MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and expense risks related to the operations of the Account and, in accordance with the terms of the Contracts, deducts a daily charge from the assets of the Account. Daily charges deducted at annual rates to cover these risks follows: SERIES ANNUAL RATES --------- ------------ DVA 80.................................................. 0.80% DVA 100................................................. 0.90 DVA Series 100.......................................... 1.25 DVA Plus - Standard..................................... 1.10 DVA Plus - Annual Ratchet............................... 1.25 DVA Plus - 5.5% Solution................................ 1.25 DVA Plus - 7% Solution.................................. 1.40 Access - Standard....................................... 1.25 Access - Annual Ratchet................................. 1.40 Access - 5.5% Solution.................................. 1.40 Access - 7% Solution.................................... 1.55 Premium Plus - Standard................................. 1.25 Premium Plus - Annual Ratchet........................... 1.40 Premium Plus - 5.5% Solution............................ 1.40 Premium Plus - 7% Solution.............................. 1.55 ESII.................................................... 1.25 Granite PrimElite - Standard............................ 1.10 Granite PrimElite - Annual Ratchet...................... 1.25 Value................................................... 0.75 18 NOTE 3 - CHARGES AND FEES (CONTINUED) ASSET BASED ADMINISTRATIVE CHARGES: A daily charge at an annual rate of 0.10% is deducted from assets attributable to DVA 100 and DVA Series 100 Contracts. A daily charge at an annual rate of 0.15% is deducted from the assets attributable to the DVA Plus, Access, Premium Plus, ESII, Value, and Granite PrimElite Contracts. ADMINISTRATIVE CHARGES: An administrative charge is deducted from the accumulation value of Deferred Annuity Contracts to cover ongoing administrative expenses. The charge is $30 per Contract year for ES II and Value contracts. For all other Contracts the charge is $40. The charge is incurred at the beginning of the Contract processing period and deducted at the end of the Contract processing period. This charge had been waived for certain offerings of the Contracts. MINIMUM DEATH BENEFIT GUARANTEE CHARGES: For certain Contracts, a minimum death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death benefit per Contract year is deducted from the accumulation value of Deferred Annuity Contracts on each Contract anniversary date. CONTINGENT DEFERRED SALES CHARGES: Under DVA Plus, Premium Plus, ES II, Value, and Granite PrimElite Contracts, a contingent deferred sales charge ("Surrender Charge") is imposed as a percentage of each premium payment if the Contract is surrendered or an excess partial withdrawal is taken. The following table reflects the surrender charge that is assessed based upon the date a premium payment is received.
Complete Years Elapsed Since Premium Payment Surrender Charge - -------------------------------------------------------------------------------------------------------------------------------- DVA PLUS PREMIUM PLUS ES II VALUE GRANITE PRIMELITE -------- ------------ ----- ----- ----------------- 0............. 7% 8% 8% 6% 7% 1............. 7 8 7 6 7 2............. 6 8 6 6 6 3............. 5 8 5 5 5 4............. 4 7 4 4 4 5............. 3 6 3 3 3 6............. 1 5 2 1 1 7............. -- 3 1 -- -- 8............. -- 1 -- -- -- 9+............ -- -- -- -- --
OTHER CONTRACT CHARGES: Under DVA 80, DVA 100, and DVA Series 100 Contracts, a charge is deducted from the accumulation value for Contracts taking more than one conventional partial withdrawal during a Contract year. For DVA 80 and DVA 100 Contracts, annual distribution fees are deducted from the Contract accumulation values. DEFERRED SALES LOAD: Under Contracts offered prior to October 1995, a sales load of up to 7.5 % was assessed against each premium payment for sales-related expenses as specified in the Contracts. For DVA Series 100, the sales load is deducted in equal annual installments over the period the Contract is in force, not to exceed 10 years. For DVA 80 and DVA 100 Contracts, although the sales load is chargeable to each premium when it is received by Golden American, the amount of such charge is initially advanced by Golden American to Contractowners and included in the accumulation value and then deducted in equal installments on each Contract anniversary date over a period of six years. Upon surrender of the Contract, the unamortized deferred sales load is deducted from the accumulation value. In addition, when partial withdrawal limits are exceeded, a portion of the unamortized deferred sales load is deducted. PREMIUM TAXES: For certain Contracts, premium taxes are deducted, where applicable, from the accumulation value of each Contract. The amount and timing of the deduction depend on the annuitant's state of residence and currently ranges up to 3.5% of premiums. FEES WAIVED BY GOLDEN AMERICAN: Certain charges and fees for various types of Contracts are currently waived by Golden American. Golden American reserves the right to discontinue these waivers at its discretion or to conform with changes in the law. 19 NOTE 3 - CHARGES AND FEES (CONTINUED) A summary of the net assets retained in the Account, representing the unamortized deferred sales load and premium taxes advanced by Golden American previously noted, follows:
YEAR ENDED DECEMBER 31 -------------------------------------------- 1999 1998 -------------------- ------------------- (DOLLARS IN THOUSANDS) Balance at beginning of year............................ $9,003 $17,009 Sales load advanced..................................... 105 274 Amortization of deferred sales load and premium tax..... (6,015) (8,280) -------------------- ------------------- Balance at end of year.................................. $3,093 $9,003 ==================== ===================
NOTE 4 - PURCHASES AND SALES OF INVESTMENT SECURITIES The aggregate cost of purchases and proceeds from sales of investments follows:
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------- 1999 1998 ---------------------------- ------------------------------- PURCHASES SALES PURCHASES SALES ---------------------------- ------------------------------- (DOLLARS IN THOUSANDS) The GCG Trust: Liquid Asset Series.................................. $1,632,496 $1,285,868 $570,537 $452,115 Limited Maturity Bond Series......................... 81,290 30,122 71,742 22,970 Hard Assets Series................................... 41,433 38,490 17,730 17,975 All-Growth Series.................................... 46,095 36,607 16,647 13,146 Real Estate Series................................... 20,497 27,401 29,007 13,733 Fully Managed Series................................. 68,756 23,879 83,688 7,148 Equity Income Series................................. 70,767 43,280 52,037 32,159 Capital Appreciation Series.......................... 148,975 33,036 83,259 17,034 Rising Dividends Series.............................. 261,711 22,554 270,955 7,361 Emerging Markets Series.............................. 9,244 12,838 2,644 7,107 Market Manager Series................................ 1,084 1,813 342 292 Value Equity Series.................................. 43,808 28,137 58,297 6,136 Strategic Equity Series.............................. 90,233 24,704 31,008 5,375 Small Cap Series..................................... 225,813 110,509 63,182 9,735 Managed Global Series................................ 178,228 176,669 41,119 39,355 Mid-Cap Growth Series................................ 391,543 119,357 97,494 8,444 Capital Growth Series................................ 220,384 23,307 132,350 6,850 Research Series...................................... 270,703 19,426 237,915 6,540 Total Return Series.................................. 236,379 4,467 202,032 1,560 Growth Series........................................ 860,731 170,066 119,241 13,912 Global Fixed Income Series........................... 26,185 12,857 14,270 5,161 Developing World Series.............................. 58,318 20,799 7,293 2,662 Growth Opportunities Series.......................... 7,288 5,600 7,214 3,196 PIMCO Variable Insurance Trust: PIMCO High Yield Bond Portfolio...................... 124,005 18,385 52,726 6,256 PIMCO StocksPLUS Growth and Income Portfolio......... 188,819 25,749 49,898 2,237 Greenwich Street Series Fund Inc.: Appreciation Portfolio............................... 111 202 739 82 Travelers Series Fund Inc.: Smith Barney High Income Portfolio................... 98 320 878 222 Smith Barney Large Cap Value Portfolio............... 167 189 513 32 Smith Barney International Equity Portfolio.......... 44 67 245 12 Smith Barney Money Market Portfolio.................. 483 222 630 494 Warburg Pincus Trust: International Equity Portfolio....................... 696,223 625,613 370,938 324,226 The Galaxy VIP Fund: Asset Allocation Portfolio........................... 141 9 -- -- Equity Portfolio..................................... 292 -- -- -- Growth & Income Portfolio............................ 105 -- -- -- High Quality Bond Portfolio.......................... 127 99 -- -- ---------------------------------------------------------------- COMBINED.................................................. $6,002,576 $2,942,641 $2,686,570 $1,033,527 ================================================================ 20
NOTE 5 - SUMMARY OF CHANGES FROM UNIT TRANSACTIONS Contractowners' transactions shown in the following table reflect gross inflows ("Purchases") and outflows ("Sales") in units for each Division. The activity includes Contractowners electing to update a DVA 100 or DVA Series 100 Contract to a DVA PLUS Contract. Updates to DVA PLUS Contracts resulted in both a sale (surrender of the old Contract) and a purchase (acquisition of the new Contract). All of the purchases transactions for the Market Manager Division resulted from such updates.
YEAR ENDED DECEMBER 31 --------------------------------------------------------------------------- 1999 1998 ---------------------------------- ---------------------------------- PURCHASES SALES PURCHASES SALES ---------------------------------- ---------------------------------- Liquid Asset Division............................ 124,478,649 101,109,842 46,713,872 38,496,936 Limited Maturity Bond Division................... 6,043,778 3,110,174 5,263,273 2,390,944 Hard Assets Division............................. 2,900,594 2,714,660 1,390,271 1,503,254 All-Growth Division.............................. 1,593,344 2,299,652 1,876,296 1,557,867 Real Estate Division............................. 1,107,500 1,561,932 1,269,259 1,003,769 Fully Managed Division........................... 3,844,658 2,421,187 4,432,536 1,393,191 Equity Income Division........................... 4,105,827 3,799,977 2,439,316 2,628,892 Capital Appreciation Division.................... 6,021,915 3,037,582 3,704,327 1,712,022 Rising Dividends Division........................ 12,519,925 3,029,038 13,285,423 1,798,264 Emerging Markets Division........................ 1,467,567 1,902,732 737,697 1,279,884 Market Manager Division.......................... 435 75,755 16,579 26,443 Value Equity Division............................ 2,852,986 2,154,579 3,639,566 936,377 Strategic Equity Division........................ 6,344,054 2,305,045 2,329,825 828,876 Small Cap Division............................... 14,347,399 8,174,181 5,737,867 1,727,666 Managed Global Division.......................... 9,633,015 10,824,049 3,637,963 3,808,355 Mid-Cap Growth Division.......................... 14,316,514 5,846,579 5,201,859 1,073,702 Capital Growth Division.......................... 12,561,878 2,575,149 8,700,243 1,061,928 Research Division................................ 12,204,579 1,771,319 11,776,149 1,145,700 Total Return Division............................ 13,447,324 976,323 11,841,572 542,519 Growth Division.................................. 46,544,853 13,013,005 8,862,606 1,834,396 Global Fixed Income Division..................... 2,406,215 1,322,576 1,199,981 486,199 Developing World Division........................ 6,615,294 2,774,781 1,034,819 414,729 Growth Opportunities Division.................... 726,528 570,950 801,993 373,469 PIMCO High Yield Bond Division................... 12,707,468 2,989,676 5,575,890 995,489 PIMCO StocksPLUS Growth and Income Division............................... 15,418,741 3,191,901 5,235,676 567,893 Appreciation Division............................ 5,856 11,558 45,518 5,062 Smith Barney High Income Division................ 3,730 23,271 59,777 15,706 Smith Barney Large Cap Value Division............ 6,907 9,522 25,818 1,496 Smith Barney International Equity Division....... 2,838 2,934 13,627 659 Smith Barney Money Market Division............... 40,398 19,082 55,074 43,687 International Equity Division.................... 63,405,114 56,947,666 34,755,360 31,779,305 Asset Allocation Division........................ 13,289 844 -- -- Equity Division.................................. 26,039 835 -- -- Growth & Income Division......................... 11,266 1,139 -- -- High Quality Bond Division....................... 12,671 9,915 -- -- ---------------------------------- ---------------------------------- COMBINED......................................... 397,739,148 240,579,410 191,660,032 101,434,679 ================================== ==================================
21 NOTE 6 - NET ASSETS Investments at net asset value less the payable to Golden American for charges and fees at December 31, 1999 consisted of the following:
LIMITED LIQUID MATURITY HARD ALL- REAL FULLY ASSET BOND ASSETS GROWTH ESTATE MANAGED DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $506,425 $133,838 $30,475 $47,531 $41,701 $197,026 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 15,901 20,765 7,443 47,182 29,154 68,682 Net unrealized appreciation (depreciation) of investments... -- (4,202) 1,011 51,150 (15,178) 1,510 -------------------------------------------------------------------------------------------- $522,326 $150,401 $38,929 $145,863 $55,677 $267,218 ============================================================================================
EQUITY CAPITAL RISING EMERGING MARKET VALUE INCOME APPRECIATION DIVIDENDS MARKETS MANAGER EQUITY DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $138,807 $225,256 $624,736 $43,209 $595 $123,500 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 158,214 124,915 49,066 (15,866) 3,964 20,094 Net unrealized appreciation (depreciation) of investments... (25,737) 51,796 139,292 8,129 2,525 (6,214) -------------------------------------------------------------------------------------------- $271,284 $401,967 $813,094 $35,472 $7,084 $137,380 ============================================================================================
STRATEGIC SMALL MANAGED MID-CAP CAPITAL EQUITY CAP GLOBAL GROWTH GROWTH RESEARCH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $128,188 $212,831 $69,455 $335,683 $341,923 $502,872 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 12,978 36,216 85,339 73,201 29,228 17,532 Net unrealized appreciation (depreciation) of investments... 56,360 75,382 26,551 130,331 59,095 116,356 -------------------------------------------------------------------------------------------- $197,526 $324,429 $181,345 $539,215 $430,246 $636,760 ============================================================================================
PIMCO GLOBAL HIGH TOTAL FIXED DEVELOPING GROWTH YIELD RETURN GROWTH INCOME WORLD OPPORTUNITIES BOND DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $439,911 $809,489 $22,390 $41,047 $5,521 $144,589 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 19,020 57,112 (460) 2,971 682 6,209 Net unrealized appreciation (depreciation) of investments... (3,551) 338,909 (672) 7,655 460 (4,739) -------------------------------------------------------------------------------------------- $455,380 $1,205,510 $21,258 $51,673 $6,663 $146,059 ============================================================================================ 22
NOTE 6 - NET ASSETS (CONTINUED)
PIMCO SMITH SMITH SMITH SMITH STOCKSPLUS BARNEY BARNEY BARNEY BARNEY GROWTH AND HIGH LARGE CAP INTERNATIONAL MONEY INCOME APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions................... $193,010 $785 $561 $636 $318 $557 Accumulated net investment income (loss) and net realized gain (loss) on investments....... 22,021 79 39 44 12 22 Net unrealized appreciation (depreciation) of investments.... 6,199 119 (53) (37) 207 -- ------------------------------------------------------------------------------------------- $221,230 $983 $547 $643 $537 $579 ===========================================================================================
INTERNATIONAL ASSET GROWTH & HIGH QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION DIVISION DIVISION DIVISION COMBINED ------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions................... $119,555 $130 $285 $104 $28 $5,482,967 Accumulated net investment income (loss) and net realized gain (loss) on investments....... 30,261 2 7 1 (1) 922,029 Net unrealized appreciation (depreciation) of investments.... 25,753 1 5 2 -- 1,038,415 ------------------------------------------------------------------------------------------- $175,569 $133 $297 $107 $27 $7,443,411 ===========================================================================================
NOTE 7 - UNIT VALUES Accumulation unit value information for units outstanding, by Contract type, as of December 31, 1999 follows:
UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) LIQUID ASSET Currently payable annuity products: DVA 80................................................................. 2,484 $15.78 $39 DVA 100................................................................ 3,692 15.44 57 Contracts in accumulation period: DVA 80................................................................. 428,664 15.78 6,766 DVA 100................................................................ 2,108,284 15.44 32,553 DVA Series 100......................................................... 65,836 14.85 978 DVA Plus - Standard.................................................... 683,989 15.04 10,287 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 13,701,797 14.79 202,706 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 7,668,618 14.55 111,594 Access - 7% Solution, Premium Plus - 7% Solution....................... 11,002,421 14.29 157,230 Value.................................................................. 7,391 15.61 116 ------------------- 522,326 23
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) LIMITED MATURITY BOND Currently payable annuity products: DVA 80................................................................. 5,775 $17.82 $103 DVA 100................................................................ 13,160 17.44 229 Contracts in accumulation period: DVA 80................................................................. 55,752 17.82 994 DVA 100................................................................ 1,611,603 17.44 28,100 DVA Series 100......................................................... 15,728 16.77 264 DVA Plus - Standard.................................................... 279,468 17.00 4,751 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,938,050 16.72 49,127 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,835,680 16.45 30,192 Access - 7% Solution, Premium Plus - 7% Solution....................... 2,267,799 16.15 36,630 Value.................................................................. 655 17.65 11 ------------------- 150,401 HARD ASSETS Currently payable annuity products: DVA 80................................................................. 64 18.54 1 DVA 100................................................................ 4,504 18.13 82 Contracts in accumulation period: DVA 80................................................................. 47,623 18.54 883 DVA 100................................................................ 442,621 18.13 8,025 DVA Series 100......................................................... 21,674 17.44 378 DVA Plus - Standard.................................................... 112,564 17.66 1,988 DVA Plus - Annual Ratchet & 5.5% Solution, Access- Standard, Premium Plus - Standard, ES II............................. 355,052 17.37 6,168 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 696,931 17.09 11,909 Access - 7% Solution, Premium Plus - 7% Solution....................... 565,255 16.78 9,486 Value.................................................................. 497 18.33 9 ------------------- 38,929 24
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) ALL-GROWTH Currently payable annuity products: DVA 100................................................................ 10,034 $33.33 $334 Contracts in accumulation period: DVA 80................................................................. 30,780 34.07 1,049 DVA 100................................................................ 1,659,536 33.33 55,306 DVA Series 100......................................................... 17,272 32.06 554 DVA Plus - Standard.................................................... 177,295 32.46 5,755 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 680,978 31.93 21,744 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,363,281 31.41 42,819 Access - 7% Solution, Premium Plus - 7% Solution....................... 593,365 30.85 18,302 ------------------- 145,863 REAL ESTATE Currently payable annuity products: DVA 80................................................................. 337 22.00 7 DVA 100................................................................ 4,675 21.52 101 Contracts in accumulation period: DVA 80................................................................. 17,562 22.00 387 DVA 100................................................................ 698,949 21.52 15,043 DVA Series 100......................................................... 7,595 20.70 157 DVA Plus - Standard.................................................... 136,122 20.96 2,854 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 534,577 20.62 11,024 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 742,363 20.28 15,059 Access - 7% Solution, Premium Plus - 7% Solution....................... 554,454 19.92 11,045 ------------------- 55,677 FULLY MANAGED Currently payable annuity products: DVA 80................................................................. 1,025 23.10 24 DVA 100................................................................ 42,440 22.59 959 Contracts in accumulation period: DVA 80................................................................. 55,124 23.10 1,273 DVA 100................................................................ 2,723,900 22.59 61,541 DVA Series 100......................................................... 28,071 21.73 610 DVA Plus - Standard.................................................... 549,088 22.01 12,084 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,546,588 21.65 55,126 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,304,306 21.29 70,358 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,118,319 20.91 65,207 Value.................................................................. 1,564 22.85 36 ------------------- 267,218 25
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) EQUITY INCOME Currently payable annuity products: DVA 80................................................................. 10,512 $22.91 $241 DVA 100................................................................ 54,038 22.41 1,211 Contracts in accumulation period: DVA 80................................................................. 217,136 22.91 4,975 DVA 100................................................................ 4,960,030 22.41 111,166 DVA Series 100......................................................... 52,427 21.56 1,130 DVA Plus - Standard.................................................... 381,468 21.83 8,327 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,014,453 21.47 43,259 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,523,887 21.12 53,311 Access - 7% Solution, Premium Plus - 7% Solution....................... 2,294,950 20.74 47,606 Value.................................................................. 2,555 22.66 58 ------------------- 271,284 CAPITAL APPRECIATION Currently payable annuity products: DVA 100................................................................ 34,146 31.01 1,059 Contracts in accumulation period: DVA 80................................................................. 54,304 31.50 1,710 DVA 100................................................................ 3,000,104 31.01 93,047 DVA Series 100......................................................... 29,781 30.18 899 DVA Plus - Standard.................................................... 431,150 30.46 13,132 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,412,721 30.11 72,649 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,839,680 29.77 114,290 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,574,164 29.38 104,999 Value.................................................................. 5,832 31.26 182 ------------------- 401,967 RISING DIVIDENDS Currently payable annuity products: DVA 80................................................................. 2,751 26.79 74 DVA 100................................................................ 11,516 26.46 305 Contracts in accumulation period: DVA 80................................................................. 45,744 26.79 1,225 DVA 100................................................................ 3,156,396 26.46 83,505 DVA Series 100......................................................... 62,149 25.88 1,608 DVA Plus - Standard.................................................... 1,251,144 26.07 32,623 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 7,496,161 25.83 193,646 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 10,160,317 25.59 260,024 Access - 7% Solution, Premium Plus - 7% Solution....................... 9,473,482 25.31 239,807 Value.................................................................. 10,416 26.62 277 ------------------- 813,094 26
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) EMERGING MARKETS Currently payable annuity products: DVA 100................................................................ 20,476 $12.18 $249 Contracts in accumulation period: DVA 80................................................................. 66,912 12.34 826 DVA 100................................................................ 1,114,771 12.18 13,583 DVA Series 100......................................................... 19,565 11.92 233 DVA Plus - Standard.................................................... 359,966 12.01 4,323 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 272,783 11.90 3,246 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,053,099 11.79 12,412 Access - 7% Solution, Premium Plus - 7% Solution....................... 51,466 11.66 600 ------------------- 35,472 MARKET MANAGER Contracts in accumulation period: DVA 100................................................................ 265,157 27.61 7,320 ------------------- 7,320 VALUE EQUITY Currently payable annuity products: DVA 80................................................................. 353 18.67 7 DVA 100................................................................ 8,027 18.49 148 Contracts in accumulation period: DVA 80................................................................. 16,820 18.67 314 DVA 100................................................................ 642,103 18.49 11,870 DVA Series 100......................................................... 13,030 18.16 237 DVA Plus - Standard.................................................... 433,555 18.28 7,924 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 1,825,971 18.14 33,129 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,709,066 18.01 48,787 Access - 7% Solution, Premium Plus - 7% Solution....................... 1,956,244 17.84 34,902 Value.................................................................. 3,333 18.58 62 ------------------- 137,380 STRATEGIC EQUITY Currently payable annuity products: DVA 100................................................................ 31,558 22.27 703 Contracts in accumulation period: DVA 80................................................................. 18,395 22.46 413 DVA 100................................................................ 387,984 22.27 8,642 DVA Series 100......................................................... 6,159 21.94 135 DVA Plus - Standard.................................................... 455,696 22.06 10,053 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,450,796 21.92 53,725 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,655,079 21.78 57,835 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,050,564 21.61 65,934 Value.................................................................. 3,862 22.37 86 ------------------- 197,526 27
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) SMALL CAP Currently payable annuity products: DVA 100................................................................ 3,735 $23.19 $87 Contracts in accumulation period: DVA 80................................................................. 21,044 23.38 492 DVA 100................................................................ 502,932 23.19 11,664 DVA Series 100......................................................... 14,018 22.87 320 DVA Plus - Standard.................................................... 453,438 22.96 10,411 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,053,919 22.82 115,340 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 4,514,345 22.68 102,399 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,698,983 22.55 83,400 Value.................................................................. 13,606 23.28 316 ------------------- 324,429 MANAGED GLOBAL Currently payable annuity products: DVA 100................................................................ 11,683 24.68 288 Contracts in accumulation period: DVA 80................................................................. 33,553 25.04 840 DVA 100................................................................ 2,703,999 24.68 66,747 DVA Series 100......................................................... 38,870 24.08 936 DVA Plus - Standard.................................................... 605,044 24.23 14,658 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 676,401 23.97 16,211 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,306,922 23.71 78,402 Access - 7% Solution, Premium Plus - 7% Solution....................... 139,357 23.42 3,263 ------------------- 181,345 MID-CAP GROWTH Contracts in accumulation period: DVA 80................................................................. 5,425 40.92 222 DVA 100................................................................ 328,684 40.50 13,310 DVA Series 100......................................................... 9,549 39.75 380 DVA Plus - Standard.................................................... 287,598 39.97 11,494 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,873,150 39.59 192,951 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,717,260 39.34 146,221 Granite PrimElite - Standard........................................... 3,692 39.97 148 Granite PrimElite - Annual Ratchet..................................... 27,138 39.59 1,075 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,433,019 39.02 172,992 Value.................................................................. 10,373 40.71 422 ------------------- 539,215 28
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) CAPITAL GROWTH Contracts in accumulation period: DVA 80................................................................. 3,348 $21.54 $72 DVA 100................................................................ 390,759 21.38 8,354 DVA Series 100......................................................... 11,902 21.10 251 DVA Plus - Standard.................................................... 598,663 21.18 12,678 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,870,532 21.06 123,629 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 6,210,698 20.94 130,038 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,450,249 20.82 155,103 Value.................................................................. 5,650 21.46 121 ------------------- 430,246 RESEARCH Contracts in accumulation period: DVA 80................................................................. 6,633 28.93 192 DVA 100................................................................ 431,562 28.62 12,353 DVA Series 100......................................................... 18,345 28.10 515 DVA Plus - Standard.................................................... 565,925 28.25 15,988 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 6,431,948 28.04 180,345 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 7,240,463 27.80 201,318 Granite PrimElite - Standard........................................... 2,544 28.25 72 Granite PrimElite - Annual Ratchet..................................... 37,387 28.04 1,048 Access - 7% Solution, Premium Plus - 7% Solution....................... 8,143,207 27.58 224,622 Value.................................................................. 10,661 28.78 307 ------------------- 636,760 TOTAL RETURN Contracts in accumulation period: DVA 80................................................................. 9,043 18.64 168 DVA 100................................................................ 399,197 18.44 7,361 DVA Series 100......................................................... 5,119 18.10 93 DVA Plus - Standard.................................................... 831,642 18.20 15,135 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,274,089 18.06 149,429 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 6,739,205 17.91 120,710 Granite PrimElite - Standard........................................... 4,770 18.20 87 Granite PrimElite - Annual Ratchet..................................... 33,383 18.06 603 Access - 7% Solution, Premium Plus - 7% Solution....................... 9,101,947 17.77 161,738 Value.................................................................. 3,045 18.54 56 ------------------- 455,380 29
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) GROWTH Contracts in accumulation period: DVA 80................................................................. 47,480 $29.27 $1,390 DVA 100................................................................ 818,663 29.05 23,785 DVA Series 100......................................................... 28,942 28.67 830 DVA Plus - Standard.................................................... 758,379 28.78 21,827 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 14,289,972 28.62 408,990 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 11,168,535 28.46 317,801 Access - 7% Solution, Premium Plus - 7% Solution....................... 15,200,894 28.29 430,081 Value.................................................................. 27,642 29.16 806 ------------------- 1,205,510 GLOBAL FIXED INCOME Contracts in accumulation period: DVA 100................................................................ 24,119 12.04 291 DVA Plus - Standard.................................................... 35,081 11.88 417 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 753,003 11.79 8,880 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 382,609 11.70 4,475 Access - 7% Solution, Premium Plus - 7% Solution....................... 619,047 11.60 7,183 Value.................................................................. 982 12.11 12 ------------------- 21,258 DEVELOPING WORLD Contracts in accumulation period: DVA 80................................................................. 390 11.74 5 DVA 100................................................................ 21,139 11.70 247 DVA Series 100......................................................... 27,991 11.64 326 DVA Plus - Standard.................................................... 683 11.62 8 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,133,907 11.61 24,775 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 926,115 11.58 10,722 Access - 7% Solution, Premium Plus - 7% Solution....................... 1,344,878 11.54 15,526 Value.................................................................. 5,500 11.72 64 ------------------- 51,673 GROWTH OPPORTUNITIES Contracts in accumulation period: DVA 100................................................................ 12,750 11.52 147 DVA Plus - Standard.................................................... 9,739 11.47 112 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 215,681 11.44 2,466 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 142,128 11.40 1,621 Access - 7% Solution, Premium Plus - 7% Solution....................... 203,804 11.37 2,317 ------------------- 6,663 30
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) PIMCO HIGH YIELD BOND Contracts in accumulation period: DVA 80................................................................. 1,147 $10.34 $12 DVA 100................................................................ 151,044 10.31 1,557 DVA Series 100......................................................... 951 10.25 10 DVA Plus - Standard.................................................... 400,821 10.27 4,115 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,053,973 10.24 51,749 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,194,935 10.21 32,631 Access - 7% Solution, Premium Plus - 7% Solution....................... 5,486,600 10.19 55,895 Value.................................................................. 8,722 10.33 90 ------------------- 146,059 PIMCO STOCKSPLUS GROWTH AND INCOME Contracts in accumulation period: DVA 80................................................................. 651 13.26 9 DVA 100................................................................ 116,144 13.22 1,535 DVA Series 100......................................................... 292 13.14 4 DVA Plus - Standard.................................................... 284,260 13.16 3,742 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,797,771 13.13 62,999 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 4,371,570 13.10 57,257 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,320,301 13.06 95,636 Value.................................................................. 3,634 13.24 48 ------------------- 221,230 APPRECIATION Contracts in accumulation period: Granite PrimElite - Standard........................................... 711 18.47 13 Granite PrimElite - Annual Ratchet..................................... 52,802 18.36 970 ------------------- 983 SMITH BARNEY HIGH INCOME Contracts in accumulation period: Granite PrimElite - Standard........................................... 5,981 13.84 83 Granite PrimElite - Annual Ratchet..................................... 33,782 13.74 464 ------------------- 547 SMITH BARNEY LARGE CAP VALUE Contracts in accumulation period: Granite PrimElite - Standard........................................... 4,123 19.11 79 Granite PrimElite - Annual Ratchet..................................... 29,721 18.98 564 ------------------- 643 SMITH BARNEY INTERNATIONAL EQUITY Contracts in accumulation period: Granite PrimElite - Standard........................................... 2,572 23.78 61 Granite PrimElite - Annual Ratchet..................................... 20,133 23.61 476 ------------------- 537 SMITH BARNEY MONEY MARKET Contracts in accumulation period: Granite PrimElite - Standard........................................... 10,885 11.82 129 Granite PrimElite - Annual Ratchet..................................... 38,389 11.74 450 ------------------- 579 31
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - ------------------------------------------------------------------------------- ------------------------------------------------ (IN THOUSANDS) INTERNATIONAL EQUITY Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,666,041 $15.57 $72,629 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,959,322 15.59 30,538 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,663,701 15.50 72,274 Value.................................................................. 8,033 15.97 128 ------------------- 175,569 ASSET ALLOCATION Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,460 10.70 48 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 832 10.70 9 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,153 10.70 76 ------------------- 133 EQUITY Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,936 11.79 105 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 11,848 11.79 140 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,420 11.78 52 ------------------- 297 GROWTH & INCOME Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,512 10.55 90 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,122 10.55 12 Access - 7% Solution, Premium Plus - 7% Solution....................... 493 10.54 5 ------------------- 107 HIGH QUALITY BOND Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,756 9.93 27 ------------------- 27 --------------- ------------------- COMBINED.................................................................. 340,258,685 $7,443,647 =============== =================== 32
FORM TWO VERSION A Statement of Additional Information GOLDENSELECT DVA PLUS DB DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT ISSUED BY SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY This Statement of Additional Information is not a prospectus. The information contained herein should be read in conjunction with the Prospectus for the Golden American Life Insurance Company Deferred Variable Annuity Contract, which is referred to herein. The Prospectus sets forth information that a prospective investor ought to know before investing. For a copy of the Prospectus, send a written request to Golden American Life Insurance Company, Customer Service Center, P.O. Box 2700, West Chester, Pennsylvania 19380-1478 or telephone 1-800-366-0066. DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: May 1, 2000 TABLE OF CONTENTS ITEM PAGE Introduction 1 Description of Golden American Life Insurance Company 1 Safekeeping of Assets 1 The Administrator 1 Independent Auditors 1 Distribution of Contracts 1 Performance Information 2 IRA Partial Withdrawal Option 10 Other Information 10 Financial Statements of Separate Account B 11 INTRODUCTION This Statement of Additional Information provides background information regarding Separate Account B. DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company ("Golden American") is a stock life insurance company organized under the laws of the State of Delaware. On August 13, 1996, Equitable of Iowa Companies, Inc. (formerly Equitable of Iowa Companies) ("Equitable of Iowa") acquired all of the interest in Golden American and Directed Services, Inc. On October 24, 1997, Equitable of Iowa and ING Groep, N.V. ("ING") completed a merger agreement, and Equitable of Iowa became a wholly owned subsidiary of ING. ING, headquartered in The Netherlands, is a global financial services holding company with approximately $495.0 billion in assets as of December 31, 1999. As of December 31, 1999, Golden American had approximately $477.8 million in stockholder's equity and approximately $9.4 billion in total assets, including approximately $7.6 billion of separate account assets. Golden American is authorized to do business in all jurisdictions except New York. Golden American offers variable insurance products. Golden American formed a subsidiary, First Golden American Life Insurance Company of New York ("First Golden"), which is licensed to do variable annuity business in the states of New York and Delaware. SAFEKEEPING OF ASSETS Golden American acts as its own custodian for Separate Account B. THE ADMINISTRATOR Effective January 1, 1997, Equitable Life Insurance Company of Iowa ("Equitable Life") and Golden American became parties to a service agreement pursuant to which Equitable Life agreed to provide certain accounting, actuarial, tax, underwriting, sales, management and other services to Golden American. Expenses incurred by Equitable Life in relation to this service agreement were reimbursed by Golden American on an allocated cost basis. No charges were billed to Golden American by Equitable Life pursuant to the service agreement in 1997. Equitable Life billed Golden American $364,086 and $892,903 pursuant to the service agreement in 1999 and 1998, respectively. INDEPENDENT AUDITORS Ernst & Young LLP, independent auditors, performs annual audits of Golden American and Separate Account B. DISTRIBUTION OF CONTRACTS The offering of contracts under the prospectus associated with this Statement of Additional Information is continuous. Directed Services, Inc., an affiliate of Golden American, 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 (the "variable insurance products") issued by Golden American. The variable insurance products were sold primarily through two broker/dealer institutions, during the year ended December 31, 1997, through two broker/dealer institutions 1 during the year ended December 31, 1998 and through two broker/dealer institutions during the year ended December 31, 1999. For the years ended 1999, 1998 and 1997 commissions paid by Golden American, including amounts paid by its subsidiary, First Golden American Life Insurance Company of New York, to Directed Services, Inc. aggregated $181,536,000, $117,470,000 and $36,350,000, respectively. All commissions received by the distributor were passed through to the broker-dealers who sold the contracts. Directed Services, Inc. is located at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478. Under a management services agreement, last amended in 1995, Golden American provides to Directed Services, Inc. certain of its personnel to perform management, administrative and clerical services and the use of certain facilities. Golden American charges Directed Services, Inc. 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 Directed Services, Inc. In the opinion of management, this method of cost allocation is reasonable. This fee, calculated as a percentage of average assets in the variable separate accounts, was $10,136,000, $4,771,000 and $2,770,000 for the years ended 1999, 1998 and 1997, respectively. PERFORMANCE INFORMATION Performance information for the subaccounts of Separate Account B, including yields, standard annual returns and other non-standard measures of performance of all subaccounts, may appear in reports or promotional literature to current or prospective owners. Such non-standard measures of performance will be computed, or accompanied by performance data computed, in accordance with standards defined by the SEC. Negative values are denoted by minus signs ("-"). Performance information for measures other than total return do not reflect any applicable premium tax that can range from 0% to 3.5%. As described in the prospectus, four death benefit options are available. The following performance values reflect the election at issue of the 7% Solution Enhanced Death Benefit, thus providing values reflecting the highest aggregate contract charges. In addition, the performance values reflect the selection of the most costly optional benefit rider. If one of the other death benefit options had been elected, or if another optional benefit rider or no rider had been elected, the historical performance values would be higher than those represented in the examples. SEC STANDARD MONEY MARKET SUBACCOUNT YIELDS Current yield for the Liquid Asset Subaccount will be based on the change in the value of a hypothetical investment (exclusive of capital changes or income other than investment income) over a particular 7-day period, less a pro rata share of subaccount expenses which includes deductions for the mortality and expense risk charge and the administrative charge accrued over that period (the "base period"), and stated as a percentage of the investment at the start of the base period (the "base period return"). The base period return is then annualized by multiplying by 365/7, with the resulting yield figure carried to at least the nearest hundredth of one percent. Calculation of "effective yield" begins with the same "base period return" used in the calculation of yield, which is then annualized to reflect weekly compounding pursuant to the following formula: Effective Yield = [(Base Period Return) +1) ^ 365/7] - 1 The current yield and effective yield of the Liquid Asset Subaccount for the 7-day period December 25, 1999 to December 31, 1999 were 3.79% and 3.86%, respectively. 2 SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS Quotations of yield for the remaining subaccounts will be based on all investment income per subaccount earned during a particular 30-day period, less expenses accrued during the period ("net investment income"), and will be computed by dividing net investment income by the value of an accumulation unit on the last day of the period, according to the following formula: Yield = 2 x [((a - b)/(c x d) + 1)^6 - 1] Where: [a] equals the net investment income earned during the period by the investment portfolio attributable to shares owned by a subaccount [b] equals the expenses accrued for the period (net of reimbursements) [c] equals the average daily number of units outstanding during the period based on the accumulation unit value [d] equals the value (maximum offering price) per accumulation unit value on the last day of the period Yield on subaccounts of Separate Account B is earned from the increase in net asset value of shares of the investment portfolio in which the subaccount invests and from dividends declared and paid by the investment portfolio, which are automatically reinvested in shares of the investment portfolio. SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR ALL SUBACCOUNTS Quotations of average annual total return for any subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a contract over a period of one, five and 10 years (or, if less, up to the life of the subaccount), calculated pursuant to the formula: P(1+T)^(n)=ERV Where: (1) [P] equals a hypothetical initial premium payment of $1,000 (2) [T] equals an average annual total return (3) [n] equals the number of years (4) [ERV] equals the ending redeemable value of a hypothetical $1,000 initial premium payment made at the beginning of the period (or fractional portion thereof) All total return figures reflect the deduction of the maximum sales load, the administrative charges, the mortality and expense risk charges and maximum optional benefit rider charge. The Securities and Exchange Commission (the "SEC") requires that an assumption be made that the contract owner surrenders the entire contract at the end of the one, five and 10 year periods (or, if less, up to the life of the security) for which performance is required to be calculated. This assumption may not be consistent with the typical contract owner's intentions in purchasing a contract and may adversely affect returns. Quotations of total return may simultaneously be shown for other periods, as well as quotations of total return that do not take into account certain contractual charges such as sales load. 3 Except for the All Cap, Investors, Large Cap Value, ING Global Brand Names and Prudential Jennison subaccounts which had not commenced operations as of December 31, 1999, Average Annual Total Return for the Subaccounts is presented on a standardized basis, which includes deductions for the maximum mortality and expense risk charge for the Max 7 Solution Enhanced Death Benefit of 1.60%, administrative charges of 0.15%, contract administration charge annualized at 0.06%, an optional rider charge annualized at 0.75% for all portfolios except Liquid Asset and Limited Maturity Bond which are annualized at 0.50%, and applicable surrender charge of 7% for the one year period and 3% for the five year period, for the year ending December 31, 1999 were as follows: Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Standardized with Rider Charge ------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset -4.66% 1.91% 2.38%* 2.68%* 1/25/89 Limited Maturity Bond -8.19% 2.96% 3.47%* 3.85%* 1/25/89 Global Fixed Income -17.78% 1.52%* n/a 1.71%* 10/7/94 Fully Managed -2.53% 9.86% 6.75%* 6.30%* 1/25/89 Total Return -6.01% 11.53%* n/a 10.65%* 10/7/94 Equity Income -10.02% 7.23% 6.17%* 6.26%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -8.81% n/a n/a 11.23% 1/1/95 Rising Dividends 6.24% 19.09% n/a 15.38% 10/4/93 Managed Global 52.68% 20.18%* n/a 11.76%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 14.41% 22.30%* n/a 20.58%* 10/7/94 Capital Appreciation 14.83% 20.14% n/a 14.50%* 5/4/92 Capital Growth 15.70% n/a n/a 20.21% 4/1/96 Strategic Equity 45.76% n/a n/a 18.71% 10/2/95 Mid-Cap Growth 68.14% 29.53%* n/a 28.93%* 10/7/94 Small Cap 40.27% n/a n/a 21.22% 1/2/96 Growth 67.27% n/a n/a 30.66%* 4/1/96 Real Estate -13.05% 6.99% 6.80%* 5.82%* 1/25/89 Hard Assets 13.61% 3.22% 2.90%* 4.15%* 1/25/89 Developing World 51.12% n/a n/a 3.58% 2/18/98 Emerging Markets 74.32% 0.81% n/a 1.49% 10/4/93 THE PIMCO TRUST High Yield Bond -6.36%* n/a n/a -3.76%* 5/1/98 StocksPLUS Growth and Income 10.13%* n/a n/a 12.84%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. The same Subaccounts presented on a standardized basis, which includes deductions for the maximum mortality and expense risk charge for the Max 7 Solution Enhanced Death Benefit of 1.60%, administrative charges of 0.15%, contract administration charge annualized at 0.06%, and 4 applicable surrender charge, but without the rider charge, for the year ending December 31, 1999 were as follows, respectively: Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Standardized without Rider Charge ---------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset -4.15% 2.44% 2.90%* 3.19%* 1/25/89 Limited Maturity Bond -7.70% 3.48% 3.99%* 4.37%* 1/25/89 Global Fixed Income -17.27% 2.08%* n/a 2.27%* 10/7/94 Fully Managed -2.00% 10.34% 7.31%* 6.88%* 1/25/89 Total Return -5.49% 12.00%* n/a 11.14%* 10/7/94 Equity Income -9.51% 7.73% 6.72%* 6.81%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -8.30% n/a n/a 11.68% 1/1/95 Rising Dividends 6.79% 19.52% n/a 15.86% 10/4/93 Managed Global 53.39% 20.74%* n/a 12.43%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 15.00% 22.73%* n/a 21.03%* 10/7/94 Capital Appreciation 15.41% 20.58% n/a 15.00%* 5/4/92 Capital Growth 16.30% n/a n/a 20.69% 4/1/96 Strategic Equity 46.46% n/a n/a 19.25% 10/2/95 Mid-Cap Growth 68.87% 29.99%* n/a 29.40%* 10/7/94 Small Cap 40.92% n/a n/a 21.76% 1/2/96 Growth 67.96% n/a n/a 31.19%* 4/1/96 Real Estate -12.54% 7.46% 7.33%* 6.41%* 1/25/89 Hard Assets 14.15% 3.75% 3.56%* 4.75%* 1/25/89 Developing World 51.78% n/a n/a 4.33% 2/18/98 Emerging Markets 75.02% 1.58% n/a 2.23% 10/4/93 THE PIMCO TRUST High Yield Bond -5.84%* n/a n/a -3.19%* 5/1/98 StocksPLUS Growth and Income 10.70%* n/a n/a 13.44%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR ALL SUBACCOUNTS Quotations of non-standard average annual total return for any subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a contract over a period of one, five and 10 years (or, if less, up to the life of the subaccount), calculated pursuant to the formula: P(1+T)^(n)]=ERV 5 Where: (1) [P] equals a hypothetical initial premium payment of $1,000 (2) [T] equals an average annual total return (3) [n] equals the number of years (4) [ERV] equals the ending redeemable value of a hypothetical $1,000 initial premium payment made at the beginning of the period (or fractional portion thereof) assuming certain loading and charges are zero. All total return figures reflect the deduction of the mortality and expense risk charge for the Max 7 Enhanced Death Benefit, the administrative charges and the optional benefit rider charge but not the deduction of the maximum sales load and the annual contract fee. Except for the All Cap, Investors, Large Cap Value, ING Global Brand Names and Prudential Jennison subaccounts which had not commenced operations as of December 31, 1999, Average Annual Total Return for the Subaccounts presented on a non-standardized basis, which includes deductions for the maximum mortality and expense risk charge for the Max 7 Solution Enhanced Death Benefit of 1.60%, administrative charges of 0.15%, and rider charge annualized at 0.75% for all portfolios except Liquid Asset and Limited Maturity Bond which are annualized at 0.50%, for the year ending December 31, 1999 were as follows, respectively: 6 Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Non-Standardized with Rider Charge ----------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset 2.40% 2.70% 2.44%* 2.72%* 1/25/89 Limited Maturity Bond -1.13% 3.71% 3.52%* 3.89%* 1/25/89 Global Fixed Income -10.72% 2.32%* n/a 2.29%* 10/7/94 Fully Managed 4.53% 10.44% 6.80%* 6.35%* 1/25/89 Total Return 1.05% 12.09%* n/a 11.07%* 10/7/94 Equity Income -2.96% 7.87% 6.22%* 6.30%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -1.76% n/a n/a 11.79% 1/1/95 Rising Dividends 13.30% 19.53% n/a 15.50% 10/4/93 Managed Global 59.73% 20.61%* n/a 11.82%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 21.47% 22.70%* n/a 20.88%* 10/7/94 Capital Appreciation 21.89% 20.56% n/a 14.55%* 5/4/92 Capital Growth 22.76% n/a n/a 21.04% 4/1/96 Strategic Equity 52.82% n/a n/a 19.29% 10/2/95 Mid-Cap Growth 75.20% 29.85%* n/a 29.17%* 10/7/94 Small Cap 47.33% n/a n/a 21.97% 1/2/96 Growth 74.33% n/a n/a 31.34%* 4/1/96 Real Estate -5.99% 7.63% 6.84%* 5.87%* 1/25/89 Hard Assets 20.67% 3.97% 2.95%* 4.19%* 1/25/89 Developing World 58.18% n/a n/a 7.20% 2/18/98 Emerging Markets 81.37% 1.65% n/a 1.71% 10/4/93 THE PIMCO TRUST High Yield Bond 0.70%* n/a n/a 0.51%* 5/1/98 StocksPLUS Growth and Income 17.19%* n/a n/a 16.70%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. The same Subaccounts presented on a non-standardized basis, which includes deductions for the maximum mortality and expense risk charge for the Max 7 Solution Enhanced Death Benefit of 1.60%, administrative charges of 0.15%, but without the rider charge, for the year ending December 31, 1999 were as follows: 7 Average Annual Total Return for Periods Ending 12/31/99 - - --------------------------------------------------------- Non-Standardized without Rider Charge -------------------------------------
From Inception 1 Year 5 Year 10 Year Inception Date THE GCG TRUST Liquid Asset 2.91% 3.21% 2.95%* 3.24%* 1/25/89 Limited Maturity Bond -0.64% 4.22% 4.03%* 4.41%* 1/25/89 Global Fixed Income -10.22% 2.85%* n/a 2.83%* 10/7/94 Fully Managed 5.05% 10.92% 7.35%* 6.93%* 1/25/89 Total Return 1.57% 12.55%* n/a 11.55%* 10/7/94 Equity Income -2.46% 8.36% 6.76%* 6.85%* 1/25/89 Investors n/a n/a n/a n/a 2/1/00 Value Equity -1.24% n/a n/a 12.23% 1/1/95 Rising Dividends 13.85% 19.95% n/a 15.98% 10/4/93 Managed Global 60.45% 21.16%* n/a 12.49%* 10/21/92 Large Cap n/a n/a n/a n/a 2/1/00 All Cap n/a n/a n/a n/a 2/1/00 Research 22.06% 23.12%* n/a 21.32%* 10/7/94 Capital Appreciation 22.47% 20.99% n/a 15.04%* 5/4/92 Capital Growth 23.36% n/a n/a 21.51% 4/1/96 Strategic Equity 53.51% n/a n/a 19.83% 10/2/95 Mid-Cap Growth 75.93% 30.31%* n/a 29.64%* 10/7/94 Small Cap 47.98% n/a n/a 22.49% 1/2/96 Growth 75.02% n/a n/a 31.86%* 4/1/96 Real Estate -5.49% 8.09% 7.38%* 6.45%* 1/25/89 Hard Assets 21.21% 4.48% 3.61%* 4.80%* 1/25/89 Developing World 58.84% n/a n/a 7.94% 2/18/98 Emerging Markets 82.07% 2.39% n/a 2.43% 10/4/93 THE PIMCO TRUST High Yield Bond 1.22%* n/a n/a 1.07%* 5/1/98 StocksPLUS Growth and Income 17.76%* n/a n/a 17.29%* 5/1/98 ING VARIABLE INSURANCE TRUST ING Global Brand Names n/a n/a n/a n/a 5/1/00 THE PRUDENTIAL SERIES FUND, INC Prudential Jennison n/a n/a n/a n/a 5/1/00
- -------------------- * Total return calculation reflects certain waivers of portfolio fees and expenses. Performance information for a subaccount may be compared, in reports and promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market Institutional Averages, or other indices that measure performance of a pertinent group of securities so that investors may compare a subaccount's results with those of a group of securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of 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 by overall performance, investment objectives, and assets, or tracked by other services, companies, publications, or persons who rank such investment companies on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the contract. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. 8 Performance information for any subaccount reflects only the performance of a hypothetical contract under which contract value is allocated to a subaccount during a particular time period on which the calculations are based. Performance information should be considered in light of the investment objectives and policies, characteristics and quality of the investment portfolio of the Trust in which the Separate Account B subaccounts invest, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. Reports and promotional literature may also contain other information including the ranking of any subaccount derived from rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by other rating services, companies, publications, or other persons who rank separate accounts or other investment products on overall performance or other criteria. PUBLISHED RATINGS From time to time, the rating of Golden American as an insurance company by A.M. Best may be referred to in advertisements or in reports to contract owners. Each year the A.M. Best Company reviews the financial status of thousands of insurers, culminating in the assignment of Best's Ratings. These ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. Best's ratings range from A+ + to F. An A++ and A+ ratings mean, in the opinion of A.M. Best, that the insurer has demonstrated the strongest ability to meet its respective policyholder and other contractual obligations. ACCUMULATION UNIT VALUE The calculation of the Accumulation Unit Value ("AUV") is discussed in the prospectus for the Contracts under Performance Information. Note that in your Contract, accumulation unit value is referred to as the Index of Investment Experience. The following illustrations show a calculation of a new AUV and the purchase of Units (using hypothetical examples). Note that the examples below are calculated for a Contract issued with the Max 7 Enhanced Death Benefit Option, the death benefit option with the highest mortality and expense risk charge. The mortality and expense risk charge associated with the 7% SolutionEnhanced Death Benefit, the Annual Ratchet Enhanced Death Benefit Option and the Standard Death Benefit are lower than that used in the examples and would result in higher AUV's or contract values. ILLUSTRATION OF CALCULATION OF AUV EXAMPLE 1. 1. AUV, beginning of period $ 10.00 2. Value of securities, beginning of period $ 10.00 3. Change in value of securities $ 0.10 4. Gross investment return (3) divided by (2) 0.01 5. Less daily mortality and expense charge 0.00004419 6. Less asset based administrative charge 0.00000411 7. Net investment return (4) minus (5) minus (6) 0.00995170 8. Net investment factor (1.000000) plus (7) 1.00995170 9. AUV, end of period (1) multiplied by (8) $ 10.09951700 9 ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX) EXAMPLE 2. 1. Initial Premium Payment $ 1,000 2. AUV on effective date of purchase (see Example 1) $ 10.00 3. Number of Units purchased (1) divided by (2) 100 4. AUV for valuation date following purchase (see Example 1) $ 10.09951700 5. Contract Value in account for valuation date following purchase (3) multiplied by (4) $ 1,009.95 IRA PARTIAL WITHDRAWAL OPTION If the contract owner has an IRA contract and will attain age 70 1/2 in the current calendar year, distributions will be made in accordance with the requirements of Federal tax law. This option is available to assure that the required minimum distributions from qualified plans under the Internal Revenue Code (the "Code") are made. Under the Code, distributions must begin no later than April 1st of the calendar year following the calendar year in which the contract owner attains age 70 1/2. If the required minimum distribution is notwithdrawn, there may be a penalty tax in an amount equal to 50% of the difference between the amount required to be withdrawn and the amount actually withdrawn. Even if the IRA Partial Withdrawal Option is not elected, distributions must nonetheless be made in accordance with the requirements of Federal tax law. Golden American notifies the contract owner of these regulations with a letter mailed on January 1st of the calendar year in which the contract owner reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and supplies an election form. If electing this option, the owner specifies whether the withdrawal amount will be based on a life expectancy calculated on a single life basis (contract owner's life only) or, if the contract owner is married, on a joint life basis (contract owner's and spouse's lives combined). The contract owner selects the payment mode on a monthly, quarterly or annual basis. If the payment mode selected on the election form is more frequent than annually, the payments in the first calendar year in which the option is in effect will be based on the amount of payment modes remaining when Golden American receives the completed election form. Golden American calculates the IRA Partial Withdrawal amount each year based on the minimum distribution rules. We do this by dividing the contract value by the life expectancy. In the first year withdrawals begin, we use the contract value as of the date of the first payment. Thereafter, we use the contract value on December 31st of each year. The life expectancy is recalculated each year. Certain minimum distribution rules govern payouts if the designated beneficiary is other than the contract owner's spouse and the beneficiary is more than ten years younger than the contract owner. OTHER INFORMATION Registration statements have been filed with the SEC under the Securities Act of 1933, as amended, with respect to the Contracts discussed in this Statement of Additional Information. Not all of the information set forth in the registration statements, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC. 10 FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B The audited financial statements of Separate Account B are listed below and are included in this Statement of Additional Information: Report of Independent Auditors Audited Financial Statements Statement of Net Assets as of December 31, 1999 Statements of Operations for the year ended December 31, 1999 Statements of Changes in Net Assets for the years ended December 31, 1999 and 1998 Notes to Financial Statements 11 FINANCIAL STATEMENTS GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B YEAR ENDED DECEMBER 31, 1999 WITH REPORT OF INDEPENDENT AUDITORS GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS Report of Independent Auditors................................................1 Audited Financial Statements Statement of Net Assets.......................................................2 Statements of Operations......................................................3 Statements of Changes in Net Assets..........................................10 Notes to Financial Statements................................................17 Report of Independent Auditors The Board of Directors Golden American Life Insurance Company We have audited the accompanying statement of net assets of Golden American Life Insurance Company Separate Account B (comprised of the Liquid Asset, Limited Maturity Bond, Hard Assets, All-Growth, Real Estate, Fully Managed, Equity Income, Capital Appreciation, Rising Dividends, Emerging Markets, Market Manager, Value Equity, Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth, Capital Growth, Research, Total Return, Growth, Global Fixed Income, Developing World, Growth Opportunities, PIMCO High Yield Bond, PIMCO StocksPLUS Growth and Income, Appreciation, Smith Barney High Income, Smith Barney Large Cap Value, Smith Barney International Equity, Smith Barney Money Market, International Equity, Asset Allocation, Equity, Growth & Income, and High Quality Bond Divisions) as of December 31, 1999, and the related statements of operations and changes in net assets for in the periods disclosed in the financial statements. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the mutual funds' transfer agents. 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 financial position of Golden American Life Insurance Company Separate Account B at December 31, 1999, and the results of its operations and changes in its net assets for the periods described above, in conformity with accounting principles generally accepted in the United States. Des Moines, Iowa February 25, 2000 1
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENT OF NET ASSETS DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) ASSETS COMBINED ---------------- Investments at net asset value: The GCG Trust: Liquid Asset Series, 522,325,545 shares (cost - $522,326)........................................... $522,326 Limited Maturity Bond Series, 14,433,887 shares (cost - $154,603)................................... 150,401 Hard Assets Series, 3,310,341 shares (cost - $37,918)............................................... 38,929 All-Growth Series, 5,797,423 shares (cost - $94,713)................................................ 145,863 Real Estate Series, 4,593,787 shares (cost - $70,855)............................................... 55,677 Fully Managed Series, 17,755,369 shares (cost - $265,708)........................................... 267,218 Equity Income Series, 24,135,542 shares (cost - $297,021)........................................... 271,284 Capital Appreciation Series, 20,078,304 shares (cost - $350,171).................................... 401,967 Rising Dividends Series, 32,733,235 shares (cost - $673,802)........................................ 813,094 Emerging Markets Series, 2,895,632 shares (cost - $27,343).......................................... 35,472 Market Manager Series, 377,319 shares (cost - $4,795)............................................... 7,320 Value Equity Series, 8,851,843 shares (cost - $143,594)............................................. 137,380 Strategic Equity Series, 9,901,055 shares (cost - $141,166)......................................... 197,526 Small Cap Series, 13,840,816 shares (cost - $249,047)............................................... 324,429 Managed Global Series, 9,085,422 shares (cost - $154,794)........................................... 181,345 Mid-Cap Growth Series, 18,222,880 shares (cost - $408,884).......................................... 539,215 Capital Growth Series, 23,231,448 shares (cost - $371,151).......................................... 430,246 Research Series, 25,665,469 shares (cost - $520,404)................................................ 636,760 Total Return Series, 28,821,536 shares (cost - $458,931)............................................ 455,380 Growth Series, 43,852,669 shares (cost - $866,601).................................................. 1,205,510 Global Fixed Income Series, 2,113,119 shares (cost - $21,930)....................................... 21,258 Developing World Series, 4,470,012 shares (cost - $44,018).......................................... 51,673 Growth Opportunities Series, 598,117 shares (cost - $6,203)......................................... 6,663 PIMCO Variable Insurance Trust: PIMCO High Yield Bond Portfolio, 15,910,545 shares (cost - $150,798)................................ 146,059 PIMCO StocksPLUS Growth and Income Portfolio, 16,314,904 shares (cost - $215,031)................... 221,230 Greenwich Street Series Fund Inc.: Appreciation Portfolio, 42,012 shares (cost - $864)................................................. 983 Travelers Series Fund Inc.: Smith Barney High Income Portfolio, 45,269 shares (cost - $600)..................................... 547 Smith Barney Large Cap Value Portfolio, 32,943 shares (cost - $680)................................. 643 Smith Barney International Equity Portfolio, 23,358 shares (cost - $330)............................ 537 Smith Barney Money Market Portfolio, 579,382 shares (cost - $579)................................... 579 Warburg Pincus Trust: International Equity Portfolio, 10,513,073 shares (cost - $149,816)................................. 175,569 The Galaxy VIP Fund: Asset Allocation Portfolio, 7,851 shares (cost - $132).............................................. 133 Equity Portfolio, 13,379 shares (cost - $292)....................................................... 297 Growth & Income Portfolio, 9,830 shares (cost - $105)............................................... 107 High Quality Bond Portfolio, 2,818 shares (cost - $27).............................................. 27 ---------------- TOTAL ASSETS (cost - $6,405,232).................................................................... 7,443,647 LIABILITY Payable to Golden American Life Insurance Company (all pertaining to Market Manager Division).......... 236 ---------------- TOTAL NET ASSETS..................................................................................... $7,443,411 ================ NET ASSETS For variable annuity insurance contracts............................................................... $7,446,504 Retained in Separate Account B by Golden American Life Insurance Company............................... 3,093 ---------------- TOTAL NET ASSETS..................................................................................... $7,443,411 ================ 2
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (DOLLARS IN THOUSANDS) LIMITED LIQUID MATURITY HARD ALL- REAL ASSET BOND ASSETS GROWTH ESTATE DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $15,368 $5,178 $257 $22,107 $2,278 Capital gains distributions ................ -- -- -- 5,823 1,527 --------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 15,368 5,178 257 27,930 3,805 Expenses: Mortality and expense risk and other charges 4,755 1,698 494 1,297 818 Annual administrative charges .............. 94 37 16 46 27 Minimum death benefit guarantee charges .... 8 1 1 1 1 Contingent deferred sales charges .......... 3,171 129 119 89 112 Other contract charges ..................... 7 3 2 3 1 Amortization of deferred charges related to: Deferred sales load ...................... 553 275 85 326 159 Premium taxes ............................ 18 2 -- 2 1 --------------------------------------------------------------------- TOTAL EXPENSES .............................. 8,606 2,145 717 1,764 1,119 --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 6,762 3,033 (460) 26,166 2,686 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... -- (153) (9,098) 12,611 452 Net unrealized appreciation (depreciation) of investments ........................... -- (3,486) 15,365 41,917 (6,895) --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $6,762 $(606) $5,807 $80,694 $(3,757) ===================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 3
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) FULLY EQUITY CAPITAL RISING EMERGING MANAGED INCOME APPRECIATION DIVIDENDS MARKETS DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $10,485 $13,369 $6,809 $4,048 $350 Capital gains distributions ................ 9,191 14,763 35,936 16,664 -- -------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 19,676 28,132 42,745 20,712 350 Expenses: Mortality and expense risk and other charges 3,284 3,262 3,945 9,409 321 Annual administrative charges .............. 102 143 113 209 14 Minimum death benefit guarantee charges .... 1 6 1 1 1 Contingent deferred sales charges .......... 170 137 246 725 27 Other contract charges ..................... 6 9 8 13 1 Amortization of deferred charges related to: Deferred sales load ...................... 570 1,165 763 776 100 Premium taxes ............................ 2 2 3 3 1 -------------------------------------------------------------------- TOTAL EXPENSES .............................. 4,135 4,724 5,079 11,136 465 -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 15,541 23,408 37,666 9,576 (115) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 4,586 604 12,525 12,658 (839) Net unrealized appreciation (depreciation) of investments ........................... (8,712) (30,854) 16,816 60,461 17,638 -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $11,415 $(6,842) $67,007 $82,695 $16,684 ==================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 4
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MARKET VALUE STRATEGIC SMALL MANAGED MANAGER EQUITY EQUITY CAP GLOBAL DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $110 $1,231 $211 $6,243 $9,130 Capital gains distributions ................ 973 2,440 549 2,817 15,707 --------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 1,083 3,671 760 9,060 24,837 Expenses: Mortality and expense risk and other charges -- 1,869 1,454 2,692 1,667 Annual administrative charges .............. -- 52 29 57 54 Minimum death benefit guarantee charges .... -- -- -- -- 1 Contingent deferred sales charges .......... -- 129 252 157 195 Other contract charges ..................... -- 2 1 2 4 Amortization of deferred charges related to: Deferred sales load ...................... 40 151 75 82 397 Premium taxes ............................ -- -- 1 1 1 --------------------------------------------------------------------- TOTAL EXPENSES .............................. 40 2,203 1,812 2,991 2,319 --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 1,043 1,468 (1,052) 6,069 22,518 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 861 5,066 5,704 30,614 42,644 Net unrealized appreciation (depreciation) of investments ........................... (880) (9,606) 54,916 54,213 6,404 --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $1,024 $(3,072) $59,568 $90,896 $71,566 ===================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 5
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MID-CAP CAPITAL TOTAL GROWTH GROWTH RESEARCH RETURN GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $41,872 $22,161 $7,421 $12,635 $12,825 Capital gains distributions ................ 2,355 669 2,686 1,756 1,124 ------------------------------------------------------------------ TOTAL INVESTMENT INCOME ..................... 44,227 22,830 10,107 14,391 13,949 Expenses: Mortality and expense risk and other charges 3,582 4,167 6,574 5,403 7,294 Annual administrative charges .............. 59 91 117 106 102 Minimum death benefit guarantee charges .... -- -- -- -- 1 Contingent deferred sales charges .......... 244 294 380 297 405 Other contract charges ..................... 2 1 3 1 3 Amortization of deferred charges related to: Deferred sales load ...................... 68 68 110 83 95 Premium taxes ............................ 1 -- 1 1 1 ------------------------------------------------------------------ TOTAL EXPENSES .............................. 3,956 4,621 7,185 5,891 7,901 ------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) ................ 40,271 18,209 2,922 8,500 6,048 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 27,166 3,969 2,750 531 46,796 Net unrealized appreciation (depreciation) of investments ........................... 122,970 50,167 99,090 (4,991) 324,922 ------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $190,407 $72,345 $104,762 $4,040 $377,766 ================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 6
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) PIMCO PIMCO GLOBAL HIGH STOCKSPLUS FIXED DEVELOPING GROWTH YIELD GROWTH AND INCOME WORLD OPPORTUNITIES BOND INCOME DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $345 $1,400 $162 $8,321 $12,203 Capital gains distributions ................ -- -- 130 -- 6,865 ------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 345 1,400 292 8,321 19,068 Expenses: Mortality and expense risk and other charges 237 260 95 1,537 2,030 Annual administrative charges .............. 3 4 1 19 20 Minimum death benefit guarantee charges .... -- -- -- -- -- Contingent deferred sales charges .......... 22 11 2 68 95 Other contract charges ..................... -- -- -- -- -- Amortization of deferred charges related to: Deferred sales load ...................... 2 -- 1 13 16 Premium taxes ............................ -- -- -- -- -- ------------------------------------------------------------------- TOTAL EXPENSES .............................. 264 275 99 1,637 2,161 ------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 81 1,125 193 6,684 16,907 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... (939) 2,134 732 (974) 4,397 Net unrealized appreciation (depreciation) of investments ........................... (662) 7,506 111 (4,721) 1,944 ------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $(1,520) $10,765 $1,036 $989 $23,248 =================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 7
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) SMITH SMITH SMITH SMITH BARNEY BARNEY BARNEY BARNEY HIGH LARGE CAP INTERNATIONAL MONEY APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) Income: Dividends .................................. $7 $53 $10 $1 $11 Capital gains distributions ................ 17 -- 21 -- -- -------------------------------------------------------------------- TOTAL INVESTMENT INCOME ..................... 24 53 31 1 11 Expenses: Mortality and expense risk and other charges 14 9 10 5 3 Annual administrative charges .............. 1 1 1 -- -- Minimum death benefit guarantee charges .... -- -- -- -- -- Contingent deferred sales charges .......... 2 -- 1 -- -- Other contract charges ..................... -- -- -- -- -- Amortization of deferred charges related to: Deferred sales load ...................... -- -- -- -- -- Premium taxes ............................ -- -- -- -- -- -------------------------------------------------------------------- TOTAL EXPENSES .............................. 17 10 12 5 3 -------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ................ 7 43 19 (4) 8 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... 23 (48) 10 20 -- Net unrealized appreciation (depreciation) of investments ........................... 76 10 (47) 214 -- -------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... $106 $5 $(18) $230 $8 ==================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 8
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) INTERNATIONAL ASSET GROWTH & HIGH QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION(b) DIVISION(b) DIVISION(a) DIVISION(c) COMBINED ------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) Income: Dividends ...................................... $1,432 $1 -- -- -- $218,034 Capital gains distributions .................... -- 1 $7 $1 -- 122,022 ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME ......................... 1,432 2 7 1 -- 340,056 Expenses: Mortality and expense risk and other charges ... 1,371 -- -- -- -- 69,556 Annual administrative charges .................. 21 -- -- -- -- 1,539 Minimum death benefit guarantee charges ........ -- -- -- -- -- 24 Contingent deferred sales charges .............. 87 -- -- -- -- 7,566 Other contract charges ......................... -- -- -- -- -- 72 Amortization of deferred charges related to: Deferred sales load .......................... -- -- -- -- -- 5,973 Premium taxes ................................ 1 -- -- -- -- 42 ------------------------------------------------------------------------------ TOTAL EXPENSES .................................. 1,480 -- -- -- -- 84,772 ------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) .................... (48) 2 7 1 -- 255,284 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ........ 30,975 -- -- -- $(1) 235,776 Net unrealized appreciation (depreciation) of investments ............................... 24,199 1 5 2 -- 828,093 ------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $55,126 $3 $12 $3 $(1) $1,319,153 ============================================================================== (a) Commencement of operations, October 25, 1999. (b) Commencement of operations, November 1, 1999. (c) Commencement of operations, December 3, 1999. See accompanying notes. 9
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (DOLLARS IN THOUSANDS) LIMITED LIQUID MATURITY HARD ALL- REAL ASSET BOND ASSETS GROWTH ESTATE DIVISION DIVISION DIVISION DIVISION DIVISION ----------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $57,254 $52,467 $45,503 $71,738 $74,700 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 3,131 1,782 2,033 (905) 8,244 Net realized gain (loss) on investments ..... -- 872 (6,941) 330 3,708 Net unrealized appreciation (depreciation) of investments ............................ -- 739 (8,620) 6,240 (24,689) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 3,131 3,393 (13,528) 5,665 (12,737) Changes from principal transactions: Purchase payments ........................... 227,924 42,180 7,508 15,762 24,639 Contract distributions and terminations ..... (38,803) (9,265) (4,524) (9,206) (6,988) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (73,759) 14,051 (5,266) (2,159) (10,631) Addition to assets retained in the Account by Golden American Life Insurance Company .... 12 6 10 7 12 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 115,374 46,972 (2,272) 4,404 7,032 ---------------------------------------------------------------------- Total increase (decrease) ..................... 118,505 50,365 (15,800) 10,069 (5,705) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 175,759 102,832 29,703 81,807 68,995 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 6,762 3,033 (460) 26,166 2,686 Net realized gain (loss) on investments ..... -- (153) (9,098) 12,611 452 Net unrealized appreciation (depreciation) of investments ............................ -- (3,486) 15,365 41,917 (6,895) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 6,762 (606) 5,807 80,694 (3,757) Changes from principal transactions: Purchase payments ........................... 466,501 67,604 7,898 9,526 9,108 Contract distributions and terminations ..... (123,045) (15,384) (5,361) (15,134) (9,074) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (3,655) (4,046) 881 (11,033) (9,597) Addition to assets retained in the Account by Golden American Life Insurance Company .... 4 1 1 3 2 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 339,805 48,175 3,419 (16,638) (9,561) ---------------------------------------------------------------------- Total increase (decrease) ..................... 346,567 47,569 9,226 64,056 (13,318) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $522,326 $150,401 $38,929 $145,863 $55,677 ====================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 10
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) FULLY EQUITY CAPITAL RISING EMERGING MANAGED INCOME APPRECIATION DIVIDENDS MARKETS DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $158,650 $261,869 $187,817 $215,943 $34,501 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 15,626 23,815 18,956 12,920 (524) Net realized gain (loss) on investments ..... 1,704 2,288 6,551 3,842 (3,524) Net unrealized appreciation (depreciation) of investments ............................ (10,501) (10,125) (3,987) 17,344 (4,266) ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 6,829 15,978 21,520 34,106 (8,314) Changes from principal transactions: Purchase payments ........................... 74,467 34,793 63,892 216,682 2,520 Contract distributions and terminations ..... (19,367) (39,339) (26,711) (26,449) (2,973) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 5,756 581 10,035 60,274 (3,483) Addition to assets retained in the Account by Golden American Life Insurance Company..... 31 28 25 60 3 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 60,887 (3,937) 47,241 250,567 (3,933) ---------------------------------------------------------------------- Total increase (decrease) ..................... 67,716 12,041 68,761 284,673 (12,247) ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 226,366 273,910 256,578 500,616 22,254 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 15,541 23,408 37,666 9,576 (115) Net realized gain (loss) on investments ..... 4,586 604 12,525 12,658 (839) Net unrealized appreciation (depreciation) of investments ............................ (8,712) (30,854) 16,816 60,461 17,638 ---------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 11,415 (6,842) 67,007 82,695 16,684 Changes from principal transactions: Purchase payments ........................... 62,680 62,880 107,357 245,047 1,445 Contract distributions and terminations ..... (30,839) (54,241) (44,732) (59,723) (3,546) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (2,413) (4,436) 15,746 44,445 (1,366) Addition to assets retained in the Account by Golden American Life Insurance Company .... 9 13 11 14 1 ---------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 29,437 4,216 78,382 229,783 (3,466) ---------------------------------------------------------------------- Total increase (decrease) ..................... 40,852 (2,626) 145,389 312,478 13,218 ---------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $267,218 $271,284 $401,967 $813,094 $35,472 ====================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 11
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MARKET VALUE STRATEGIC SMALL MANAGED MANAGER EQUITY EQUITY CAP GLOBAL DIVISION DIVISION DIVISION DIVISION DIVISION ----------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $6,716 $77,025 $50,437 $52,725 $104,681 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 299 1,994 3,586 (1,343) 3,296 Net realized gain (loss) on investments ..... 135 1,237 1,365 2,148 7,634 Net unrealized appreciation (depreciation) of investments ............................ 1,090 (4,208) (6,078) 15,952 16,611 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 1,524 (977) (1,127) 16,757 27,541 Changes from principal transactions: Purchase payments ........................... (36) 51,484 25,972 44,851 11,958 Contract distributions and terminations ..... (188) (7,869) (5,201) (6,104) (13,329) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (309) 6,521 1,265 16,010 (176) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- 10 2 6 9 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (533) 50,146 22,038 54,763 (1,538) ---------------------------------------------------------------------------- Total increase (decrease) ..................... 991 49,169 20,911 71,520 26,003 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 7,707 126,194 71,348 124,245 130,684 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 1,043 1,468 (1,052) 6,069 22,518 Net realized gain (loss) on investments ..... 861 5,066 5,704 30,614 42,644 Net unrealized appreciation (depreciation) of investments ............................ (880) (9,606) 54,916 54,213 6,404 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 1,024 (3,072) 59,568 90,896 71,566 Changes from principal transactions: Purchase payments ........................... 77 33,542 56,281 94,650 8,846 Contract distributions and terminations ..... (1,399) (13,124) (11,518) (11,971) (21,244) Transfer payments from (to) Fixed Accounts and other Divisions ....................... (325) (6,161) 21,844 26,607 (8,510) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- 1 3 2 3 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (1,647) 14,258 66,610 109,288 (20,905) ---------------------------------------------------------------------------- Total increase (decrease) ..................... (623) 11,186 126,178 200,184 50,661 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $7,084 $137,380 $197,526 $324,429 $181,345 ============================================================================ (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 12
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) MID-CAP CAPITAL TOTAL GROWTH GROWTH RESEARCH RETURN GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION ---------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $20,361 $44,922 $34,402 $26,231 $23,178 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 3,991 2,904 10,068 9,099 4,697 Net realized gain (loss) on investments ..... 899 911 972 185 (807) Net unrealized appreciation (depreciation) of investments ............................ 6,574 7,679 16,878 1,028 15,417 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 11,464 11,494 27,918 10,312 19,307 Changes from principal transactions: Purchase payments ........................... 66,121 105,760 167,295 156,492 77,977 Contract distributions and terminations ..... (3,065) (7,503) (6,740) (7,889) (3,834) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 21,962 24,270 60,643 42,666 26,430 Addition to assets retained in the Account by Golden American Life Insurance Company .... 1 7 11 23 10 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 85,019 122,534 221,209 191,292 100,583 ---------------------------------------------------------------------------- Total increase (decrease) ..................... 96,483 134,028 249,127 201,604 119,890 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 116,844 178,950 283,529 227,835 143,068 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 40,271 18,209 2,922 8,500 6,048 Net realized gain (loss) on investments ..... 27,166 3,969 2,750 531 46,796 Net unrealized appreciation (depreciation) of investments ............................ 122,970 50,167 99,090 (4,991) 324,922 ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 190,407 72,345 104,762 4,040 377,766 Changes from principal transactions: Purchase payments ........................... 167,461 158,765 232,103 191,000 444,759 Contract distributions and terminations ..... (15,116) (16,970) (24,594) (22,055) (28,748) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 79,613 37,151 40,954 54,551 268,657 Addition to assets retained in the Account by Golden American Life Insurance Company .... 6 5 6 9 8 ---------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 231,964 178,951 248,469 223,505 684,676 ---------------------------------------------------------------------------- Total increase (decrease) ..................... 422,371 251,296 353,231 227,545 1,062,442 ---------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $539,215 $430,246 $636,760 $455,380 $1,205,510 ============================================================================ (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 13
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) PIMCO PIMCO GLOBAL HIGH STOCKSPLUS FIXED DEVELOPING GROWTH YIELD GROWTH AND INCOME WORLD OPPORTUNITIES BOND INCOME DIVISION DIVISION(a) DIVISION(a) DIVISION(c) DIVISION(b) ---------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $206 -- -- -- -- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 174 $(22) $(8) $817 $814 Net realized gain (loss) on investments ..... 216 (266) (235) (318) (97) Net unrealized appreciation (depreciation) of investments ............................ -- 149 349 (18) 4,255 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 390 (139) 106 481 4,972 Changes from principal transactions: Purchase payments ........................... 5,820 2,757 4,097 32,399 29,368 Contract distributions and terminations ..... (219) (34) (45) (912) (361) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 3,331 1,928 (27) 14,150 17,822 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- 1 --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 8,932 4,651 4,025 45,637 46,830 --------------------------------------------------------------------------- Total increase (decrease) ..................... 9,322 4,512 4,131 46,118 51,802 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 9,528 4,512 4,131 46,118 51,802 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 81 1,125 193 6,684 16,907 Net realized gain (loss) on investments ..... (939) 2,134 732 (974) 4,397 Net unrealized appreciation (depreciation) of investments ............................ (662) 7,506 111 (4,721) 1,944 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. (1,520) 10,765 1,036 989 23,248 Changes from principal transactions: Purchase payments ........................... 10,947 14,639 1,833 73,017 122,580 Contract distributions and terminations ..... (1,341) (740) (256) (6,247) (5,161) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 3,644 22,497 (81) 32,181 28,758 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- 1 3 --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 13,250 36,396 1,496 98,952 146,180 --------------------------------------------------------------------------- Total increase (decrease) ..................... 11,730 47,161 2,532 99,941 169,428 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $21,258 $51,673 $6,663 $146,059 $221,230 =========================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 14
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) SMITH SMITH SMITH SMITH BARNEY BARNEY BARNEY BARNEY HIGH LARGE CAP INTERNATIONAL MONEY APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION --------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ................... $263 $209 $215 $96 $181 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 30 36 14 (3) 14 Net realized gain (loss) on investments ..... 3 8 2 (1) -- Net unrealized appreciation (depreciation) of investments ............................ 52 (66) 3 (2) -- --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 85 (22) 19 (6) 14 Changes from principal transactions: Purchase payments ........................... 595 530 429 178 565 Contract distributions and terminations ..... (21) (15) (5) (4) (25) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 52 104 43 62 (417) Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- -- --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... 626 619 467 236 123 --------------------------------------------------------------------------- Total increase (decrease) ..................... 711 597 486 230 137 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ............... 974 806 701 326 318 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) ................ 7 43 19 (4) 8 Net realized gain (loss) on investments ..... 23 (48) 10 20 -- Net unrealized appreciation (depreciation) of investments ............................ 76 10 (47) 214 -- --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................. 106 5 (18) 230 8 Changes from principal transactions: Purchase payments ........................... 40 3 42 18 210 Contract distributions and terminations ..... (149) (77) (59) (5) (11) Transfer payments from (to) Fixed Accounts and other Divisions ....................... 12 (190) (23) (32) 54 Addition to assets retained in the Account by Golden American Life Insurance Company .... -- -- -- -- -- --------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ............... (97) (264) (40) (19) 253 --------------------------------------------------------------------------- Total increase (decrease) ..................... 9 (259) (58) 211 261 --------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ............... $983 $547 $643 $537 $579 =========================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 15
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, EXCEPT AS NOTED (CONTINUED) (DOLLARS IN THOUSANDS) HIGH INTERNATIONAL ASSET GROWTH & QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION(e) DIVISION(e) DIVISION(d) DIVISION(f) COMBINED ------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 1998 ..................... $1,981 -- -- -- -- $1,604,271 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) .................. (179) -- -- -- -- 125,356 Net realized gain (loss) on investments ....... (556) -- -- -- -- 22,265 Net unrealized appreciation (depreciation) of investments .............................. 1,647 -- -- -- -- 39,447 ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................... 912 -- -- -- -- 187,068 Changes from principal transactions: Purchase payments ............................. 41,775 -- -- -- -- 1,536,754 Contract distributions and terminations ....... (940) -- -- -- -- (247,928) Transfer payments from (to) Fixed Accounts and other Divisions ......................... 6,037 -- -- -- -- 237,766 Addition to assets retained in the Account by Golden American Life Insurance Company ....... -- -- -- -- -- 274 ------------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ................. 46,872 -- -- -- -- 1,526,866 ------------------------------------------------------------------------------- Total increase (decrease) ....................... 47,784 -- -- -- -- 1,713,934 ------------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1998 ................. 49,765 -- -- -- -- 3,318,205 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income (loss) .................. (48) $2 $7 $1 -- 255,284 Net realized gain (loss) on investments ....... 30,975 -- -- -- $(1) 235,776 Net unrealized appreciation (depreciation) of investments .............................. 24,199 1 5 2 -- 828,093 ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ................... 55,126 3 12 3 (1) 1,319,153 Changes from principal transactions: Purchase payments ............................. 55,479 127 281 98 127 2,706,971 Contract distributions and terminations ....... (3,729) -- -- -- (4) (545,597) Transfer payments from (to) Fixed Accounts and other Divisions ......................... 18,928 3 4 6 (95) 644,573 Addition to assets retained in the Account by Golden American Life Insurance Company ...... -- -- -- -- -- 106 ------------------------------------------------------------------------------- Increase (decrease) in net assets derived from principal transactions ................. 70,678 130 285 104 28 2,806,053 ------------------------------------------------------------------------------- Total increase (decrease) ....................... 125,804 133 297 107 27 4,125,206 ------------------------------------------------------------------------------- NET ASSETS AT DECEMBER 31, 1999 ................. $175,569 $133 $297 $107 $27 $7,443,411 =============================================================================== (a) Commencement of operations, March 2, 1998. (b) Commencement of operations, May 8, 1998. (c) Commencement of operations, May 11, 1998. (d) Commencement of operations, October 25, 1999. (e) Commencement of operations, November 1, 1999. (f) Commencement of operations, December 3, 1999. See accompanying notes. 16
GOLDEN AMERICAN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1 - ORGANIZATION Golden American Life Insurance Company Separate Account B (the "Account") was established by Golden American Life Insurance Company ("Golden American") to support the operations of variable annuity contracts ("Contracts"). Golden American is primarily engaged in the issuance of variable insurance products and is licensed as a life insurance company in the District of Columbia and all states except New York. The Account is registered as a unit investment trust with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. Golden American provides for variable accumulation and benefits under the Contracts by crediting annuity considerations to one or more divisions within the Account or the Golden American Guaranteed Interest Division, the Golden American Fixed Interest Division, and the Fixed Separate Account, which are not part of the Account, as directed by the Contractowners. The portion of the Account's assets applicable to Contracts will not be chargeable with liabilities arising out of any other business Golden American may conduct, but obligations of the Account, including the promise to make benefit payments, are obligations of Golden American. The assets and liabilities of the Account are clearly identified and distinguished from the other assets and liabilities of Golden American. During 1999, the Account had GoldenSelect Contracts and Granite PrimElite Contracts. GoldenSelect Contracts sold by Golden American during 1999 include DVA 100, DVA Series 100, DVA Plus, Access, Premium Plus, ESII, and Value. During 1999, the Account had GoldenSelect Contracts (DVA 80) which were no longer being sold. At December 31, 1999, the Account had, under GoldenSelect Contracts, thirty-one investment divisions: Liquid Asset, Limited Maturity Bond, Hard Assets, All-Growth, Real Estate, Fully Managed, Equity Income (formerly Multiple Allocation), Capital Appreciation, Rising Dividends, Emerging Markets, Market Manager, Value Equity, Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth, Capital Growth (formerly Growth & Income), Research, Total Return, Growth (formerly Value + Growth), Global Fixed Income, Developing World, Growth Opportunities, PIMCO High Yield Bond, PIMCO StocksPLUS Growth and Income, International Equity, Asset Allocation, Equity, Growth & Income, and High Quality Bond Divisions ("Divisions"). The Account also had, under Granite PrimElite Contracts, eight investments divisions: Mid-Cap Growth, Research, Total Return, Appreciation, Smith Barney High Income, Smith Barney Large Cap Value, Smith Barney International Equity, and Smith Barney Money Market Divisions (collectively with the divisions noted above, "Divisions"). The assets in each Division are invested in shares of a designated series ("Series," which may also be referred to as "Portfolio") of mutual funds, The GCG Trust, PIMCO Variable Insurance Trust, Greenwich Street Series Fund Inc., Travelers Series Fund Inc., Warburg Pincus Trust, or The Galaxy VIP Fund (the "Trusts"). The Account also includes The Fund For Life Division, which is not included in the accompanying financial statements, and which ceased to accept new Contracts effective December 31, 1994. Prior to August 14, 1998, the Account also had certain investment divisions available from the Equi-Select Series Trust. In an effort to consolidate operations, Golden American requested permission from the Securities and Exchange Commission ("SEC") to substitute shares of each Portfolio of the Equi-Select Series Trust with shares of a similar Series of The GCG Trust. On August 14, 1998, after approval from the SEC, shares of each Portfolio of the Equi-Select Series Trust were substituted with shares of a similar Series of The GCG Trust. The consolidation resulted in the following Series being substituted from The GCG Trust: Equi-Select Series Trust The GCG Trust Investment Division Investment Division - ------------------------------- ---------------------------------------------- International Fixed Income Global Fixed Income OTC Mid-Cap Growth Research Research Total Return Total Return Value + Growth Growth (formerly Value + Growth) Growth & Income Capital Growth (formerly Growth & Income) 17 NOTE 1 - ORGANIZATION (CONTINUED) The Market Manager Division was open for investment for only a brief period during 1994 and 1995. This Division is now closed and Contractowners are not permitted to direct their investments into this Division. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies of the Account: USE OF ESTIMATES: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVESTMENTS: Investments are made in shares of a Series or Portfolio of the Trusts and are valued at the net asset value per share of the respective Series or Portfolio of the Trusts. Investment transactions in each Series or Portfolio of the Trusts are recorded on the trade date. Distributions of net investment income and capital gains from each Series or Portfolio of the Trusts are recognized on the ex-distribution date. Realized gains and losses on redemptions of the shares of the Series or Portfolio of the Trusts are determined on the specific identification basis. FEDERAL INCOME TAXES: Operations of the Account form a part of, and are taxed with, the total operations of Golden American which is taxed as a life insurance company under the Internal Revenue Code. Earnings and realized capital gains of the Account attributable to the Contractowners are excluded in the determination of the federal income tax liability of Golden American. NOTE 3 - CHARGES AND FEES DVA Plus, Access, and the Premium Plus each have three different death benefit options referred to as Standard, Annual Ratchet, and 7% Solution; however, in the state of Washington, the 5.5% Solution is offered instead of the 7% Solution. Granite PrimElite has two death benefit options referred to as Standard and Annual Ratchet. Golden American discontinued external sales of DVA 80 in May 1991. Golden American has also discontinued external sales of DVA 100. Under the terms of the Contract, certain charges are allocated to the Contracts to cover Golden American's expenses in connection with the issuance and administration of the Contracts. Following is a summary of these charges: MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and expense risks related to the operations of the Account and, in accordance with the terms of the Contracts, deducts a daily charge from the assets of the Account. Daily charges deducted at annual rates to cover these risks follows: SERIES ANNUAL RATES --------- ------------ DVA 80.................................................. 0.80% DVA 100................................................. 0.90 DVA Series 100.......................................... 1.25 DVA Plus - Standard..................................... 1.10 DVA Plus - Annual Ratchet............................... 1.25 DVA Plus - 5.5% Solution................................ 1.25 DVA Plus - 7% Solution.................................. 1.40 Access - Standard....................................... 1.25 Access - Annual Ratchet................................. 1.40 Access - 5.5% Solution.................................. 1.40 Access - 7% Solution.................................... 1.55 Premium Plus - Standard................................. 1.25 Premium Plus - Annual Ratchet........................... 1.40 Premium Plus - 5.5% Solution............................ 1.40 Premium Plus - 7% Solution.............................. 1.55 ESII.................................................... 1.25 Granite PrimElite - Standard............................ 1.10 Granite PrimElite - Annual Ratchet...................... 1.25 Value................................................... 0.75 18 NOTE 3 - CHARGES AND FEES (CONTINUED) ASSET BASED ADMINISTRATIVE CHARGES: A daily charge at an annual rate of 0.10% is deducted from assets attributable to DVA 100 and DVA Series 100 Contracts. A daily charge at an annual rate of 0.15% is deducted from the assets attributable to the DVA Plus, Access, Premium Plus, ESII, Value, and Granite PrimElite Contracts. ADMINISTRATIVE CHARGES: An administrative charge is deducted from the accumulation value of Deferred Annuity Contracts to cover ongoing administrative expenses. The charge is $30 per Contract year for ES II and Value contracts. For all other Contracts the charge is $40. The charge is incurred at the beginning of the Contract processing period and deducted at the end of the Contract processing period. This charge had been waived for certain offerings of the Contracts. MINIMUM DEATH BENEFIT GUARANTEE CHARGES: For certain Contracts, a minimum death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death benefit per Contract year is deducted from the accumulation value of Deferred Annuity Contracts on each Contract anniversary date. CONTINGENT DEFERRED SALES CHARGES: Under DVA Plus, Premium Plus, ES II, Value, and Granite PrimElite Contracts, a contingent deferred sales charge ("Surrender Charge") is imposed as a percentage of each premium payment if the Contract is surrendered or an excess partial withdrawal is taken. The following table reflects the surrender charge that is assessed based upon the date a premium payment is received.
Complete Years Elapsed Since Premium Payment Surrender Charge - -------------------------------------------------------------------------------------------------------------------------------- DVA PLUS PREMIUM PLUS ES II VALUE GRANITE PRIMELITE -------- ------------ ----- ----- ----------------- 0............. 7% 8% 8% 6% 7% 1............. 7 8 7 6 7 2............. 6 8 6 6 6 3............. 5 8 5 5 5 4............. 4 7 4 4 4 5............. 3 6 3 3 3 6............. 1 5 2 1 1 7............. -- 3 1 -- -- 8............. -- 1 -- -- -- 9+............ -- -- -- -- --
OTHER CONTRACT CHARGES: Under DVA 80, DVA 100, and DVA Series 100 Contracts, a charge is deducted from the accumulation value for Contracts taking more than one conventional partial withdrawal during a Contract year. For DVA 80 and DVA 100 Contracts, annual distribution fees are deducted from the Contract accumulation values. DEFERRED SALES LOAD: Under Contracts offered prior to October 1995, a sales load of up to 7.5 % was assessed against each premium payment for sales-related expenses as specified in the Contracts. For DVA Series 100, the sales load is deducted in equal annual installments over the period the Contract is in force, not to exceed 10 years. For DVA 80 and DVA 100 Contracts, although the sales load is chargeable to each premium when it is received by Golden American, the amount of such charge is initially advanced by Golden American to Contractowners and included in the accumulation value and then deducted in equal installments on each Contract anniversary date over a period of six years. Upon surrender of the Contract, the unamortized deferred sales load is deducted from the accumulation value. In addition, when partial withdrawal limits are exceeded, a portion of the unamortized deferred sales load is deducted. PREMIUM TAXES: For certain Contracts, premium taxes are deducted, where applicable, from the accumulation value of each Contract. The amount and timing of the deduction depend on the annuitant's state of residence and currently ranges up to 3.5% of premiums. FEES WAIVED BY GOLDEN AMERICAN: Certain charges and fees for various types of Contracts are currently waived by Golden American. Golden American reserves the right to discontinue these waivers at its discretion or to conform with changes in the law. 19 NOTE 3 - CHARGES AND FEES (CONTINUED) A summary of the net assets retained in the Account, representing the unamortized deferred sales load and premium taxes advanced by Golden American previously noted, follows:
YEAR ENDED DECEMBER 31 -------------------------------------------- 1999 1998 -------------------- ------------------- (DOLLARS IN THOUSANDS) Balance at beginning of year............................ $9,003 $17,009 Sales load advanced..................................... 105 274 Amortization of deferred sales load and premium tax..... (6,015) (8,280) -------------------- ------------------- Balance at end of year.................................. $3,093 $9,003 ==================== ===================
NOTE 4 - PURCHASES AND SALES OF INVESTMENT SECURITIES The aggregate cost of purchases and proceeds from sales of investments follows:
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------- 1999 1998 ---------------------------- ------------------------------- PURCHASES SALES PURCHASES SALES ---------------------------- ------------------------------- (DOLLARS IN THOUSANDS) The GCG Trust: Liquid Asset Series.................................. $1,632,496 $1,285,868 $570,537 $452,115 Limited Maturity Bond Series......................... 81,290 30,122 71,742 22,970 Hard Assets Series................................... 41,433 38,490 17,730 17,975 All-Growth Series.................................... 46,095 36,607 16,647 13,146 Real Estate Series................................... 20,497 27,401 29,007 13,733 Fully Managed Series................................. 68,756 23,879 83,688 7,148 Equity Income Series................................. 70,767 43,280 52,037 32,159 Capital Appreciation Series.......................... 148,975 33,036 83,259 17,034 Rising Dividends Series.............................. 261,711 22,554 270,955 7,361 Emerging Markets Series.............................. 9,244 12,838 2,644 7,107 Market Manager Series................................ 1,084 1,813 342 292 Value Equity Series.................................. 43,808 28,137 58,297 6,136 Strategic Equity Series.............................. 90,233 24,704 31,008 5,375 Small Cap Series..................................... 225,813 110,509 63,182 9,735 Managed Global Series................................ 178,228 176,669 41,119 39,355 Mid-Cap Growth Series................................ 391,543 119,357 97,494 8,444 Capital Growth Series................................ 220,384 23,307 132,350 6,850 Research Series...................................... 270,703 19,426 237,915 6,540 Total Return Series.................................. 236,379 4,467 202,032 1,560 Growth Series........................................ 860,731 170,066 119,241 13,912 Global Fixed Income Series........................... 26,185 12,857 14,270 5,161 Developing World Series.............................. 58,318 20,799 7,293 2,662 Growth Opportunities Series.......................... 7,288 5,600 7,214 3,196 PIMCO Variable Insurance Trust: PIMCO High Yield Bond Portfolio...................... 124,005 18,385 52,726 6,256 PIMCO StocksPLUS Growth and Income Portfolio......... 188,819 25,749 49,898 2,237 Greenwich Street Series Fund Inc.: Appreciation Portfolio............................... 111 202 739 82 Travelers Series Fund Inc.: Smith Barney High Income Portfolio................... 98 320 878 222 Smith Barney Large Cap Value Portfolio............... 167 189 513 32 Smith Barney International Equity Portfolio.......... 44 67 245 12 Smith Barney Money Market Portfolio.................. 483 222 630 494 Warburg Pincus Trust: International Equity Portfolio....................... 696,223 625,613 370,938 324,226 The Galaxy VIP Fund: Asset Allocation Portfolio........................... 141 9 -- -- Equity Portfolio..................................... 292 -- -- -- Growth & Income Portfolio............................ 105 -- -- -- High Quality Bond Portfolio.......................... 127 99 -- -- ---------------------------------------------------------------- COMBINED.................................................. $6,002,576 $2,942,641 $2,686,570 $1,033,527 ================================================================ 20
NOTE 5 - SUMMARY OF CHANGES FROM UNIT TRANSACTIONS Contractowners' transactions shown in the following table reflect gross inflows ("Purchases") and outflows ("Sales") in units for each Division. The activity includes Contractowners electing to update a DVA 100 or DVA Series 100 Contract to a DVA PLUS Contract. Updates to DVA PLUS Contracts resulted in both a sale (surrender of the old Contract) and a purchase (acquisition of the new Contract). All of the purchases transactions for the Market Manager Division resulted from such updates.
YEAR ENDED DECEMBER 31 --------------------------------------------------------------------------- 1999 1998 ---------------------------------- ---------------------------------- PURCHASES SALES PURCHASES SALES ---------------------------------- ---------------------------------- Liquid Asset Division............................ 124,478,649 101,109,842 46,713,872 38,496,936 Limited Maturity Bond Division................... 6,043,778 3,110,174 5,263,273 2,390,944 Hard Assets Division............................. 2,900,594 2,714,660 1,390,271 1,503,254 All-Growth Division.............................. 1,593,344 2,299,652 1,876,296 1,557,867 Real Estate Division............................. 1,107,500 1,561,932 1,269,259 1,003,769 Fully Managed Division........................... 3,844,658 2,421,187 4,432,536 1,393,191 Equity Income Division........................... 4,105,827 3,799,977 2,439,316 2,628,892 Capital Appreciation Division.................... 6,021,915 3,037,582 3,704,327 1,712,022 Rising Dividends Division........................ 12,519,925 3,029,038 13,285,423 1,798,264 Emerging Markets Division........................ 1,467,567 1,902,732 737,697 1,279,884 Market Manager Division.......................... 435 75,755 16,579 26,443 Value Equity Division............................ 2,852,986 2,154,579 3,639,566 936,377 Strategic Equity Division........................ 6,344,054 2,305,045 2,329,825 828,876 Small Cap Division............................... 14,347,399 8,174,181 5,737,867 1,727,666 Managed Global Division.......................... 9,633,015 10,824,049 3,637,963 3,808,355 Mid-Cap Growth Division.......................... 14,316,514 5,846,579 5,201,859 1,073,702 Capital Growth Division.......................... 12,561,878 2,575,149 8,700,243 1,061,928 Research Division................................ 12,204,579 1,771,319 11,776,149 1,145,700 Total Return Division............................ 13,447,324 976,323 11,841,572 542,519 Growth Division.................................. 46,544,853 13,013,005 8,862,606 1,834,396 Global Fixed Income Division..................... 2,406,215 1,322,576 1,199,981 486,199 Developing World Division........................ 6,615,294 2,774,781 1,034,819 414,729 Growth Opportunities Division.................... 726,528 570,950 801,993 373,469 PIMCO High Yield Bond Division................... 12,707,468 2,989,676 5,575,890 995,489 PIMCO StocksPLUS Growth and Income Division............................... 15,418,741 3,191,901 5,235,676 567,893 Appreciation Division............................ 5,856 11,558 45,518 5,062 Smith Barney High Income Division................ 3,730 23,271 59,777 15,706 Smith Barney Large Cap Value Division............ 6,907 9,522 25,818 1,496 Smith Barney International Equity Division....... 2,838 2,934 13,627 659 Smith Barney Money Market Division............... 40,398 19,082 55,074 43,687 International Equity Division.................... 63,405,114 56,947,666 34,755,360 31,779,305 Asset Allocation Division........................ 13,289 844 -- -- Equity Division.................................. 26,039 835 -- -- Growth & Income Division......................... 11,266 1,139 -- -- High Quality Bond Division....................... 12,671 9,915 -- -- ---------------------------------- ---------------------------------- COMBINED......................................... 397,739,148 240,579,410 191,660,032 101,434,679 ================================== ==================================
21 NOTE 6 - NET ASSETS Investments at net asset value less the payable to Golden American for charges and fees at December 31, 1999 consisted of the following:
LIMITED LIQUID MATURITY HARD ALL- REAL FULLY ASSET BOND ASSETS GROWTH ESTATE MANAGED DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $506,425 $133,838 $30,475 $47,531 $41,701 $197,026 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 15,901 20,765 7,443 47,182 29,154 68,682 Net unrealized appreciation (depreciation) of investments... -- (4,202) 1,011 51,150 (15,178) 1,510 -------------------------------------------------------------------------------------------- $522,326 $150,401 $38,929 $145,863 $55,677 $267,218 ============================================================================================
EQUITY CAPITAL RISING EMERGING MARKET VALUE INCOME APPRECIATION DIVIDENDS MARKETS MANAGER EQUITY DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $138,807 $225,256 $624,736 $43,209 $595 $123,500 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 158,214 124,915 49,066 (15,866) 3,964 20,094 Net unrealized appreciation (depreciation) of investments... (25,737) 51,796 139,292 8,129 2,525 (6,214) -------------------------------------------------------------------------------------------- $271,284 $401,967 $813,094 $35,472 $7,084 $137,380 ============================================================================================
STRATEGIC SMALL MANAGED MID-CAP CAPITAL EQUITY CAP GLOBAL GROWTH GROWTH RESEARCH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $128,188 $212,831 $69,455 $335,683 $341,923 $502,872 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 12,978 36,216 85,339 73,201 29,228 17,532 Net unrealized appreciation (depreciation) of investments... 56,360 75,382 26,551 130,331 59,095 116,356 -------------------------------------------------------------------------------------------- $197,526 $324,429 $181,345 $539,215 $430,246 $636,760 ============================================================================================
PIMCO GLOBAL HIGH TOTAL FIXED DEVELOPING GROWTH YIELD RETURN GROWTH INCOME WORLD OPPORTUNITIES BOND DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION -------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions.................. $439,911 $809,489 $22,390 $41,047 $5,521 $144,589 Accumulated net investment income (loss) and net realized gain (loss) on investments...... 19,020 57,112 (460) 2,971 682 6,209 Net unrealized appreciation (depreciation) of investments... (3,551) 338,909 (672) 7,655 460 (4,739) -------------------------------------------------------------------------------------------- $455,380 $1,205,510 $21,258 $51,673 $6,663 $146,059 ============================================================================================ 22
NOTE 6 - NET ASSETS (CONTINUED)
PIMCO SMITH SMITH SMITH SMITH STOCKSPLUS BARNEY BARNEY BARNEY BARNEY GROWTH AND HIGH LARGE CAP INTERNATIONAL MONEY INCOME APPRECIATION INCOME VALUE EQUITY MARKET DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions................... $193,010 $785 $561 $636 $318 $557 Accumulated net investment income (loss) and net realized gain (loss) on investments....... 22,021 79 39 44 12 22 Net unrealized appreciation (depreciation) of investments.... 6,199 119 (53) (37) 207 -- ------------------------------------------------------------------------------------------- $221,230 $983 $547 $643 $537 $579 ===========================================================================================
INTERNATIONAL ASSET GROWTH & HIGH QUALITY EQUITY ALLOCATION EQUITY INCOME BOND DIVISION DIVISION DIVISION DIVISION DIVISION COMBINED ------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Unit transactions................... $119,555 $130 $285 $104 $28 $5,482,967 Accumulated net investment income (loss) and net realized gain (loss) on investments....... 30,261 2 7 1 (1) 922,029 Net unrealized appreciation (depreciation) of investments.... 25,753 1 5 2 -- 1,038,415 ------------------------------------------------------------------------------------------- $175,569 $133 $297 $107 $27 $7,443,411 ===========================================================================================
NOTE 7 - UNIT VALUES Accumulation unit value information for units outstanding, by Contract type, as of December 31, 1999 follows:
UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) LIQUID ASSET Currently payable annuity products: DVA 80................................................................. 2,484 $15.78 $39 DVA 100................................................................ 3,692 15.44 57 Contracts in accumulation period: DVA 80................................................................. 428,664 15.78 6,766 DVA 100................................................................ 2,108,284 15.44 32,553 DVA Series 100......................................................... 65,836 14.85 978 DVA Plus - Standard.................................................... 683,989 15.04 10,287 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 13,701,797 14.79 202,706 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 7,668,618 14.55 111,594 Access - 7% Solution, Premium Plus - 7% Solution....................... 11,002,421 14.29 157,230 Value.................................................................. 7,391 15.61 116 ------------------- 522,326 23
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) LIMITED MATURITY BOND Currently payable annuity products: DVA 80................................................................. 5,775 $17.82 $103 DVA 100................................................................ 13,160 17.44 229 Contracts in accumulation period: DVA 80................................................................. 55,752 17.82 994 DVA 100................................................................ 1,611,603 17.44 28,100 DVA Series 100......................................................... 15,728 16.77 264 DVA Plus - Standard.................................................... 279,468 17.00 4,751 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,938,050 16.72 49,127 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,835,680 16.45 30,192 Access - 7% Solution, Premium Plus - 7% Solution....................... 2,267,799 16.15 36,630 Value.................................................................. 655 17.65 11 ------------------- 150,401 HARD ASSETS Currently payable annuity products: DVA 80................................................................. 64 18.54 1 DVA 100................................................................ 4,504 18.13 82 Contracts in accumulation period: DVA 80................................................................. 47,623 18.54 883 DVA 100................................................................ 442,621 18.13 8,025 DVA Series 100......................................................... 21,674 17.44 378 DVA Plus - Standard.................................................... 112,564 17.66 1,988 DVA Plus - Annual Ratchet & 5.5% Solution, Access- Standard, Premium Plus - Standard, ES II............................. 355,052 17.37 6,168 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 696,931 17.09 11,909 Access - 7% Solution, Premium Plus - 7% Solution....................... 565,255 16.78 9,486 Value.................................................................. 497 18.33 9 ------------------- 38,929 24
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) ALL-GROWTH Currently payable annuity products: DVA 100................................................................ 10,034 $33.33 $334 Contracts in accumulation period: DVA 80................................................................. 30,780 34.07 1,049 DVA 100................................................................ 1,659,536 33.33 55,306 DVA Series 100......................................................... 17,272 32.06 554 DVA Plus - Standard.................................................... 177,295 32.46 5,755 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 680,978 31.93 21,744 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,363,281 31.41 42,819 Access - 7% Solution, Premium Plus - 7% Solution....................... 593,365 30.85 18,302 ------------------- 145,863 REAL ESTATE Currently payable annuity products: DVA 80................................................................. 337 22.00 7 DVA 100................................................................ 4,675 21.52 101 Contracts in accumulation period: DVA 80................................................................. 17,562 22.00 387 DVA 100................................................................ 698,949 21.52 15,043 DVA Series 100......................................................... 7,595 20.70 157 DVA Plus - Standard.................................................... 136,122 20.96 2,854 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 534,577 20.62 11,024 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 742,363 20.28 15,059 Access - 7% Solution, Premium Plus - 7% Solution....................... 554,454 19.92 11,045 ------------------- 55,677 FULLY MANAGED Currently payable annuity products: DVA 80................................................................. 1,025 23.10 24 DVA 100................................................................ 42,440 22.59 959 Contracts in accumulation period: DVA 80................................................................. 55,124 23.10 1,273 DVA 100................................................................ 2,723,900 22.59 61,541 DVA Series 100......................................................... 28,071 21.73 610 DVA Plus - Standard.................................................... 549,088 22.01 12,084 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,546,588 21.65 55,126 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,304,306 21.29 70,358 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,118,319 20.91 65,207 Value.................................................................. 1,564 22.85 36 ------------------- 267,218 25
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) EQUITY INCOME Currently payable annuity products: DVA 80................................................................. 10,512 $22.91 $241 DVA 100................................................................ 54,038 22.41 1,211 Contracts in accumulation period: DVA 80................................................................. 217,136 22.91 4,975 DVA 100................................................................ 4,960,030 22.41 111,166 DVA Series 100......................................................... 52,427 21.56 1,130 DVA Plus - Standard.................................................... 381,468 21.83 8,327 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,014,453 21.47 43,259 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,523,887 21.12 53,311 Access - 7% Solution, Premium Plus - 7% Solution....................... 2,294,950 20.74 47,606 Value.................................................................. 2,555 22.66 58 ------------------- 271,284 CAPITAL APPRECIATION Currently payable annuity products: DVA 100................................................................ 34,146 31.01 1,059 Contracts in accumulation period: DVA 80................................................................. 54,304 31.50 1,710 DVA 100................................................................ 3,000,104 31.01 93,047 DVA Series 100......................................................... 29,781 30.18 899 DVA Plus - Standard.................................................... 431,150 30.46 13,132 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,412,721 30.11 72,649 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,839,680 29.77 114,290 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,574,164 29.38 104,999 Value.................................................................. 5,832 31.26 182 ------------------- 401,967 RISING DIVIDENDS Currently payable annuity products: DVA 80................................................................. 2,751 26.79 74 DVA 100................................................................ 11,516 26.46 305 Contracts in accumulation period: DVA 80................................................................. 45,744 26.79 1,225 DVA 100................................................................ 3,156,396 26.46 83,505 DVA Series 100......................................................... 62,149 25.88 1,608 DVA Plus - Standard.................................................... 1,251,144 26.07 32,623 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 7,496,161 25.83 193,646 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 10,160,317 25.59 260,024 Access - 7% Solution, Premium Plus - 7% Solution....................... 9,473,482 25.31 239,807 Value.................................................................. 10,416 26.62 277 ------------------- 813,094 26
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) EMERGING MARKETS Currently payable annuity products: DVA 100................................................................ 20,476 $12.18 $249 Contracts in accumulation period: DVA 80................................................................. 66,912 12.34 826 DVA 100................................................................ 1,114,771 12.18 13,583 DVA Series 100......................................................... 19,565 11.92 233 DVA Plus - Standard.................................................... 359,966 12.01 4,323 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 272,783 11.90 3,246 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,053,099 11.79 12,412 Access - 7% Solution, Premium Plus - 7% Solution....................... 51,466 11.66 600 ------------------- 35,472 MARKET MANAGER Contracts in accumulation period: DVA 100................................................................ 265,157 27.61 7,320 ------------------- 7,320 VALUE EQUITY Currently payable annuity products: DVA 80................................................................. 353 18.67 7 DVA 100................................................................ 8,027 18.49 148 Contracts in accumulation period: DVA 80................................................................. 16,820 18.67 314 DVA 100................................................................ 642,103 18.49 11,870 DVA Series 100......................................................... 13,030 18.16 237 DVA Plus - Standard.................................................... 433,555 18.28 7,924 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 1,825,971 18.14 33,129 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,709,066 18.01 48,787 Access - 7% Solution, Premium Plus - 7% Solution....................... 1,956,244 17.84 34,902 Value.................................................................. 3,333 18.58 62 ------------------- 137,380 STRATEGIC EQUITY Currently payable annuity products: DVA 100................................................................ 31,558 22.27 703 Contracts in accumulation period: DVA 80................................................................. 18,395 22.46 413 DVA 100................................................................ 387,984 22.27 8,642 DVA Series 100......................................................... 6,159 21.94 135 DVA Plus - Standard.................................................... 455,696 22.06 10,053 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,450,796 21.92 53,725 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 2,655,079 21.78 57,835 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,050,564 21.61 65,934 Value.................................................................. 3,862 22.37 86 ------------------- 197,526 27
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) SMALL CAP Currently payable annuity products: DVA 100................................................................ 3,735 $23.19 $87 Contracts in accumulation period: DVA 80................................................................. 21,044 23.38 492 DVA 100................................................................ 502,932 23.19 11,664 DVA Series 100......................................................... 14,018 22.87 320 DVA Plus - Standard.................................................... 453,438 22.96 10,411 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,053,919 22.82 115,340 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 4,514,345 22.68 102,399 Access - 7% Solution, Premium Plus - 7% Solution....................... 3,698,983 22.55 83,400 Value.................................................................. 13,606 23.28 316 ------------------- 324,429 MANAGED GLOBAL Currently payable annuity products: DVA 100................................................................ 11,683 24.68 288 Contracts in accumulation period: DVA 80................................................................. 33,553 25.04 840 DVA 100................................................................ 2,703,999 24.68 66,747 DVA Series 100......................................................... 38,870 24.08 936 DVA Plus - Standard.................................................... 605,044 24.23 14,658 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 676,401 23.97 16,211 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,306,922 23.71 78,402 Access - 7% Solution, Premium Plus - 7% Solution....................... 139,357 23.42 3,263 ------------------- 181,345 MID-CAP GROWTH Contracts in accumulation period: DVA 80................................................................. 5,425 40.92 222 DVA 100................................................................ 328,684 40.50 13,310 DVA Series 100......................................................... 9,549 39.75 380 DVA Plus - Standard.................................................... 287,598 39.97 11,494 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,873,150 39.59 192,951 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,717,260 39.34 146,221 Granite PrimElite - Standard........................................... 3,692 39.97 148 Granite PrimElite - Annual Ratchet..................................... 27,138 39.59 1,075 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,433,019 39.02 172,992 Value.................................................................. 10,373 40.71 422 ------------------- 539,215 28
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) CAPITAL GROWTH Contracts in accumulation period: DVA 80................................................................. 3,348 $21.54 $72 DVA 100................................................................ 390,759 21.38 8,354 DVA Series 100......................................................... 11,902 21.10 251 DVA Plus - Standard.................................................... 598,663 21.18 12,678 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,870,532 21.06 123,629 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 6,210,698 20.94 130,038 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,450,249 20.82 155,103 Value.................................................................. 5,650 21.46 121 ------------------- 430,246 RESEARCH Contracts in accumulation period: DVA 80................................................................. 6,633 28.93 192 DVA 100................................................................ 431,562 28.62 12,353 DVA Series 100......................................................... 18,345 28.10 515 DVA Plus - Standard.................................................... 565,925 28.25 15,988 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 6,431,948 28.04 180,345 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 7,240,463 27.80 201,318 Granite PrimElite - Standard........................................... 2,544 28.25 72 Granite PrimElite - Annual Ratchet..................................... 37,387 28.04 1,048 Access - 7% Solution, Premium Plus - 7% Solution....................... 8,143,207 27.58 224,622 Value.................................................................. 10,661 28.78 307 ------------------- 636,760 TOTAL RETURN Contracts in accumulation period: DVA 80................................................................. 9,043 18.64 168 DVA 100................................................................ 399,197 18.44 7,361 DVA Series 100......................................................... 5,119 18.10 93 DVA Plus - Standard.................................................... 831,642 18.20 15,135 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,274,089 18.06 149,429 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 6,739,205 17.91 120,710 Granite PrimElite - Standard........................................... 4,770 18.20 87 Granite PrimElite - Annual Ratchet..................................... 33,383 18.06 603 Access - 7% Solution, Premium Plus - 7% Solution....................... 9,101,947 17.77 161,738 Value.................................................................. 3,045 18.54 56 ------------------- 455,380 29
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) GROWTH Contracts in accumulation period: DVA 80................................................................. 47,480 $29.27 $1,390 DVA 100................................................................ 818,663 29.05 23,785 DVA Series 100......................................................... 28,942 28.67 830 DVA Plus - Standard.................................................... 758,379 28.78 21,827 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 14,289,972 28.62 408,990 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 11,168,535 28.46 317,801 Access - 7% Solution, Premium Plus - 7% Solution....................... 15,200,894 28.29 430,081 Value.................................................................. 27,642 29.16 806 ------------------- 1,205,510 GLOBAL FIXED INCOME Contracts in accumulation period: DVA 100................................................................ 24,119 12.04 291 DVA Plus - Standard.................................................... 35,081 11.88 417 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 753,003 11.79 8,880 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 382,609 11.70 4,475 Access - 7% Solution, Premium Plus - 7% Solution....................... 619,047 11.60 7,183 Value.................................................................. 982 12.11 12 ------------------- 21,258 DEVELOPING WORLD Contracts in accumulation period: DVA 80................................................................. 390 11.74 5 DVA 100................................................................ 21,139 11.70 247 DVA Series 100......................................................... 27,991 11.64 326 DVA Plus - Standard.................................................... 683 11.62 8 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,133,907 11.61 24,775 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 926,115 11.58 10,722 Access - 7% Solution, Premium Plus - 7% Solution....................... 1,344,878 11.54 15,526 Value.................................................................. 5,500 11.72 64 ------------------- 51,673 GROWTH OPPORTUNITIES Contracts in accumulation period: DVA 100................................................................ 12,750 11.52 147 DVA Plus - Standard.................................................... 9,739 11.47 112 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 215,681 11.44 2,466 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 142,128 11.40 1,621 Access - 7% Solution, Premium Plus - 7% Solution....................... 203,804 11.37 2,317 ------------------- 6,663 30
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - -------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) PIMCO HIGH YIELD BOND Contracts in accumulation period: DVA 80................................................................. 1,147 $10.34 $12 DVA 100................................................................ 151,044 10.31 1,557 DVA Series 100......................................................... 951 10.25 10 DVA Plus - Standard.................................................... 400,821 10.27 4,115 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 5,053,973 10.24 51,749 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 3,194,935 10.21 32,631 Access - 7% Solution, Premium Plus - 7% Solution....................... 5,486,600 10.19 55,895 Value.................................................................. 8,722 10.33 90 ------------------- 146,059 PIMCO STOCKSPLUS GROWTH AND INCOME Contracts in accumulation period: DVA 80................................................................. 651 13.26 9 DVA 100................................................................ 116,144 13.22 1,535 DVA Series 100......................................................... 292 13.14 4 DVA Plus - Standard.................................................... 284,260 13.16 3,742 DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,797,771 13.13 62,999 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 4,371,570 13.10 57,257 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,320,301 13.06 95,636 Value.................................................................. 3,634 13.24 48 ------------------- 221,230 APPRECIATION Contracts in accumulation period: Granite PrimElite - Standard........................................... 711 18.47 13 Granite PrimElite - Annual Ratchet..................................... 52,802 18.36 970 ------------------- 983 SMITH BARNEY HIGH INCOME Contracts in accumulation period: Granite PrimElite - Standard........................................... 5,981 13.84 83 Granite PrimElite - Annual Ratchet..................................... 33,782 13.74 464 ------------------- 547 SMITH BARNEY LARGE CAP VALUE Contracts in accumulation period: Granite PrimElite - Standard........................................... 4,123 19.11 79 Granite PrimElite - Annual Ratchet..................................... 29,721 18.98 564 ------------------- 643 SMITH BARNEY INTERNATIONAL EQUITY Contracts in accumulation period: Granite PrimElite - Standard........................................... 2,572 23.78 61 Granite PrimElite - Annual Ratchet..................................... 20,133 23.61 476 ------------------- 537 SMITH BARNEY MONEY MARKET Contracts in accumulation period: Granite PrimElite - Standard........................................... 10,885 11.82 129 Granite PrimElite - Annual Ratchet..................................... 38,389 11.74 450 ------------------- 579 31
NOTE 7 - UNIT VALUES (CONTINUED) UNIT EXTENDED DIVISION/CONTRACT UNITS VALUE VALUE - ------------------------------------------------------------------------------- ------------------------------------------------ (IN THOUSANDS) INTERNATIONAL EQUITY Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,666,041 $15.57 $72,629 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,959,322 15.59 30,538 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,663,701 15.50 72,274 Value.................................................................. 8,033 15.97 128 ------------------- 175,569 ASSET ALLOCATION Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 4,460 10.70 48 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 832 10.70 9 Access - 7% Solution, Premium Plus - 7% Solution....................... 7,153 10.70 76 ------------------- 133 EQUITY Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,936 11.79 105 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 11,848 11.79 140 Access - 7% Solution, Premium Plus - 7% Solution....................... 4,420 11.78 52 ------------------- 297 GROWTH & INCOME Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 8,512 10.55 90 DVA Plus - 7% Solution, Access - Annual Ratchet & 5.5% Solution, Premium Plus - Annual Ratchet & 5.5% Solution......... 1,122 10.55 12 Access - 7% Solution, Premium Plus - 7% Solution....................... 493 10.54 5 ------------------- 107 HIGH QUALITY BOND Contracts in accumulation period: DVA Plus - Annual Ratchet & 5.5% Solution, Access - Standard, Premium Plus - Standard, ES II............................. 2,756 9.93 27 ------------------- 27 --------------- ------------------- COMBINED.................................................................. 340,258,685 $7,443,647 =============== =================== 32
PART C -- OTHER INFORMATION ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS FINANCIAL STATEMENTS (a) (1) All financial statements are included in either the Prospectuses or the Statements of Additional Information, 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, 1999 COST 1 VALUE AMOUNT - ----------------------------------------------------------------------------------------------------------------------- TYPE OF INVESTMENT Fixed maturities, available for sale: Bonds: United States government and governmental agencies and authorities.. $21,363 $21,103 $21,103 Public utilities.................................................... 53,754 51,315 51,315 Corporate securities................................................ 396,494 384,272 384,272 Other asset-backed securities....................................... 207,044 203,577 203,577 Mortgage-backed securities.......................................... 179,397 175,054 175,054 -------------------------------------------- Total fixed maturities, available for sale.......................... 858,052 835,321 835,321 Equity securities: Common stocks: industrial, miscellaneous, and all other............. 14,952 17,330 17,330 Mortgage loans on real estate.......................................... 100,087 100,087 Policy loans........................................................... 14,157 14,157 Short-term investments................................................. 80,191 80,191 --------------- ------------- Total investments...................................................... $1,067,439 $1,047,086 =============== =============
Note 1: Cost is defined as original cost for common stocks, amortized cost for bonds and short-term investments, and unpaid principal for policy loans and mortgage loans on real estate, adjusted for amortization of premiums and accrual of discounts.
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION (DOLLARS IN THOUSANDS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - --------------------------------------------------------------------------- FUTURE POLICY BENEFITS, OTHER LOSSES, POLICY DEFERRED CLAIMS CLAIMS INSURANCE POLICY AND UNEARNED AND PREMIUMS ACQUISITION LOSS REVENUE BENEFITS AND SEGMENT COSTS EXPENSES RESERVE PAYABLE CHARGES - --------------------------------------------------------------------------- POST-MERGER - --------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1999: Life insurance $528,957 $1,033,701 $6,300 $8 $82,935 YEAR ENDED DECEMBER 31, 1998: Life insurance 204,979 881,112 3,840 -- 39,119 PERIOD OCTOBER 25, 1997 THROUGH DECEMBER 31, 1997: Life insurance 12,752 505,304 1,189 10 3,834 POST-ACQUISITION - --------------------------------------------------------------------------- PERIOD JANUARY 1, 1997 THROUGH OCTOBER 24, 1997: Life insurance N/A N/A N/A N/A 18,288
COLUMN A COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K - --------------------------------------------------------------------------- AMORTIZA- BENEFITS TION OF CLAIMS, DEFERRED LOSSES POLICY NET AND ACQUI- OTHER INVESTMENT SETTLEMENT SITION OPERATING PREMIUMS SEGMENT INCOME EXPENSES COSTS EXPENSES* WRITTEN - --------------------------------------------------------------------------- POST-MERGER - --------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1999: Life insurance $59,169 $182,221 $33,119 $(83,827) -- YEAR ENDED DECEMBER 31, 1998: Life insurance 42,485 96,968 5,148 (26,406) -- PERIOD OCTOBER 25, 1997 THROUGH DECEMBER 31, 1997: Life insurance 5,127 7,413 892 1,137 -- POST-ACQUISITION - --------------------------------------------------------------------------- PERIOD JANUARY 1, 1997 THROUGH OCTOBER 24, 1997: Life insurance 21,656 19,401 1,674 20,234 --
* This includes policy acquisition costs deferred for first year commissions and interest bonuses, premium credit, and other expenses related to the production of new business. The costs related to first year interest bonuses and the premium credit are included in benefits claims, losses, and settlement expenses.
SCHEDULE IV REINSURANCE COLUMN A COLUMN B COLUMN C - ---------------------------------------------------------------------------- CEDED TO GROSS OTHER AMOUNT COMPANIES - ---------------------------------------------------------------------------- AT DECEMBER 31, 1999: Life insurance in force................. $225,000,000 $119,575,000 =============================== AT DECEMBER 31, 1998: Life insurance in force................. $181,456,000 $111,552,000 =============================== AT DECEMBER 31, 1997: Life insurance in force................. $149,842,000 $96,686,000 ===============================
SCHEDULE IV REINSURANCE COLUMN A COLUMN D COLUMN E COLUMN F - ------------------------------------------------------------------------------------ PERCENTAGE ASSUMED OF AMOUNT FROM OTHER NET ASSUMED COMPANIES AMOUNT TO NET - ------------------------------------------------------------------------------------ AT DECEMBER 31, 1999: Life insurance in force................. -- $105,425,000 -- ======================================== AT DECEMBER 31, 1998: Life insurance in force................. -- $69,904,000 -- ======================================== AT DECEMBER 31, 1997: Life insurance in force................. -- $53,156,000 -- ========================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXHIBITS (b) (1) Resolution of the board of directors of Depositor authorizing the establishment of the Registrant (4) (2) Not Applicable (3) (a) Distribution Agreement between the Depositor and Directed Services, Inc. (4) (b) Dealers Agreement (4) (c) Organizational Agreement (4) (d) Assignment Agreement for Organizational Agreement (4) (4) (a) Individual Deferred Combination Variable and Fixed Annuity Contract (4) (b) Group Deferred Combination Variable and Fixed Annuity Contract (4) (c) Individual Deferred Variable Annuity Contract (4) (d) External Exchange Program Endorsement (1) (e) DVA Update Program Schedule Page (1) (f) Individual Retirement Annuity Rider Page (1) (g) ROTH Individual Retirement Annuity Rider (4) (h) Minimum Guaranteed Accumulation Benefit Rider (5) (i) Minimum Guaranteed Income Benefit Rider (5) (j) Minimum Guaranteed Withdrawal Benefit Rider (5) (k) Death Benefit Endorsement No.1 (7% Solution Enhanced) (5) (l) Death Benefit Endorsement No.2 (Ratchet Enhanced) (5) (m) Death Benefit Endorsement No.3 (Standard) (5) (n) Death Benefit Endorsement No.4 (Max 7 Enhanced) (5) (5) (a) Individual Deferred Combination Variable and Fixed Annuity Application (5) (b) Group Deferred Combination Variable and Fixed Annuity Enrollment Form (5) (c) Individual Deferred Variable Annuity Application (5) (6) (a) Certificate of Amendment of the Restated Articles of Incorporation of Golden American, dated (03/01/95) (4) (b) By-Laws of Golden American, dated (01/07/94) (4) (c) Resolution of the board of directors for Powers of Attorney, dated 04/23/99 (4) (7) Not applicable (8) (a) Participation Agreement between Golden American and PIMCO Variable Insurance Trust (4) (b) Administrative Services Agreement between Golden American and Equitable of Iowa companies (2) (c) Service Agreement between Golden American and Directed Services, Inc. (2) (d) Asset Management Agreement between Golden American and ING Investment Management LLC (4) (e) Reciprocal Loan Agreement between Golden American and ING America Insurance Holdings, Inc. (4) (f) Revolving Note Payable between Golden American and SunTrust Bank (4) (g) Surplus Note, dated 12/17/96, between Golden American and Equitable of Iowa Companies (h) Surplus Note, dated 12/30/98, between Golden American and Equitable Life Insurance Company of Iowa (i) Surplus Note, dated 09/30/99, between Golden American and ING AIH (j) Surplus Note, dated 12/08/99, between Golden American and First Columbine Life Insurance Company (6) (k) Surplus Note, dated 12/30/99, between Golden American and Equitable of Iowa Companies (6) (l) Participation Agreement between Golden American and Prudential Series Fund, Inc. (m) Participation Agreement between Golden American and ING Variable Insurance Trust (9) Opinion and Consent of Myles R. Tashman (10) (a) Consent of Sutherland Asbill & Brennan LLP (b) Consent of Ernst & Young LLP, Independent Auditors (c) Consent of Myles R. Tashman, incorporated in Item 9 of this Part C, together with the Opinion of Myles R. Tashman. (11) Not applicable (12) Not applicable (13) Schedule of Performance Data (14) Not applicable (15) Powers of Attorney (16) Subsidiaries of ING Groep N.V. (1) Incorporated herein by reference to pre-effective amendment No. 1 to the registration statement for Separate Account B filed with the Securities and Exchange Commission on September 7, 1995 (File Nos. 33-59261, 811-5626). (2) Incorporated herein by reference to post-effective amendment No. 9 to the registration statement for Separate Account B filed with the Securities and Exchange Commission on April 30, 1998 (File Nos. 33-59261, 811-5626). (3) Incorporated herein by reference to post-effective amendment No. 8 to the registration statement for Separate Account B filed with the Securities and Exchange Commission on May 1, 1997 (File Nos. 33-59261, 811-5626). (4) Incorporated herein by reference to post-effective amendment No. 12 to the registration statement for Separate Account B filed with the Securities and Exchange Commission on April 23, 1999 (File Nos. 33-59261, 811-5626). (5) Incorporated herein by reference to post-effective amendment No. 13 to the registration statement for Separate Account B filed with the Securities and Exchange Commission on December 2, 1999 (File Nos. 33-59261, 811-5626). (6) Incorporated herein by reference to post-effective amendment No. 14 to the registration statement for Separate Account B filed with the Securities and Exchange Commission on January 27, 2000 (File Nos. 33-59261, 811-5626). ITEM 25: DIRECTORS AND OFFICERS OF THE DEPOSITOR Principal Positions and Offices Name Business Address with Depositor - ---- ---------------- --------------------- Barnett Chernow Golden American Life Ins. Co. President and 1475 Dunwoody Drive Director West Chester, PA 19380 Michael W. Cunningham ING Insurance Operations Director 5780 Powers Ferry Road Atlanta, GA 30327-4390 Mark A. Tullis ING Insurance Operations Director 5780 Powers Ferry Road Atlanta, GA 30327-4390 Phillip R. Lowery ING Insurance Operations Director 5780 Powers Ferry Road Atlanta, GA 30327-4390 Myles R. Tashman Golden American Life Ins. Co. Director, Executive 1475 Dunwoody Drive Vice President, General West Chester, PA 19380 Counsel and Secretary James R. McInnis Golden American Life Ins. Co. Executive Vice President 1475 Dunwoody Drive and Chief Marketing West Chester, PA 19380 Officer Stephen J. Preston Golden American Life Ins. Co. Executive Vice President 1475 Dunwoody Drive and Chief Actuary West Chester, PA 19380 Steven G. Mandel Golden American Life Ins. Co. Senior Vice President and 1475 Dunwoody Drive Chief Information Officer West Chester, PA 19380 Ronald R. Blasdell Golden American Life Ins. Co. Senior Vice President 1475 Dunwoody Drive West Chester, PA 19380 E. Robert Koster Golden American Life Ins. Co. Senior Vice President 1475 Dunwoody Drive and Chief Financial West Chester, PA 19380 Officer David L. Jacobson Golden American Life Ins. Co. Senior Vice President 1475 Dunwoody Drive and Assistant Secretary West Chester, PA 19380 William L. Lowe Equitable of Iowa Companies Senior Vice President, 909 Locust Street Sales & Marketing Des Moines, IA 50309 Gary F. Haynes Golden American Life Ins. Co. Senior Vice President 1475 Dunwoody Drive Operations West Chester, PA 19380 Patricia M. Corbett Equitable of Iowa Companies Treasurer & Assistant 909 Locust Street Vice President Des Moines, IA 50309 Lawrence W. Porter, M.D. Equitable of Iowa Companies Medical Director 909 Locust Street Des Moines, IA 50309 ITEM 26: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT The Depositor owns 100% of the stock of a New York company, First Golden American Life Insurance Company of New York ("First Golden"). The primary purpose for the formation of First Golden is to offer variable products in the state of New York. The following persons control or are under common control with the Depositor: DIRECTED SERVICES, INC. ("DSI") - This corporation is a general business corporation organized under the laws of the State of New York, and is wholly owned by ING Groep N.V. ("ING"). The primary purpose of Directed Services, Inc. is to act as a broker-dealer in securities. It acts as the principal underwriter and distributor of variable insurance products including variable annuities as required by the SEC. The contracts are issued by the Depositor. DSI also has the power to carry on a general financial, securities, distribution, advisory or investment advisory business; to act as a general agent or broker for insurance companies and to render advisory, managerial, research and consulting services for maintaining and improving managerial efficiency and operation. DSI is also registered with the SEC as an investment adviser. The registrant is a segregated asset account of the Company and is therefore owned and controlled by the Company. All of the Company's outstanding stock is owned and controlled by ING. Various companies and other entities controlled by ING may therefore be considered to be under common control with the registrant or the Company. Such other companies and entities, together with the identity of their controlling persons (where applicable), are set forth on the following organizational chart. The subsidiaries of ING, as of December 31, 1999, are included in this registration statement as Exhibit 16. Item 27: Number of Contractowners As of March 31, 2000, there are 39,593 qualified contract owners and 63,217 non-qualified contract owners in Golden American's Separate Account B. ITEM 28: INDEMNIFICATION Golden American shall indemnify (including therein the prepayment of expenses) any person who is or was a director, officer or employee, or who is or was serving at the request of Golden American as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise for expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him with respect to any threatened, pending or completed action, suit or proceedings against him by reason of the fact that he is or was such a director, officer or employee to the extent and in the manner permitted by law. Golden American may also, to the extent permitted by law, indemnify any other person who is or was serving Golden American in any capacity. The Board of Directors shall have the power and authority to determine who may be indemnified under this paragraph and to what extent (not to exceed the extent provided in the above paragraph) any such person may be indemnified. Golden American or its parents may purchase and maintain insurance on behalf of any such person or persons to be indemnified under the provision in the above paragraphs, against any such liability to the extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant, as provided above or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification by the Depositor is against public policy, as expressed in the Securities Act of 1933, and therefore may be unenforceable. In the event that a claim of such indemnification (except insofar as it provides for the payment by the Depositor of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted against the Depositor by such director, officer or controlling person and the SEC is still of the same opinion, the Depositor or 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 of whether such indemnification by the Depositor is against public policy as expressed by the Securities Act of 1933 and will be governed by the final adjudication of such issue. ITEM 29: PRINCIPAL UNDERWRITERS (a) At present, Directed Services, Inc. ("DSI"), the Registrant's Distributor, also serves as principal underwriter for all contracts issued by Golden American. DSI is the principal underwriter for Separate Account A, Separate Account B, Equitable Life Insurance Company of Iowa Separate Account A, First Golden American Life Insurance Company of New York Separate Account NY-B, Alger Separate Account A of Golden American and The GCG Trust. (b) The following information is furnished with respect to the principal officers and directors of Directed Services, Inc., the Registrant's Distributor. The principal business address for each officer and director following is 1475 Dunwoody Drive, West Chester, PA 19380-1478, unless otherwise noted. Name and Principal Positions and Offices Business Address with Underwriter - ------------------- --------------------- James R. McInnis President Barnett Chernow Director and Executive Vice President Myles R. Tashman Director, Executive Vice President, Secretary and General Counsel R. Lawrence Roth Director VESTAX Capital Corporation 1931 Georgetown Road Hudson, OH 44236 Stephen J. Preston Senior Vice President Susan K. Wheat Treasurer Equitable of Iowa Companies 909 Locust Street Des Moines, IA 50309 David L. Jacobson Senior Vice President (c) 1999 Net Name of Underwriting Compensation Principal Discounts and on Brokerage Underwriter Commissions Redemption Commissions Compensation - ----------- ------------ ---------- ----------- ------------ DSI $180,838,913 $0 $0 $0 ITEM 30: LOCATION OF ACCOUNTS AND RECORDS Accounts and records are maintained by Golden American Life Insurance Company at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478 and by Equitable Life Insurance Company, an affiliate, 909 Locust Street, Des Moines, Iowa 50309. ITEM 31: MANAGEMENT SERVICES None. ITEM 32: UNDERTAKINGS (a) Registrant hereby undertakes to file a post-effective amendment to this registration statement as frequently as it is necessary to ensure that the audited financial statements in the registration statement are never more that 16 months old so long as payments under the variable annuity contracts may be accepted. (b) Registrant hereby undertakes to include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; and, (c) Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request. REPRESENTATIONS 1. The account meets definition of a "separate account" under federal securities laws. 2. Golden American Life Insurance Company hereby represents that the fees and charges deducted under the Contract described in the Prospectus, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred and the risks assumed by the Company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Registration Statement to be signed on its behalf in the City of West Chester, and Commonwealth of Pennsylvania, on the 25th day of April, 2000. SEPARATE ACCOUNT B (Registrant) By: GOLDEN AMERICAN LIFE INSURANCE COMPANY (Depositor) By: -------------------- Barnett Chernow* President Attest: /s/ Marilyn Talman ------------------ Marilyn Talman Vice President, Associate General Counsel and Assistant Secretary of Depositor As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 25, 2000. Signature Title President and Director - -------------------- of Depositor Barnett Chernow* Senior Vice President, - -------------------- and Chief Financial Officer E. Robert Koster* DIRECTORS OF DEPOSITOR - ---------------------- Myles R. Tashman* - ---------------------- Michael W. Cunningham* - ---------------------- Mark A. Tullis* - ---------------------- Phillip R. Lowery* 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 # - ---- ------- ------ 8(g) Surplus Note between GALIC and EIC, 12/17/96 EX-99.B8G 8(h) Surplus Note between GALIC and ELICOI, 12/30/98 EX-99.B8H 8(i) Surplus Note between GALIC and ING AIH, 09/30/99 EX-99.B8I 8(l) Participation Agreement between GALIC and Prudential Series Fund EX-99.B8L 8(m) Participation Agreement between GALIC and ING Variable Insurance Trust EX-99.B8M 9 Opinion and Consent of Myles R. Tashman EX-99.B9 10(a) Consent of Sutherland Asbill & Brennan LLP EX-99.B10A 10(b) Consent of Ernst & Young LLP, Independent Auditors EX-99.B10B 13 Schedule of Performance Data EX-99.B13 15 Powers of Attorney EX-99.B15 16 Subsidiaries of ING Groep N.V. EX-99.B16 EX-99.B8G 2 SURPLUS NOTE BTWN GALIC AND EIC EXHIBIT 8(g) GOLDEN AMERICAN LIFE INSURANCE COMPANY SURPLUS NOTE Golden American Life Insurance Company agrees to pay Equitable of Iowa Companies, an Iowa corporation, the sum of $25 million ($25,000,000.00) plus interest at the rate of 8.25% per annum from the date hereof, December 17, 1996 until paid. In any event, this note will mature on December 17, 2026. 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 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/ Terry L. Kendall --------------------------------- Terry L. Kendall, President and CEO Attest by: /s/ Myles R. Tashman - ------------------------------ Myles R. Tashman Executive Vice President and General Counsel EX-99.B8H 3 SURPLUS NOTE BTWN GALIC AND ELICOI EXHIBIT 8(h) GOLDEN AMERICAN LIFE INSURANCE COMPANY SURPLUS NOTE Golden American Life Insurance Company agrees to pay Equitable Life Insurance Company of Iowa corporation, the sum of $60 million ($60,000,000.00) plus interest at the rate of 7.25% per annum from the date hereof, December 30, 1998 until paid. In any event, this note will mature on December 29, 2028. 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/ Stephen J. Preston -------------------------------- Stephen J. Preston, Executive Vice President Attest by: /s/ David L. Jacobson - ------------------------- David L. Jacobson Senior Vice President and Assistant Secretary EX-99.B8I 4 SURPLUS NOTE BTWN GALIC AND ING AIH EXHIBIT 8(i) GOLDEN AMERICAN LIFE INSURANCE COMPANY SURPLUS NOTE Golden American Life Insurance Company agrees to pay ING America Insurance Holdings, Inc. a Delaware corporation, the sum of $75 million ($75,000,000.00) plus interest at the rate of 7.75% per annum from the date hereof, September 30, 1999 until paid. In any event, this note will mature on September 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/ Stephen J. Preston -------------------------------- Stephen J. Preston, Executive Vice President Attest by: /s/ David L. Jacobson - -------------------------- David L. Jacobson Senior Vice President and Assistant Secretary EX-99.B8L 5 PART. AGREE. BTWN GALIC & PRU. EXHIBIT 8(l) FUND PARTICIPATION AGREEMENT THE PRUDENTIAL SERIES FUND, INC. TABLE OF CONTENTS ARTICLE I. Sale of Fund Shares..........................................4 ARTICLE II. Representations and Warranties...............................8 ARTICLE III. Prospectuses and Proxy Statements; Voting...................11 ARTICLE IV. Sales Material and Information..............................13 ARTICLE V. Fees and Expenses...........................................15 ARTICLE VI. Diversification and Qualification...........................16 ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order ...................18 ARTICLE VIII. Indemnification ............................................21 ARTICLE IX. Applicable Law..............................................30 ARTICLE X. Termination.................................................31 ARTICLE XI. Notices.....................................................34 ARTICLE XII. Miscellaneous...............................................35 SCHEDULE A Contracts...................................................38 SCHEDULE B Designated Portfolios.......................................39 SCHEDULE C Expenses....................................................40 PARTICIPATION AGREEMENT ----------------------- AMONG GOLDEN AMERICAN LIFE INSURANCE COMPANY, THE PRUDENTIAL SERIES FUND, INC., THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, AND PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC THIS AGREEMENT, made and entered into as of this ___ day of April, 2000, by and among GOLDEN AMERICAN LIFE INSURANCE COMPANY (hereinafter "GALIC"), a Delaware life insurance company, on its own behalf and on behalf of its SEPARATE ACCOUNT B (the "Account"); THE PRUDENTIAL SERIES FUND, INC., an open-end management investment company organized under the laws of Maryland (hereinafter the "Fund"); THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (hereinafter the "Adviser"), a New Jersey mutual insurance company; and PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (hereinafter the "Distributor"), a Delaware limited liability company. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and/or variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies, including GALIC, which have entered into participation agreements similar to this Agreement (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; and 2 WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (hereinafter the "SEC"), dated March 5, 1999 (File No. IC-23728), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of life insurance companies that may or may not be affiliated with one another and qualified pension and retirement plans ("Qualified Plans") (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolio(s) are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities laws; and WHEREAS, the Distributor is duly registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, GALIC has registered certain variable annuity contracts supported wholly or partially by the Account (the "Contracts") under the 1933 Act and said Contracts are listed in Schedule A attached hereto and incorporated herein by reference, as such Schedule may be amended from time to time by mutual written agreement; and WHEREAS, the Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of GALIC in 1988 under the insurance laws of the State of Delaware, to set aside and invest assets attributable to the Contracts; and 3 WHEREAS, GALIC has registered the Account as a unit investment trust under the 1940 Act and has registered the securities deemed to be issued by the Account under the 1933 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, GALIC intends to purchase shares in the Portfolio(s) listed in Schedule B attached hereto and incorporated herein by reference, as such Schedule may be amended from time to time by mutual written agreement (the "Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and the Fund is authorized to sell such shares to unit investment trusts such as the Account at net asset value; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Account also intends to purchase shares in other open-end investment companies or series thereof not affiliated with the Fund (the "Unaffiliated Funds") on behalf of the Account to fund the Contracts; NOW, THEREFORE, in consideration of their mutual promises, GALIC, the Fund, the Distributor and the Adviser agree as follows: ARTICLE I. Sale of Fund Shares. ------------------- 1.1. The Fund agrees to sell to GALIC those shares of the Designated Portfolio(s) which the Account orders, executing such orders on each Business Day at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Designated Portfolios. For purposes of this Section 1.1, GALIC shall be the designee of the Fund for receipt of such orders and receipt by such designee shall constitute receipt by the Fund, provided that the Fund receives notice of any such order by 9:00 a.m. Eastern time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Designated Portfolio calculates its net asset value pursuant to the rules of the SEC. 4 1.2. The Fund agrees to make shares of the Designated Portfolio(s) available for purchase at the applicable net asset value per share by GALIC and the Account on those days on which the Fund calculates its Designated Portfolio(s)' net asset value pursuant to rules of the SEC, and the Fund shall calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Directors of the Fund (hereinafter the "Board") may refuse to sell shares of any Designated Portfolio to any person, or suspend or terminate the offering of shares of any Designated Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Designated Portfolio. 1.3. The Fund will not sell shares of the Designated Portfolio(s) to any other Participating Insurance Company separate account unless an agreement containing provisions the substance of which are the same as Sections 2.1 (except with respect to Delaware law), 3.5, 3.6, 3.7, and Article VII of this Agreement is in effect to govern such sales. 1.4. The Fund agrees to redeem for cash, on GALIC's request, any full or fractional shares of the Fund held by GALIC, executing such requests on each Business Day at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. Requests for redemption identified by GALIC, or its agent, as being in connection with surrenders, annuitizations, or death benefits under the Contracts, upon prior written notice, may be executed within seven (7) calendar days after receipt by the Fund or its designee of the requests for redemption. This Section 1.4 may be amended, in writing, by the parties consistent with the requirements of the 1940 Act and interpretations thereof. For purposes of this Section 1.4, GALIC shall be the designee of the Fund for receipt of requests for redemption and receipt by such designee shall constitute receipt by the Fund, provided that the Fund receives notice of any such request for redemption by 9:00 a.m. Eastern time on the next following Business Day. 5 1.5. The Parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other Participating Insurance Companies (subject to Section 1.3) and the cash value of the Contracts may be invested in other investment companies. 1.6. GALIC shall pay for Fund shares by 3:00 p.m. Eastern time on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire and/or by a credit for any shares redeemed the same day as the purchase. 1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund shares by 11:00 a.m. Eastern Time on the next Business Day after a redemption order is received in accordance with Section 1.4 hereof. Payment shall be in federal funds transmitted by wire and/or a credit for any shares purchased the same day as the redemption. 1.8. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to GALIC or the Account. Shares purchased from the Fund will be recorded in an appropriate title for the Account or the appropriate sub-account of the Account. 1.9. The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to GALIC of any income, dividends or capital gain distributions payable on the Designated Portfolio(s)' shares. GALIC hereby elects to receive all such income dividends and capital gain distributions as are payable on the Designated Portfolio shares in additional shares of that Designated Portfolio. GALIC reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify GALIC by the end of the next following Business Day of the number of shares so issued as payment of such dividends and distributions. 1.10. The Fund shall make the net asset value per share for each Designated Portfolio available to GALIC on each Business Day as soon as reasonably practical after the net asset value 6 per share is calculated and shall use its best efforts to make such net asset value per share available by 6:00 p.m. Eastern time. In the event of an error in the computation of a Designated Portfolio's net asset value per share ("NAV") or any dividend or capital gain distribution (each, a "pricing error"), the Adviser or the Fund shall immediately notify GALIC as soon as possible after discovery of the error. Such notification may be verbal, but shall be confirmed promptly in writing in accordance with Article XI of this Agreement. A pricing error shall be corrected as follows: (a) if the pricing error results in a difference between the erroneous NAV and the correct NAV of less than $0.01 per share, then no corrective action need be taken; (b) if the pricing error results in a difference between the erroneous NAV and the correct NAV equal to or greater than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV at the time of the error, then the Adviser shall reimburse the Designated Portfolio for any loss, after taking into consideration any positive effect of such error; however, no adjustments to Contractowner accounts need be made; and (c) if the pricing error results in a difference between the erroneous NAV and the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's NAV at the time of the error, then the Adviser shall reimburse the Designated Portfolio for any loss (without taking into consideration any positive effect of such error) and shall reimburse GALIC for the costs of adjustments made to correct Contractowner accounts in accordance with the provisions of Schedule C. If an adjustment is necessary to correct a material error which has caused Contractowners to receive less than the amount to which they are entitled, the number of shares of the applicable sub-account of such Contractowners will be adjusted and the amount of any underpayments shall be credited by the Adviser to GALIC for crediting of such amounts to the applicable Contractowners accounts. Upon notification by the Adviser of any overpayment due to a material error, GALIC shall promptly remit to Adviser any overpayment that has not been paid to Contractowners. In no event shall GALIC be liable to Contractowners for any such adjustments or underpayment amounts. A pricing error within categories (b) or (c) above shall be deemed to be "materially incorrect" or constitute a "material error" for purposes of this Agreement. The standards set forth in this Section 1.10 are based on the Parties' understanding of the views expressed by the staff of the SEC as of the date of this Agreement. In the event the views of the SEC staff are later modified or superseded by SEC or judicial interpretation, the parties 7 shall amend the foregoing provisions of this Agreement to comport with the appropriate applicable standards, on terms mutually satisfactory to all Parties. ARTICLE II. Representations and Warranties ------------------------------ 2.1. GALIC represents and warrants that the Contracts and the securities deemed to be issued by the Account under the Contracts are or will be registered under the 1933 Act; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. GALIC further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established the Account prior to any issuance or sale of units thereof as a segregated asset account under Delaware law, and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts and that it will maintain such registration for so long as any Contracts are outstanding as required by applicable law. 2.2. The Fund represents and warrants that Designated Portfolio(s) shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with all applicable federal securities laws including without limitation the 1933 Act, the 1934 Act, and the 1940 Act and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. 2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1 under the 1940 Act and to impose an asset-based or other charge to finance distribution expenses as permitted by applicable law and regulation. In any event, the Fund and Adviser agree to comply with applicable provisions and SEC staff interpretations of the 1940 Act to assure that the investment advisory or management fees paid to the Adviser by the Fund are in accordance with the 8 requirements of the 1940 Act. To the extent that the Fund decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its Board, a majority of whom are not interested persons of the Fund, formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Fund represents and warrants that it will make every effort to ensure that Designated Portfolio(s) shares will be sold in compliance with the insurance laws of the State of Delaware and all applicable state insurance and securities laws. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states if and to the extent required by applicable law. GALIC and the Fund will endeavor to mutually cooperate with respect to the implementation of any modifications necessitated by any change in state insurance laws, regulations or interpretations of the foregoing that affect the Designated Portfolio(s) (a "Law Change"), and to keep each other informed of any Law Change that becomes known to either party. In the event of a Law Change, the Fund agrees that, except in those circumstances where the Fund has advised GALIC that its Board of Directors has determined that implementation of a particular Law Change is not in the best interest of all of the Fund's shareholders with an explanation regarding why such action is lawful, any action required by a Law Change will be taken. 2.5. The Fund represents and warrants that it is lawfully organized and validly existing under the laws of the State of Maryland and that it does and will comply in all material respects with the 1940 Act. 2.6. The Adviser represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with any applicable state and federal securities laws. 2.7. The Distributor represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the 9 Fund in compliance in all material respects with the laws of any applicable state and federal securities laws. 2.8. The Fund and the Adviser represent and warrant that all of their respective officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are, and shall continue to be at all times, covered by one or more blanket fidelity bonds or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bonds shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.9. The Fund will provide GALIC with as much advance notice as is reasonably practicable of any material change affecting the Designated Portfolio(s) (including, but not limited to, any material change in the registration statement or prospectus affecting the Designated Portfolio(s)) and any proxy solicitation affecting the Designated Portfolio(s) and consult with GALIC in order to implement any such change in an orderly manner, recognizing the expenses of changes and attempting to minimize such expenses by implementing them in conjunction with regular annual updates of the prospectus for the Contracts. The Fund agrees to share equitably in expenses incurred by GALIC as a result of actions taken by the Fund, consistent with the allocation of expenses contained in Schedule C attached hereto and incorporated herein by reference. 2.10. GALIC represents and warrants, for purposes other than diversification under Section 817 of the Internal Revenue Code of 1986 as amended ("the Code"), that the Contracts are currently and at the time of issuance will be treated as annuity contracts under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. In addition, GALIC represents and warrants that the Account is a "segregated asset account" and that interests in the Account are offered exclusively through the purchase of or 10 transfer into a "variable contract" within the meaning of such terms under Section 817 of the Code and the regulations thereunder. GALIC will use every effort to continue to meet such definitional requirements, and it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. GALIC represents and warrants that it will not purchase Fund shares with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. ARTICLE III. Prospectuses and Proxy Statements; Voting. ----------------------------------------- 3.1. At least annually, the Adviser or Distributor shall provide GALIC with as many copies of the Fund's current prospectus for the Designated Portfolio(s) as GALIC may reasonably request for marketing purposes (including distribution to Contractowners with respect to new sales of a Contract), with expenses to be borne in accordance with Schedule C hereof. If requested by GALIC in lieu thereof, the Adviser, Distributor or Fund shall provide such documentation (including a camera-ready copy and computer diskette of the current prospectus for the Designated Portfolio(s)) and other assistance as is reasonably necessary in order for GALIC once each year (or more frequently if the prospectuses for the Designated Portfolio(s) are amended) to have the prospectus for the Contracts and the Fund's prospectus for the Designated Portfolio(s) printed together in one document. The Fund and Adviser agree that the prospectus (and semi-annual and annual reports) for the Designated Portfolio(s) will describe only the Designated Portfolio(s) and will not name or describe any other portfolios or series that may be in the Fund unless required by law. 3.2. If applicable state or federal laws or regulations require that the Statement of Additional Information ("SAI") for the Fund be distributed to all Contractowners, then the Fund, Distributor and/or the Adviser shall provide GALIC with copies of the Fund's SAI or documentation thereof for the Designated Portfolio(s) in such quantities, with expenses to be borne in accordance with Schedule C hereof, as GALIC may reasonably require to permit timely distribution thereof to Contractowners. The Adviser, Distributor and/or the Fund shall also 11 provide SAIs to any Contractowner or prospective owner who requests such SAI from the Fund (although it is anticipated that such requests will be made to GALIC). 3.3. The Fund, Distributor and/or Adviser shall provide GALIC with copies of the Fund's proxy material, reports to stockholders and other communications to stockholders for the Designated Portfolio(s) in such quantity, with expenses to be borne in accordance with Schedule C hereof, as GALIC may reasonably require to permit timely distribution thereof to Contractowners. 3.4. It is understood and agreed that, except with respect to information regarding GALIC provided in writing by that party, GALIC shall not be responsible for the content of the prospectus or SAI for the Designated Portfolio(s). It is also understood and agreed that, except with respect to information regarding the Fund, the Distributor, the Adviser or the Designated Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser, neither the Fund, the Distributor nor Adviser are responsible for the content of the prospectus or SAI for the Contracts. 3.5. If and to the extent required by law GALIC shall: (i) solicit voting instructions from Contractowners; (ii) vote the Designated Portfolio(s) shares held in the Account in accordance with instructions received from Contractowners: and (iii) vote Designated Portfolio shares held in the Account for which no instructions have been received in the same proportion as Designated Portfolio(s) shares for which instructions have been received from Contractowners, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. GALIC reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. 3.6. GALIC shall be responsible for assuring that each of its separate accounts holding shares of a Designated Portfolio calculates voting privileges as directed by the Fund and agreed to 12 by GALIC and the Fund. The Fund agrees to promptly notify GALIC of any changes of interpretations or amendments of the Mixed and Shared Funding Exemptive Order. 3.7. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends, comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors or trustees and with whatever rules the SEC may promulgate with respect thereto. ARTICLE IV. Sales Material and Information. ------------------------------ 4.1. GALIC shall furnish, or shall cause to be furnished, to the Fund or its designee, a copy of each piece of sales literature or other promotional material that GALIC develops or proposes to use and in which the Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the Distributor is named in connection with the Contracts, at least ten (10) Business Days prior to its use. No such material shall be used if the Fund objects to such use within five (5) Business Days after receipt of such material. 4.2. GALIC shall not give any information or make any representations or statements on behalf of the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, including the prospectus or SAI for the Fund shares, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Fund, Distributor or Adviser, except with the permission of the Fund, Distributor or Adviser. 4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished, to GALIC, a copy of each piece of sales literature or other promotional material in which GALIC and/or its 13 separate account(s) is named at least ten (10) Business Days prior to its use. No such material shall be used if GALIC objects to such use within five (5) Business Days after receipt of such material. 4.4. The Fund, the Distributor and the Adviser shall not give any information or make any representations on behalf of GALIC or concerning GALIC, the Account, or the Contracts other than the information or representations contained in a registration statement, including the prospectus or SAI for the Contracts, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by GALIC or its designee, except with the permission of GALIC. 4.5. The Fund will provide to GALIC at least one complete copy of all registration statements, prospectuses, SAIs, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Designated Portfolio(s) within a reasonable period of time following the filing of such document(s) with the SEC or NASD or other regulatory authorities. 4.6. GALIC will provide to the Fund at least one complete copy of all registration statements, prospectuses, SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Account, contemporaneously with the filing of such document(s) with the SEC, NASD, or other regulatory authority. 4.7. For purposes of Articles IV and VIII, the phrase "sales literature and other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media; e.g., on-line networks such as the Internet or other electronic media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or 14 excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and shareholder reports, and proxy materials (including solicitations for voting instructions) and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.8. At the request of any party to this Agreement, each other party will make available to the other party's independent auditors and/or representative of the appropriate regulatory agencies, all records, data and access to operating procedures that may be reasonably requested in connection with compliance and regulatory requirements related to this Agreement or any party's obligations under this Agreement. ARTICLE V. Fees and Expenses ----------------- 5.1. The Fund and the Adviser shall pay no fee or other compensation to GALIC under this Agreement, and GALIC shall pay no fee or other compensation to the Fund or Adviser under this Agreement, although the parties hereto will bear certain expenses in accordance with Schedule C, Articles III, V, and other provisions of this Agreement. 5.2. All expenses incident to performance by the Fund, the Distributor and the Adviser under this Agreement shall be paid by the appropriate party, as further provided in Schedule C. The Fund shall see to it that all shares of the Designated Portfolio(s) are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent required, in accordance with applicable state laws prior to their sale. 5.3. The parties shall bear the expenses of routine annual distribution (mailing costs) of the Fund's prospectus and distribution (mailing costs) of the Fund's proxy materials and reports to owners of Contracts offered by GALIC, in accordance with Schedule C. 15 ARTICLE VI. Diversification and Qualification. --------------------------------- 6.1. The Fund, the Distributor and the Adviser represent and warrant that the Fund will at all times sell its shares and invest its assets in such a manner as to ensure that the Contracts will be treated as annuity contracts under the Code, and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund, Distributor and Adviser represent and warrant that the Fund and each Designated Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund, the Distributor and the Adviser agree that shares of the Designated Portfolio(s) will be sold only to Participating Insurance Companies and their separate accounts and to Qualified Plans. 6.2. No shares of any Designated Portfolio of the Fund will be sold to the general public. 6.3. The Fund, the Distributor and the Adviser represent and warrant that the Fund and each Designated Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Code, and that each Designated Portfolio will maintain such qualification (under Subchapter M or any successor or similar provisions) as long as this Agreement is in effect. 6.4. The Fund, Distributor or Adviser will notify GALIC immediately upon having a reasonable basis for believing that the Fund or any Designated Portfolio has ceased to comply with the aforesaid Section 817(h) diversification or Subchapter M qualification requirements or might not so comply in the future. 6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4 hereof and without in any way limiting or restricting any other remedies available to GALIC, the Adviser or 16 Distributor will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Designated Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable and appropriate corrections or responses to any such failure; such costs may include, but are not limited to, the costs involved in creating, organizing, and registering a new investment company as a funding medium for the Contracts and/or the costs of obtaining whatever regulatory authorizations are required to substitute shares of another investment company for those of the failed Portfolio (including but not limited to an order pursuant to Section 26(b) of the 1940 Act). 6.6. GALIC agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of GALIC or, to GALIC's knowledge, of any Contractowner that any Designated Portfolio has failed to comply with the diversification requirements of Section 817(h) of the Code or GALIC otherwise becomes aware of any facts that could give rise to any claim against the Fund, Distributor or Adviser as a result of such a failure or alleged failure: (a) GALIC shall promptly notify the Fund, the Distributor and the Adviser of such assertion or potential claim; (b) GALIC shall consult with the Fund, the Distributor and the Adviser as to how to minimize any liability that may arise as a result of such failure or alleged failure; (c) GALIC shall use its best efforts to minimize any liability of the Fund, the Distributor and the Adviser resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations, Section 1.817-5(a)(2), to the commissioner of the IRS that such failure was inadvertent; (d) any written materials to be submitted by GALIC to the IRS, any Contractowner or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to 17 Treasury Regulations, Section 1.817-5(a)(2)) shall be provided by GALIC to the Fund, the Distributor and the Adviser (together with any supporting information or analysis) within at least two (2) business days prior to submission; (e) GALIC shall provide the Fund, the Distributor and the Adviser with such cooperation as the Fund, the Distributor and the Adviser shall reasonably request (including, without limitation, by permitting the Fund, the Distributor and the Adviser to review the relevant books and records of GALIC) in order to facilitate review by the Fund, the Distributor and the Adviser of any written submissions provided to it or its assessment of the validity or amount of any claim against it arising from such failure or alleged failure; (f) GALIC shall not with respect to any claim of the IRS or any Contractowner that would give rise to a claim against the Fund, the Distributor and the Adviser (i) compromise or settle any claim, (ii) accept any adjustment on audit, or (iii) forego any allowable administrative or judicial appeals, without the express written consent of the Fund, the Distributor and the Adviser, which shall not be unreasonably withheld; provided that, GALIC shall not be required to appeal any adverse judicial decision unless the Fund and the Adviser shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and further provided that the Fund, the Distributor and the Adviser shall bear the costs and expenses, including reasonable attorney's fees, incurred by GALIC in complying with this clause (f). ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding ---------------------------------------------------------------- Exemptive Order - --------------- 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) 18 an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Designated Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners or by contract owners of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform GALIC if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. GALIC will report any potential or existing conflicts of which it is aware to the Board. GALIC will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by GALIC to inform the Board whenever contract owner voting instructions are to be disregarded. Such responsibilities shall be carried out by GALIC with a view only to the interests of its Contractowners. 7.3. If it is determined by a majority of the Board, or a majority of its directors who are not interested persons of the Fund, the Distributor, the Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent Directors"), that a material irreconcilable conflict exists, GALIC and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the Independent Directors), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a 19 change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by GALIC to disregard Contractowner voting instructions and that decision represents a minority position or would preclude a majority vote, GALIC may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Adviser, the Distributor and the Fund shall continue to accept and implement orders by GALIC for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to GALIC conflicts with the majority of other state regulators, then GALIC will withdraw the Account's investment in the Fund and terminate this Agreement within six months after the Board informs GALIC in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by GALIC for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. GALIC shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contractowners affected by the irreconcilable material conflict. In the event that the 20 Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then GALIC will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs GALIC in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Independent Directors. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable: and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification --------------- 8.1. Indemnification By GALIC 8.1(a). GALIC agrees to indemnify and hold harmless the Fund, the Distributor and the Adviser and each of their respective officers and directors or trustees and each person, if any, who controls the Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of GALIC) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect 21 thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or SAI covering the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, PROVIDED that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to GALIC by or on behalf of the Adviser, Distributor or Fund for use in the registration statement or prospectus for the Contracts or in the Contracts or sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature or other promotional material of the Fund not supplied by GALIC or persons under its control) or wrongful conduct of GALIC or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material of the Fund, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished in writing to the Fund by or on behalf of GALIC; or (iv) arise as a result of any failure by GALIC to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by GALIC in this Agreement or arise out of or result from any other material breach of this Agreement by GALIC, including without limitation Section 2.10 and Section 6.6 hereof, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). GALIC shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would 22 otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.1(c). GALIC shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified GALIC in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify GALIC of any such claim shall not relieve GALIC from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that GALIC has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, GALIC shall be entitled to participate, at its own expense, in the defense of such action. GALIC also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from GALIC to such party of GALIC's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and GALIC will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify GALIC of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Adviser. ------------------------------ 8.2(a). The Adviser agrees to indemnify and hold harmless GALIC and its directors and officers and each person, if any, who controls GALIC within the meaning of Section 15 of the 23 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, the Distributor or the Adviser (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, PROVIDED that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or the Fund by or on behalf of GALIC for use in the registration statement, prospectus or SAI for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or the Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature or other promotional material for the Contracts not supplied by the Adviser or persons under its control) or wrongful conduct of the Fund, the Distributor or the Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GALIC by or on behalf of the Adviser, the Distributor or the Fund; or (iv) arise as a result of any failure by the Fund, the Distributor or the Adviser to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply 24 with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, the Distributor or the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, the Distributor or the Fund; or (vi) arise out of or result from the incorrect or untimely calculation or reporting by the Fund, the Distributor or the Adviser of the daily net asset value per share (subject to Section 1.10 of this Agreement) or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. This indemnification is in addition to and apart from the responsibilities and obligations of the Adviser specified in Article VI hereof. 8.2(b). The Adviser shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.2(c). The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Adviser has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel 25 satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). GALIC agrees promptly to notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. 8.3. Indemnification By the Fund. --------------------------- 8.3(a). The Fund agrees to indemnify and hold harmless GALIC and its directors and officers and each person, if any, who controls GALIC within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may be required to pay or become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages, liabilities or expenses (or actions in respect thereof) or settlements, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; or (iii) arise out of or result from the incorrect or untimely calculation or reporting of the daily net asset value per share (subject to Section 1.10 of this Agreement) or dividend or capital gain distribution rate; 26 as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Fund has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund shall also be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). GALIC agrees promptly to notify the Fund of the commencement of any litigation or proceeding against itself or any of its respective officers or directors in connection with the 27 Agreement, the issuance or sale of the Contracts, the operation of the Account, or the sale or acquisition of shares of the Fund. 8.4. Indemnification by the Distributor. ---------------------------------- 8.4(a). The Distributor agrees to indemnify and hold harmless GALIC and its directors and officers and each person, if any, who controls GALIC within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.4) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Distributor) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, Adviser or Distributor (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, PROVIDED that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or Fund by or on behalf of GALIC for use in the registration statement or SAI or prospectus for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, sales literature or other promotional material for the Contracts not supplied by the Distributor or persons under its control) or wrongful conduct of the Fund, the Distributor or Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or 28 (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GALIC by or on behalf of the Adviser, the Distributor or Fund; or (iv) arise as a result of any failure by the Fund, Adviser or Distributor to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, Adviser or Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund, Adviser or Distributor; or (vi) arise out of or result from the incorrect or untimely calculation or reporting of the daily net asset value per share (subject to Section 1.10 of this Agreement) or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.4(b) and 8.4(c) hereof. This indemnification is in addition to and apart from the responsibilities and obligations of the Distributor specified in Article VI hereof. 8.4(b). The Distributor shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.4(c) The Distributor shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process 29 giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such claim shall not relieve the Distributor from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Distributor has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Distributor will be entitled to participate, at its own expense, in the defense thereof. The Distributor also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Distributor to such party of the Distributor's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Distributor will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.4(d) GALIC agrees to promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE IX. Applicable Law . --------------- 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New Jersey, without regard to the New Jersey Conflict of Laws provisions. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. 30 ARTICLE X. Termination . ------------ 10.1. This Agreement shall terminate: (a) at the option of any party, with or without cause, with respect to some or all Designated Portfolios, upon sixty (60) days advance written notice delivered to the other parties; provided, however, that such notice shall not be given earlier than six (6) months following the date of this Agreement; or (b) at the option of GALIC by written notice to the other parties with respect to any Designated Portfolio based upon GALIC's determination that shares of such Designated Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) at the option of GALIC by written notice to the other parties with respect to any Designated Portfolio in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by GALIC; or (d) at the option of the Fund, Distributor or Adviser in the event that formal administrative proceedings are instituted against GALIC by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding GALIC's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund shares, if, in each case, the Fund, Distributor or Adviser, as the case may be, reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of GALIC to perform its obligations under this Agreement; or (e) at the option of GALIC in the event that formal administrative proceedings are instituted against the Fund, the Distributor or the Adviser by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, if GALIC reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Distributor or the Adviser to perform their obligations under this Agreement; or (f) at the option of GALIC by written notice to the Fund with respect to any Designated Portfolio if GALIC reasonably believes that the Designated Portfolio will fail to meet the Section 817(h) diversification requirements or Subchapter M qualifications specified in Article VI hereof; or 31 (g) at the option of either the Fund, the Distributor or the Adviser, if (i) the Fund, Distributor or Adviser, respectively, shall determine, in its sole judgment reasonably exercised in good faith, that GALIC has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and that material adverse change or publicity will have a material adverse impact on GALIC's ability to perform its obligations under this Agreement, (ii) the Fund, Distributor or Adviser notifies GALIC of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by GALIC and any other changes in circumstances since the giving of such a notice, the determination of the Fund, Distributor or Adviser shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (h) at the option of GALIC, if (i) GALIC shall determine, in its sole judgment reasonably exercised in good faith, that the Fund, Distributor or Adviser has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and that material adverse change or publicity will have a material adverse impact on the Fund's, Distributor's or Adviser's ability to perform its obligations under this Agreement, (ii) GALIC notifies the Fund, Distributor or Adviser, as appropriate, of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by the Fund, Distributor or Adviser and any other changes in circumstances since the giving of such a notice, the determination of GALIC shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (i) at the option of any non-defaulting party hereto in the event of a material breach of this Agreement by any party hereto (the "defaulting party") other than as described in Section 10.1(a)-(j); provided, that the non-defaulting party gives written notice thereof to the defaulting party, with copies of such notice to all other non-defaulting parties, and if such breach shall not have been remedied within thirty (30) days after such written notice is given, then the non-defaulting party giving such written notice may terminate this Agreement by giving thirty (30) days written notice of termination to the defaulting party; or (j) at any time upon written agreement of all parties to this Agreement. 10.2. Notice Requirement. ------------------ No termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties of its intent to terminate, which notice shall set forth the basis for the termination. Furthermore, 32 (a) in the event any termination is based upon the provisions of Article VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this Agreement, the prior written notice shall be given in advance of the effective date of termination as required by those provisions unless such notice period is shortened by mutual written agreement of the parties; (b) in the event any termination is based upon the provisions of Section 10.1(d), 10.1(e) or 10.1(i) of this Agreement, the prior written notice shall be given at least sixty (60) days before the effective date of termination; and (c) in the event any termination is based upon the provisions of Section 10.1(b), 10.1(c) o 10.1(f), the prior written notice shall be given in advance of the effective date of termination, which date shall be determined by the party sending the notice. 10.3. Effect of Termination. --------------------- Notwithstanding any termination of this Agreement, other than as a result of a failure by either the Fund or GALIC to meet Section 817(h) of the Code diversification requirements, the Fund, the Distributor and the Adviser shall, at the option of GALIC, continue to make available additional shares of the Designated Portfolio(s) pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Designated Portfolio(s), redeem investments in the Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.3 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.4. Surviving Provisions. Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties shall survive and not be affected by any termination of this Agreement. In addition, with respect to Existing Contracts, all 33 provisions of this Agreement shall also survive and not be affected by any termination of this Agreement. ARTICLE XI. Notices. -------- Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other parties. If to the Fund: The Prudential Series Fund, Inc. Gateway Center Three 100 Mulberry Street, 4th Floor Newark, NJ 07102-4077 Attention: Secretary If to the Adviser: The Prudential Insurance Company of America 751 Broad Street, 21st Floor Newark, NJ 07102 Attention: Secretary If to the Distributor: Prudential Investment Management Services LLC Gateway Center Three 100 Mulberry Street, 14th Floor Newark, NJ 07102-4077 Attention: Secretary If to GALIC: Myles R. Tashman Executive Vice President, General Counsel & Secretary ING Variable Annuities 1475 Dunwoody Drive West Chester, PA 19380 34 ARTICLE XII. Miscellaneous. ------------- 12.1. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information may come into the public domain. Without limiting the foregoing, no party hereto shall disclose any information that another party has designated as proprietary. 12.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.5. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Delaware Commissioner of Insurance with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable annuity operations of GALIC are being conducted in a 35 manner consistent with the Delaware Variable Annuity Regulations and any other applicable law or regulations. 12.6. Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. GALIC agrees that the obligations assumed by the Fund, Distributor and the Adviser pursuant to this Agreement shall be limited in any case to the Fund, Distributor and Adviser and their respective assets and GALIC shall not seek satisfaction of any such obligation from the shareholders of the Fund, Distributor or the Adviser, the Directors, officers, employees or agents of the Fund, Distributor or Adviser, or any of them. 12.10. The Fund, the Distributor and the Adviser agree that the obligations assumed by GALIC pursuant to this Agreement shall be limited in any case to GALIC and its assets and neither the Fund, Distributor nor Adviser shall seek satisfaction of any such obligation from the shareholders of GALIC, the directors, officers, employees or agents of the GALIC, or any of them. 36 12.11. No provision of this Agreement may be deemed or construed to modify or supersede any contractual rights, duties, or indemnifications, as between the Adviser and the Fund, and the Distributor and the Fund. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. GOLDEN AMERICAN LIFE INSURANCE COMPANY By its authorized officer, By: /s/ David L. Jacobson ----------------------------- Title: Senior Vice President -------------------------- Date: April 25, 2000 --------------------------- THE PRUDENTIAL SERIES FUND, INC. By its authorized officer, By: /s/ John R. Strangfeld ----------------------------- Title: President -------------------------- Date: April 25, 2000 --------------------------- THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By its authorized officer, By: /s/ John R. Strangfeld ----------------------------- Title: Executive Vice President -------------------------- Date: April 25, 2000 --------------------------- PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC By its authorized officer, By: /s/ Robert F. Gunia ----------------------------- Title: President -------------------------- Date: April 25, 2000 --------------------------- 37 SCHEDULE A ---------- Contracts - --------- All Deferred Variable Annuity Contracts Issued By Golden American Life Insurance Company Separate Account B 38 SCHEDULE B ---------- Designated Portfolio(s) - ----------------------- Prudential Series Fund, Inc.--Prudential Jennison Portfolio 39 SCHEDULE C EXPENSES -------- The Fund and/or the Distributor and/or Adviser, and GALIC will coordinate the functions and pay the costs of the completing these functions based upon an allocation of costs in the tables below. Costs shall be allocated to reflect the Fund's share of the total costs determined according to the number of pages of the Fund's respective portions of the documents.
- -------------------------------------------------------------------------------------------------- PARTY PARTY RESPONSIBLE RESPONSIBLE FOR ITEM FUNCTION FOR COORDINATION EXPENSE - -------------------------------------------------------------------------------------------------- Mutual Fund Printing of combined GALIC GALIC Prospectus prospectuses - -------------------------------------------------------------------------------------------------- Fund, Distributor or GALIC Fund, Distributor or Adviser shall supply Adviser, as GALIC with such numbers of the Designated Portfolio(s) prospectus(es) as GALIC shall reasonably request - -------------------------------------------------------------------------------------------------- Distribution GALIC GALIC (including postage) to New and Inforce Clients - -------------------------------------------------------------------------------------------------- Distribution GALIC GALIC (including postage) to Prospective Clients - -------------------------------------------------------------------------------------------------- Product Prospectus Printing and GALIC GALIC Distribution for Inforce and Prospective Clients - -------------------------------------------------------------------------------------------------- 40 - -------------------------------------------------------------------------------------------------- PARTY PARTY RESPONSIBLE RESPONSIBLE FOR ITEM FUNCTION FOR COORDINATION EXPENSE - -------------------------------------------------------------------------------------------------- Mutual Fund If Required by Fund, Fund, Distributor or Fund, Distributor or Prospectus Update & Distributor or Adviser Adviser Distribution Adviser - -------------------------------------------------------------------------------------------------- If Required by GALIC GALIC (Fund, GALIC Distributor or Adviser to provide GALIC with document in PDF format) - -------------------------------------------------------------------------------------------------- Product Prospectus If Required by Fund, GALIC Fund, Distributor or Update & Distributor or Adviser Distribution Adviser - -------------------------------------------------------------------------------------------------- If Required by GALIC GALIC GALIC - -------------------------------------------------------------------------------------------------- Mutual Fund SAI Printing Fund, Distributor or Fund, Distributor or Adviser Adviser - -------------------------------------------------------------------------------------------------- Distribution GALIC GALIC (including postage) - -------------------------------------------------------------------------------------------------- Product SAI Printing GALIC GALIC - -------------------------------------------------------------------------------------------------- Distribution GALIC GALIC - -------------------------------------------------------------------------------------------------- Proxy Material for Printing if proxy Fund, Distributor or Fund, Distributor or Mutual Fund: required by Law Adviser Adviser - -------------------------------------------------------------------------------------------------- Distribution GALIC Fund, Distributor or (including labor)if Adviser proxy required by Law - -------------------------------------------------------------------------------------------------- Printing & GALIC GALIC distribution if required by GALIC - -------------------------------------------------------------------------------------------------- Mutual Fund Annual Printing of reports Fund, Distributor or Fund, Distributor or & Semi-Annual Adviser (Designated Adviser Report Portfolio only) - -------------------------------------------------------------------------------------------------- Distribution GALIC GALIC - -------------------------------------------------------------------------------------------------- 41 - -------------------------------------------------------------------------------------------------- PARTY PARTY RESPONSIBLE RESPONSIBLE FOR ITEM FUNCTION FOR COORDINATION EXPENSE - -------------------------------------------------------------------------------------------------- Other communication If Required by the GALIC Fund, Distributor or to New and Fund, Distributor or Adviser Prospective clients Adviser - -------------------------------------------------------------------------------------------------- If Required by GALIC GALIC GALIC - -------------------------------------------------------------------------------------------------- Other communication Distribution GALIC Fund, Distributor to inforce (including labor and or Adviser printing) if required by the Fund, Distributor or Adviser - -------------------------------------------------------------------------------------------------- Distribution GALIC GALIC (including labor and printing)if required by GALIC - -------------------------------------------------------------------------------------------------- Errors in Share Price Cost of error to GALIC Fund or Adviser calculation pursuant participants to Section 1.10 - -------------------------------------------------------------------------------------------------- Cost of reasonable GALIC Fund or Adviser expenses related to administrative work to correct error - -------------------------------------------------------------------------------------------------- Operations of the All operations and Fund, Distributor or Fund or Adviser Fund related expenses, Adviser including the cost of registration and qualification of shares, taxes on the issuance or transfer of shares, cost of management of the business affairs of the Fund, and expenses paid or assumed by the fund pursuant to any Rule 12b-1 plan - -------------------------------------------------------------------------------------------------- 42 - -------------------------------------------------------------------------------------------------- PARTY PARTY RESPONSIBLE RESPONSIBLE FOR ITEM FUNCTION FOR COORDINATION EXPENSE - -------------------------------------------------------------------------------------------------- Operations of the Federal registration GALIC GALIC Account of units of separate account (24f-2 fees) - --------------------------------------------------------------------------------------------------
43 EX-99.B8M 6 PART. AGREE. BTWN GALIC & ING VIT EXHIBIT 8(m) PARTICIPATION AGREEMENT ----------------------- AMONG GOLDEN AMERICAN LIFE INSURANCE COMPANY, ING VARIABLE INSURANCE TRUST, ING MUTUAL FUNDS MANAGEMENT CO. LLC AND ING FUNDS DISTRIBUTOR, INC. THIS AGREEMENT, dated as of the 28th day of April 2000, by and among Golden American Life Insurance Company (the "Company"), a life insurance company organized under the laws of the State of Delaware, on its own behalf and on behalf of each separate account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"), ING Variable Insurance Trust (the "Fund"), a management investment company and business trust organized under the laws of the State of Delaware, ING Mutual Funds Management Co. LLC (the "Adviser"), a limited liability company organized under the laws of the State of Delaware, and ING Funds Distributors, Inc. (the "Distributor"), a corporation organized under the laws of the State of Iowa. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance and variable annuity contracts (the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund, Adviser and Distributor ("Participating Insurance Companies"); WHEREAS, the shares of beneficial interest of the Fund are divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; WHEREAS, the Fund has obtained, or will obtain before entering into a Participation Agreement with any other party, an order from the Securities and Exchange Commission (the "SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (the "Mixed and Shared Funding Exemptive Order"), and the parties to this Agreement agree to comply with the conditions or undertakings specified in the Mixed and Shared Funding Exemptive Order to the extent applicable to each such party; WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, the Adviser, which serves as investment adviser to the Designated Portfolios (as hereinafter defined) of the Fund, is duly registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; WHEREAS, the Company has registered or will register certain variable annuity contracts (the "Contracts") under the 1933 Act; WHEREAS, the Account is a duly organized, validly existing segregated asset account, established by the Company under the insurance laws of the State of Delaware, to set aside and invest assets attributable to the Contracts; WHEREAS, the Company has registered the Account as a unit investment trust under the 1940 Act; WHEREAS, the Company has issued or will issue certain variable life insurance and/or variable annuity contracts supported wholly or partially by the Account (the "Contracts"), and said Contracts are listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement; WHEREAS, the Distributor, which serves as distributor to the Fund, is registered as a broker dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios listed in Schedule B hereto, as it may be amended from time to time by mutual written agreement (the "Designated Portfolios") on behalf of the Account to fund the aforesaid Contracts, and the Distributor is authorized to sell such shares to the Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund, the Adviser, and the Distributor agree as follows: ARTICLE I. Sale of Fund Shares ------------------- 1.1. The Fund agrees to sell to the Company those shares of the Designated Portfolios that each Account or the appropriate subaccount of each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt and acceptance by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company will be the designee of the Fund for receipt of such orders from each Account or the appropriate subaccount of each Account and receipt by such designee will constitute receipt by the Fund; provided that the Fund receives notice of such order by 10:00 a.m. Eastern Time on the next following business day ("T+1"). "Business Day" will mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC. 1.2. The Company will pay for Fund shares on T+1 that an order to purchase Fund shares is made in accordance with Section 1.1 above. Payment will be in federal funds transmitted by wire. This wire transfer will be initiated by 12:00 p.m. Eastern Time. 1.3. The Fund agrees to make shares of the Designated Portfolios available indefinitely for purchase at the applicable net asset value per share by Participating Insurance Companies and their separate accounts on those days on which the Fund calculates its Designated Portfolio net asset value pursuant to rules of the SEC and the Fund shall use reasonable efforts to calculate such net asset value on -2- each day the New York Stock Exchange is open for trading; provided, however, that the Board of Trustees of the Fund (the "Fund Board") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Fund Board, acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.4. On each Business Day on which the Fund calculates its net asset value, the Company will aggregate and calculate the net purchase or redemption orders for each Account or the appropriate subaccount of each Account maintained by the Fund in which contractowner assets are invested. Net orders will only reflect orders that the Company has received prior to the close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern Time) on that Business Day. Orders that the Company has received after the close of regular trading on the NYSE will be treated as though received on the next Business Day. Each communication of orders by the Company will constitute a representation that such orders were received by it prior to the close of regular trading on the NYSE on the Business Day on which the purchase or redemption order is priced in accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to the handling of orders will be in accordance with the prospectus and statement of information of the relevant Designated Portfolio or with oral or written instructions that the Distributor or the Fund will forward to the Company from time to time. 1.5. The Fund agrees that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts, qualified pension and retirement plans or such other persons as are permitted under applicable provisions of the Internal Revenue Code of 1986, as amended, (the "Internal Revenue Code"), and regulations promulgated thereunder, the sale to which will not impair the tax treatment currently afforded the Contracts. No shares of any Portfolio will be sold to the general public except as set forth in this Section 1.5. 1.6. The Fund agrees to redeem for cash, upon the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt and acceptance by the Fund or its agent of the request for redemption. For purposes of this Section 1.6, the Company will be the designee of the Fund for receipt of requests for redemption from each Account or the appropriate subaccount of each Account and receipt by such designee will constitute receipt by the Fund, provided the Fund receives notice of request for redemption by 10:00 a.m. Eastern Time on the next following Business Day. Payment will be in federal funds transmitted by wire to the Company's account as designated by the Company in writing from time to time, on the same Business Day the Fund receives notice of the redemption order from the Company. The Fund reserves the right to delay payment of redemption proceeds, but in no event may such payment be delayed longer than the period permitted by the 1940 Act. The Fund will not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds; the Company alone will be responsible for such action. If notification of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed shares will be made on the next following Business Day. 1.7. The Company agrees to purchase and redeem the shares of the Designated Portfolios offered by the then current prospectus of the Fund in accordance with the provisions of such prospectus. 1.8. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Purchase and redemption orders for Fund shares will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. -3- 1.9. The Fund will furnish same day notice (by telecopier, followed by written confirmation) to the Company of the declaration of any income, dividends or capital gain distributions payable on each Designated Portfolio's shares. The Company hereby elects to receive all such dividends and distributions as are payable on the Designated Portfolio shares in the form of additional shares of that Designated Portfolio. The Fund will notify the Company of the number of shares so issued as payment of such dividends and distributions. The Company reserves the right to revoke this election upon reasonable prior notice to the Fund and to receive all such dividends and distributions in cash. 1.10. The Fund will make the net asset value per share for each Designated Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and will use its best efforts to make such net asset value per share available by 6:00 p.m., Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business Day. 1.11. In the event adjustments are required to correct any error in the computation of the net asset value of the Fund's shares, the Fund or the Distributor will notify the Company as soon as practicable after discovering the need for those adjustments that result in an aggregate reimbursement of $150 or more to any one subaccount of each Account maintained by a Designated Portfolio unless notified otherwise by the Company (or, if greater, results in an adjustment of $10 or more to each contractowner's account). Any such notice will state for each day for which an error occurred the incorrect price, the correct price and, to the extent communicated to the Fund's shareholders, the reason for the price change. The Company may send this notice or a derivation thereof (so long as such derivation is approved in advance by the Distributor or the Adviser) to contractowners whose accounts are affected by the price change. The parties will negotiate in good faith to develop a reasonable method for effecting such adjustments. The Fund shall provide the Company, on behalf of the Account or the appropriate subaccount of each Account, with a prompt adjustment to the number of shares purchased or redeemed to reflect the correct share net asset value. 1.12. (a) The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other insurance companies (subject to Section 1.5 hereof) and the cash value of the Contracts may be invested in other investment companies, provided, however, that until this Agreement is terminated pursuant to Article X, the Company shall promote the Designated Portfolios on the same basis as other funding vehicles available under the Contracts and funding vehicles other than those listed on Schedule B to this Agreement may be available for the investment of the cash value of the Contracts. (b) The Company shall not, without prior notice to the Advisor and the Distributor (unless otherwise required by applicable law), take any action to operate the Account as a management investment company under the 1940 Act. (c) The Company shall not, without prior notice to the Advisor and the Distributor (unless otherwise required by applicable law), induce contractowners to change or modify the Fund or change the Fund's distributor or investment adviser. (d) The Company shall not, without prior notice to the Fund, induce contractowners to vote on any matter submitted for consideration by the shareholders of the Fund in a manner other than as recommended by the Fund Board. -4- ARTICLE II. Representations and Warranties ------------------------------ 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act and that the Contracts will be issued and sold in compliance with all applicable federal and state laws, including state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account as a separate account under applicable state law and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, and that it will maintain such registration for so long as any Contracts are outstanding. The Company will amend the registration statement under the 1933 Act for the Contracts and the registration statement under the 1940 Act for the Account from time to time as required in order to effect the continuous offering of the Contracts or as may otherwise be required by applicable law. The Company will register and qualify the Contracts for sale in accordance with the securities laws of the various states only if and to the extent deemed necessary by the Company. 2.2. The Company represents that the Contracts are currently and at the time of issuance will be treated as endowment, annuity or life insurance contracts under applicable provisions of the Internal Revenue Code, and that it will make every effort to maintain such treatment and that it will notify the Fund and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.3. The Company represents and warrants that it will not purchase shares of the Designated Portfolios with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. 2.4. The Fund represents and warrants that Fund shares of the Designated Portfolios sold pursuant to this Agreement will be registered under the 1933 Act and duly authorized for issuance in accordance with applicable law and that the Fund is and will remain registered under the 1940 Act for as long as such shares of the Designated Portfolios are outstanding. The Fund will amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund will register and qualify the shares of the Designated Portfolios for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund. 2.5. The Fund represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code, and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.6. The Fund represents and warrants that in performing the services described in this Agreement, the Fund will comply with all applicable laws, rules and regulations. The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies, objectives and restrictions) complies with the insurance laws and regulations of any state. The Fund and the Distributor agree that upon request they will use their best efforts to furnish the information required by state insurance laws so that the Company can obtain the authority needed to issue the Contracts in the various states. -5- 2.7. The Fund represents and warrants its Fund Board has formulated and approved a plan under Rule 12b-1 to finance distribution expenses in accordance with the 1940 Act. 2.8. The Distributor represents and warrants that it will distribute the Fund shares of the Designated Portfolios in accordance with all applicable federal and state securities laws including, without limitation, the 1933 Act, the 1934 Act and the 1940 Act. 2.9. The Fund represents that it is lawfully organized and validly existing under the laws of the State of Delaware and that it does and will comply in all material respects with applicable provisions of the 1940 Act. 2.10. The Distributor represents and warrants that it is and will remain duly registered under all applicable federal and state securities laws and that it will perform its obligations for the Fund in accordance in all material respects with any applicable state and federal securities laws. 2.11. The Fund and the Distributor represent and warrant that all of their trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. ARTICLE III. Prospectuses and Proxy Statements; Voting ----------------------------------------- 3.1. The Fund or the Distributor will provide the Company in conjunction with the Company's standard printing cycle, at the Company's expense, with as many copies of the current Fund prospectus for the Designated Portfolios as the Company may reasonably request for distribution, at the Company's expense, to prospective contractowners and applicants. The Fund or the Distributor will provide the Company in conjunction with the Company's standard printing cycle, at the Company's expense, as many copies of said prospectus as necessary for distribution, at the Company's expense, to existing contractowners. The Fund or the Distributor will provide the copies of said prospectus to the Company or to its mailing agent. If requested by the Company in lieu thereof, the Fund or the Distributor will provide such documentation, including a computer diskette or a final copy of a current prospectus set in type at the Fund's or Distributor's expense, and such other assistance as is reasonably necessary in order for the Company at least annually (or more frequently if the Fund prospectus is amended more frequently) to have the Fund's prospectus and the prospectuses of other mutual funds in which assets attributable to the Contracts may be invested printed together in one document. If in the event the Fund issues a new prospectus outside of the Company's standard printing cycle, then the Fund or the Distributor will provide the Company, at the Fund's or Distributor's expense, with as many copies of the current Fund prospectus for the Designated Portfolios as the Company may reasonably request for distribution, at the Company's expense, to existing and prospective contractowners and applicants. 3.2. The Fund or the Distributor will provide the Company, at the Company's expense, with as many copies of the statement of additional information as the Company may reasonably request for distribution, at the Company's expense, to prospective contractowners and applicants. The Fund or the Distributor will provide, at the Company's expense, as many copies of said statement of additional information as necessary for distribution, at the Company's expense, to any existing contractowner who requests such statement or whenever state or federal law otherwise requires that such statement be provided. The Fund or the Distributor will provide the copies of said statement of additional information -6- to the Company or to its mailing agent. If requested by the Company in lieu thereof, the Fund or the Distributor will provide such documentation, including a computer diskette or a final copy of a current statement of additional information set in type at the Fund's or Distributor's expense. 3.3. The Fund or the Distributor, at the Fund's or its affiliate's expense, will provide the Company or its mailing agent with copies of its proxy material, if any, reports to shareholders and other communications to shareholders in such quantity as the Company will reasonably require. The Company will distribute this proxy material, reports and other communications to existing contractowners and tabulate the votes. 3.4. If and to the extent required by law the Company will: (a) solicit voting instructions from contractowners; (b) vote the shares of the Designated Portfolios held in the Account in accordance with instructions received from contractowners; and (c) vote shares of the Designated Portfolios held in the Account for which no timely instructions have been received, as well as shares it owns, in the same proportion as shares of such Designated Portfolio for which instructions have been received from the Company's contractowners; so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contractowners. Except as set forth above, the Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. The Company will be responsible for assuring that each of its separate accounts participating in the Fund calculates voting privileges in a manner consistent with all legal requirements, including the Mixed and Shared Funding Exemptive Order. 3.5. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, the Fund either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends to comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the SEC may promulgate with respect thereto. ARTICLE IV. Sales Material and Information ------------------------------ 4.1. The Distributor will provide the Company on a timely basis with investment performance information for each Designated Portfolio in which the Company maintains a subaccount of the Account, including total return for the preceding calendar month and calendar quarter, the calendar year to date, and the prior one-year, five-year, and ten year (or life of the Fund) periods. The Company may, based on the SEC mandated information supplied by the Distributor, prepare communications for contractowners ("Contractowner Materials"). The Company will provide copies of all Contractowner Materials concurrently with their first use for the Distributor's internal recordkeeping purposes. It is understood that neither the Distributor nor any Designated Portfolio will be responsible for errors or omissions in, or the content of, Contractowner Materials except to the extent that the error or omission resulted from information provided by or on behalf of the Distributor or the Designated Portfolio. Any printed -7- information that is furnished to the Company pursuant to this Agreement other than each Designated Portfolio's prospectus or statement of additional information (or information supplemental thereto), periodic reports and proxy solicitation materials is the Distributor's sole responsibility and not the responsibility of any Designated Portfolio or the Fund. The Company agrees that the Portfolios, the shareholders of the Portfolios and the officers and governing Board of the Fund will have no liability or responsibility to the Company in these respects. 4.2. The Company will not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or statement of additional information for Fund shares, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in published reports for the Fund which are in the public domain or approved by the Fund or the Distributor for distribution, or in sales literature or other material provided by the Fund, Adviser or by the Distributor, except with permission of the Distributor. Any piece of sales literature or other promotional material intended to be used by the Company which requires the permission of the Distributor prior to use will be furnished by Company to the Distributor, or its designee, at least ten (10) business days prior to its use. No such material will be used if the Distributor reasonably objects to such use within five (5) business days after receipt of such material. Nothing in this Section 4.2 will be construed as preventing the Company or its employees or agents from giving advice on investment in the Fund. 4.3. The Fund, the Adviser or the Distributor will furnish, or will cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company or its Account is named, at least ten (10) business days prior to its use. No such material will be used if the Company reasonably objects to such use within five (5) business days after receipt of such material. 4.4. The Fund, the Adviser and the Distributor will not give any information or make any representations or statements on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or statement of additional information for the Contracts, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in published reports for each Account or the Contracts which are in the public domain or approved by the Company for distribution to contractowners, or in sales literature or other material provided by the Company, except with permission of the Company. The Company agrees to respond to any request for approval on a prompt and timely basis. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with the SEC, the NASD or other regulatory authority. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC, the NASD or other regulatory authority. -8- 4.7. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisements, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.8. The Fund and the Distributor hereby consent to the Company's use of the names ING Mutual Funds Management Co. LLC, ING Variable Insurance Trust, the portfolio names designated on Schedule B or other designated names as may be used from time to time in connection with the marketing of the Contracts, subject to the terms of Sections 4.1 and 4.2 of this Agreement. Such consent will terminate with the termination of this Agreement. ARTICLE V. Fees and Expenses ----------------- 5.1. The Fund, the Adviser and the Distributor will pay no fee or other compensation to the Company under this Agreement except pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. The Fund may make Rule 12b-1 payments to the Company or to the underwriter for the Contracts if and in such amounts agreed to by the Fund in writing. 5.2. All expenses incident to performance by the Fund of this Agreement will be paid by the Fund to the extent permitted by law. The Fund will bear the expenses for the cost of registration and qualification of the Fund's shares; preparation and filing of the Fund's prospectus, statement of additional information and registration statement, proxy materials and reports; setting in type and printing proxy materials and reports by it to contractowners (including the costs of printing a Fund prospectus that constitutes an annual report); the preparation of all statements and notices required by any federal or state law; all taxes on the issuance or transfer of the Fund's shares; any expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act; and all other expenses set forth in Article III of this Agreement. ARTICLE VI. Diversification and Qualification --------------------------------- 6.1. The Adviser will ensure that the Fund will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the Internal Revenue Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, as amended from time to time, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulation. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps: (a) to notify the Company of such breach; and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Treasury Regulation 1.817-5. 6.2. The Fund represents that it is or will be qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code, and that it will make every effort to maintain such -9- qualification (under Subchapter M or any successor or similar provisions) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 6.3. The Company represents that the Contracts are currently, and at the time of issuance shall be, treated as life insurance or annuity insurance contracts, under applicable provisions of the Internal Revenue Code, and that it will make every effort to maintain such treatment, and that it will notify the Fund and the Distributor immediately upon having a reasonable basis for believing the Contracts have ceased to be so treated or that they might not be so treated in the future. The Company agrees that any prospectus offering a contract that is a "modified endowment contract" as that term is defined in Section 7702A of the Internal Revenue Code (or any successor or similar provision), shall identify such contract as a modified endowment contract. ARTICLE VII. Potential Conflicts ------------------- 7.1. The Fund Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contractowners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contractowners; or (f) a decision by an insurer to disregard the voting instructions of contractowners. The Fund Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Fund Board. The Company will assist the Fund Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Fund Board with all information reasonably necessary for the Fund Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Fund Board whenever contractowner voting instructions are disregarded. 7.3. If it is determined by a majority of the Fund Board, or a majority of its disinterested members, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested Fund Board members), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (a) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contractowners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contractowners, life insurance contractowners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contractowners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. -10- 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard contractowner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement with respect to each Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Fund Board. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Fund Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Fund Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Fund Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contract if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Fund Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Fund Board informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Fund Board. 7.7. If and to the extent the Mixed and Shared Funding Exemptive Order or any amendment thereto contains terms and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with the Mixed and Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in the Mixed and Shared Funding Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the -11- extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification --------------- 8.1. Indemnification By the Company ------------------------------ (a) The Company agrees to indemnify and hold harmless the Fund, the Adviser, the Distributor, and each person, if any, who controls or is associated with the Fund, the Adviser or the Distributor within the meaning of such terms under the federal securities laws and any director, trustee, officer, partner, employee or agent of the foregoing (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including reasonable legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (1) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus or statement of additional information for the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated or necessary to make such statements not misleading in light of the circumstances in which they were made; provided that this agreement to indemnify will not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Fund, the Adviser or the Distributor for use in the registration statement, prospectus or statement of additional information for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (2) arise out of or as a result of statements or representations by or on behalf of the Company or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares; or (3) arise out of any untrue statement or alleged untrue statement of a material fact contained in the Fund registration statement, prospectus, statement of additional information or sales literature or other promotional material of the Fund (or amendment or supplement) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make such statements not misleading in light of the circumstances in which they were made, if such a statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company or persons under its control; or (4) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or -12- (5) arise out of any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach by the Company of this Agreement; except to the extent provided in Sections 8.1(b) and 8.3 hereof. This indemnification will be in addition to any liability that the Company otherwise may have. (b) No party will be entitled to indemnification under Section 8.1(a) to the extent such loss, claim, damage, liability or litigation is due to the willful misfeasance, bad faith, or gross negligence in the performance of such party's duties under this Agreement, or by reason of such party's reckless disregard of its obligations or duties under this Agreement by the party seeking indemnification. (c) The Indemnified Parties promptly will notify the Company of the commencement of any litigation, proceedings, complaints or actions by regulatory authorities against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 8.2. Indemnification By the Adviser, the Fund and the Distributor ------------------------------------------------------------ (a) The Adviser, the Fund and the Distributor, in each case solely to the extent relating to such party's responsibilities hereunder, agree to indemnify and hold harmless the Company and each person, if any, who controls or is associated with the Company within the meaning of such terms under the federal securities laws and any director, trustee, officer, partner, employee or agent of the foregoing (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (1) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or statement of additional information for the Fund or sales literature or other promotional material of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated or necessary to make such statements not misleading in light of the circumstances in which they were made; provided that this agreement to indemnify will not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser, the Distributor or the Fund by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for the Fund or in sales literature of the Fund (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (2) arise out of or as a result of statements or representations or wrongful conduct of the Adviser, the Fund or the Distributor or persons under the control of the Adviser, the Fund or the Distributor respectively, with respect to the sale of the Fund shares; or -13- (3) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, statement of additional information or sales literature or other promotional material covering the Contracts (or any amendment or supplement thereto), or the omission or alleged omission to state therein a material fact required to be stated or necessary to make such statement or statements not misleading in light of the circumstances in which they were made, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Adviser, the Fund or the Distributor or persons under the control of the Adviser, the Fund or the Distributor; or (4) arise as a result of any failure by the Fund, the Adviser or the Distributor to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements and procedures related thereto specified in Article VI of this Agreement); or (5) arise out of or result from any material breach of any representation and/or warranty made by the Adviser, the Fund or the Distributor in this Agreement, or arise out of or result from any other material breach of this Agreement by the Adviser, the Fund or the Distributor; except to the extent provided in Sections 8.2(b) and 8.3 hereof. This indemnification will be in addition to any liability that the Fund, Adviser or the Distributor otherwise may have. (b) No party will be entitled to indemnification under Section 8.2(a) to the extent such loss, claim, damage, liability or litigation is due to the willful misfeasance, bad faith, or gross negligence in the performance of such party's duties under this Agreement, or by reason of such party's reckless disregard of its obligations or duties under this Agreement by the party seeking indemnification. (c) The Indemnified Parties will promptly notify the Adviser, the Fund and the Distributor of the commencement of any litigation, proceedings, complaints or actions by regulatory authorities against them in connection with the issuance or sale of the Contracts or the operation of the account. 8.3. Indemnification Procedure ------------------------- Any person obligated to provide indemnification under this Article VIII ("Indemnifying Party" for the purpose of this Section 8.3) will not be liable under the indemnification provisions of this Article VIII with respect to any claim made against a party entitled to indemnification under this Article VIII ("Indemnified Party" for the purpose of this Section 8.3) unless such Indemnified Party will have notified the Indemnifying Party in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim will have been served upon such Indemnified Party (or after such party will have received notice of such service on any designated agent), but failure to notify the Indemnifying Party of any such claim will not relieve the Indemnifying Party from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of the indemnification provision of this Article VIII, except to the extent that the failure to notify results in the failure of actual notice to the Indemnifying Party and such Indemnifying Party is damaged solely as a result of failure to give such notice. In case any such action is brought against the Indemnified Party, the -14- Indemnifying Party will be entitled to participate, at its own expense, in the defense thereof. The Indemnifying Party also will be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Indemnifying Party to the Indemnified Party of the Indemnifying Party's election to assume the defense thereof, the Indemnified Party will bear the fees and expenses of any additional counsel retained by it, and the Indemnifying Party will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation, unless: (a) the Indemnifying Party and the Indemnified Party will have mutually agreed to the retention of such counsel; or (b) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Indemnifying Party will not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there is a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. A successor by law of the parties to this Agreement will be entitled to the benefits of the indemnification contained in this Article VIII. The indemnification provisions contained in this Article VIII will survive any termination of this Agreement. 8.4 DISTRIBUTOR LIMITATION ON LIABILITY. Notwithstanding the foregoing, the Distributor shall not be liable to any party to this Agreement for lost profits, punitive, special, incidental, indirect or consequential damages. ARTICLE IX. Applicable Law -------------- 9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Delaware. 9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, any Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. If, in the future, the Mixed and Shared Funding Exemptive Order should no longer be necessary under applicable law, then Article VII shall no longer apply. ARTICLE X. Termination ----------- 10.1. This Agreement will terminate: (a) at the option of any party, with or without cause, with respect to some or all of the Designated Portfolios, upon sixty (60) days' advance written notice to the other parties or, if later, upon receipt of any required exemptive relief or orders from the SEC, unless otherwise agreed in a separate written agreement among the parties; or (b) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio if shares of the Designated Portfolio are not reasonably available to meet the requirements of the Contracts as determined in good faith by the Company; or -15- (c) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or Federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by Company; or (d) at the option of the Fund, upon receipt of the Fund's written notice by the other parties, upon institution of formal proceedings against the Company by the NASD, the SEC, the insurance commission of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the administration of the Contracts, the operation of the Account, or the purchase of the Fund shares, provided that the Fund determines in its sole judgment, exercised in good faith, that any such proceeding would have a material adverse effect on the Company's ability to perform its obligations under this Agreement; or (e) at the option of the Company, upon receipt of the Company's written notice by the other parties, upon institution of formal proceedings against the Fund, Adviser or the Distributor by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, provided that the Company determines in its sole judgment, exercised in good faith, that any such proceeding would have a material adverse effect on the Fund's or the Distributor's ability to perform its obligations under this Agreement; or (f) at the option of the Company, upon receipt of the Company's written notice by the other parties, if the Fund ceases to qualify as a Regulated Investment Company under Subchapter M of the Internal Revenue Code, or under any successor or similar provision, or if the Company reasonably and in good faith believes that the Fund may fail to so qualify; or (g) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio if the Fund fails to meet the diversification requirements specified in Article VI hereof or if the Company reasonably and in good faith believes the Fund may fail to meet such requirements; or (h) at the option of any party to this Agreement, upon written notice to the other parties, upon another party's material breach of any provision of this Agreement which material breach is not cured within thirty (30) days of said notice; or (i) at the option of the Company, if the Company determines in its sole judgment exercised in good faith, that either the Fund, the Adviser or the Distributor has suffered a material adverse change in its business, operations or financial condition since the date of this Agreement or is the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Company, such termination to be effective sixty (60) days' after receipt by the other parties of written notice of the election to terminate; or (j) at the option of the Fund or the Distributor, if the Fund or the Distributor respectively, determines in its sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations or financial condition since the date of this Agreement or is the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Fund or the Adviser, such termination to be effective sixty (60) days' after receipt by the other parties of written notice of the election to terminate; or -16- (k) at the option of the Company or the Fund upon receipt of any necessary regulatory approvals and/or the vote of the contractowners having an interest in the Account (or any subaccount) to substitute the shares of another investment company for the corresponding Designated Portfolio shares of the Fund in accordance with the terms of the Contracts for which those Designated Portfolio shares had been selected to serve as the underlying investment media. The Company will give sixty (60) days' prior written notice to the Fund of the date of any proposed vote or other action taken to replace the Fund's shares; or (l) at the option of the Company or the Fund upon a determination by a majority of the Fund Board, or a majority of the disinterested Fund Board members, that an irreconcilable material conflict exists among the interests of: (1) all contractowners of variable insurance products of all separate accounts; or (2) the interests of the Participating Insurance Companies investing in the Fund as set forth in Article VII of this Agreement; or (m) at the option of the Fund in the event any of the Contracts are not issued or sold in accordance with applicable federal and/or state law. Termination will be effective immediately upon such occurrence without notice. 10.2. NOTICE REQUIREMENT. No termination of this Agreement will be effective unless and until the party terminating this Agreement gives prior written notice to all other parties of its intent to terminate, which notice will set forth the basis for the termination. 10.3. EFFECT OF TERMINATION. Notwithstanding any termination of this Agreement, the Fund and the Distributor will, at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement ( hereinafter referred to as "Existing Contracts.") . Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Portfolios (as in effect on such date), redeem investments in the Portfolios and/or invest in the Portfolios upon the making of additional purchase payments under the Existing Contracts. 10.4. SURVIVING PROVISIONS. Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties will survive and not be affected by any termination of this Agreement. In addition, each party's obligations under Section 12.7 will survive and not be affected by any termination of this Agreement. Finally, with respect to Existing Contracts, all provisions of this Agreement also will survive and not be affected by any termination of this Agreement. ARTICLE XI. Notices ------- 11.1. Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: ING Variable Insurance Trust c/o Louis Citron 1475 Dunwoody Drive West Chester, PA 19380 If to the Company: Golden American Life Insurance Company c/o Myles Tashman -17- Executive Vice President and General Counsel 1475 Dunwoody Drive West Chester, PA 19380 If to Adviser: ING Mutual Funds Management Co. LLC c/o Louis Citron 1475 Dunwoody Drive West Chester, PA 19380 If to Distributor: ING Funds Distributor, Inc c/o Donald Brostrom 1475 Dunwoody Drive West Chester, PA 19380 ARTICLE XII. Miscellaneous ------------- 12.1. All persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the directors, trustees, officers, partners, employees, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. No Portfolio or series of the Fund will be liable for the obligations or liabilities of any other Portfolio or series. 12.2. The Fund, the Adviser and the Distributor acknowledge that the identities of the customers of the Company or any of its affiliates, except for customers of the Adviser or its affiliates (collectively the "Company Protected Parties" for purposes of this Section 12.2), information maintained regarding those customers, and all computer programs and procedures or other information developed or used by the Company Protected Parties or any of their employees or agents in connection with the Company's performance of its duties under this Agreement are the valuable property of the Company Protected Parties. The Fund, the Adviser and the Distributor agree that if they come into possession of any list or compilation of the identities of or other information about the Company Protected Parties' customers, or any other information or property of the Company Protected Parties, other than such information as is publicly available or as may be independently developed or compiled by the Fund, the Adviser or the Distributor from information supplied to them by the Company Protected Parties' customers who also maintain accounts directly with the Fund, the Adviser or the Distributor, the Fund, the Adviser and the Distributor will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with the Company's prior written consent; or (b) as required by law or judicial process. The Company acknowledges that the identities of the customers of the Fund, the Adviser, the Distributor or any of their affiliates (collectively the "Adviser Protected Parties" for purposes of this Section 12.2), information maintained regarding those customers, and all computer programs and procedures or other information developed or used by the Adviser Protected Parties or any of their employees or agents in connection with the Fund's, the Adviser's or the Distributor's performance of their respective duties under this Agreement are the valuable property of the Adviser Protected Parties. The Company agrees that if it comes into possession of any list or compilation of the identities of or other information about the Adviser Protected Parties' customers, or any other information or property of the Adviser Protected Parties, other than such information as is publicly available or as may be independently developed or compiled by the Company from information supplied to them by the Adviser Protected Parties' customers who also maintain accounts directly with the Company, the Company will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with the Fund's, the Adviser's or the Distributor's prior written -18- consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 12.2 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. 12.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. 12.5. If any provision of this Agreement will be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement will not be affected thereby. 12.6. This Agreement will not be assigned by any party hereto without the prior written consent of all the parties. 12.7. Each party to this Agreement will maintain all records required by law, including records detailing the services it provides. Such records will be preserved, maintained and made available to the extent required by law and in accordance with the 1940 Act and the rules thereunder. Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Upon request by the Fund or the Distributor, the Company agrees to promptly make copies or, if required, originals of all records pertaining to the performance of services under this Agreement available to the Fund or the Distributor, as the case may be. The Fund agrees that the Company will have the right to inspect, audit and copy all records pertaining to the performance of services under this Agreement pursuant to the requirements of any state insurance department. Each party also agrees to promptly notify the other parties if it experiences any difficulty in maintaining the records in an accurate and complete manner. This provision will survive termination of this Agreement. 12.8. Each party represents that the execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary corporate or board action, as applicable, by such party and when so executed and delivered this Agreement will be the valid and binding obligation of such party enforceable in accordance with its terms. 12.9. The parties to this Agreement may amend the schedules to this Agreement from time to time to reflect changes in or relating to the Contracts, the Accounts or the Designated Portfolios of the Fund or other applicable terms of this Agreement. 12.10. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights. 12.11. The names "ING Variable Insurance Trust" and "Trustees of ING Variable Insurance Trust" refer respectively to the trust created and the Trustees, as trustees but not individually or personally, acting from time to time under a Declaration of Trust dated July 15, 1999 which is hereby referred to and a copy of which is at the principal office of the Fund. The obligations of "ING Variable -19- Insurance Trust" entered into in the name or on behalf thereof by any of the Trustees, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, or representatives of the Fund personally, but bind only the Trust Property, and all persons dealing with any class of Shares of the Fund must look solely to the Trust Property belonging to such class for the enforcement of any claims against the Fund. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below: GOLDEN AMERICAN LIFE INSURANCE COMPANY: By: /s/ David L. Jacobson ------------------------------------ Title: Senior Vice President --------------------------------- Date: April 25, 2000 ---------------------------------- ING VARIABLE INSURANCE TRUST: By: /s/ Louis S. Citron ------------------------------------ Title: Vice President --------------------------------- Date: April 25, 2000 ---------------------------------- ING MUTUAL FUNDS MANAGEMENT CO. LLC : By: /s/ Louis S. Citron ------------------------------------ Title: Senior Vice President and General Counsel --------------------------------- Date: April 25, 2000 ---------------------------------- ING FUNDS DISTRIBUTOR, Inc. By: /s/ Donald E. Brostrom ------------------------------------ Title: Chief Financial Officer and Treasurer --------------------------------- Date: April 25, 2000 ---------------------------------- -20- SCHEDULE A GOLDEN AMERICAN LIFE INSURANCE COMPANY CONTRACTS AND SEPARATE ACCOUNT(S) CONTRACT(S): Deferred Combination Variable and Fixed Annuity Contracts SEPARATE ACCOUNT(S): Separate Account B of Golden American Life Insurance Company SCHEDULE B ING VARIABLE INSURANCE TRUST DESIGNATED PORTFOLIOS PORTFOLIOS: ING International Equity Fund ING Global Brand Names Fund Schedule Date: April 28, 2000 -21- EX-99.B9 7 CONSENT OF MYLES R. TASHMAN EXHIBIT 9 ING VARIABLE ANNUITIES MYLES R. TASHMAN Executive Vice President, General Counsel and Secretary April 25, 2000 Members of the Board of Directors Golden American Life Insurance Company 1475 Dunwoody Drive West Chester, PA 19380-1478 Gentlemen: In my capacity as Executive Vice President and Secretary of Golden American Life Insurance Company (the "Company"), I have examined the form of Registration Statement on Form N-4 to be filed by you with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of an indefinite number of units of interest in Separate Account B of the Company (the "Account"). I am familiar with the proceedings taken and proposed to be taken in connection with the authorization, issuance and sale of units. Based upon my examination and upon my knowledge of the corporate activities relating to the Account, it is my opinion that: (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 Account is a validly established separate investment account of the Company; (3) The portion of the assets to be held in the Account equals the reserve and other liabilities for variable benefits under variable annuity contracts to be issued by the Account. Such assets are not chargeable with liabilities arising out of any other business the Company conducts; (4) The units and the variable annuity contracts will, when issued and sold in the manner described in the registration statement, be legal and binding obligations of the Company and will be legally and validly issued, fully paid, and non-assessable. I hereby consent to the filing of this opinion as an exhibit to the registration statement and to the reference to my name under the heading "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 - -------------------- 1475 Dunwoody Drive Tel: 610-425-3405 GoldenSelect Series West Chester, PA 19380-1478 Fax: 610-425-3735 Issued by Golden American Life Insurance Company EX-99.B10A 8 CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP EXHIBIT 10(a) - Consent of Sutherland Asbill & Brennan LLP SUTHERLAND ASBILL & 1275 Pennsylvania Avenue, N.W. BRENNAN LLP Washington, D.C. 20004-2415 Attorneys at Law Tel: (202) 383-0100 Fax: (202) 637-3593 www.sablaw.com April 21, 2000 STEPHEN E. ROTH DIRECT LINE: (202) 383-0158 Internet: sroth@sablaw.com VIA EDGAR - --------- Board of Directors Golden American Life Insurance Company 1475 Dunwoody Drive West Chester, PA 19380-1478 Ladies and Gentlemen: We hereby consent to the reference to our name under the caption "Legal Matters" in the Statement of Additional Information filed as part of Post-Effective Amendment No. 15 to the registration statement on Form N-4 for the Separate Account B (File No. 33-59261). In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Very truly yours, SUTHERLAND ASBILL & BRENNAN LLP By: /s/Stephen E. Roth ----------------------- Stephen E. Roth EX-99.B10B 9 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS EXHIBIT 10(b) - Consent of Ernst & Young LLP, Independent Auditors We consent to the reference to our firm under the captions "Independent Auditors" and "Experts" and to the use of our reports dated February 4, 2000, with respect to the financial statements of Golden American Life Insurance Company, and February 25, 2000, with respect to the financial statements of Separate Account B, included in Post-Effective Amendment No. 15 to the Registration Statement under the Securities Act of 1933 (Form N-4 No. 33-59261) and related Prospectuses of Separate Account B. Our audits also included the financial statement schedules of Golden American Life Insurance Company included in Item 24(a)(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 April 21, 2000 EX-99.B13 10 SCHEDULE OF PERFORMANCE DATA
Golden Select DVA Plus DVA Plus Standard Liquid Asset 01/25/1989 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider Inception to Date IIE Base Invest Activity Shares Value Invest Activity Shares Value 25-Jan-89 Purchase 10.00000000 1000.00 100.000 100.000 1000.00 1000.00 100.000 100.000 1000.00 31-Mar-89 Rider 10.10788322 -1.25 -0.124 99.876 1009.53 0.00 0.000 100.000 1010.79 30-Jun-89 Rider 10.28921849 -1.26 -0.122 99.754 1026.39 0.00 0.000 100.000 1028.92 29-Sep-89 Rider 10.45304495 -1.28 -0.122 99.632 1041.46 0.00 0.000 100.000 1045.30 29-Dec-89 Rider 10.61327137 -1.30 -0.122 99.510 1056.13 0.00 0.000 100.000 1061.33 25-Jan-90 Contract 10.66153996 -0.58 -0.054 99.456 1060.35 -0.58 -0.054 99.946 1065.58 30-Mar-90 Rider 10.77307669 -1.33 -0.123 99.333 1070.12 0.00 0.000 99.946 1076.73 29-Jun-90 Rider 10.93526244 -1.34 -0.123 99.210 1084.89 0.00 0.000 99.946 1092.94 28-Sep-90 Rider 11.09526352 -1.36 -0.123 99.087 1099.40 0.00 0.000 99.946 1108.93 31-Dec-90 Rider 11.25777020 -1.37 -0.122 98.965 1114.13 0.00 0.000 99.946 1125.17 25-Jan-91 Contract 11.29926987 -0.58 -0.051 98.914 1117.66 -0.58 -0.051 99.895 1128.74 28-Mar-91 Rider 11.40009438 -1.40 -0.123 98.791 1126.23 0.00 0.000 99.895 1138.81 28-Jun-91 Rider 11.51417567 -1.41 -0.122 98.669 1136.09 0.00 0.000 99.895 1150.21 30-Sep-91 Rider 11.62022490 -1.42 -0.122 98.547 1145.14 0.00 0.000 99.895 1160.80 31-Dec-91 Rider 11.71036497 -1.43 -0.122 98.425 1152.59 0.00 0.000 99.895 1169.81 24-Jan-92 Contract 11.73030342 -0.58 -0.049 98.376 1153.98 -0.58 -0.049 99.846 1171.22 31-Mar-92 Rider 11.77235602 -1.44 -0.122 98.254 1156.68 0.00 0.000 99.846 1175.42 30-Jun-92 Rider 11.82047381 -1.45 -0.123 98.131 1159.95 0.00 0.000 99.846 1180.23 30-Sep-92 Rider 11.85668128 -1.45 -0.122 98.009 1162.06 0.00 0.000 99.846 1183.84 31-Dec-92 Rider 11.88898304 -1.45 -0.122 97.887 1163.78 0.00 0.000 99.846 1187.07 25-Jan-93 Contract 11.89949676 -0.58 -0.049 97.838 1164.22 -0.58 -0.049 99.797 1187.53 31-Mar-93 Rider 11.92137674 -1.46 -0.122 97.716 1164.91 0.00 0.000 99.797 1189.72 30-Jun-93 Rider 11.95030319 -1.46 -0.122 97.594 1166.28 0.00 0.000 99.797 1192.60 30-Sep-93 Rider 11.98185695 -1.46 -0.122 97.472 1167.90 0.00 0.000 99.797 1195.75 31-Dec-93 Rider 12.01365782 -1.46 -0.122 97.350 1169.53 0.00 0.000 99.797 1198.93 25-Jan-94 Contract 12.02274025 -0.58 -0.048 97.302 1169.84 -0.58 -0.048 99.749 1199.26 31-Mar-94 Rider 12.04780570 -1.46 -0.121 97.181 1170.82 0.00 0.000 99.749 1201.76 30-Jun-94 Rider 12.09837491 -1.46 -0.121 97.060 1174.27 0.00 0.000 99.749 1206.80 30-Sep-94 Rider 12.17141271 -1.47 -0.121 96.939 1179.88 0.00 0.000 99.749 1214.09 30-Dec-94 Rider 12.26538727 -1.47 -0.120 96.819 1187.52 0.00 0.000 99.749 1223.46 25-Jan-95 Contract 12.29615260 -0.58 -0.047 96.772 1189.92 -0.58 -0.047 99.702 1225.95 31-Mar-95 Rider 12.38341869 -1.49 -0.120 96.652 1196.88 0.00 0.000 99.702 1234.65 30-Jun-95 Rider 12.50513366 -1.50 -0.120 96.532 1207.15 0.00 0.000 99.702 1246.79 29-Sep-95 Rider 12.62306284 -1.51 -0.120 96.412 1217.01 0.00 0.000 99.702 1258.54 29-Dec-95 Rider 12.76159881 -1.52 -0.119 96.293 1228.85 0.00 0.000 99.702 1272.36 25-Jan-96 Contract 12.79161129 -0.58 -0.045 96.248 1231.17 -0.58 -0.045 99.657 1274.77 29-Mar-96 Rider 12.86540126 -1.54 -0.120 96.128 1236.73 0.00 0.000 99.657 1282.13 28-Jun-96 Rider 12.96893339 -1.55 -0.120 96.008 1245.12 0.00 0.000 99.657 1292.44 30-Sep-96 Rider 13.07944200 -1.56 -0.119 95.889 1254.17 0.00 0.000 99.657 1303.46 31-Dec-96 Rider 13.18823973 -1.57 -0.119 95.770 1263.04 0.00 0.000 99.657 1314.30 24-Jan-97 Contract 13.21672860 -0.58 -0.044 95.726 1265.18 -0.58 -0.044 99.613 1316.56 31-Mar-97 Rider 13.29462477 -1.58 -0.119 95.607 1271.06 0.00 0.000 99.613 1324.32 30-Jun-97 Rider 13.40827207 -1.59 -0.119 95.488 1280.33 0.00 0.000 99.613 1335.64 30-Sep-97 Rider 13.52573790 -1.60 -0.118 95.370 1289.95 0.00 0.000 99.613 1347.34 31-Dec-97 Rider 13.64539820 -1.61 -0.118 95.252 1299.75 0.00 0.000 99.613 1359.26 23-Jan-98 Contract 13.67590547 -0.58 -0.042 95.210 1302.08 -0.58 -0.042 99.571 1361.72 31-Mar-98 Rider 13.76200727 -1.63 -0.118 95.092 1308.66 0.00 0.000 99.571 1370.30 30-Jun-98 Rider 13.88180095 -1.64 -0.118 94.974 1318.41 0.00 0.000 99.571 1382.22 30-Sep-98 Rider 14.00134995 -1.65 -0.118 94.856 1328.11 0.00 0.000 99.571 1394.13 31-Dec-98 Rider 14.11245456 -1.66 -0.118 94.738 1336.99 0.00 0.000 99.571 1405.19 25-Jan-99 Contract 14.14195210 -0.58 -0.041 94.697 1339.20 -0.58 -0.041 99.530 1407.55 31-Mar-99 Rider 14.21259929 -1.67 -0.118 94.579 1344.21 0.00 0.000 99.530 1414.58 30-Jun-99 Rider 14.31157674 -1.68 -0.117 94.462 1351.90 0.00 0.000 99.530 1424.43 30-Sep-99 Rider 14.42352849 -1.69 -0.117 94.345 1360.79 0.00 0.000 99.530 1435.57 31-Dec-99 Rider 14.55205808 -1.70 -0.117 94.228 1371.21 0.00 0.000 99.530 1448.37 31-Dec-99 Surrender 14.55205808 0% 0.00 0.000 94.228 1371.21 0.00 0.000 99.530 1448.37 Avg Annual Total Return: w/o surrender 2.93% 3.45% 10.93424658 w/surrender 2.93% 3.45% (continued) 155 Basis Point w/rider w/o contract Inception to Date Invest Activity Shares Value 25-Jan-89 Purchase 1000.00 100.000 100.000 1000.00 31-Mar-89 Rider -1.25 -0.124 99.876 1009.53 30-Jun-89 Rider -1.26 -0.122 99.754 1026.39 29-Sep-89 Rider -1.28 -0.122 99.632 1041.46 29-Dec-89 Rider -1.30 -0.122 99.510 1056.13 25-Jan-90 Contract 0.00 0.000 99.510 1060.93 30-Mar-90 Rider -1.33 -0.123 99.387 1070.70 29-Jun-90 Rider -1.34 -0.123 99.264 1085.48 28-Sep-90 Rider -1.36 -0.123 99.141 1100.00 31-Dec-90 Rider -1.38 -0.123 99.018 1114.72 25-Jan-91 Contract 0.00 0.000 99.018 1118.83 28-Mar-91 Rider -1.40 -0.123 98.895 1127.41 28-Jun-91 Rider -1.41 -0.122 98.773 1137.29 30-Sep-91 Rider -1.42 -0.122 98.651 1146.35 31-Dec-91 Rider -1.43 -0.122 98.529 1153.81 24-Jan-92 Contract 0.00 0.000 98.529 1155.78 31-Mar-92 Rider -1.44 -0.122 98.407 1158.48 30-Jun-92 Rider -1.45 -0.123 98.284 1161.76 30-Sep-92 Rider -1.45 -0.122 98.162 1163.88 31-Dec-92 Rider -1.45 -0.122 98.040 1165.60 25-Jan-93 Contract 0.00 0.000 98.040 1166.63 31-Mar-93 Rider -1.46 -0.122 97.918 1167.32 30-Jun-93 Rider -1.46 -0.122 97.796 1168.69 30-Sep-93 Rider -1.46 -0.122 97.674 1170.32 31-Dec-93 Rider -1.46 -0.122 97.552 1171.96 25-Jan-94 Contract 0.00 0.000 97.552 1172.84 31-Mar-94 Rider -1.47 -0.122 97.430 1173.82 30-Jun-94 Rider -1.47 -0.122 97.308 1177.27 30-Sep-94 Rider -1.47 -0.121 97.187 1182.90 30-Dec-94 Rider -1.48 -0.121 97.066 1190.55 25-Jan-95 Contract 0.00 0.000 97.066 1193.54 31-Mar-95 Rider -1.49 -0.120 96.946 1200.52 30-Jun-95 Rider -1.50 -0.120 96.826 1210.82 29-Sep-95 Rider -1.51 -0.120 96.706 1220.73 29-Dec-95 Rider -1.53 -0.120 96.586 1232.59 25-Jan-96 Contract 0.00 0.000 96.586 1235.49 29-Mar-96 Rider -1.54 -0.120 96.466 1241.07 28-Jun-96 Rider -1.55 -0.120 96.346 1249.50 30-Sep-96 Rider -1.56 -0.119 96.227 1258.60 31-Dec-96 Rider -1.57 -0.119 96.108 1267.50 24-Jan-97 Contract 0.00 0.000 96.108 1270.23 31-Mar-97 Rider -1.59 -0.120 95.988 1276.12 30-Jun-97 Rider -1.60 -0.119 95.869 1285.44 30-Sep-97 Rider -1.61 -0.119 95.750 1295.09 31-Dec-97 Rider -1.62 -0.119 95.631 1304.92 23-Jan-98 Contract 0.00 0.000 95.631 1307.84 31-Mar-98 Rider -1.63 -0.118 95.513 1314.45 30-Jun-98 Rider -1.64 -0.118 95.395 1324.25 30-Sep-98 Rider -1.66 -0.119 95.276 1333.99 31-Dec-98 Rider -1.67 -0.118 95.158 1342.91 25-Jan-99 Contract 0.00 0.000 95.158 1345.72 31-Mar-99 Rider -1.68 -0.118 95.040 1350.77 30-Jun-99 Rider -1.69 -0.118 94.922 1358.48 30-Sep-99 Rider -1.70 -0.118 94.804 1367.41 31-Dec-99 Rider -1.71 -0.118 94.686 1377.88 31-Dec-99 Surrender 0.00 0.000 94.686 1377.88 Avg Annual Total Return: w/o surrender 2.97% 10.93424658 w/surrender 2.97% Liquid Asset 01/25/1989 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 1 Yr Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 31-Dec-98 Purchase 14.11245456 1000.00 70.859 70.859 999.99 1000.00 70.859 70.859 999.99 31-Mar-99 Rider 14.21259929 -1.25 -0.088 70.771 1005.84 0.00 0.000 70.859 1007.09 30-Jun-99 Rider 14.31157674 -1.26 -0.088 70.683 1011.59 0.00 0.000 70.859 1014.10 30-Sep-99 Rider 14.42352849 -1.26 -0.087 70.596 1018.24 0.00 0.000 70.859 1022.04 31-Dec-99 Rider 14.55205808 -1.27 -0.087 70.509 1026.05 0.00 0.000 70.859 1031.14 31-Dec-99 Contract 14.55205808 -0.58 -0.040 70.469 1025.47 -0.58 -0.040 70.819 1030.56 31-Dec-99 Surrender 14.55205808 7% -70.00 -4.810 65.659 955.47 -70.00 -4.810 66.009 960.57 Avg Annual Total Return: w/o surrender 2.55% 3.06% 1.00000000 w/surrender -4.45% -3.94% (continued) 155 Basis Point w/rider w/o contract 1 Yr Computation Invest Activity Shares Value 31-Dec-98 Purchase 1000.00 70.859 70.859 999.99 31-Mar-99 Rider -1.25 -0.088 70.771 1005.84 30-Jun-99 Rider -1.26 -0.088 70.683 1011.59 30-Sep-99 Rider -1.26 -0.087 70.596 1018.24 31-Dec-99 Rider -1.27 -0.087 70.509 1026.05 31-Dec-99 Contract 0.00 0.000 70.509 1026.05 31-Dec-99 Surrender -70.00 -4.810 65.699 956.06 Avg Annual Total Return: w/o surrender 2.60% 1.00000000 w/surrender -4.39% Liquid Asset 01/25/1989 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 5 Yr Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 30-Dec-94 Purchase 12.26538727 1000.00 81.530 81.530 1000.00 1000.00 81.530 81.530 1000.00 31-Mar-95 Rider 12.38341869 -1.25 -0.101 81.429 1008.37 0.00 0.000 81.530 1009.62 30-Jun-95 Rider 12.50513366 -1.26 -0.101 81.328 1017.02 0.00 0.000 81.530 1019.54 29-Sep-95 Rider 12.62306284 -1.27 -0.101 81.227 1025.33 0.00 0.000 81.530 1029.16 29-Dec-95 Rider 12.76159881 -1.28 -0.100 81.127 1035.31 0.00 0.000 81.530 1040.45 29-Dec-95 Contract 12.76159881 -0.58 -0.045 81.082 1034.74 -0.58 -0.045 81.485 1039.88 29-Mar-96 Rider 12.86540126 -1.29 -0.100 80.982 1041.87 0.00 0.000 81.485 1048.34 28-Jun-96 Rider 12.96893339 -1.30 -0.100 80.882 1048.95 0.00 0.000 81.485 1056.77 30-Sep-96 Rider 13.07944200 -1.31 -0.100 80.782 1056.58 0.00 0.000 81.485 1065.78 31-Dec-96 Rider 13.18823973 -1.32 -0.100 80.682 1064.05 0.00 0.000 81.485 1074.64 31-Dec-96 Contract 13.18823973 -0.58 -0.044 80.638 1063.47 -0.58 -0.044 81.441 1074.06 31-Mar-97 Rider 13.29462477 -1.33 -0.100 80.538 1070.72 0.00 0.000 81.441 1082.73 30-Jun-97 Rider 13.40827207 -1.34 -0.100 80.438 1078.53 0.00 0.000 81.441 1091.98 30-Sep-97 Rider 13.52573790 -1.35 -0.100 80.338 1086.63 0.00 0.000 81.441 1101.55 31-Dec-97 Rider 13.64539820 -1.36 -0.100 80.238 1094.88 0.00 0.000 81.441 1111.29 31-Dec-97 Contract 13.64539820 -0.58 -0.043 80.195 1094.29 -0.58 -0.043 81.398 1110.71 31-Mar-98 Rider 13.76200727 -1.37 -0.100 80.095 1102.27 0.00 0.000 81.398 1120.20 30-Jun-98 Rider 13.88180095 -1.38 -0.099 79.996 1110.49 0.00 0.000 81.398 1129.95 30-Sep-98 Rider 14.00134995 -1.39 -0.099 79.897 1118.67 0.00 0.000 81.398 1139.68 31-Dec-98 Rider 14.11245456 -1.40 -0.099 79.798 1126.15 0.00 0.000 81.398 1148.73 31-Dec-98 Contract 14.11245456 -0.58 -0.041 79.757 1125.57 -0.58 -0.041 81.357 1148.15 31-Mar-99 Rider 14.21259929 -1.41 -0.099 79.658 1132.15 0.00 0.000 81.357 1156.29 30-Jun-99 Rider 14.31157674 -1.42 -0.099 79.559 1138.61 0.00 0.000 81.357 1164.35 30-Sep-99 Rider 14.42352849 -1.42 -0.098 79.461 1146.11 0.00 0.000 81.357 1173.46 31-Dec-99 Rider 14.55205808 -1.43 -0.098 79.363 1154.89 0.00 0.000 81.357 1183.91 31-Dec-99 Contract 14.55205808 -0.58 -0.040 79.323 1154.31 -0.58 -0.040 81.317 1183.33 31-Dec-99 Surrender 14.55205808 4% -40.00 -2.749 76.574 1114.31 -40.00 -2.749 78.568 1143.33 Avg Annual Total Return: w/o surrender 2.91% 3.42% 5.00547945 w/surrender 2.19% 2.71% (continued) 155 Basis Point w/rider w/o contract 5 Yr Computation Invest Activity Shares Value 30-Dec-94 Purchase 1000.00 81.530 81.530 1000.00 31-Mar-95 Rider -1.25 -0.101 81.429 1008.37 30-Jun-95 Rider -1.26 -0.101 81.328 1017.02 29-Sep-95 Rider -1.27 -0.101 81.227 1025.33 29-Dec-95 Rider -1.28 -0.100 81.127 1035.31 29-Dec-95 Contract 0.00 0.000 81.127 1035.31 29-Mar-96 Rider -1.29 -0.100 81.027 1042.44 28-Jun-96 Rider -1.30 -0.100 80.927 1049.54 30-Sep-96 Rider -1.31 -0.100 80.827 1057.17 31-Dec-96 Rider -1.32 -0.100 80.727 1064.65 31-Dec-96 Contract 0.00 0.000 80.727 1064.65 31-Mar-97 Rider -1.33 -0.100 80.627 1071.91 30-Jun-97 Rider -1.34 -0.100 80.527 1079.73 30-Sep-97 Rider -1.35 -0.100 80.427 1087.83 31-Dec-97 Rider -1.36 -0.100 80.327 1096.09 31-Dec-97 Contract 0.00 0.000 80.327 1096.09 31-Mar-98 Rider -1.37 -0.100 80.227 1104.08 30-Jun-98 Rider -1.38 -0.099 80.128 1112.32 30-Sep-98 Rider -1.39 -0.099 80.029 1120.51 31-Dec-98 Rider -1.40 -0.099 79.930 1128.01 31-Dec-98 Contract 0.00 0.000 79.930 1128.01 31-Mar-99 Rider -1.41 -0.099 79.831 1134.61 30-Jun-99 Rider -1.42 -0.099 79.732 1141.09 30-Sep-99 Rider -1.43 -0.099 79.633 1148.59 31-Dec-99 Rider -1.44 -0.099 79.534 1157.38 31-Dec-99 Contract 0.00 0.000 79.534 1157.38 31-Dec-99 Surrender -40.00 -2.749 76.785 1117.38 Avg Annual Total Return: w/o surrender 2.96% 5.00547945 w/surrender 2.24% Liquid Asset 01/25/1989 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 10 Year Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 29-Dec-89 Purchase 10.61327137 1000.00 94.222 94.222 1000.00 1000.00 94.222 94.222 1000.00 30-Mar-90 Rider 10.77307669 -1.25 -0.116 94.106 1013.81 0.00 0.000 94.222 1015.06 29-Jun-90 Rider 10.93526244 -1.27 -0.116 93.990 1027.81 0.00 0.000 94.222 1030.34 28-Sep-90 Rider 11.09526352 -1.28 -0.115 93.875 1041.57 0.00 0.000 94.222 1045.42 31-Dec-90 Rider 11.25777020 -1.30 -0.115 93.760 1055.53 0.00 0.000 94.222 1060.73 31-Dec-90 Contract 11.25777020 -0.58 -0.052 93.708 1054.94 -0.58 -0.052 94.170 1060.14 28-Mar-91 Rider 11.40009438 -1.32 -0.116 93.592 1066.96 0.00 0.000 94.170 1073.55 28-Jun-91 Rider 11.51417567 -1.33 -0.116 93.476 1076.30 0.00 0.000 94.170 1084.29 30-Sep-91 Rider 11.62022490 -1.35 -0.116 93.360 1084.86 0.00 0.000 94.170 1094.28 31-Dec-91 Rider 11.71036497 -1.36 -0.116 93.244 1091.92 0.00 0.000 94.170 1102.77 31-Dec-91 Contract 11.71036497 -0.58 -0.050 93.194 1091.34 -0.58 -0.050 94.120 1102.18 31-Mar-92 Rider 11.77235602 -1.36 -0.116 93.078 1095.75 0.00 0.000 94.120 1108.01 30-Jun-92 Rider 11.82047381 -1.37 -0.116 92.962 1098.85 0.00 0.000 94.120 1112.54 30-Sep-92 Rider 11.85668128 -1.37 -0.116 92.846 1100.85 0.00 0.000 94.120 1115.95 31-Dec-92 Rider 11.88898304 -1.38 -0.116 92.730 1102.47 0.00 0.000 94.120 1118.99 31-Dec-92 Contract 11.88898304 -0.58 -0.049 92.681 1101.88 -0.58 -0.049 94.071 1118.41 31-Mar-93 Rider 11.92137674 -1.38 -0.116 92.565 1103.50 0.00 0.000 94.071 1121.46 30-Jun-93 Rider 11.95030319 -1.38 -0.115 92.450 1104.81 0.00 0.000 94.071 1124.18 30-Sep-93 Rider 11.98185695 -1.38 -0.115 92.335 1106.34 0.00 0.000 94.071 1127.15 31-Dec-93 Rider 12.01365782 -1.38 -0.115 92.220 1107.90 0.00 0.000 94.071 1130.14 31-Dec-93 Contract 12.01365782 -0.58 -0.048 92.172 1107.32 -0.58 -0.048 94.023 1129.56 31-Mar-94 Rider 12.04780570 -1.38 -0.115 92.057 1109.08 0.00 0.000 94.023 1132.77 30-Jun-94 Rider 12.09837491 -1.39 -0.115 91.942 1112.35 0.00 0.000 94.023 1137.53 30-Sep-94 Rider 12.17141271 -1.39 -0.114 91.828 1117.68 0.00 0.000 94.023 1144.39 30-Dec-94 Rider 12.26538727 -1.40 -0.114 91.714 1124.91 0.00 0.000 94.023 1153.23 30-Dec-94 Contract 12.26538727 -0.58 -0.047 91.667 1124.33 -0.58 -0.047 93.976 1152.65 31-Mar-95 Rider 12.38341869 -1.41 -0.114 91.553 1133.74 0.00 0.000 93.976 1163.74 30-Jun-95 Rider 12.50513366 -1.42 -0.114 91.439 1143.46 0.00 0.000 93.976 1175.18 29-Sep-95 Rider 12.62306284 -1.43 -0.113 91.326 1152.81 0.00 0.000 93.976 1186.26 29-Dec-95 Rider 12.76159881 -1.44 -0.113 91.213 1164.02 0.00 0.000 93.976 1199.28 29-Dec-95 Contract 12.76159881 -0.58 -0.045 91.168 1163.45 -0.58 -0.045 93.931 1198.71 29-Mar-96 Rider 12.86540126 -1.45 -0.113 91.055 1171.46 0.00 0.000 93.931 1208.46 28-Jun-96 Rider 12.96893339 -1.46 -0.113 90.942 1179.42 0.00 0.000 93.931 1218.18 30-Sep-96 Rider 13.07944200 -1.47 -0.112 90.830 1188.01 0.00 0.000 93.931 1228.57 31-Dec-96 Rider 13.18823973 -1.49 -0.113 90.717 1196.40 0.00 0.000 93.931 1238.78 31-Dec-96 Contract 13.18823973 -0.58 -0.044 90.673 1195.82 -0.58 -0.044 93.887 1238.20 31-Mar-97 Rider 13.29462477 -1.49 -0.112 90.561 1203.97 0.00 0.000 93.887 1248.19 30-Jun-97 Rider 13.40827207 -1.50 -0.112 90.449 1212.76 0.00 0.000 93.887 1258.86 30-Sep-97 Rider 13.52573790 -1.52 -0.112 90.337 1221.87 0.00 0.000 93.887 1269.89 31-Dec-97 Rider 13.64539820 -1.53 -0.112 90.225 1231.16 0.00 0.000 93.887 1281.13 31-Dec-97 Contract 13.64539820 -0.58 -0.043 90.182 1230.57 -0.58 -0.043 93.844 1280.54 31-Mar-98 Rider 13.76200727 -1.54 -0.112 90.070 1239.54 0.00 0.000 93.844 1291.48 30-Jun-98 Rider 13.88180095 -1.55 -0.112 89.958 1248.78 0.00 0.000 93.844 1302.72 30-Sep-98 Rider 14.00134995 -1.56 -0.111 89.847 1257.98 0.00 0.000 93.844 1313.94 31-Dec-98 Rider 14.11245456 -1.57 -0.111 89.736 1266.40 0.00 0.000 93.844 1324.37 31-Dec-98 Contract 14.11245456 -0.58 -0.041 89.695 1265.82 -0.58 -0.041 93.803 1323.79 31-Mar-99 Rider 14.21259929 -1.58 -0.111 89.584 1273.22 0.00 0.000 93.803 1333.18 30-Jun-99 Rider 14.31157674 -1.59 -0.111 89.473 1280.50 0.00 0.000 93.803 1342.47 30-Sep-99 Rider 14.42352849 -1.60 -0.111 89.362 1288.92 0.00 0.000 93.803 1352.97 31-Dec-99 Rider 14.55205808 -1.61 -0.111 89.251 1298.79 0.00 0.000 93.803 1365.03 31-Dec-99 Contract 14.55205808 -0.58 -0.040 89.211 1298.20 -0.58 -0.040 93.763 1364.44 31-Dec-99 Surrender 14.55205808 0% 0.00 0.000 89.211 1298.20 0.00 0.000 93.763 1364.44 Avg Annual Total Return: w/o surrender 2.64% 3.15% 10.00821918 w/surrender 2.64% 3.15% (continued) 155 Basis Point w/rider w/o contract 10 Year Computation Invest Activity Shares Value 29-Dec-89 Purchase 1000.00 94.222 94.222 1000.00 30-Mar-90 Rider -1.25 -0.116 94.106 1013.81 29-Jun-90 Rider -1.27 -0.116 93.990 1027.81 28-Sep-90 Rider -1.28 -0.115 93.875 1041.57 31-Dec-90 Rider -1.30 -0.115 93.760 1055.53 31-Dec-90 Contract 0.00 0.000 93.760 1055.53 28-Mar-91 Rider -1.32 -0.116 93.644 1067.55 28-Jun-91 Rider -1.33 -0.116 93.528 1076.90 30-Sep-91 Rider -1.35 -0.116 93.412 1085.47 31-Dec-91 Rider -1.36 -0.116 93.296 1092.53 31-Dec-91 Contract 0.00 0.000 93.296 1092.53 31-Mar-92 Rider -1.37 -0.116 93.180 1096.95 30-Jun-92 Rider -1.37 -0.116 93.064 1100.06 30-Sep-92 Rider -1.38 -0.116 92.948 1102.05 31-Dec-92 Rider -1.38 -0.116 92.832 1103.68 31-Dec-92 Contract 0.00 0.000 92.832 1103.68 31-Mar-93 Rider -1.38 -0.116 92.716 1105.30 30-Jun-93 Rider -1.38 -0.115 92.601 1106.61 30-Sep-93 Rider -1.38 -0.115 92.486 1108.15 31-Dec-93 Rider -1.39 -0.116 92.370 1109.70 31-Dec-93 Contract 0.00 0.000 92.370 1109.70 31-Mar-94 Rider -1.39 -0.115 92.255 1111.47 30-Jun-94 Rider -1.39 -0.115 92.140 1114.74 30-Sep-94 Rider -1.39 -0.114 92.026 1120.09 30-Dec-94 Rider -1.40 -0.114 91.912 1127.34 30-Dec-94 Contract 0.00 0.000 91.912 1127.34 31-Mar-95 Rider -1.41 -0.114 91.798 1136.77 30-Jun-95 Rider -1.42 -0.114 91.684 1146.52 29-Sep-95 Rider -1.43 -0.113 91.571 1155.91 29-Dec-95 Rider -1.44 -0.113 91.458 1167.15 29-Dec-95 Contract 0.00 0.000 91.458 1167.15 29-Mar-96 Rider -1.46 -0.113 91.345 1175.19 28-Jun-96 Rider -1.47 -0.113 91.232 1183.18 30-Sep-96 Rider -1.48 -0.113 91.119 1191.79 31-Dec-96 Rider -1.49 -0.113 91.006 1200.21 31-Dec-96 Contract 0.00 0.000 91.006 1200.21 31-Mar-97 Rider -1.50 -0.113 90.893 1208.39 30-Jun-97 Rider -1.51 -0.113 90.780 1217.20 30-Sep-97 Rider -1.52 -0.112 90.668 1226.35 31-Dec-97 Rider -1.53 -0.112 90.556 1235.67 31-Dec-97 Contract 0.00 0.000 90.556 1235.67 31-Mar-98 Rider -1.54 -0.112 90.444 1244.69 30-Jun-98 Rider -1.56 -0.112 90.332 1253.97 30-Sep-98 Rider -1.57 -0.112 90.220 1263.20 31-Dec-98 Rider -1.58 -0.112 90.108 1271.65 31-Dec-98 Contract 0.00 0.000 90.108 1271.65 31-Mar-99 Rider -1.59 -0.112 89.996 1279.08 30-Jun-99 Rider -1.60 -0.112 89.884 1286.38 30-Sep-99 Rider -1.61 -0.112 89.772 1294.83 31-Dec-99 Rider -1.62 -0.111 89.661 1304.75 31-Dec-99 Contract 0.00 0.000 89.661 1304.75 31-Dec-99 Surrender 0.00 0.000 89.661 1304.75 Avg Annual Total Return: w/o surrender 2.69% 10.00821918 w/surrender 2.69% ================================================================================================================================== Managed Global Act. 10/21/1992 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider Inception to Date IIE Base Invest Activity Shares Value Invest Activity Shares Value 21-Oct-92 Purchase 10.00000000 $1,000.00 1000.00 100.000 100.000 1000.00 1000.00 100.000 100.000 1000.00 31-Dec-92 Rider 9.97967033 $1,013.25 -1.27 -0.127 99.873 996.70 0.00 0.000 100.000 997.97 31-Mar-93 Rider 10.15929695 $1,030.30 -1.29 -0.127 99.746 1013.35 0.00 0.000 100.000 1015.93 30-Jun-93 Rider 9.80259384 $1,047.83 -1.31 -0.134 99.612 976.46 0.00 0.000 100.000 980.26 30-Sep-93 Rider 10.20413897 $1,065.85 -1.33 -0.130 99.482 1015.13 0.00 0.000 100.000 1020.41 21-Oct-93 Contract 10.51496340 $1,070.01 -0.58 -0.055 99.427 1045.47 -0.58 -0.055 99.945 1050.92 31-Dec-93 Rider 10.42910429 $1,084.19 -1.36 -0.130 99.297 1035.58 0.00 0.000 99.945 1042.34 31-Mar-94 Rider 9.65522874 $1,102.43 -1.38 -0.143 99.154 957.35 0.00 0.000 99.945 964.99 30-Jun-94 Rider 9.36528988 $1,121.18 -1.40 -0.149 99.005 927.21 0.00 0.000 99.945 936.01 30-Sep-94 Rider 9.68631566 $1,140.46 -1.43 -0.148 98.857 957.56 0.00 0.000 99.945 968.10 21-Oct-94 Contract 9.85274273 $1,144.91 -0.58 -0.059 98.798 973.43 -0.58 -0.059 99.886 984.15 30-Dec-94 Rider 8.96454220 $1,159.86 -1.45 -0.162 98.636 884.23 0.00 0.000 99.886 895.43 31-Mar-95 Rider 8.46375631 $1,179.59 -1.47 -0.174 98.462 833.36 0.00 0.000 99.886 845.41 30-Jun-95 Rider 8.61914818 $1,199.66 -1.50 -0.174 98.288 847.16 0.00 0.000 99.886 860.93 29-Sep-95 Rider 9.28285806 $1,220.07 -1.53 -0.165 98.123 910.86 0.00 0.000 99.886 927.23 20-Oct-95 Contract 9.24964921 $1,224.83 -0.58 -0.063 98.060 907.02 -0.58 -0.063 99.823 923.33 29-Dec-95 Rider 9.48591864 $1,240.83 -1.55 -0.163 97.897 928.64 0.00 0.000 99.823 946.91 29-Mar-96 Rider 9.83083262 $1,261.94 -1.58 -0.161 97.736 960.83 0.00 0.000 99.823 981.34 28-Jun-96 Rider 10.36773499 $1,283.41 -1.60 -0.154 97.582 1011.70 0.00 0.000 99.823 1034.94 30-Sep-96 Rider 10.13241748 $1,305.97 -1.63 -0.161 97.421 987.11 0.00 0.000 99.823 1011.45 21-Oct-96 Contract 10.22682348 $1,311.06 -0.58 -0.057 97.364 995.72 -0.58 -0.057 99.766 1020.29 31-Dec-96 Rider 10.43973132 $1,328.43 -1.66 -0.159 97.205 1014.79 0.00 0.000 99.766 1041.53 31-Mar-97 Rider 10.40897187 $1,350.78 -1.69 -0.162 97.043 1010.12 0.00 0.000 99.766 1038.46 30-Jun-97 Rider 11.74616436 $1,373.76 -1.72 -0.146 96.897 1138.17 0.00 0.000 99.766 1171.87 30-Sep-97 Rider 12.13582346 $1,397.39 -1.75 -0.144 96.753 1174.18 0.00 0.000 99.766 1210.74 21-Oct-97 Contract 12.12494004 $1,402.84 -0.58 -0.048 96.705 1172.54 -0.58 -0.048 99.718 1209.07 31-Dec-97 Rider 11.36506716 $1,421.42 -1.78 -0.157 96.548 1097.27 0.00 0.000 99.718 1133.30 31-Mar-98 Rider 13.02077515 $1,445.33 -1.81 -0.139 96.409 1255.32 0.00 0.000 99.718 1298.41 30-Jun-98 Rider 13.60986965 $1,469.92 -1.84 -0.135 96.274 1310.28 0.00 0.000 99.718 1357.15 30-Sep-98 Rider 11.88026749 $1,495.20 -1.87 -0.157 96.117 1141.90 0.00 0.000 99.718 1184.68 21-Oct-98 Contract 12.01651539 $1,501.03 -0.58 -0.048 96.069 1154.41 -0.58 -0.048 99.670 1197.69 31-Dec-98 Rider 13.85487568 $1,520.92 -1.90 -0.137 95.932 1329.13 0.00 0.000 99.670 1380.92 31-Mar-99 Rider 14.19084487 $1,546.51 -1.93 -0.136 95.796 1359.43 0.00 0.000 99.670 1414.40 30-Jun-99 Rider 14.73648740 $1,572.82 -1.97 -0.134 95.662 1409.72 0.00 0.000 99.670 1468.79 30-Sep-99 Rider 15.14194900 $1,599.87 -2.00 -0.132 95.530 1446.51 0.00 0.000 99.670 1509.20 21-Oct-99 Contract 15.40800632 $1,606.11 -0.58 -0.038 95.492 1471.34 -0.58 -0.038 99.632 1535.13 31-Dec-99 Rider 22.27543340 $1,627.39 -2.03 -0.091 95.401 2125.10 0.00 0.000 99.632 2219.35 31-Dec-99 Surrender 22.27543340 0% 0.00 0.000 95.401 2125.10 0.00 0.000 99.632 2219.35 Avg Annual Total Return: w/o surrender 11.04% 11.71% 7.19726027 w/surrender 11.04% 11.71% (continued) 155 Basis Point w/rider w/o contract Inception to Date Invest Activity Shares Value 21-Oct-92 Purchase 1000.00 100.000 100.000 1000.00 31-Dec-92 Rider -1.27 -0.127 99.873 996.70 31-Mar-93 Rider -1.29 -0.127 99.746 1013.35 30-Jun-93 Rider -1.31 -0.134 99.612 976.46 30-Sep-93 Rider -1.33 -0.130 99.482 1015.13 21-Oct-93 Contract 0.00 0.000 99.482 1046.05 31-Dec-93 Rider -1.36 -0.130 99.352 1036.15 31-Mar-94 Rider -1.38 -0.143 99.209 957.89 30-Jun-94 Rider -1.40 -0.149 99.060 927.73 30-Sep-94 Rider -1.43 -0.148 98.912 958.09 21-Oct-94 Contract 0.00 0.000 98.912 974.55 30-Dec-94 Rider -1.45 -0.162 98.750 885.25 31-Mar-95 Rider -1.47 -0.174 98.576 834.32 30-Jun-95 Rider -1.50 -0.174 98.402 848.14 29-Sep-95 Rider -1.53 -0.165 98.237 911.92 20-Oct-95 Contract 0.00 0.000 98.237 908.66 29-Dec-95 Rider -1.55 -0.163 98.074 930.32 29-Mar-96 Rider -1.58 -0.161 97.913 962.57 28-Jun-96 Rider -1.60 -0.154 97.759 1013.54 30-Sep-96 Rider -1.63 -0.161 97.598 988.90 21-Oct-96 Contract 0.00 0.000 97.598 998.12 31-Dec-96 Rider -1.66 -0.159 97.439 1017.24 31-Mar-97 Rider -1.69 -0.162 97.277 1012.55 30-Jun-97 Rider -1.72 -0.146 97.131 1140.92 30-Sep-97 Rider -1.75 -0.144 96.987 1177.02 21-Oct-97 Contract 0.00 0.000 96.987 1175.96 31-Dec-97 Rider -1.78 -0.157 96.830 1100.48 31-Mar-98 Rider -1.81 -0.139 96.691 1258.99 30-Jun-98 Rider -1.84 -0.135 96.556 1314.11 30-Sep-98 Rider -1.87 -0.157 96.399 1145.25 21-Oct-98 Contract 0.00 0.000 96.399 1158.38 31-Dec-98 Rider -1.90 -0.137 96.262 1333.70 31-Mar-99 Rider -1.93 -0.136 96.126 1364.11 30-Jun-99 Rider -1.97 -0.134 95.992 1414.58 30-Sep-99 Rider -2.00 -0.132 95.860 1451.51 21-Oct-99 Contract 0.00 0.000 95.860 1477.01 31-Dec-99 Rider -2.03 -0.091 95.769 2133.30 31-Dec-99 Surrender 0.00 0.000 95.769 2133.30 Avg Annual Total Return: w/o surrender 11.10% 7.19726027 w/surrender 11.10% Managed Global Act. 10/21/1992 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 1 Yr Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 31-Dec-98 Purchase 13.85487568 $1,000.00 1000.00 72.177 72.177 1000.00 1000.00 72.177 72.177 1000.00 31-Mar-99 Rider 14.19084487 $1,016.82 -1.27 -0.089 72.088 1022.99 0.00 0.000 72.177 1024.25 30-Jun-99 Rider 14.73648740 $1,034.12 -1.29 -0.088 72.000 1061.03 0.00 0.000 72.177 1063.64 30-Sep-99 Rider 15.14194900 $1,051.91 -1.31 -0.087 71.913 1088.90 0.00 0.000 72.177 1092.90 31-Dec-99 Rider 22.27543340 $1,070.00 -1.34 -0.060 71.853 1600.56 0.00 0.000 72.177 1607.77 31-Dec-99 Contract 22.27543340 $1,070.00 -0.58 -0.026 71.827 1599.98 -0.58 -0.026 72.151 1607.19 31-Dec-99 Surrender 22.27543340 7% -70.00 -3.142 68.685 1529.99 -70.00 -3.142 69.009 1537.21 Avg Annual Total Return: w/o surrender 60.00% 60.72% 1.00000000 w/surrender 53.00% 53.72% (continued) 155 Basis Point w/rider w/o contract 1 Yr Computation Invest Activity Shares Value 31-Dec-98 Purchase 1000.00 72.177 72.177 1000.00 31-Mar-99 Rider -1.27 -0.089 72.088 1022.99 30-Jun-99 Rider -1.29 -0.088 72.000 1061.03 30-Sep-99 Rider -1.31 -0.087 71.913 1088.90 31-Dec-99 Rider -1.34 -0.060 71.853 1600.56 31-Dec-99 Contract 0.00 0.000 71.853 1600.56 31-Dec-99 Surrender -70.00 -3.142 68.711 1530.57 Avg Annual Total Return: w/o surrender 60.06% 1.00000000 w/surrender 53.06% Managed Global Act. 10/21/1992 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 5 Yr Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 30-Dec-94 Purchase 8.96454220 $1,000.00 1000.00 111.551 111.551 1000.00 1000.00 111.551 111.551 1000.00 31-Mar-95 Rider 8.46375631 $1,017.01 -1.27 -0.150 111.401 942.87 0.00 0.000 111.551 944.14 30-Jun-95 Rider 8.61914818 $1,034.31 -1.29 -0.150 111.251 958.89 0.00 0.000 111.551 961.47 29-Sep-95 Rider 9.28285806 $1,051.91 -1.31 -0.141 111.110 1031.42 0.00 0.000 111.551 1035.51 29-Dec-95 Rider 9.48591864 $1,069.80 -1.34 -0.141 110.969 1052.64 0.00 0.000 111.551 1058.16 29-Dec-95 Contract 9.48591864 $1,069.80 -0.58 -0.061 110.908 1052.06 -0.58 -0.061 111.490 1057.59 29-Mar-96 Rider 9.83083262 $1,088.00 -1.36 -0.138 110.770 1088.96 0.00 0.000 111.490 1096.04 28-Jun-96 Rider 10.36773499 $1,106.51 -1.38 -0.133 110.637 1147.06 0.00 0.000 111.490 1155.90 30-Sep-96 Rider 10.13241748 $1,125.96 -1.41 -0.139 110.498 1119.61 0.00 0.000 111.490 1129.66 31-Dec-96 Rider 10.43973132 $1,145.33 -1.43 -0.137 110.361 1152.14 0.00 0.000 111.490 1163.93 31-Dec-96 Contract 10.43973132 $1,145.33 -0.58 -0.056 110.305 1151.55 -0.58 -0.056 111.434 1163.34 31-Mar-97 Rider 10.40897187 $1,164.60 -1.46 -0.140 110.165 1146.70 0.00 0.000 111.434 1159.91 30-Jun-97 Rider 11.74616436 $1,184.41 -1.48 -0.126 110.039 1292.54 0.00 0.000 111.434 1308.92 30-Sep-97 Rider 12.13582346 $1,204.78 -1.51 -0.124 109.915 1333.91 0.00 0.000 111.434 1352.34 31-Dec-97 Rider 11.36506716 $1,225.50 -1.53 -0.135 109.780 1247.66 0.00 0.000 111.434 1266.45 31-Dec-97 Contract 11.36506716 $1,225.50 -0.58 -0.051 109.729 1247.08 -0.58 -0.051 111.383 1265.88 31-Mar-98 Rider 13.02077515 $1,246.12 -1.56 -0.120 109.609 1427.19 0.00 0.000 111.383 1450.29 30-Jun-98 Rider 13.60986965 $1,267.32 -1.58 -0.116 109.493 1490.19 0.00 0.000 111.383 1515.91 30-Sep-98 Rider 11.88026749 $1,289.12 -1.61 -0.136 109.357 1299.19 0.00 0.000 111.383 1323.26 31-Dec-98 Rider 13.85487568 $1,311.29 -1.64 -0.118 109.239 1513.49 0.00 0.000 111.383 1543.20 31-Dec-98 Contract 13.85487568 $1,311.29 -0.58 -0.042 109.197 1512.91 -0.58 -0.042 111.341 1542.62 31-Mar-99 Rider 14.19084487 $1,333.35 -1.67 -0.118 109.079 1547.92 0.00 0.000 111.341 1580.02 30-Jun-99 Rider 14.73648740 $1,356.03 -1.70 -0.115 108.964 1605.75 0.00 0.000 111.341 1640.78 30-Sep-99 Rider 15.14194900 $1,379.35 -1.72 -0.114 108.850 1648.20 0.00 0.000 111.341 1685.92 31-Dec-99 Rider 22.27543340 $1,403.07 -1.75 -0.079 108.771 2422.92 0.00 0.000 111.341 2480.17 31-Dec-99 Contract 22.27543340 $1,403.07 -0.58 -0.026 108.745 2422.34 -0.58 -0.026 111.315 2479.59 31-Dec-99 Surrender 22.27543340 4% -40.00 -1.796 106.949 2382.34 -40.00 -1.796 109.519 2439.58 Avg Annual Total Return: w/o surrender 19.33% 19.89% 5.00547945 w/surrender 18.94% 19.50% (continued) 155 Basis Point w/rider w/o contract 5 Yr Computation Invest Activity Shares Value 30-Dec-94 Purchase 1000.00 111.551 111.551 1000.00 31-Mar-95 Rider -1.27 -0.150 111.401 942.87 30-Jun-95 Rider -1.29 -0.150 111.251 958.89 29-Sep-95 Rider -1.31 -0.141 111.110 1031.42 29-Dec-95 Rider -1.34 -0.141 110.969 1052.64 29-Dec-95 Contract 0.00 0.000 110.969 1052.64 29-Mar-96 Rider -1.36 -0.138 110.831 1089.56 28-Jun-96 Rider -1.38 -0.133 110.698 1147.69 30-Sep-96 Rider -1.41 -0.139 110.559 1120.23 31-Dec-96 Rider -1.43 -0.137 110.422 1152.78 31-Dec-96 Contract 0.00 0.000 110.422 1152.78 31-Mar-97 Rider -1.46 -0.140 110.282 1147.92 30-Jun-97 Rider -1.48 -0.126 110.156 1293.91 30-Sep-97 Rider -1.51 -0.124 110.032 1335.33 31-Dec-97 Rider -1.53 -0.135 109.897 1248.99 31-Dec-97 Contract 0.00 0.000 109.897 1248.99 31-Mar-98 Rider -1.56 -0.120 109.777 1429.38 30-Jun-98 Rider -1.58 -0.116 109.661 1492.47 30-Sep-98 Rider -1.61 -0.136 109.525 1301.19 31-Dec-98 Rider -1.64 -0.118 109.407 1515.82 31-Dec-98 Contract 0.00 0.000 109.407 1515.82 31-Mar-99 Rider -1.67 -0.118 109.289 1550.90 30-Jun-99 Rider -1.70 -0.115 109.174 1608.84 30-Sep-99 Rider -1.72 -0.114 109.060 1651.38 31-Dec-99 Rider -1.75 -0.079 108.981 2427.60 31-Dec-99 Contract 0.00 0.000 108.981 2427.60 31-Dec-99 Surrender -40.00 -1.796 107.185 2387.59 Avg Annual Total Return: w/o surrender 19.39% 5.00547945 w/surrender 18.99% ================================================================================================================================== Managed Global Ser. 10/21/1992 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider Inception to Date IIE Base Invest Activity Shares Value Invest Activity Shares Value 21-Oct-92 Purchase 10.00000000 $1,000.00 1000.00 100.000 100.000 1000.00 1000.00 100.000 100.000 1000.00 31-Dec-92 Rider 9.97967033 $1,013.25 -1.27 -0.127 99.873 996.70 0.00 0.000 100.000 997.97 31-Mar-93 Rider 10.15929695 $1,030.30 -1.29 -0.127 99.746 1013.35 0.00 0.000 100.000 1015.93 30-Jun-93 Rider 9.80259384 $1,047.83 -1.31 -0.134 99.612 976.46 0.00 0.000 100.000 980.26 30-Sep-93 Rider 10.20413897 $1,065.85 -1.33 -0.130 99.482 1015.13 0.00 0.000 100.000 1020.41 21-Oct-93 Contract 10.51496340 $1,070.01 -0.58 -0.055 99.427 1045.47 -0.58 -0.055 99.945 1050.92 31-Dec-93 Rider 10.42910429 $1,084.19 -1.36 -0.130 99.297 1035.58 0.00 0.000 99.945 1042.34 31-Mar-94 Rider 9.65522874 $1,102.43 -1.38 -0.143 99.154 957.35 0.00 0.000 99.945 964.99 30-Jun-94 Rider 9.36528988 $1,121.18 -1.40 -0.149 99.005 927.21 0.00 0.000 99.945 936.01 30-Sep-94 Rider 9.68631566 $1,140.46 -1.43 -0.148 98.857 957.56 0.00 0.000 99.945 968.10 21-Oct-94 Contract 9.85274273 $1,144.91 -0.58 -0.059 98.798 973.43 -0.58 -0.059 99.886 984.15 30-Dec-94 Rider 8.96454220 $1,159.86 -1.45 -0.162 98.636 884.23 0.00 0.000 99.886 895.43 31-Mar-95 Rider 8.46375631 $1,179.59 -1.47 -0.174 98.462 833.36 0.00 0.000 99.886 845.41 30-Jun-95 Rider 8.61914818 $1,199.66 -1.50 -0.174 98.288 847.16 0.00 0.000 99.886 860.93 29-Sep-95 Rider 9.28285806 $1,220.07 -1.53 -0.165 98.123 910.86 0.00 0.000 99.886 927.23 20-Oct-95 Contract 9.24964921 $1,224.83 -0.58 -0.063 98.060 907.02 -0.58 -0.063 99.823 923.33 29-Dec-95 Rider 9.48591864 $1,240.83 -1.55 -0.163 97.897 928.64 0.00 0.000 99.823 946.91 29-Mar-96 Rider 9.83083262 $1,261.94 -1.58 -0.161 97.736 960.83 0.00 0.000 99.823 981.34 28-Jun-96 Rider 10.36773499 $1,283.41 -1.60 -0.154 97.582 1011.70 0.00 0.000 99.823 1034.94 30-Sep-96 Rider 10.13241748 $1,305.97 -1.63 -0.161 97.421 987.11 0.00 0.000 99.823 1011.45 21-Oct-96 Contract 10.22682348 $1,311.06 -0.58 -0.057 97.364 995.72 -0.58 -0.057 99.766 1020.29 31-Dec-96 Rider 10.48816735 $1,328.43 -1.66 -0.158 97.206 1019.51 0.00 0.000 99.766 1046.36 31-Mar-97 Rider 10.45726514 $1,350.78 -1.69 -0.162 97.044 1014.81 0.00 0.000 99.766 1043.28 30-Jun-97 Rider 11.80066166 $1,373.76 -1.72 -0.146 96.898 1143.46 0.00 0.000 99.766 1177.30 30-Sep-97 Rider 12.36810669 $1,397.39 -1.75 -0.141 96.757 1196.70 0.00 0.000 99.766 1233.92 21-Oct-97 Contract 12.35701497 $1,402.84 -0.58 -0.047 96.710 1195.05 -0.58 -0.047 99.719 1232.23 31-Dec-97 Rider 11.58259788 $1,421.42 -1.78 -0.154 96.556 1118.37 0.00 0.000 99.719 1155.01 31-Mar-98 Rider 13.26999663 $1,445.33 -1.81 -0.136 96.420 1279.49 0.00 0.000 99.719 1323.27 30-Jun-98 Rider 13.87036650 $1,469.92 -1.84 -0.133 96.287 1335.54 0.00 0.000 99.719 1383.14 30-Sep-98 Rider 12.10765930 $1,495.20 -1.87 -0.154 96.133 1163.95 0.00 0.000 99.719 1207.36 21-Oct-98 Contract 12.24651500 $1,501.03 -0.58 -0.047 96.086 1176.72 -0.58 -0.047 99.672 1220.63 31-Dec-98 Rider 14.74623080 $1,520.92 -1.90 -0.129 95.957 1415.00 0.00 0.000 99.672 1469.79 31-Mar-99 Rider 15.10381461 $1,546.51 -1.93 -0.128 95.829 1447.38 0.00 0.000 99.672 1505.43 30-Jun-99 Rider 15.68456113 $1,572.82 -1.97 -0.126 95.703 1501.06 0.00 0.000 99.672 1563.31 30-Sep-99 Rider 16.11610815 $1,599.87 -2.00 -0.124 95.579 1540.36 0.00 0.000 99.672 1606.32 21-Oct-99 Contract 16.39928230 $1,606.11 -0.58 -0.035 95.544 1566.85 -0.58 -0.035 99.637 1633.98 31-Dec-99 Rider 23.70852616 $1,627.39 -2.03 -0.086 95.458 2263.17 0.00 0.000 99.637 2362.25 31-Dec-99 Surrender 23.70852616 0% 0.00 0.000 95.458 2263.17 0.00 0.000 99.637 2362.25 Avg Annual Total Return: w/o surrender 12.02% 12.69% 7.19726027 w/surrender 12.02% 12.69% (continued) 155 Basis Point w/rider w/o contract Inception to Date Invest Activity Shares Value 21-Oct-92 Purchase 1000.00 100.000 100.000 1000.00 31-Dec-92 Rider -1.27 -0.127 99.873 996.70 31-Mar-93 Rider -1.29 -0.127 99.746 1013.35 30-Jun-93 Rider -1.31 -0.134 99.612 976.46 30-Sep-93 Rider -1.33 -0.130 99.482 1015.13 21-Oct-93 Contract 0.00 0.000 99.482 1046.05 31-Dec-93 Rider -1.36 -0.130 99.352 1036.15 31-Mar-94 Rider -1.38 -0.143 99.209 957.89 30-Jun-94 Rider -1.40 -0.149 99.060 927.73 30-Sep-94 Rider -1.43 -0.148 98.912 958.09 21-Oct-94 Contract 0.00 0.000 98.912 974.55 30-Dec-94 Rider -1.45 -0.162 98.750 885.25 31-Mar-95 Rider -1.47 -0.174 98.576 834.32 30-Jun-95 Rider -1.50 -0.174 98.402 848.14 29-Sep-95 Rider -1.53 -0.165 98.237 911.92 20-Oct-95 Contract 0.00 0.000 98.237 908.66 29-Dec-95 Rider -1.55 -0.163 98.074 930.32 29-Mar-96 Rider -1.58 -0.161 97.913 962.57 28-Jun-96 Rider -1.60 -0.154 97.759 1013.54 30-Sep-96 Rider -1.63 -0.161 97.598 988.90 21-Oct-96 Contract 0.00 0.000 97.598 998.12 31-Dec-96 Rider -1.66 -0.158 97.440 1021.97 31-Mar-97 Rider -1.69 -0.162 97.278 1017.26 30-Jun-97 Rider -1.72 -0.146 97.132 1146.22 30-Sep-97 Rider -1.75 -0.141 96.991 1199.60 21-Oct-97 Contract 0.00 0.000 96.991 1198.52 31-Dec-97 Rider -1.78 -0.154 96.837 1121.62 31-Mar-98 Rider -1.81 -0.136 96.701 1283.22 30-Jun-98 Rider -1.84 -0.133 96.568 1339.43 30-Sep-98 Rider -1.87 -0.154 96.414 1167.35 21-Oct-98 Contract 0.00 0.000 96.414 1180.74 31-Dec-98 Rider -1.90 -0.129 96.285 1419.84 31-Mar-99 Rider -1.93 -0.128 96.157 1452.34 30-Jun-99 Rider -1.97 -0.126 96.031 1506.20 30-Sep-99 Rider -2.00 -0.124 95.907 1545.65 21-Oct-99 Contract 0.00 0.000 95.907 1572.81 31-Dec-99 Rider -2.03 -0.086 95.821 2271.77 31-Dec-99 Surrender 0.00 0.000 95.821 2271.77 Avg Annual Total Return: w/o surrender 12.08% 7.19726027 w/surrender 12.08% Managed Global Ser. 10/21/1992 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 1 Yr Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 31-Dec-98 Purchase 14.74623080 $1,000.00 1000.00 67.814 67.814 1000.00 1000.00 67.814 67.814 1000.00 31-Mar-99 Rider 15.10381461 $1,016.82 -1.27 -0.084 67.730 1022.98 0.00 0.000 67.814 1024.25 30-Jun-99 Rider 15.68456113 $1,034.12 -1.29 -0.082 67.648 1061.03 0.00 0.000 67.814 1063.63 30-Sep-99 Rider 16.11610815 $1,051.91 -1.31 -0.081 67.567 1088.92 0.00 0.000 67.814 1092.90 31-Dec-99 Rider 23.70852616 $1,070.00 -1.34 -0.057 67.510 1600.56 0.00 0.000 67.814 1607.77 31-Dec-99 Contract 23.70852616 $1,070.00 -0.58 -0.024 67.486 1599.99 -0.58 -0.024 67.790 1607.20 31-Dec-99 Surrender 23.70852616 7% -70.00 -2.953 64.533 1529.98 -70.00 -2.953 64.837 1537.19 Avg Annual Total Return: w/o surrender 60.00% 60.72% 1.00000000 w/surrender 53.00% 53.72% (continued) 155 Basis Point w/rider w/o contract 1 Yr Computation Invest Activity Shares Value 31-Dec-98 Purchase 1000.00 67.814 67.814 1000.00 31-Mar-99 Rider -1.27 -0.084 67.730 1022.98 30-Jun-99 Rider -1.29 -0.082 67.648 1061.03 30-Sep-99 Rider -1.31 -0.081 67.567 1088.92 31-Dec-99 Rider -1.34 -0.057 67.510 1600.56 31-Dec-99 Contract 0.00 0.000 67.510 1600.56 31-Dec-99 Surrender -70.00 -2.953 64.557 1530.55 Avg Annual Total Return: w/o surrender 60.06% 1.00000000 w/surrender 53.05% Managed Global Ser. 10/21/1992 7,7,6,5,4,3,1,0 155 Basis Point w/rider w/o rider 5 Yr Computation IIE Base Invest Activity Shares Value Invest Activity Shares Value 30-Dec-94 Purchase 8.96454220 $1,000.00 1000.00 111.551 111.551 1000.00 1000.00 111.551 111.551 1000.00 31-Mar-95 Rider 8.46375631 $1,017.01 -1.27 -0.150 111.401 942.87 0.00 0.000 111.551 944.14 30-Jun-95 Rider 8.61914818 $1,034.31 -1.29 -0.150 111.251 958.89 0.00 0.000 111.551 961.47 29-Sep-95 Rider 9.28285806 $1,051.91 -1.31 -0.141 111.110 1031.42 0.00 0.000 111.551 1035.51 29-Dec-95 Rider 9.48591864 $1,069.80 -1.34 -0.141 110.969 1052.64 0.00 0.000 111.551 1058.16 29-Dec-95 Contract 9.48591864 $1,069.80 -0.58 -0.061 110.908 1052.06 -0.58 -0.061 111.490 1057.59 29-Mar-96 Rider 9.83083262 $1,088.00 -1.36 -0.138 110.770 1088.96 0.00 0.000 111.490 1096.04 28-Jun-96 Rider 10.36773499 $1,106.51 -1.38 -0.133 110.637 1147.06 0.00 0.000 111.490 1155.90 30-Sep-96 Rider 10.13241748 $1,125.96 -1.41 -0.139 110.498 1119.61 0.00 0.000 111.490 1129.66 31-Dec-96 Rider 10.48816735 $1,145.33 -1.43 -0.136 110.362 1157.50 0.00 0.000 111.490 1169.33 31-Dec-96 Contract 10.48816735 $1,145.33 -0.58 -0.055 110.307 1156.92 -0.58 -0.055 111.435 1168.75 31-Mar-97 Rider 10.45726514 $1,164.60 -1.46 -0.140 110.167 1152.05 0.00 0.000 111.435 1165.31 30-Jun-97 Rider 11.80066166 $1,184.41 -1.48 -0.125 110.042 1298.57 0.00 0.000 111.435 1315.01 30-Sep-97 Rider 12.36810669 $1,204.78 -1.51 -0.122 109.920 1359.50 0.00 0.000 111.435 1378.24 31-Dec-97 Rider 11.58259788 $1,225.50 -1.53 -0.132 109.788 1271.63 0.00 0.000 111.435 1290.71 31-Dec-97 Contract 11.58259788 $1,225.50 -0.58 -0.050 109.738 1271.05 -0.58 -0.050 111.385 1290.13 31-Mar-98 Rider 13.26999663 $1,246.12 -1.56 -0.118 109.620 1454.66 0.00 0.000 111.385 1478.08 30-Jun-98 Rider 13.87036650 $1,267.32 -1.58 -0.114 109.506 1518.89 0.00 0.000 111.385 1544.95 30-Sep-98 Rider 12.10765930 $1,289.12 -1.61 -0.133 109.373 1324.25 0.00 0.000 111.385 1348.61 31-Dec-98 Rider 14.74623080 $1,311.29 -1.64 -0.111 109.262 1611.20 0.00 0.000 111.385 1642.51 31-Dec-98 Contract 14.74623080 $1,311.29 -0.58 -0.039 109.223 1610.63 -0.58 -0.039 111.346 1641.93 31-Mar-99 Rider 15.10381461 $1,333.35 -1.67 -0.111 109.112 1648.01 0.00 0.000 111.346 1681.75 30-Jun-99 Rider 15.68456113 $1,356.03 -1.70 -0.108 109.004 1709.68 0.00 0.000 111.346 1746.41 30-Sep-99 Rider 16.11610815 $1,379.35 -1.72 -0.107 108.897 1755.00 0.00 0.000 111.346 1794.46 31-Dec-99 Rider 23.70852616 $1,403.07 -1.75 -0.074 108.823 2580.03 0.00 0.000 111.346 2639.85 31-Dec-99 Contract 23.70852616 $1,403.07 -0.58 -0.024 108.799 2579.46 -0.58 -0.024 111.322 2639.28 31-Dec-99 Surrender 23.70852616 4% -40.00 -1.687 107.112 2539.47 -40.00 -1.687 109.635 2599.28 Avg Annual Total Return: w/o surrender 20.84% 21.40% 5.00547945 w/surrender 20.46% 21.03% (continued) 155 Basis Point w/rider w/o contract 5 Yr Computation Invest Activity Shares Value 30-Dec-94 Purchase 1000.00 111.551 111.551 1000.00 31-Mar-95 Rider -1.27 -0.150 111.401 942.87 30-Jun-95 Rider -1.29 -0.150 111.251 958.89 29-Sep-95 Rider -1.31 -0.141 111.110 1031.42 29-Dec-95 Rider -1.34 -0.141 110.969 1052.64 29-Dec-95 Contract 0.00 0.000 110.969 1052.64 29-Mar-96 Rider -1.36 -0.138 110.831 1089.56 28-Jun-96 Rider -1.38 -0.133 110.698 1147.69 30-Sep-96 Rider -1.41 -0.139 110.559 1120.23 31-Dec-96 Rider -1.43 -0.136 110.423 1158.13 31-Dec-96 Contract 0.00 0.000 110.423 1158.13 31-Mar-97 Rider -1.46 -0.140 110.283 1153.26 30-Jun-97 Rider -1.48 -0.125 110.158 1299.94 30-Sep-97 Rider -1.51 -0.122 110.036 1360.94 31-Dec-97 Rider -1.53 -0.132 109.904 1272.97 31-Dec-97 Contract 0.00 0.000 109.904 1272.97 31-Mar-98 Rider -1.56 -0.118 109.786 1456.86 30-Jun-98 Rider -1.58 -0.114 109.672 1521.19 30-Sep-98 Rider -1.61 -0.133 109.539 1326.26 31-Dec-98 Rider -1.64 -0.111 109.428 1613.65 31-Dec-98 Contract 0.00 0.000 109.428 1613.65 31-Mar-99 Rider -1.67 -0.111 109.317 1651.10 30-Jun-99 Rider -1.70 -0.108 109.209 1712.90 30-Sep-99 Rider -1.72 -0.107 109.102 1758.30 31-Dec-99 Rider -1.75 -0.074 109.028 2584.89 31-Dec-99 Contract 0.00 0.000 109.028 2584.89 31-Dec-99 Surrender -40.00 -1.687 107.341 2544.90 Avg Annual Total Return: w/o surrender 20.89% 5.00547945 w/surrender 20.52%
EX-99.B15 11 POWERS OF ATTORNEY EXHIBIT 15 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: * Post-Effective Amendment No. 6 to Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 333-28769; 811-5626) * Amendment No. 8 to Golden American's Registration Statement on Form S-1 (No. 333-28765) * Post-Effective Amendment No. 15 to Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 033-59261; 811-5626) * Golden American's Registration Statement on Form S-1 (current registration No. 333-51353) * Post-Effective Amendment No. 30 to Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 333-23351; 811-5626) * Post-Effective Amendment No. 5 to Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 333-28679; 811-5626) * Amendment No. 1 to Golden American's Registration Statement on Form S-1 (No. 333-95511) * Post-Effective Amendment No. 9 to Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 333-28755; 811-5626) * Amendment No. 1 to Golden American's Registration Statement on Form S-1 (No. 333-95457) * Post-Effective Amendment No. 3 to Separate Account B of Golden American's Registration Statement on Form N-4 (Nos. 333-66757; 811-5626) * Amendment No. 5 to Golden American's Registration Statement on Form S-1 (No. 333-66745) SIGNATURE TITLE DATE - --------- ----- ---- /s/Barnett Chernow - ----------------------- Director, Chairman of March 20, 2000 Barnett Chernow the Board of Directors and President /s/Myles R. Tashman - ----------------------- Director, Executive March 20, 2000 Myles R. Tashman Vice President, General Counsel and Secretary /s/E. Robert Koster - ----------------------- Senior Vice President March 20, 2000 E. Robert Koster and Chief Financial Officer /s/Cheryl L. Harding - ----------------------- Chief Accounting March 21, 2000 Cheryl L. Harding Officer /s/Michael W. Cunningham - ----------------------- Director March 21, 2000 Michael W. Cunningham /s/Phillip R. Lowery - ----------------------- Director March 23, 2000 Phillip R. Lowery /s/Mark A. Tullis - ----------------------- Director March 23, 2000 Mark A. Tullis 1475 Dunwoody Drive GoldenSelect Series West Chester, PA 19380-1478 Issued by Golden American Life Insurance Company EX-99.B16 12 SUBSIDIARIES OF ING GROEP N.V. EXHIBIT 16 BHF-Bank AG BHF Securities Corporation ING Bank N.V. Alegron Belegging B.V. ING Bank Ukraine ING Baring Securities (Romania) S.A. Amsterdam Exchanges N.V. Argencontrol Artolis B.V. Assurantiebedrijf ING Bank N.V. Assurantiekantdoor Honig & Hageman BV Noordster V.O.F. Volmachtbedrijf ING Bank B.V. Atlas Investeringsgroep N.V. Atlas Investors Partnership III C.V. B.V. Gemeenschappelijk Bezit Aandelen Necigef Bank Brussels Lambert S.A. ING Bank (Belgium) N.V./S.A. Bancard Company S.A. Cooperation Liquidation Terme Bourse S.C. Europay Belgium S.C. Institut De Reescompte S.C. Societe Belge D' Investissement International S.C. Society for Worldwide Interbank Financial Telecommunication S.C. Visa Belgium SC Bank Mendes Gans NV B.V. Deelnemings En Financieringsmaatschappij "Nova Zembla" B.V. Trust En Administratiekantoor Van Bank Mendes Gans N.V. Bank Mendes Gans Effectenbewaarbedrijf N.V. Brenko B.V. Cabel B.V. Handamar N.V. Handamar Corporation Intervest B.V. Intervest PPM B.V. Bank Slaski S.A. W Katowicach *Rodkowoeropejskie Centrum Ratingu I Analiz S.A. Bankowe Przedsi*Biorstwo Telekom. Telebank S.A. BSK Konsulting SP Z.O.O. BSK Leasing S.A. Centralna Tabela Ofert S.A. Dom Maklerski BSK S.A. Gie*Da Papierow Warto*Clowych S.A. ING BSK Asset Management S.A. Krajowa Izba Rozliczeniowa S.A. Biuro Informacji Kredytowe S.A. Mi*Dzvnarodowa Szko*A Bankowo*Ci I Finansow SP Z.O.O. Society for Worldwide Interbank Financial Telecommunication S.C. Banque Baring Brothers (Suisse) S.A. Benelux Investment Fund B.V. Berliner Handels - Und Frankfurter Bank A.G. Buenos Aires Equity Investments N.V. Emprendimiento Recoleta S.A. (ERSA) BPEP Holdings Limited Baring Asia (GP) Limited Baring European Fund Managers Limited Baring Latin America GP Limited Baring Latin America Partners Limited Baring Private Equity Partners (Asia) PTE. Limited Baring Private Equity Partners (China) Limited ING Barings Private Equity (China) Limited ING BPE (China) Advisers Limited Baring Private Equity Partners (India) Limited Baring Private Equity Partners GMBH Baring Private Equity Partners Limited Baring Venture Partners GMBH Baring Venture Partners S.A BHB Management Limited BPEP General Partner I Limited BPEP General Partner II Limited BPEP Management (UK) Limited BPEP Nominees Limited Quartz Capital Partners Limited Transtech Limited BCEE Advisers Limited BCEF Advisers Limited BHR Management Limited BI Advisers Limited Blac Holdings Inc. Blac Corp. Incorperated BPEP Management Limited Baring Mexico (GP) Limited Baring Private Equity Partners Espana S.A. Baring Private Equity Partners Mexico S.C. BVP Mexico S.A. Cavendish Nominees Limited BPEP Participations Limited Baring Vostok Capital Partners Limited Baring Vostok Fund Managers Limited ESD Managers Limited Easdaq S.A. International Private Equity Services Limited Polytechnos Venture Partners GMBH BVP Holdings Limited Baring Capricorn Ventures Limited Baring Communications Equity Limited BCEA Advisers Limited BCEA Management PTE. Limited Capricorn Venture Fund N.V. Procuritas Partners KB PAB Partner AB BVP Management Limited Capricorn Venture Partners N.V. Czech Venture Partners S.R.O. CI European Limited SCGF Advisers Limited BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis B' BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis' Amsterdamse Poort III B.V. Bijlmerplein Leasing BV Foppingadreef Leasing B.V. BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis A' BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis C' Grondpoort III B.V. C.V. Exploitatiemaatschappij Tunnel Onder De Noord Cardona B.V. Cedel International S.A. Centrum Cocarde B.V. Cene Bankiers N.V. Administratie & Trustkantoor Beleggingsfonds Protestants Nederland BV Amsterdam Exchanges N.V. Arma Beheer B.V. Beheer Administratie en Beleggingsmaatschappij Kant B.V. Bewaarbedrijf Cene Bankiers B.V. BV Algemene Beleggingsmaatschappij Cene Bankiers N.V. Beheermaatschappij Jansen Groenekan B.V. Copar B.V. Fidele Management B.V. Flexibel Beheer Utrecht B.V. Hercules Beheer B.V. Langosta B.V. Mercurius Beheer B.V. Nivo Investments B.V. Remazon B.V. Cene Bankiers Holdings N.V. Cene Asset Management N.V. Cene Management N.V. Tawny Owl Investment Company N.V. Cene Verzekeringen B.V. N.V. Instituut Voor Ziekenhuisfinanciering Utrechtse Participatiemaatschappij B.V. Cofiton B.V. Sterling Developments B.V. Brooks Equities Inc. Location 3 Ltd. SDC Properties Inc. Tripolis Vastgoed B.V. Tripolis A C.V. Tripolis B C.V. Tripolis C C.V. Combdring B.V. Compensadora Electronica S.A. Computer Centrum Twente B.V. Corporacion Financiera ING (Colombia) S.A. Credit Commercial De France S.A. Depositary Company ING Bank B.V. Destara B.V. ING Bank Ukraine ING Baring Securities (Romania) S.A. Effectenbeursvennootschap Van Brussel C.V. Effectenbewaarbedrijf ING Bank N.V. Euroclear Clearance System Public Limited Company European Investment Fund (Center 757) European Investment Fund (Center 920) Extra Clearing B.V. Amsterdam Exchanges N.V. Extra Clearing GMBH YVOF Floorbrokers B.V. Easdaq S.A. Financial Advisory & Consultancy Services B.V. Owen Stanley Financial S.A. Financial Facilities Management B.V. Finemij B.V. Gabela Belegging B.V. Hamgia Beheer B.V. ING Bank Urkraine ING Baring Securities (Romania)S.A. Ingvest III B.V. Institucion Financiera Externa Middenbank Curacao N.V. (Uruguay) Interbank On-Line System Limited International Bankers S.A. Interpay Nederland B.V. Interunion Bank (Antilles) N.V. Interadvies N.V. Administratiekantoor De Leuve BV Crediet Service Bank B.V. Incassobureau Fiditon BV NV Nationale Volksbank Arenda B.V. Spaarfondsen Beheer B.V. Spaarfondsen Bewaar B.V. Welvaert Financieringen NV Welstand B.V. Internationale Nederlanden (U.S.) Funding Corporation ING (U.S.) Financial Holdings Corporation ING (U.S.) Capital Financial Holdings LLC ING (U.S.) Capital LLC ING (U.S.) Capital Management Company LLC ING (U.S.) Investment Corporation Alliance Precision Plastics Corporation Nitrogen Products, Inc. ING Furman Selz Asset Management LLC FSIP LLC Taurus Partners, L.P. The Corner Fund, L.P. Fairway Capital Partners, L.P. Anvers, L.P. Anvers II, L.P. Artemis Partners, L.P. Furman Selz Capital Management LLC Delta Asset Management NorthStar Asset Management ING Capital Advisors, LLC ING Capital Advisors Portfolio Management Corp. ING Capital Senior Secured High Income Fund, L.P. ING Emerging Markets Investors LLC ING Emerging Partners L.P. ING Equity Holdings, Inc. ING Equity Partners L.P. ING Realty Services, Inc. ING (U.S.) Financial Services Corporation ING Baring Grupo Financiero (Mexico) S.A. De C.V. ING Inmobiliaria (Mexico) S.A. de C.V. ING Bank (Mexico) S.A. ING Baring (Mexico), S.A. de C.V., Casa de Bolsa ING Baring (U.S.) Financial Holdings LLC ING Baring (U.S.) Capital Markets, LLC ING Baring (U.S.) Capital LLC ING (U.S.) Latin American Capital LLC Internationale Nederlanden (U.S.) Real Estate Finance, Inc. 1996 Olympic Corporation California Acquisition Partners I Coast Atlantic, Inc. Highridge ING Atlantic L.P. Apache Investments, Inc. Kokopelli Associates, Ltd. Blue Sky Properties Inc. Montague Court, LLC Calprop Portfolio, Inc. The Center at San Marcos Corporation Crow's Nest Corporation Genesee Corporation Algerine Inc. Genreo Corporation Northern Springs Portfolio, Inc Laketon Corporation Lucre Lake Corporation ING Real Estate Investors, Inc. Little Muddy Creek Corporation FN Realty Advisors, Inc. Mountain AMD L.P. First Ohio Service Corporation 5850 Corporation Colrad Development Corp. Evergreen Valley Development LFS Capital Corporation Lisle Center, Inc. Spectrum Holdings, Inc. Cardinal Mortgage Corporation E.N. One, Inc. Fairfield Village Mortgage Corporation Lincoln Ventures Corporation Pathway Lands Incorporated Amarak II Investments Corporation Pimco Corporation Baloo Corporation Can II, LLC Cap II Foreclosure Corporation Penn Mar Associates, LLC Calprop II Portfolio, Inc. Clear River Associates, Inc. Amarak Investments Corporation Great Lakes Management, Inc. Canadian Ventures I L.P. Falcon Gate, Inc. Long Ears Corporation Pleasantlake Corporation S G Investors Corporation Southgate Plaza, LLC Ventura Ridge Associates, Inc. Triangle Development Corporation 39 Vestry LLC Tech Air Corporation ING Barings Real Estate Acquisition Company Pentagon Parkway Corporation Artis Realty Advisors, Inc. Coconut Corp. Promontory Point, Inc. Promontory Point Partnership Seagate Development Corporation Able Gateway Plaza, LLC Mountain Creek Investors, Inc. Mountain Creek Company, LLC Telluride Mountain Village Ventures, LLC Nashpike Corporation Velocity One Inc. B&I Associates, LLC Brookhollow Associates, L.P. Courtyard Plaza Associates, L.P. Glen Harbor Associates, LLC Hightree Associates, LLC Lakebridge Partners, L.P. Kent Hospitality Associates, L.P. Northern Springs Limited Partnership Ventura Hospitality Partners, L.P. 40 East Associates, L.P. Springfield Corporate Center, LLC Fountain Park Partners, L.P. Westmoreland Associates, L.P. Green Neck, LLC Mallard Cove Investors, LLC Calshops, LLC BHI-Dover VII, L.P. BHI-Dover VIII, L.P. BHI-Dover X, L.P. BHI-Dover XI, L.P. Brickyard Investors, L.P. Eastgate Hospitality Partners, L.P. Festival Pasadena Associates, L.P. Golden Bear Homes I, L.P. Golden Bear Homes II, L.P. Golden Bear Homes III, L.P. Golden Bear Homes IV, L.P. SPA Partners, L.P. Miami Bay Hospitality Associates, L.P. Royal River Partners, L.P. Wildewood Holdings, LLC Madramp, LLC 201 Madison, LLC RTC Commercial Assets Trust, NP3-3 Boulders Phoenician Limited Partnership CPR Investments, Inc. Phoenician Investments, L.P. Wisconsin Option Inc. Hammer & Nails, Inc. RIB Residential LLC RBG Residential Investors, LLC RBG XXXV Corp. Centerline/RBG XXXV, L.P. RB Florida Partners, L.P. Center VII Corporation Center VIII Corporation Center X Corporation Fountain Park Corporation Royal Falls Corporation Woodward Investors Corporation Woodward First National LLC Qualco, Inc. Quality Fifth Avenue Hotel Associates, LLc Fifth Avenue Hospitality Associates, LLC Baldco, Inc. Sleepy Lake Corporation High Flyer Corporation Airport One Investors, LLC Lower Westside Development Corp. 359 West 11th Street, LLC Velocity Two, Inc. Baldwin Hospitality, LLC Sleepy Lake Partners, L.P. ING Merger Inc. Furman Selz Trust Company Furman Selz (Ireland) LLC Furman Selz Financial Services Unlimited Furman Selz Advisors LLC Furman Selz Capital LLC Furman Selz Management (BVI) Ltd. Furman Selz Investments LLC Furman Selz Investors, L.P. Furman Selz SBIC Investments LLC Furman Selz SBIC, L.P. ING Baring Furman Selz LLC Furman Selz Investment II Furman Selz Investors II, L.P. Furman Selz Parallel Fund Artisan Investment Management LLC Michelangelo Partners, L.P. Total Resources LLC Furman Selz Resources LLC Furman Selz Financial Services LLC Furman Selz Merchant Capital LLC Furman Selz Ventures, L.P. Karnak Partners, L.P. Saugatuck Partners, L.P. Crestwood Capital Partners, L.P. Crestwood Capital Partners II, L.P. Bridgewood Capital Partners, L.P. ING TT&S (U.S.) Holdings Corporation ING TT&S (U.S.) Securities, Inc. ING (U.S.) Securities, Futures & Options Inc. ING TT&S (U.S.) Capital Corporation Furman Selz Proprietary, Inc. ING (U.S.) Capital Investors Holdings, Inc. ING (U.S.) Capital Securities, Inc. Brecco, Inc. FSIC LLC Mutual Fund Funding 1994-1 Pacifica Funds Distributor, Inc. Furman Selz Residential Funding LLC FS Trust Company ING Bank (Chile) S.A. Edibank S.A. Sociedad Interbancaria De Depositos De Valores S.A. ING Bank (Eurasia) ING Bank (Hungary) Rt. Giro Elszamolasforgalmi Rt. ING Duna Ingatlanhasznositc KFT ING Bank (Luxembourg) S.A. CMF Advisory S.A.H. Euromix Advisory S.A.H. ING Bank Luxfund Management S.A. ING International Advisory S.A.H. ING International II Advisory S.A.H. ING Bank (Schweiz) A.G. Kredietbank S.A. Luxembourgeoise ING Bank (Uruguay) S.A. Bolsa Electronica De Valores Del Uruguay S.A. Compania Uruguaya De Medios De Procesamiento S.A. Red. De Intercomunicacion De Alta Seguridad S.R.L. ING Bank of Canada ING Bank Corporate Investments B.V. Entero B.V. Eruca Belegging B.V. ING Bank Mezzaninefonds B.V. ING Bank Participatie PPM B.V. MKB Beleggingen B.V. MKB Vliehors II B.V. Wijkertunnel Beheer II B.V. Wijkertunnel Beheer II Management B.V. MKB Vliehors III B.V. Small Business Publishing B.V. N&M Holding N.V. ING Bank Dutch Fund N.V. ING Bank Fondsen Beheer B.V. ING Bank Geldmarkt Fonds N.V. ING Bank Global Custody UK Nominees Limited ING Bank Global Fund N.V. ING Bank Guldem Fonds N.V. ING Bank I.T. Fund N.V. ING Bank Luxfund Management S.A. ING Bank Middutch Fund N.V. ING Bank Obligatie Fonds N.V. ING Bank Rentegroei Fonds N.V. ING Bank Spaardividend Fonds N.V. ING Bank Vastgoed Fonds B.V. ING Bank Verre Oosten Fonds N.V. ING Baring Capital Markets (C.R.), A.S. ING Baring Financial Products ING Baring Holding Nederland B.V. Atlas Capital (Thailand) Limited ("Atlas") ING Baring Securities (Thailand) Limited ING Baring Holdings Limited Baring Asset Management Holdings Ltd. Baring Asset Management Ltd. Baring International Investment Limited Baring International Investment Management Holdings Ltd. Baring Asset Management Inc. Baring International Investment (Canada) Limited Baring International Investment Management Limited Baring Asset Management Holdings Inc. Baring Asset Management UK Holdings Limited Baring Asset Management (Asia) Holdings Limited Austin Assets Limited Baring Asset Management (Asia) Limited Baring Asset Management (Australia) Limited Baring Asset Management (Japan) Limited Baring International Fund Managers (Bermuda) Limited Baring International Fund Managers Limited Baring International Investment (Far East) Limited Baring Pacific Investments Limited Baring Asset Management (C.I.) Limited Baring International Fund Managers (Ireland) Ltd. Baring Investment Services Inc. Baring Mutual Fund Management S.A. European and Asian Fund Management S.A. Baring Investment Management Ltd. Baring Quantative Management Ltd. Baring Global Fund Managers Limited Baring Private Asset Management Ltd. Baring Fund Managers Limited Baring Managed Funds Services Ltd. Baring Private Investment Management Ltd. Baring Trust Company Ltd. Baring Trustees (Guernsey) Limited Arnold Limited International Metal Trading Limited Barings (Isle of Man) Limited Control Management Limited Doyle Administration Limited International Metal Trading Limited ING Trust (Jersey) Ltd Saline Nominees Limited Truchot Limited Vivian Limited Barings (Guernsey) Limited Barfield Nominees Limited Barings Ireland Limited Guernsey International Fund Managers Limited Arnold Limited International Metal Trading Limited Control Management Limited Doyle Administration Limited International Metal Trading Limited International Fund Managers (Ireland) Ltd. International Securitisation Managers (Ireland) Ltd Saline Nominees Limited Truchot Limited Vivian Limited International Fund Managers UK Ltd. Ravensbourne Registration Services Ltd. Barings Investment Services Limited Baring Brothers Holdings Limited Baring (U.S.) Holdings Limited Abbotstone Investment Company Limited Baring Brothers Limited Baring Brothers (Finance) Limited Baring Brothers Argentina S.A. Baring Brothers International Limited Barings C.F. Holdings Limited B.B.A.H. Pty Limited Baring Brothers Burrows & Co. Limited Baring Brothers Burrows Securities Limited SAIPH Pty Limited BBHP Pty Limited Baring Brothers (Deutschland) GMBH Baring Brothers International GMBH Baring Brothers (Espana) S.A. Barings Brothers (Italia) SRL Baring Properties (London Wall) Limited Baring Properties Limited Outwich Finance Limited Outwich Limited Baring Warrants PLC Barings France S.A. Barings Nominees Limited Bishopscourt Holdings Limited Bishipscourt Leasing (Holdings) Limited Bishopscourt Asset Leasing Limited Bishopscourt Equipment Leasing Limited Bishopscourt Industrial Finance Limited Bishopscourt Limited Bishopscourt Securities Limited BVC Nominees Limited Cotton Nominees Limited ING Baring International Advisers Limited ING Baring Services (Eastern Europe) Limited ING Baring Services Limited The Mortgage Acceptance Corporation (Holdings) Limited The Mortgage Acceptance Corporation Limited Yealme Securities Limited ING Baring Financial Products ING Baring Securities Holdings Limited ING Baring Securities Limited ING Baring Securities (Andean Pact) Ltda ING Barings Peru S.A. ING Baring Securities Services Limited Baring Securities (Property Services) Ltd BS Property Services (Japan) Limited ING Baring Data Limited INGB Dormant Holding Company Limited Baring Securities (London) Limited Baring Securities (OTC Options) Limited ING Baring Management Services PTE Ltd ING Baring Research Limited ING Baring Securities (Overseas) Ltd. ING Baring Securities Management Services (Hong Kong) Ltd Maketravel Limited INGB Securities (International) Holdings Limited Baring Securities (Financial Services) Limited Barsec (International) Limited Baring Nominees (Australia) Pty Ltd Baring Research S.A. De C.V. Baring Securities (Australia) Limited Baring Securities (France) S.A. Baring Securities Pakistan (Private) Limited Barings Mauritius Limited ING Barings India Private Limited ING Baring Securities (India) Pvt. Ltd. Celtec Holdings S.A. ING Baring Corretora De Valores Mobiliarios S.A. Corinvest Limited Epcorp Limited Galax Limited Dropny B.V. ING Baring Chile Limitada ING Baring International PTE Ltd ING Baring Operational Services (Taiwan) Limited ING Baring Securities (Andean Pact) Ltda ING Baring Securities (Hong Kong) Ltd ING Baring Far East Nominees Limited ING Baring Securities (Philippines) Inc. ING Baring Securities (Singapore) PTE Ltd ING Baring Nominees (Singapore) PTE Ltd ING Baring Research (Malaysia) SDN. Bhd. ING Baring Securities (Taiwan) Limited (SICE) ING Baring Securities, Argentina S.A. ING Baring South Africa Limited ING Barings Southern Africa (Proprietary) Ltd Anodyne Nominees (Proprietary) Limited ING Barings Peru S.A. ING Futures & Options (Hong Kong) Limited ING UK Capital Limited Lokmaipattana Co. Limited PT ING Baring Securities Indonesia INGB Securities Client Services Limited Aliwall Limited Barings Securities Nominees Limited Brunera Limited Cereus Limited Dianthus Limited Eranthis Limited Francoa Limited Grassmere Limited Leacroft Limited Mountbatten Limited ING Baring Securities (Japan) Limited ING Baring Securities (Thailand) Limited ING Baring Investment (Eurasia) Zao ING Baring Securities (Hungary) Rt. ING Baring Securities (Poland) Holding B.V. ING Baring Securities (Romania) S.A. ING Baring Securities (Slovakia), S.R.O. Proctor & Gamble S.R.O. ING Barings Ecuador Casa De Valores S.A. ING BSK Asset Management S.A. ING Capital Markets (Hong Kong) Limited ING Compania De Inversiones Y Servicios Limitada Bolsa Electronica De Chile, Bolsa De Valores S.A. CISL Aruba A.E.C. ING Consultants Co., Ltd. ING Derivatives (London) Limited Belgian Futures & Options Exchange London Clearing House Limited Liffe (Holdings) PLC The International Petroleum Exchange of London Limited ING Empreendimentos E Participacaos Ltda. Guilder Corretora De Valores Mobiliarios S/A ING Guilder Distribuidora De Titulos E Valores Mobiliarios S/A ING Investment Management Ltda. ING Servicos Ltda. ING Finance (Ireland) Ltd ING Forex Corporation ING Futures & Options (Singapore) PTE Ltd ING Inversiones, Ltda. Corporacion Financiera ING (Colombia) S.A. ING Investment Management Holdings (Antilles) N.V. ING Lease Holding N.V. CW Lease Belgium NV CW Finance N.V. CW Lease Luxembourg S.A. Dealer Lease Service Belgium N.V. CW Lease Nederland BV Autolease OSS B.V. CW Finance N.V. CW Lease Belgium NV CW Finance N.V. CW Lease Luxembourg S.A. Dealer Lease Service Belgium N.V. CW Lease France S.N.C. CW Lease Luxembourg S.A. Dealer Lease Service Belgium N.V. Gothia Estate II B.V. Westment II B.V. International Driver Service B.V. Schade Herstel Bedrijf B.V. ING Aircraft Lease B.V. Fokker Brasil B.V. ING Lease (Belgium) N.V. Real Estate Lease SPC 1 N.V. Savin Lease N.V. ING Lease (Espana) EFC, SA ING Lease (France) S.A. ING Lease (France) S.N.C. ING Lease (Italia) SPA ING Lease (Nederland) B.V. Blauwe IRM B.V. Graphic Lease B.V. Groen Lease B.V. GIL 1997 (Windkracht) B.V. ING Lease Vastgoed B.V. Newco-One Corp. Ship Lease International B.V. ZIL '96 B.V. ING Lease (Polska) ING Lease Holding (Deutschland) GMBH CW Lease Deutschland GMBH CW Lease Berlin GMBH ING Lease Deutschland GMBH IFSC Beteiligungsgesellschaft GMBH ING Lease (Berlin) GMBH ING Lease Kran und Schwertransport GMBH ING Leasing Besitzgesellschaft MBH ING Leasing Geschaeftsfuhrungsgesellschaft MBH ING Leasing Gesellschaft Fur Beteiligungen MBH ING Leasing GMBH & Co. Golf KG ING Leasing GMBH & Co. Juliett KG ING Leasing Treuhandsgeselschaft GMBH ING Leasing Verwaltungsgesellschaft GMBH Uta Finanz und Leasing GMBH ING Lease Holdings (UK) Limited CW Lease UK Ltd CW Finance Ltd. Leasing Principals Limited ING Lease (UK) Limited ING Farm Finance Limited ING Farm Finance (June) Limited ING Farm Finance (March) Limited ING Farm Finance (September) Limited ING Lease (UK) Nine Limited ING Lease (UK) Six Limited ING Lease (UK) Three Limited MKL Rentals Limited ING Lease Interfinance B.V. CW Lease France S.N.C. ING Lease (Italia) SPA Real Estate Lease SPC 1 N.V. Runoto Belgium N.V. Diamond Lease ING Lease International Equipment Finance B.V. ING Aviation Lease B.V. Air Finance Holland B.V. Aviation Service Holland B.V. ING Lease (Far East 2) B.V. ING Lease (Far East) N.V. ING Lease (Ireland) B.V. ING Lease (France) S.N.C. ING Lease Structured Finance B.V. Esbelto B.V. Green Assets B.V. Hirando B.V. Hokabe Lease B.V. ING Bank Geldmarkt Fonds Beheer B.V. ING Lease Milieu B.V. Quadralock 2 B.V. SFING Europe B.V. Tropelia B.V. Virgula B.V. ING Lease International Equipment Management B.V. Air Finance Amsterdam B.V. Air Holland Leasing II B.V. ING (Holland Aircraft Lease) B.V. ING Lease Aircraft B.V. ING Lease Delaware, Inc. Noord Lease B.V. Postbank-Lease B.V. Renting De Equipos E Inmuebles SA Runoto Leasing BV Runoto Belgium N.V. Diamond Lease ING Mercantile Mutual Bank Limited ING Merchant Bank (Singapore) Limited Export Credit Insurance Corporation of Singapore Ltd ING Asset Management (Singapore) Ltd ING Nominees (Singapore) PTE Ltd ING Participation Dalrybbank B.V. ING Private Banking Beheer B.V. ING Bank Vastgoed Management B.V. ING Securities (Eurasia) Zao ING Servicios, C.A. ING Sociedad De Bolsa (Argentina), S.A. Mercado De Valores De Buenos Aires S.A. ING Sviluppo Sim S.P.A. ING Trust B.V. Ingress N.V. ING Management (Hong Kong) Ltd ING Nominees (Hong Kong) Ltd ING Trust (Antilles) NV Formid Management N.V. ING (Antilles) Portfolio Management N.V. Monna NV Jet NV Simbad N.V. ING Trust (Aruba) N.V. ING Trust (BVI) Ltd. ING Trust (Luxembourg) S.A. ING Trust (Nederland) B.V. ING Bank (Eurasia) ING Bank (Luxembourg) S.A. CMF Advisory S.A.H. Euromix Advisory S.A.H. ING Bank Luxfund Management S.A. ING International Advisory S.A.H. ING International II Advisory S.A.H. ING Baring Securities (Romania) S.A. ING Holdings Empreendimentos Participacao Ltda. Guilder Corretora De Valores Mobiliarios S/A Management Services ING Bank B.V. ING Bank (Eurasia) ING Baring Investment (Eurasia) Zao ING Securities (Eurasia) Zao Muteka BV ING Trust (Suisse) AG Trust Maatschappij ING Bank B.V. Anorga B.V. Corpovea B.V. N.V. Balmore Vastgoed U.S.A. Den Hamer Beheer B.V. Diagonac B.V. Henry F. Holding B.V. ING Aconto N.V. N.V. Balmore Vastgoed U.S.A. Mijcene B.V. Vitigudino B.V. N.V. Balmore Vastgoed U.S.A. N.V. Balmore Vastgoed U.S.A. Paramito B.V. Rescit I BV Storeria B.V. Tuvor B.V. Vitigudino B.V. N.V. Balmore Vastgoed U.S.A. Vitigudino B.V. N.V. Balmore Vastgoed U.S.A. Westward Capital II B.V. ING Valores (Venezuela) C.A. ING Vastgoed B B.V. ING Real Estate (BHS) B.V. ING Real Estate International Development B.V. Holland Park Sp. Zoo ING Real Estate Iberica SL ING Real Estate International Development (Liege) B.V. ING Real Estate Sp. Zoo ING Real Estate Vasco Da Gama B.V. London & Amsterdam Properties Ltd London and Amsterdam Development Ltd. London & Amsterdam Properties Ltd MBO Camargo SA Inmolor SA MBO La Farga SA Hospitalet Center, SL MBO Morisson Ltd Warsaw I B.V. 1300 Connecticut Avenue Joint Venture Ltd ING Real Estate International Investment II B.V. ING Real Estate International Investment III B.V. ING Vastgoed Financiering N.V. Bedrijfsgebouw MBO - Riho C.V. Groeneveld MBO C.V. M.B.O. Vastgoed Lease B.V. Lindenburgh C.V. Maria Hove C.V. MBO Brova C.V. MBO North America Finance B.V. Residential Financial Development LLC ING Vastgoed Fondsen B.V. Winkelfonds Nederland Management B.V. ING Vastgoed Ontwikkeling B.V. Amsterdamse Poort Holding IV B.V. Amsterdamse Poort IV B.V. Grondpoort IV B.V. Amsterdamse Poort II B.V. BV Bedrijvenpark G.P. CV Bedrijvenpark G.P. Grondpoort II B.V. Gulogulo B.V. Antibes Holding B.V. ING Vastgoed Arena B.V. Muller Bouwparticipatie B.V. V.O.F. Winkelcentrum Markt Noorderpromenade Drachten MBO - Ruijters B.V. Holding 'T Loon B.V. Vastgoed 'T Loon B.V. Wolfstreet Holding B.V. Wolfstreet B.V. Wolfstreet Grond B.V. MBO Brinkstraat Holding B.V. MBO Brinkstraat B.V. MBO Brinkstraat Grond B.V. MBO Catharijnesingel Holding B.V. MBO Catharijnesingel B.V. MBO Catharijnesingel Grond B.V. MBO De Centrale Holding B.V. MBO De Centrale B.V. MBO De Centrale Grond B.V. MBO Dommelstaete Holding B.V. MBO Dommestaete B.V. MBO Emmasingel Holding B.V. MBO Emmasingel B.V. MBO Emmasingel Grond B.V. MBO Guyotplein Holding B.V. MBO Guyotplein B.V. MBO Guyotplein Grond B.V. MBO Kousteensedijk Holding B.V. MBO Kousteensedijk B.V. MBO Kousteensedijk Grond B.V. MBO Kruseman Van Eltenweg Holding B.V. MBO Kruseman Van Eltenweg B.V. MBO Kruseman Van Eltenweg Grond B.V. MBO Marienburg B.V. Marienburg V.O.F. MBO Martinetsingel Holding B.V. MBO Martinetsingel B.V. MBO Martinetsingel Grond B.V. MBO Oranjerie Holding B.V. MBO Oranjerie B.V. MBO Oranjerie Grond B.V. MBO Pleintoren Holding b.V. MBO Pleintoren BV MBO Pleintoren Grond BV MBO Via Catarina B.V. Via Catarina "Empredimentos Imobiliarios" SA MBO Walburg Holding B.V. MBO Walburg B.V. MBO Walburg Grond B.V. MBO Willem II Singel Holding B.V. MBO Willem II Singel B.V. MBO Willem II Singel Grond B.V. Q-Park Bovenmaas I B.V. Q-Park N.V. Q-Park Nederland B.V. Q-Park Exploitatie B.V. Q-Park De Bijenkorf B.V. Q-Park Beheer B.V. Q-Park Brabant B.V. Q-Park Reserve I B.V. Q-Park Byzantium B.V. Q-Park City Holding B.V. Q-Park City B.V. Q-Park Schouwburg B.V. Q-Park De Klomp B.V. Q-Park Raadhuis B.V. Q-Park Reserve II B.V. Stadsherstel Historisch Rotterdam N.V. Supermarkt Krouwel B.V. V.O.F. Winkelcentrum Markt Noorderpromenade Drachten Vastgoed De Brink Holding B.V. Vastgoed De Brink B.V. Wilhelminahof MBO B.V. Zuidplein Beheer BV ING Verwaltung (Deutschland) GMBH A.G. Allgemeine Deutsche Direktbank AG BNL Beteiligungsgeselschaft Neue Laender GMBH & Co. KG Liquiditats-Konsortialbank GMBH ING-North East Asia Bank INIB N.V. Locura Belegging B.V. Luteola B.V. Melifluo B.V. Middenbank Curacao N.V. Advisory Company Luxembourg Altasec N.V. Corporacion Financiera ING (Colombia) S.A. Aralco N.V. Atlas Venture Fund I, L.P. Banco Latino-Americano De Exportaciones S.A. Cayman Islands Funds N.V. Corporacion Financiera ING (Colombia) S.A. Datasegur S.R.L. Fiseco N.V. Granity Shipping N.V. Institucion Financiera Externa Middenbank Curacao N.V. (Uruguay) ING Bank (Chile) S.A. Edibank S.A. Sociedad Interbancaria De Depositor De Valores S.A. ING Barings Ecuador Casa De Valores S.A. ING Compania De Inversiones Y Servicios Limitada Bolsa Electronica De Chile, Bolsa De Valores S.A. CISL Aruba A.E.C. ING Inversiones, Ltda. Corporacion Financiera ING (Colombia) S.A. ING Sociedad De Bolsa (Argentina), S.A. Mercado De Valores De Buenos Aires S.A. Kamadora Investments N.V. Corporacion Financiera ING (Colombia) S.A. Lerac Investment S.A. Red Rose Investments N.V. Unilarse Zermatt N.V. Miopia B.V. Multiaccess B.V. MKB Adviseurs B.V. MKB Card B.V. MKB Investments BV De Springelberg B.V. Het Dijkhuis B.V. Palino B.V. Tiberia B.V. MKB Punt B.V. Business Compass Holding B.V. N.V. Instituut Voor Ziekenhuisfinanciering Nationale-Nederlanden Financiele Diensten B.V. B.V. Financieringsmaatschappij Vola B.V. Kredietmaatschappij Vola Dealer Cash Plan B.V. Cash Plan B.V. Finantel B.V. Sentax Assurantie B.V. G. J. Van Geet Beheer B.V. Alegro Krediet B.V. Gelderse Discount Maatschappij B.V. Sentax Beheer B.V. Finam Krediet B.V. Sentax Lease B.V. Vola Geldleningen B.V. Nederlandse Bouwbank N.V. Nederlandse Financieringsmaatschappij Voor Ontwikkelingslanden N.V. Nedermex Limited N.V. Netherlands Caribbean Bank N.V. Nethworks Integrated Project Consultancy B.V. Nofegol Beheer B.V. NCM Holding N.V. NMB Equity Participaitons N.V. NMB-Heller Holding N.V. Handlowy-Heller SA Heller GMBH Heller Bank A.G. International Credit Service S.A.S. Heller Finanz GMBH Info-Und Beratungsunternehmen GMBH NMB-Heller Ltd. NMB-Heller N.V. Agpo Participatiemaatschappij B.V. Felix Tigris B.V. Inter Credit B.V. International Credit Service S.A.S. International Credit Service S.A.S. NMB-Heller Zweigniederlassung Neuss Zamenbrink B.V. Zamenterp B.V. OB Heller AS Okalia N.V. Olivacea B.V. Ontwikkelingsmaatschappij Noordrand B.V. Orcinus B.V. Oscar Smit's Bank N.V. Bouwmaatschappij Mecklenburgplein B.V. Kenau B.V. P.T. ING Indonesia Bank Parmola B.V. Paronyme B.V. Pendola B.V. Perotis B.V. Policy Extra Holdings Limited Postbank N.V. Amsterdam Exchanges N.V. Interpartes Incasso B.V. Postbank Aandelenfonds N.V. Postbank Beleggingsfonds N.V. Postbank Beleggingsfondsen Beheer B.V.. Postbank Beleggingsfondsen Bewaar B.V. Postbank Chipper Beheer B.V. Postbank Euro Aandelen Fonds N.V. Postbank Groen N.V. Postbank I.T. Fonds N.V. Postbank Interfinance B.V. Postbank Nederlandfonds N.V. Postbank Obligatie Fonds N.V. Postbank Obligatiefonds Beheer B.V. Postbank Vastgoedfonds N.V. Postbank Vermogensgroeifonds N.V. Postbank Wereldmerkenfonds N.V. Postkantoren B.V. Prena Belegging B.V. T Oye Deventer B.V. A. Van Der Molen Herenmode B.V. A. Van Der Pol Beleggingsmaatschappij Amsterdam B.V. A. Van Venrooy Beleggingen B.V. A. Van Weringh Beleggingen B.V. A.C.M. Nienhuis Houdstermaatschappij B.V. B.V. Raadgevend Bureau Nienhuis Consultans A.H. Blok Holding B.V. A.H.M. Habets Beheer B.V. A.J. Vos Makelaardij Onroerende Goederen B.V. Abades B.V. Abrocoma B.V. Ad Barnhard Holding B.V. Albranis B.V. Almenzor B.V. Altimira B.V. Ambito N.V. Aralar B.V. Atitlan B.V. B.V. Beheersmaatschappij Nuyt En Heikens B.V. Odripi B.V. Varen ABC B.V. Vulca Beleggingsmaatschappij Barbatus B.V. Barbuda B.V. Bebida B.V. Beheermaatschappij Van Der Reijnst B.V. Beheermaatschappij Van Het Beleggingsfonds Van De 7 B.V. Beheermaatschappij Darius B.V. Beheermaatschappij Stouwe B.V. Beheermaatschappij Van Putten B.V. Beheersmaatschappij Elma Schrijen B.V. Beheersmaatschappij K.G. Tjia B.V. Beheersmaatschappij Luco Zuidlaren B.V. Beheersmij A.J. Konst B.V. Belagua B.V. Bergara B.V. Bermillio B.V. Betulina B.V. Bidasoa B.V. Biporus B.V. Blarina B.V. Brasas B.V. Bravura B.V. Bremer-Van Mierlo Belegginsgmaatschappij B.V. Bustia B.V. C. J. Buyzen Beheer B.V. C. J. H. - En J. J. Heimeriks Holding B.V. Calando Belegging B.V. Camilo B.V. Castroverde B.V. Catoneria B.V. Cermanita B.V. Cicania B.V. Clacri B.V. Colocar B.V. OCB Beheer B.V. Concolor B.V. Cortada B.V. Cotranco B.V. Crescentes Prins B.V. Cumbras B.V. Cupula B.V. D'Eijk B.V. De Groninger Lederwaren Industrie B.V. Delta Nederland Beheer B.V. Dorsalis B.V. Dr. De Grood Beheer B.V. DKP Beheer B.V. Dick Kooiman Publication/Productions B.V. DSBV-Enserink B.V. DSBV-Ploeger B.V. E. Romar Beheer B.V. Omnium B.V. Empluma B.V. Entorno B.V. Epic Investments B.V. Ernsatus B.V. Esvice B.V. Exel Beheer B.V. Exploitatie En Beleggingsmaatschappij Alja Eindhoven B.V. F. R. Hoffschlag Beleggingen B.V. Familiale Investerings Maatschappij F.I.M. Farlita B.V. Flantua Beheer B.V. Fregenda B.V. Funjob Investments B.V. G. Laterveer Beheer B.V. Garlito B.V. Gebrema Beheer B.V. Gekrabeheer B.V. Germs Beleggingen B.V. Glabana B.V. Golpejas B.V. H. Van Duinen Beheer B.V. H. Mekenkamp Holding B.V. Mekenkamp Beheer B.V. H. Weterings Holding B.V. H. D. En L.B. Meijer Beheer B.V. H. G. Van Der Most Beheer B.V. Handelsonderneming E. Spee B.V. Hepec Beheer B.V. Hilschip BV Hispidus B.V. Hof En Frieling Beheer B.V. Hof & Frieling Onroerend Goed B.V. Holding Hoveling Beheer B.v. Holding J.W.G. Huijbregts B.V. Holding Schildersbedrijf West-Friesland B.V. Holding Schuiling B.V. Holding Th. A. Wellink B.V. Hotel-Restaurant Boerhave B.V. Huaco B.V. Humada B.V. Ignaro B.V. Imbricata B.V. Incoloro B.V. Indonea B.V. Allshoes Schoengroothandel B.V. ING Bank Spaardividend Fonds Beheer B.V. J & A Holding B.V. J. B. Van Den Brink Beleggingsmaatschappij B.V. J. G. Mekenkamp Holding B.V. Mekenkamp Beheer B.V. J. H. Moes Holding B.V. J. P. Korenwinder Beheer B.V. J. W. Th. M. Kohlen Beheer B.V. Jemaas Beheer B.V. Jongert Beheer B.V. K & M Beheer B.V. Kalliope B.V. Bacolac B.V. Kapellenberg B.V. Kijkgroep B.V. Koehorst Promotion Beheer B.V. KBM Maarssen B.V. L. Martens Beheer B.V. La Douce Vie Network B.V. Lagotis B.V. Larino B.V. Latourette B.V. Leaver B.V. Ledanca B.V. Lektura Tiel Beheer B.V. Licorera B.V. Liecene B.V. Lin Beheer B.V. Lomajoma Holdings B.V. Lorkendreef Beheer N.V. Lustroso B.V. M. B. Van Der Vlerk B.V. Madrigal B.V. Marres B.V. Masegoso B.V. Matthew Holding B.V. Mazairac Belegging B.V. Minnaar Holding B.V. Mirabilis B.V. Molenwiede B.V. Muguet B.V. Multicover B.V. Pulido B.V. Mustang B.V. Olseria B.V. Arend Broekhuis B.V. P. Nienhuis Houdstermaatschappij P. J. Heinrici Beheer B.V. Pastrana B.V. Pedralva B.V. Pemac B.V. Penuria B.V. Perola Belegging B.V. Pertusa B.V. Peter Trompalphen Aan Den Rijn Beheer B.V. Phobos Beleggingen Pinicola B.V. Pluijmen Holding B.V. Portelas B.V. Postigo B.V. Prestamo B.V. Pruis Elburg Beheer B.V. Puebla B.V. Pulido B.V. Rayhold Management En Deelneming B.V. Rescoldo B.V. Ressel B.v. Retrasos B.V. Rodeba Deurne B.v. Roelcene B.V. Rowanda B.V. Rudlolf & Peter Herenmode En Confectie B.V. Sabra Holding B.V. Valpacos B.V. Sacobel Beheer B.V. Schnieders Beheer B.V. Simonis Beheer B.V. Simonis Beleggingsmaatschappij B.V. Sipororo B.V. Spaleta B.V. Spatgens Beheer B.V. Stampida B.V. Stamveld B.V. Steendam Beleggingsmaatschappij Drachten B.V. Storm Beheer B.V. Beheermaatschappij Baarlo B.V. Strokkur B.V. Sunrise Investments B.V. Sustento B.V. Svalbard Beheer B.V. T. A. Lie Beheer B.V. T. M. D. Beheer B.V. Beheermaatschappij Baarlo B.V. Tadavia B.V. Beleggings - En Beheer Maatschappij Solina B.V. Refina B.V. Talboom Beheer B.V. Tapirus B.V. Tarsius B.V. Technisch Advies Bureau Jaba B.V. Ter Linden En Heijer Holding B.V. Tessara Zaanlandia B.V. Thecoar B.V. Theo Kentie Holding B.V. Theo Kentie Design B.V. Traslado B.V. Trasgo B.V. Treetop B.V. Trituris B.V. Truckstar Holding B.V. Tucupido B.V. Tricor B.V. U. Ringsma Beheer B.V. Unitres Holding B.V. Vaanhold & Van Zon Holding B.V. Van Den Heuvel Beheer B.V. Van Loon Beheer B.V. Van Roij Holding B.V. Van Zwamen Holding B.V. Vebe Olst B.V. Vegem Beheer B.V. Venidero B.V. Vette Consultants B.V. Vicar B.V. Vidriales B.V. W. Van Den Berg B.V. W. N. Van Twist Holding B.V. Wabemij B.V. Wiancini B.V. Rentista B.V. Reoco Limited Rutilus B.V. RL & T (International) N.V. Securo De Depositos S.A. Siam City Asset Management Co., Ltd Slivast B.V. Societe Financiere Du Libans. A.L. Society for Worldwide Interbank Financial Telecommunication S.C. Stichting Administratiekantoor ING Bank Global Custody Tablero B.V. Tolinea B.V. Tripudio B.V. Tunnel Onder De Noord B.V. C. V. Exploitatiemaatschappij Tunnel Onder De Noord Unidanmark A/S Verenigde Bankbedrijven N. V. Westland Utrecht Hypotheekbank N.V. Amstgeld Management AG Amstgeld N.V. Amstgeld Trust AG Bouw En Exploitatiemaatschappij Deska XXIII B.V. Charterhouse Vermogensbeheer B.V. Hypothecair Belang Gaasperdam I N.V. Assorti Beheer Amsterdam B.V. Muidergracht Onroerend Goed B.V. Amstel Gaasperdam B. V. Bouw-, Exploitatie En Administratie Maatschappij Amer IV B.V. N.V. Zeker Vast Gaasperdam Rijn Gaasperdam B.V. Juza Onroerend Goed B.V. Hazo Immobilia B.V. Kort Ambacht Maatschappij Tot Exploitatie Van Onroerende Goederen B.V. Utrechtse Financierings Bank N.V. Utrechtse Hypotheekbank N.V. Algemeene Waarborgmaatschappij N.V. Hypotheekbank Voor Nederland II N.V. Hypotheekbank Voor Nederland N.V. Standard Hypotheekbank N.V. ING Bank Hypotheken N.V. Nationale Hypotheekbank N.V. Hollandsche Hypotheekbank N.V. Zuid Nederlandsche Hypotheekbank N.V. Vermogensplanning N.B.I. B.V. W.U.H. Finanz A.G. Westland/Utrecht Leasing B.V. Berchem Onroerend Goed B.V. Berkelse Poort B.V. Beuke Poort B.V. Brasemer Poort B.V. Bruine Poort B.V. Denne Poort B.V. Doetichem Immobilia B.V. Dommelse Poort B.V. Drechtse Poort B.V. Eike Poort B.V. Esse Poort B.V. Frabu Immobilia B.V. Friese Poort B.V. Gelderse Poort B.V. Gele Poort B.V. Grijze Poort B.V. Groninger Poort B.V. Helo Immobilia B.V. Holendrecht Gemeenschappelijk Beheer B.V. Holendrecht Parking B.V. Hollandse Poort B.V. Iepe Poort B.V. Kager Poort B.V. Kilse Poort B.V. Lekse Poort B.V. Limburgse Waterpoort B.V. Lingese Poort B.V. Markse Poort B.V. Oranje Poort B.V. Paarse Poort B.V. Reggese Poort B.V. Roerse Poort B.V. Schepa Immobilia B.V. Sparre Poort B.V. Spoolde B.V. Spuise Poort B.V. Thames Poort B.V. Utrechtse Poort B.V. Vechtse Poort B.V. Vliestse Poort B.V. Westland/Utrecht Bouwonderneming Wubo VI B.V. Westland/Utrecht Bouwonderonderneming Wubo IV B.V. Wilge Poort B.V. Zeeuwse Poort B.V. Westland/Utrecht Verzekeringen B.V. Westlandsche Hypotheekbank N.V. Algemeene Hypotheekbank N.V. Hypotheekbank Maatschappij Voor Hypothecaire Crediet N.V. Groningsche Hypotheekbank N.V. Vaderlandsche Hypotheekbank N.V. Zeeuwsche Hypotheekbank N.V. Zuid-Hollandsche Hypotheekbank N.V. Zugut B.V. ING Verzekeringen N.V. ING Insurance International B.V. Nationale-Nederlanden Intervest II B.V. ING North America Real Estate Holdings Inc. ING Financial Services International (Asia) Ltd. Nationale-Nederlanden Intervest XIII B.V. Nationale-Nederlanden Intertrust B.V. N.N. US Realty Corp B.V. Nederlandsche Flatbouwmaatschappij NN Korea ING Continental Europe Holdings B.V. De Vaderlandsche N.V. Nationale Omnium N.V. De Vaderlandsche Spaarbank N.V. RVS Financial Services N.V. Fiducre N.V. Sodefina S.A. SA De Vaderlandsche Luxemburg Immo "De Hertoghe" NV Westland/Utrecht Hypotheekmaatschappij N.V. Intermediair Services N.V. RVS Verzekeringen N.V. Gefinac N.V. Proodos General Insurances S.A. NN Mutual Fund Management Co. The Seven Provinces International B.V. Nationale-Nederlanden Magyarorszagi Biztosito Rt NN Mutual Fund Services and Consulting Ltd. ING Management Services s.r.o. Prumy Penzijni fond a.s. Nationale-Nederlanden Polska S.A. Nationale-Nederlanden Poist'ovna S.A. ING Management Services Slovensko spol s.r.o. Nationale-Nederlanden Agencia de Valores S.A. NN Romania Asigurari de Viata S.A. Sviluppo Finanziaria ING Investment Management Italy NN Vida Compania de Seguros y Raeseguros S.A. NN Generales Compania e Seguros y Raeseguros Nationale-Nederlanden Pojistovna ING Latin American Holdings ING Insurance Chile Holdings Limitada ING Seguros de Vida S.A. NNOFIC Nationale-Nederlanden (UK) Ltd. NN (UK General) Ltd. The Orion Insurance ING Australia Limited Mercantile Mutual Holdings Ltd. Mercantile Mutual Funds Management Mercantile Mutual Global Ltd. Athelas Mercantile Mutual Insurance (Australia) Ltd. M.A.F.G. Ltd. Mercantile Equities Ltd. Greater Pacific (Leasing) Ltd. Amfas Australia Pty Ltd. Australian General Insurance Co. Ltd. "The Seven Provinces" Insurance Underwriters MM Investment Management Ltd. The Mercantile Mutual Life Insurance Co. Ltd. MML Properties Pty Ltd. Mercantile Mutual Deposits Ltd. Union Investment Co. Ltd. Mercantile Mutual Securities Ltd. Tazak Pty Ltd. Mercantile Mutual Custodians Pty. Ltd. Mercantile Mutual Casualty Insurance Ltd. Australian Brokers Holdings Ltd. Australian Brokers Ltd. Australian Community Insurance Ltd. Mercantile Mutual Insurance (Workers Compensation) Ltd. Mercantile Mutual Insurance (N.S.W. Workers Compensation) Ltd. Prosafe Investments Ltd. Dinafore Pty Ltd. Tongkang Pty Ltd. MM Investment Management ING Canada Holdings Inc. AFP Financial Services ING Canada Inc. The Halifax Insurance Company Western Union Insurance Company Wellington Insurance Company La Compagnie d'Assurances Belair The Commerce Group Insurance La Compagnie d'Assurances NN Life Insurance Company of Canada NN Funds Limited NN Capital Management NN Maple Leaf ING America Insurance Holdings Inc. Ameribest Life Insurance Company CyberLink Development, Inc. Equitable of Iowa Companies, Inc. Directed Services, Inc. Equitable Investment Services, Inc. Equitable Life Insurance Company of Iowa Equitable American Insurance Company Equitable Creative Services, Ltd. Equitable Companies CLC, Ltd. Equitable American Marketing Services, Inc. Equitable Marketing Services, Inc. Younkers Insurance & Investments, Ltd. USG Annuity & Life Company USGL Service Corporation Equitable of Iowa Companies Capital Trust Equitable of Iowa Companies Capital Trust II ING Funds Distributor, Inc. Golden American Life Insurance Company First Golden American Life Insurance Company of New York ING Advisors Network, Inc. ING Insurance Agency, Inc. Investors Financial Group, Inc. Carnegie Financial Corporation Carnegie Securities Corporation IFG Brokerage Corp. IFG Insurance Services, Inc. Compulife, Inc. IFG Advisory, Inc. IFG Advisory Services, Inc. National Alliance of Independent Portfolio Managers, Inc. IFG Agency, Inc. IFG Insurance Agency of Massachusetts, Inc. IFG Insurance Services of Alabama, Inc. IFG Network, Inc. IFG Services, Inc. Investors Financial Planning Inc. Compulife Investor Services, Inc. IFG Network Securities, Inc. Comprehensive Financial Services, Inc. Pennington, Bass & Associates, Inc. Planned Investment Resources, Inc. Planned Investments, Inc. Locust Street Securities, Inc. Shiloh Farming Company Tower Locust, Ltd. United Life & Annuity Insurance Company United Variable Services, Inc. ING America Life Corporation Georgia US Capital Inc. Life Insurance Company of Georgia Powers Ferry Properties, L.P. Springstreet Associates, Inc. Life of Georgia Agency, Inc. Southland Life Insurance Company Security Life of Denver Insurance Company First ING Life Insurance Company of New York First Secured Mortgage Deposit Corporation ING America Equities Midwestern United Life Insurance Company Wilderness Associates Afore Bital ING, S.A. de C.V. First Columbine Life Insurance Company ING Funds Service Co., Inc. ING Investment Management LLC ING Mutual Funds Management Company, LLC ING North America Insurance Corporation ING Seguros Sociedad Anonima de Capital Variable ING Payroll Management, Inc. Lion Custom Investments LLC Lion Custom Investments II LLC MIA Office Americas, Inc. Multi-Financial Group, Inc. Multi-Financial Securities Corporation Multi-Financial Securities Corporation Massachusetts Multi-Financial Securities Corporation of Ohio Multi-Financial Securities Corporation of Texas Orange Investment Enterprises, Inc. Quichote, Inc. QuickQuote Systems, Inc. QuickQuote Financial, Inc. Security Life Assignment Corp. ING Seguros S.A. de C.V. United Protective Company Security Life of Denver International Ltd. SLR Management (Bermuda) Ltd. UC Mortgage Corp. United Life & Annuity Insurance Company United Variable Services, Inc. VESTAX Capital Corporation, Inc. VESTAX Securities Corp. VTX Agency Inc. PMG Agency, Inc. VTX Agency of Michigan, Inc. ING US P&C Corporation Diversified Settlements, Inc. Peerless Insurance Company The Netherlands Insurance Company America First Insurance Company Alabama First Insurance Company Excelsior Insurance Company Indiana Insurance Consolidated Insurance Company Cooling-Grumme-Mumford Company, Inc. Blue Cross Medical Consultancy (Singapore) Pte. Ltd. ING Indonesia Insurance P.T. ING Life Insurance Japan Nederlandse Reassurantie Groep Holding N.V. Nederlandse Reassurantie Groep N.V. NRG London Levensherverzekering Algemene Levensherverzekering Maatschappij N.V. Vereenigde Assurantie Bedrijven "Nederland" N.V. Reassurantie Holding Nederland N.V. Internationale Reassurantie Maatschappij Nederland N.V. Reassurantie Maatschappij Nederland N.V. Ruckversicherungs-Clearing A.G. Reinsurers Marketing B.V. N.V. Beleggingsmaatschappij NRG Reassurantie Beleggingen N.V. NRG Woningbouw B.V. BMA Beleggingsmaatschappij "Alliance" B.V. "Traviata" Onroerend Goed B.V. The Victory Reinsurance Corporation of the Netherlands N.V. NRG Victory Holdings Ltd. NRG London Reinsurance Company Ltd. NRG Fenchurch Insurance Company Ltd. NRG Victory Australia Holdings Ltd. NRG Victory Australia Ltd. NRG Victory Reinsurance Corporation Ltd. The Victory Health Reinsurance Corporation Ltd. NRG Victory Management Ltd. European Life Marketing & Actuarial Consultancy Ltd. European Life Marketing & Actuarial Consultancy 92 Ltd. Medical Expenses Development and Insurance Consultancy Services Ltd. NRG Victory Management Services Ltd. General Reinsurance Syndicate Ltd. General Reinsurance Syndicate Ltd. (Trustee) London Reinsurance Comp. Ltd. NRG Victory Life and Health Services Ltd. NRG Victory Canada Management Ltd. NRG Victory Management (Hong Kong) Ltd. NRG America Holding Company Philadelphia Reinsurance Corporation NRG America Life Reassurance Corporation NRG American Management Corporation Market Run Off Services Ltd. NRG Antillean Holding N.V. NRG Antillean Reinsurance Company N.V. NRG Victory International Ltd. NRG Victory Management (Bermuda) Ltd. SRO Run-Off Ltd. Bermuda ING Life Insurance Co. (Phillippines) ING Penta Life Insurance Indonesia P.T. ING Insurance Consultants (HK) Ltd. ING Reinsurance International Holding Co. Ltd. ING Reinsurance International Nationale-Nederlanden Nederland B.V. Nationale-Nederlanden Schadeverzekering Maatschappij N.V. H. van Veeren B.V. Nationale-Nederlanden Greek General Insurance Company S.A. Nationale-Nederlanden Levensverzekering Maatschappij N.V. B.V. Beleggingsmaatschappij Berendaal Consortium Scheveninggen B.V. RVS Beroeps-en Bedrijfsfinanciering B.V. De Bossche Poort B.V. ING Vastgoed V B.V. ING Vastgoed Belegging B.V. B.V. Beleggingsmaatschappij Vinkendaal Muggenburg Beheer B.V. Muggenburg C.V. ING REI Investment U.K. B.V. Nationale-Nederlanden Real Estate Ltd. ING Vastgoed Beheer Maatschappij I B.V. ING Vastgoed Bewaar Maatschappij I B.V. Nationale-Nederlanden Intervest 52 B.V. Bouwfonds Nationale-Nederlanden B.V. Nationale-Nederlanden Bouwfonds 1975 B.V. Bouwfonds AVG B.V. Bouwfonds Nemavo B.V. Bouwfonds Anklaar-Apeldoorn 1967 B.V. Bouwfonds Bilthoven 1969 B.V. Bouwfonds Roveso B.V. RVS Bouwfonds B.V. Bouwfonds Utrecht 1967 B.V. Amersfoort Premiewoningen B.V. Bouwfonds Valken Staete B.V. Nationale-Nederlanden Bouwfonds 1976 B.V. ING Real Estate International Investment I B.V. ING REI Investment U.K. B.V. ING Vastgoed Fondsbelegging BV Jetta Vastgoed B.V. B.V. Algemene Beleggingsmaatschappij "Lapeg" ING Insurance Argentina Nationale-Nederlanden Greek Life Insurance Company S.A. RVS Levensverzekering N.V. RVS Schadeverzekering N.V. Tiel Utrecht Levensverzekering N.V. Tiel Utrecht Schadeverzekering N.V. Utrechtsche Algemeene Brandverzekering Maatschappij N.V. Assurantiekantoor A Brugmans B.V. Algemene Zeeuwse Verzekering Maatschappij N.V. Apollonia Levensverzekering N.V. N.V. Nationale Borg-Maatschappij N.V. Belegging- en Beheer Maatschappij Keizersgracht Antilliaanse Borg-Maatschappij N.V. Amfas Exploitatie Maatschappij B.V. AVG Exploitatie en Beheer B.V. Amfas Hypotheken N.V. Noordwester Hypotheken N.V. Amfinex II B.V. Westermij B.V. Amfico B.V. AVG Exploitatie I B.V. ING Bewaar Maatschappij IV B.V. S.C.P. AVG Investissement Assurantiemaatschappij "De Zeven Provincien" N.V. "Transatlantica" Herverzekering Maatschappij N.V. "The Seven Provinces" Insurance Underwriters Ltd. Ramus Insurance Ltd. Tiel Utrecht Verzekerd Sparen N.V. B.V. Algemene Beleggings Maatschappij Reigerdaal Oostermij B.V. Nationale-Nederlanden Pensioendiensten B.V. Nationale-Nederlanden Zorgvezekering N.V. B.V. Algemene Beleggingsmaatschappij "Kievietsdaal" NeSBIC-Postbank B.V. Nitido B.V. Podocarpus Beheer B.V. Parcom Ventures B.V. Parcom Beheer BV Parcom CV Parcom Services BV Postbank Schadeverzekering N.V. Maatschappij tot Exploitatie van Onroerende Goederen "Gevers Deynootplein" BV Maatschappij tot Exploitatie van Onroerende Goederen "Kurhaus" B.V. Postbank Levensverzekering N.V. RVS Beleggingen N.V. Netherlands Life Insurance Company Ltd. AO Artsen-Verzekeringen N.V. Grabenstrasse Staete B.V. ING Life Insurance International N.V. Nationale-Nederlanden Internationale Schadeverzekering N.V. Fatum Vermogensbeheer N.V. Surinaamse Verzekeringsagenturen Maatschappij Seguros Norman Moron N.V. N.V. Arubaanse Verzekeringsagenturen Maatschappij Nationale-Nederlanden Herverzekering Maatschappij N.V. AVG Exploitatie IX B.V. Jahnstrasze Gebaude B.V. Maatschappij tot Exploitatie van Onroerende Goederen "Palace" B.V. Nationale-Nederlanden Interfinance B.V. Maatschappij tot Exploitatie van Onroerende Goederen "Grand Hotel" B.V. N.V. Haagsche Herverzekering Maatschappij van 1836 Baring Central European Investments B.V. Baring Asian Flagship Investments B.V. ING Fund Management B.V. Wijkertunnel Beheer I B.V. Nationale-Nederlanden Beleggingsrekening N.V. Nationale-Nederlanden CSFR Real Estate v.o.s. ING Bewaar Maattschappij I B.V ING Vastgoed B.V. ING Real Estate (Asia) PTE Ltd. ING Real Estate North America Corporation Nationale-Nederlanden Intervest XII B.V. B.V. Algemene Beleggingsmaatschappij Van Markenlaan Kantoorgebouw Johan de Wittlaan B.V. Nationale-Nederlanden Holdinvest B.V. Nationale-Nederlanden International Investment Advisors B.V. B.V. Algemene Beleggingsmaatschappij Fazantendaal Maatschappij Stadhouderslaan B.V. DESKA LII B.V. J.H. Alta en Co. B.V. Westland/Utrecht Projektontwikkeling B.V. Bouwonderneming Amer LII B.V. ING Real Estate Colombo B.V. Loeffpleingarage B.V. B.V. Maatschappij tot Exploitatie van Onroerende Goederen Smeetsland B.V. Vastgoedmaatschappij "Combuta" B.V. Vastgoed Maatschappij "Promes" Beheer- en Exploitatiemaatschappij "De Vestingwachter" B.V. Nationale-Nederlanden Hypotheekbank N.V. N.V. Arnhemsche Hypotheekbank voor Nederland Nationale-Nederlanden Financiering Maatschappij B.V. B.V. Betaalzegelbedrijf "De Voorzorg" J. van Ouwel Nationale-Nederlanden Finance Corporation (Curacao) I.L. Nationale-Nederlanden Vermogensbeheer B.V. NeSBIC Nationale-Nederlanden B.V. BOZ B.V. ABV Staete B.V. B.V. "De Administratie" Maatschappij tot Exploitatie van Onroerende Goederen Amersfoort-Staete B.V. Arnhem Staete B.V. Belart Staete B.V. Belart S.A. N.V. Square Montgomery Steenstaete S.A. Berkel-Staete I B.V. Berkel-Staete II B.V. Blijenhoek Staete B.V. S.N.C. Blijenhoek Staete et Cie SNC Peau Bearn Brussel Staete B.V. Grote Markt Staete B.V. Hoogoorddreef I B.V. SNC Haven Trompenburg Parking B.V. Lena Vastgoed B.V. S.A. du 59 Avenue d'lena SNC le Murier Kleber Vastgoed B.V. S.A. du 42 Avenue Kleber B.V. De Oude Aa-Stroom Portefeuille Staete B.V. S.C.I. 1e Portefeuille S.C.I. le Michelet S.C.I. Roissy Bureaux International S.C.I. Square d'Asnieres SNC Le Dome B.V. Amiloh ING Vastgoed N.V. Immo Management Service S.A. S.A. Regent-Bruxelles Nationale-Nederlanden/Immobilier S.A.R.L. Immogerance S.A.R.L. Nationale-Nederlanden Intervest IV B.V. SAS Espace Daumesnil Nationale-Nederlanden V B.V. Nationale-Nederlanden VII B.V. ING Real Estate Espace Daumesnil B.V. ING Real Estate Parking Daumesnil Viaduc B.V. SAS Parking Daumesnil Viaduc Cadran Invest S.A. ING Bewaar Maatschappij II B.V. ING Bewaar Maatschappij III B.V. ING REI Investment Spain B.V. ING Inmeubles S.A. ING Bewaar Maatschappij V B.V. ING Asset Management B.V. Postbank Verzekeringen Beheer Maatschappij B.V. Postbank Verzekeringen Bewaar Maatschappij B.V. ING Vastergoed B.V. Nationale-Nederlanden Intervest IX B.V. Nationale-Nederlanden CSFR Intervest S.R.O. ING Real Estate Praha Housing a.s. Nationale-Nederlanden Praha Real Estate V.O.S. Nationale-Nederlanden Intervest XI B.V. Nationale-Nederlanden Hungary Real Estate KFT ING Investment Management (Hungary) Rt. ING Investment Management (Asia Pacific) Limited ING Investment Management (Czech Republic) S.A. IIM India (India) Private Ltd. -----END PRIVACY-ENHANCED MESSAGE-----