Registration No. 333-37883
No. 811-08439
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Pre-Effective Amendment No. 1
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
TRANSAMERICA OCCIDENTAL LIFE SEPARATE ACCOUNT VUL-1
(Exact Name of Registrant)
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
1150 South Olive Street
Los Angeles, CA 90015
(Address of Principal Executive Office of Depositor)
Name and Address of Agent for Service: Copies to:
James W. Dederer, Esq. Stephen E. Roth, Esq.
Executive Vice President, General Counsel Sutherland, Asbill & Brennan LLP
and Corporate Secretary 1275 Pennsylvania Avenue, N.W.
Transamerica Occidental Life Insurance Company Washington, D.C. 20004
1150 South Olive Street
Los Angeles, CA 90015
Approximate date of proposed public offering: as soon as practicable after the
effective date of the Registration Statement.
Title of securities being registered: Flexible Payment Variable Life Insurance
Policy.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
shall determine.
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 Caption in Prospectus
<S> <C>
1........................................................... Cover Page
2........................................................... Cover Page
3........................................................... Not Applicable
4........................................................... Distribution
5........................................................... Description of Transamerica; The Separate Account
6........................................................... The Separate Account
7........................................................... Not Applicable
8........................................................... Not Applicable
9........................................................... Legal Proceedings
10.......................................................... Summary; Description ofTransamerica, The Separate
Account, The Portfolios; The Policy; Policy
Termination and Reinstatement; Other Policy
Provisions
11.......................................................... Summary; Investment Objectives and Policies
12 Summary;
13.......................................................... Summary; Charges and Deductions
14.......................................................... Summary; Application for a Policy
15.......................................................... Summary; Application for a Policy;
Payments; Allocation of Net Payments
16.......................................................... The Separate Account; Payments; Allocation of Net
Payments
17.......................................................... Summary; Surrender; Partial Withdrawal;
Charges and Deductions; Policy
Termination and Reinstatement
18.......................................................... The Separate Account; Payments
19.......................................................... Reports; Voting Rights
20.......................................................... Not Applicable
21.......................................................... Summary; Policy Loans; Other Policy
Provisions
22.......................................................... Other Policy Provisions
23.......................................................... Not Required
24.......................................................... Other Policy Provisions
25.......................................................... Description of Transamerica
26.......................................................... Not Applicable
27.......................................................... Description of Transamerica
28.......................................................... Directors and Principal Officers of Transamerica
29.......................................................... Description of Transamerica
30.......................................................... Not Applicable
31.......................................................... Not Applicable
32.......................................................... Not Applicable
33.......................................................... Not Applicable
34.......................................................... Not Applicable
35.......................................................... Distribution
36.......................................................... Not Applicable
37.......................................................... Not Applicable
38.......................................................... Summary; Distribution
39.......................................................... Summary; Distribution
40.......................................................... Not Applicable
41.......................................................... Description of Transamerica, Distribution
42.......................................................... Not Applicable
43.......................................................... Not Applicable
44.......................................................... Payments; Policy Value and Cash
Surrender Value
45.......................................................... Not Applicable
46.......................................................... Policy Value; Surrender;
Federal Tax Considerations
47.......................................................... Description of Transamerica
48.......................................................... Not Applicable
49.......................................................... Not Applicable
50.......................................................... The Separate Account
51.......................................................... Cover Page; Summary; Charges and
Deductions; The Policy; Policy Termination and
Reinstatement; Other Policy Provisions
52.......................................................... Addition, Deletion or Substitution of
Investments
53.......................................................... Federal Tax Considerations
54.......................................................... Not Applicable
55.......................................................... Not Applicable
56.......................................................... Not Applicable
57.......................................................... Not Applicable
58.......................................................... Not Applicable
59.......................................................... Not Applicable
</TABLE>
<PAGE>
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
FUNDED THROUGH
TRANSAMERICA OCCIDENTAL LIFE SEPARATE ACCOUNT VUL-1
OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Transamerica Occidental Life Separate Account VUL-1 ("Separate Account") is a
separate investment account of Transamerica Occidental Life Insurance Company
("Transamerica"). Transamerica issues the individual flexible payment variable
life insurance policies described in this prospectus ("Policies").
You may direct your net payments, as well as any value accumulated under the
Policy, to up to seventeen sub-accounts of the Separate Account or to the Fixed
Account, or to both. The money you place in each sub-account will be invested
solely in a corresponding mutual fund investment portfolio ("portfolio"). The
value of each sub-account will vary in accordance with the investment
performance of the portfolio in which that sub-account invests. You bear the
entire investment risk for all assets you place in the sub-accounts. This means
that, depending on market conditions, the amount you invest in the sub-accounts
may increase or decrease.
Currently, you may choose among the following sub-accounts:
Sub-Accounts
Janus Aspen Worldwide Growth Morgan Stanley UF International Magnum Dreyfus VIF
Small Cap OCC Accumulation Trust Small Cap MFS VIT Emerging Growth Alliance VPF
Premier Growth Dreyfus VIF Capital Appreciation MFS VIT Research Transamerica
VIF Growth Alger American Income & Growth Alliance VPF Growth & Income MFS VIT
Growth with Income Janus Aspen Balanced OCC Accumulation Trust Managed Morgan
Stanley UF High Yield Morgan Stanley UF Fixed Income Transamerica VIF Money
Market
Policy owners may, within limits, choose the amount of initial payment and
vary the frequency and amount of future payments. The Policy allows
partial withdrawals and full surrender of the Policy's surrender value,
within limits. The Policies are not suitable for short-term investment
because of the substantial nature of the surrender charge.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING
INSURANCE WITH THE POLICY. THIS PROSPECTUS IS VALID
ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF EACH
OF THE PORTFOLIOS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF TRANSAMERICA
OCCIDENTAL LIFE INSURANCE COMPANY AND ARE DISTRIBUTED
BY TRANSAMERICA SECURITIES SALES CORPORATION. THE
POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT UNION.
THE POLICIES ARE NOT INSURED BY THE U. S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR
ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
POLICIES ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE
FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS SETS FORTH THE INFORMATION YOU SHOULD
KNOW BEFORE DECIDING TO PURCHASE A POLICY. YOU
SHOULD RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEEDED BY
CURRENT PROSPECTUSES FOR THE PORTFOLIOS. THE
PORTFOLIO PROSPECTUSES SHOULD BE READ IN CONJUNCTION
WITH THIS PROSPECTUS.
Dated January 1, 1998
<PAGE>
Table of Contents
SUMMARY
SPECIAL TERMS.......................................10
DESCRIPTION OF TRANSAMERICA,
THE SEPARATE ACCOUNT, AND THE PORTFOLIOS............12
INVESTMENT OBJECTIVES AND POLICIES.........13
INVESTMENT ADVISERS........................14
THE POLICY..........................................16
APPLICATION FOR A POLICY...................16
FREE LOOK PERIOD...........................16
CONVERSION PRIVILEGE.......................17
PAYMENTS...................................17
ALLOCATION OF NET PAYMENTS.................18
TRANSFER PRIVILEGE.........................18
DEATH BENEFIT..............................19
LEVEL OPTION OR ADJUSTABLE OPTION..........19
CHANGE TO LEVEL OPTION AND ADJUSTABLE OPTION21
CHANGE IN FACE AMOUNT......................21
POLICY VALUE...............................22
PAYMENT OPTIONS............................23
OPTIONAL INSURANCE BENEFITS................23
SURRENDER..................................24
PARTIAL WITHDRAWAL.........................24
PAID-UP INSURANCE OPTION...................24
CHARGES AND DEDUCTIONS..............................25
PAYMENT EXPENSE CHARGE.....................25
MONTHLY INSURANCE PROTECTION CHARGE........25
CHARGES AGAINST OR REFLECTED IN THE ASSETS
OF THE SEPARATE ACCOUNT...............27
SURRENDER CHARGES..........................28
PARTIAL WITHDRAWAL COSTS...................29
TRANSFER CHARGES...........................29
CHARGE FOR CHANGE IN FACE AMOUNT...........29
OTHER ADMINISTRATIVE CHARGES...............30
POLICY LOANS........................................30
PREFERRED LOAN OPTION
LOAN INTEREST CHARGED
REPAYMENT OF OUTSTANDING LOAN
EFFECT OF POLICY LOANS
POLICY TERMINATION AND REINSTATEMENT................31
TERMINATION
REINSTATEMENT
OTHER POLICY PROVISIONS.............................33
POLICY OWNER
BENEFICIARY
ASSIGNMENT
LIMIT ON RIGHT TO CHALLENGE POLICY
SUICIDE
MISSTATEMENT OF AGE OR SEX
DELAY OF PAYMENTS
FEDERAL TAX CONSIDERATIONS..........................34
TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY
AND THE SEPARATE ACCOUNT.............34
TAXATION OF THE POLICIES...................34
POLICY LOANS...............................35
INTEREST DISALLOWANCE
MODIFIED ENDOWMENT CONTRACTS...............35
DISTRIBUTION UNDER MODIFIED ENDOWMENT
CONTRACTS
VOTING RIGHTS.......................................35
DIRECTORS AND PRINCIPAL OFFICERS OF TRANSAMERICA....36
DISTRIBUTION........................................37
REPORTS 37
PERFORMANCE INFORMATION.............................38
LEGAL PROCEEDINGS...................................41
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS...41
FURTHER INFORMATION.................................41
MORE INFORMATION ABOUT THE FIXED ACCOUNT
GENERAL DESCRIPTION
FIXED ACCOUNT INTEREST
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS
AND POLICY LOANS
INDEPENDENT ACCOUNTANTS.............................42
FINANCIAL STATEMENTS................................42
APPENDIX A - GUIDELINE MINIMUM SUM INSURED TABLE...A-1
APPENDIX B - OPTIONAL INSURANCE BENEFITS...........A-2
APPENDIX C - PAYMENT OPTIONS.......................A-3
APPENDIX D - ILLUSTRATIONS.........................A-4
APPENDIX E - MAXIMUM SURRENDER CHARGES.............A-9
<PAGE>
SUMMARY
This summary is intended to provide only a very brief overview of the more
significant aspects of the Policy. The Prospectus and the Policy provide
further detail. The Policy provides insurance protection for the named
beneficiary. We do not claim that the Policy is similar or comparable to a
systematic investment plan of a mutual fund. The Policy and its attached
application are the entire agreement between you and Transamerica.
WHAT IS THE POLICY'S OBJECTIVE?
The objective of the Policy is to give permanent life insurance protection
and help you build assets on a tax-deferred basis. Features available
through the Policy include:
o A net death benefit that can protect your
family or beneficiaries
o Payment options that can guarantee an income
for life
o A personalized investment portfolio
o Experienced professional investment advisers
o Tax deferral on earnings
While the Policy is in force, it will provide:
o Life insurance coverage on the Insured
o Policy Value
o Surrender rights and partial withdrawal
rights
o Loan privileges
o Optional insurance benefits available by
rider
The Policy combines features and benefits of traditional life insurance
with the advantages of professional money management. Unlike the fixed
benefits of ordinary life insurance, the Policy Value and the Adjustable
Option death benefit will increase or decrease depending on investment
results of the portfolios. Also, unlike traditional insurance policies,
the Policy has no fixed schedule for payments. Within limits, you may make
payments of any amount and frequency. While you may establish a schedule
of payments ("planned payments"), the Policy will not necessarily lapse if
you fail to make planned payments. However, making planned payments will
not guarantee that the Policy will remain in force. If the Guaranteed
Death Benefit Rider is in effect, however, payments of sufficient amounts,
net of withdrawals, withdrawal costs and any outstanding loans, will
guarantee that the Policy will not lapse. See "PAYMENTS" at page __ and
"POLICY TERMINATION AND REINSTATEMENT" at page ____.
WHO ARE THE KEY PERSONS UNDER THE POLICY?
The Policy is a contract between the Policy owner and Transamerica. Each
Policy has a Policy owner (you), an Insured (you or another individual you
select) and a beneficiary. As Policy owner, you make payments, choose
investment allocations and select the Insured and beneficiary. The Insured
is the person covered under the Policy. The beneficiary is the person who
receives the net death benefit when the Insured dies.
WHAT HAPPENS WHEN THE INSURED DIES?
We will pay the net death benefit to the beneficiary when the Insured dies
while the Policy is in effect. You may choose between two death benefit
options. Under the Level Death Benefit Option ("Level Option"), the death
benefit is the face amount (the insurance amount issued) or the guideline
minimum sum insured (the minimum death benefit required by federal tax
law), whichever is greater. Under the Adjustable Death Benefit Option
("Adjustable Option"), the death benefit is either (a) the sum of the face
amount and Policy Value, or (b) the guideline minimum sum insured,
whichever is greater. The net death benefit is the death benefit less any
outstanding loan and due and unpaid partial withdrawals, partial
withdrawal costs, and monthly insurance protection charges. However, after
the final payment date (and except as provided otherwise under the
Guaranteed Death Benefit Option), the net death benefit is 101% of the
Policy Value less any outstanding loan and due and unpaid partial
withdrawals and withdrawal costs. The beneficiary may receive the net
death benefit in a lump sum or under a payment option we offer. Under
certain conditions, a portion of the net death benefit may be paid to you
prior to the Insured's death as provided under the Option to Accelerate
Death Benefits (Living Benefits Rider). See "DEATH BENEFIT" at page ____.
CAN I EXAMINE THE POLICY?
Yes. You have the right to examine and cancel your
Policy by returning it to us or to one of our
representatives, generally by the later of:
o 45 days after the application for the Policy
is signed, or
o 10 days after you receive the Policy (or a longer period as
required by state law for replacement policies or for other
reasons). We refer to this 10 day or longer period as the "state
free look period"
In some states, the 45 day period noted above does not apply, and only the
10 day (or longer) provision applies.
This right to examine and cancel your Policy is often referred to as the
free look right.
If your Policy provides for a full refund under its "Right to Examine
Policy" provision as required in your state, and you exercise your free
look right, your refund will be the total of payments made to the Policy.
If your Policy does not provide for a full refund and you exercise your
free look right, you will receive, with regard to your Policy,
o Amounts allocated to the Fixed Account plus
o The current value in the Separate Account
plus
o All fees, charges and tax deductions which
have been imposed
After an increase in face amount, a right to examine and cancel the
increase also applies. See "FREE LOOK PERIOD" at page ___.
WHAT ARE MY INVESTMENT CHOICES?
The Policy gives you an opportunity to select among a number of investment
options, including sub-accounts and a Fixed Account. Seventeen portfolios
from eight mutual funds, each fund having its own adviser(s), offer a wide
range of investment objectives. The available sub-accounts are as follows:
Janus Aspen Worldwide Growth Morgan Stanley UF International Magnum
Dreyfus VIF Small Cap OCC Accumulation Trust Small Cap MFS VIT Emerging
Growth Alliance VPF Premier Growth Dreyfus VIF Capital Appreciation MFS
VIT Research Transamerica VIF Growth Alger American Income & Growth
Alliance VPF Growth & Income MFS VIT Growth with Income Janus Aspen
Balanced OCC Accumulation Trust Managed Morgan Stanley UF High Yield
Morgan Stanley UF Fixed Income Transamerica VIF Money Market
See "DESCRIPTION OF TRANSAMERICA, THE SEPARATE ACCOUNT, AND THE
PORTFOLIOS" at page ____.
This range of investment choices allows you to allocate your money among
the sub-accounts to meet your investment needs. If your Policy provides
for a full refund under its "Right to Examine Policy" provision as
required in your state, after the policy is issued by us we will allocate
all sub-account investments to the sub-account investing in the Money
Market Portfolio of Transamerica Variable Insurance Fund, Inc., until the
end of four calendar days plus the number of days under the state free
look period (usually 10 days, but longer under some circumstances). After
this, we will allocate all amounts to the sub-accounts as you have chosen.
The Policy also offers a Fixed Account which provides a guaranteed minimum
interest rate of 4% annually on amounts allocated to the Fixed Account. We
may declare a higher rate. The Fixed Account is part of the General
Account of Transamerica. Amounts in the Fixed Account do not vary with the
investment performance of a portfolio. See "MORE INFORMATION ABOUT THE
FIXED ACCOUNT" at page ___.
CAN I MAKE TRANSFERS AMONG THE SUB-ACCOUNTS AND THE
FIXED ACCOUNT?
Yes. You may make transfers among the sub-accounts and the Fixed Account,
subject to our consent and current rules. You will incur no current taxes
on transfers while your money is in the Policy. A transfer charge may
apply to certain transfers. See "TRANSFER PRIVILEGE" at page ____.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, within limits. See
"PAYMENTS" at page ____.
WHAT IF I NEED MY MONEY?
You may borrow up to the loan value of your Policy. You may also make
partial withdrawals, and you may surrender the Policy for its surrender
value. There are two types of loans which may be available to you:
o A preferred loan option is available after
the tenth Policy year and, after that date,
will apply to any outstanding loans and new
loan requests unless you revoke the
preferred loan option in writing. The
guaranteed annual interest rate credited to
the portion of the Policy Value securing a
preferred loan will be not less than 7.5%.
o A non-preferred loan option is always
available to you. The guaranteed annual
interest rate credited to the portion of the
Policy Value securing a non-preferred loan
will be not less than 6.0%. The current
interest rate credited is 7.2%. We may
change the interest rate credited at any
time in our sole discretion.
We will allocate Policy loans among the sub-accounts and the Fixed Account
according to your instructions. If you do not make an allocation, we will
make a pro rata allocation among the sub-accounts and the Fixed Account.
We will transfer the Policy Value in each sub-account equal to the Policy
loan to the Fixed Account. See "POLICY LOANS" at page ___.
You may surrender your Policy and receive its surrender value. See
"SURRENDER" at page ___ and "SURRENDER CHARGES" at page ___. After the
first Policy year, you may make partial withdrawals of $500 or more from
the Policy Value (provided you have not exercised the paid-up insurance
option), subject to partial withdrawal costs. Under the Level Option, the
face amount and Policy Value will be reduced by each partial withdrawal
and the Policy Value will be further reduced by the partial withdrawal
costs. Under the Adjustable Option, the Policy Value will be reduced by
the amount of the partial withdrawal and the partial withdrawal costs. We
will not allow a partial withdrawal if it would reduce the face amount
below $50,000. See "PARTIAL WITHDRAWAL" at page ___ and "WHAT CHARGES WILL
I INCUR UNDER MY POLICY? Partial Withdrawal Costs" at page ___. A
surrender or partial withdrawal may have tax consequences. See "TAXATION
OF THE POLICIES" at page ___.
CAN I MAKE FUTURE CHANGES UNDER MY POLICY?
Yes. There are several changes you can make after
receiving your Policy, within limits. You may
o Cancel your Policy under its right to
examine and cancel provision
o Transfer your ownership to someone else
o Change the beneficiary
o Change the allocation of payments, with no
tax consequences under current law
o Make transfers of Policy Value among the
Fixed Account and the sub-accounts
o Adjust the death benefit by increasing or
decreasing the face amount
o Change your choice of death benefit options
between the Level Option and Adjustable
Option
o Add or remove optional insurance benefits
provided by rider
CAN I CONVERT MY POLICY INTO A NON-VARIABLE POLICY?
Yes. You can convert your Policy without charge during the first 24 months
after the date of issue or after an increase in face amount. On
conversion, we will transfer the Policy Value in the sub-accounts to the
Fixed Account. We will allocate all future payments to the Fixed Account,
unless you instruct us otherwise.
WHAT CHARGES WILL I INCUR UNDER MY POLICY?
The following charges will apply to your Policy under the circumstances
described. Some of these charges apply throughout the Policy's duration.
Other charges apply only if you choose options under the Policy. See
"CHARGES AND DEDUCTIONS" at page ___.
o Charges deducted from payments.
Payment Expense Charge - From each payment, we will deduct a
payment expense charge, currently equal to 4.0% of the payment.
The payment expense charge is deducted for state and local
premium taxes, federal income tax treatment of Deferred
Acquisition Costs, and a portion of Policy sales and
administrative expenses.
o We deduct the following monthly charge from
Policy Value:
Monthly Insurance Protection Charge - This charge is the cost of
insurance, including optional insurance benefits provided by
rider.
o The following expenses are charged
against or reflected in the
Separate Account:
Administration Charge - We deduct this charge during the first 20
Policy years only. It is a daily charge at a rate equivalent to
an annual rate of 0.15% of the daily net asset value of each
sub-account. This charge is eliminated after the twentieth Policy
year. We currently waive this charge (subject to state law) after
the tenth Policy year, but we reserve the right to implement this
charge after the tenth Policy year.
Mortality and Expense Risk Charge We impose a daily charge at a
current rate equivalent to an annual rate of 0.65% of the daily
net asset value of each sub-account. We may increase this charge,
subject to state and federal law, to a daily rate equivalent to a
rate no greater than 0.80% annually.
Portfolio Expenses - The portfolios incur investment advisory
fees and other expenses, which are reflected in the sub-accounts
of the Separate Account. The levels of fees and expenses vary
among the portfolios and are described below under "WHAT ARE THE
EXPENSES AND FEES OF THE PORTFOLIOS?" at page ____.
Charges designed to reimburse us
for Policy administrative costs
apply under the following
circumstances:
Charge for Change in Face Amount - For each increase or decrease
in face amount you request, we deduct a charge of $40 from Policy
Value.
Transfer Charge - The first 12 transfers of Policy Value in a
Policy year are free. A current transfer charge of $10, never to
exceed $25, applies for each additional transfer in the same
Policy year.
Other Administrative Charges - We reserve the right to charge for
other administrative costs we incur. While there are no current
charges for these costs, we may impose a charge (guaranteed never
to exceed $25 per occurrence) for
o Changing net payment allocation
instructions
o Changing the allocation of monthly
insurance protection charges among
the various sub-accounts
o Providing more than one projection
of values during a Policy year in
addition to your annual statement
The charges below apply only if you surrender your Policy or make
partial withdrawals:
Surrender Charges- The charges only apply if, during the time the
charges are in effect, you request a full surrender of your
Policy or a decrease in face amount. The surrender charges are
intended to help compensate us for certain administrative
expenses and certain distribution expenses.
The surrender charges are computed on the date of issue for the
initial face amount and apply for ten years from the date of
issue. New surrender charges are computed for any increase in
face amount. The surrender charges for a face amount increase
apply for ten years from the date the increase is effective, and
those surrender charges only apply to the face amount increase.
The amount of the surrender charges is equal to a rate per $1,000
of face amount. The rate varies by age and sex of the Insured, as
well as the Policy duration (or duration since the increase in
face amount). Surrender charge rates decrease each Policy year on
the Policy anniversary for the initial face amount and on each
twelve month anniversary of the effective date of a face amount
increase for the charges associated with the increase.
Partial Withdrawal Costs - We deduct the following from the
Policy Value for partial withdrawals:
o A transaction fee of 2.0% of the
amount withdrawn, not to exceed
$25, for each partial withdrawal
for processing costs
o A partial withdrawal charge of 5.0% of the amount
withdrawn which exceeds the "Free 10% Withdrawal,"
described below
The partial withdrawal charge does not apply to:
o That part of a withdrawal equal to 10% of the Policy
Value in a Policy year less prior free withdrawals made
in the same Policy year ("Free 10% Withdrawal")
o Withdrawals when no surrender
charges apply
We reduce the Policy's outstanding surrender charges, if any, by
partial withdrawal charges that we previously deducted.
WHAT ARE THE EXPENSES AND FEES OF THE PORTFOLIOS?
In addition to the charges described above, certain management fees and
other expenses are deducted from the assets of the underlying portfolios.
The levels of fees and expenses vary among the portfolios. The following
table shows the management fees and other expenses and total portfolio
annual expenses of the portfolios for 1996. For more information
concerning these fees and expenses, see the prospectuses of the
portfolios.
Portfolio Expenses
(as a percentage of assets after fee waiver and/or expense
reimbursement)(1)
<TABLE>
<CAPTION>
Total
Portfolio
Management Other Annual
Portfolio Fees (2) Expenses Expenses
<S> <C> <C> <C>
Janus Aspen Worldwide Growth 0.66 0.14 0.80
Morgan Stanley UF International Magnum 0.62 0.53 1.15
Dreyfus VIF Small Cap 0.75 0.04 0.79
OCC Accumulation Trust Small Cap 0.80 0.22 1.02
MFS VIT Emerging Growth 0.75 0.25 1.00
Alliance VPF Premier Growth 0.72 0.23 0.95
Dreyfus VIF Capital Appreciation 0.75 0.09 0.84
MFS VIT Research 0.75 0.25 1.00
Transamerica VIF Growth 0.75 0.10 0.85
Alger American Income & Growth 0.63 0.19 0.82
Alliance VPF Growth & Income 0.63 0.19 0.82
MFS VIT Growth with Income 0.75 0.25 1.00
Janus Aspen Balanced 0.79 0.15 0.94
OCC Accumulation Trust Managed 0.80 0.10 0.90
Morgan Stanley UF High Yield 0.27 0.53 0.80
Morgan Stanley UF Fixed Income 0.24 0.46 0.70
Transamerica VIF Money Market 0.35 0.25 0.60
</TABLE>
Transamerica may receive payments from some or all of the portfolios or their
advisers in varying amounts, that may be based on the amount of assets allocated
to the portfolios. The payments are for administrative or distribution services.
Expense information regarding the portfolios has been provided by the
portfolios. Transamerica has no reason to doubt the accuracy of that
information, but Transamerica has not verified those figures. In preparing the
table above, Transamerica has relied on the figures provided by the portfolios.
These figures are for the year ended December 31, 1996, except for Morgan
Stanley UF International Magnum, High Yield and Fixed Income Portfolios which
are estimates which assume that each portfolio's average daily net assets will
be $50 million, and except for the Transamerica VIF Money Market Portfolio which
are estimates for the year 1998, its first year of operation. Actual expenses in
future years may be higher or lower than these figures.
Notes to Fee Table:
(1) From time to time, the portfolios' investment advisers, each in its own
discretion, may voluntarily waive all or part of their fees and/or voluntarily
assume certain portfolio expenses. The expenses shown in the table reflect a
portfolio's adviser's waivers or fees or reimbursement of expenses, if
applicable. It is anticipated that such waivers or reimbursements will continue
for calendar years 1997 and 1998. Without such waivers or reimbursements, the
annual expenses for 1996 for certain portfolios would have been, as a percentage
of assets, as follows:
<TABLE>
<CAPTION>
Total Portfolio
Portfolio Management Fee Other Expenses Annual Expense
--------- -------------- -------------- --------------
<S> <C> <C> <C>
Janus Aspen Worldwide Growth 0.77 0.14 0.91
Morgan Stanley UF International Magnum 0.80 0.53 1.33
OCC Accumulation Trust Small Cap 0.80 0.26 1.06
MFS VIT Emerging Growth 0.75 0.41 1.16
Alliance VPF Premier Growth 1.00 0.23 1.23
MFS VIT Research 0.75 0.73 1.48
Transamerica VIF Growth 0.75 0.59 1.34
Alliance VPF Growth & Income 0.63 0.32 0.95
MFS VIT Growth with Income 0.75 1.32 2.07
Janus Aspen Balanced 0.92 0.15 1.07
Morgan Stanley UF High Yield 0.50 0.53 1.03
Morgan Stanley UF Fixed Income 0.40 0.46 0.86
</TABLE>
The expenses of the Transamerica VIF Growth Portfolio reflect all 12 months of
1996, including the first 10 months of 1996 when the portfolio was organized as
a separate account of Transamerica Occidental Life Insurance Company; for those
10 months, the separate account was assessed mortality and expense risk charges
which will no longer be assessed at the portfolio level. Without expense
reimbursements, the other expenses for the first year of operation for the
Transamerica VIF Money Market Portfolio are expected to be 0.80% There were no
fee waivers or expense reimbursements for the Dreyfus VIF Small Cap Portfolio,
Dreyfus VIF Capital Appreciation Portfolio, Alger American Income and Growth
Portfolio or OCC Accumulation Trust Managed Portfolio.
(2) The management fee of certain of the portfolios includes breakpoints at
designated asset levels. Further, information on these breakpoints is provided
under "INVESTMENT OBJECTIVES AND POLICIES" at page ____ and in the prospectuses
for the portfolios.
WHAT ARE THE LAPSE AND REINSTATEMENT PROVISIONS OF MY POLICY?
The Policy will not lapse if you fail to make payments unless:
o The surrender value is insufficient to cover the next monthly
insurance protection charge and
loan interest accrued or
o The outstanding loan exceeds Policy Value less surrender
charges
In either situation there is a 62-day grace period during which you must pay
premium sufficient to keep the Policy in force.
If you make payments at least equal to minimum monthly payments, we guarantee
that your Policy will not lapse before the 49th monthly processing date from
date of issue or increase in face amount, within limits. Under the Guaranteed
Death Benefit Rider, if you make payments of a sufficient amount, net of partial
withdrawals, partial withdrawal charges and any outstanding loans, we guarantee
that your Policy will not lapse. In order to maintain this guarantee, on each
Policy anniversary through the final payment date, the total of your payments,
net of partial withdrawals, partial withdrawal charges and any outstanding
loans, must at least equal the guaranteed death benefit premium times the number
of Policy years since the Policy was issued. The guaranteed death benefit
premiums are currently 90% of the guideline level premium if you elected the
Level Death Benefit Option or 75% of the guideline level premium if you elected
the Adjustable Death Benefit Option. Certain other conditions may apply and once
terminated this rider may not be reinstated. See "POLICY TERMINATION AND
REINSTATEMENT" at page ___.
You may reinstate your Policy within three years (subject to state law) after
the date of default, within limits.
CAN I ELECT PAID-UP INSURANCE WITH NO FURTHER PREMIUMS DUE?
Yes. The Policy provides a paid-up insurance option. If this option is elected,
we will provide paid-up insurance coverage, usually having a reduced face
amount, for the life of the Insured with no more premiums being due under the
Policy. If you elect this option, Policy owner rights and benefits will be
limited. See "PAID-UP INSURANCE OPTION" at page __.
HOW IS MY POLICY TAXED?
The Policy is given federal income tax treatment similar to a conventional fixed
benefit life insurance policy. On a withdrawal of Policy Value, Policy owners
currently are taxed only on the amount of the withdrawal that exceeds total
payments. Withdrawals greater than payments made are treated as ordinary income.
During the first 15 Policy years, however, an "income-out first" rule applies to
certain distributions required under Section 7702 of the Internal Revenue Code
(the "Code") because of a reduction in benefits under the Policy.
The net death benefit under the Policy is excludable from the gross income of
the beneficiary. However, in some circumstances federal estate tax may apply to
the net death benefit or the Policy Value.
A Policy may be considered a "modified endowment contract." This may occur if
total payments during the first seven Policy years exceed the total net level
payments payable if the Policy had provided certain paid-up future benefits
after seven level annual payments. If the Policy is considered a modified
endowment contract, all distributions (including Policy loans, partial
withdrawals, surrenders and assignments) will be taxed on an "income-out first"
basis. Also, a 10% penalty tax may be imposed on that part of a distribution
that is includible in income. For more information, see "FEDERAL TAX
CONSIDERATIONS-MODIFIED ENDOWMENT CONTRACTS" at page ___.
<PAGE>
SPECIAL TERMS
Age: how old the Insured is on the birthday closest to the Date of
Issue and, subsequently, the Policy anniversary.
Attained Age: the Insured's age as of the Insured's birthday closest to
the start of the policy year of determination. Attained age is used in
the calculation of the Guideline Minimum Sum Insured.
Beneficiary: the person or persons you name to receive the net death benefit
when the Insured dies.
Date of Issue: the date the Policy was issued. It is the date used to
measure the monthly processing date,
Policy months, Policy years and Policy anniversaries.
Death Benefit: the amount payable when the Insured dies before the Maturity
Date, before deductions for any outstanding loan and due and unpaid partial
withdrawals, partial withdrawal costs, and monthly insurance protection charges.
Evidence of Insurability: information, including medical information, that we
use to decide whether to issue the requested coverage, to determine the
underwriting class for the person insured, or to determine whether the policy
may be reinstated.
Face Amount: the amount of insurance coverage issued. The initial face amount
is shown in your Policy.
Final Payment Date: the Policy anniversary nearest the Insured's 100th birthday.
No payments may be made by you after this date. No monthly insurance protection
charges will be deducted from the Policy Value after this date. Generally, the
net death benefit after this date will equal 101% of the Policy Value minus any
outstanding loan, except as otherwise provided under the Guaranteed Death
Benefit Rider.
Fixed Account: an account that is a part of the General Account and that
guarantees a fixed interest rate.
General Account: all our assets other than those held in the Separate
Account and other separate accounts we
establish.
Guideline Minimum Sum Insured: the minimum death benefit required to
qualify the Policy as a "life insurance
contract" under federal tax laws. The guideline minimum sum insured is the
product of
o The Policy Value times
o A percentage based on the Insured's attained age
Insured: the person insured under the Policy. If the Insured dies while
the Policy is in force and before the
Maturity Date the net death benefit will be paid to the Beneficiary.
Insurance Protection Amount: the death benefit less the Policy Value.
Internal Revenue Code or Code: the Internal Revenue Code of 1986, as amended,
and its rules and regulations.
Loan Value: the maximum amount you may borrow under the Policy.e application
is approved.
Maturity Date: the Policy anniversary nearest the Insured's age 115.
Minimum Monthly Payment: a monthly amount shown in your Policy. If you pay this
amount, less partial withdrawals, partial withdrawal charges and any outstanding
loans, we guarantee that your Policy will not lapse before the 49th monthly
processing date from the date of issue or increase in face amount, within
limits.
Monthly Insurance Protection Charge: the amount of money we deduct from
Policy Value each month to pay for the
insurance protection amount and any riders.
Monthly Processing Date: the date, shown in your Policy, on which
monthly insurance protection charges are
deducted.
Net Death Benefit: on or before the final payment date (and before the
paid-up insurance option is exercised),
the net death benefit is
o The death benefit under the elected death benefit option
(Level Option or Adjustable Option) minus
o Any outstanding loan, monthly insurance protection charges due
and unpaid through the Policy month in which the Insured dies,
as well as any due and unpaid partial withdrawals and partial
withdrawal charges.
After the final payment date (and except as otherwise provided under the
Guaranteed Death Benefit Rider), the net death benefit is
o 101% of the Policy Value minus
o Any outstanding loan and any due and unpaid partial
withdrawals and partial withdrawal charges.
If the paid-up insurance option is exercised, the net death benefit is the
paid-up insurance amount minus any outstanding loan.
Net Payment: your payment less a payment expense charge.
Outstanding Loan: all unpaid Policy loans plus loan interest due or accrued.
Paid-Up Insurance: life insurance coverage for the life of the Insured, with
no further premiums due.
Policy Anniversary: annual anniversary of the date of issue.
Policy Change: any change in the face amount, the addition or deletion of a
rider, or a change in death benefit
option (Level Option or Adjustable Option).
Policy Value: the total value of your Policy. It is the sum of the:
o Value of the units of the sub-accounts credited to your
Policy plus
o Accumulation in the Fixed Account credited to your Policy
Policy owner: the person who may exercise all rights under the Policy,
with the consent of any irrevocable
beneficiary. "You" and "your" refer to the Policy owner in this Prospectus.
Portfolio: a mutual fund investment portfolio in which a corresponding
sub-account invests.
Premium: a payment you must make to us to keep the Policy in force.
Pro rata Allocation: an allocation among the Fixed Account and the sub-accounts
in the same proportion that, on the date of allocation, the portion of the
Policy Value in the Fixed Account and the portion of the Policy Value in each
sub-account bear to the total Policy Value net of any outstanding loans.
Separate Account: Transamerica Occidental Life Separate Account VUL-1 of
Transamerica Occidental Life Insurance
Company, one of our separate investment accounts.
Sub-Account: a subdivision of the Separate Account investing exclusively in
the shares of a portfolio.
Surrender Value: the Policy Value less any outstanding loan and surrender
charges. The surrender value is the
amount payable on a full surrender.
Transamerica: Transamerica Occidental Life Insurance Company. "We", "our"
and "us" refer to Transamerica in this
Prospectus.
Underwriting Class: the insurance risk classification that we assign the Insured
based on the information in the application and other evidence of insurability
we consider. The Insured's underwriting class will affect the monthly insurance
protection charge and the payment required to keep the Policy in force.
Unit: a measure of your interest in a sub-account.
Valuation Date: any day on which the net asset value of the shares of any
portfolio and unit values of any
sub-accounts are computed. Valuation dates currently occur on
o Each day the New York Stock Exchange is open for trading
o Other days (other than a day during which no payment, partial
withdrawal or surrender of a Policy was received) when there
is a sufficient degree of trading in a portfolio's securities
so that the current net asset value of the sub-account may be
materially affected.
Valuation Period: the interval between two consecutive valuation dates.
Variable Life Service Center: our office at 440 Lincoln Street,Worcester,
Massachusetts 01653. Our mailing
address for all written requests and other correspondence is P.O. Box 8990,
Boston, Massachusetts 02266-8990.
Our customer service telephone number is (800) 782-8315.
Written Request: your request in writing, satisfactory to us, received at our
Variable Life Service Center.
<PAGE>
DESCRIPTION OF TRANSAMERICA,
THE SEPARATE ACCOUNT, AND THE PORTFOLIOS
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY. Transamerica Occidental Life
Insurance Company ("Transamerica") is a stock life insurance company
incorporated under the laws of the State of California in 1906. Transamerica is
principally engaged in the sale of life insurance and annuity policies.
Transamerica is a wholly-owned subsidiary of Transamerica Insurance Corporation
of California, which in turn is a direct subsidiary of Transamerica Corporation.
The home office of Transamerica is 1150 South Olive Street, Los Angeles,
California 90015.
THE SEPARATE ACCOUNT. Transamerica Occidental Life Separate Account VUL-1
("Separate Account") was established by us as a separate account under the laws
of the State of California, pursuant to resolutions adopted by our Board of
Directors on June 11, 1996. The Separate Account is registered with the
Securities and Exchange Commission ("SEC" or "Commission") under the Investment
Company Act of 1940 ("1940 Act") as a unit investment trust. It meets the
definition of a separate account under the federal securities laws. However, the
Commission does not supervise the management of the investment practices or
policies of the Separate Account.
The assets used to fund the variable part of the Policies are set aside in the
Separate Account. The assets of the Separate Account are owned by Transamerica
but they are held separately from our other assets. Section 10506 of the
California Insurance Code provides that the assets of a separate account are not
chargeable with liabilities arising out of any other business operation of the
insurance company (except to the extent provided in the policies). Income, gains
and losses incurred on the assets in the Separate Account, whether or not
realized, are credited to or charged against the Separate Account without regard
to our other income, gains or losses. Therefore, the investment performance of
the Separate Account is entirely independent of the investment performance of
our General Account assets or any other separate account maintained by us.
The Separate Account currently has seventeen sub-accounts available for
investment, each of which invests solely in a specific corresponding mutual fund
portfolio. Changes to the sub-accounts may be made at our discretion.
THE PORTFOLIOS. The portfolios are open-end management investment companies or
portfolios of series, open-end management companies registered with the SEC
under the 1940 Act and are usually referred to as mutual funds. This SEC
registration does not involve SEC supervision of the investments or investment
policies of the portfolios. Shares of the portfolios are not offered to the
public but solely to the insurance company separate accounts and other qualified
purchasers as limited by federal tax laws. The assets of each portfolio are held
separate from the assets of the other portfolios. Each portfolio operates as a
separate investment vehicle. The income or losses of one portfolio have no
effect on the investment performance of another portfolio. The sub-accounts
reinvest dividends and/or capital gains distributions received from a portfolio
in more shares of that portfolio as retained assets.
The sub-accounts available under the Policies invest in the following
portfolios:
Income and Growth Portfolio of The Alger American Fund
Growth and Income Portfolio and
Premier Growth Portfolio of Alliance Variable Products Series Fund, Inc.
Capital Appreciation Portfolio and
Small Cap Portfolio of Dreyfus Variable Investment Fund
Balanced Portfolio and
Worldwide Growth Portfolio of Janus Aspen Series
Emerging Growth Series
Growth with Income Series and
Research Series of MFS Variable Insurance Trust
Fixed Income Portfolio
High Yield Portfolio and
International Magnum Portfolio of Morgan Stanley Universal Funds, Inc.
Managed Portfolio and
Small Cap Portfolio of OCC Accumulation Trust
Growth Portfolio and
Money Market Portfolio of Transamerica Variable Insurance Fund, Inc.
INVESTMENT OBJECTIVES AND POLICIES, AND INVESTMENT ADVISERS
A summary of investment objectives of the portfolios is set forth below. Before
investing, read carefully the profiles or prospectuses of the portfolios that
accompany this Prospectus. Statements of Additional Information for the
portfolios are available on request. There is no guarantee that the investment
objectives of the portfolios will be achieved. Policy Value may be less than the
aggregate payments made to the Policy.
The boards of the portfolios have responsibility for the supervision of the
affairs of the portfolios. These boards have entered into management agreements
with the investment advisers ("Advisers"). These Advisers, subject to their
board's review, are responsible for the daily affairs and general management of
the portfolios The Advisers perform the respective administrative and management
services for the portfolios, furnish to the portfolios all necessary office
space, facilities and equipment, and pay the compensation, if any, of officers
and board members who are affiliated with the Advisers.
Each portfolio bears all expenses incurred in its operation, other than the
expenses its Advisers assume under the management agreement. Portfolio expenses
include
o Costs to register and qualify the portfolio's shares under
the Securities Act of 1933 ("1933 Act")
o Other fees payable to the SEC
o Independent public accountant, legal and custodian fees
o Association membership dues, taxes, interest, insurance
payments and brokerage commissions
o Fees and expenses of the board members who are not
affiliated with the Advisers
The portfolios prospectuses contain more detailed information on the portfolios'
investment objectives, restrictions, risks, expenses and Advisers.
The Worldwide Growth Portfolio of the Janus Aspen Series seeks long-term growth
of capital in a manner consistent with the preservation of capital. It is a
diversified portfolio that pursues its objective primarily through investments
in common stocks of foreign and domestic issuers. The portfolio has the
flexibility to invest on a worldwide basis in companies and other organizations
of any size, regardless of country of organization or place of principal
business activity. The portfolio normally invests in issuers from at least five
different countries, including the United States. The portfolio may at times
invest in fewer than five countries or even a single country.
Adviser: Janus Capital Corporation. Management Fee: 0.75% of the first
$300 million plus 0.70% of the next $200
million plus 0.65% of the assets over $500 million.
The International Magnum Portfolio of the Morgan Stanley Universal Funds, Inc.,
seeks long-term capital appreciation by investing primarily in equity securities
of non-U.S. issuers domiciled in EAFE countries. The countries in which the
portfolio will invest are those comprising the Morgan Stanley Capital
International EAFE Index, which includes Australia, Japan, New Zealand, most
nations located in Western Europe and certain developed countries in Asia, such
as Hong Kong and Singapore (collectively the "EAFE countries"). The portfolio
may invest up to 5% of its total assets in securities of issuers domiciled in
non-EAFE countries. Under normal circumstances, at least 65% of the total assets
of the portfolio will be invested in equity securities of issuers in at least
three different EAFE countries.
Adviser: Morgan Stanley Asset Management Inc. Management Fee: 0.80%
of the first $500 million plus 0.75% of the
next $500 million plus 0.70% of the assets over $1 billion.
The Small Cap Portfolio of the Dreyfus Variable Investment Fund seeks to
maximize capital appreciation. It seeks to achieve its objective by investing
principally in common stocks. Under normal market conditions, the portfolio will
invest at least 65% of its total assets in companies with market capitalizations
of less than $1.5 billion at the time of purchase which The Dreyfus Corporation
believes to be characterized by new or innovative products, services or
processes which should enhance prospects for growth in future earnings.
Adviser: The Dreyfus Corporation. Management Fee: 0.75%.
The Small Cap Portfolio of the OCC Accumulation Trust seeks capital appreciation
through investments in a diversified portfolio consisting primarily of equity
securities of companies with market capitalizations of under $1 billion. Under
normal circumstances at least 65% of the portfolio's assets will be invested in
equity securities. The majority of securities purchased by the portfolio will be
traded on the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market, and will also include options, warrants, bonds, notes
and debentures which are convertible into or exchangeable for, or which grant a
right to purchase or sell, such securities. In addition, the portfolio may also
purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American depository receipts
listed on a domestic securities exchange or traded in domestic or foreign
over-the-counter markets.
Adviser: OpCap Advisors. Management Fee: 0.80% of the first $400 million
plus 0.75% of the next $400 million
plus 0.70% of assets over $800 million.
The Emerging Growth Series of the MFS Variable Insurance Trust seeks to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the investment objective of long-term
growth of capital. The policy is to invest primarily (i.e., at least 80% of its
assets under normal circumstances) in common stocks of companies that the
Adviser believes are early in their life cycle but which have the potential to
become major enterprises (emerging growth companies). While the portfolio will
invest primarily in common stocks, the portfolio may, to a limited extent, seek
appreciation in other types of securities such as fixed income securities (which
may be unrated), convertible securities and warrants when relative values make
such purchases appear attractive either as individual issues or as types of
securities in certain economic environments. The portfolio may invest in
non-convertible fixed income securities rated lower than "investment grade"
(commonly known as "junk bonds") or in comparable unrated securities, when, in
the opinion of the Adviser, such an investment presents a greater opportunity
for appreciation with comparable risk to an investment in "investment grade"
securities. Under normal market conditions the portfolio will invest not more
than 5% of its nets assets in these securities. Consistent with its investment
objective and policies described above, the portfolio may also invest up to 25%
(and generally expects to invest not more than 15%) of its net assets in foreign
securities (including emerging market securities and Brady Bonds) which are not
traded on a U.S. exchange.
Adviser: Massachusetts Financial Services Company. Management Fee: 0.75%.
The Premier Growth Portfolio of Alliance Variable Products Series Fund, Inc.,
seeks growth of capital by pursuing aggressive investment policies. Since
investments will be made based upon their potential for capital appreciation,
current income will be incidental to the objective of capital growth. The
portfolio will invest predominantly in the equity securities (common stocks,
securities convertible into commons stocks and rights and warrants to subscribe
for or purchase common stocks) of a limited number of large, carefully selected,
high-quality U.S. companies that, in the judgment of the Adviser, are likely to
achieve superior earnings growth. The portfolio investments in the 25 such
companies most highly regarded at any point in time by the Adviser will usually
constitute approximately 70% of the portfolio's net assets. The portfolio thus
differs from more typical equity mutual funds by investing most of its assets in
a relatively small number of intensively researched companies. The portfolio
will, under normal circumstances, invest at least 85% of the value of its total
assets in the equity securities of U.S. companies.
Adviser: Alliance Capital Management L.P. Management Fee: 1%.
The Capital Appreciation Portfolio of the Dreyfus Variable Investment Fund is a
diversified portfolio, the primary investment objective of which is to provide
long-term capital growth consistent with the preservation of capital; current
income is a secondary investment objective. During periods which the Sub-Adviser
determines to be of market strength, the portfolio acts aggressively to increase
shareholders' capital by investing principally in common stocks of domestic and
foreign issuers, common stocks with warrants attached and debt securities of
foreign governments. The portfolio will seek investment opportunities generally
in large capitalization companies (those with market capitalizations exceeding
$500 million) which the Sub-Adviser believes have the potential to experience
above average and predictable earnings growth.
Adviser: The Dreyfus Corporation. Sub-Adviser: Fayez Sarofim & Co.
Management Fee: 0.75%.
The Research Series of the MFS Variable Insurance Trust seeks long-term growth
of capital and future income. The policy is to invest a substantial proportion
of its assets in equity securities of companies believed to possess better than
average prospects for long-term growth. Equity securities in which the portfolio
may invest include the following: common stocks, preferred stocks and preference
stocks, securities such as bonds, warrants or rights that are convertible into
stocks and depository receipts for those securities. These securities may be
listed on securities exchanges, traded in various over-the-counter markets or
have no organized markets. A smaller proportion of the assets may be invested in
bonds, short-term obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth. Such securities may also
offer opportunities for growth of capital as well as income. In the case of both
growth stocks and income issues, emphasis is placed on the selection of
progressive, well-managed companies. The portfolio's non-convertible debt
investments, if any, may consist of "investment grade" securities, and, with
respect to no more than 10% of the portfolio's net assets, securities in the
lower rated categories or securities which the Adviser believes to be a similar
quality to these lower rated securities (commonly know as "junk bonds").
Consistent with its investment objective and policies described above, the
portfolio may also invest up to 20% of its net assets in foreign securities
(including emerging market securities) which are not traded on a U.S. exchange.
Adviser: Massachusetts Financial Services Company. Management Fee: 0.75%.
The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., seeks
long-term capital growth. Common stock (listed and unlisted) is the basic form
of investment. Although the portfolio invests the majority of its assets in
common stocks, the portfolio may also invest in debt securities and preferred
stocks (both having a call on common stocks by means of a conversion privilege
or attached warrants) and warrants or other rights to purchase common stocks.
Unless market conditions would indicate otherwise, the portfolio will be
invested primarily in such equity-type securities. When in the judgment of the
Sub-Adviser market conditions warrant, the portfolio may, for temporary
defensive purposes, hold part or all of its assets in cash, debt or money market
instruments. The portfolio may invest up to 10% of its assets in debt securities
having a call on common stocks that are rated below investment grade.
Adviser: Transamerica Occidental Life Insurance Company. Sub-Adviser:
Transamerica Investment Services, Inc.
Management Fee: 0.75%.
The Income and Growth Portfolio of The Alger American Fund seeks, primarily, a
high level of dividend income. Capital appreciation is a secondary objective of
the portfolio. Except during temporary defensive periods, the portfolio attempts
to invest 100%, and it is a fundamental policy of the portfolio to invest at
least 65%, of its total assets in dividend paying equity securities. The Adviser
will favor securities it believes also offer opportunities for capital
appreciation. The portfolio may invest up to 35% of its total assets in money
market instruments and repurchase agreements and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
Adviser: Fred Alger Management, Inc. Management Fee: 0.625%.
The Growth and Income Portfolio of the Alliance Variable Products Series Fund,
Inc., seeks reasonable current income and reasonable opportunity for
appreciation through investments primarily in dividend-paying common stocks of
good quality. Whenever the economic outlook is unfavorable for investment in
common stock, investments in other types of securities, such as bonds,
convertible bonds, preferred stock and convertible preferred stocks may be made
by the portfolio. Purchases and sales of portfolio securities are made at such
times and in such amounts as are deemed advisable in light of market, economic
and other conditions.
Adviser: Alliance Capital Management L.P. Management Fee: 0.625%.
The Growth with Income Series of the MFS Variable Insurance Trust seeks
reasonable current income and long-term growth of capital and income. Under
normal market conditions, the portfolio will invest at least 65% of its assets
in equity securities of companies that are believed to have long-term prospects
for growth and income. Equity securities in which the portfolio may invest
include the following: common stocks, preferred stocks and preference stock;
securities such as bonds, warrants or rights that are convertible into stocks;
and depository receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized markets. Consistent with its investment objective and policies
described above, the portfolio may also invest up to 75% (and generally expects
to invest no more than 15%) of its net assets in foreign securities (including
emerging market securities and Brady Bonds) which are not traded on a U.S.
exchange.
Adviser: Massachusetts Financial Services Company. Management Fee: 0.75%.
The Balanced Portfolio of the Janus Aspen Series seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified portfolio that, under normal circumstances, pursues its objective by
investing 40-60% of its assets in securities selected primarily for their growth
potential and 40-60% of its assets in securities selected primarily for their
income potential. This portfolio normally invests at least 25% of its assets in
fixed-income senior securities, which include debt securities and preferred
stocks.
Adviser: Janus Capital Corporation. Management Fee: 0.75% of the first $300
million plus 0.70% of the next $200
million plus 0.65% of the assets over $500 million.
The Managed Portfolio of the OCC Accumulation Trust seeks growth of capital over
time through investment in a portfolio consisting of common stocks, bonds and
cash equivalents, the percentages of which will vary based on the Adviser's
assessments of the relative outlook for such investments. Debt securities are
expected to be predominantly investment grade intermediate to long term U.S.
Government and corporate debt, although the portfolio will also invest in high
quality short term money market and cash equivalent securities and may invest
almost all of its assets in such securities when the Adviser deems it advisable
in order to preserve capital. In addition, the portfolio may also purchase
foreign securities provided that they are listed on a domestic or foreign
securities exchange or are represented by American depository receipts listed on
a domestic securities exchange or traded in domestic or foreign over-the-counter
markets.
Adviser: OpCap Advisors. Management Fee: 0.80% of first $400 million
plus 0.75% of next $400 million plus
0.70% of the assets over $800 million.
The High Yield Portfolio of the Morgan Stanley Universal Funds, Inc., seeks
above-average total return over a market cycle of three to five years by
investing primarily in high yield securities of U. S. and foreign issuers,
including corporate bonds and other fixed income securities and derivatives.
High yield securities are rated below investment grade and are commonly referred
to as "junk bonds." The portfolio's average weighted maturity will ordinarily
exceed five years and will usually be between five and fifteen years.
Adviser: Miller Anderson & Sherrerd, LLP. Management Fee: 0.50% of first
$500 million plus 0.45% of next $500
million plus 0.40% of the assets over $1 billion.
The Fixed Income Portfolio of the Morgan Stanley Universal Funds, Inc., seeks
above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of U.S. government and agencies,
corporate bonds, mortgage backed securities, foreign bonds and other fixed
income securities and derivatives. The portfolio's average weighted maturity
will ordinarily exceed five years and will usually be between five and fifteen
years.
Adviser: Miller Anderson & Sherrerd, LLP. Management Fee: 0.40% of the
first $500 million plus 0.35% of the next
$500 million plus 0.30% of the assets over $1 billion.
The Money Market Portfolio of the Transamerica Variable Insurance Fund,
Inc., seeks to maximize current income
from money market securities consistent with liquidity and the preservation
of principal. The portfolio invests
primarily in high quality U. S. dollar-denominated money market instruments
with remaining maturities of 13
months or less, including: obligations issued or guaranteed by the U. S.
and foreign governments and their
agencies and instrumentalities; obligations of U. S. and foreign banks, or
their foreign branches, and U. S.
savings banks; short-term corporate obligations, including commercial
paper, notes and bonds; other short-term
debt obligations with remaining maturities of 397 days or less; and
repurchase agreements involving any of the
securities mentioned above. The portfolio may also purchase other
marketable, non-convertible corporate debt
securities of U. S. issuers. These investments include bonds, debentures,
floating rate obligations, and issues
with optional maturities.
Adviser: Transamerica Occidental Life Insurance Company. Sub-Adviser:
Transamerica Investment Services, Inc.
Management Fee: 0.35%.
If there is a material change in the investment policy of a portfolio, we will
notify you of the change. If you have Policy Value allocated to that portfolio,
you may without charge reallocate the Policy Value to another portfolio or to
the Fixed Account. For you to exercise your rights, we must receive your written
request within sixty (60) days of the later of the
o Effective date of the change in the investment policy, or
o Receipt of the notice of your right to transfer
THE POLICY
APPLICATION FOR A POLICY - We offer Policies to proposed Insureds 80 years old
and younger. After receiving a completed application from a prospective Policy
owner, we will begin underwriting to decide the insurability of the proposed
Insured. We may require medical examinations and other information before
deciding insurability. We issue a Policy only after underwriting has been
completed. We may reject an application that does not meet our underwriting
guidelines.
If a prospective Policy owner makes an initial payment of at least one minimum
monthly payment, we will issue a conditional receipt which provides fixed
conditional insurance, but not until after all its conditions are met. Included
in these conditions, are the completion of both parts of the application,
completion of all underwriting requirements, and the proposed Insured must be
insurable under Transamerica's rules for insurance under the Policy, in the
amount, and in the underwriting class applied for in the application. After all
conditions are met, the amount of fixed conditional insurance provided by the
conditional receipt will be the amount applied for, up to a maximum of $250,000
for persons age 16 to 65 and insurable in a standard underwriting class, and up
to $100,000 for all other ages and underwriting classes.
If you make payments before the date of issuance, we will allocate the payments
initially to the Fixed Account within two business days of receipt of the
payments at our Variable Life Service Center. If the Policy is not issued, we
will return to you the amount of your payments.
If your application is approved and the Policy is issued, we will allocate your
Policy Value within two days of the date we approve your application according
to your allocation instructions. However, if your Policy provides for a full
refund of payments under its "Right to Examine Policy" provision as required in
your state (see "THE POLICY - "FREE LOOK PERIOD"), we will initially allocate
your sub-account investments to the sub-account investing in the Money Market
portfolio ("Money Market sub-account"). We will also transfer interest earned in
the Fixed Account allocable to the portion of your payment designated by you for
the Separate Account. This allocation to the Money Market sub-account will be
effective for four calendar days plus the state free look period. After this, we
will allocate all amounts to the sub-accounts according to your investment
choices.
FREE LOOK PERIOD - The Policy provides for a free look period. You have the
right to examine and cancel your Policy by returning it to us or to one of our
representatives by the later of:
o 45 days after the application for the Policy is signed, or
o 10 days after you receive the Policy (or a longer period as
required by state law for replacement policies or for other
reasons). We refer to this 10 day or longer time period as the
"state free look period"
In some states, the 45 day period noted above does not apply, and only the 10
day (or longer) provision applies.
If your Policy provides for a full refund under its "Right to Examine Policy"
provision as required in your state, your refund will be the total payments made
to the Policy.
If your Policy does not provide for a full refund, you will receive
o Amounts allocated to the Fixed Account plus
o The Policy Value in the Separate Account plus
o All fees, charges and tax deductions which have been imposed
We may delay a refund of any payment made by check until the check has cleared
your bank.
After an increase in face amount as a result of your written request, we will
mail or deliver a notice of a free look period for the increase. You will have
the right to cancel the increase by the later of
o 45 days after the application for the increase is signed or
o 10 days after you receive the new Policy specification pages
issued for the increase
On canceling the increase, you will receive a credit to your Policy Value of
charges deducted for the increase. We will refund to you the amount to be
credited if you request. We will waive any surrender charge computed for the
increase.
CONVERSION PRIVILEGE - Within 24 months of the date of issue or of the effective
date of an increase in face amount, you can convert your Policy into a
non-variable Policy by transferring the value in the sub-accounts to the Fixed
Account. The conversion will take effect at the end of the valuation period in
which we receive, at our Variable Life Service Center, notice of the conversion
satisfactory to us. There is no charge for this conversion.
We will allocate all future payments to the Fixed Account, unless you instruct
us otherwise.
PAYMENTS - Payments are payable to Transamerica Occidental Life Insurance
Company. Payments may be made by mail to our Variable Life Service Center or
through our authorized representative. All net payments after the initial
payment are credited to the Separate Account or Fixed Account on the valuation
date of receipt at the Variable Life Service Center.
You may establish a schedule of planned payments. If you do, we will bill you at
regular intervals. Making planned payments will not guarantee that the Policy
will remain in force. The Policy will not necessarily lapse if you fail to make
planned payments. You may make unscheduled payments before the final payment
date or skip planned payments.
You may choose a monthly automatic payment method of making payments. Under this
method, each month we will deduct payments from your checking account and apply
them to your Policy. The minimum payment allowed under this method is $50.
The Policy does not limit payments as to frequency and number. However, no
payment may be less than $100 without our consent. Payments must be sufficient
to provide a positive surrender value at the end of each Policy month or the
Policy may lapse. See "POLICY TERMINATION AND REINSTATEMENT." During the first
48 Policy months following the date of issue or the effective date of an
increase in face amount, a guarantee may apply to prevent the Policy from
lapsing. The guarantee will apply during this period if we received payments
from you that, when reduced by outstanding loans, partial withdrawals and
partial withdrawal charges, equal or exceed the required minimum monthly
payments. The required minimum monthly payments are based on the number of
months the Policy, increase in face amount or Policy change that causes a change
in the minimum monthly payment has been in force. MAKING MONTHLY PAYMENTS EQUAL
TO THE MINIMUM MONTHLY PAYMENTS DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN
IN FORCE, EXCEPT AS STATED IN THIS PARAGRAPH.
Under the Guaranteed Death Benefit Rider, if you make payments of a sufficient
amount, net of withdrawals, withdrawal charges and any outstanding loans, we
guarantee that your Policy will not lapse. In order to maintain this guarantee,
on each Policy anniversary through the final payment date, the total of your
payments received by us, net of withdrawals, withdrawal charges and any
outstanding loans, must at least equal the guaranteed death benefit premium
times the number of Policy years since the Policy was issued. The guaranteed
death benefit premiums are currently 90% of the guideline level premium if you
elected the Level Option or 75% of the guideline level premium if you elected
the Adjustable Option. A Policy change may affect the amount of payments
necessary to keep the rider in force. Certain other conditions may apply, and
once terminated this rider may not be reinstated.
Total payments may not exceed the current maximum payment limits under federal
tax law. These limits will change with a change in face amount, the addition or
deletion of a rider, or a change between the Level Option and Adjustable Option.
Where total payments would exceed the current maximum payment limits, we will
only accept that part of a payment that will make total payments equal the
maximum. Any part of the payments greater than that amount will first be applied
as a loan repayment, if you have an outstanding loan, and any remainder will be
returned to you. We will refund to you any excess amount (including interest)
not later than 60 days after the end of the Policy year in which the excess
payment occurred. However, we will accept a payment needed to prevent Policy
lapse during a Policy year. The amount refundable will not exceed the surrender
value of the policy. If the entire surrender value is refunded, we will treat
the transaction as a full surrender of your Policy. See "POLICY TERMINATION AND
REINSTATEMENT."
ALLOCATION OF NET PAYMENTS - The net payment equals the payment made less the
payment expense charge. In the application for your Policy, you decide the
initial allocation of the net payment among the Fixed Account and the
sub-accounts. You may allocate net payments to one or more of the sub-accounts,
but may not have Policy Value in more than seven sub-accounts at once. The
minimum amount that you may allocate to a sub-account is 1.0% of the net
payment. Allocation percentages must be in whole numbers (for example, 331/3%
may not be chosen) and must total 100%.
You may change the allocation of future net payments by written request or
telephone request. You have the privilege to make telephone requests, unless you
elected not to have the privilege on the application. The policy of Transamerica
and its representatives and affiliates is that they will not be responsible for
losses resulting from acting on telephone requests reasonably believed to be
genuine. We will use reasonable methods to confirm that instructions
communicated by telephone are genuine; otherwise, Transamerica may be liable for
any losses from unauthorized or fraudulent instructions. We require that callers
on behalf of a Policy owner identify themselves by name and identify the Policy
owner by name, date of birth and social security number. All telephone requests
are tape recorded. An allocation change will take effect on the date of receipt
of the notice at the Variable Life Service Center. No charge is currently
imposed for changing payment allocation instructions. We reserve the right to
impose a charge in the future, but guarantee that the charge will not exceed
$25.
The Policy Value of each sub-account will vary with the investment experience of
the portfolio in which the sub-account invests. You bear this investment risk.
Investment performance may also affect the death benefit. Review your
allocations of payments and Policy Value as market conditions and your financial
planning needs change.
TRANSFER PRIVILEGE - Subject to our then current rules, you may transfer amounts
among the sub-accounts or between one or more sub-accounts and the Fixed
Account. (You may not transfer that portion of the Policy Value held in the
Fixed Account that secures a Policy loan.)
The transfer privilege is subject to our consent. We reserve the right to
impose limits on transfers including,
but not limited to, the
o Minimum amount that may be transferred
o Minimum amount that may remain in a sub-account following a
transfer from that sub-account
o Minimum period between transfers involving the Fixed Account
o Maximum amounts that may be transferred from the Fixed Account
Transfers involving the Fixed Account are currently permitted only if:
o There has been at least a ninety (90) day period since the
last transfer from the Fixed Account,
and
o The amount transferred from the Fixed Account in each
transfer does not exceed the lesser of
$100,000 or 25% of the Policy Value
These rules are subject to change by us.
We will make transfers at your written request or telephone request, as
described in "THE POLICY - ALLOCATION OF NET PAYMENTS." Transfers are effected
at the value next computed after receipt of the transfer order, except for
automatic transfers.
You may apply for automatic transfers under either the Dollar Cost Averaging
(DCA) option or the Automatic Account Rebalancing (AAR) option by submitting
your written request to our Variable Life Service Center. Transfers under either
DCA or AAR are generally effective on the 15th day of each scheduled month. If
your written request is received by us prior to the 15th of the month, your
option may begin as early as the 15th of the month in which we receive your
request. Otherwise, your option may begin as early as the 15th of the following
month. You may cancel your election of an option by written request at any time
with regard to future transfers. The DCA option and the AAR option may not be
effective at the same time on your Policy. If you elect one option and, at a
later date, submit written request for the other option, your new written
request will be honored, and the previously elected option will be automatically
terminated.
Dollar Cost Averaging. This option allows you to systematically transfer a set
dollar amount from the Money Market sub-account on a monthly, quarterly, or
semi-annual basis to one or more other sub-accounts. The minimum amount of each
DCA transfer from the Money Market sub-account is $100, and at no time may you
have value in more than seven sub-accounts. The Dollar Cost Averaging option is
designed to reduce the risk of your purchasing units only when the price of the
units is high, but you should carefully consider your financial ability to
continue the option over a long enough period of time to purchase units when
their value is low as well as when it is high. The DCA option does not assure a
profit or protect against a loss. The DCA option will terminate automatically
when the value of your Money Market sub-account is depleted.
There is no additional charge for electing the DCA option. Transfers to the
Fixed Account are not permitted under the DCA option. We reserve the right to
terminate the DCA option at any time and for any reason.
Automatic Account Rebalancing. Once your net payments and requested transfers
have been allocated among your sub-account choices, the performance of each
sub-account may cause your allocation to shift such that the relative value of
one or more sub-accounts is no longer consistent with your overall objectives.
Under the Automatic Account Rebalancing option, the balances in your selected
sub-accounts can be restored to the allocation percentages you elect on your
written request by transferring values among the sub-accounts. At no time may
you have value in more than seven sub-accounts. The minimum percentage
allocation for each selected sub-account is 1%, and percentage allocations must
be in whole numbers. The AAR option is available on a quarterly, semi-annual or
annual basis. The minimum total amount of the transfers under the AAR option is
$100 per scheduled date. If the total transfer amount is less than $100, no
transfer will occur on that scheduled date. The AAR option does not guarantee a
profit or protect against a loss.
There is no additional charge for electing the AAR option. Transfers to the
Fixed Account are not permitted under the AAR option. We reserve the right to
terminate the AAR option at any time and for any reason.
The first 12 transfers in a Policy year are free. After that, we will deduct a
$10 transfer charge from amounts transferred in that Policy year. We reserve the
right to increase the charge, but we guarantee the charge will never exceed $25.
The first automatic transfer for the elected option counts as one transfer
toward the 12 free transfers allowed in each Policy year. Each subsequent
automatic transfer for the elected option is free, and does not reduce the
remaining number of transfers that are free in a Policy year.
Any transfers made for a conversion privilege, or because of a Policy loan or
material change in investment Policy will not count toward the 12 free
transfers.
DEATH BENEFIT - If the Policy is in force on the date of the Insured's death, we
will, with due proof of death, pay the net death benefit to the named
beneficiary. We will normally pay the net death benefit within seven days of
receiving due proof of the Insured's death, but we may delay payment of net
death benefits. See "OTHER POLICY PROVISIONS - DELAY OF PAYMENTS." The
beneficiary may receive the net death benefit in a lump sum or under a payment
option. See "APPENDIX C - PAYMENT OPTIONS."
Before the final payment date and before the paid-up insurance option is
exercised, the net death benefit is
o The death benefit provided under the Level Option or
Adjustable Option, whichever is elected and
in effect on the date of death plus
o Any other insurance on the Insured's life that is provided
by rider minus
o Any outstanding loan and any due and unpaid partial
withdrawals, partial withdrawal charges and monthly insurance
protection charges through the Policy month in which the
Insured dies
After the final payment date and except as otherwise provided in the Guaranteed
Death Benefit Rider, the net death benefit is
o 101% of the Policy Value minus
o Any outstanding loan and any due and unpaid partial
withdrawals and partial withdrawal charges.
If the paid-up insurance option is exercised, the net death benefit is the
paid-up insurance amount minus any outstanding loan.
In most states, we will compute the net death benefit on the date we receive due
proof of the Insured's death.
LEVEL OPTION AND ADJUSTABLE OPTION - The Policy provides two death benefit
options through the final payment date and before the paid-up insurance option
is exercised: the Level Option and the Adjustable Option. You choose the desired
option in the application. You may change the option once per Policy year by
written request. There is no charge for a change in option.
Under the Level Option, the death benefit is the greater of the
o Face amount or
o Guideline minimum sum insured
Under the Adjustable Option, the death benefit is the greater of the
o Face amount plus Policy Value or
o Guideline minimum sum insured
Under both the Level Option and Adjustable Option, the death benefit provides
insurance protection. Under the Level Option, the death benefit is level unless
the guideline minimum sum insured exceeds the face amount; then, the death
benefit varies as the Policy Value changes. Under the Adjustable Option, the
death benefit always varies as the Policy Value changes.
At any face amount, the death benefit will be greater under the Adjustable
Option than under the Level Option because the Policy Value is added to the face
amount and included in the death benefit. (If, however, the death benefit is the
guideline minimum sum insured, then the death benefit will be the same.)
However, the monthly insurance protection charge will be greater and, therefore,
Policy Value will accumulate at a slower rate than under the Level Option.
If you desire to have payments and investment performance reflected in the death
benefit, you should choose the Adjustable Option. If you desire to have payments
and investment performance reflected to the maximum extent in the Policy Value,
you should select the Level Option.
Guideline Minimum Sum Insured - The guideline minimum sum insured is a
percentage of the Policy Value as set forth in "APPENDIX A - GUIDELINE MINIMUM
SUM INSURED TABLE." The guideline minimum sum insured is computed in accordance
with federal income tax laws to ensure that the Policy qualifies as a life
insurance contract and that the insurance proceeds will be excluded from the
gross income of the beneficiary.
Illustration of the Level Option - In this illustration, assume that the Insured
is currently age 40 (attained age), and that there is no outstanding loan.
Under the Level Option, a Policy with a $100,000 face amount will have a death
benefit of $100,000. However, because the death benefit must be equal to or
greater than 250% of Policy Value, if the Policy Value exceeds $40,000 the death
benefit will exceed the $100,000 face amount. In this example, each dollar of
Policy Value above $40,000 will increase the death benefit by $2.50. For
example, a Policy with a Policy Value of $50,000 will have a guideline minimum
sum insured of $125,000 ($50,000 x 2.50); Policy Value of $60,000 will produce a
guideline minimum sum insured of $150,000 ($60,000 x 2.50); and Policy Value of
$75,000 will produce a guideline minimum sum insured of $187,500 ($75,000 x
2.50).
Similarly, if Policy Value exceeds $40,000, each dollar taken out of Policy
Value will reduce the death benefit by $2.50. If, for example, the Policy Value
is reduced from $60,000 to $50,000 because of partial withdrawals, charges or
negative investment performance, the death benefit will be reduced from $150,000
to $125,000. If, however, the product of the Policy Value times the applicable
percentage from the table in Appendix A is less than the face amount, the death
benefit will equal the face amount.
The applicable percentage becomes lower as the Insured's age increases. If the
Insured's attained age in the above example were, for example, 50 (rather than
40), the applicable percentage would be 185%. The death benefit would not exceed
the $100,000 face amount unless the Policy Value exceeded $54,054 (rather than
$40,000), and each dollar then added to or taken from Policy Value would change
the death benefit by $1.85.
Illustration of the Adjustable Option - In this illustration, assume that the
Insured is age 40 (attained age) and
that there is no outstanding loan.
Under the Adjustable Option, a Policy with a face amount of $100,000 will
produce a death benefit of $100,000 plus Policy Value. For example, a Policy
with Policy Value of $10,000 will produce a death benefit of $110,000 ($100,000
+ $10,000); Policy Value of $25,000 will produce a death benefit of $125,000
($100,000 + $25,000); Policy Value of $50,000 will produce a death benefit of
$150,000 ($100,000 + $50,000). However, the death benefit must be at least 250%
of the Policy Value. Therefore, if the Policy Value is greater than $66,667,
250% of that amount will be the death benefit, which will be greater than the
face amount plus Policy Value. In this example, each dollar of Policy Value
above $66,667 will increase the death benefit by $2.50. For example, if the
Policy Value is $70,000, the guideline minimum sum insured will be $175,000
($70,000 x 2.50); Policy Value of $80,000 will produce a guideline minimum sum
insured of $200,000 ($80,000 x 2.50); and Policy Value of $90,000 will produce a
guideline minimum sum insured of $225,000 ($90,000 x 2.50).
Similarly, if Policy Value exceeds $66,667, each dollar taken out of Policy
Value will reduce the death benefit by $2.50. If, for example, the Policy Value
is reduced from $80,000 to $70,000 because of partial withdrawals, charges or
negative investment performance, the death benefit will be reduced from $200,000
to $175,000. If, however, the product of the Policy Value times the applicable
percentage is less than the face amount plus Policy Value, then the death
benefit will be the current face amount plus Policy Value.
The applicable percentage becomes lower as the Insured's age increases. If the
Insured's attained age in the above example were 50, the death benefit must be
at least 185% of the Policy Value. The death benefit would be the sum of the
Policy Value plus $100,000 unless the Policy Value exceeded $117,647 (rather
than $66,667). Each dollar added to or subtracted from the Policy would change
the death benefit by $1.85.
CHANGE TO LEVEL OR ADJUSTABLE OPTION - You may change the death benefit option
once each Policy year by written request, within limits noted in "LEVEL OPTION
AND ADJUSTABLE OPTION." Changing options will not require evidence of
insurability. The change takes effect on the monthly processing date on or next
following the date of receipt of the written request. We will impose no charge
for changes in death benefit options.
If you change the Level Option to the Adjustable Option, we will decrease the
face amount to equal
o The death benefit under the Level Option minus
o The Policy Value on the date of the change
The change may not be made if the face amount would fall below $50,000. After
the change from the Level Option to the Adjustable Option, future monthly
insurance protection charges may be higher or lower than if no change in option
had been made. However, the insurance protection amount will always equal the
face amount unless the guideline minimum sum insured applies. No surrender
charges will be imposed for the decrease in face amount resulting solely because
of a change in death benefit options from the Level Option to the Adjustable
Option.
If you change the Adjustable Option to the Level Option, we will increase the
face amount, and the new face amount will be equal to the death benefit under
the Adjustable Option on the date of change. The death benefit will be the
greater of
o The new face amount or
o The guideline minimum sum insured
No new surrender charge rates or new surrender charge period will be imposed
solely because of a change in death benefit options. After the change from the
Adjustable Option to the Level Option, an increase in Policy Value will reduce
the insurance protection amount and the monthly insurance protection charge. A
decrease in Policy Value will increase the insurance protection amount and the
monthly insurance protection charge.
A change in death benefit option may result in total payments exceeding the then
current maximum payment limitation under federal tax law. If this occurs, we
will pay the excess to you.
CHANGE IN FACE AMOUNT - You may increase or decrease the face amount by written
request. An increase or decrease in the face amount takes effect on the later of
o The monthly processing date on or next following the date of
receipt of your written request or
o The date of our approval of your written request, if evidence
of insurability is required
Increases - You must submit evidence of insurability satisfactory to us with
your written request for an increase. The consent of the Insured is also
required whenever the face amount is increased. An increase in face amount may
not be less than $10,000. You may not increase the face amount after the Insured
reaches age 80. A written request for an increase must include a payment if the
surrender value is less than the sum of
o $40 plus
o Two minimum monthly payments
On the effective date of each increase in face amount, we will deduct a
transaction charge of $40 from Policy Value for administrative costs. You may
allocate the deduction to one sub-account. If you make no allocation we will
make a pro rata allocation. We will also compute surrender charges for the
increase. An increase in the face amount will increase the insurance protection
amount and, therefore, the monthly insurance protection charges. We will provide
you new specification pages for the Policy indicating the effective date of the
increase and any additional charges due to the increase.
After increasing the face amount, you will have the right, during a free look
period, to have the increase canceled. See "THE POLICY - FREE LOOK PERIOD." If
you exercise this right, we will credit to your Policy the charges deducted for
the increase, unless you request a refund of these charges. We will also cancel
any surrender charges for the increase.
Decreases - You may decrease the face amount by written request. The minimum
amount for a decrease in face amount is $10,000. The minimum face amount in
force after a decrease is $50,000. We may limit the decrease or return Policy
Value to you, as you choose, if the Policy would not comply with the maximum
payment limitation under federal tax law. A return of Policy Value may result in
tax liability to you.
A decrease in the face amount will lower the insurance protection amount and,
therefore, the monthly insurance protection charge. In computing the monthly
insurance protection charge, a decrease in the face amount will reduce the face
amount in inverse order (i.e., first, the most recent increase, then the next
most recent increases, then the initial face amount).
On the effective date of a decrease in the face amount, we will deduct from the
Policy Value a transaction charge of $40 and, if applicable, any surrender
charges. You may allocate the deduction to one sub-account. If you make no
allocation, we will make a pro rata allocation. We will reduce the surrender
charge by the amount of any surrender charge deducted. We will provide you with
new specification pages indicating the effective date of the decrease and the
new minimum monthly payment, if any.
OPTION TO ACCELERATE DEATH BENEFITS (LIVING BENEFITS RIDER) - Subject to state
law and approval, you may elect to add the Option to Accelerate Death Benefits
(Living Benefits Rider) to your Policy. There is no direct charge for this
rider. The rider allows you to receive a portion of the net death benefit while
the Insured is alive, subject to the conditions of the rider. You may submit a
written request to receive the "living benefit" under this rider if the policy
in in-force and a qualified physician certifies that the Insured has an illness
or physical condition which is likely to result in the Insured's death within 12
months. You may receive the living benefit either in a single sum or in 12 equal
payments. The option may only be exercised once under the Policy.
The amount you may receive is based on the "option amount". The option amount is
the portion of the death benefit you elect to apply under the rider as an
accelerated death benefit. The option amount must be at least $25,000 and may
not exceed the lessor of
One-half of the death benefit on the date the option is elected, or
The amount that would reduce the face amount to $100,000, our
current minimum issue limit, or $250,000
The "living benefit" is the lump sum benefit under this rider and is the amount
used to determine the monthly benefit under the rider. It is the option amount
reduced for interest and other factors, within limits. Subject to state law, an
expense charge of $150 will be deducted from Policy Value if you exercise the
option under this rider.
If you elect to exercise this option, your Policy will be affected as follows:
A portion of the outstanding loan will be deducted from the living
benefit, while the remaining outstanding loan will continue in force
The Policy's death benefit will be decreased by the option amount, with
insurance decreased or eliminated in inverse order, starting with the
most recent face increase and ending with the initial face amount
Policy value will be reduced in the same proportion as the reduction in
the death benefit
To the extent of the decrease in face amount as a result of exercising the
option, we will waive any surrender charges which would otherwise apply to that
decrease in face amount.
The rider is intended to provide a qualified accelerated death benefit that is
excludable from gross income for federal income tax purposes. Whether any tax
liability may be incurred, however, depends upon a number of factors.
POLICY VALUE - The Policy Value is the total value of your Policy. It is the
sum of
o Your accumulation in the Fixed Account (including amounts
securing any outstanding loans) plus
o The value of your units in the sub-accounts
There is no guaranteed minimum Policy Value. Policy Value on any date depends on
variables that cannot be predetermined.
Your Policy Value is affected by the
o Frequency and amount of your net payments
o Interest credited in the Fixed Account
o Investment performance of your sub-accounts
o Partial withdrawals
o Loans, loan repayments and loan interest paid or credited
o Charges and deductions under the Policy
o The death benefit option
Computing Policy Value - We compute the Policy Value on the date of issue and on
each valuation date. On the date of issue, the Policy Value is
o The value of the amounts allocated to the Fixed Account and
sub-account(s), net of mortality and expense risks,
administration charges and portfolio expenses (see "THE POLICY
- APPLICATION FOR A POLICY"), minus
o The monthly insurance protection charge due
On each valuation date after the date of issue, the Policy Value is the sum of
o Accumulations in the Fixed Account plus
o The sum of the product of
o The number of units in each sub-account times
o The value of a unit in each sub-account on the valuation date
The Unit - We allocate each net payment to the sub-accounts you select. We
credit allocations to the sub-accounts as units. Units are credited separately
for each sub-account.
The number of units of each sub-account credited to the Policy is the quotient
of
o That part of the net payment allocated to the sub-account divided by
o The dollar value of a unit on the valuation date the payment
is received at our Variable Life Service Center (but see
"APPLICATION FOR A POLICY" for treatment of payments received
by us before we approve the application)
The number of units will remain fixed unless changed by a split of unit value,
transfer, loan, partial withdrawal or surrender. Also, each deduction of charges
from a sub-account will result in the cancellation of units equal in value to
the amount deducted.
The dollar value of a unit of a sub-account varies from valuation date to
valuation date based on the investment experience of that sub-account. This
investment experience reflects the investment performance, expenses and charges
of the portfolio in which the sub-account invests. The value of each unit was
set at $10.00 on the first valuation date of each sub-account. The value of a
unit on any valuation date after the first valuation date is the product of
o The dollar value of the unit on the preceding valuation date
times
o The net investment factor
Net Investment Factor - The net investment factor measures the investment
performance of a sub-account during the valuation period that has just ended.
The net investment factor is the result of (a) plus (b), divided by (c), minus
(d) and minus (e) where:
(a) is the net asset value per share of a portfolio held in the
sub-account determined at the end of the current valuation period
(b) is the per share amount of any dividend or capital gain
distributions made by the portfolio on shares held in the sub-account
if the "ex-dividend" date occurs during the current valuation period
(c) is the net asset value per share of a portfolio share held in the
sub-account determined as of the end of the immediately preceding
valuation period
(d) is a charge for mortality and expense risks and
(e) is a charge for administration during a period not exceeding the
first twenty Policy years
See "CHARGES AGAINST OR REFLECTED IN THE ASSETS OF THE SEPARATE ACCOUNT."
MATURITY BENEFITS - If the Insured is alive on the maturity date, we will pay
the surrender value as of the maturity date to the Policy owner. The surrender
value may be paid in a single sum or under a payment option as described below.
PAYMENT OPTIONS - The net death benefit payable may be paid in a single sum or
under one or more of the payment options then offered by Transamerica. Payment
options are paid from our General Account and are not based on the investment
experience of the Separate Account. See "APPENDIX C - PAYMENT OPTIONS." These
payment options also are available at the maturity date or if the Policy is
surrendered. If no election is made, we will pay the net death benefit in a
single sum.
OPTIONAL INSURANCE BENEFITS - You may add optional insurance benefits to the
Policy by rider, as described in "APPENDIX B - OPTIONAL INSURANCE BENEFITS." The
cost of optional insurance benefits becomes part of the monthly insurance
protection charge, except that the guaranteed death benefit rider cost is a one
time transaction charge of $25 deducted on the first monthly processing date.
SURRENDER - You may surrender the Policy and receive its surrender value.
The surrender value is
o The Policy Value minus
o Any outstanding loan and surrender charges
We will compute the surrender value on the valuation date on which we receive
your written request for surrender. We will deduct a surrender charge if you
surrender the Policy within 10 full Policy years of the date of issue or of an
increase in face amount. See "CHARGES AND DEDUCTIONS - SURRENDER CHARGES."
The surrender value may be paid in a lump sum or under a payment option then
offered by us. See "APPENDIX C PAYMENT OPTIONS." We will normally pay the
surrender value within seven days following our receipt of your written request.
We may delay benefit payments under the circumstances described in "OTHER POLICY
PROVISIONS DELAY OF PAYMENTS."
For important tax consequences of a surrender, see "FEDERAL TAX CONSIDERATIONS."
PARTIAL WITHDRAWAL - After the first Policy year (and before the paid-up
insurance option is exercised), you may withdraw part of the surrender value of
your Policy on written request. Your written request must state the dollar
amount you wish to receive. You may allocate the amount withdrawn among the
sub-accounts and the Fixed Account. If you do not provide allocation
instructions, we will make a pro rata allocation. Each partial withdrawal must
be at least $500. Under the Level Option, the face amount is reduced by the
partial withdrawal. We will not allow a partial withdrawal if it would reduce
the Level Option face amount below $50,000.
On a partial withdrawal from a sub-account, we will cancel the number of units
equal in value to the amount withdrawn. The amount withdrawn will be the amount
you requested plus the partial withdrawal costs. See "CHARGES AND DEDUCTIONS -
PARTIAL WITHDRAWAL COSTS." We will normally pay the partial withdrawal within
seven days following our receipt of written request. We may delay payment as
described in "OTHER POLICY PROVISIONS - DELAY OF PAYMENTS."
For important tax consequences of partial withdrawals, see "FEDERAL TAX
CONSIDERATIONS."
PAID-UP INSURANCE OPTION - On written request, you may elect life insurance
coverage, usually for a reduced amount, for the life of the Insured with no
further premiums due. The paid-up insurance will be the amount that the
surrender value can provide as a net single premium applied at the Insured's age
and underwriting class on the date this option is elected. If the surrender
value exceeds the net single premium, we will pay the excess to you. The net
single premium is based on the Commissioners Ultimate 1980 Standard Ordinary
Mortality Tables, Smoker or Non-Smoker, male or female or unisex with increases
in the tables for non-standard risks. Interest will not be less than 4.5%
annually.
IF THE PAID-UP INSURANCE OPTION IS ELECTED, THE FOLLOWING POLICY OWNER RIGHTS
AND BENEFITS WILL BE AFFECTED:
o As described above, the paid-up insurance benefit will be
computed differently from the net death benefit and the death
benefit options will not apply
o We will not allow transfers of Policy Value from the Fixed
Account back to the Separate Account
o You may not make further payments
o You may not increase or decrease the face amount or make
partial withdrawals
o Riders will continue only with our consent
You may, after electing paid-up insurance, surrender the Policy for its net cash
value. The guaranteed cash value is the net single premium for the paid-up
insurance at the Insureds age. The net cash value is the cash value less any
outstanding loan. (The cash value will equal the guaranteed cash value unless we
credit interest at a rate higher than 4.5% annually.) We will transfer the
portion of the Policy Value in the sub-accounts of the Separate Account to the
Fixed Account on the date we receive your written request to elect the paid-up
insurance option.
On election of reduced paid-up insurance, the Policy could become a modified
endowment contract. If a Policy becomes a modified endowment contract, Policy
loans, partial withdrawals or surrender will receive unfavorable federal tax
treatment. See "FEDERAL TAX CONSIDERATIONS - MODIFIED ENDOWMENT CONTRACTS."
CHARGES AND DEDUCTIONS
The following charges will apply to your Policy under the circumstances
described. Some of these charges apply throughout the Policy's duration. Other
charges apply only if you choose options under the Policy.
The charges are for the services and benefits provided, costs and expenses
incurred and risks assumed by us under or in connection with the Policies.
Services and benefits provided by us include:
the death benefits, cash and loan benefits provided by the Policy
investment options, including net payment allocations
administration of various elective options under the Policy, and
the distribution of various reports to Policy owners
Costs and expenses incurred by us include:
those associated with underwriting applications and changes in face
amount and riders
various overhead and other expenses associated with providing the
services and benefits
related to the Policy
sales and marketing expenses, and
other costs of doing business, such as federal, state and local
premium and other taxes
and fees
Risks assumed by us include the risks that Insureds may live for a shorter
period of time than estimated resulting in the payment of greater death benefits
than expected, and that the costs of providing the services and benefits under
the Policies will exceed the charges deducted.
PAYMENT EXPENSE CHARGE - Currently, we deduct 4.0% of each payment as a payment
expense charge. This charge is for state and local premium taxes, federal income
tax treatment of Deferred Acquisition Costs, and certain Policy sales and
administrative expenses.
Premium tax rates vary from state to state and are a percentage of payments made
by Policy owners to us. Currently, rates in the fifty states and the District of
Columbia range between 0.75% and 3.5%. Since we are subject to retaliatory tax,
the effective premium tax for us typically ranges between 2.35% and 3.5%.
Typically, we pay premium taxes (including retaliatory tax) in all
jurisdictions, but the payment expense charge would be deducted, even if we were
not subject to premium or retaliatory tax in a state.
We may increase or decrease the payment expense charge to reflect changes in our
expenses for taxes.
MONTHLY INSURANCE PROTECTION CHARGE - Before the final payment date, on each
monthly processing date we will deduct a monthly insurance protection charge
from your Policy Value. This charge is the cost for insurance protection under
the Policy, including optional insurance benefits provided by rider.
We deduct the monthly insurance protection charge on each monthly processing
date starting with the date of issue. You may allocate monthly insurance
protection charges to one sub-account. If you make no allocation, we will make a
pro rata allocation. If the sub-account you chose does not have sufficient funds
to cover the monthly insurance protection charges, we will make a pro rata
allocation. We will deduct no monthly insurance protection charges after the
final payment date.
Computing Monthly Insurance Protection Charge - We designed the monthly
insurance protection charge to compensate us for the anticipated cost of paying
net death benefits under the Policies, as well as to compensate us for a part of
our acquisition costs, taxes, and administrative expenses. The charge is
computed monthly for the initial face amount and for each increase in face
amount. Monthly insurance protection charges can vary.
For the initial face amount under the Level Option, the monthly insurance
protection charge is the product of
o The insurance protection rate times
o The difference between (a) the initial face amount and (b) the
Policy Value (minus any rider charges at the beginning of the
Policy month), divided by 1,000
Under the Level Option, the monthly insurance protection charge decreases as the
Policy Value increases if the guideline minimum sum insured is not in effect.
For the initial face amount under the Adjustable Option, the monthly insurance
protection charge is the product of
o The insurance protection rate times
o The initial face amount, divided by 1,000
For each increase in face amount under the Level Option, the monthly insurance
protection charge for the increase is the product of
o The insurance protection rate for the increase times
o The difference between (a) the increase in face amount and (b)
any Policy value (minus any rider charges) greater than the
initial face amount at the beginning of the Policy month and
not allocated to a prior increase, divided by 1,000
For each increase in face amount under the Adjustable Option, the monthly
insurance protection charge is the product of
o The insurance protection rate for the increase times
o The increase in face amount, divided by 1,000
If the guideline minimum sum insured is in effect under either Option, we will
compute a monthly insurance protection charge for that part of the death benefit
subject to the guideline minimum sum insured that exceeds the current death
benefit not subject to the guideline minimum sum insured. This charge is the
product of
o The insurance protection rate for the initial face amount
times
o The difference between
o The guideline minimum sum insured and (a) the greater of the
face amount or the Policy Value, if you selected the Level
Option, or (b) the face amount plus the Policy Value, if you
selected the Adjustable Option, divided by 1,000
We will adjust the monthly insurance protection charge for any decreases in
face amount. See "THE POLICY - CHANGE IN FACE AMOUNT - DECREASES."
Insurance Protection Rates - We base insurance protection rates on the
o Male, female or unisex rate table
o Age and underwriting class of the Insured
o Effective date of an increase or date of any rider
For unisex Policies, sex-distinct rates do not apply. For the initial face
amount, the insurance protection rates are based on your age at the beginning of
each Policy year. For an increase in face amount or for a rider, the insurance
protection rates are based on your age on the effective date of the increase or
rider and, thereafter, on each anniversary of the effective date of the increase
or rider. We base the current insurance protection rates on our expectations as
to future mortality experience. Rates will not, however, be greater than the
guaranteed insurance protection rates set forth in the Policy. These guaranteed
rates are based on the Commissioners 1980 Ultimate Standard Ordinary Mortality
Tables, Smoker or Non-Smoker, and the Insured's sex (except for policies for
which unisex rates apply) and age (with increases in the Tables for non-standard
risks). The Tables used for this purpose set forth different mortality estimates
for males and females (unisex rates use male rates) and for smokers and
non-smokers. Any change in the insurance protection rates will apply to all
Insureds of the same age, sex and underwriting class, whose Policies have been
in force for the same period.
The underwriting class of an Insured will affect the insurance protection rates.
We currently place Insureds into preferred underwriting classes, preferred
non-standard underwriting classes, standard underwriting classes and
non-standard underwriting classes. The underwriting classes are also divided
into two categories: smokers and non-smokers. We will place an Insured under age
18 at the date of issue in a standard or non-standard underwriting class. We
will then classify the Insured as a smoker at age 18 unless we receive
satisfactory evidence that the Insured is a non-smoker. Prior to the Insured's
age 18, we will give you notice of how the Insured may be classified as a
non-smoker.
We compute the insurance protection rate separately for the initial face amount
and for any increase in face amount. However, if the Insured's underwriting
class improves on an increase, the lower insurance protection rate will apply to
the total face amount.
CHARGES AGAINST OR REFLECTED IN THE ASSETS OF THE SEPARATE ACCOUNT - We assess
each sub-account with a charge for mortality and expense risks we assume and,
during the first 20 Policy years, a charge for administration expenses related
to the Separate Account. Portfolio expenses are also reflected in the value of
the assets of the Separate Account.
Administration Charge - For a period not to exceed the first 20 Policy years, we
may impose a daily charge at an annual rate of 0.15% of the daily net asset
value in each sub-account. The charge is to help reimburse us for administrative
expenses incurred in the administration of the Separate Account and the
sub-accounts. The administrative functions and expenses we assume for the
Separate Account and the sub-accounts include
o Clerical, accounting, actuarial and legal services
o Rent, postage, telephone, office equipment and supplies
o The expenses of preparing and printing registration
statements and prospectuses (not allocable to
sales expense)
o Regulatory filing fees and other fees
Currently, the administration charge is waived after the tenth Policy year
(subject to state law), but we reserve the right to impose the charge after the
tenth Policy year.
Mortality and Expense Risk Charge - We impose a daily charge at a current annual
rate of 0.65% of the average daily net asset value of each sub-account. This
charge compensates us for assuming mortality and expense risks for variable
interests in the Policies. We may increase this charge, subject to state and
federal law, to an annual rate no greater than 0.80%.
The mortality risk we assume is that Insureds may live for a shorter time than
anticipated. If this happens, we will pay more net death benefits than
anticipated. The expense risk we assume is that the expenses incurred in issuing
and administering the Policies will exceed those compensated by the
administration charges in the Policies.
Portfolio Expenses - The value of the units of the sub-accounts will reflect the
management fee and other expenses of the portfolios whose shares the
sub-accounts purchase. The management fees and other expenses of the portfolios
are listed above under "SUMMARY - WHAT ARE THE EXPENSES AND FEES OF THE
PORTFOLIOS." The prospectuses and Statements of Additional Information of the
portfolios contain more information concerning the fees and expenses.
No charges are currently made against the sub-accounts for federal or state
income taxes. Should income taxes be
imposed, we may make deductions from the sub-accounts to pay the taxes. See
"FEDERAL TAX CONSIDERATIONS."
SURRENDER CHARGES - The Policy's surrender charges are designed to reimburse us
for part of the costs of product research and development, underwriting, Policy
administration, surrendering the Policy and part of sales expenses, including
commissions to ouragents, advertising, and the printing of prospectuses and
sales literature.
Surrender charges are computed on the date of issue for the initial face amount.
Surrender charges apply for ten years from the date of issue. We impose
surrender charges only if, during the time the charges are effective, you
request a full surrender of your Policy or a decrease in face amount.
New surrender charges are computed for any increase in face amount. Surrender
charges for a face increase apply for ten years from the date the increase is
effective. The new surrender charges computed for an increase in face amount
apply only to the face increase.
We compute each surrender charge based on a rate per $1,000 of the related face
amount. The rate which applies to your Policy is based on whether the Insured is
male or female (male rates are used if the Policy is issued using unisex rates);
the Insured's age; and the number of years during which that surrender charge
has been effective. The surrender charge rate for the initial face amount
decreases each Policy year on the Policy anniversary. The surrender charge rate
for each increase in face amount decreases each year on the twelve month
anniversary of the effective date of the increase in face amount.
We determine the Insured's age as of the date of issue for the initial face
amount for the Policy. If there is an increase in the face amount, we determine
the Insured's age on the effective date of the increase.
The surrender charge amount which applies in a particular Policy year on your
Policy is shown on the specification pages of your Policy. New specification
pages showing the new surrender charge amounts will be provided to you if there
is an increase or a decrease in face amount on your policy.
If more than one surrender charge is in effect because of one or more increases
in face amount, we will apply the surrender charges in inverse order. We will
apply surrender and partial withdrawal charges (described below) in this order:
o First, those related to the most recent increase
o Second, those related to the next most recent increases,
and so on
o Third, those related to the initial face amount.
A surrender charge may be deducted on a decrease in the face amount. The
surrender charge will be the surrender charge for the face amounts which are
decreased or eliminated in the order shown above.
Where a decrease causes a partial reduction in an increase or in the initial
face amount, we will deduct a proportionate share of the surrender charge for
that increase or for the initial face amount. The surrender charge deducted is a
fraction of the charge that would apply to a full surrender. The fraction is the
product of
o The decrease divided by the current face amount times
o the surrender charge
See "APPENDIX E - MAXIMUM SURRENDER CHARGES" for the maximum surrender charge
rates and an example of how we compute the amount of surrender charges.
PARTIAL WITHDRAWAL COSTS - For each partial withdrawal, we deduct a transaction
fee of 2.0% of the amount withdrawn, not to exceed $25.
A partial withdrawal charge may also be deducted from Policy Value. After the
first Policy year (and before you exercise the paid-up insurance option), during
each Policy year you may withdraw, without a partial withdrawal charge, up to
o 10% of the Policy Value on the date we receive the written
request at the Variable Life Service
Center, minus
o The total of any prior free withdrawals in the same Policy
year ("Free 10% Withdrawal")
The right to make the Free 10% Withdrawal is not cumulative from Policy year to
Policy year. For example, if only 8% of Policy Value were withdrawn in the
second Policy year, the amount you could withdraw in future Policy years would
not be increased by the amount you did not withdraw in the second Policy year.
We impose the partial withdrawal charge on any withdrawal greater than the Free
10% Withdrawal (the "excess withdrawal" amount). The maximum charge is 5.0% of
the excess withdrawal amount up to the surrender charge. If no surrender charge
applies on withdrawal, no partial withdrawal charge will apply. We will reduce
the Policy's outstanding surrender charges by the partial withdrawal charge
deducted. The partial withdrawal charge deducted will decrease existing
surrender charges in inverse order (i.e., first the most recent increase's
surrender charges, then the next most recent increase's surrender charges in
succession, and last the initial face amount's surrender charges).
TRANSFER CHARGES - The first 12 transfers in a Policy year are free. After that,
we will deduct a $10 transfer charge from amounts transferred in that Policy
year. We reserve the right to increase the charge, but it will never exceed $25.
If you apply for automatic transfers, the first automatic transfer for the
elected option counts as one transfer towards the 12 free transfers allowed in
each Policy year. Each future automatic transfer for the elected option is
without charge and does not reduce the remaining number of transfers that may be
made without charge.
Each of the following transfers of Policy Value from the sub-accounts to the
Fixed Account is free and does not count as one of the 12 free transfers in a
Policy year:
o A conversion within the first 24 months from date of issue
or increase
o A transfer to the Fixed Account to secure a loan
o A reallocation of the value in the Money Market sub-account as
described above under "Application for A Policy" regarding
"Right to Examine Policy"
CHARGE FOR CHANGE IN FACE AMOUNT - For each increase or decrease in face amount,
we will deduct a transaction charge of $40 from Policy Value to reimburse us for
the administrative costs of the change. Unless you specify the sub-account from
which the charge is to be deducted, we will allocate the charge pro rata.
OTHER ADMINISTRATIVE CHARGES - We reserve the right to charge for other
administrative costs we incur. While there are no current charges for these
costs, we may impose a charge (guaranteed not to exceed $25 per transaction) for
o Changing net payment allocation instructions
o Changing the allocation of monthly insurance
protection charges among the various
sub-accounts and the Fixed Account
o Providing more than one projection of values in a
Policy year, in addition to the annual
statement
POLICY LOANS
You may borrow money secured by your Policy Value. The total amount of loans you
may have outstanding at any time is the loan value. In the first Policy year,
the loan value is 75% of
o The Policy Value minus
o Any surrender charges, unpaid monthly insurance protection
charges and outstanding loan interest
through the end of the Policy year
After the first Policy Year, the loan value is 90% of
o The Policy Value minus
o Any surrender charges
The loan value and the Policy Value in the first Policy year or any subsequent
Policy year are the values on the valuation date we receive your request for a
loan at our Variable Life Service Center.
There is no minimum loan. We will usually pay the loan within seven days after
we receive the written request. We may delay the payment of loans as stated in
"OTHER POLICY PROVISIONS - DELAY OF PAYMENTS".
We will withdraw the amount of the loan from the sub-accounts and the Fixed
Account according to your instructions. If you do not provide us with
instructions, we will make a pro rata withdrawal of the loan amount. We will
transfer the portion of the Policy Value in each sub-account equal to the Policy
loan to the Fixed Account to secure the outstanding loan. We will not count this
transfer as a transfer subject to the transfer charge.
The portion of the Policy Value securing the outstanding loan will earn monthly
interest in the Fixed Account at an annual rate of at least 6.0% (7.5% for
preferred loans). NO OTHER INTEREST WILL BE CREDITED.
PREFERRED LOAN OPTION - A preferred loan option is available after the tenth
Policy year and, after that date, will apply to any outstanding loans and new
loan requests unless you revoke the preferred loan option in writing. The
guaranteed annual interest rate credited to the portion of the Policy Value
securing a preferred loan will be not less than 7.5%.
There is some uncertainty as to the tax treatment of preferred loans.
Consult a qualified tax adviser. See
"FEDERAL TAX CONSIDERATIONS".
LOAN INTEREST CHARGED - Interest accrues daily at the annual rate of 8.0%.
Interest is due and payable in arrears at the end of each Policy year or for as
short a period as the loan may exist. Interest not paid when due will be added
to the loan amount and bears interest at the same rate. If this makes the loan
principal higher than the portion of the Policy Value in the Fixed Account, we
will offset this shortfall by transferring amounts from the sub-accounts. The
transferred amount will be allocated proportionately among the sub-accounts
which have value in them.
REPAYMENT OF OUTSTANDING LOAN - You may pay any loans before Policy lapse and
before the maturity date. On the valuation date on which we receive your loan
repayment at our Variable Life Service Center, we will allocate that part of the
Policy Value in the Fixed Account that secured a repaid loan to the sub-accounts
and Fixed Account according to your instructions. If you do not make a repayment
allocation, we will allocate Policy Value according to your most recent payment
allocation instructions. However, loan repayments allocated to the Separate
Account cannot exceed that portion of the Policy Value previously transferred
from the Separate Account to secure the outstanding loan.
If the outstanding loan exceeds the Policy Value less the surrender charge, the
Policy will be in default. We will mail a notice of default to the last known
address of you and any assignee. If you do not make sufficient payment within 62
days after this notice is mailed, the Policy will terminate with no value. See
"POLICY TERMINATION AND REINSTATEMENT."
EFFECT OF POLICY LOANS - Policy loans will permanently affect the Policy Value
and surrender value, and may permanently affect the death benefit. The effect
could be favorable or unfavorable, depending on whether the investment
performance of the sub-accounts is less than or greater than the interest
credited to the portion of the Policy Value in the Fixed Account that secures
the loan.
We will deduct any outstanding loan from the proceeds payable when the Insured
dies or from a surrender.
If the outstanding loan on your Policy exceeds the Policy Value minus surrender
charges, the Policy will be in default. There is no charge imposed solely
because the Policy goes into default. If you do not pay the required premium
within the grace period, however, the Policy will terminate without value.
If you have an outstanding loan, decreases in Policy Value, including decreases
due to negative investment results in your sub-account allocations, could result
in default of your Policy. If you have an outstanding loan and do not pay loan
interest when due, unpaid interest will be added to your loan and will bear
interest at the same rate. If your investment gains are not sufficient, the
outstanding loan could be greater than your Policy Value minus surrender
charges, resulting in your Policy going into default.
In the event the Policy lapses or is otherwise terminated while a loan is
outstanding, the loan is foreclosed and this foreclosure will be treated as cash
received from the Policy for income tax purposes. Any cash received (the
outstanding loan plus any other Policy Value less surrender charges) in excess
of the Policy's tax basis should be taxable as ordinary income.
POLICY TERMINATION AND REINSTATEMENT
TERMINATION - The Policy will be in default if
o The surrender value is insufficient to cover the next
monthly insurance protection charge plus
loan interest accrued OR
o An outstanding loan exceeds the Policy Value less surrender
charges
If one of these situations occurs, the Policy will be in default. On the date of
default, we will send a notice to you and to any assignee of record. The notice
will state the premium due and the date by which it must be paid. You will then
have a grace period of 62 days, measured from the date of the notice of default,
to make a payment sufficient to prevent termination.
Failure to pay a sufficient premium within the grace period will result in
Policy termination. If the Insured dies during the grace period, we will deduct
from the net death benefit any monthly insurance protection charges due and
unpaid through the Policy month in which the Insured dies and any other overdue
charge.
During the first 48 Policy months following the date of issue or an increase in
the face amount based on a request from the Policy owner, a guarantee may apply
to prevent the Policy from terminating because of insufficient surrender value.
This guarantee applies if, during this period, we receive payments from you
that, when reduced by outstanding loans, partial withdrawals and partial
withdrawal charges, equal or exceed specified minimum monthly payments. The
specified minimum monthly payments are based on the number of months the Policy,
increase in face amount or Policy change that causes a change in the minimum
monthly payment has been in force. A Policy change that causes a change in the
minimum monthly payment is a change in the face amount, the addition or deletion
of a rider, or a change in the smoker or non-smoker underwriting class on the
Policy. Except for the first 48 months after the date of issue or the effective
date of an increase, payments equal to the minimum monthly payment do not
guarantee that the Policy will remain in force.
You may also elect the Guaranteed Death Benefit Rider. There is a one time $25
charge for this rider. The charge is assessed on the first monthly processing
date. Under the Guaranteed Death Benefit Rider, if you make payments of a
sufficient amount, net of partial withdrawals, partial withdrawal charges and
any outstanding loans, we guarantee that your Policy will not lapse. In order to
maintain this guarantee, on each Policy anniversary through the final payment
date, the total of your payments received, net of partial withdrawals, partial
withdrawal charges and any outstanding loans must at least equal the guaranteed
death benefit premium times the number of policy years since the policy was
issued, adjusted as applicable for policy changes. See "PAYMENTS."
REINSTATEMENT - A lapsed Policy may be reinstated within three years (or such
other time period required by state law) of the date of default and before the
final payment date (or, before the Maturity Date, if the default occurred
because the outstanding loan exceeded the Policy Value less surrender charges).
The reinstatement takes effect on the monthly processing date following the date
you submit to us
o A written application for reinstatement
o Evidence of insurability satisfactory to us
o A payment that, after the deduction of the payment expense
charge, is large enough to cover the
minimum amount payable
Policies which have been surrendered may not be reinstated.
Minimum Amount Payable - If reinstatement is requested when less than 48 monthly
insurance protection charges have been paid since the date of issue or increase
in the face amount, you must pay the lesser of:
o The minimum monthly payment for the three months beginning
on the date of reinstatement or
o The sum of
o The amount by which the surrender charge(s) on
the date of reinstatement exceeds the
Policy Value on the date of default plus
o Monthly insurance protection charges for the
three months beginning on the date of
reinstatement
If you request reinstatement more than 48 monthly processing dates from the date
of issue or increase in the face amount, you must pay the sum shown above
without regard to the three months of minimum monthly payments. Also a lesser
amount may be required if the Guaranteed Death Benefit Rider is in effect.
Surrender Charge - The surrender charge on the date of reinstatement is the
surrender charge that would have been in effect had the Policy remained in force
from the date of issue.
Policy Value on Reinstatement - The Policy Value on the date of reinstatement
is:
. The net payment made to reinstate the Policy and interest
earned from the date the payment was
received at our Variable Life Service Center plus
. The Policy Value less any outstanding loan on the date of
default (not to exceed the surrender
charge on the date of reinstatement) minus
. The monthly insurance protection charges due on the date of
reinstatement
You may repay or reinstate any outstanding loan on the date of default or
foreclosure.
OTHER POLICY PROVISIONS
POLICY OWNER - The Policy owner is the Insured unless another person has been
named as owner in the application. As Policy owner, you are entitled to exercise
all rights under your Policy while the Insured is alive, with the consent of any
irrevocable beneficiary. The consent of the Insured is required whenever the
face amount is increased.
BENEFICIARY -The beneficiary is the person or persons to whom the net death
benefit is payable on the Insured's death. The Policy owner names the
beneficiary. Unless otherwise stated in the Policy, the beneficiary has no
rights in the Policy before the Insured dies. While the Insured is alive, you
may change the beneficiary, unless you have declared the beneficiary to be
irrevocable. If no beneficiary is alive when the Insured dies, the Policy owner
(or the Policy owner's estate) will be the beneficiary. If more than one
beneficiary is alive when the Insured dies, we will pay each beneficiary in
equal shares, unless you have chosen otherwise. Where there is more than one
beneficiary, the interest of a beneficiary who dies before the Insured will pass
to surviving beneficiaries proportionally, unless you have requested otherwise.
ASSIGNMENT - You may assign a Policy as collateral or make an absolute
assignment. All Policy rights will be transferred as to the assignee's interest.
The consent of the assignee may be required to make changes in payment
allocations, make transfers or to exercise other rights under the Policy. We are
not bound by an assignment or release thereof, unless it is in writing and
recorded at our Variable Life Service Center. When recorded, the assignment will
take effect as of the date the written request was signed. Any rights the
assignment creates will be subject to any payments we made or actions we took
before the assignment is recorded. We are not responsible for determining the
validity of any assignment or release.
The following Policy provisions may vary by state.
LIMIT ON RIGHT TO CHALLENGE POLICY - Except for fraud (unless prohibited by
state law) or nonpayment of premium, we cannot challenge the validity of your
Policy if the Insured was alive after the Policy had been in force for two years
from the date of issue. This provision does not apply to any riders providing
benefits specifically for disability or death by accident. Also, we cannot
challenge the validity of any increase in the face amount if the Insured was
alive after the increase was in force for two years from the effective date of
the increase.
SUICIDE - The net death benefit will not be paid if the Insured commits suicide,
while sane or insane, within two years from the date of issue. Instead, we will
pay the beneficiary all payments made for the Policy, without interest, less any
outstanding loan and partial withdrawals. If the Insured commits suicide, while
sane or insane, within two years from any increase in face amount, we will not
recognize the increase. We will pay to the beneficiary the monthly insurance
protection charges paid for the increase, plus any other net death benefit
payable under the policy.
MISSTATEMENT OF AGE OR SEX - If the Insured's age or sex is not correctly stated
in the Policy application, we will adjust the death benefit under the Policy to
reflect the correct age and sex. The adjusted death benefit will be the Policy
Value plus the insurance protection amount that the most recent monthly
insurance protection charge would have purchased for the correct age and sex. We
will not reduce the death benefit to less than the guideline minimum sum
insured. For a unisex Policy, there is no adjusted benefit solely for
misstatement of sex.
Certain rider benefits may also be adjusted for misstatement of age or sex.
DELAY OF PAYMENTS - Amounts payable from the Separate Account for surrender,
partial withdrawals, net death benefit, Policy loans and transfers may be
postponed whenever
. The New York Stock Exchange is closed other than customary
weekend and holiday closings
. The SEC restricts trading on the New York Stock Exchange
. The SEC determines an emergency exists, so that disposal
of securities is not reasonably
practicable or it is not reasonably practicable to compute
the value of the Separate Account's
net assets
We may delay paying any amounts derived from payments you made by check until
the check has cleared your bank.
We reserve the right to defer amounts payable from the Fixed Account. This delay
may not exceed six months.
FEDERAL TAX CONSIDERATIONS
The following description is a brief summary of some of the federal tax
considerations based on our understanding of the present federal income tax laws
as they are currently interpreted. Legislation may be proposed which, if passed,
could adversely and possibly retroactively affect the taxation of the Policies.
This summary is not exhaustive, does not purport to cover all situations, and is
not intended as tax advice. We do not address tax provisions that may apply if
the Policy owner is a corporation. You should consult a qualified tax adviser to
apply the law to your circumstances.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND THE SEPARATE ACCOUNT -
Transamerica is taxed as a life insurance company under Subchapter L of the
Code. We file a consolidated tax return with our parent and affiliates. We do
not currently charge for any income tax on the earnings or realized capital
gains in the Separate Account. A charge may apply in the future for any federal
income taxes we incur. The charge may become necessary, for example, if there is
a change in our tax status. Any charge would be designed to cover the federal
income taxes on the investment results of the Separate Account.
Under current laws, Transamerica may incur state and local taxes besides premium
taxes. These taxes are not currently significant. If there is a material change
in these taxes affecting the Separate Account, we may charge for taxes paid or
for tax reserves.
TAXATION OF THE POLICIES - We believe that the Policies described in this
prospectus are life insurance contracts under Section 7702 of the Code. Section
7702 affects the taxation of life insurance contracts and places limits on the
relationship of the Policy Value to the death benefit. As life insurance
contracts, the net death benefits of the Policies are generally excludable from
the gross income of the beneficiaries. In the absence of any guidance from the
Internal Revenue Service ("IRS") on the issue, we believe that providing the
same amount at risk after age 99 as is provided at age 99 should be sufficient
to maintain the excludibility of the death benefit after age 99. However, this
lack of specific IRS guidance makes the tax treatment of the death benefit after
age 99 uncertain. Also, any increase in Policy Value is not taxable until
received by you or your designee (but see "MODIFIED ENDOWMENT CONTRACTS").
Federal tax law requires that the investment of each sub-account funding the
Policies is adequately diversified according to Treasury regulations. We believe
that the portfolios currently meet the Treasury's diversification requirements.
We will monitor continued compliance with these requirements.
The Treasury Department has announced that previous regulations on
diversification do not provide guidance concerning the extent to which Policy
owners may direct their investment assets to divisions of a separate investment
account without being treated as the owner of such assets who is taxed directly
on the income from such assets. Regulations may provide such guidance in the
future. The Policies or our administrative rules may be modified as necessary to
prevent a Policy owner from being treated as the owner of any assets of the
Separate Account who is taxed directly on their income.
A surrender, partial withdrawal, distribution, payment at maturity date, change
in the death benefit option, change in the face amount, lapse with Policy loan
outstanding, or assignment of the Policy may have tax consequences. Within the
first fifteen Policy years, a distribution of cash required under Section 7702
of the Code because of a reduction of benefits under the Policy may be taxable
to the Policy owner as ordinary income respecting any investment earnings.
Federal, state and local income, estate, inheritance, and other tax consequences
of ownership or receipt of Policy proceeds depend on the circumstances of each
Insured, Policy owner or beneficiary.
POLICY LOANS - Transamerica believes that non-preferred loans received under the
Policy will be treated as an indebtedness of the Policy owner for federal income
tax purposes. Under current law, these loans will not constitute income for the
Policy owner while the Policy is in force (but see "Modified Endowment
Contracts"). There is a risk, however, that a preferred loan may be
characterized by the IRS as a withdrawal and taxed accordingly. At the present
time, the IRS has not issued any guidance on whether loans with the attributes
of a preferred loan should be treated differently from a non-preferred loan.
This lack of specific guidance makes the tax treatment of preferred loans
uncertain.
INTEREST DISALLOWANCE - Under Section 264(a)(4) of the Code, as amended in 1997,
interest on Policy loans is generally nondeductible for a Policy issued or
materially changed after June 8, 1997. In addition, under Section 264(f) certain
policies under which a trade or business (other than a sole proprietorship or a
business performing services as an employee) is directly or indirectly a
beneficiary can subject a taxpayer's interest expense to partial disallowance
(if the Policy is issued or materially changed after June 8, 1997), to the
extent such interest expense is allocable to the taxpayer's unborrowed cash
values thereunder. You should consult your tax advisor on how the rules
governing the non-deductibility of interest would apply in your individual
situation.
MODIFIED ENDOWMENT CONTRACTS - Special rules described below apply to the tax
treatment of loans and other distributions under any life insurance contract
that is classified as a modified endowment contract ("MEC") under Section 7702A
of the Code. A MEC is a life insurance contract that either fails the "7-pay
test" or is received in exchange for a MEC. In general, a Policy will fail this
7-pay test if the cumulative premiums and other amounts paid for the Policy at
any time during the first 7 contract years (or during any subsequent 7-year test
period resulting from a material change in the Policy) exceed the sum of the net
level premiums which would have been paid up to such time if the Policy had
provided for certain paid-up future benefits after the payment of 7 level annual
premiums. If to comply with this 7-pay test limit any premium amount is refunded
with applicable interest no later than 60 days after the end of the contract
year in which it is received, such refunded amount will be removed from the
cumulative amount of premiums that is compared against such 7-pay test limit. If
there is any reduction in the Policy's benefits (e.g., upon a withdrawal, death
benefit reduction or termination of a rider benefit) during a 7-pay test period,
the Policy will be retested retroactively from the start of such period by
taking into account such reduced benefit level from such starting date.
Generally, any increase in death benefits or other material change in the Policy
may be treated as producing a new contract for 7-pay test purposes, requiring
the start of a new 7-pay test period as of the date of such change.
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS - Under Section 72(c)(10) of
the Code, loans, withdrawals and other distributions made prior to the Insured's
death under a MEC are includible in gross income on an "income-out-first" basis,
i.e., the amount received is treated as allocable first to the "income in the
contract" and then to a tax-free recovery of the Policy's " investment in the
contract" (or "tax basis"). Generally, a Policy's tax basis is equal to its
total premiums less amounts recovered tax-free. To the extent that the Policy's
cash value (ignoring surrender charges except upon a full surrender) exceeds its
tax basis, such excess constitutes its "income in the contract." However, under
Code Section 72(e)(11)(A)(i), where more than one MEC has been issued to the
same policyholder by the same insurer (or an affiliate) during a calendar year,
all such MEC's are aggregated for purposes of determining the amount of a
distribution from any such MEC that is includible in gross income. In addition,
any amount includible in gross income from a MEC distribution is subject to a
10% penalty tax on premature distributions under Section 72(v) of the Code,
unless the taxpayer has attained age 59 1/2 or is disabled or the payment is
part of a series of substantially equal periodic payments for a qualifying
lifetime period. Furthermore, under Section 72(e)(4)(A) of the Code, any loan,
pledge, or assignment of (or any agreement to assign or pledge) any portion of a
MEC's cash value is treated as producing an amount received for purposes of
these MEC distribution rules. It is unclear to what extent this assignment rule
applies to a collateral assignment that does not secure a loan or pledge (e.g.,
in certain split-dollar arrangements). Under Code Section 7702A(d) the MEC
distribution rules apply not only to all distributions made during the contract
year in which the Policy fails the 7-pay test (and later years), but also to any
distributions made "in anticipation of" such failure, which is deemed to include
any distributions made during the two years prior to such failure. The Treasury
Department has not yet issued regulations or other guidance indicating what
other distributions can be treated as made "in anticipation of" such a failure
or how (e.g., as of what date) should "income in the contract" be determined for
purposes of any distribution that is deemed to be made in anticipation of a
failure.
VOTING RIGHTS
We are the legal owner of all portfolio shares held in the Separate Account and
each sub-account. As the owner, we have the right to vote at a portfolio's
shareholder meetings. However, to the extent required by federal securities laws
and regulations, we will vote portfolio shares that each sub-account holds
according to instructions received from Policy owners with Policy Value in the
sub-account. If any federal securities laws or regulations or their
interpretation change to permit us to vote shares in our own right, we reserve
the right to do so, whether or not the shares relate to the Policies.
We will provide each person having a voting interest in a portfolio with proxy
materials and voting instructions. We will vote shares held in each sub-account
for which no timely instructions are received in proportion to all instructions
received for the sub-account. We will also vote in the same proportion our
shares held in the Separate Account that do not relate to the Policies.
We will compute the number of votes that a policy owner has the right to
instruct on the record date established for the portfolio. This number is the
quotient of
o Each Policy owner's Policy Value in the sub-account divided by
o The net asset value of one share in the portfolio
in which the assets of the sub-account are
invested
We may disregard voting instructions Policy owners initiate in favor of any
change in the investment policies or in any investment adviser or principal
underwriter. Our disapproval of any change must be reasonable. A change in
investment policies or investment adviser must be based on a good faith
determination that the change would be contrary to state law or otherwise is
improper under the objectives and purposes of the portfolios. If we do disregard
voting instructions, we will include a summary of and reasons for that action in
the next report to Policy owners.
DIRECTORS AND PRINCIPAL OFFICERS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Thomas J. Cusack* Director, Chairman, President and Chief Executive
Officer of TOLIC since 1997.
Director, President and Chief
Executive Officer of TOLIC since
1995. Senior Vice President of
Transamerica Corporation from 1993
to 1995. Vice President of Corporate
Development of General Electric
Company from 1989 to 1993.
Nooruddin S. Veerjee, FSA* Director, President
of Group Pension Division of TOLIC
since 1993. President of Insurance
Products Division of TOLIC since
December 1997. Senior Vice President
of TOLIC from 1992 to 1993. Vice
President of TOLIC from 1990 to
1992.
James W. Dederer, CLU* Director, Executive Vice President,
General Counsel and Corporate
Secretary of TOLIC since 1988.
David E. Gooding* Director and Executive Vice President of
TOLIC since 1992.
T. Desmond Sugrue* Director and
Executive Vice President of TOLIC
since 1997. Senior Vice President of
TOLIC from 1996 to 1997.
Self-employed - Consulting from 1994
to 1996. Employed at Bank of America
from 1988 to 1993.
Robert Abeles* Director, Executive Vice
President and Chief Financial
Officer of TOLIC since 1996.
Executive Vice President and Chief
Financial Officer of First
Interstate Bank of California from
1990 to 1996.
Nicki Bair* Senior Vice President of TOLIC
since 1996. Vice President of TOLIC
from 1991 to 1996.
Roy Chong-Kit* Senior Vice President and
Actuary of TOLIC since 1997. Vice
President and Actuary of TOLIC from
1995 to 1997. Actuary of TOLIC from
1988 to 1995.
Bruce Clark* Senior Vice President and
Chief Actuary of TOLIC since 1996.
Vice President and Actuary of TOLIC
from 1994 to 1996. Vice President
and Associate Actuary of TOLIC from
1988 to 1994.
Daniel E. Jund, FLMI* Senior Vice President of TOLIC since 1988.
Karen MacDonald* Director, Senior Vice President and Corporate
Actuary of TOLIC since 1995. Senior
Vice President and Corporate Actuary
from 1992 to 1995.
William N. Scott, CLU, FLMI** Senior Vice
President of TOLIC since 1993. Vice
President of TOLIC from 1988 to
1993.
Claude W. Thau, FSA** Senior Vice President
of TOLIC since 1996. Vice President
of TOLIC from 1985 to 1996.
Ron F. Wagley* Senior Vice President and
Chief Agency Officer of TOLIC since
1993. Vice President of TOLIC from
1989 to 1993.
William R. Wellnitz, FSA*** Senior Vice
President and Actuary of TOLIC since
1996. Vice President and Reinsurance
Actuary of TOLIC from 1988 to 1996.
Bruce A. Turkstra* Executive Vice President and Chief
Information Officer since
December 1997.
Chief Information Officer of
Andersen Worldwide from 1991-1997.
*The business address is 1150 South Olive Street, Los Angeles, California 90015.
**The business address is 1100 Walnut Street, 23rd Floor, Kansas City, Missouri
64106. ***The business address is 401 North Tryon Street, Charlotte, North
Carolina 28202.
The depositor is insured under a broad manuscript fidelity bond program with
coverage limits of $40,000,000. The lead underwriter is Continental Casualty
Company of Chicago, Illinois.
DISTRIBUTION
Transamerica Securities Sales Corporation acts as the principal underwriter and
general distributor of the Policies. Transamerica Securities Sales Corporation
is registered with the SEC as a broker-dealer and is a member of the National
Association of Securities Dealers. Broker-dealers sell the Policies through
their registered representatives who are appointed by us.
We pay to broker-dealers who sell the Policy commissions based on a commission
schedule. After the date of issue or an increase in face amount, commissions
will be 90% of the first-year payments up to a payment amount we established and
5% of any excess. After the first year, commissions will be 2% of payments plus
0.30% annually of unloaned Policy Value. To the extent permitted by NASD rules,
promotional incentives or payments may also be provided to broker-dealers based
on sales volumes, the assumption of wholesaling functions or other sales-related
criteria. Other payments may be made for other services that do not directly
involve the sale of the Policies. These services may include the recruitment and
training of personnel, production of promotional literature, and similar
services.
We intend to recoup commissions and other sales expenses through
o The payment expense charge
o The surrender charge
o Investment earnings on amounts allocated under the Policies to the
Fixed Account
Commissions paid on the Policies, including other incentives or payments, are
not charged to Policy owners or to the Separate Account.
REPORTS
We will maintain the records for the Separate Account. We will promptly send you
statements of transactions under your Policy, including
o Payments
o Changes in face amount
o Changes in death benefit option
o Transfers among sub-accounts and the Fixed Account
o Partial withdrawals
o Increases in loan amount or loan repayments
o Lapse or default for any reason
o Reinstatement
We will send an annual statement to you that will summarize all of the above
transactions and deductions of charges during the Policy year. It will also set
forth the status of the death benefit, Policy Value, surrender value, amounts in
the sub-accounts and Fixed Account, and any Policy loans. We will send you such
reports containing financial statements and other information for the portfolios
as the 1940 Act requires.
PERFORMANCE INFORMATION
We may advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the portfolios have been in existence. The
results for any period prior to the Policies being offered will be calculated as
if the Policies had been offered during that period of time, with all charges
assumed to be those applicable to the sub-accounts and the portfolios.
Total return and average annual total return are based on the hypothetical
profile of a representative Policy owner and historical earnings and are not
intended to indicate future performance. "Total return" is the total income
generated net of certain expenses and charges. "Average annual total return" is
net of the same expenses and charges, but reflects the hypothetical return
compounded annually. This hypothetical return is equal to cumulative return had
performance been constant over the entire period. Average annual total returns
are not the same as yearly results and tend to smooth out variations in the
portfolio's return.
Performance information under the Policies is net of portfolio expenses,
mortality and expense risk charges, administration charges, monthly insurance
protection charges and surrender charges.
We take a representative Policy owner and assume that
o The Insured is a male Age 45, standard non-smoker underwriting class
o The Policy owner had allocations in each of the sub-accounts for the
fund durations shown, and
o There was a full surrender at the end of the applicable period
We may compare performance information for a sub-account in reports and
promotional literature to
o Standard & Poor's 500 Stock Index ("S & P 500")
o Dow Jones Industrial Average ("DJIA")
o Shearson Lehman Aggregate Bond Index
o Other unmanaged indices of unmanaged securities widely regarded
by investors as representative of the
securities markets
o Other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services
o Other services, companies, publications, or persons such as
Morningstar, Inc., who rank the investment products on performance or
other criteria
o The Consumer Price Index
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for insurance and administration charges, separate account
charges and fund management costs and expenses. Performance information for any
sub-account reflects only the performance of a hypothetical investment in the
sub-account during a period. It is not representative of what may be achieved in
the future. However, performance information may be helpful in reviewing market
conditions during a period and in considering a portfolio's success in meeting
its investment objectives.
In advertising, sales literature, publications or other materials, we may give
information on various topics of interest to Policy owners and prospective
Policy owners. These topics may include
o The relationship between sectors of the economy and the economy as a
whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing,
dollar cost averaging, asset allocation and automatic account
rebalancing)
o The advantages and disadvantages of investing in tax-deferred and
taxable investments
o Customer profiles and hypothetical payment and investment scenarios
o Financial management and tax and retirement planning
o Investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Policies and the
characteristics of, and market for, the financial instruments.
In each table below, "One-Year Total Return" refers to the total of the income
generated by a sub-account, based on certain charges and assumptions as
described in the respective tables, for the one-year period ended December 31,
1996. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects the hypothetical annually compounded return that would
have produced the same cumulative return if the sub-account's performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in annual performance return, they are not the same as
actual year-by-year results.
<PAGE>
Table I: SUB-ACCOUNT PERFORMANCE
(Net of all Charges and Assuming Surrender of the
Policy)
The following performance information is based on the periods that the
portfolios have been in existence. The data is net of expenses of the
portfolios, all sub-account charges, and all Policy charges (including surrender
charges) for a representative Policy. It is assumed that the Insured is Male,
Age 45, standard non-smoker underwriting class, that the face amount of the
Policy is $200,000, the death benefit option is the Level Option, that an annual
payment of $3,800 (approximately the guideline level premium) was made at the
beginning of each Policy year, that all payments were allocated to each
sub-account individually, and that there was a full surrender of the Policy at
the end of the applicable period. Returns are for the period ending December 31,
1996.
- -----------------------------------
<TABLE>
<CAPTION>
Portfolio 5 Year 10 Year or Life of Years Since
Sub-Account Inception Average the Portfolio (if Inception (if
Investing in the Date (if less One Year Annual Total Less) Average Less than 10
Corresponding Portfolio than Total Return Return Annual Total Return Years)
10 Years)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Worldwide Growth 09/13/1993 -97.96% 1.32% 3.30
Morgan Stanley International Magnum 01/02/1997 -100% (1) 0.75
Dreyfus VIF Small Cap 08/31/1990 -100.00% 25.15% 40.92% 6.34
OCC Accumulation Trust Small Cap (2) 08/01/1988 -100.00% 1.50% 8.00% 8.42
MFS VIT Emerging Growth 07/24/1995 -100.00% -47.16% 1.44
Alliance VPF Premier Growth 06/26/1992 -100.00% 5.07% 4.52
Dreyfus VIF Capital Appreciation 04/28/1993 -100.00% -1.24% 3.68
MFS VIT Research 07/26/1995 -100.00% -48.34% 1.44
Transamerica VIF Growth (3) n/a -100.00% 11.37% 17.02% n/a
Alger American Income & Growth 11/15/1988 -100.00% -1.05% 4.14% 8.13
Alliance VPF Growth & Income 01/15/1991 -100.00% 2.24% 2.84% 5.96
MFS VIT Growth with Income 10/09/1995 -100.00% -61.21% 1.23
Janus Aspen Balanced 09/13/1993 -100.00% -8.34% 3.30
OCC Accumulation Trust Managed (4) 08/01/1988 -100.00% 6.66% 13.71% 8.42
Morgan Stanley UF High Yield 01/02/1997 -100% (1) 0.75
Morgan Stanley UF Fixed Income 01/02/1997 -100% (1) 0.75
Transamerica VIF Money Market n/a n/a
- -------------------------------------------------------------------------------
</TABLE>
(1) Sub-account performance is for the period January 2, 1997 through
September 30, 1997.
(2) On September 16th, 1994, an investment company which had commenced
operations on August 1, 1988, called Quest for Value Accumulation Trust (the
"Old Trust") was effectively divided into two investment funds - The Old Trust
and the present OCC Accumulation Trust (the "Present Trust") at which time the
Present Trust commenced operations. The total net assets of the Small Cap
Portfolio immediately after the transaction were $139,812,573 in the Old Trust
and $8,129,274 in the Present Trust. For the period prior to September 16, 1994,
the performance figures for the Small Cap Portfolio of the Present Trust reflect
the performance of the Small Cap Portfolio of the Old Trust.
(3) The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., is
the successor to Separate Account Fund C of Transamerica Occidental Life
Insurance Company, a management investment company funding variable annuities,
through a reorganization on November 1, 1996. Accordingly, the performance data
for the Transamerica VIF Growth Portfolio includes performance of its
predecessor.
(4) On September 16th, 1994, an investment company which had commenced
operations on August 1, 1988, called Quest for Value Accumulation Trust (the
"Old Trust") was effectively divided into two investment funds - The Old Trust
and the present OCC Accumulation Trust (the "Present Trust") at which time the
Present Trust commenced operations. The total net assets of the Managed
Portfolio immediately after the transaction were $682,601,380 in the Old Trust
and $51,345,102 in the Present Trust. For the period prior to September 16,
1994, the performance figures for the Managed Portfolio of the Present Trust
reflect the performance of the Managed Portfolio of the Old Trust.
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. One-year total return and average annual total return figures are based
on historical earnings and are not intended to indicate future performance.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in which a
sub-account invests 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.
<PAGE>
Table II: SUB-ACCOUNT PERFORMANCE
(Excluding Monthly Policy Charges and Surrender Charges)
The following performance information is based on the periods that the
portfolios have been in existence. The performance information is net of total
portfolio expenses, all sub-account charges and premium tax and expense charges.
The data does NOT reflect monthly charges under the Policies or surrender
charges. It is assumed that an annual payment of $3,800 (approximately the
guideline level premium for a Policy issued to a Male, Age 45, standard,
non-smoker underwriting class for a $200,000 face amount with a Level Death
Benefit Option) was made at the beginning of each Policy year and that all
payments were allocated to each sub-account individually. Returns are for the
period ending December 31, 1996.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio 5 Year 10 Year or Life of Years Since
Sub-Account Inception Date Average the Portfolio (if Inception
Investing in the (if less than One Year Annual Total Less) Average (if Less
Corresponding Portfolio 10 Years) Total Return Return Annual Return than 10
Years)
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Worldwide Growth 09/13/1993 22.90% 19.72% 3.30
Morgan Stanley International Magnum 01/02/1997 14.74% (1) 0.75
Dreyfus VIF Small Cap 08/31/1990 11.19% 33.82% 46.37% 6.34
OCC Accumulation Trust Small Cap (2) 08/01/1988 13.06% 12.14% 12.88% 8.42
MFS VIT Emerging Growth 07/24/1995 11.45% 18.67% 1.44
Alliance VPF Premier Growth 06/26/1992 16.85% 16.55% 4.52
Dreyfus VIF Capital Appreciation 04/28/1993 19.58% 15.44% 3.68
MFS VIT Research 07/26/1995 16.51% 17.49% 1.44
Transamerica VIF Growth (3) n/a 17.77% 21.04% 20.58% n/a
Alger American Income & Growth 11/15/1988 13.97% 9.89% 9.47% 8.13
Alliance VPF Growth & Income 01/15/1991 18.17% 12.80% 11.09% 5.96
MFS VIT Growth with Income 10/09/1995 18.53% 18.50% 1.23
Janus Aspen Balanced 09/13/1993 10.65% 11.31% 3.30
OCC Accumulation Trust Managed (4) 08/01/1988 16.92% 16.75% 18.26% 8.42
Morgan Stanley UF High Yield 01/02/1997 8.42% (1) 0.75
Morgan Stanley UF Fixed Income 01/02/1997 2.71% (1) 0.75
Transamerica VIF Money Market n/a
- -------------------------------------------------------------------------------
</TABLE>
(1) Sub-account performance is for the period January 2, 1997 through
September 30, 1997.
(2) On September 16th, 1994, an investment company which had commenced
operations on August 1, 1988, called Quest for Value Accumulation Trust (the
"Old Trust") was effectively divided into two investment funds - The Old Trust
and the present OCC Accumulation Trust (the "Present Trust") at which time the
Present Trust commenced operations. The total net assets of the Small Cap
Portfolio immediately after the transaction were $139,812,573 in the Old Trust
and $8,129,274 in the Present Trust. For the period prior to September 16, 1994,
the performance figures for the Small Cap Portfolio of the Present Trust reflect
the performance of the Small Cap Portfolio of the Old Trust.
(3) The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., is
the successor to Separate Account Fund C of Transamerica Occidental Life
Insurance Company, a management investment company funding variable annuities,
through a reorganization on November 1, 1996. Accordingly, the performance data
for the Transamerica VIF Growth Portfolio includes performance of its
predecessor.
(4) On September 16th, 1994, an investment company which had commenced
operations on August 1, 1988, called Quest for Value Accumulation Trust (the
"Old Trust") was effectively divided into two investment funds - The Old Trust
and the present OCC Accumulation Trust (the "Present Trust") at which time the
Present Trust commenced operations. The total net assets of the Managed
Portfolio immediately after the transaction were $682,601,380 in the Old Trust
and $51,345,102 in the Present Trust. For the period prior to September 16,
1994, the performance figures for the Managed Portfolio of the Present Trust
reflect the performance of the Managed Portfolio of the Old Trust.
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. One-year total return and average annual total return figures are based
on historical earnings and are not intended to indicate future performance.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in which a
sub-account invests 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.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Separate Account or its
assets. Transamerica is not involved in any litigation that is materially
important to its total assets.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to law, to make additions to, deletions from, or
substitutions for the shares that are held in the sub-accounts. We may redeem
the shares of a portfolio and substitute shares of another registered open-end
management company if
o The shares of the portfolio are no longer available
for investment or
o In our judgment further investment in the portfolio would be improper
based on the purposes of the Separate Account or the affected
sub-account
Where the 1940 Act or other law requires, we will not substitute any shares
respecting a Policy interest in a sub-account without notice to Policy owners
and prior approval of the SEC and state insurance authorities. The Separate
Account may, as the law allows, purchase other securities for other policies or
allow a conversion between policies on a Policy owner's request.
We reserve the right to establish additional sub-accounts funded by a new
portfolio or by another investment company. Subject to law, we may, in our sole
discretion, establish new sub-accounts or eliminate one or more sub-accounts.
Shares of the portfolios are issued to other separate accounts of Transamerica
and its affiliates that fund variable annuity contracts ("mixed funding").
Shares of the portfolios are also issued to other unaffiliated insurance
companies ("shared funding"). It is conceivable that in the future such mixed
funding or shared funding may be disadvantageous for variable life Policy owners
or variable annuity Policy owners. Transamerica does not believe that mixed
funding is currently disadvantageous to either variable life insurance Policy
owners or variable annuity Policy owners. Transamerica will monitor events to
identify any material conflicts among Policy owners because of mixed funding. If
Transamerica concludes that separate portfolios should be established for
variable life and variable annuity separate accounts, we will bear the expenses.
We may change the Policy to reflect a substitution or other change and will
notify Policy owners of the change. Subject to any approvals the law may
require, the Separate Account or any sub-accounts may be
o Operated as a management company under the 1940 Act
o Deregistered under the 1940 Act if registration is no
longer required OR
o Combined with other sub-accounts or our other
separate accounts
FURTHER INFORMATION
We have filed a 1933 Act registration statement for this offering with the SEC.
Under SEC rules and regulations, we have omitted from this prospectus parts of
the registration statement and amendments. Statements contained in this
prospectus are summaries of the Policy and other legal documents. The complete
documents and omitted information may be obtained from the SEC's principal
office in Washington, D.C., on payment of the SEC's prescribed fees.
MORE INFORMATION ABOUT THE FIXED ACCOUNT
This prospectus serves as a disclosure document only for the aspects of the
Policy relating to the Separate Account. For complete details on the Fixed
Account, read the Policy itself. The Fixed Account and other interests in our
General Account are not regulated under the 1933 Act or the 1940 Act because of
exemption and exclusionary provisions. 1933 Act provisions on the accuracy and
completeness of statements made in prospectuses may apply to information on the
fixed part of the Policy and the Fixed Account. The SEC has not reviewed the
disclosures in this section of the Prospectus.
GENERAL DESCRIPTION - You may allocate part or all of your net payments to
accumulate at a fixed rate of interest in the Fixed Account. The Fixed Account
is a part of our General Account. The General Account is made up of all of our
general assets other than those allocated to any separate account. Allocations
to the Fixed Account become part of our General Account assets and are used to
support insurance and annuity obligations.
FIXED ACCOUNT INTEREST - We guarantee amounts allocated to the Fixed Account as
to principal and a minimum rate of interest. The interest rates credited to the
portion of Policy Value in the Fixed Account are set by us, but will never be
less than 4% per year. We may establish higher interest rates and the initial
interest rates and the renewal interest rates may be different. We will
guarantee initial rates on amounts allocated to the Fixed Account, either as
payments or transfers, to the next Policy anniversary. At each Policy
anniversary, we will credit the renewal interest rate effective on that date to
money remaining in the Fixed Account. We will guarantee this rate for one year.
The initial and the renewal interest rates do not apply to the portion of the
Policy Value in the Fixed Account which secures any outstanding loan. See below
"TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS."
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS If a Policy is
surrendered or if a partial withdrawal is made, a surrender charge or partial
withdrawal charge may be imposed. On a decrease in face amount, the surrender
charge deducted is a fraction of the charge that would apply to a full
surrender. We deduct partial withdrawals from the portion of the Policy Value
allocated to the Fixed Account on a last-in/first out basis.
The first 12 transfers in a Policy year are free. After that, we will deduct a
$10 transfer charge for each transfer in that Policy year. (We may increase the
charge to a maximum of $25.) The transfer privilege is subject to our consent
and to our then current rules.
Policy loans may also be made from the portion of the Policy Value in the Fixed
Account. We will credit that part of the Policy Value that is equal to any
outstanding loan with interest at an effective annual yield of at least 6.0%
(7.5% for preferred loans).
We may delay transfers, surrenders, partial withdrawals, net death benefits and
Policy loans from the Fixed Account for up to six months. However, if payment is
delayed for 30 days or more, we will pay interest at least equal to an effective
annual yield of 3.0% per year for the deferment. Amounts from the Fixed Account
used to make payments on policies that we or our affiliates issue will not be
delayed.
INDEPENDENT AUDITORS
The consolidated financial statements of Transamerica at December 31, 1996, have
been audited by Ernst & Young LLP, Independent Auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance on such report
given upon the authority of such firm as experts in accounting and auditing.
There are no audited financial statements for the Separate Account since it had
not commenced operations as of the date of this prospectus.
FINANCIAL STATEMENTS
Financial Statements for Transamerica are included in this prospectus, starting
on the next page. Transamerica Occidental Life Separate Account VUL-1 has not
yet commenced operations and, therefore, no financial statement is included for
the Separate Account. The financial statements of Transamerica should be
considered only as bearing on our ability to meet our obligations under the
Policy. They should not be considered as bearing on the investment performance
of the assets held in the Separate Account.
<PAGE>
Audited Consolidated Financial Statements
Transamerica Occidental Life Insurance Company and Subsidiaries
December 31, 1996
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Audited Consolidated Financial Statements
December 31, 1996
Audited Consolidated Financial Statements
Report of Independent Auditors........................... 1
Consolidated Balance Sheet............................... 2
Consolidated Statement of Income......................... 3
Consolidated Statement of Shareholder's Equity........... 4
Consolidated Statement of Cash Flows..................... 5
Notes to Consolidated Financial Statements............... 6
<PAGE>
-2-
2721:T-10
3/20/97
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transamerica Occidental Life Insurance Company
We have audited the accompanying consolidated balance sheet of Transamerica
Occidental Life Insurance Company and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Transamerica
Occidental Life Insurance Company and Subsidiaries at December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note A, the Company changed its method of accounting for certain
debt securities effective January 1, 1994.
ERNST & YOUNG LLP
February 12, 1997
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
1996 1995
--------------------- -------------
(In thousands, except
for share data)
ASSETS
Investments:
<S> <C> <C>
Fixed maturities available for sale $ 26,980,676 $ 25,997,403
Equity securities available for sale 471,734 307,881
Mortgage loans on real estate 716,669 565,086
Real estate 24,876 38,376
Policy loans 442,607 426,377
Other long-term investments 66,686 62,536
Short-term investments 135,726 211,500
--------------------- ---------------------
28,838,974 27,609,159
Cash 35,817 49,938
Accrued investment income 404,866 394,008
Accounts receivable 297,967 174,266
Reinsurance recoverable on paid and unpaid losses 829,653 1,957,160
Deferred policy acquisitions costs 2,138,203 1,974,211
Other assets 256,382 257,333
Separate account assets 3,527,950 2,533,424
--------------------- ---------------------
$ 36,329,812 $ 34,949,499
===================== =====================
LIABILITIES AND SHAREHOLDER'S EQUITY
Policy liabilities:
Policyholder contract deposits $ 22,718,955 $ 22,057,773
Reserves for future policy benefits 5,275,149 5,245,233
Policy claims and other 502,331 542,511
--------------------- ---------------------
28,496,435 27,845,517
Income tax liabilities 388,852 587,801
Accounts payable and other liabilities 560,663 534,866
Separate account liabilities 3,527,950 2,533,424
--------------------- ---------------------
32,973,900 31,501,608
Shareholder's equity:
Common stock ($12.50 par value):
Authorized--4,000,000 shares
Issued and outstanding--2,206,933 shares 27,587 27,587
Additional paid-in capital 335,619 333,578
Retained earnings 2,467,406 2,171,412
Foreign currency translation adjustments (24,472) (23,618)
Net unrealized investment gains 549,772 938,932
--------------------- ---------------------
3,355,912 3,447,891
--------------------- ---------------------
$ 36,329,812 $ 34,949,499
===================== =====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
--------------- --------------- ----------
(In thousands)
Revenues:
<S> <C> <C> <C>
Premiums and other considerations $ 1,798,034 $ 1,811,888 $ 1,430,019
Net investment income 2,077,232 1,972,759 1,771,575
Other operating revenue - - 13,273
Net realized investment gains 17,471 28,112 20,730
--------------- --------------- ---------------
TOTAL REVENUES 3,892,737 3,812,759 3,235,597
Benefits:
Benefits paid or provided 2,714,841 2,587,468 2,116,125
Increase in policy reserves and liabilities 57,968 236,205 204,159
--------------- --------------- ---------------
2,772,809 2,823,673 2,320,284
Expenses:
Amortization of deferred policy acquisition costs 235,180 182,123 176,033
Salaries and salary related expenses 158,699 145,681 133,591
Other expenses 224,084 200,339 190,500
--------------- --------------- ---------------
617,963 528,143 500,124
--------------- --------------- ---------------
TOTAL BENEFITS AND EXPENSES 3,390,772 3,351,816 2,820,408
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 501,965 460,943 415,189
Provision for income taxes 164,685 149,647 143,491
--------------- --------------- ---------------
NET INCOME $ 337,280 $ 311,296 $ 271,698
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net
Foreign Unrealized
Additional Currency Investment
Common Stock Paid-in Retained Translation Gains
Shares Amount Capital Earnings Adjustments (Losses)
(In thousands, except for share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 2,206,933 $ 27,587 $ 319,279 $ 1,689,534 $ (21,054) $ 63,582
Cumulative effect of change in
accounting for investments 795,187
Net income 271,698
Dividends declared (40,000)
Change in foreign currency
translation adjustments (7,293)
Change in net unrealized
investment gains (losses) (1,180,229)
Balance at December 31, 1994 2,206,933 27,587 319,279 1,921,232 (28,347) (321,460)
Net income 311,296
Capital contributions from 14,299
parent
Dividends declared (61,116)
Change in foreign currency
translation adjustments 4,729
Change in net unrealized
investment gains (losses) 1,260,392
Balance at December 31, 1995 2,206,933 27,587 333,578 2,171,412 (23,618) 938,932
Net income 337,280
Capital contributions from
parent 2,041
Dividends declared (41,286)
Change in foreign currency
translation adjustments (854)
Change in net unrealized
investment gains (389,160)
Balance at December 31, 1996 2,206,933 $ 27,587 $ 335,619 $ 2,467,406 $ (24,472) $ 549,772
============ ========== =========== ============= =========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
--------------- ---------------- ----------
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 337,280 $ 311,296 $ 271,698
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in:
Reinsurance recoverable (73,328) (466,669) (290,926)
Accounts receivable (159,309) (58,866) (31,934)
Policy liabilities 949,108 1,273,723 804,296
Other assets, accounts payable and other
liabilities, and income taxes (32,662) (252,362) 133,499
Policy acquisition costs deferred (388,003) (381,806) (394,858)
Amortization of deferred policy acquisition costs 268,770 191,313 182,312
Net realized gains on investment transactions (51,061) (37,302) (27,009)
Other (15,758) (22,862) (124,643)
--------------- ---------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 835,037 556,465 522,435
INVESTMENT ACTIVITIES
Purchases of securities (7,362,635) (5,667,539) (9,354,375)
Purchases of other investments (334,895) (330,503) (143,771)
Sales of securities 5,064,780 3,587,367 4,607,572
Sales of other investments 175,001 155,084 143,815
Maturities of securities 506,941 341,485 2,251,763
Net change in short-term investments 75,774 (67,337) 38,597
Other (21,358) (35,384) (25,354)
--------------- ---------------- ---------------
NET CASH USED BY
INVESTING ACTIVITIES (1,896,392) (2,016,827) (2,481,753)
FINANCING ACTIVITIES
Additions to policyholder contract deposits 6,260,653 5,151,428 4,434,726
Withdrawals from policyholder contract deposits (5,173,419) (3,624,044) (2,419,915)
Dividends paid to parent (40,000) (60,000) (40,000)
--------------- ---------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,047,234 1,467,384 1,974,811
--------------- ---------------- ---------------
INCREASE (DECREASE) IN CASH (14,121) 7,022 15,493
Cash at beginning of year 49,938 42,916 27,423
--------------- ---------------- ---------------
CASH AT END OF YEAR $ 35,817 $ 49,938 $ 42,916
=============== ================ ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business: Transamerica Occidental Life Insurance Company ("TOLIC") and its
subsidiaries (collectively, the "Company"), engage in providing life insurance,
pension and annuity products, reinsurance, structured settlements and
investments, which are distributed through a network of independent and
company-affiliated agents and independent brokers. The Company's customers are
primarily in the United States and Canada.
Basis of Presentation: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles which
differ from statutory accounting practices prescribed or permitted by regulatory
authorities.
Use of Estimates: Certain amounts reported in the accompanying consolidated
financial statements are based on the management's best estimates and judgment.
Actual results could differ from those estimates.
New Accounting Standards: In June of 1996, the Financial Accounting Standards
Board issued a new standard on accounting for transfers of financial assets,
servicing of financial assets and extinguishment of liabilities. The Company
must adopt the standard in 1997. The standard requires that a transfer of
financial assets be accounted for as a sale only if certain specified conditions
for surrender of control over the transferred assets exist. When adopted, the
standard is not expected to have a material effect on the consolidated financial
position or results of operations of the Company.
In 1996, the Company adopted the Financial Accounting Standards Board's new
standard on accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The standard requires that an impaired
long-lived asset be measured based on the fair value of the asset to be held and
used or the fair value less cost to sell of the asset to be disposed of. There
was no material effect on the consolidated financial position or results of
operations of the Company.
In 1995, the Company adopted the Financial Accounting Standards Board's standard
on accounting for impairment of loans, which requires that an impaired loan be
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent. There was no material effect on the consolidated
financial position or results of operations of the Company.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
In 1994, the Company adopted the Financial Accounting Standards Board's standard
on accounting for certain investments in debt and equity securities which
requires the Company to report at fair value, with unrealized gains and losses
excluded from earnings and reported on an after tax basis as a separate
component of shareholder's equity, its investments in debt securities for which
the Company does not have the positive intent and ability to hold to maturity.
Additionally, such unrealized gains and losses are considered in evaluating
deferred policy acquisition costs, with any resultant adjustment also excluded
from earnings and reported on an after tax basis in shareholder's equity. As of
January 1, 1994, the impact of adopting the standard was to increase
shareholder's equity by $795.2 million (net of deferred policy acquisition cost
adjustment of $367.2 million and deferred taxes of $428.2 million) with no
effect on net income.
Principles of Consolidation: The consolidated financial statements of the
Company include the accounts of TOLIC and its subsidiaries, all of which operate
primarily in the life insurance industry. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation. All significant intercompany balances
and transactions have been eliminated in consolidation.
Investments: Investments are reported on the following bases:
Fixed maturities--All debt securities, including redeemable preferred
stocks, are classified as available for sale and carried at fair value.
The Company does not carry any debt securities principally for the
purpose of trading. Prepayments are considered in establishing
amortization periods for premiums and discounts and amortized cost is
further adjusted for other-than-temporary fair value declines. Derivative
instruments are also reported as a component of fixed maturities and are
carried at fair value if designated as hedges of securities available for
sale or at amortized cost if designated as hedges of liabilities. See
Note K - Financial Instruments.
Equity securities available for sale (common and nonredeemable preferred
stocks)--at fair value. The Company does not carry any equity securities
principally for the purpose of trading.
Mortgage loans on real estate--at unpaid balances, adjusted for
amortization of premium or discount, less allowance for possible
impairment.
Real estate--Investment real estate that the Company intends to hold for
the production of income is carried at depreciated cost less allowance
for possible impairment. Properties held for sale, primarily foreclosed
assets, are carried at the lower of depreciated cost or fair value less
estimated selling costs.
Policy loans--at unpaid balances.
Other long-term investments--at cost, less allowance for possible
impairment.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Short-term investments--at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined generally on
a specific identification basis. The Company reports realized gains and losses
on investment transactions in the accompanying consolidated statement of income,
net of the amortization of deferred policy acquisition costs when such
amortization results from the realization of gains or losses other than as
originally anticipated on the sale of investments associated with
interest-sensitive products. Changes in fair values of fixed maturities
available for sale and equity securities available for sale are included in net
unrealized investment gains or losses after adjustment of deferred policy
acquisition costs and reserves for future policy benefits, net of deferred
income taxes, as a separate component of shareholder's equity and, accordingly,
have no effect on net income.
Deferred Policy Acquisition Costs (DPAC): Certain costs of acquiring new and
renewal insurance contracts, principally commissions, medical examination and
inspection report fees, and certain variable underwriting, issue and field
office expenses, all of which vary with and are primarily related to the
production of such business, have been deferred. DPAC for non-traditional life
and investment-type products are amortized over the life of the related policies
in relation to estimated future gross profits. DPAC for traditional life
insurance products are amortized over the premium-paying period of the related
policies in proportion to premium revenue recognized, using principally the same
assumptions used for computing future policy benefit reserves. DPAC is adjusted
as if unrealized gains or losses on securities available for sale were realized.
Changes in such adjustments are included in net unrealized investment gains or
losses on an after tax basis as a separate component of shareholder's equity
and, accordingly, have no effect on net income.
Separate Accounts: The Company administers segregated asset accounts for certain
holders of universal life policies, variable annuity contracts, and other
pension deposit contracts. The assets held in these Separate Accounts are
invested primarily in fixed maturities, equity securities, other marketable
securities, and short-term investments. The Separate Account assets are stated
at fair value and are not subject to liabilities arising out of any other
business the Company may conduct. Investment risks associated with fair value
changes are borne by the contract holders. Accordingly, investment income and
realized gains and losses attributable to Separate Accounts are not reported in
the Company's results of operations.
Policyholder Contract Deposits: Non-traditional life insurance products include
universal life and other interest-sensitive life insurance policies.
Investment-type products include single and flexible premium deferred annuities,
single premium immediate annuities, guaranteed investment contracts, and other
group pension deposit contracts that do not have mortality or morbidity risk.
Policyholder contract deposits on non-traditional life insurance and
investment-type products represent premiums received plus accumulated interest,
less mortality charges on universal life products and other administration
charges as applicable under the contract. Interest credited to these policies
ranged from 2.6% to 9.8% in 1996 and from 2.8% to 10% in 1995 and 1994.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reserves for Future Policy Benefits: Traditional life insurance products
primarily include those contracts with fixed and guaranteed premiums and
benefits and consist principally of whole life and term insurance policies,
limited-payment life insurance policies and certain annuities with life
contingencies. The reserve for future policy benefits for traditional life
insurance products has been provided on a net-level premium method based upon
estimated investment yields, withdrawals, mortality, and other assumptions which
were appropriate at the time the policies were issued. Such estimates are based
upon past experience with a margin for adverse deviation. Interest assumptions
range from 2.5% in earlier years to 11.25%. Reserves for future policy benefits
are evaluated as if unrealized gains or losses on securities available for sale
were realized and adjusted for any resultant premium deficiencies. Changes in
such adjustments are included in net unrealized investment gains or losses on an
after tax basis as a separate component of shareholder's equity and,
accordingly, have no effect on net income.
Foreign Currency Translation: The effect of changes in exchange rates in
translating the foreign subsidiary's financial statements is accumulated as a
separate component of shareholder's equity, net of applicable income taxes.
Aggregate transaction adjustments included in income were not significant for
1996, 1995, or 1994.
Recognition of Revenue and Costs: Traditional life insurance contract premiums
are recognized as revenue over the premium-paying period, with reserves for
future policy benefits established from such premiums.
Revenues for universal life and investment products consist of policy charges
for the cost of insurance, policy administration charges, amortization of policy
initiation fees, and surrender charges assessed against policyholder account
balances during the period. Expenses related to these products consist of
interest credited to policyholder account balances and benefit claims incurred
in excess of policyholder account balances.
Claim reserves include provisions for reported claims and claims incurred but
not reported.
Reinsurance: Coinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies and the terms of the
reinsurance contracts. Yearly renewable term reinsurance is accounted for the
same as direct business. Premiums ceded and recoverable losses have been
reported as a reduction of premium income and benefits, respectively. The ceded
amounts related to policy liabilities have been reported as an asset.
In 1996, the receivables and payables under certain modified coinsurance
arrangements are presented on a net basis to the extent that such receivables
and payables are with the same ceding company.
Income Taxes: TOLIC and its domestic subsidiaries are included in the
consolidated federal income tax returns
filed by Transamerica Corporation, which by the terms of a tax sharing
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
agreement generally requires TOLIC to accrue and settle income tax obligations
in amounts that would result from filing separate tax returns with federal
taxing authorities.
Deferred income taxes arise from temporary differences between the bases of
assets and liabilities for financial reporting purposes and income tax purposes,
based on enacted tax rates in effect for the years in which the temporary
differences are expected to reverse.
Fair Values of Financial Instruments: Fair values for debt securities are based
on quoted market prices, where available. For debt securities not actively
traded and private placements, fair values are estimated using values obtained
from independent pricing services. Fair values for derivative instruments,
including off-balance-sheet instruments, are estimated using values obtained
from independent pricing services.
Fair values for equity securities are based on quoted market prices.
Fair values for mortgage loans on real estate and policy loans are estimated
using discounted cash flow calculations, based on interest rates currently being
offered for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for calculation purposes.
The carrying amounts of short-term investments, cash, and accrued investment
income approximate their fair value.
Fair values for liabilities under investment-type contracts are estimated using
discounted cash flow calculations, based on interest rates currently being
offered by similar contracts with maturates consistent with those remaining for
the contracts being valued. The liabilities under investment-type contracts are
included in policyholder contract deposits in the accompanying consolidated
balance sheet.
<PAGE>
NOTE B--INVESTMENTS
The cost and fair value of fixed maturities available for sale and equity
securities are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gain Loss Value
December 31, 1996
U.S. Treasury securities and
obligations of U.S. government
<S> <C> <C> <C> <C>
corporations and agencies $ 288,605 $ 25,118 $ 1,628 $ 312,095
Obligations of states and political
subdivisions 258,596 8,508 538 266,566
Foreign governments 110,283 4,479 520 114,242
Corporate securities 15,171,041 779,904 108,999 15,841,946
Public utilities 4,462,063 203,604 35,769 4,629,898
Mortgage-backed securities 5,548,067 252,094 56,293 5,743,868
Redeemable preferred stocks 66,856 10,281 5,076 72,061
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 25,905,511 $ 1,283,988 $ 208,823 $ 26,980,676
================ ================ ================ ================
Equity securities $ 199,494 $ 281,418 $ 9,178 $ 471,734
================ ================ ================ ================
December 31, 1995
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 92,958 $ 6,840 $ 99,798
Obligations of states and political
subdivisions 229,028 7,832 $ 572 236,288
Foreign governments 109,632 9,068 - 118,700
Corporate securities 11,945,631 1,126,903 30,581 13,041,953
Public utilities 4,338,637 390,237 2,909 4,725,965
Mortgage-backed securities 7,277,976 487,190 15,092 7,750,074
Redeemable preferred stocks 21,372 3,757 504 24,625
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 24,015,234 $ 2,031,827 $ 49,658 $ 25,997,403
================ ================ ================ ================
Equity securities $ 150,968 $ 163,264 $ 6,351 $ 307,881
================ ================ ================ ================
</TABLE>
The cost and fair value of fixed maturities available for sale at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual
<PAGE>
NOTE B--INVESTMENTS (Continued)
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
Fair
Cost Value
Maturity
<S> <C> <C> <C>
Due in 1997 $ 482,813 $ 511,576
Due in 1998-2001 3,688,424 3,761,584
Due in 2002-2006 4,725,231 4,839,666
Due after 2006 11,394,120 12,051,921
---------------- ----------------
20,290,588 21,164,747
Mortgage-backed securities 5,548,067 5,743,868
Redeemable preferred stock 66,856 72,061
---------------- ----------------
$ 25,905,511 $ 26,980,676
================ ================
The components of the carrying value of real estate are as follows (in
thousands):
1996 1995
--------------- ----------
Investment real estate $ 22,814 $ 27,095
Properties held for sale 2,062 11,281
---------------- ---------------
$ 24,876 $ 38,376
================ ===============
</TABLE>
As of December 31, 1996, the Company held a total investment in one issuer,
other than the United States Government or a Unites States Government agency or
authority, which exceeded 10% of total shareholder's equity as follows (in
thousands) (See Note H.):
Name of Issuer Carrying Value
Transamerica Corporation $ 613,922
The carrying value of those assets that were on deposit with public officials in
compliance with regulatory requirements was $20.8 million at December 31, 1996.
<PAGE>
NOTE B--INVESTMENTS (Continued)
Net investment income (expense) by major investment category is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fixed maturities $ 2,005,764 $ 1,904,519 $ 1,705,618
Equity securities 5,458 3,418 5,587
Mortgage loans on real estate 58,165 40,702 40,030
Real estate (7,435) 3,209 5,024
Policy loans 27,012 25,641 24,614
Other long-term investments 978 2,353 7,173
Short-term investments 10,616 13,286 9,689
---------------- ---------------- ----------------
2,100,558 1,993,128 1,797,735
Investment expenses (23,326) (20,369) (26,160)
---------------- ---------------- ----------------
$ 2,077,232 $ 1,972,759 $ 1,771,575
================ ================ ================
Significant components of net realized investment gains are as follows (in
thousands):
1996 1995 1994
---------------- ---------------- ----------
Net gains on disposition of investments in:
Fixed maturities $ 40,967 $ 52,889 $ 7,181
Equity securities 15,750 5,637 32,374
Other 3,424 2,327 2,546
---------------- ---------------- ----------------
60,141 60,853 42,101
Provision for impairment (9,080) (23,551) (15,092)
Accelerated amortization of DPAC (33,590) (9,190) (6,279)
---------------- ---------------- ----------------
$ 17,471 $ 28,112 $ 20,730
================ ================ ================
The components of net gains on disposition of investment in fixed maturities are as follows (in thousands):
1996 1995 1994
Gross gains $ 74,817 $ 61,504 $ 46,702
Gross losses (33,850) (8,615) (39,521)
---------------- ---------------- ----------------
$ 40,967 $ 52,889 $ 7,181
================ ================ ================
</TABLE>
Proceeds from disposition of investment in fixed maturities available for sale
were $5,476.1 million in 1996, $3,802.6 million in 1995 and $6,737.7 million in
1994.
<PAGE>
NOTE B--INVESTMENTS (Continued)
The costs of certain investments have been reduced by the following allowances
for impairment in value (in thousands):
<TABLE>
<CAPTION>
December 31
1996 1995
---------------- -----------
<S> <C> <C>
Fixed maturities $ 54,160 $ 71,429
Mortgage loans on real estate 22,654 21,516
Real estate 9,146 16,207
Other long-term investments 11,025 11,025
---------------- ----------------
$ 96,985 $ 120,177
================ ================
The components of net unrealized investment gains in the accompanying
consolidated balance sheet are as follows (in thousands):
December 31
1996 1995
---------------- ----------
Unrealized gains on investment in:
Fixed maturities $ 1,075,165 $ 1,982,169
Equity securities 272,240 156,913
---------------- ---------------
1,347,405 2,139,082
Fair value adjustments to:
DPAC (306,602) (355,571)
Reserves for future policy benefits (195,000) (339,000)
---------------- ---------------
(501,602) (694,571)
Related deferred taxes (296,031) (505,579)
---------------- ---------------
$ 549,772 $ 938,932
================ ===============
</TABLE>
<PAGE>
NOTE C--DEFERRED POLICY ACQUISITION COSTS (DPAC)
Significant components of changes in DPAC are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 1,974,211 $ 2,480,474 $ 1,929,332
Cumulative effect of change in
accounting for investments - - (367,154)
Amounts deferred:
Commissions 290,512 298,698 305,858
Other 97,491 83,108 89,000
Amortization attributed to:
Net gain on disposition of investments (33,590) (9,190) (6,279)
Operating income (235,180) (182,123) (176,033)
Fair value adjustment 48,969 (706,915) 718,498
Foreign currency translation adjustment (4,210) 10,159 (12,748)
---------------- ---------------- ----------------
Balance at end of year $ 2,138,203 $ 1,974,211 $ 2,480,474
================ ================ ================
</TABLE>
NOTE D--POLICY LIABILITIES
Components of policyholder contract deposits are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1996 1995
---------------- -----------
<S> <C> <C>
Liabilities for investment-type products $ 18,126,119 $ 17,948,652
Liabilities for non-traditional life insurance
products 4,592,836 4,109,121
--------------- ---------------
$ 22,718,955 $ 22,057,773
=============== ===============
</TABLE>
Reserves for future policy benefits were evaluated as if the unrealized gains on
securities available for sale had been realized and adjusted for resultant
premium deficiencies by $195 million as of December 31, 1996 and $339 million as
of December 31, 1995.
<PAGE>
NOTE E--INCOME TAXES
Components of income tax liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1996 1995
---------------- -----------
<S> <C> <C>
Current tax liabilities (receivables) $ (13,752) $ 35,689
Deferred tax liabilities 402,604 552,112
---------------- ----------------
$ 388,852 $ 587,801
================ ================
Significant components of deferred tax liabilities (assets) are as follows (in
thousands):
December 31
1996 1995
---------------- -----------
Deferred policy acquisition costs $ 726,011 $ 696,728
Unrealized investment gains 296,031 505,579
Life insurance policy liabilities (578,823) (601,875)
Provision for impairment of investments (33,945) (42,062)
Other-net (6,670) (6,258)
---------------- ----------------
$ 402,604 $ 552,112
================ ================
</TABLE>
The Company offsets all deferred tax assets and liabilities and presents them in
a single amount in the consolidated balance sheet.
Components of provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------
<S> <C> <C> <C>
Current tax expense $ 99,692 $ 115,614 $ 204,087
Deferred tax expense (benefit):
Domestic 55,261 21,784 (69,490)
Foreign 9,732 12,249 8,894
---------------- --------------- ---------------
$ 164,685 $ 149,647 $ 143,491
================ =============== ===============
<PAGE>
NOTE E--INCOME TAXES (Continued)
The differences between federal income taxes computed at the statutory rate and
the provision for income taxes as reported are as follows (in thousands):
1996 1995 1994
---------------- ---------------- ----------
Income before income taxes:
Income from U.S. operations $ 474,160 $ 425,946 $ 389,778
Income from foreign operations 27,805 34,997 25,411
--------------- --------------- ---------------
501,965 460,943 415,189
Tax rate 35% 35% 35%
--------------- --------------- ---------------
Federal income taxes at statutory rate 175,688 161,330 145,316
Income not subject to tax (2,262) (685) (910)
Low income housing credits (8,175) (3,137) (902)
Other, net (566) (7,861) (13)
--------------- --------------- ---------------
$ 164,685 $ 149,647 $ 143,491
=============== =============== ===============
</TABLE>
Low income housing credits are recognized over the productive life of acquired
assets. In 1995, the Company recognized a $4.4 million tax benefit related to
the favorable settlement of a prior year tax matter.
Under the Life Insurance Company Income Tax Act of 1959, a portion of "gain from
operations" was not subject to current income taxation but was accumulated, for
tax purposes, in a memorandum account designated as "policyholders' surplus
account." The balance in this account was frozen at December 31, 1983 pursuant
to the Deficit Reduction Act of 1984. This amount becomes subject to tax when it
exceeds a certain maximum or when cash dividends are paid therefrom. The
policyholders' surplus account balance at December 31, 1996 was $138 million. At
December 31, 1996, $1,950 million was available for payment of dividends without
such tax consequences. No income taxes have been provided on the policyholders'
surplus account since the conditions that would cause such taxes are remote.
Income taxes of $149.1 million, $153.3 million and $195.4 million were paid
principally to the Company's parent in 1996, 1995 and 1994, respectively.
NOTE F--REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. Risks are reinsured with other companies to permit the recovery
of a portion of the direct losses, however, the Company remains liable to the
extent the reinsuring companies do not meet their obligations under these
reinsurance agreements.
<PAGE>
NOTE F--REINSURANCE (Continued)
The components of the Company's life insurance in force and premiums and other
considerations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
1996
Life insurance in force,
<S> <C> <C> <C> <C>
at end of year $ 220,162,932 $ 195,158,214 $ 201,560,322 $ 226,565,040
==================== =================== =================== ===================
Premiums and other
considerations $ 1,702,975 $ 1,033,201 $ 1,128,260 $ 1,798,034
==================== =================== =================== ===================
Benefits paid or
provided $ 2,922,967 $ 1,112,561 $ 904,435 $ 2,714,841
==================== =================== =================== ===================
1995
Life insurance in force,
at end of year $ 206,722,573 $ 116,762,869 $ 174,193,592 $ 264,153,296
==================== =================== =================== ===================
Premiums and other
considerations $ 1,857,439 $ 1,079,303 $ 1,033,752 $ 1,811,888
==================== =================== =================== ===================
Benefits paid or
provided $ 2,803,213 $ 1,065,545 $ 849,800 $ 2,587,468
==================== =================== =================== ===================
1994
Life insurance in force,
at end of year $ 191,884,093 $ 115,037,553 $ 158,882,366 $ 235,728,906
==================== =================== =================== ===================
Premiums and other
considerations $ 1,085,555 $ 689,615 $ 1,034,079 $ 1,430,019
==================== =================== =================== ===================
Benefits paid or
provided $ 2,338,370 $ 867,341 $ 645,096 $ 2,116,125
==================== =================== =================== ===================
</TABLE>
<PAGE>
NOTE G--PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Substantially all employees of the Company are covered by noncontributory
defined pension benefit plans sponsored by the Company and the Retirement Plan
for Salaried Employees of Transamerica Corporation and Affiliates. Pension
benefits are based on the employee's compensation during the highest paid 60
consecutive months during the 120 months before retirement. Annual contributions
to the plans generally include a provision for current service costs plus
amortization of prior service costs over periods ranging from 10 to 30 years.
Assets of the plans are invested principally in publicly traded stocks and
bonds.
The Company's total pension costs (benefits) recognized for all plans were
$(3.1) million in 1996, $2.5 million in 1995 and $4.9 million in 1994, of which
$(3.7) million in 1996, $2.0 million in 1995 and $4.7 million in 1994,
respectively, related to the plan sponsored by Transamerica Corporation. The
plans sponsored by the Company are not material to the consolidated financial
position of the Company.
The Company also participates in various contributory defined benefit programs
sponsored by Transamerica Corporation that provide medical and certain other
benefits to eligible retirees. Postretirement benefit costs charged to income
were not significant in 1996, 1995 and 1994.
NOTE H--RELATED PARTY TRANSACTIONS
The Company has various transactions with Transamerica Corporation and certain
of its other subsidiaries in the normal course of operations. These transactions
include premiums received for employee benefit services (none in 1996 and 1995,
and $5.5 million in 1994), loans and advances, investments in a money market
fund managed by an affiliated company, rental of space, and other specialized
services. At December 31, 1996, pension funds administered for these related
companies aggregated $1,067.9 million and the investment in an affiliated money
market fund, included in short-term investments, was $44.6 million.
During 1996, The Company transferred certain below investment grade bonds with
an aggregate book value of $424.9 million, including an aggregate interest
receivable of $9.6 million, to a special purpose subsidiary of Transamerica
Corporation in exchange for assets with a fair value of $438.9 million,
comprised of collateralized higher-rated bond obligations of $413.9 million
issued by the special purpose subsidiary and cash of $25 million. The excess of
fair value of the consideration received over the book value of the bonds
transferred is included in net realized investment gains.
During 1995, the Company transferred real estate with an aggregate book value of
$27.7 million to an affiliate within the Transamerica Corporation group of
consolidated companies
<PAGE>
NOTE H--RELATED PARTY TRANSACTIONS (Continued)
in exchange for assets with a fair value of $49.7 million, comprising mortgage
loans of $35.1 million and cash of $14.6 million. The excess of fair value of
the consideration received over the book value of the real estates transferred,
net of related tax payable to the parent, is included as a capital contribution.
Included in the investment in fixed maturities available for sale is a note
receivable from Transamerica Corporation of $200 million. The note receivable
matures in 2013 and bears interest at 7%.
NOTE I--REGULATORY MATTERS
TOLIC and its insurance subsidiaries are subject to state insurance laws and
regulations, principally those of TOLIC and each subsidiary's state of
incorporation. Such regulations include the risk-based capital requirement and
the restriction on the payment of dividends. Generally, dividends during any
year may not be paid, without prior regulatory approval, in excess of the
greater of 10% of the Company's statutory capital and surplus as of the
preceding year end or the Company's statutory net income from operations for the
preceding year. The insurance department of the domiciliary state recognizes
these amounts as determined in conformity with statutory accounting practices
prescribed or permitted by the insurance department, which vary in some respects
from generally accepted accounting principles. The Company's statutory net
income and statutory capital and surplus which are represented by TOLIC's net
income and capital and surplus are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- ------------
<S> <C> <C> <C>
Statutory net income $ 112,296 $ 131,607 $ 175,850
Statutory capital and surplus, at
end of year 1,249,045 1,115,691 947,164
</TABLE>
NOTE J-COMMITMENTS AND CONTINGENCIES
The Company issues synthetic guaranteed investment contracts which guaranty, in
exchange for a fee, the liquidity of pension plans to pay certain qualified
benefits if other sources of plan liquidity are exhausted. Unlike traditional
guaranteed investment contracts, the plan sponsor retains the credit risk in a
synthetic contract while the Company assumes some limited degree of interest
rate risk. To minimize the risk of loss, the Company underwrites these contracts
based on plan sponsor agreement, at the inception of the contract, on investment
guidelines to be followed, including overall portfolio credit and maturity
requirements. Adherence to these investment requirements is monitored regularly
by the Company. At December 31, 1996, commitments to maintain liquidity for
benefit payments on notional amounts of $1.9 billion were outstanding compared
to $620 million at December 31, 1995.
<PAGE>
NOTE J-COMMITMENTS AND CONTINGENCIES (Continued)
The Company is subject to mandatory assessments by state guaranty funds to cover
losses to policyholders of those insurance companies that are under regulatory
supervision. Certain states allow such assessments to be used to reduce future
premium taxes. The Company estimates and recognizes its obligation for guaranty
fund assessments, net of premium tax deductions, based on the survey data
provided by National Organization of Life and Health Insurance Guaranty
Associations. At December 31, 1996 and 1995, the estimated exposures and the
resultant accruals recorded were not material to the consolidated financial
position or results of operations of the Company.
Substantially all leases of the Company are operating leases principally for the
rental of real estate. Rental expenses for equipment and properties were $20.6
million in 1996, $25.3 million in 1995, and $16.3 million in 1994. The following
is a schedule by years of future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1996 (in thousands):
Year ending December 31:
1997 $ 15,633
1998 14,688
1999 13,593
2000 12,029
2001 11,865
Later years 58,997
$ 126,805
==================
The Company is a defendant in various legal actions arising from its operations.
These include legal actions similar to those faced by many other major life
insurers which allege damages related to sales practices for universal life
policies sold between January 1981 and June 1996. In one such action, the
Company and plaintiffs' counsel are working toward a settlement. Any such
proposed settlement is subject to significant contingencies, including approval
by the court. The lawsuit may proceed if such contingencies are not satisfied.
In the opinion of TOLIC, any ultimate liability which might result from such
litigation would not have a materially adverse effect on the consolidated
financial position of TOLIC or the results of its operations.
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1996 1995
----------------------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
Financial Assets:
<S> <C> <C> <C> <C>
Fixed maturities available for sale $ 26,980,676 $ 26,980,676 $ 25,997,403 $ 25,997,403
Equity securities available for sale 471,734 471,734 307,881 307,881
Mortgage loans on real estate 716,669 770,122 565,086 671,835
Policy loans 442,607 416,396 426,377 408,088
Short-term investments 135,726 135,726 211,500 211,500
Cash 35,817 35,817 49,938 49,938
Accrued investment income 404,866 404,866 394,008 394,008
Financial Liabilities:
Liabilities for investment-type contracts:
Single and flexible premium
deferred annuities 6,962,501 6,400,632 8,080,139 7,518,211
Single premium immediate annuities 4,115,047 4,476,968 4,123,954 4,677,652
Guaranteed investment contracts 3,153,769 3,207,342 2,958,850 2,998,047
Other deposit contracts 3,894,802 3,913,046 2,785,709 2,848,301
Off-balance-sheet assets (liabilities):
Interest rate swap agreements designated
as hedges of liabilities in a:
Receivable position - 43,916 - 20,888
Payable position - (5,485) - (3,086)
</TABLE>
The Company enters into various interest rate agreements in the normal course of
business, primarily as a means of managing its interest rate exposure in
connection with asset and liability management.
Interest rate swap agreements generally involve the periodic exchange of fixed
rate interest and floating rate interest payments by applying a specified market
index to the underlying contract or notional amount, without exchanging the
underlying notional amounts. The differential to be paid or received on those
interest rate swap agreements that are designated as hedges of financial assets
is recorded on an accrual basis as a component of net investment
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
income. The differential to be paid or received on those interest rate swap
agreements that are designated as hedges of financial liabilities is recorded on
an accrual basis as a component of benefits paid or provided. While the Company
is not exposed to credit risk with respect to the notional amounts of the
interest rate swap agreements, the Company is subject to credit risk from
potential nonperformance of counterparties throughout the contract periods. The
amounts potentially subject to such credit risk are much smaller than the
notional amounts. The Company controls this credit risk by entering into
transactions with only a selected number of high quality institutions,
establishing credit limits and maintaining collateral when appropriate.
Interest rate floor and cap agreements generally provide for the receipt of
payments in the event the average interest rates during a settlement period fall
below specified levels under interest rate floor agreements or rise above
specified levels under interest rate cap agreements. A swaption generally
provides for an option to enter into an interest rate swap agreement in the
event of unfavorable interest rate movements. These agreements generally require
upfront premium payments. The costs of swaptions and interest rate floor and cap
agreements are amortized over the contractual periods and resulting amortization
expenses are included in net investment income. Any conditional receipts under
these agreements are recorded on an accrual basis as a component of net
investment income if designated as hedges of financial assets or as a component
of benefits paid or provided if designated as hedges of financial liabilities.
Gains or losses on terminated interest rate agreements are deferred and
amortized over the remaining life of the underlying assets or liabilities being
hedged.
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
The information on derivative instruments is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Aggregate Weighted
Notional Average
Amount Fixed Rate Fair Value
December 31, 1996
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
<S> <C> <C> <C>
Fixed rate interest $ 270,035 6.73% $ 1,511
Floating rate interest 250,905 6.77% 5,877
Floating rate interest based on one index and
receives floating rate interest based on
another index 326,644 - (9,359)
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays
Fixed rate interest 60,000 4.39% 333
Floating rate interest 1,710,716 6.11% 37,655
Floating rate interest based on one index and
receives floating rate interest based on
another index 58,585 - 443
Interest rate floor agreements 560,500 6.46% 19,287
Swaptions 8,327,570 4.50% 54,198
Others 108,745 - 19,607
December 31, 1995
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
Fixed rate interest $ 235,173 7.99% $ (9,307)
Floating rate interest 140,000 5.65% 137
Floating rate interest based on one index and
receives floating rate interest based on
another index 65,000 - 242
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest 60,000 4.39% 741
Floating rate interest 934,678 6.17% 17,169
Floating rate interest based on one index and
receives floating rate interest based on
another index 152,000 - (108)
Interest rate floor agreements 560,500 6.46% 35,820
Interest rate cap agreements 250,000 5.93% 792
Swaptions 1,267,140 5.52% 53,040
Others 100,000 - 2,500
</TABLE>
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
Generally, notional amounts indicate the volume of transactions and estimated
fair values indicate the amounts subject to credit risk.
Activities with respect to the notional amounts are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Beginning End
of Year Additions Maturities Terminations of Year
1996:
Interest rate swap agreements
designated as hedges of
<S> <C> <C> <C> <C> <C>
securities available for sale $ 440,173 $ 566,023 $ 143,554 $ 15,058 $ 847,584
Interest rate swap agreements
designated as hedges of
financial liabilities 1,146,678 1,887,348 1,103,525 101,200 1,829,301
Interest rate floor agreements 560,500 - - - 560,500
Interest rate cap agreements 250,000 - 250,000 - -
Swaptions 1,267,140 7,170,000 109,570 - 8,327,570
Others 100,000 8,745 - - 108,745
-------------- -------------- -------------- ------------ ----------------
$ 3,764,491 $ 9,632,116 $ 1,606,649 $ 116,258 $11,673,700
============== ============== ============== ============ ===========
1995:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 274,777 $ 246,790 $ 59,947 $ 21,447 $ 440,173
Interest rate swap agreements
designated as hedges of
financial liabilities 601,545 1,035,910 460,777 30,000 1,146,678
Interest rate floor agreements 560,500 - - - 560,500
Interest rate cap agreements 100,000 250,000 100,000 - 250,000
Swaptions 100,000 1,167,140 - - 1,267,140
Others 100,000 - - - 100,000
-------------- -------------- -------------- ------------ ----------------
$ 1,736,822 $ 2,699,840 $ 620,724 $ 51,447 $ 3,764,491
============== ============== ============== ============ ================
1994:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 153,000 $ 121,777 $ 274,777
Interest rate swap agreements
designated as hedges of
financial liabilities 210,000 391,545 601,545
Interest rate floor agreements 400,000 160,500 560,500
Interest rate cap agreements - 100,000 100,000
Swaptions - 100,000 100,000
Others 100,000 - 100,000
-------------- -------------- -------------- ------------ ----------------
$ 863,000 $ 873,822 $ - $ - $ 1,736,822
============== ============== ============== ============ ================
</TABLE>
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments, fixed maturities
and mortgage loans on real estate. The Company places its temporary cash
investments with high credit quality financial institutions. Concentrations of
credit risk with respect to investments in fixed maturities and mortgage loans
on real estate are limited due to the large number of such investments and their
dispersion across many different industries and geographic areas. At December
31, 1996, the Company had no significant concentration of credit risk.
NOTE L--OTHER OPERATING REVENUE
In 1994, the Company disposed of an investment in an affiliate which had been
accounted for under the equity method. Total consideration of $23.3 million was
received from the sale, resulting in income of $13.3 million.
<PAGE>
Part II
Undertaking To File Reports
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
Rule 484 Undertaking
Article V, Section I, of Transamerica's Bylaws provides: Each person who was or
is a party or is threatened to be made a party to or is involved, even as a
witness, in any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereafter a
"Proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic corporation
partnership, joint venture, trust, or other enterprise, or was a director,
officer, employee, or agent of a foreign or domestic corporation that was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation, including service with respect to
employee benefit plans, whether the basis of the Proceeding is alleged action in
an official capacity as a director, officer, employee, or agent or in any other
capacity while serving as a director, officer, employee, or agent (hereafter an
"Agent"), shall be indemnified and held harmless by the corporation to the
fullest extent authorized by statutory and decisional law, as the same exists or
may hereafter be interpreted or amended (but, in the case of any such amendment
or interpretation, only to the extent that such amendment or interpretation
permits the corporation to provide broader indemnification rights than were
permitted prior thereto) against all expenses, liability, and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts
paid or to be paid in settlement, any interest, assessments, or other charges
imposed thereon, and any federal, state, local, or foreign taxes imposed on any
Agent as a result of the actual or deemed receipt of any payments under this
Article) incurred or suffered by such person in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing, in any Proceeding (hereafter "Expenses");
provided, however, that except as to actions to enforce indemnification rights
pursuant to Section 3 of this Article, the corporation shall indemnify any Agent
seeking indemnification in connection with a Proceeding (or part thereof)
initiated by such person only if the Proceeding (or part thereof) was authorized
by the Board of Directors of the corporation. The right to indemnification
conferred in this Article shall be a contract right. (It is the Corporation's
intent that these bylaws provide indemnification in excess of that expressly
permitted by Section 317 of the California General Corporation Law, as
authorized by the corporation's Articles of Incorporation.)
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Representations Pursuant to Section 26(e) of the Investment Company Act of 1940
Transamerica hereby represents that the fees and charges deducted under the
Policy, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by Transamerica.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Transamerica Occidental Life Separate Account VUL-1, has duly caused this
registration statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
City of Los Angeles, and the State of California, on this 24th day of December,
1997.
Transamerica Occidental Life Separate Account VUL-1
(Registrant)
(SEAL)
Attest:___________________________ By:___________________________________
(Title) (Name) Aldo Davanzo
(Title) Vice President and Assistant Secretary
Transamerica Occidental Life Insurance Company
Pursuant to the requirements of the Securities Act of 1933, Transamerica
Occidental Life Insurance Company has duly caused this registration statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Los Angeles and the
State of California, on the 24th day of December, 1997.
Transamerica Occidental Life Insurance Company
(SEAL)
Attest:___________________________ By:__________________________________
(Title) (Name) Aldo Davanzo
(Title) Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on the date(s) set forth below.
<TABLE>
<CAPTION>
Signatures Titles Date
<S> <C> <C>
______________________* Director, Executive Vice President December 24, 1997
Robert Abeles and Chief Financial Officer
______________________* President, Chief Executive Officer December 24, 1997
Thomas J. Cusack and Director
______________________* Executive Vice President, December 24, 1997
James W. Dederer General Counsel and Corporate Secretary
______________________* Director December 24, 1997
Richard I. Finn
______________________* Director December 24, 1997
David E. Gooding
______________________* Director December 24, 1997
Edgar H. Grubb
______________________* Director December 24, 1997
Frank C. Herringer
______________________* Director December 24, 1997
Richard N. Latzer
______________________* Director December 24, 1997
Karen MacDonald
______________________* Director December 24, 1997
Gary U. Rolle'
______________________* Director December 24, 1997
T. Desmond Sugrue
______________________* Director December 24, 1997
Nooruddin S. Veerjee
______________________* Director December 24, 1997
Robert A. Watson
___________________________ On December 24, 1997 as Attorney-in-Fact pursuant to
*By: Aldo Davanzo powers of attorney previously filed and filed herewith,
and in his own capacity as Vice President and Assistant
Secretary.
</TABLE>
<PAGE>
APPENDIX A - GUIDELINE MINIMUM SUM INSURED TABLE
The guideline minimum sum insured is a percentage of the policy value as set
forth below, according to federal tax regulations:
<TABLE>
<CAPTION>
Guideline Minimum Sum Insured Table
Attained Attained
Age Percentage Age Percentage
- --------
<S> <C> <C> <C>
40 or less 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94-115 101%
</TABLE>
<PAGE>
APPENDIX B - OPTIONAL INSURANCE BENEFITS
This Appendix provides only a summary of other insurance benefits available by
rider. There may be an additional charge for benefits under a rider. Rider
availability is subject to state law and approval.
WAIVER OF PAYMENT RIDER
This rider provides that, during periods of total disability continuing
more than four months, we will add to the Policy Value each month an
amount you selected or the amount needed to pay the monthly insurance
protection charges, whichever is greater. This amount will keep the
Policy in force, within limits. This benefit is subject to our maximum
issue benefits. Its cost will change yearly.
GUARANTEED INSURABILITY RIDER
This rider guarantees that insurance may be added at various option
dates without evidence of insurability. This benefit may be exercised
on the option dates even if the insured is disabled.
CHILDREN'S INSURANCE RIDER
This rider provides a term insurance benefit for the Insured's child or
children, subject to age limitations. The rider includes a feature that
allows the insured child to convert the coverage to another type of
policy issued by us, subject to our issue size and issue age
limitations.
OPTION TO ACCELERATE DEATH BENEFITS (LIVING BENEFITS RIDER)
This rider allows the Policy owner to elect to receive part of the net
death benefit under the Policy prior to the insured's death if the
insured becomes terminally ill, as defined in the rider.
GUARANTEED DEATH BENEFIT RIDER
This rider provides that if the Policy owner makes payments, minus
partial withdrawals, partial withdrawal charges and any outstanding
loans, of a sufficient amount to the Policy, then we guarantee that the
Policy will not lapse prior to the final payment date. After the final
payment date, the rider guarantees a minimum death benefit. The rider
remains effective only if, on each Policy anniversary through the final
payment date, payments, less partial withdrawals, partial withdrawal
charges and any outstanding loans, satisfy the required payment
amounts. Once terminated, the rider may not be reinstated.
<PAGE>
APPENDIX C - PAYMENT OPTIONS
PAYMENT OPTIONS - On written request, the surrender value or all or
part of any payable net death benefit may be paid under one or more
payment options then offered by Transamerica. If you do not make an
election, we will pay the benefits in a single sum. If a payment option
is selected, the beneficiary may pay to us any amount that would
otherwise be deducted from the death benefit. A certificate will be
provided to the payee describing the payment option selected.
The amounts payable under a payment option are paid from our General
Account. These amounts are not based on the investment experience of
the Separate Account.
SELECTION OF PAYMENT OPTIONS - The amount applied under any one option
for any one payee must be at least $5,000. The periodic payment for any
one payee must be at least $50. Subject to the Policy owner and
beneficiary provisions, any option selection may be changed before the
net death benefit becomes payable. If you make no selection, the
beneficiary may select an option when the net death benefit becomes
payable.
<PAGE>
APPENDIX D - ILLUSTRATIONS OF DEATH BENEFIT, POLICY VALUES
AND ACCUMULATED PAYMENTS
The following tables illustrate the way in which the Policy's Surrender
Value, Death Benefit and Policy Value could vary over an extended
period of time.
Assumptions
The tables illustrate a Policy issued to a male, Age 30, under a
standard underwriting class and qualifying for the non-smoker rates,
and a Policy issued to a male, Age 45, under a standard underwriting
class and qualifying for the non-smoker rates. One set of tables
illustrates the Level Death Benefit Option; another set illustrates the
Adjustable Death Benefit Option. In each case, one table illustrates
the guaranteed cost of insurance rates and the other table illustrates
the current cost of insurance rates as presently in effect.
The tables assume that no Policy loans have been made, that you have
not requested an increase or decrease in the initial face amount, that
no partial withdrawals have been made, and that no transfers above 12
have been made in any Policy year (so that no related transaction or
transfer charges have been incurred).
The tables assume that all payments are allocated to and remain in the
Separate Account for the entire period shown. The tables are based on
hypothetical gross investment rates of return for the portfolios (i.e.,
investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross (after tax) annual rates of 0%, 6%, and
12%. The tables also show the amount that would accumulate if payments
accumulated at 5% interest.
The Policy Values and Death Benefits would be different from those
shown if the gross annual investment rates of return averaged 0%, 6%,
and 12% over a period of years, but fluctuated above or below such
averages for individual Policy years. The values also would be
different depending on the allocation of the Policy's total Policy
Value among the sub-accounts if the actual rates of return averaged 0%,
6% or 12%, but the rates of each portfolio varied above and below such
averages.
Deductions for Charges
The tables reflect deduction of the payment expense charge, the
administration charge, the mortality and expense risk charge, and the
monthly insurance protection charge. The amounts shown in the tables
also take into account portfolio management fees and operating
expenses, which averaged an annual rate of .88% of the average daily
net assets of the portfolios. This annual rate is based on the average
of the expense ratios of each of the portfolios for the last fiscal
year and takes into account current expense reimbursement arrangements.
The fees and expenses of each portfolio vary, and in 1996 the total
fees and expenses ranged from an annual rate of .60% to an annual rate
of 1.15% of average daily net assets. The fees and expenses of your
Policy may be more or less than .88% in the aggregate, depending on how
you make allocations of Policy Value among the sub-accounts. For more
information on portfolio expenses, see the prospectus for the
portfolios.
<PAGE>
Net Annual Rates of Investment
Applying the current mortality and expense risk charge, the
administration charge, and the average portfolio management fees and
operating expenses of .88% of average net assets, the gross annual
rates of investment return of 0%, 6% and 12% would produce net annual
rates of -1.69%, 4.32% and 10.31%, respectively, during the first 10
Policy years and -1.53%, 4.47% and 10.47%, respectively, after that.
The hypothetical returns shown in the table do not reflect any charges
for income taxes against the Separate Account since no charges are
currently made. However, if in the future the charges are made, to
produce the illustrated death benefits and Policy Values, the gross
annual investment rate of return would have to exceed 0%, 6% or 12% by
a sufficient amount to cover the tax charges.
On request, we will provide a comparable illustration based on the
proposed Insured's age, sex, and underwriting class, and the requested
face amount, death benefit option and riders.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
VARIABLE LIFE POLICY
<TABLE>
<CAPTION>
Male Non-Smoker age 30
Face Amount = $100,000
Adjustable Option
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES WITHOUT RIDERS
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Per Surrender Policy Death SurrenderPolicy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $3,360 $1,782 $2,878 $102,878 $1,961 $3,057 $103,057 $2,141 $3,237 $103,237
2 $6,888 $4,721 $5,707 $105,707 $5,261 $6,247 $106,247 $5,822 $6,808 $106,808
3 $10,592 $7,613 $8,489 $108,489 $8,698 $9,574 $109,574 $9,872 $10,748 $110,748
4 $14,482 $10,457 $11,224 $111,224 $12,278 $13,045 $113,045 $14,327 $15,094 $115,094
5 $18,566 $13,244 $13,901 $113,901 $15,997 $16,654 $116,654 $19,220 $19,877 $119,877
6 $22,854 $15,974 $16,522 $116,522 $19,858 $20,406 $120,406 $24,592 $25,140 $125,140
7 $27,357 $18,660 $19,098 $119,098 $23,882 $24,320 $124,320 $30,508 $30,946 $130,946
8 $32,085 $21,291 $21,619 $121,619 $28,064 $28,392 $128,392 $37,011 $37,339 $137,339
9 $37,049 $23,867 $24,086 $124,086 $32,407 $32,626 $132,626 $44,159 $44,378 $144,378
10 $42,262 $26,391 $26,500 $126,500 $36,923 $37,032 $137,032 $52,023 $52,132 $152,132
11 $47,735 $28,900 $28,900 $128,900 $41,669 $41,669 $141,669 $60,750 $60,750 $160,750
12 $53,482 $31,246 $31,246 $131,246 $46,497 $46,497 $146,497 $70,252 $70,252 $170,712
13 $59,516 $33,538 $33,538 $133,538 $51,522 $51,522 $151,522 $80,719 $80,719 $190,496
14 $65,851 $35,776 $35,776 $135,776 $56,752 $56,752 $156,752 $92,235 $92,235 $211,218
15 $72,504 $37,959 $37,959 $137,959 $62,193 $62,193 $162,193 $104,904 $104,904 $232,888
16 $79,489 $40,092 $40,092 $140,092 $67,861 $67,861 $167,861 $118,851 $118,851 $255,530
17 $86,824 $42,167 $42,167 $142,167 $73,756 $73,756 $173,756 $134,191 $134,191 $280,458
18 $94,525 $44,190 $44,190 $144,190 $79,894 $79,894 $179,894 $151,074 $151,074 $306,681
19 $102,611 $46,164 $46,164 $146,164 $86,287 $86,287 $186,287 $169,661 $169,661 $334,232
20 $111,102 $48,085 $48,085 $148,085 $92,944 $92,944 $192,944 $190,124 $190,124 $363,137
Age 60 $223,235 $64,053 $64,053 $164,053 $176,199 $176,199 $276,199 $553,234 $553,234 $741,334
Age 65 $303,476 $69,454 $69,454 $169,454 $231,591 $231,591 $331,591 $920,031 $920,031 $1,122,438
Age 70 $405,887 $72,784 $72,784 $172,784 $298,582 $298,582 $398,582 $1,517,118$1,517,118 $1,759,857
Age 75 $536,593 $72,996 $72,996 $172,996 $378,687 $378,687 $478,687 $2,492,102$2,492,102 $2,666,550
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a $1,400 payment is made at the beginning of each Policy
Year. Values will be different if payments are made with a
different frequency or in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient
policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE
NOT A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS MAY BE MORE OR LES
THAN THOSE SHOWN.
INVESTMENT RESULTS WILL DEPEND ON INVESTMENT ALLOCATIONS AND THE DIFFERENT
INVESTMENT RATES OF RETURN
FOR THE PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT
BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD.
<PAGE>
Male Non-Smoker Age 45
<TABLE>
<CAPTION>
Face Amount = $250,000
Level Option
BASED ON CURRENT - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Per Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $4,410 $0 $3,173 $250,000 $0 $3,390 $250,000 $0 $3,607 $250,000
2 $9,041 $1,901 $6,246 $250,000 $2,533 $6,878 $250,000 $3,192 $7,537 $250,000
3 $13,903 $5,336 $9,199 $250,000 $6,587 $10,449 $250,000 $7,943 $11,806 $250,000
4 $19,008 $8,669 $12,049 $250,000 $10,743 $14,123 $250,000 $13,086 $16,466 $250,000
5 $24,368 $11,882 $14,779 $250,000 $14,988 $17,885 $250,000 $18,642 $21,540 $250,000
6 $29,996 $14,973 $17,388 $250,000 $19,324 $21,739 $250,000 $24,658 $27,073 $250,000
7 $35,906 $17,937 $19,867 $250,000 $23,749 $25,679 $250,000 $31,178 $33,108 $250,000
8 $42,112 $20,757 $22,204 $250,000 $28,250 $29,698 $250,000 $38,239 $39,687 $250,000
9 $48,627 $23,425 $24,390 $250,000 $32,824 $33,789 $250,000 $45,901 $46,866 $250,000
10 $55,469 $25,926 $26,409 $250,000 $37,461 $37,943 $250,000 $54,217 $54,699 $250,000
11 $62,652 $28,712 $28,712 $250,000 $42,622 $42,622 $250,000 $63,727 $63,727 $250,000
12 $70,195 $30,903 $30,903 $250,000 $47,452 $47,452 $250,000 $73,678 $73,678 $250,000
13 $78,114 $32,984 $32,984 $250,000 $52,443 $52,443 $250,000 $84,664 $84,664 $250,000
14 $86,430 $34,955 $34,955 $250,000 $57,607 $57,607 $250,000 $96,809 $96,809 $250,000
15 $95,161 $36,810 $36,810 $250,000 $62,949 $62,949 $250,000 $110,249 $110,249 $250,000
16 $104,330 $38,546 $38,546 $250,000 $68,478 $68,478 $250,000 $125,138 $125,138 $250,000
17 $113,956 $40,159 $40,159 $250,000 $74,204 $74,204 $250,000 $141,653 $141,653 $250,000
18 $124,064 $41,640 $41,640 $250,000 $80,135 $80,135 $250,000 $159,993 $159,993 $250,000
19 $134,677 $42,981 $42,981 $250,000 $86,279 $86,279 $250,000 $180,386 $180,386 $250,000
20 $145,821 $44,173 $44,173 $250,000 $92,648 $92,648 $250,000 $203,093 $203,093 $250,000
Age 60 $95,161 $36,810 $36,810 $250,000 $62,949 $62,949 $250,000 $110,249 $110,249 $250,000
Age 65 $145,821 $44,173 $44,173 $250,000 $92,648 $92,648 $250,000 $203,093 $203,093 $250,000
Age 70 $210,477 $47,934 $47,934 $250,000 $128,644 $128,644 $250,000 $357,638 $357,638 $414,861
Age 75 $292,995 $45,851 $45,851 $250,000 $173,217 $173,217 $250,000 $609,976 $609,976 $652,674
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a $1,400 payment is made at the beginning of each Policy
Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or
withdrawals may cause this Policy to lapse because of
insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE
NOT A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS MAY BE
MORE OR LESS THAN THOSE
SHOWN. INVESTMENT RESULTS WILL DEPEND ON INVESTMENT ALLOCATIONS AND THE
DIFFERENT INVESTMENT
RATES OF RETURN FOR THE PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES
OF RETURN MAY NOT BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
<TABLE>
<CAPTION>
Male Non-Smoker Age 30
Face Amount = $100,000
Level Option
BASED ON CURRENT - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Per Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $919 $0 $684 $100,000 $0 $730 $100,000 $0 $776 $100,000
2 $1,883 $372 $1,358 $100,000 $507 $1,493 $100,000 $647 $1,633 $100,000
3 $2,896 $1,146 $2,022 $100,000 $1,414 $2,290 $100,000 $1,705 $2,581 $100,000
4 $3,960 $1,908 $2,675 $100,000 $2,355 $3,122 $100,000 $2,860 $3,627 $100,000
5 $5,077 $2,649 $3,306 $100,000 $3,323 $3,980 $100,000 $4,114 $4,771 $100,000
6 $6,249 $3,369 $3,917 $100,000 $4,317 $4,865 $100,000 $5,475 $6,023 $100,000
7 $7,480 $4,080 $4,518 $100,000 $5,351 $5,789 $100,000 $6,969 $7,407 $100,000
8 $8,773 $4,771 $5,099 $100,000 $6,416 $6,744 $100,000 $8,596 $8,924 $100,000
9 $10,131 $5,441 $5,660 $100,000 $7,511 $7,730 $100,000 $10,371 $10,590 $100,000
10 $11,556 $6,093 $6,202 $100,000 $8,641 $8,750 $100,000 $12,310 $12,419 $100,000
11 $13,052 $6,730 $6,730 $100,000 $9,813 $9,813 $100,000 $14,446 $14,446 $100,000
12 $14,624 $7,234 $7,234 $100,000 $10,911 $10,911 $100,000 $16,674 $16,674 $100,000
13 $16,274 $7,717 $7,717 $100,000 $12,045 $12,045 $100,000 $19,127 $19,127 $100,000
14 $18,006 $8,175 $8,175 $100,000 $13,215 $13,215 $100,000 $21,826 $21,826 $100,000
15 $19,825 $8,608 $8,608 $100,000 $14,423 $14,423 $100,000 $24,800 $24,800 $100,000
16 $21,735 $9,021 $9,021 $100,000 $15,673 $15,673 $100,000 $28,081 $28,081 $100,000
17 $23,741 $9,406 $9,406 $100,000 $16,961 $16,961 $100,000 $31,699 $31,699 $100,000
18 $25,847 $9,769 $9,769 $100,000 $18,295 $18,295 $100,000 $35,695 $35,695 $100,000
19 $28,058 $10,110 $10,110 $100,000 $19,678 $19,678 $100,000 $40,113 $40,113 $100,000
20 $30,379 $10,428 $10,428 $100,000 $21,111 $21,111 $100,000 $44,998 $44,998 $100,000
Age 60 $61,041 $11,900 $11,900 $100,000 $38,484 $38,484 $100,000 $132,761 $132,761 $177,900
Age 65 $82,982 $11,055 $11,055 $100,000 $49,788 $49,788 $100,000 $221,477 $221,477 $270,202
Age 70 $110,985 $8,704 $8,704 $100,000 $63,668 $63,668 $100,000 $365,891 $365,891 $424,433
Age 75 $146,725 $3,627 $3,627 $100,000 $81,195 $81,195 $100,000 $601,703 $601,703 $643,823
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a $4,200 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or
withdrawals may cause this Policy to lapse because of
insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS MAY BE MORE
OR LESS THAN THOSE
SHOWN. INVESTMENT RESULTS WILL DEPEND ON INVESTMENT ALLOCATIONS AND THE
DIFFERENT INVESTMENT
RATES OF RETURN FOR THE PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF
RETURN MAY NOT BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
<TABLE>
<CAPTION>
Male Non-Smoker Age 45
Face Amount = $250,000
Adjustible Option
BASED ON CURRENT - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Per Surrender Policy Death SurrenderPolicy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $15,540 $8,337 $13,167 $263,167 $9,163 $13,993 $263,993 $9,990 $14,820 $264,820
2 $31,857 $21,708 $26,053 $276,053 $24,184 $28,529 $278,529 $26,760 $31,105 $281,105
3 $48,990 $34,779 $38,642 $288,642 $39,747 $43,610 $293,610 $45,123 $48,986 $298,986
4 $66,979 $47,571 $50,951 $300,951 $55,892 $59,272 $309,272 $65,259 $68,639 $318,639
5 $85,868 $60,067 $62,964 $312,964 $72,621 $75,518 $325,518 $87,329 $90,226 $340,226
6 $105,702 $72,267 $74,682 $324,682 $89,955 $92,370 $342,370 $111,526 $113,941 $363,941
7 $126,527 $84,166 $86,096 $336,096 $107,908 $109,838 $359,838 $138,058 $139,988 $389,988
8 $148,393 $95,746 $97,194 $347,194 $126,486 $127,933 $377,933 $167,144 $168,592 $418,592
9 $171,353 $107,001 $107,966 $357,966 $145,701 $146,666 $396,666 $199,034 $199,999 $449,999
10 $195,460 $117,913 $118,396 $368,396 $165,560 $166,042 $416,042 $233,993 $234,476 $484,476
11 $220,773 $129,142 $129,142 $379,142 $186,828 $186,828 $436,828 $273,196 $273,196 $523,196
12 $247,352 $139,620 $139,620 $389,620 $208,436 $208,436 $458,436 $315,859 $315,859 $565,859
13 $275,260 $149,835 $149,835 $399,835 $230,902 $230,902 $480,902 $362,879 $362,879 $612,879
14 $304,563 $159,786 $159,786 $409,786 $254,263 $254,263 $504,263 $414,708 $414,708 $664,708
15 $335,331 $169,469 $169,469 $419,469 $278,548 $278,548 $528,548 $471,840 $471,840 $721,840
16 $367,637 $178,879 $178,879 $428,879 $303,790 $303,790 $553,790 $534,821 $534,821 $784,821
17 $401,559 $188,014 $188,014 $438,014 $330,024 $330,024 $580,024 $604,256 $604,256 $854,256
18 $437,177 $196,864 $196,864 $446,864 $357,281 $357,281 $607,281 $680,807 $680,807 $930,807
19 $474,576 $205,419 $205,419 $455,419 $385,592 $385,592 $635,592 $765,203 $765,203 $1,015,203
20 $513,845 $213,672 $213,672 $463,672 $414,991 $414,991 $664,991 $858,252 $858,252 $1,108,252
Age 60 $335,331 $169,469 $169,469 $419,469 $278,548 $278,548 $528,548 $471,840 $471,840 $721,840
Age 65 $513,845 $213,672 $213,672 $463,672 $414,991 $414,991 $664,991 $858,252 $858,252 $1,108,252
Age 70 $741,679 $250,502 $250,502 $500,502 $580,030 $580,030 $830,030 $1,488,476$1,488,476 $1,738,476
Age 75 $1,032,460$277,561 $277,561 $527,561 $777,414 $777,414$1,027,414 $2,516,266$2,516,266 $2,766,266
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a $4,200 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or
withdrawals may cause this Policy to lapse because of
insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE
NOT A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS MAY BE MORE
OR LESS THAN THOSE
SHOWN. INVESTMENT RESULTS WILL DEPEND ON INVESTMENT ALLOCATIONS AND THE
DIFFERENT INVESTMENT
RATES OF RETURN FOR THE PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF
RETURN MAY NOT BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Male Non-Smoker Age 45
Face Amount = $250,000
Level Option
BASED ON GUARANTEED - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
----------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% PerSurrender Policy Death Surrender Policy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $4,410 $0 $3,168 $250,000 $0 $3,384 $250,000 $0 $3,601 $250,000
2 $9,041 $1,885 $6,230 $250,000 $2,517 $6,862 $250,000 $3,175 $7,520 $250,000
3 $13,903 $5,298 $9,161 $250,000 $6,546 $10,408 $250,000 $7,899 $11,762 $250,000
4 $19,008 $8,613 $11,993 $250,000 $10,679 $14,059 $250,000 $13,014 $16,394 $250,000
5 $24,368 $11,803 $14,700 $250,000 $14,894 $17,792 $250,000 $18,533 $21,431 $250,000
6 $29,996 $14,845 $17,260 $250,000 $19,171 $21,586 $250,000 $24,476 $26,891 $250,000
7 $35,906 $17,773 $19,703 $250,000 $23,544 $25,474 $250,000 $30,923 $32,853 $250,000
8 $42,112 $20,558 $22,005 $250,000 $27,990 $29,438 $250,000 $37,901 $39,349 $250,000
9 $48,627 $23,180 $24,145 $250,000 $32,493 $33,458 $250,000 $45,451 $46,416 $250,000
10 $55,469 $25,617 $26,100 $250,000 $37,032 $37,515 $250,000 $53,619 $54,101 $250,000
11 $62,652 $27,875 $27,875 $250,000 $41,617 $41,617 $250,000 $62,483 $62,483 $250,000
12 $70,195 $29,447 $29,447 $250,000 $45,748 $45,748 $250,000 $71,629 $71,629 $250,000
13 $78,114 $30,823 $30,823 $250,000 $49,915 $49,915 $250,000 $81,640 $81,640 $250,000
14 $86,430 $31,980 $31,980 $250,000 $54,105 $54,105 $250,000 $92,610 $92,610 $250,000
15 $95,161 $32,896 $32,896 $250,000 $58,302 $58,302 $250,000 $104,650 $104,650 $250,000
16 $104,330 $33,549 $33,549 $250,000 $62,494 $62,494 $250,000 $117,895 $117,895 $250,000
17 $113,956 $33,917 $33,917 $250,000 $66,667 $66,667 $250,000 $132,500 $132,500 $250,000
18 $124,064 $33,977 $33,977 $250,000 $70,810 $70,810 $250,000 $148,653 $148,653 $250,000
19 $134,677 $33,678 $33,678 $250,000 $74,890 $74,890 $250,000 $166,563 $166,563 $250,000
20 $145,821 $32,942 $32,942 $250,000 $78,854 $78,854 $250,000 $186,479 $186,479 $250,000
Age 60 $95,161 $32,896 $32,896 $250,000 $58,302 $58,302 $250,000 $104,650 $104,650 $250,000
Age 65 $145,821 $32,942 $32,942 $250,000 $78,854 $78,854 $250,000 $186,479 $186,479 $250,000
Age 70 $210,477 $21,539 $21,539 $250,000 $97,104 $97,104 $250,000 $324,175 $324,175 $376,044
Age 75 $292,995 $0 $0 $0 $107,546 $107,546 $250,000 $544,397 $544,397 $582,505
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $875 (approximately 90% of the guideline level
premium) is made at the beginning of each Policy Year. Values will be
different if payments are made with a different frequency or in
different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or partial
withdrawals may cause this Policy to lapse because of insufficient
Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
REPRESENTATIVE OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS
MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Male Non-Smoker Age 30
Face Amount = $100,000
Level Option
BASED ON GUARANTEED - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
----------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% PerSurrender Policy Death Surrender Policy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $919 $0 $683 $100,000 $0 $729 $100,000 $0 $775 $100,000
2 $1,883 $369 $1,355 $100,000 $503 $1,489 $100,000 $644 $1,630 $100,000
3 $2,896 $1,139 $2,015 $100,000 $1,407 $2,283 $100,000 $1,697 $2,573 $100,000
4 $3,960 $1,897 $2,664 $100,000 $2,343 $3,110 $100,000 $2,846 $3,613 $100,000
5 $5,077 $2,634 $3,291 $100,000 $3,305 $3,962 $100,000 $4,092 $4,749 $100,000
6 $6,249 $3,348 $3,896 $100,000 $4,290 $4,838 $100,000 $5,443 $5,991 $100,000
7 $7,480 $4,052 $4,490 $100,000 $5,315 $5,753 $100,000 $6,923 $7,361 $100,000
8 $8,773 $4,736 $5,064 $100,000 $6,368 $6,696 $100,000 $8,534 $8,862 $100,000
9 $10,131 $5,398 $5,617 $100,000 $7,450 $7,669 $100,000 $10,287 $10,506 $100,000
10 $11,556 $6,040 $6,149 $100,000 $8,564 $8,673 $100,000 $12,201 $12,310 $100,000
11 $13,052 $6,651 $6,651 $100,000 $9,699 $9,699 $100,000 $14,280 $14,280 $100,000
12 $14,624 $7,134 $7,134 $100,000 $10,760 $10,760 $100,000 $16,445 $16,445 $100,000
13 $16,274 $7,587 $7,587 $100,000 $11,845 $11,845 $100,000 $18,814 $18,814 $100,000
14 $18,006 $8,022 $8,022 $100,000 $12,968 $12,968 $100,000 $21,421 $21,421 $100,000
15 $19,825 $8,429 $8,429 $100,000 $14,120 $14,120 $100,000 $24,282 $24,282 $100,000
16 $21,735 $8,807 $8,807 $100,000 $15,302 $15,302 $100,000 $27,425 $27,425 $100,000
17 $23,741 $9,159 $9,159 $100,000 $16,518 $16,518 $100,000 $30,881 $30,881 $100,000
18 $25,847 $9,473 $9,473 $100,000 $17,758 $17,758 $100,000 $34,675 $34,675 $100,000
19 $28,058 $9,760 $9,760 $100,000 $19,035 $19,035 $100,000 $38,856 $38,856 $100,000
20 $30,379 $10,012 $10,012 $100,000 $20,341 $20,341 $100,000 $43,459 $43,459 $100,000
Age 60 $61,041 $9,694 $9,694 $100,000 $35,072 $35,072 $100,000 $125,795 $125,795 $168,565
Age 65 $82,982 $5,980 $5,980 $100,000 $42,853 $42,853 $100,000 $207,084 $207,084 $252,642
Age 70 $110,985 $0 $0 $0 $49,991 $49,991 $100,000 $336,136 $336,136 $389,918
Age 75 $146,725 $0 $0 $0 $55,111 $55,111 $100,000 $542,159 $542,159 $580,111
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $875 (approximately 90% of the guideline level
premium) is made at the beginning of each Policy Year. Values will be
different if payments are made with a different frequency or in
different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or partial
withdrawals may cause this Policy to lapse because of insufficient
Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
REPRESENTATIVE OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS
MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
<PAGE>
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Male Non-Smoker Age 30
Face Amount = $100,000
Adjustible Option
BASED ON GUARANTEED - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
-----------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Per Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $3,360 $1,777 $2,873 $102,873 $1,957 $3,053 $103,053 $2,137 $3,233 $103,233
2 $6,888 $4,708 $5,694 $105,694 $5,247 $6,233 $106,233 $5,808 $6,794 $106,794
3 $10,592 $7,587 $8,463 $108,463 $8,670 $9,546 $109,546 $9,842 $10,718 $110,718
4 $14,482 $10,414 $11,181 $111,181 $12,230 $12,997 $112,997 $14,273 $15,040 $115,040
5 $18,566 $13,181 $13,838 $113,838 $15,922 $16,579 $116,579 $19,133 $19,790 $119,790
6 $22,854 $15,886 $16,434 $116,434 $19,751 $20,299 $120,299 $24,462 $25,010 $125,010
7 $27,357 $18,545 $18,983 $118,983 $23,736 $24,174 $124,174 $30,322 $30,760 $130,760
8 $32,085 $21,145 $21,473 $121,473 $27,870 $28,198 $128,198 $36,755 $37,083 $137,083
9 $37,049 $23,687 $23,906 $123,906 $32,159 $32,378 $132,378 $43,818 $44,037 $144,037
10 $42,262 $26,173 $26,282 $126,282 $36,610 $36,719 $136,719 $51,576 $51,685 $151,685
11 $47,735 $28,591 $28,591 $128,591 $41,217 $41,217 $141,217 $60,085 $60,085 $160,085
12 $53,482 $30,846 $30,846 $130,846 $45,891 $45,891 $145,891 $69,327 $69,327 $169,327
13 $59,516 $33,036 $33,036 $133,036 $50,735 $50,735 $150,735 $79,475 $79,475 $187,562
14 $65,851 $35,174 $35,174 $135,174 $55,768 $55,768 $155,768 $90,619 $90,619 $207,518
15 $72,504 $37,249 $37,249 $137,249 $60,987 $60,987 $160,987 $102,843 $102,843 $228,310
16 $79,489 $39,262 $39,262 $139,262 $66,399 $66,399 $166,399 $116,252 $116,252 $249,942
17 $86,824 $41,215 $41,215 $141,215 $72,012 $72,012 $172,012 $130,961 $130,961 $273,710
18 $94,525 $43,097 $43,097 $143,097 $77,823 $77,823 $177,823 $147,082 $147,082 $298,576
19 $102,611 $44,920 $44,920 $144,920 $83,851 $83,851 $183,851 $164,771 $164,771 $324,599
20 $111,102 $46,674 $46,674 $146,674 $90,094 $90,094 $190,094 $184,167 $184,167 $351,758
Age 60 $223,235 $60,221 $60,221 $160,221 $167,255 $167,255 $267,255 $525,854 $525,854 $704,645
Age 65 $303,476 $62,375 $62,375 $162,375 $215,417 $215,417 $315,417 $862,722 $862,722 $1,052,521
Age 70 $405,887 $59,222 $59,222 $159,222 $269,013 $269,013 $369,013 $1,397,511$1,397,511 $1,621,113
Age 75 $536,593 $47,701 $47,701 $147,701 $325,328 $325,328 $425,328 $2,251,258$2,251,258 $2,408,846
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $4,200 (approximately 90% of the guideline level
premium) is made at the beginning of each Policy Year. Values will be
different if payments are made with a different frequency or in
different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or partial
withdrawals may cause this Policy to lapse because of insufficient
Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
REPRESENTATIVE OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS
MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Male Non-Smoker Age 45
Face Amount = $250,000
Adjustible Option
BASED ON GUARANTEED - MONTHLY INSURANCE PROTECTION CHARGES, (WITHOUT RIDERS),
FUND FEES, M&E AND ADMINISTRATIVE CHARGES
-----------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Per Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $15,540 $8,316 $13,146 $263,146 $9,142 $13,972 $263,972 $9,969 $14,799 $264,799
2 $31,857 $21,647 $25,992 $275,992 $24,121 $28,466 $278,466 $26,695 $31,040 $281,040
3 $48,990 $34,651 $38,514 $288,514 $39,609 $43,472 $293,472 $44,975 $48,837 $298,837
4 $66,979 $47,367 $50,747 $300,747 $55,662 $59,042 $309,042 $65,002 $68,382 $318,382
5 $85,868 $59,770 $62,668 $312,668 $72,272 $75,170 $325,170 $86,921 $89,819 $339,819
6 $105,702 $71,836 $74,251 $324,251 $89,432 $91,847 $341,847 $110,895 $113,310 $363,310
7 $126,527 $83,603 $85,533 $335,533 $107,198 $109,128 $359,128 $137,165 $139,095 $389,095
8 $148,393 $95,043 $96,490 $346,490 $125,559 $127,007 $377,007 $165,928 $167,375 $417,375
9 $171,353 $106,133 $107,098 $357,098 $144,513 $145,478 $395,478 $197,409 $198,374 $448,374
10 $195,460 $116,852 $117,334 $367,334 $164,053 $164,535 $414,535 $231,853 $232,335 $482,335
11 $220,773 $127,204 $127,204 $377,204 $184,203 $184,203 $434,203 $269,561 $269,561 $519,561
12 $247,352 $136,686 $136,686 $386,686 $204,476 $204,476 $454,476 $310,351 $310,351 $560,351
13 $275,260 $145,786 $145,786 $395,786 $225,380 $225,380 $475,380 $355,068 $355,068 $605,068
14 $304,563 $154,482 $154,482 $404,482 $246,910 $246,910 $496,910 $404,080 $404,080 $654,080
15 $335,331 $162,752 $162,752 $412,752 $269,062 $269,062 $519,062 $457,792 $457,792 $707,792
16 $367,637 $170,573 $170,573 $420,573 $291,831 $291,831 $541,831 $516,649 $516,649 $766,649
17 $401,559 $177,924 $177,924 $427,924 $315,212 $315,212 $565,212 $581,145 $581,145 $831,145
18 $437,177 $184,785 $184,785 $434,785 $339,200 $339,200 $589,200 $651,820 $651,820 $901,820
19 $474,576 $191,104 $191,104 $441,104 $363,759 $363,759 $613,759 $729,241 $729,241 $979,241
20 $513,845 $196,802 $196,802 $446,802 $388,821 $388,821 $638,821 $813,997 $813,997 $1,063,997
Age 60 $335,331 $162,752 $162,752 $412,752 $269,062 $269,062 $519,062 $457,792 $457,792 $707,792
Age 65 $513,845 $196,802 $196,802 $446,802 $388,821 $388,821 $638,821 $813,997 $813,997 $1,063,997
Age 70 $741,679 $216,630 $216,630 $466,630 $524,674 $524,674 $774,674 $1,384,485$1,384,485 $1,634,485
Age 75 $1,032,460 $213,291 $213,291 $463,291 $667,766 $667,766 $917,766 $2,288,307$2,288,307 $2,538,307
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $4,200 (approximately 90% of the guideline level
premium) is made at the beginning of each Policy Year. Values will be
different if payments are made with a different frequency or in
different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or partial
withdrawals may cause this Policy to lapse because of insufficient
Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
REPRESENTATIVE OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT RESULTS
MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
<PAGE>
PORTFOLIOSS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
APPENDIX E
MAXIMUM SURRENDER CHARGES
We compute surrender charges on the Policy by using a rate per $1,000 of face
amount of insurance. The rate which applies to a Policy is based on whether the
insured is male or female (male rates are used if the Policy is issued using
unisex rates); the insured's age at the start of the surrender charge period
(date of issue for the initial face amount or effective date of increase for an
increase in face amount); and the number of years during which the surrender
charges have been effective.
The surrender charges are computed on the date of issue for the initial face
amount and apply for ten years from the date of issue. New surrender charges are
computed for any increase in face amount. The surrender charges for a face
increase amount apply for ten years from the date the increase is effective and
apply only to the face increase amount.
During the period that surrender charges apply, the rate decreases each Policy
year on the Policy anniversary for the initial face amount and on each twelve
month anniversary of the effective date of the face increase amount. The rate
established on the Policy anniversary or twelve month anniversary for a face
increase amount applies during that year.
The maximum surrender charge rate is the rate in the first year of the surrender
charge period. These rates are listed on the next page. Male rates are used if
unisex rates apply on the Policy.
The maximum amount of the surrender charges is calculated by multiplying the
appropriate rate from the table by the face amount of insurance divided by
$1,000. For example, if the Insured is a male, age 45 at issue, and the initial
face amount of the Policy is $200,000, the maximum surrender charges amount is
determined as follows:
1 Find 45 under the column Insured's Age.
1 Find the rate per $1,000 for age 45 under the column Male Rates
($) -- $19.32.
1 Divide the face amount by $1,000 -- $200,000 divided by $1,000
equals 200.
1 Multiply the rate in item 2 by the result in number 3 -- $19.32
times 200 equals
$3,864.
The amount of the surrender charges decreases each year on the Policy
anniversary (or twelve month anniversary for a face increase amount) as long as
the face amount of insurance does not change. For the example shown above, for
instance, the surrender charges rate in the fifth Policy year is $11.59. The
surrender charges amount in the fifth year on a $200,000 face amount is $2,318.
The surrender charges rate in the tenth Policy year is $1.93. The surrender
charges amount in the tenth year on a $200,000 face amount is $386.
<PAGE>
Maximum Surrender Charge Rates
Insured's Age Male Rates Female Rates Insured's Age Male Rates Female
($) ($) ($) Rates ($)
0 6.65 6.44 35 12.76 12.12
1 6.72 6.49 36 13.23 12.55
2 6.79 6.57 37 13.73 13.02
3 6.89 6.65 38 14.28 13.53
4 6.95 6.72 39 14.90 14.11
5 7.03 6.79 40 15.51 14.67
6 7.12 6.87 41 16.30 15.41
7 7.19 6.94 42 16.96 16.02
8 7.27 7.00 43 17.72 16.73
9 7.35 7.08 44 18.54 17.49
10 7.42 7.15 45 19.32 18.21
11 7.50 7.23 46 20.52 19.34
12 7.58 7.31 47 21.74 20.47
13 7.66 7.37 48 22.95 21.58
14 7.74 7.45 49 24.15 22.71
15 7.83 7.53 50 25.36 23.84
16 7.90 7.59 51 27.04 25.40
17 7.97 7.67 52 28.71 26.96
18 8.07 7.75 53 30.39 28.51
19 8.21 7.88 54 32.06 30.07
20 8.39 8.05 55 33.74 31.63
21 8.55 8.20 56 35.14 32.94
22 8.75 8.38 57 36.55 34.25
23 8.93 8.55 58 37.96 35.56
24 9.17 8.77 59 39.37 36.87
25 9.48 9.06 60 40.78 38.18
26 9.76 9.33 61 42.52 39.79
27 10.03 9.59 62 44.25 41.41
28 10.32 9.85 63 45.99 43.02
29 10.64 10.14 64 47.72 44.64
30 10.96 10.45 65 49.47 46.26
31 11.28 10.74 66 53.18 49.71
32 11.62 11.06 67 54.00 53.16
33 11.97 11.38 68 54.00 54.00
34 12.37 11.75 69-80 54.00 54.00
<PAGE>
CONTENTS OF THE REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2. The prospectus consists of
____ pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484 under the Securities Act of 1933.
Representations Pursuant to Section 26(e) of the Investment Company Act of 1940
The signatures.
Written consents of the following persons:
1. Ernst & Young L.L.P.
2. Opinion of Counsel
3. Actuarial Opinion
The following exhibits:
1. Exhibit 1
(Exhibits required by paragraph A of the
instructions to Form N-8B-2)
(1) Certified copy of
Resolutions of the
Board of Directors
of the Company of
December 6, 1996
establishing the
Transamerica
Occidental Life
Separate Account
VUL-1. 1/
(2) Not Applicable.
(3) (a) Form
of
Distribution
Agreement
between
Transamerica
Securities
Sales
Corporation
and
Transamerica
Occidental
Life
Insurance
Company.
1/
(b) Form
of
Sales
Agreement
between
Transamerica
Life
Companies,
Transamerica
Securities
Sales
Corporation
and
Broker-Dealers
1/
(4) Not Applicable.
(5) Forms of Policy and Policy riders.
(6) Organizational
documents of the
Company, as
amended. 1/
(7) Not Applicable.
(8) Form of Participation Agreement
Transamerica Occidental Life Insurance
Company and:
(a) The Alger American Fund
(b) Alliance Variable Products
Series Fund, Inc.
(c) Janus Aspen Series
(d) Morgan Stanley Universal Funds,
Inc.
(e) OCC Accumulation Trust
(9) Administrative Agreements between
Transamerica Occidental Life Insurance Company
and Allmerica
(10) Form of Application
1/
(11) Issuance, Transfer and Redemption
Procedures Memorandum.
(12) Financial Data Schedule.
2. Form of Policy and Policy riders are included in Exhibit 1 above.
3. Opinion of Counsel. 1/
4. Not Applicable.
5. Not Applicable.
6. Actuarial consent
7. Consent of Independent
Accountants
8. Powers of Attorney 1/
1/ Incorporated herein by reference to the initial filing of this
Registration Statement (File No.
333-37883) on October 14, 1997.
<PAGE>
Exhibit 1.
(5) Forms of Policy and Policy Riders
(8) Form of Participation Agreements
(a) The Alger American Fund
(b) Alliance Variable Products
Series Fund, Inc.
(c) Janus Aspen Series
(d) Morgan Stanley Universal Funds,
Inc.
(e) OCC Accumulation Trust
(9) Administrative Agreements
(11) Issuance, Transfer and Redemption Procedures
Memorandum
Exhibit 6 Actuarial Consent
Exhibit 7 Consent of Independent Accountants
Exhibit 27 Financial Data Schedule
<PAGE>
Exhibit 1.
(5) Forms of Policy and Policy Riders
[GRAPHIC OMITTED]
Here Is Your
Transamerica Occidental Life
Insurance Policy
From Transamerica Occidental Life
Insurance Company
Please Read it Carefully
This flexible premium variable life insurance policy is a legal contract between
you ("the owner") and Transamerica Occidental Life Insurance Company ("we" and
"the Company"). If you pay the required premiums, we will pay your beneficiary
the net death benefit when the person you are insuring ("the insured") dies
prior to the Maturity Date or, if the insured is alive on the Maturity Date, we
will pay the surrender value to the owner on the Maturity Date.
You may change the amount of insurance as well as the payments you make subject
to provisions of this policy. Except as otherwise provided in the paid-up
insurance option, you may direct your net payments into an account that has a
guaranteed minimum interest rate, and into as many as [seven] sub-accounts (if
available) of an account that has a rate of return that will vary. These two
accounts are called the Fixed and Variable Accounts.
The value of the Variable Account may increase or decrease according to its
investment results. For more details, please see the Variable Account Policy
Value
provision on page 13.
The value in the Fixed Account will accumulate interest at a rate set by us
which will not be less than 4% a year.
The amount of the death benefit may be variable or fixed. The length of time
this policy will remain in force will be variable. Please refer to the Death
Benefit provisions and the Policy Value provisions in this policy for additional
information.
There may be little or no surrender value remaining
on the final payment date.
Form TA 1031-97
1
<PAGE>
Your Right to Examine
This Policy
You have the right to void this policy by returning it to our Variable Life
Service Center at 440 Lincoln Street, P.O. Box 3800, Worcester, MA 01653, or to
one of our authorized representatives by the later of:
o ten days after receiving it, or
o 45 days after you sign the application.
If you return the policy, it will be void from the date of its issue, and you
will receive a refund equal to the total of:
o the difference between any payments made, including
fees or other charges, and the amounts allocated to the
Variable Account, and
o the value of the amounts in the Variable Account on the
date the returned policy is received at our Variable Life
Service Center, and
o any fees or other charges imposed on amounts in the
Variable Account.
Signed for the Company at Los Angeles, California, on the date of issue.
[GRAPHIC OMITTED]
Executive Vice President, General Counsel and Corporate
Secretary
[GRAPHIC OMITTED]
President and CEO
Transamerica Occidental Life Insurance Company
Home Office: 1150 South Olive Street
Los Angeles, CA 90015
Variable Life Service Center: 440 Lincoln Street
P.O. Box 3800
Worcester, MA 01653
Table of Contents
Cover
Page..........................................................................1
Specifications
Page......................................................................... 3
Riders/Endorsements...............................................3
Monthly Insurance ProtectionCharges.........................5
Important Definitions...................................................7
General Provisions ........................................................8
Information About You and
the Beneficiary................................................9
What You Should Know About
the Premiums........................................................10
Information About the Value
of Your Policy.........................................................11
What You Should Know About
the Variable Account...............................................13
What You Should Know About
the Fixed Account................................................14
What You Should Know About
Transfers.................................................................15
If You Want to Borrow from Your
Policy.....................................................................16
Details on Surrender and
Partial Withdrawals.........................................16
What You Should Know About
the Death Benefit.............................................18
Paid-Up Insurance Option....................................20
Payment of Benefits........................................21
Form TA 1031-97
2
<PAGE>
Alphabetical Index
Addition, Deletion or Substitution
of Investments............................................................14
Allocation of Payments..........................................11
Assignment...................................................9
Basis of Value of Fixed Account.........................15
Beneficiary...........................................................9
Decrease in Face Amount.....................................20
Entire Contract....................................................8
Fixed Account..............................................14
Fixed Account Policy Value......................................15
Foreclosure...............................................................16
Increase in Face Amount......................................19
Lapse...................................................................10
Loans on Policy...................................................16
Misstatement of Age or Sex....................................8
Monthly Insurance Protection Charge.....................5
Net Death Benefit...........................................18
Net Investment Factor..............................................13
Owner.......................................................................9
Paid-Up Insurance Option.........................................20
Partial Withdrawals...............................................17
Payment Options...............................................21
Policy Value..........................................................11
Postponement of Payment..........................................17
Preferred Loan Option...............................................16
Premium Grace Period............................................ 10
Premiums..............................................................10
Protection of Benefits...........................................8
Reinstatement..........................................................11
Right to Contest Policy................................................8
Right to Examine........................................................1
Suicide Exclusion.......................................................8
Surrender................................................................16
Transfers.................................................................15
Valuation Dates and Periods....................................14
Variable Account..................................................13
Variable Account Policy Value............................13
Form TA 1031-97
3
<PAGE>
Who is Insured and For How
Much?
Owner's Name:
Insured's Name:
Insured's Age at Issue:
Underwriting Class:
Policy Number:
Initial Face Amount:
Date of Issue:
Monthly Processing Date:
Your Final Payment Date:
The Death Benefit Option You Have Chosen:
John Doe
John Doe
35
Standard Male Non-Smoker
12345
$100,000
June 1, 1997
On the 1st day of each month
June 1, 2062. Coverage will expire prior to the final payment date if the
surrender value is insufficient to continue coverage to such date. Please refer
to the Premium Grace Period and Policy Lapse provision on page 10 for more
information.
Level Death Benefit Option - The death benefit will be the face amount of your
policy if the insured dies on or before the Final Payment Date. As the policy
value increases, the insurance protection amount decreases, keeping the death
benefit level. ( But, see Required Minimum Amount of Death
Benefit provision on page 19.)
Additional Insurance Benefits
Living Benefits Rider
Waiver of Payment Rider
Children's Insurance Rider
Guaranteed Insurability Rider
Guaranteed Death Benefit Rider
Your Maximum Payment
Federal tax laws limit the amount you may pay into your policy. These limits are
based upon the amount of your insurance coverage and your age, sex, and
underwriting class at the date the policy is issued. They are called Guideline
Premiums. Your payments may not exceed the greater of the guideline single
premium or the total of the guideline level premiums.
Guideline Single Premium: [ $14,733.71]
Guideline Level Premium: [$1,289.52]
The Charges You Will Pay
Payment Expense Charge: [ 4%] of each payment to cover
federal, state and local taxes, and certain sales and administrative costs; see
page 11. We reserve the right to increase or decrease this charge to reflect
changes in federal, state and local taxes.
Monthly Insurance Protection Charge: See pages 5 and
12.
Surrender Charge for Initial Face Amount: If you surrender this policy during
the first 10 policy years, you will be charged a surrender charge as shown
below:
Year Surrender Charge
[1
2
3
4
5
6
7
8
9
$1,276
$1,148
$1,020
$893
$765
$638
$510
$382
$255
10 $127]
Partial Withdrawal Transaction Charges: If you
withdraw part of your funds, you will pay a transaction
charge of [$25] or [2%] of the amount withdrawn,
whichever is less. You may also pay a charge of 5% on any
"excess" withdrawal; this charge will not be higher than the
surrender charge; see page 16.
Change in Face Amount: If you increase the face amount of this policy, you will
pay a[ $40] transaction charge. If you decrease the face amount of this policy,
you will pay [$40] plus part of the surrender charge; see page 19.
Form 9031-97 TA
4
<PAGE>
Statement of Projected Values Charge: You may be
charged a fee of up to [$25] if you request a statement of
projected values.
Allocation Change Charges: You may be charged a fee of
up to [$25] if you change the sub-accounts from which monthly insurance
protection charges are deducted. You may also be charged a fee of up to [$25] if
you change your allocations for net payments.
Transfer Charge: You may make [12] transfers in any
policy year free of charge. After [12] transfers, you may be
charged up to [$25] to transfer funds from one account to
another; see page 15.
Variable Account Mortality and Expense Risk Charge: You will be assessed a daily
charge on the daily net asset value of the Variable Account for the mortality
and expense risks assumed by us. This daily charge is currently at a rate
equivalent to [.65%] on an annual basis and may not exceed a rate equivalent to
.80% on an annual basis.
Variable Account Administration Charge: You will be charged a daily charge at a
rate equivalent to .15% on an annual basis on the daily net asset value of the
Variable Account for a period not to exceed 20 policy years.
Minimum Monthly Payment: A monthly amount of $43.40 is used to determine if your
policy will lapse within 48 months of the date of issue of your policy. If you
increase or decrease the face amount, add or delete a rider, or change the
smoking class of the policy this monthly amount will change. The new amount will
be used to determine if your policy will lapse within 48 months of the date of
issue, except that if you increase the face amount of the policy, the new amount
will be used to determine if your policy will lapse within 48 months of the date
of the face amount increase.
Form TA- 1031-97
5
<PAGE>
Your Monthly Insurance Protection Charges are Guaranteed
Never to Go Higher Than the Following:
Age
Insurance
Protection Rate ($) Per
$1,000
Waiver of
Payment
Rate ($) Per $100
Age
Insurance
Protection Rate ($) Per
$1,000
Waiver of
Payment
Rate ($) Per $100
[35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
0.14
0.14
0.15
0.16
0.17
0.19
0.20
0.22
0.23
0.25
0.27
0.29
0.32
0.34
0.37
0.41
0.44
0.48
0.53
0.59
0.65
0.72
0.79
0.87
0.96
1.06
1.17
1.29
1.43
1.60
1.78
1.97
2.18
2.41
2.66
5.00
5.00
5.00
5.00
5.00
5.00
6.00
6.00
6.00
6.00
6.00
7.00
7.00
8.00
8.00
9.00
10.00
11.00
12.00
13.00
15.00
17.00
18.00
20.00
22.00
14.00
14.00
14.00
14.00
14.00
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
2.94
3.26
3.63
4.05
4.54
5.06
5.62
6.21
6.83
7.49
8.22
9.05
9.99
11.07
12.26
13.55
14.91
16.34
17.80
19.33
20.94
22.66
24.57
26.76
29.63
33.93
41.27
56.03
83.33
83.33]
Form TA- 1031-97
6
<PAGE>
Paid Up Insurance Table
Table of Guaranteed Net Single Premiums
Per $1,000 of Insurance
Age
Net Single Premium ($)
Age
Net Single Premium ($)
[35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
197.07
204.57
212.41
220.53
228.93
237.63
246.55
255.81
265.32
275.20
285.37
295.86
306.69
317.79
329.27
341.07
353.13
366.56
378.31
391.34
404.60
418.12
431.86
445.87
460.11
474.56
489.20
504.02
519.01
534.11
549.22
564.32
579.46
594.61
609.74
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
624.86
639.91
654.63
669.33
683.72
697.69
711.26
724.42
737.23
749.74
762.00
773.99
785.64
796.88
807.60
817.75
827.36
836.48
845.21
853.72
862.15
870.70
879.58
889.05
899.43
910.95
923.68
937.47
951.81
968.38]
Form TA- 1031-97
7
<PAGE>
Important Definitions
Age means how old the insured is on the birthday closest to the date of issue
and, subsequently, to the policy anniversary.
Assignee is the person to whom you have transferred your ownership of this
policy.
Company means Transamerica Occidental Life Insurance Company, also referred to
as we, our, and us. Our telephone number is [1-800-782-8315].
Date of issue is stated on page 3. Policy months, years and anniversaries are
measured from this date.
Evidence of insurability is the information, including medical information, that
we use to decide whether to issue the requested coverage, to determine the
underwriting class for the person insured, or to determine whether the policy
may be
reinstated.
Face amount is the amount of insurance you elect to buy in the application or
enrollment form and which we agree to issue. The face amount is shown on page 3
of the policy. The death benefit is based on the face amount; see the Net Death
Benefit provisions beginning on page 18.
Final payment date is the policy anniversary nearest the insured's 100th
birthday. No payments may be made by you after this date. No monthly insurance
protection charges will be deducted from the policy value after this date.
Generally, the net death benefit after this date will equal 101% of the policy
value minus any outstanding loan, except as otherwise provided in the Guaranteed
Death Benefit Rider.
Insurance protection amount is the death benefit minus the
policy value.
Maturity Date is the policy anniversary nearest age 115.
Monthly insurance protection charge is the amount of money we deduct from the
policy value each month to pay for the insurance and any riders; see page 12 for
more details.
Monthly processing date is the day of the month the monthly insurance protection
charge is deducted from the policy value.
This date is shown on page 3.
Net payment is your payment to us less the payment expense charge shown on page
4.
Outstanding loan means all unpaid policy loans plus interest due or accrued on
such loans.
Policy change means any change in the face amount, the
underwriting class, the addition or deletion of a rider, or a
change in the death benefit option.
Policy value is the sum of the values in the Variable Account and the Fixed
Account.
Premium means a payment you must make to keep the policy in force.
Variable Life Service Center means our office located at 440 Lincoln St., P.O.
Box 3800, Worcester, MA 01653.
Pro rata refers to an allocation among the sub-accounts of the Variable Account
and the Fixed Account. A pro rata allocation will be in the same proportion that
the policy value in each sub-account of the Variable Account and the policy
value in the Fixed Account have to the total policy value net of any outstanding
loans.
Rider is an optional benefit which may be added to your policy and which may
require an additional charge.
Specification pages contain information specific to your
policy, and are located after the Table of Contents in your
policy.
Sub-accounts are subdivisions of the Variable Account investing exclusively in
the shares of one or more Funds.
Surrender Value is the policy value less any surrender charges and less any
outstanding loans.
Underwriting class means the insurance risk classification that we assign to the
insured based on the information in the application or enrollment form and any
other evidence of insurability we obtain. The insured's underwriting class
affects the monthly insurance protection charge and the amount of the payments
required to keep the policy in force.
Written request is a request you make in writing in a form which is satisfactory
to us and which is filed at our Variable Life Service Center.
You or your means the owner of this policy as shown in the application or in the
latest change filed with us.
General Provisions
Entire Contract: We have issued this policy in consideration of the application
and your initial premium payment. A copy of the application is attached and is a
part of this policy. The entire contract also includes: a copy of any
application to increase the face amount or to change to a different underwriting
class; any new specification pages; and any supplemental pages. The policy,
including the application and any endorsements and riders, forms our contract
with you.
All statements made by or for the insured will be considered representations and
not warranties. We will not use any statements made by or for the insured to
deny a claim unless the statement is in an application and an application is
attached to this policy when it is issued or delivered. Our representatives are
not permitted to change this policy or extend the time for paying premiums. Only
our President or a Vice President together with our Secretary may change the
provisions of this policy, and then only in writing.
Our Right to Contest the Policy is Limited: A contest is any action taken by us
to cancel your insurance or deny a claim based on untrue or incomplete answers
in your application. Except for fraud or nonpayment of premiums, this policy
will be incontestable after it has been in force during the lifetime of the
insured for two years from the date of issue. This provision does not apply to
any riders providing benefits specifically for disability or death by accident.
If the policy's total face amount is increased, or the underwriting class is
changed at your request, we cannot contest the increase or change after it has
been in force for 2 years from the effective date and the insured is alive.
Nonparticipating: No insurance dividends will be paid on this
policy.
Adjustment of Cost Factors: We determine the monthly
insurance protection charge and Fixed Account interest rates which are used to
calculate the policy value, subject to the guarantees noted in this policy.
We will determine the rate for the monthly insurance protection charge for each
policy month on the monthly processing date for that policy month. The monthly
insurance protection rates will depend on: the insured's gender; the insured's
smoking status; the insured's class of risk; the number of years that the policy
has been in force; and the insured's age.
A table of guaranteed maximum monthly insurance protection charge rates for the
base policy is shown on page 5. We may use rates lower than the guaranteed
maximum monthly
insurance protection charge rates. We will never use higher
rates.
Any change in the rates for monthly insurance protection charges will apply to
all policies in the same underwriting class, will be prospective, and will be
based on our expectations as to future cost factors. Such cost factors may
include, but are not limited to: mortality expenses, interest, persistency, and
any applicable federal, state and local taxes.
Suicide Exclusion: If the insured dies by suicide, while sane or insane, within
two years from the date of issue, we will be liable only for the amount of
payments made to us less any outstanding loans and amounts withdrawn. If the
face amount is increased at your request, and then the insured commits suicide
within two years, while sane or insane, we will not pay the increased amount.
Instead the beneficiary will receive the monthly insurance protection charges
paid for this increase, plus any net death benefit otherwise payable.
Misstatement of Age or Sex: If the insured's age or sex is not
correctly stated, we will adjust the death benefit. This amount
will be:
o the policy value, plus
o the insurance protection amount that would have been
purchased by the last monthly insurance protection charge
using the correct age and sex.
No adjustment will be made if:
o the insured dies after the final payment date; or
o the underwriting class is unisex and there has been a
misstatement only of sex.
Protection of Benefits: To the extent allowed by law, the
benefits provided by this policy cannot be reached by the
beneficiary's creditors. No beneficiary may assign, transfer,
anticipate or encumber the policy value or benefit unless you
give them this right.
Periodic Report: We will mail a report to you at your last
known address at least once a year. This report will provide the
following information:
o death benefit;
o policy values in each sub-account and in the Fixed
Account;
o the value of the policy if it is surrendered;
o payments made by you and the monthly insurance
protection charges deducted by us since the last report;
and
o outstanding loan and any other information required
by law.
Termination of Policy -- This policy will terminate at the
earliest of:
1. The date we receive your written request to surrender or
terminate;
2. The Maturity Date; or
3. The date of lapse or foreclosure.
--------------------------
Information About You and the Beneficiary
Owner: The insured is the owner of this policy unless another person (which
could include a trust, corporation, partnership, etc.) is named as owner in the
application. The owner may change the ownership of this policy without the
consent of any beneficiary. Whenever the face amount of insurance is increased,
the insured must agree.
Assignment: You may change the ownership of this policy by
sending us a written request. An absolute assignment will
transfer ownership of the policy from you to another person
called the assignee.
You may also assign this policy as collateral to a collateral assignee. The
limitations on your ownership rights while a collateral assignment is in effect
are specified in the assignment.
We will not be bound by an assignment unless it has been recorded at our
Variable Life Service Center. When recorded, it will take place as of the date
it was signed by you. Any rights created by the assignment will be subject to
any payments made or actions taken by us before the change is recorded. We are
not responsible for assuring that any assignment or any assignee's interest is
valid.
Beneficiary: The beneficiary is the person you name to receive the net death
benefit. The beneficiary's interest will be affected by any assignment you make.
If you assign this policy as collateral, all or a portion of the net death
benefit will first be paid to the collateral assignee; any money left over from
the amount due the assignee will go to those otherwise entitled to it.
Your choice of beneficiary may be revocable or irrevocable. You may change a
revocable beneficiary at any time by written request; but an irrevocable
beneficiary must agree to any change in writing. You will also need an
irrevocable beneficiary's permission to exercise other rights and options
granted by this policy. Unless you have asked otherwise, this policy's
beneficiary will be revocable.
Any change of the beneficiary must be made while the insured is living. This
change will take place on the date the request is signed, even if the insured is
not living on the day we receive it. Any rights created by the change will be
subject to any payments made, or actions taken, before we receive the written
request.
If a beneficiary dies before the insured, his or her interest in this policy
will pass to any surviving beneficiaries in proportion to their share in the net
death benefit, unless you have requested otherwise. If all beneficiaries die
before the insured, the net death benefit will pass to you or your estate.
Common Disaster Option: The common disaster option may be elected in the
application or later by written request. If the common disaster option is in
effect on the date of the insured's death, the beneficiary must be alive a
certain number of days following the insured's date of death in order to be
entitled to receive a benefit; otherwise we will pay the net death benefit as
though the beneficiary died before the insured. The number of days which the
beneficiary must live after the insured's death is selected by you when you
elect the common disaster option.
Form TA 1031-97
8
<PAGE>
---------------------------
What You Should Know About the Premiums
Premiums: This policy will not be in force until the first full premium is paid
to us. Additional payments may be made to us at any time through the final
payment date, but before the date of death of the insured or the date the
paid-up insurance option is exercised. Payments must be sent either to our
Variable Life Service Center or to our authorized representative.
If you request it in writing, we will send you a signed receipt after payment.
The payment amount which must be paid to keep the policy in force is described
in the Premium Grace Period and Policy Lapse provision.
Maximum Payment Limits: We may limit the amount you pay to us in any policy
year. This limit will not be less than the guideline level premium; however, the
sum of all payments made from the issue date, minus any partial withdrawals, may
not be more than the greater of:
o the guideline single premium, or
o the sum of the guideline level premiums on the date of
payment.
The guideline premium limits are shown on page 3. These premium limitations will
not apply if they prevent you from paying us enough to keep the policy in force.
Guideline premium limits are determined according to rules in the federal tax
law, and will be adjusted as that law changes.
If the payments made exceed the amount allowable for this policy to continue to
qualify as a life insurance contract under Section 7702 of the Internal Revenue
Code and the regulations thereunder, as applicable to this policy from time to
time, we will remove the excess amount of payments made from the policy, with
interest. Such an excess amount could occur, for example, as a result of a
partial withdrawal or other change in the benefits or terms of the policy, since
the guideline premium limit allowable for the policy may be reduced. The portion
of the payment that cannot be accepted as premium will be applied first against
any outstanding policy loans. We will refund to you any excess amount (including
interest) not later than 60 days after the end of that policy year.
The amount refundable will not exceed the surrender value of the policy. If the
entire surrender value is refunded, we will treat the transaction as a full
surrender of your policy.
Premium Grace Period and Policy Lapse: We will send you a notice if your
payments and surrender value are not enough to keep the policy in force. Your
policy will continue for 62 days from the date contained in the notice, which is
the grace period.
The first day of the grace period is called the date of default. We will send
the notice to your last known address, or to the person you name to receive this
notice, showing the due date and the amount of premium you must pay to keep the
policy in force.
The date when the grace period begins and the amount you must pay depends on how
long the policy has been in force and whether there have been any increases in
the face amount.
Beginning on the date this policy is issued or the effective date of any
increase in the face amount, whichever is later, and continuing for the next 47
monthly processing dates, the grace period will begin when both the following
conditions occur:
(a) the surrender value is less than the amount needed to
pay the next monthly insurance protection charge; and
(b) the sum of the payments made minus any outstanding
loans, partial withdrawals and withdrawal charges
since the latest of the following three dates:
o the date this policy is issued, or
o the effective date of any increase in the face
amount, or
o the date of any policy change which changes the
minimum monthly payment;
is less than the minimum monthly payment multiplied
by the number of months which have elapsed since that
date.
Thereafter, the grace period will begin if the surrender value on a monthly
processing date is less than the amount needed to pay the next monthly insurance
protection charge plus any loan interest accrued.
The minimum monthly payment, which is shown on page 4, may change if the policy
is changed; it will be listed in new specification pages provided to you.
The death benefit during the grace period will be reduced by
any overdue charges. The policy will lapse if the amount shown
in the notice remains unpaid at the end of the grace period. The
policy terminates on the date of lapse.
Reinstatement: If this policy has lapsed or has been foreclosed for failure to
pay loan interest, and has not been surrendered, it may be restored (called
"reinstated" in this policy) within three years after the date of default or
foreclosure and before the Maturity Date. We will reinstate the policy on the
monthly processing date following the day we receive all of the following items:
o a written application for reinstatement,
o evidence of insurability satisfactory to us, and
o a payment large enough to keep the policy in force for
three months.
You may repay or reinstate any outstanding loan on the date of default or
foreclosure.
Your reinstatement premium will be allocated to the Fixed Account until we
approve your application, at which time we will transfer the reinstatement
premium, plus accrued interest, as you directed in your last payment allocation
request.
The date of reinstatement is the later of the date we approve the reinstatement
application or the date the payment required to reinstate this policy is
received by us. The policy value on the reinstatement date is:
o the net payment to reinstate the policy, including the
interest earned from the date we received your
payment; plus
o an amount equal to the policy value less any outstanding loan on the
default date, to the extent that the outstanding loan is less than the
surrender charge on the reinstatement date; less
o the monthly insurance protection charge due on the
reinstatement date.
The surrender charge on the reinstatement date is the charge which would have
been in effect if the policy had remained in force from the date it was issued.
Reinstatement of Paid-Up Insurance: If this policy is in force as paid-up
insurance and later terminates for failure to pay policy loan interest, the
paid-up insurance may be reinstated during the insured's lifetime, but no more
than three years after the date of foreclosure and before the Maturity Date, by
providing us with the following:
o evidence of insurability satisfactory to us; and
o payment or reinstatement of the outstanding loan on
the date of the default. Interest is payable on this
outstanding loan from the date of termination to the
date of reinstatement at the interest rate of 8% per
year.
The date of reinstatement is the later of the date we approve the reinstatement
application or the date the payment required to reinstate this policy is
received by us. The death benefit of the reinstated paid-up insurance will be
the same as the death benefit on the date of termination.
----------------------
Information About the Value of Your Policy
Net Payment and Allocation of New Payments: A net
payment is a payment made to us reduced by the payment
expense charge. This charge is based, in part, on local, state
and federal taxes we must pay. The charge is shown on page
4.
Each net payment will be added to the policy value. The policy value consists of
the total of the values in the Variable Account and the Fixed Account.
You may allocate the net payment to:
o any of the sub-accounts which are available at the
time the payment is made; and/or
o the Fixed Account.
The Company reserves the right to limit the number of sub-
Form TA 1031-97
9
<PAGE>
accounts which are available at one time, but in no event will this be less than
7. All percentage allocations must be in whole numbers, with the total
allocation to all selected accounts equaling 100%. A processing charge may be
made for changing the net payment allocation. The maximum charge allowed is
shown on page 4, " Allocation Change Charges."
Allocation of Initial Payments: If you make a payment with your application or
at any time before the policy is approved for issue by us, we may put that net
payment into the Fixed Account on the date we receive it at our Variable Life
Service Center. Not later than two days after the date this policy is approved
for issue by us, the policy value you elected to allocate to the Variable
Account will be transferred from the Fixed Account to either the sub-accounts
you have selected or to the Money Market sub-account. In any event, we will
transfer any Variable Account policy values from the Money Market sub-account to
the sub-accounts you have selected not later than the expiration
Form TA 1031-97
10
<PAGE>
of the period during which you may exercise your right to examine this policy
and request a refund of your payments.
Monthly Insurance Protection Charge: Beginning on the date this policy is
issued, and through the final payment date, we will deduct a monthly insurance
protection charge from the policy value. Except as otherwise prescribed in the
paid-up insurance option, you may choose a sub-account from which this monthly
charge will be deducted. If you do not make a choice, we will deduct the charge
pro rata. If the sub-account you choose does not have enough funds to cover the
charge, we will deduct the charge as if you had not made any choice. We reserve
the right to charge for changes made to the sub- accounts from which monthly
insurance protection charges are deducted. The maximum charge allowed is shown
on page 4, "Allocation Change Charges."
Charges allocated to the Fixed Account will be deducted on a last-in, first-out
basis. This means that we use the most recent payments to pay the fees.
The monthly insurance protection charge equals the sum of the charges that apply
to:
o the initial face amount, plus
o each increase in the face amount, plus
o any rider benefits.
We will determine the monthly insurance protection charge each month. Any
changes in this charge will apply to all policies in the same underwriting
class. If you decrease the face amount of the policy, we will adjust the monthly
insurance protection charge according to the Benefit Change provision on page
19.
The monthly insurance protection charge for the initial face amount will not be
more than (1) multiplied by (2) where:
(1) is the insurance protection rate shown for the insured's
age in the Table on page 5; and
(2) is the initial face amount divided by 1,000.
For the purposes of this calculation, if the Level Death Benefit Option (see
page 19) is in effect, the initial face amount will be reduced by the policy
value, minus charges for rider benefits at the beginning of the month, but not
less than zero.
If you increase the face amount, the monthly insurance protection charge for the
amount of the increase will not be more than (3) multiplied by (4) where:
(3) is the insurance protection rate applicable to the
Form TA 1031-97
11
<PAGE>
increased face amount for the insured's age; and
(4) is the amount of the increase in the face amount divided by 1,000.
For purposes of this calculation, if the Level Death Benefit Option is in effect
and the policy value is higher than the initial face amount, the excess policy
value, minus charges for rider benefits at the beginning of the month, will be
used to reduce any increases in the face amount in the order in which the
increases were issued.
If the death benefit is the "guideline minimum death benefit" required for the
policy to qualify as life insurance under the federal tax law ( see page 19),
the monthly insurance protection charge for the portion of the death benefit
which exceeds the face amount (i.e., initial face amount plus any increases)
will not be higher than (5) multiplied by (6) divided by 1,000 where:
(5) is the insurance protection rate applicable to the initial face
amount; and
(6) is the death benefit less:
o the greater of the face amount or the policy
value if the Level Death Benefit Option is in
effect, or
o the face amount plus the policy value, if the
Adjustable Death Benefit Option (see page 19) is in
effect.
Insurance Protection Rates: The cost of insurance rate includes an expense
factor and a mortality factor. The expense factor covers a portion of our
acquisition costs, taxes, and administrative expenses. The mortality factor is
based on the insured's:
o age,
o sex (unless this policy is issued in a unisex class as
indicated on the specification pages); and
o underwriting class.
The guaranteed rates are based on:
o the Commissioners Ultimate 1980 Standard Ordinary Mortality
Table, Male, or Female, or unisex (Smoker or Non-Smoker
versions of these tables are used if the insured is over 17
years of age on the date of issue), and
o appropriate increases in such tables for non-standard
risks.
Form TA 1031-97
12
<PAGE>
The insurance protection rates actually charged will never be higher than the
guaranteed rates. We will review the actual insurance protection rates for this
policy whenever we change .
Form TA 1031-97
13
<PAGE>
these rates for new policies. In any event, rates will be
reviewed not more often than once each year, but not less than
once in a five-year period.
------------------
What You Should Know About the Variable Account
Variable Account: The value of your policy will vary if it is funded through
investments in the sub-accounts of the Variable Account. This account is
separate from our Fixed Account. We have exclusive and absolute ownership and
control of all assets, including those in the Variable Account. However, the
portion of assets in the Variable Account equal to the reserves and liabilities
of the policies which are supported by this account will not be charged with
liabilities that come from any other business we conduct.
This account, which we established to support variable life insurance policies,
is registered with the Securities and Exchange Commission (SEC) as a unit
investment trust under the Investment Company Act of 1940. It is also governed
by the laws of the State of California.
This account has several sub-accounts. Each sub-account invests its assets in a
separate series of a registered investment company (called a "Fund"). We reserve
the right, when the law allows, to change the name of the Variable Account or
any of its sub-accounts. You will find a list in your application of the
sub-accounts in which you may invest.
Variable Account Policy Value: Not later than two days after the date this
policy is approved for issue by us, the policy value you elected to allocate to
the Variable Account may be transferred from the Fixed Account to either the
sub-accounts you have selected or to the Money Market sub-account. We will
transfer the Variable Account policy values from the Money Market sub-account to
the sub-accounts you have selected not later than the expiration of the period
during which you may exercise your right to examine this policy and request a
refund of your payments. Net payments made thereafter which are allocated to the
sub-accounts will purchase additional units of the sub-accounts.
The number of units purchased in each sub-account is equal to the portion of the
net payment allocated to the sub-account, divided by the value of the applicable
unit as of the valuation date the payment is received at our Variable Life
Service Center or on the date value is transferred to the sub-account from
another sub-account or the Fixed Account. If we receive your payment on a date
which is not a valuation date, we will use the value of the applicable unit on
the first valuation date following the date we receive your payment to determine
the number of units that the net payment will purchase.
The number of units will remain fixed unless (1) changed by a subsequent split
of unit value, or (2) reduced because of a transfer, policy loan, partial
withdrawal, withdrawal charge, transaction charge, monthly insurance protection
charge deduction, surrender or surrender charge allocated to the sub-account.
Any transaction described in (2) will result in the cancellation of a number of
units which are equal in value to the amount of the transaction. On each
valuation date we will value the assets of each sub-account in which there has
been activity. The policy value in a sub-account at any time is equal to the
number of units this policy then has in that sub-account multiplied by the
sub-account's unit value. The value of a unit for any sub-account for any
valuation period is determined by multiplying that sub-account's unit value for
the immediately preceding valuation period by the net investment factor for the
valuation period for which the unit value is being calculated. The unit value
will reflect the investment advisory fee and other expenses incurred by the
registered investment companies.
Net Investment Factor: This measures the investment performance of a sub-account
during the valuation period that has just ended. The net investment factor is
the result of (a) plus (b), divided by (c), minus (d) and minus (e) where:
(a) is the net asset value per share of a Fund share held in the
sub-account determined at the end of the current valuation period,
(b)
is
the
per
share
amount
of
any
dividend
or
capital
gain
distributions
made
by
the
Fund
on
shares
held
in
the
sub-account
if
the
"ex-dividend"
date
occurs
during
the
current
valuation
period,
(c) is the net asset value per share of a Fund share held in
the sub-account determined as of the end of the immediately
preceding valuation period;
(d) is a charge for mortality and expense risks in the valuation
period. The current mortality and expense risk charge is shown on
the specification pages. The mortality and expense risk charge may
be increased or decreased, but it will never exceed the maximum
rate shown on the specification pages; and
(e) is an administration charge for the valuation period. The
administration charge is shown on the specification pages. The
administration charge period will not exceed
20 policy years.
Since the net investment factor may be more or less than one, the unit value may
increase or decrease. You bear the investment risk. We reserve the right
(subject to any required regulatory approvals) to change the method we use to
determine the net investment factor.
Valuation Dates and Periods: A valuation date is each day that the New York
Stock Exchange (NYSE) is open for business and any other day in which there is
enough trading in the Variable Account's underlying portfolio securities to
materially affect the value of the Variable Account. A valuation period is the
period between valuation dates.
Addition, Deletion or Substitution of Investments: We may
not change the investment policy of the Variable Account without the approval of
the Insurance Commissioner of California. This approval process is on file with
the Insurance Commissioner of your state.
We reserve the right, subject to compliance with applicable law, to add to,
delete from, or substitute for the shares of a Fund that are held by the
Variable Account or that the Variable Account may purchase. We also reserve the
right to eliminate the shares of any Fund if they are no longer available for
investment, or if we believe investing more in any eligible Fund is no longer
appropriate for the purposes of the Variable Account.
We will notify you before we substitute any of your shares in the Variable
Account. However, this will not prevent the Variable Account from buying other
shares of underlying securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies or contracts if
holders request it, subject to compliance with any state or federal
requirements.
We reserve the right to establish other sub-accounts, and to make them available
to any class or series of policies as we think appropriate. Each new sub-account
would invest in a new
investment company or in shares of another open-end investment company. We also
reserve the right to eliminate or combine existing sub-accounts of the Variable
Account and to transfer the assets between sub-accounts, when allowed by law.
If we make any substitutions or changes that we believe are necessary or
appropriate, we may make changes in this policy by written notice to reflect the
substitutions or changes. If we think it is in the best interests of our policy
owners, we may operate the Variable Account as a management company under the
Investment Company Act of 1940, or we may de-register it under that Act if the
registration is no longer required. We may also combine it with other separate
accounts.
Federal Taxes: If we must pay taxes on the Variable Account, we will charge you
for that tax. Although the account is not now taxable, we reserve the right to
make a charge for taxes if the account becomes taxable.
Splitting of Units: We reserve the right to split the value of a unit, either to
increase or decrease the number of units. Any splitting of units will have no
material effect on policy benefits.
----------------------
What You Should Know About the Fixed Account
Fixed Account: The Fixed Account is a part of our General Account. The General
Account consists of all assets owned by us, other than those in the Variable
Account and other separate accounts. Except as limited by law, we have sole
control over the investment of these General Account assets. You do not share
directly in the investment experience of the General Account, but are allowed to
allocate and transfer funds into the Fixed Account.
Fixed Account Interest Rates: The interest rates credited to the policy value in
the Fixed Account are set by us, but will never be less than 4% per year. We may
establish higher interest rates, and the initial interest rates and the renewal
interest rates may be different. Interest rates will be determined as follows:
o Net payments allocated to the Fixed Account will be credited at the
initial interest rate in effect on the day we receive your payment
at our Variable Life Service Center, and the initial interest rate
is guaranteed until the next policy anniversary unless you borrow
from that policy
value.
o Funds transferred from a sub-account of the Variable
Account to the Fixed Account will be credited with interest
at the initial interest rate in effect on the valuation date of the
transfer, and the initial interest rate is guaranteed until the
next policy anniversary unless you borrow from that policy value.
o Policy values in the Fixed Account on the policy anniversary will
be credited with interest at the renewal interest rate in effect on
the policy anniversary, and the renewal interest rate is guaranteed
for one year so long as those values remain in the Fixed Account
and are not borrowed.
o The interest rate we use for that portion of the policy value that
equals the outstanding loan will be at least 6% per year. The
interest rate will be higher if the policy qualifies under the
Preferred Loan provision; see page 16.
Fixed Account Policy Value: On each monthly processing date,
the policy value of the Fixed Account is:
o the policy value in this account on the preceding monthly
processing date increased by one month's interest, plus
o net payments received since the last monthly processing
date which are allocated to the Fixed Account plus the
interest accrued from the date the payments are received by
us, plus
o Variable Account policy value transferred to the Fixed Account from
any sub-accounts since the preceding monthly processing date,
increased by interest from the date the policy value is
transferred, minus
o policy value transferred from the Fixed Account to a sub-account
since the preceding monthly processing date and interest accrued on
these transfers from the transfer date to the monthly processing
date, minus
o partial withdrawals from the Fixed Account, partial
withdrawal transaction charges and withdrawal charges
since the last monthly processing date, and interest
accrued on these withdrawals and charges from the
withdrawal date to the monthly processing date, minus
Form TA 1031-97
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<PAGE>
o any transaction charges allocated to the Fixed Account for any
changes in the face amount since the last monthly processing date
and interest accrued on such charges to the monthly processing
date, minus
o the portion of the monthly insurance protection charge
allocated to the policy value in the Fixed Account.
During any policy month, the Fixed Account policy value will be calculated on a
consistent basis. In no event will the Fixed Account policy value be less than
the guaranteed cash value shown in the Paid-Up Insurance Table after the paid-up
option has been exercised.
Basis of Value of the Fixed Account: We base the minimum surrender value in the
Fixed Account on the Commissioners Ultimate 1980 Standard Ordinary Mortality
Table, Male or Female or unisex with interest at 4% each year, compounded
annually; however, if the insured is over age 17 on the date of issue, the
minimum surrender value is based on the Smoker or Non-Smoker versions of such
tables. Actual policy values are based on interest and insurance protection
rates that we set. We have filed a detailed description of the way we determine
this value with the State Insurance Department. All values equal or exceed the
minimums required by law in the states in which this policy is delivered.
---------------------------
What You Should Know About Transfers
While this policy is in force other than as paid-up insurance, you may transfer
amounts between the Fixed Account and the sub-accounts or among sub-accounts, on
request.
You may transfer, without charge, all or part of the policy value in the
Variable Account to the Fixed Account once during the first 24 months after the
policy is issued, and once during the first 24 months after you have increased
the face amount in order to convert to a fixed-only product. If you do so,
future payments will be allocated to the Fixed Account unless you specify
otherwise. All other transfers are subject to the following rules, and will be
permitted with our approval.
We will determine the minimum and maximum amounts that may be transferred
according to the rules that are in effect at the time of the transfer.
We also reserve the right to limit the number of transfers that can be made in
each policy year, and to set other reasonable rules controlling transfers.
If a transfer would reduce the policy value in a sub-account to less than the
current minimum balance required for such accounts, we reserve the right to
include the remaining value in the amount transferred.
You will not be charged for the first twelve transfers in a policy year, but a
transfer charge of up to $25 may be made on each additional transfer. Any
transfer charge will be deducted from the amount that is transferred. Transfers
that result from a policy loan or repayment of a loan are not subject to these
rules.
Form TA 1031-97
15
<PAGE>
-----------------------------
If You Want to Borrow from Your Policy
This policy is the only security you need to borrow from it.
Amount You May Borrow: The total amount of loans you may have outstanding at any
time is the loan value. Except as otherwise provided in the paid-up insurance
option, the loan value in the first policy year is 75% of (a) minus (b) where:
(a) is the policy value minus the surrender charge, and
(b) is the monthly insurance protection charges and interest which
will be due on the loan through the end of the policy year.
The loan value in the second policy year and any year after is 90% of the result
of the policy value minus the surrender charge.
If you do not specify from which accounts you want to borrow, we will allocate
the loan pro rata.
In order to secure the outstanding loan, we will transfer the policy value in
each sub-account equal to the policy loan allocated to each sub-account to the
Fixed Account.
Loan Interest: You will pay interest on your loan at an annual rate of 8%.
Interest accrues daily, and is payable at the end of each policy year. Any
interest that is not paid on time will be added to the loan principal and bear
interest at the same rate. If this makes the principal higher than the policy
value in the Fixed Account, we will offset this shortfall by transferring funds
from the Variable Account to the Fixed Account. We will allocate the transferred
amount pro rata among the sub-accounts in the same proportion that the value in
each sub-account has to the total value in all of them.
Repaying the Outstanding Loan: You may repay any part of any outstanding loan at
any time while the Insured is living before this policy lapses and before the
Maturity Date. When you repay it, we will transfer the policy value that is in
the Fixed Account to the various sub-accounts and increase the value in
them. You may tell us how to allocate repayments, but if you do not, we will
allocate them according to the most recent payment allocation choices you have
made. Loan repayments made to the Variable Account cannot be higher than the
amounts you transferred from it to secure the outstanding loan.
If you wish to make a loan repayment, you must tell us that the payment you
send us is for that purpose. Unless your payment is clearly marked as a loan
repayment, we will assume it is a premium payment unless it is received after
the final payment date. When we receive a loan repayment, we will apply it to
the portion of the policy value that secures the loan. If the loan payment
exceeds the loan balance, we will apply the balance as a premium payment.
Foreclosure: If at any time the amount of the outstanding loan is higher than
the policy value, minus the surrender charge, we will terminate the policy. We
will mail a notice of this termination to the last known address of you and any
assignee. If the excess outstanding loan is not paid within 62 days from the
date contained in the notice, the policy will terminate with no value. You may
reinstate this policy according to the Reinstatement provision on page 11.
Preferred Loan Option: The preferred loan option is available after the 10th
policy year. The guaranteed annual interest rate credited to the portion of the
policy value securing a preferred loan is 7.5%.
After the 10th policy year, any outstanding loan will be treated as a preferred
loan from that date forward, unless you revoke the preferred loan option on that
outstanding loan. The interest credited to the portion of the policy value
securing the non- preferred loans will not be less than 6% per year.
This option may be revoked by you at any time.
This option will be canceled if the Paid-Up Life Insurance Option is elected.
---------------------------
Details on Surrender and Partial Withdrawals
Surrender: You may cancel this policy and receive its surrender value as long as
the insured is living on the date we receive your written request in our
Variable Life Service Center. The policy will be canceled on that day. You may
choose to receive the surrender value in a lump sum or under a payment option.
Surrender Value: Except as otherwise provided in the paid-up
insurance option, the surrender value equals the policy value minus the
outstanding loan and surrender charges.
You will find the surrender charge for the initial face amount on page 4. Any
changes in this charge when you increase or decrease the face amount will be
shown in new specification pages.
Partial Withdrawals: Partial withdrawals are not allowed during the first policy
year or if your policy is in force as paid-up insurance. After the first policy
year, you may withdraw part of the surrender value on written request. Each
withdrawal must be at least $500. We will deduct a 2% partial withdrawal
transaction charge (maximum $25) from the policy value each time you make a
partial withdrawal.
We also may deduct a withdrawal charge from the policy value. However, a portion
of the partial withdrawal will not be subject to the withdrawal charge. This
amount equals (a) minus (b), where:
(a) is 10% of the policy value on the date we receive the written
request at our Variable Life Service Center, and
(b) is the total of the withdrawals (or portions of them) made in
the same policy year which were exempt from the withdrawal charge.
We will charge you on the balance of the withdrawal, called the "excess
withdrawal." This charge is calculated by multiplying the excess withdrawal
amount by 5%. The charge will never exceed the surrender charge in effect on the
withdrawal date.
Your policy's surrender charge will be reduced by any withdrawal charges
previously paid. There will be no "excess withdrawal" charge if no surrender
charge applies to the policy on the withdrawal date.
The withdrawal charge will decrease existing surrender charges in the following
order:
o first, the most recent increase's surrender charge,
o second, the next most recent increase's surrender charges
in succession, and
o last, the initial face amount's surrender charge.
If you elected the Level Death Benefit Option, the face amount and policy value
will be reduced by the amount of the partial withdrawal, and the policy value
will be further reduced by the partial withdrawal transaction and withdrawal
charges. The face amount will be decreased in the following order:
o first, the most recent increase,
o second, the next most recent increases in succession, and
o last, the initial face amount.
If you elected the Adjustable Death Benefit Option, the policy value will be
reduced by the amount of the partial withdrawal, plus the partial withdrawal
transaction and withdrawal charges.
We will not permit a partial withdrawal if it reduces the face amount to less
than $50,000.
If you do not allocate a partial withdrawal and its charges among the Fixed
Account and each sub-account, we will allocate that amount pro rata.
Postponement of Payment: We may postpone any transfer
from the Variable Account, or payment of any amount payable
on:
o surrender,
o partial withdrawal,
o transfer,
o policy loan, or
o death of the insured.
The postponement will continue during any period when:
o trading on the NYSE is restricted as determined by the SEC, or the NYSE is
closed for days other than weekends and holidays, or o the SEC by order has
permitted such suspension, or o the SEC has determined that such an emergency
exists that disposal of portfolio securities or valuation of assets is not
reasonably practical.
We may also postpone any transfer from the Fixed Account or payment of any
portion of the amount payable on surrender, partial withdrawal or policy loan
from the Fixed Account for not more than six months from the day we receive your
written request and, if it is required, your policy. If we postpone those
payments for 30 days or more, the amount postponed will earn interest during
that period at a rate of not less than 3% per year or such higher rate as
required by law. We will not postpone payments to pay premiums on our policies.
.
----------------------
What You Should Know About the Death Benefit
Guideline Minimum Sum Insured Table
Net Death Benefit: If the insured dies before the Maturity Date and before the
policy is terminated, we will pay the net death benefit. The net death benefit
is equal to the death benefit reduced by certain amounts, as described below.
The death benefit is determined as of the date we receive due proof of the
insured's death at our Variable Life Service Center. Due proof of death is a
valid death certificate or other evidence satisfactory to us.
The amount of the net death benefit depends upon: (1) whether the date the
insured dies is after, or on or before, the final payment date; (2) whether the
paid-up insurance option is in effect on the date of the insured's death; and
(3) which death benefit option is in effect on the date of death of the insured.
If the insured dies on or before the final payment date and the paid-up
insurance option has not been exercised, then the net death benefit is
determined by deducting from the death benefit under the Level Death Benefit
Option or the Adjustable Death Benefit Option (which are described later) the
following: any outstanding loan and monthly insurance protection charges due and
unpaid through the policy month in which the insured dies, as well as any
partial withdrawals and withdrawal charges.
If the paid- up insurance option has been exercised before the insured's death,
then the net death benefit is the paid-up insurance death benefit minus any
outstanding loan; (see page 20).
Except as otherwise provided in the Guaranteed Death Benefit Rider, if the
insured dies after the final payment date and the paid-up insurance option has
not been exercised, then the net death benefit will be equal to 101% of the
policy value, minus any outstanding loan and minus any partial withdrawals and
withdrawal charges.
If the net death benefit is paid in a lump sum, interest will be earned at our
declared interest rate for sums held on deposit, but not less than 2.5% per
year, beginning on the date we receive notice of death at our Variable Life
Service Center. We will pay a higher interest rate if required by state law. We
will credit interest from an earlier date (for example, from the date of the
insured's death) if required by state law.
Attained
Age
40 or less
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
Percentage
250% 243% 236% 229% 222% 215% 209% 203% 197% 191% 185% 178% 171% 164% 157% 150%
146% 142% 138%
134%
Attained
Age
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75 - 90
91
92
93
94-115
Percentage
130% 128% 126% 124% 122% 120% 119% 118% 117% 116% 115% 113% 111% 109% 107% 105%
104% 103% 102% 101%
Required Minimum Amount of Death Benefit: This policy is intended to qualify
under Section 7702 of the Internal Revenue Code as a life insurance contract for
federal tax purposes. The provisions of this policy (including any rider or
endorsement) shall be interpreted to ensure such tax qualification, regardless
of any language to the contrary.
At no time will the amount of the death benefit under the policy ever be less
than the amount needed to ensure such tax qualification. To the extent that the
death benefit is increased, appropriate adjustments will be made in any monthly
insurance protection charges or supplemental benefits as of that time,
retroactively or otherwise, that are consistent with such an increase. Such
adjustments may be made by right of setoff against any death benefits payable.
The death benefit under this policy will not be less than the Guideline Minimum
Sum Insured as specified in the tax code. This is calculated by multiplying the
policy value by the percentage shown in the preceding table. The guideline
minimum sum insured varies by attained age. The amounts shown in the table are
determined to provide a death benefit at least as great as those in the federal
tax law, and will be adjusted according to any changes in that law applicable to
this policy.
Death Benefit Options: You have two options for determining the amount of the
death benefit. The option you elected in your application is shown on page 3.
These options are not available after the final payment date or if the policy is
in force as paid-up insurance.
Under the Level Death Benefit Option, the death benefit is the greater of:
o the face amount, or
o the guideline minimum sum insured.
Under the Adjustable Death Benefit Option, the death benefit
is the greater of:
o the face amount plus the policy value on the date we receive proof of
death (we will refund monthly insurance protection charges deducted from
the policy value after the insured's date of death), or
o the guideline minimum sum insured.
You may change the death benefit option by making a written request. That change
will be made on the next monthly processing date after we receive your request.
o If you change
from the Level
Death Benefit
Option to the
Adjustable
Death Benefit
Option, the
face amount
under the
Adjustable
Death Benefit
Option will be
equal
to the death
benefit under
the Level Death
Benefit Option,
minus the
policy value on
the date of
change.
o If you change
from the
Adjustable
Death Benefit
Option to the
Level Death
Benefit Option,
the face amount
will be equal
to the death
benefit under
the Adjustable
Death Benefit
Option on the
date of change.
You may not change your death benefit option more than once in any policy year,
or if the change reduces the face amount to less than $50,000.
Benefit Change: You may increase or decrease the face
amount of insurance if you make a written request during the
insured's lifetime.
You may not change the face amount if it does not meet the minimum death benefit
requirement set by federal tax law.
Increase: To increase the face amount:
o you must complete our application and provide us with
evidence of insurability satisfactory to us; and
o the insured's age must not be over our maximum issue
age for new insurance; and
o you must pay a
$40 transaction
charge, plus
the net premium
sufficient to
keep the policy
in force for
two months if
the surrender
value is less
than this
amount.
This increased face amount will become effective on the first monthly processing
date on, or following, the date that all the conditions are met. We will deduct
the $40 transaction charge from the policy value on the effective date of
increase. You may choose the sub-account from which these charges will be
deducted; but if you do not choose, we will allocate the charges pro-rata. We
will provide you new specification pages, including a Supplemental Monthly
Insurance Protection Charge Table if the insured's underwriting class changes.
These pages will include the following information:
o effective date of the increase,
o amount of the increase,
o underwriting class,
o new minimum monthly payment,
o new guideline premiums, and
o new surrender charges applicable to the entire policy.
We reserve the right to set a limit on the minimum amount of
an increase in the face amount. No increase may be less than
our minimum limit in effect on the date we receive your
request.
You may return the new specification pages to us by the later of ten days after
receiving them or 45 days after you complete the "Application Form" which shows
the amount of the increase. If you return these pages within the period
described above, we will consider the increase void from the beginning. We will
add the charges back to the policy value unless you request otherwise. We will
also cancel any surrender charge for the increase.
Decrease: You may decrease the face amount of the policy at any time. It will be
effective on the first monthly processing date after we receive your written
request. You must pay a $40 transaction charge. The face amount will be
decreased or eliminated in the following order:
o first, the most recent increase,
o second, the next most recent increases successively, and
o last, the initial face amount.
We will deduct a $40 transaction charge and a surrender
charge from the policy value on the date of the decrease. The
surrender charge will be the surrender charge for the face amounts which are
decreased or eliminated in the order as noted above. You may choose the
sub-account from which these charges will be deducted; but if you do not choose,
we will allocate the charges pro rata.
We will provide you with new specification pages. These pages will include the
following information:
o effective date of the decrease,
o amount of the decrease and the face amount remaining
in force,
o new minimum monthly payment, if any,
o new guideline premiums, and
o new surrender charges applicable to the entire policy.
You may not decrease the face amount to less than $50,000.
We reserve the right to establish a minimum limit on the amount of any decrease.
---------------------------------------
Paid-Up Insurance Option
Benefit: This is insurance, usually having a reduced face amount for the
lifetime of the insured with no further premiums due. The amount of paid-up
insurance is the amount that the surrender value can provide as a net single
premium applied at the insured's age and underwriting class on the date this
option is exercised. The paid-up insurance death benefit may not exceed the
death benefit in effect on the date this option is exercised. In the event that
the surrender value exceeds the net single premium for the death benefit on the
date this option is exercised, the excess surrender value will be paid to you.
Basis of Values: The policy value and net single premium of the paid-up
insurance meet the minimum standards which are set by state law. The net single
premium is based on the Commissioners Ultimate 1980 Standard Ordinary Mortality
Table, Smoker or Non-Smoker; Male or Female or unisex. Interest will not be less
than 4 1/2%. See page 6 for the table showing the guaranteed net single premiums
per $1,000 of insurance.
Exercise of Option: The paid-up insurance option may be exercised by you on
written request. Policy value in the Variable Account will be transferred to the
Fixed Account on the date your written request to exercise this option is
received in our Variable Life Service Center. We will issue supplemental
specification pages that show the policy is paid-up effective as of the monthly
processing date following receipt of the written request.
The supplemental specification pages will show:
o the effective date of paid-up insurance,
o the paid-up death benefit,
o guaranteed cash surrender values, and
o riders.
Effect on the Policy: After the policy becomes paid-up, no further payments may
be made by you. You may not increase or decrease the face amount. You may not
make partial withdrawals or transfer funds to the Variable Account; however, you
may make policy loans or surrender the policy for its net cash value. Riders
will continue only with our consent.
The guaranteed cash value of the paid-up insurance equals the net single premium
for the paid-up insurance at the insured's attained age. The net single premium
is determined on the same basis as is used for the purchase price of the paid-up
insurance. The net cash value is the cash value less any outstanding loan. The
loan value of paid-up insurance is the amount that, with interest at 8% per
year, equals the cash value of the paid-up policy as of the next policy
anniversary.
--------------------------------------------
Payment of Benefits
Payment Options: Upon written request, the surrender value or all or part of the
net death benefit may be placed under one or more of the payment options offered
by us at the time the request is made. If you make no election, we will pay the
benefit in a single sum. A certificate will be provided to the payee describing
the payment option selected.
If a payment option is selected, the beneficiary, when filing proof of claim,
may pay us any amount that otherwise would be deducted from the net death
benefit.
Form TA 1031-97
18
<PAGE>
The amounts payable under these options are paid from the General Account. The
options are not based on the investment experience of the Variable Account.
The amount applied under any one option for any one payee must be at least
$5,000. The periodic payment for any one payee must be at least $50.
Subject to the Owner and Beneficiary provisions, you may change any option
selection before the net death benefit becomes payable. If you make no
selection, the beneficiary may select an option when the proceeds become
payable.
Summary:
Flexible Premium Variable Life Insurance Policy Adjustable Sum Insured Death
Proceeds Payable at Death of Insured Flexible Premiums Payable to the Final
Payment Date Coverage to the Maturity Date and Amount of Policy Value Not
Guaranteed Nonparticipating.
Form TA 1031-97
19
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Guaranteed Insurability Rider
This rider is a part of the policy to which it is attached if it is shown in the
specification pages of the policy. The insured under the policy is the insured
under this rider.
Benefit - Subject to the terms of this rider, on each option date you may
increase the face amount of insurance without evidence of insurability if
written request is made:
during the lifetime of the insured; and
while this rider and policy are in force.
Option Dates - The first option date for this rider is shown in the
specification pages of the policy. Option dates will then occur on every second
anniversary of the first option date until the policy anniversary nearest age 40
or until the fifth option date, whichever is later.
Exercise of Increase Option - Options may be exercised on the life of the
insured not earlier than 60 days prior to, nor later than 31 days after, an
option date. The specification pages of the policy show the "option amount" and
the total option amount". The total option amount is the maximum aggregate face
amount of insurance which may be purchased through this rider. Each time the
option to increase the face amount of insurance is exercised, the total option
amount is reduced by the amount of the insurance purchased. The face amount
which may be purchased at one time may not exceed the option amount or, if less,
the total option amount remaining. The increased face amount may not be less
than $10,000.
The insurance protection charges for the increased face amount will be
calculated in the same manner as the charges for other increases in the face
amount. The guaranteed insurance protection charges will not exceed the
guaranteed charges in effect on the date of issue of this rider.
Supplemental specification pages will be issued. They will include the following
information:
the effective date of the increased face amount;
the amount of the increase; and
the surrender charge.
The supplemental specification pages will also show a new minimum monthly
payment and new guideline premiums which will apply to the entire policy. There
is no administrative charge for the exercise of this option.
If the surrender value on the date of issue of an increase is less than the
insurance protection charges due on the policy you must pay the grace period
premium to us.
The effective date of the increase in face amount will be the monthly processing
date following the date of the written request. If the insured dies after the
date of the written request and before the increased face amount takes effect,
we will refund any premium paid to exercise this option.
The time periods in the suicide and incontestable clauses for the increased face
amount will be measured from the date of issue of this rider.
Waiver of Payments - If this policy contains a waiver of payment rider on the
effective date of the increased face amount, the waiver of payment benefit may
be increased without evidence of insurability. If waiver of payment benefits are
being paid on the increase date, the increased benefit will become payable on
the increase date.
If on the effective date of an increase the waiver of payment benefit is
designated in the specification pages as the monthly insurance protection
charges, this benefit will be increased by the insurance protection charges for
the increased face amount.
If the waiver of payment benefit on an increase date is shown in the
specification pages as a dollar amount, this benefit will be increased by the
smaller of:
the waiver of payment benefit on the option
date minus 1/12 of the sum of the payments
made by you over the last 12 months; or
the amount shown in the waiver of payment
benefit table.
<PAGE>
Incontestability - Except for fraud or failure to pay the monthly insurance
protection charges, this rider cannot be contested after it has been in force
for two years from its date of issue.
Termination - This rider will terminate on the first to occur of:
the end of the grace period of a premium in default; or
the end of the policy month following a request for termination; or
the last option date; or
the date of issue of an increase which, when added to the sum of all prior
increases under this rider, reduces the total option amount remaining to
less than $10,000.
General - The specification pages (see page 3 of the policy) will show for this
rider:
<PAGE>
the date of issue;
the first option date;
the option amount; and
the total option amount.
Except as otherwise provided, any additional benefits or riders will not be
added or increased without our prior consent.
Reinstatement of this rider will not revive any option date which occurred
during the period of lapse.
Charges for this rider are payable as a part of the monthly insurance protection
charges due under this policy. The monthly insurance protection charge for this
rider is shown on page 5 of the policy.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the policy to which this
rider is attached,
unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
and Corporate Secretary
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Option To Accelerate Death Benefits
(Living Benefits Rider)
This rider is a part of the policy to which it is attached. The insured under
this rider is the insured under the policy. This rider does not apply to any
benefits provided by other riders under this policy.
Benefit - While this rider is in force, you may elect to receive a portion of
the net death benefit called the "living benefit," prior to the insured's death
under this option subject to the definitions, conditions and limitations in this
rider. This option may only be exercised once.
Definitions - "Option amount" means that portion of the death benefit which you
elect to apply under this option. The option amount must be at least $25,000 and
may not exceed the least of:
one-half of the death benefit on the date the option is
elected; or
the amount that would reduce the face amount to
our minimum issue limit for this policy; or
$250,000.
"Option percentage" is the option amount divided by
the death benefit.
"Living benefit" is the option amount which has been reduced for interest and
other factors. It is equal to the lump sum benefit under this rider, and is the
amount used to determine the monthly benefit. The living benefit will not be
less than the surrender value of the policy multiplied by the option percentage.
The following factors will be used to calculate the living benefit:
age;
sex, unless the policy is issued on a unisex basis;
life expectancy;
policy value;
outstanding loan;
rate of interest currently being credited to the Fixed Account including
those values which are subject to outstanding loan;
face amount;
death benefit option;
current cost of insurance rates; and
an expense charge of $150.
An amount equal to the outstanding loan multiplied by
the option percentage will be deducted from the living benefit. The remaining
outstanding loan will continue in force.
The assumptions we use to calculate the living benefit may change from time to
time. The factors used to compute the living benefit will be set and changed
only prospectively; that is, based on changes in future expectations. We will
not change these factors to recoup any prior losses or distribute past gains
under the rider.
"Proof of claim satisfactory to us" shall include:
a request signed by the insured and owner to disclose all facts
concering the insured's health
records of the attending physician, including a prognosis of the
insured; and
if we request, a medical examination of the insured at our expense
conducted by a physician we choose.
Conditions - Upon written request you may elect to receive payment under the
accelerated death benefit option subject to the following conditions:
the policy is in force;
a written consent has been given by any collateral assigness,
irrevocable beneficiary and the insured if you are not the insured; if the
policy was delivered in a community property state, we may require your spouse
to sign the consent; and
the insured qualifies for the option.
Exercising the Option - If you provide proof of claim and a certification of a
qualified physician satisfactory to us that the insured has an illness or
physical condition which can reasonably be expected to result in death in 12
months or less, you may elect to receive the living benefit in equal monthly
payments for 12 months. For each $1,000 of living benefit, each payment will be
at least $85.21. This assumes an annual interest rate of 5%.
If the insured dies before all the payments have been made, we will pay the
beneficiary in one sum the present value of the remaining payments due under
this rider calculated at the interest rate we use to determine those payments.
If you do not wish to receive monthly payments, you may elect to receive the
living benefit in a lump sum.
Effect on Policy - The policy's death benefit will be decreased by the option
amount. Such decrease will be effective on the monthly processing date following
the date of the written request.
Existing insurance will be decreased or eliminated in the following order:
first, the most recent increase;
second, the next most recent increases
successively; and
last, the initial face amount.
Any surrender charge applicable to the decrease in the face amount will be
waived. The amount of the charge which is waived will be:
the surrender charge applicable to any increased
face amount which is eliminated in the order set
forth above; plus
a pro rata share of the surrender charge applicable to a partial reduction
in an increase or in the original face amount.
New specification pages will be issued. These pages will include the following
information:
the effective date of the decrease;
the amount of the decrease and the benefit
remaining in force;
the revised surrender charge;
the revised minimum monthly payment, if any;
and
the new guideline premiums.
<PAGE>
The policy value will be reduced in the same proportion as the reduction in the
death benefit. Riders will continue in force. Exclusion - No benefit will be
paid under this rider if a claim results, directly or indirectly, from a suicide
attempt or a self-inflicted injury (while sane or insane) for any period during
which a suicide exclusion is applicable.
Termination - This rider will terminate on the first to occur of:
the date the living benefit is paid; or
the end of the grace period of a premium in default;
or
the termination or maturity of the policy while the
insured is alive; or
at any time on your written request.
General - The specification pages (see page 3 of the policy) will show the date
of issue of this rider.
The living benefit will be made available to you on a
voluntary basis only. Accordingly:
(a) If you are required by law to exercise this option to satisfy the claim of
creditors, whether in bankruptcy or otherwise, you are not eligible for this
benefit.
(b) If you are required by a government agency to exercise this option in order
to apply for, obtain, or retain a government benefit or entitlement, you are not
eligible for this benefit.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
TAX QUALIFICATION: This rider is intended to provide a qualified accelerated
death benefit that is excludable from gross income for federal income tax
purposes. To that end, the provisions of this rider and the policy are to be
interpreted to ensure or maintain such tax qualification, notwithstanding any
other provisions to the contrary. Whether any tax liability may be incurred when
benefits are paid under this rider could depend on whether the owner is also the
insured and on how the Internal Revenue Service interprets applicable provisions
of the Internal Revenue Code. As with any tax matter, the owner and any other
recipient of this benefit should each consult his own tax advisor to evaluate
any tax impact of this benefit.
<PAGE>
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the policy to which this rider
is attached, unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
and Corporate Secretary
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
GUARANTEED DEATH BENEFIT RIDER
This rider is a part of the policy to which it is attached if it is listed in
the specification pages of the policy. The rider is issued in consideration of
the payment of the transaction charge shown in the specification pages.
While this rider is in effect, the policy will not lapse if both of the
following Guaranteed Death Benefit tests are met:
1. Within 48 months following the date of issue and the
effective date of issue of any increase in the face
amount, the sum of your payments less any
outstanding loans, partial withdrawals and
withdrawal charges is greater than the
minimum monthly payment multiplied by the
number of months which have elapsed since that
date; and
2. On each policy anniversary, (a) must equal or exceed (b) where, since the
date this policy was issued:
(a) is the sum of your payments less any
partial withdrawals, withdrawal
charges and outstanding loan; and
(b) is the sum of the minimum guaranteed
death benefit payments for the number of
policy years elapsed.
The minimum guaranteed death benefit payment amount is shown on the
specification pages or on new specification pages in the event of a policy
change. The minimum guaranteed death benefit payment will be pro rated in any
year in which there is a policy change.
If the policy value is less than the surrender charge on a monthly processing
date, the monthly insurance protection charge will be deducted from the policy
value. If the policy value is less than the monthly insurance protection charge,
the entire policy value will apply to this charge.
<PAGE>
If this rider is in effect on the final payment date, a death benefit will be
provided while this rider remains in force. The death benefit will be the
greater of: (a) the face amount as of the final payment date, or (b) 101% of the
policy value as of the date due proof of death is received by the Company.
Monthly insurance protection charges will not be deducted after the final
payment date if the policy qualifies for the Guaranteed Death Benefit.
The Guaranteed Death Benefit will end and may not be reinstated on the first to
occur of the following:
1. Foreclosure of an outstanding loan; or
2. The date on which this policy fails to meet both of the Guaranteed Death
Benefit tests; or
3. Any policy change that results in a negative guideline level premium;
or
4. The effective date of a change from the Adjustable Death Benefit Option
to the Level Death Benefit
Option if such change occurs within 5 policy
years of the final payment date; or
5. A partial withdrawal or a loan is made after the final payment date; or
6. The date the paid -up option is exercised under the policy; or
7. The date the policy is surrendered.
It is possible that the policy value will not be sufficient to keep the policy
in force on the first monthly processing date following the date this rider
terminates. The net amount payable to keep the policy in force will never exceed
the surrender charge plus three monthly deductions.
<PAGE>
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the policy to which the rider
is attached, unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
and Corporate Secretary
Form TA 1098-97
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
CHILDREN S INSURANCE RIDER
This rider is part of the policy to which it is attached if it is shown in the
specification pages. The insured under the policy is the insured under this
rider. "Insured Child" is defined below.
Benefit
Benefit - The Company will pay the children's insurance benefit upon receipt of
due proof that an Insured Child died while this rider was in force. The amount
of the children's insurance benefit is shown in the specification pages. Unless
requested otherwise, the beneficiary under this rider is the owner.
Insured Child Description - "Acquired" means born, legally adopted or attained
the status of stepchild.
"Insured Child" means an acquired child of the insured
who:
is named in the application for this rider and on the
date of the application has not reached his or her 18th
birthday; or
is acquired during the insured's lifetime after the date of the application
but before such child's 18th birthday.
No child can be an Insured Child while under the age of 14 days. A person will
cease to be an Insured Child on the policy anniversary nearest the earlier of
the Insured Child's 25th birthday and/or the insured's 65th birthday.
<PAGE>
Period of Term Insurance - The term insurance on each Insured Child will begin
on the date of coverage under this rider if the child is an Insured Child on
such date; otherwise the term insurance will begin on the date the Insured Child
is acquired and is 14 days old. The term insurance will expire on the date the
child ceases to be an Insured Child.
Paid-Up Term Insurance - If the insured dies while this rider is in force, the
term insurance in force on each Insured Child will be converted to paid-up term
insurance. The paid-up term insurance on each child will terminate on the date
the child ceases to be an Insured Child. This rider may be surrendered at any
time while the paid-up term insurance is in force for its net reserve on the
date of surrender. However, if this rider is surrendered within 30 days after a
policy anniversary, the value will not be less than the net reserve on such
anniversary. We will furnish a statement of the values for this rider upon
request.
<PAGE>
Conversion
Conversion - You may convert the insurance on the life of an Insured Child if
such request is made:
within 60 days before the term insurance on the life of
an Insured Child expires;
during the Insured Child's lifetime; and
while the rider is in force.
You may convert to a new policy issued by Transamerica
Occidental Life Insurance Company. Evidence of
insurability will not be required.
<PAGE>
New Policy Description - The new policy will be issued:
on any form of individual life insurance, other than
term, being issued by us on the date of issue of the new
policy;
on the life of the Insured Child only; and
at the Insured Child's age and for the premium rates in
effect on the date of issue of the new policy.
<PAGE>
(Over)
Form TA 1096-97
Conversion (continued)
The sum insured may not be less than our minimum issue limit for the new policy.
The sum insured may be up to 5 times the amount of insurance under this rider on
the Insured Child. The new policy will not become binding unless the first
premium is paid during the lifetime of the Insured Child and within 31 days
after the expiration of the term insurance under this rider.
<PAGE>
The date of issue of the new policy will be the day after the expiration of the
term insurance under this rider.
The new policy will be subject to any assignments outstanding against this
rider. Riders will be available on the new policy subject to evidence of
insurability and consent of the Company. The time periods of the suicide and
incontestability provisions of the new policy will expire on the same date as
such provision in this rider would have expired.
<PAGE>
General
Incontestability - Except for fraud or failure to pay the charges, this rider
cannot be contested after it has been in force, during the insured's lifetime,
for two years from its date of issue. The insurance on any Insured Child named
in the application cannot be contested after it has been in force, during the
Insured Child's lifetime, for two years from the date of issue of this rider.
Misstatement of Age - If the age of a child has been misstated and if the child
would not have been an Insured Child upon his or her death if the age had been
correctly stated, no benefit will be payable if the child dies. Any benefit paid
to the beneficiary because of the death of such child shall be repaid to the
Company. If the age of the insured has been misstated, the termination date of
the Insured Child's coverage will be based upon the insured's correct age.
Termination - Coverage under the rider will terminate on the first to occur of:
<PAGE>
the end of the grace period of a required premium in
default; or
the termination or maturity of the policy except as
provided in the Paid-Up Term Insurance provision; or
the day before the policy anniversary nearest the
insured's age 65; or
the last day of the policy month in which you request
the termination.
General - The specification pages (see page 3 of the policy) will show the date
of issue of this rider.
Charges for this rider are payable as part of the monthly
insurance protection charges due under this policy. The
monthly charge is shown on page 5.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
<PAGE>
Signed
for
Transame
rica
Occident
al Life Insurance Company at Los Angeles, California and effective on the date
of issue of the policy to which this rider is attached, unless a different date
is shown here.
Executive Vice President, General Counsel President and CEO
and Corporate Secretary
Form TA1096-97
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY
Waiver of Payment
Rider
This rider is part of the policy to which it is attached if it is shown in the
specification pages of the policy. The insured under the policy is the insured
under this rider.
<PAGE>
Benefit - On each monthly processing date, while
the insured is totally disabled, we will add to the
policy value the waiver of payment benefit. This
benefit is the largest of:
the amount shown in the specification pages; or
the minimum monthly payment for the face amount covered by this rider
during a period when the minimum monthly payment applies; or
the monthly insurance protection charges applicable to the face amounts and
other riders covered by this rider.
The waiver of payment benefit is subject to:
our receipt of due proof of such total
disability; and
evidence the total disability:
began while this rider was in force; and
began before the policy anniversary nearest
insured s age 65; and
has continued for at least 4 months; and
the other terms and conditions of this rider.
The benefit will begin with the policy month following the date total disability
begins or the policy anniversary nearest the insured s age 5, if later. The
benefit will not be provided for any period more than one year prior to the date
we received written notice of claim. We will credit the policy value with any
benefit which applies to the time during which benefits are payable.
Each monthly benefit will be allocated in accordance with the payment allocation
in effect on the date each benefit is credited to the policy value.
If the insured s total disability occurs before the policy anniversary nearest
the insured s age 60, the benefit will end when total disability ends. If the
total disability occurs on or after the policy anniversary nearest the insured s
age 60, the benefit will continue during such total disability but not beyond
the policy anniversary nearest the insured s age 65 or two years, whichever is
longer.
Benefits will cease on the next monthly processing date following the end of a
period of total disability.
Definitions of Total Disability - Total disability means
the insured is unable to engage in any occupation as a
result of disease or bodily injury. Occupation means
attendance at school if the insured is not old enough
to legally end his or her formal education. Otherwise
occupation means any occupation for which the insured is or becomes reasonably
fitted by training, education or experience.
Total loss of the following as a result of disease or bodily injury shall be
deemed total disability:
speech
hearing in both ears; or
the sight of both eyes; or
the use of both hands; or
the use of both feet; or
the use of one hand and one foot.
Risks Not Covered - No benefit will be provided if total disability results,
directly or indirectly, from:
an act of war, whether such war is declared or
undeclared, and the insured is a member of the
armed forces of a country or combination of
countries; or
any bodily injury occurring or disease first manifesting itself prior to
the date of issue of this rider. However, no claim for total disability
commencing after two years from the date of issue will be denied on the
ground that the disease or impairment not excluded from coverage by name or
specific description existed prior to the date of issue of this rider.
(over)
<PAGE>
Notice and Proof of Claim - Written notice of claim must be sent to our Variable
Life Service Center:
during the lifetime of the insured; and
while the insured is totally disabled; and
not later than 12 months after this rider
terminates.
Proof of claim must be sent to our Variable Life Service Center within 6 months
of the notice of claim. Failure to give notice and proof within the time
required will not void or reduce any claim if it can be shown that notice and
proof were given as soon as was reasonably possible.
Proof of continued total disability must be furnished at our request. Failure to
do so will end the benefit. Such proof will include an authorization to disclose
facts concerning the insured s health, and may include medical exams of the
insured conducted by physicians chosen by us. Such medical exams will be at our
expense. After total disability has continued for 24 months, proof will not be
required more than once a year, nor after the policy anniversary nearest age 65.
Benefit Changes - The benefit may be changed on written request. An increase
will only be allowed if the insured is under age 60 and we receive:
evidence of insurability that is satisfactory to us;
and
payment to us of the premium sufficient to keep the policy in force if the
surrender value is less than all charges due on the policy.
No increase, when added to the existing benefit, shall exceed the following
limits:
<PAGE>
Maximum Benefit Table
<PAGE>
Attained
Age
<PAGE>
Monthly Benefit
Per $1,000
Face Amount
<PAGE>
0-19
20-29
30-39
40-49
50-54
55 and above
<PAGE>
$1.00
1.25
2.00
3.00
4.00
5.50
<PAGE>
The waiver of payment benefit will be reduced if it exceeds the maximum benefit
after the face amount of the policy is reduced. The monthly benefit may not
exceed the amount shown in the Maximum Benefit Table.
The effective date of the changed benefit will be the first monthly processing
date on or after the date all conditions are met. The changed benefit will be
shown in supplementary specification pages. The charges for an increased benefit
will be shown in a Supplemental Insurance Protection Charge Table if the insured
s underwriting class changes.
Incontestability - Except for fraud or failure to pay the monthly insurance
protection charges, this rider cannot be contested after the end of the
following time periods:
the initial benefit cannot be contested after the rider has been in force
during the insured s lifetime and without the occurrence of the total
disability of the insured for two years from the date of issue; and
an increase in the benefit cannot be contested after the increased benefit
has been in force during the insured s lifetime and without the occurrence of
the total disability of the insured for two years from its effective date.
Termination - This rider will terminate on the first to occur of:
the end of the grace period of a premium in default; or
the termination or maturity of the policy; or
the day before the policy anniversary nearest age 65, except as provided i
the Benefit provision; or
the end of the policy month following a request for termination.
Rider Charge - Charges for this rider are paid as a part of the monthly
insurance protection charges due under
the policy.
The monthly charge is the waiver charge shown in the Insurance Protection Charge
Table multiplied by the greater of:
the monthly insurance protection charges applicable to the face amount and
other riders covered by this
rider; or
one-half of the waiver of payment benefit shown in the specification pages.
General - The specification pages (see page 3 of the policy) will show the date
of issue of this rider.
When an increase in
face amount or an
additional rider is applied for, waiver of payment coverage must also be
requested. We reserve the right to decline issuance of the waiver of payment
coverage for the increased face amount or additional rider benefit.
<PAGE>
If total disability begins during the grace period of a past due premium, such a
premium will be payable.
The waiver of payment benefit will not reduce any amount payable under the
policy.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
<PAGE>
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the policy to which this rider
is attached, unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
and Corporate Secretary
<PAGE>
(8) Form of Participation Agreements
(a) The Alger American Fund
(b) Alliance Variable Products
Series Fund, Inc.
(c) Janus Aspen Series
(d) Morgan Stanley Universal Funds,
Inc.
(e) OCC Accumulation Trust
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this _____ day of ______________ , 1997, by and
among The Alger American Fund (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, Fred Alger Management,
Inc., an investment adviser organized under the laws of the state of New York (
the "Adviser"), Transamerica Life Insurance Company of New York, a life
insurance company organized as a corporation under the laws of the State of New
York, (the "Company"), on its own behalf and on behalf of each segregated asset
account of the Company set forth in Schedule A, as may be amended from time to
time (the "Accounts"), and Fred Alger and Company, Incorporated, a Delaware
corporation, the Trust's distributor (the "Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income & Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of 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
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company may contract with an Administrator to perform
certain services with regard to the Contracts and, therefore, certain
obligations ans services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company,
WHEREAS, the Company desires to use shares of the Portfolios
indicated on Schedule A as investment
vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company or its administrator shall
be the Trust's agent for the receipt from each account of purchase
orders and requests for redemption pursuant to the Contracts relating
to each Portfolio, provided that the Company or its administrator
notifies the Trust of such purchase orders and requests for redemption
by 9:30 a.m. Eastern time on the next following Business Day, as
defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next
computed after receipt of a purchase order by the Trust (or its
agent), as established in accordance
with the provisions of the then current prospectus of the
Trust describing Portfolio purchase
procedures. The Company or its administrator will transmit order
from time to time to the Trust for
the purchase and redemption of shares of the Portfolios. The Trustees
of the Trust (the "Trustees") 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 if,
in the sole discretion of the Trustees acting in good faith and in
light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in th
best interests of the shareholders
of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or its
agent) receives the purchase order. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Trust for
this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the
Company on behalf of an Account, at the net asset value next computed
after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance
with the provisions of the then
current prospectus of the Trust describing Portfolio redemption
procedures. The Trust shall make
payment for such shares in the manner established from time to
time by the Trust. Proceeds of
redemption with respect to a Portfolio will be paid to the Company
for an Account in federal funds
transmitted by wire to the Company by order of the Trust with the
reasonable expectation of receipt by
the Company by 2:00 p.m. Eastern time on the next Business Day
after the receipt by the Trust (or its
agent) of the request for redemption. Such payment may be delayed if,
for example, the Portfolio's cash
position so requires or if extraordinary market conditions exist,
but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act. The
Trust reserves the right to suspend
the right of redemption, consistent with Section 22(e) of the 1940 Act
and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.
1.7. The Trust shall furnish, two days before the ex-dividend date, notice
to the Company that an income dividend or capital gain distribution
will be paid on the shares of any Portfolio of the Trust. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and
distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or
its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available to the
Company by 6:30 p.m. Eastern time each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as may
be permitted by Section 817(h) of the Code, the regulations hereunder,
or judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.3. The Trust shall provide such documentation (including a final copy of
the prospectus(es) of the Portfolios indicated on Schedule A as set in
type or in camera-ready copy) and other assistance as is reasonably
necessary in order for the Company to print together in one document
the current prospectus for the Contracts issued by the Company and the
current prospectus for the Trust. The Trust shall bear the expense of
printing copies of its current prospectus that will be distributed to
existing Contract owners, and the Company shall bear the expense of
printing copies of the Trust's prospectus that are used in connection
with offering the Contracts issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of
its proxy material, periodic reports
to shareholders and other communications to shareholders in
such quantity as the Company shall
reasonably require for purposes of distributing to Contract
owners. The Trust, at the Company's
expense, shall provide the Company with copies of its periodic
reports to shareholders and other
communications to shareholders in such quantity as the Company
shall reasonably request for use in
connection with offering the Contracts issued by the Company.
If requested by the Company in lieu
thereof, the Trust shall provide such documentation (including
a final copy of the Trust's proxy
materials, periodic reports to shareholders and other communications
to shareholders, as set in type or
in camera-ready copy) and other assistance as reasonably
necessary in order for the Company to print
such shareholder communications for distribution to Contract owners.
2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature or other materials relating
to the Accounts or Contracts without the prior written consent of the
Distributor. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the
Trust or its designee a copy of each
Contract prospectus and/or statement of additional information
describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or
request for no-action letter in which the
Trust or the Distributor is named contemporaneously with the
filing of such document with the
Commission. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee
each piece of sales literature or other promotional material in
which the Trust or the Distributor is
named, at least five Business Days prior to its use. No such material
shall be used if the Trust or its
designee reasonably objects to such use within three Business Days
after receipt of such material.
2.8. The Company shall not give any information or make any
representations or statements on behalf of the
Trust or concerning the Trust or the Distributor in connection with
the sale of the Contracts other than
information or representations contained in and accurately derived
from the registration statement or
prospectus for the Trust shares (as such registration statement
and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports of
the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material
approved by the Trust or its designee,
except as required by legal process or regulatory authorities or
with the prior written permission of
the Trust, the Distributor or their respective designees. The
Trust and the Distributor agree to
respond to any request for approval on a prompt and timely basis.
The Company shall adopt and implement
procedures reasonably designed to ensure that "broker only"
materials including information therein
about the Trust or the Distributor are not distributed to existing or
prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and
the Distributor, in such form as the Company may reasonably require, as
the Company shall reasonably request in connection with the preparation
of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give,
any information or make any representations or statements on
behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or
representations contained in and
accurately derived from the registration statement or prospectus for
the Contracts (as such registration
statement and prospectus may be amended or supplemented from time to
time), or in materials approved by
the Company for distribution including sales literature or other
promotional materials, except as
required by legal process or regulatory authorities or with the
prior written permission of the
Company. The Company agrees to respond to any request for approval of
a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets
the 1940 Act to require pass-through
voting privileges for Contract owners, the Company will provide
pass-through voting privileges to
Contract owners whose cash values are invested, through the
registered Accounts, in shares of one or
more Portfolios of the Trust. The Trust shall require all
Participating Insurance Companies to
calculate voting privileges in the same manner and the Company
shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established
by the Trust. With respect to each
registered Account, the Company will vote shares of each Portfolio
of the Trust held by a registered
Account and for which no timely voting instructions from Contract
owners are received in the same
proportion as those shares for which voting instructions are
received. The Company and its agents will
in no way recommend or oppose or interfere with the solicitation of
proxies for Portfolio shares held to
fund the Contacts without the prior written consent of the Trust,
which consent may be withheld in the
Trust's sole discretion. The Company reserves the right, to the
extent permitted by law, to vote shares
held in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust, the
Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of New
York and that it has legally and validly established each Account as a
segregated asset account under such law as of the date set forth in
Schedule A, and that _________________________________, the principal
underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member in good standing of
the National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration
is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal
and state laws, and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement 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 Trust shall register and qualify
its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust and Adviser represent and warrant that the investments of
each Portfolio complies and will comply with the diversification
requirements for variable annuity, endowment or life insurance
contracts set forth in Section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"), and the rules and regulations
thereunder, including without limitation Treasury Regulation 1.817-5,
and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply
and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance within the grace period afforded by
Regulation 1.817-5.
3.7. The Trust and Adviser represent and warrant that each Portfolio is
currently qualified as a "regulated investment company" under
Subchapter M of the Code, that such qualification will be maintained
and the Trust or the Adviser will notify the Company immediately upon
having a reasonable basis for believing it has ceased to so qualify or
might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of
Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other
Participating Insurance Companies. In such event, the Trustees wil
monitor the Trust for the existence
of any material irreconcilable conflict between the interests
of the contract owners of all
Participating Insurance Companies. A material irreconcilable
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 contract owners;
or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Trust
shall promptly inform the Company of any determination by the
Trustees that a material irreconcilable
conflict exists and of the implications thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order by providing the Trustees with all information
reasonably necessary for and requested by the Trustees to consider any
issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may
be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a
material irreconcilable conflict exists that affects the interests
of contract owners, the Company
shall, in cooperation with other Participating Insurance
Companies whose contract owners are also
affected, at its own expense and to the extent reasonably
practicable (as determined by the Trustees)
take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which
steps could include: (a) withdrawing the assets allocable to some
or all of the Accounts from the Trust
or any Portfolio and reinvesting such assets in a different
investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the
question of whether or not 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
change; and (b) establishing a new registered management investment
company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract
owner voting instructions and that decision represents a minority
position or would preclude a majority
vote, the Company may be required, at the Trust's election, to
withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to
such 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 Trustees. Any such withdrawal
and termination must take place within six (6) months after the
Trust gives written notice that this
provision is being implemented. Until the end of such six (6) month
period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.
4.5. 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 Trust and
terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the
Company in writing that the Trust has
determined that such decision has created a material irreconcilable
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 Trustees. Until the end of
such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for
the purchase and redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees
shall determine whether any proposed action adequately remedies
any material irreconcilable conflict,
but in no event will the Trust be required to establish a new
funding medium for any Contract. The
Company shall not be required to establish a new funding medium for
the Contracts if an offer to do so
has been declined by vote of a majority of Contract owners materially
adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine
that any proposed action does not
adequately remedy any material irreconcilable conflict, then the
Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six (6
months after the Trustees inform 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 Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is 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 Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared
Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify
and hold harmless the Adviser,
---------------------------------
Distributor, the Trust and each of its Trustees, officers, employee
and agents and each person, if any,
who controls the Trust within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified
Parties" for purposes of this Section 5.1) against any and all
losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
the Company, which consent shall not
be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to
the sale or acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any
material fact contained in a registration statement o
prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or
approved by the Company on behalf of
the Contracts or Accounts (or any amendment or
supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of
this Article V), 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
indemnity 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
was accurately derived from written
information furnished to the Company by or on behalf of the
Trust for use in Company Documents
or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section
5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) 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 statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company or
administrator to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company or
administrator in this Agreement or arise out of or result from
any other material breach of this Agreement by the Company or
administrator; or
(f) arise out of or result from the provision by the Company or
administrator to the Trust of insufficient or incorrect
information regarding the purchase or sale of shares of any
Portfolio, or the failure of the Company or administrator to
provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor, Adviser and
Trust each jointly and severally agree
------------------------------------
to indemnify and hold harmless the Company and each of its directors,
officers, employees, and agents
and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for the purposes of this
Section 5.2) against any and all
losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of
the Distributor, which consent shall not be unreasonably withheld)
or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the Contracts or
Trust shares and:
(a) 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 for the Trust (or any amendment or supplement
thereto) (collectively, "Trust Documents" for the purposes of
this Article V), 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
indemnity 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 was accurately derived from
written information furnished to the Adviser, Distributor or
the Trust by or on behalf of the Company for use in Trust
Documents or otherwise for use in connection with the sale of
the Contracts or Trust shares and; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived form Company Documents) or wrongful conduct
of the Adviser, Distributor or persons under their control,
with respect to the sale or acquisition of the Contracts or
Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company
Documents 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 statement
or omission was made in reliance upon and accurately derived
from written information furnished to the Company by or on
behalf of the Trust, Adviser or Distributor; or
(d) arise out of or result from any failure by the Adviser,
Distributor or the Trust to provide the services or furnish
the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser,
Distributor or the Trust in this Agreement ( including a
failure, whether unintentional or in good faith or otherwise,
to comply with the diversification and subchapter M
requirements specified in Article III ) or arise out of or
result from any other material breach of this Agreement by the
Adviser Distributor or the Trust; or
(f) arise out of or result from the materially incorrect or materially
untimely calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate.
5.3. None of the Company, the Adviser, the Trust or the Distributor shall be
liable under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any Losses incurred or assessed against an
Indemnified Party that arise from 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.
5.4. None of the Company, the Adviser, Trust or the Distributor shall
be liable under the indemnification
provisions of Sections 5.1 or 5.2, as applicable, with respect to
any claim made against an Indemnified
party unless such Indemnified Party shall have notified the other
party in writing within a reasonable
time after the summons, or other first written notification, giving
information of the nature of the
claim shall have been served upon or otherwise received by such
Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or
other notification to any designated
agent), but failure to notify the party against whom indemnification
is sought of any such claim shall
not relieve that party from any liability which it may have to the
Indemnified Party in the absence of
Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party,
the indemnifying party shall be
entitled to participate, at its own expense, in the defense of such
action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named
in the action. After notice from the indemnifying party to the
Indemnified Party of an election to
assume such defense, the Indemnified Party shall bear the fees and
expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to
the Indemnified 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.
ARTICLE VI.
Termination
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days advance written notice
to the other parties, unless a shorter time is agreed to by
the parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if
the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority
of the Trustees of the Trust, or a majority of its
disinterested Trustees, that a material irreconcilable
conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD,
the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to the
sale of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails
to meet the diversification requirements specified in Section
3.6 hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company,
and upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of
the Portfolio 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 Variable Contracts issued or to be issued by the
Company; or
(h) at the option of the Company, if the Portfolio fails to
qualify as a Regulated Investment Company under Subchapter M
of the Code; or
(i) at the option of the Distributor if it shall determine in its
sole judgment exercised in good faith, that the Company and/or
its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the
terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Articles I,II,III,IV, and VII and
shall survive the termination of this Agreement as long as shares of
the Trust are held on behalf of Contract owners in accordance with
Section 6.2.
ARTICLE VII.
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 party.
If to the Trust, its Adviser, or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Transamerica Life Insurance Company of New York
Corporate Secretary
100 Manhattanville Rd.
Purchase, NY 10577
ARTICLE VIII.
Miscellaneous
8.1. 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.
8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3. 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.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders. Copies of any such orders shall be promptly forwarded by
the Trust to the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent or
holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
<PAGE>
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. 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.
8.7. 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.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, 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
shall not disclose such confidential information without the written
consent of the affected party unless such information has become
publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger and Company, Incorporated
By:________________________________
Name:
Title:
The Alger American Fund
By:_________________________________
Name:
Title:
Transamerica Life Insurance Company of New York
By:___________________________________
Name:
Title:
SCHEDULE A
The Alger American Fund:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American Income & Growth Portfolio
<PAGE>
33
S:\DEPT550\DREW\AGREEMEN\PART-AGR.TR2
PARTICIPATION AGREEMENT
AMONG
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY,
TRANSAMERICA SECURITIES SALES CORPORATION,
ALLIANCE CAPITAL MANAGEMENT LP
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
DECEMBER 15, 1997
<PAGE>
6
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 15th day of December
1997 ("Agreement"), by and among Transamerica Life Insurance and Annuity
Company, a North Carolina life insurance company ("Insurer") (on behalf of
itself and its "Separate Account," defined below); Transamerica Securites Sales
Corporation, a Maryland corporation ("Contracts Distributor"), the principal
underwriter with respect to the Contracts referred to below; Alliance Capital
Management L.P., a Delaware limited partnership ("Adviser"), the investment
adviser of the Fund referred to below; and Alliance Fund Distributors, Inc., a
Delaware, corporation ("Distributor"), the Fund's principal underwriter
(collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that shares of the Fund's Premier Growth and
Growth and Income (the "Portfolios"; reference herein to the "Fund" includes
reference to each Portfolio to the extent the context requires) be made
available by Distributor to serve as underlying investment media for those
combination fixed and variable annuity contracts of Insurer that are the subject
of Insurer's Form N-4 registration statement filed with the Securities and
Exchange Commission (the "SEC"), File No. 333-9745 (the "Contracts"), to be
offered through Contracts Distributor and other registered broker-dealer firms
as agreed to by Insurer and Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts
received by Insurer to separate series (the "Divisions"; reference herein to the
"Separate Account" includes reference to each Division to the extent the context
requires) of the Separate Account for investment in the shares of corresponding
Portfolios of the Fund that are made available through the Separate Account to
act as underlying investment media,
WHEREAS the Insurer may contract with an administrator (the
"Administrator") to perform certain services with respect to the Contracts and,
therefore, certain obligations of the Adviser may be directed to such
Administrator, if the Insurer so directs the Adviser;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make shares of the Portfolios
available to Insurer for this purpose at net asset value and with no sales
charges, all subject to the following provisions:
Section 1. Additional Portfolios
The Fund has and may, from time to time, add additional Portfolios,
which will become subject to this Agreement, if, upon the written consent of
each of the Parties hereto, they are made available as investment media for the
Contracts.
Section 2. Processing Transactions
2.1 Timely Pricing and Orders.
The Adviser or its designated agent will provide closing net asset
value, dividend and capital gain information for each Portfolio to Insurer or
its Administrator, as directed by Insurer, at the close of trading on each day
(a "Business Day") on which the New York Stock Exchange is open for regular
trading. The Fund or its designated agent will use its best efforts to provide
this information by 6:00 p.m., Eastern time. Insurer will use these data to
calculate unit values, which in turn will be used to process transactions that
receive that same Business Day's Separate Account Division's unit values. Such
Separate Account processing will be done the same evening, and corresponding
orders with respect to Fund shares will be placed the morning of the following
Business Day. Insurer will use its best efforts to place such orders with the
Fund by 10:00 a.m., Eastern time.
If the Adviser provides material incorrect share net asset value
information, the Adviser shall make an adjustment to the number of shares
purchased or redeemed for the Separate Account to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Insurer.
2.2 Timely Payments.
Insurer or its Administrator will transmit orders for purchases and
redemptions of Fund shares to Distributor, and will wire payment for net
purchases to a custodial account designated by the Fund on the day the order for
Fund shares is placed, to the extent practicable. Payment for net redemptions
will be wired by the Fund to an account designated by Insurer on the same day as
the order is placed, to the extent practicable, and in any event be made within
six calendar days after the date the order is placed in order to enable Insurer
to pay redemption proceeds within the time specified in Section 22(e) of the
Investment Company Act of 1940, as amended (the "1940 Act").
<PAGE>
2.3 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. For the purposes of this section, Insurer and its Administrator shall be
deemed to be the agent of the Fund for receipt of such orders from holders or
applicants of contracts, and receipt by Insurer shall constitute receipt by the
Fund. All other purchases and redemptions of Portfolio shares by Insurer, will
be effected at the net asset values next computed after receipt by Distributor
of the order therefor, and such orders will be irrevocable. Insurer hereby
elects to reinvest all dividends and capital gains distributions in additional
shares of the corresponding Portfolio at the record-date net asset values until
Insurer otherwise notifies the Fund in writing, it being agreed by the Parties
that the record date and the payment date with respect to any dividend or
distribution will be the same Business Day. The Adviser shall give Insurer or
its Administrator, as directed by Insurer, two Business Days' notice of any
distributions.
<PAGE>
Section 3. Costs and Expenses
3.1 General.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 Registration.
The Fund will bear the cost of its registering as a management
investment company under the 1940 Act and registering its shares under the
Securities Act of 1933, as amended (the "1933 Act"), and keeping such
registrations current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
respecting the Fund and its shares and payment of all applicable registration or
filing fees with respect to any of the foregoing. Insurer will bear the cost of
registering the Separate Account as a unit investment trust under the 1940 Act
and registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without limitation,
the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
respecting the Separate Account and its units of interest and payment of all
applicable registration or filing fees with respect to any of the foregoing.
3.3 Other (Non-Sales-Related) Expenses.
The Fund will bear the costs of preparing, filing with the SEC and
setting for printing the Fund's prospectus, statement of additional information
and any amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer each
will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If requested by Insurer,
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
3.4 Other Sales-Related Expenses.
Expenses of distributing the Portfolio's shares and the Contracts will
be paid by Contracts Distributor and other parties, as they shall determine by
separate agreement.
3.5 Parties to Cooperate.
The Adviser, Insurer, Contracts Distributor, and Distributor each
agrees to cooperate with the others, as applicable, in arranging to print, mail
and/or deliver combined or coordinated prospectuses or other materials of the
Fund and Separate Account.
<PAGE>
Section 4. Legal Compliance
4.1 Tax Laws.
(a) The Adviser represents and warrants that each Portfolio will elect
to qualify as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall maintain such
qualification, and the Adviser or Distributor will notify Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the
Contracts will be treated as life insurance or annuity contracts under sections
7702 or 72 of the Code and that it will make every effort to maintain such
treatment. Insurer will notify the Fund and Distributor immediately upon having
a reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(c) The Adviser represents and warants that it will maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future, and they will immediately
take all steps to adequately diversify the Portfolio to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
(d) Insurer represents that it believes, in good faith, that the
Separate Account is a "segregated asset account" and that interests in the
Separate Account are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms under Section
817(h) of the Code and the regulations thereunder. Insurer will make every
effort to continue to meet such definitional requirements, and it will notify
the Fund and Distributor 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.
(e) The Adviser will manage the Fund as a RIC in compliance with
Subchapter M of the Code and with Section 817(h) of the Code and regulations
thereunder. The Fund has adopted and will maintain procedures for ensuring that
the Fund is managed in compliance with Subchapter M and Section 817(h) and
regulations thereunder.
(f) Should the Distributor or Adviser become aware of a failure of
Fund, or any of its Portfolios, to be in compliance with Subchapter M of the
Code or Section 817(h) of the Code and regulations thereunder, they represent
and agree that they will immediately notify Insurer of such in writing.
4.2 Insurance and Certain Other Laws.
(a) The Adviser will use its best efforts to cause the Fund to comply
with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by Insurer. If it cannot comply, it will so
notify Insurer in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of North Carolina and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under North Carolina Law, and
(iii) the Contracts comply in all material respects with all other applicable
federal and state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that
Contracts Distributor is a business corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland and has
full corporate power, authority and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full corporate power, authority and legal
right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Maryland and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(f) Adviser represents and warrants that it is a limited partnership,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 Securities Laws.
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with [State] law, (ii) the Separate Account is
and will remain registered under the 1940 Act to the extent required by the 1940
Act, (iii) the Separate Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, (iv) the
Separate Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will, at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund
shares sold pursuant to this Agreement will be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(c) The Fund will register and qualify its shares for sale in
accordance with the laws of any state or other jurisdiction only if and to the
extent reasonably deemed advisable by the Fund, Insurer or any other life
insurance company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants
that it is registered as a broker-dealer with the SEC under the Securities
Exchange Act of 1934, as amended, and is a member in good standing of the
National Association of Securities Dealers Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer. Distributor and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund
of (i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
<PAGE>
4.5 Insurer to Provide Documents.
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 Fund to Provide Documents.
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, 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 or other
regulatory authorities.
Section 5. Mixed and Shared Funding
5.1 General.
The Fund has obtained an order exempting it from certain provisions of
the 1940 Act and rules thereunder so that the Fund is available for investment
by certain other entities, including, without limitation, separate accounts
funding variable life insurance policies and separate accounts of insurance
companies unaffiliated with Insurer ("Mixed and Shared Funding Order"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section 5.
5.2 Disinterested Directors.
The Fund agrees that its Board of Directors shall at all times consist
of directors a majority of whom (the "Disinterested Directors") are not
interested persons of Adviser or Distributor within the meaning of Section
2(a)(I 9) of the 1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Fund agrees that its Board of Directors will monitor for the
existence of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Insurer agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other 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 contract participants or by participants of
different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to
disregard the voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) 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 another
Portfolio of the Fund, or submitting the question whether
such segregation should be implemented
to a vote of all affected participants and, as appropriate,
segregating the assets of any
particular group (e.g., annuity contract owners or
participants, life insurance contract owners
or all contract owners and participants of one or more life
insurance companies utilizing the
Fund) that votes in favor of such segregation, or
offering to the affected contract owners
or participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940
Act or a new separate account that is operated as a Management
Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Insurer conflicts with the
majority of other state regulators, then Insurer will withdraw the Separate
Account's investment in the Fund within six months after the Fund's Board of
Directors informs Insurer that it has determined that such decision has created
a material irreconcilable conflict, and until such withdrawal Distributor and
Fund shall continue to accept and implement orders by Insurer for the purchase
and redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to Insurer.
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
If, at any time during which the Fund is serving an investment medium
for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to mixed and shared funding, the Parties agree that they will comply
with the terms and conditions thereof and that the terms of this Section 5 shall
be deemed modified if and only to the extent required in order also to comply
with the terms and conditions of such exemptive relief that is afforded by any
of said rules that are applicable.
Section 6. Termination
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of Insurer or Distributor upon at least six
months advance written notice to the
other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance
written notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this Contract is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Trust shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's obligations
under this Agreement or related to the sale of the Contracts, the operation of
the Separate Account, or the purchase of the Fund shares, if, in each case, the
Fund reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Portfolio to be terminated; or
(d) at the option of Insurer upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding the Fund's, Adviser's
or Distributor's obligations under this Agreement or related to the operation or
management of the Fund or the purchase of Fund shares, if, in each case, Insurer
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Insurer, Contracts Distributor or the Division
corresponding to the Portfolio to be terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's
shares are not registered and, in all material respects, issued and sold in
accordance with any applicable state and federal law or (ii) such law precludes
the use of such shares as an underlying investment medium of the Contracts
issued or to be issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any
change in a Fund's investment adviser or investment practices will materially
increase the risks incurred by Insurer.
6.2 Funds to Remain Available.
Except (i) as necessary to implement Participant-initiated
transactions, (ii) as required by state insurance laws or regulations, (iii) as
required pursuant to Section 5 of this Agreement, or (iv) with respect to any
Portfolio as to which this Agreement has terminated, Insurer shall not (x)
redeem Fund shares attributable to the Contracts, or (y) prevent Participants
from allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 90 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
6.3 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of
this Agreement.
6.4 Continuance of Agreement for Certain Purposes.
Notwithstanding any termination of this Agreement, the Distributor
shall continue to make available shares of the Portfolios pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (the "Existing Contracts"), except as
otherwise provided under Section 5 of this Agreement. Specifically, and without
limitation, the Distributor shall facilitate the sale and purchase of shares of
the Portfolios as necessary in order to process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
Section 7. Parties to Cooperate Respecting Termination
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
Section 8. Assignment
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
Section 9. Notices
Notices and communications required or permitted by Section 2 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
Transamerica Life Insurance and Annuity
Company
Corporate Secretary
1150 South Olive Street
Los Angeles, California 90015
Transamerica Securities Sales Corporation
Transamerica Center
1150 South Olive Street
Los Angeles, California 90015
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
<PAGE>
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
Section 10. Voting Procedures
Subject to the cost allocation procedures set forth in Section 3
hereof, Insurer will distribute all proxy material furnished by the Fund to
Participants and will vote Fund shares in accordance with instructions received
from Participants. Insurer will vote Fund shares that are (a) not attributable
to Participants or (b) attributable to Participants, but for which no
instructions have been received, in the same proportion as Fund shares for which
said instructions have been received from Participants. Insurer agrees that it
will disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 10.
Section 11. Foreign Tax Credits
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
Section 12. Indemnification
12.1 Of Fund, Distributor and Adviser by Insurer.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, Insurer agrees to indemnify and hold harmless the Fund, Distributor and
Adviser, each of their directors and officers, 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 12. 1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Insurer) or
actions in respect thereof (including, to the extent 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 actions are related to the sale, acquisition, or holding
of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material
fact contained in the Separate Account's 1933 Act registration
statement, the Separate Account
Prospectus, the Contracts or, to the extent prepared by Insurer or
Contracts Distributor, sales
literature or advertising 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 to Insurer or
Contracts Distributor by or on
behalf of the Fund, Distributor or Adviser for use in the Separate
Account's 1933 Act
registration statement, the Separate Account Prospectus, the
Contracts, or sales literature or
advertising (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or
representations contained in the Fund's 1933 Act registration
statement, Fund Prospectus, sales
literature or advertising of the Fund, or any amendment or
supplement to any of the foregoing,
not supplied for use therein by or on behalf of Insurer or
Contracts Distributor) or the
negligent, illegal or fraudulent conduct of Insurer or
Contracts Distributor or persons under
their control (including, without limitation, their employee
and "Associated Persons," as that
term is defined in paragraph (m) of Article I of the NASD's
By-Laws), in connection with the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material
fact contained in the Fund's 1933 Act registration statement,
Fund Prospectus, sales literature
or advertising of the Fund, or any amendment or supplement to
any of the foregoing, 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 and in conformity with information furnished
to the Fund, Adviser or Distributor
by or on behalf of Insurer or Contracts Distributor for use
in the Fund's 1933 Act registration
statement, Fund Prospectus, sales literature or advertising
of the Fund, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by Insurer or Contracts
Distributor to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement.
(b) Insurer shall not be liable under this Section 12.1 with respect to
any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 12.1 with respect to
any action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action 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 Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 12. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from Insurer to such Indemnified Party of
Insurer's election to assume the defense thereof, the Indemnified Party will
cooperate fully with Insurer and shall bear the fees and expenses of any
additional counsel retained by it, and Insurer will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
12.2 Indemnification of Insurer and Contracts Distributor by
Adviser and Distributor.
(a) Except to the extent provided in Sections 12.2(d) and 12.2(e),
below, Adviser and Distributor
agree to indemnify and hold harmless Insurer and Contracts Distributor, each of
their directors and officers, and each person, if any, who controls Insurer or
Contracts Distributor within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Adviser) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions are
related to the sale, acquisition, or holding of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material
fact contained in the Fund's 1933 Act registration statement,
Fund Prospectus, sales literature
or advertising of the Fund or, to the extent not prepared by
Insurer or Contracts Distributor,
sales literature or advertising for the Contracts (or any
amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission o
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 to
Distributor, Adviser or the Fund by or on
behalf of Insurer or Contracts Distributor for use in the
Fund's 1933 Act registration statement,
Fund Prospectus, or in sales literature or advertising (or
any amendment or supplement to any of
the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or
representations contained in the Separate Account's 1933 Act
registration statement, Separate
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of Distributor,
Adviser, or the Fund) or the negligent, illegal or fraudulent
conduct of the Fund, Distributor,
Adviser or persons under their control (including, without
limitation, their employees and
Associated Persons), in connection with the sale or
distribution of the Contracts or Fund shares;
or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material
fact contained in the Separate Account's 1933 Act
registration statement, Separate Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or
supplement to any of the foregoing, 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 statement or omission was made in
reliance upon and in conformity with
information furnished to Insurer or Contracts Distributor by
or on behalf of the Fund,
Distributor or Adviser for use in the Separate Account's 1933
Act registration statement,
Separate Account Prospectus, sales literature or advertising
covering the Contracts, or any
amendment or supplement to any of the foregoing;
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement;
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or
Distributor in this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and Sub-Chapter M qualification
requirements specified in Section 4 of this Agreement) or
arise out of or result form any other material breach of this
Agreement by the Adviser or Distributor; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate.
(b) Except to the extent provided in Sections 12.2(d) and 12.2(e)
hereof, Adviser agrees to indemnify and hold harmless the Indemnified Parties
from and against any and all losses, claims, damages, liabilities (including
amounts paid in settlement thereof with, except as set forth in Section 12.2(c)
below, the written consent of Adviser) or actions in respect thereof (including,
to the extent reasonable, legal and other expenses) to which the Indemnified
Parties may become subject directly or indirectly under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
actions directly or indirectly result from or arise out of the failure of any
Portfolio to operate as a regulated investment company in compliance with (i)
Subchapter M of the Code and regulations thereunder and (ii) Section 817(h) of
the Code and regulations thereunder (except to the extent that such failure is
caused by Insurer), including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Contract owners or
Participants asserting liability against Insurer or Contracts Distributor
pursuant to the Contracts, the costs of any ruling and closing agreement or
other settlement with the Internal Revenue Service, and the cost of any
substitution by Insurer of shares of another investment company or portfolio for
those of any adversely affected Portfolio as a funding medium for the Separate
Account that Insurer deems necessary or appropriate as a result of the
noncompliance.
(c) The written consent of Adviser referred to in Section 12.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 12.2 with respect to
any losses, claims; damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 12.2 with respect to
any action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action 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 Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 12.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Adviser to such
Indemnified Party of Adviser's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Adviser and shall bear the fees and
expenses of any additional counsel retained by it, and Adviser will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
<PAGE>
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Section 12.1(c) or 12.2(e) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
Section 13. Applicable Law
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
Section 15. Severability
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
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, that the Parties are entitled to under federal and state
laws.
Section 17. Restrictions on Sales of Fund Shares
Insurer agrees that the Fund will be permitted (subject to the other terms of
this
Agreement) to make its shares available to separate accounts of other
life insurance companies.
Section 18. Headings
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
TRANSAMERICA LIFE INSURANCE
AND ANNUITY COMPANY
By:
Name:
Title:
TRANSAMERICA SECURITIES SALES
CORPORATION
By:
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management Corporation,
its General Partner
By:
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Title:
S:\DEPT550\DREW\AGREEMEN\PART-AGR.TR2
<PAGE>
N:\BMH\JAS\TRANSAME\PARTAGT.TLI
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this ____ day of __________, 199_, between JANUS
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION (the "Adviser"), a
Colorado Corporation and the investment adviser to the Trust, and TRANSAMERICA
LIFE INSURANCE AND ANNUITY COMPANY, a life insurance company organized under the
laws of the State of North Carolina (the "Company"), on its own behalf and on
behalf of each segregated asset account of the Company set forth on Schedule A,
as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and
Exchange Commission granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of 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 Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless
registration is not required under applicable law) certain variable life
insurance policies and/or variable annuity contracts under the 1933 Act (the
"Contracts"); and
<PAGE>
WHEREAS, the Company has registered or will register (unless
registration is not required under applicable law) each Account as a unit
investment trust under the 1940 Act; and
<PAGE>
-16-
N:\BMH\JAS\TRANSAME\PARTAGT.TLI
WHEREAS, the Adviser is registered with the Securities and Exchange
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended;
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle of the
Accounts;
WHEREAS, the Company may contract with an Administrator to perform
certain administrative services with regard to the Contracts and Account(s) and,
therefore, certain obligations of the Trust and/or Adviser shall be directed to
the Administrator, as directed by the Company.
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1 The Trust and the Adviser shall make shares of the Trust's
Portfolios available to the Accounts at the net asset value next computed after
receipt of such purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust.
Shares of a particular Portfolio of the Trust shall be ordered in such
quantities and at such times as determined by the Company or its Administrator
to be necessary to meet the requirements of the Contracts. The Trustees of the
Trust (the "Trustees") 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 Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company or its Administrator on behalf of an
Account at the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 11:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading unless the Trust is not
required to calculate its net asset value on such a day pursuant to the rules of
the Securities and Exchange Commission ("SEC").
1.4 Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid for no later than 12:00 noon New York time on the
same Business Day that the Trust receives notice of the order. The Trust shall
use its best efforts to make payment for redemption orders transmitted to the
Trust in accordance with Section 1.3 by 3:00 p.m. New York time on the same
Business Day that the Trust receives notice of the order, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act.
Payments shall be made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company or its
Administrator, as specified by the Company, of any income dividends or capital
gain distributions payable on the Trust's shares prior to the payment of such
dividends. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company or its
Administrator, as specified by the Company, of the number of shares so issued as
payment of such dividends and distributions prior to the payment of such
dividends.
1.7 The Trust shall make the net asset value per share for each
Portfolio available to the Company or its Administrator, as specified by the
Company, on a daily basis every Business Day as soon as reasonably practical
after the net asset value per share is calculated and shall use its best efforts
to make such net asset value per share available by 6 p.m. New York time.
1.8 The Trust and the Adviser agree that the Trust's shares will be
sold only to Participating Insurance Companies and their separate accounts and
to certain qualified pension and retirement plans to the extent permitted by the
Exemptive Order. No shares of any Portfolio will be sold directly to the general
public. The Company agrees that Trust shares will be used only for the purposes
of funding the Contracts and Accounts listed in Schedule A, as amended from time
to time.
<PAGE>
1.9 The Trust and the Adviser agree that all Participating Insurance
Companies shall have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding to those contained in Section 2.8
and Article IV of this Agreement.
1.10 If the Trust provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Trust shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II
Obligations of the Parties
2.1 The Trust and the Adviser shall prepare and be responsible for
filing with the Securities and Exchange Commission and any state regulators
requiring such filing all shareholder reports, notices, proxy materials (or
similar materials such as voting instruction solicitation materials),
prospectuses, statements of additional information, and fund profiles (upon the
adoption of Rule 498 under the 1933 Act) of the Trust. The Trust shall bear the
costs of registration and qualification of its shares, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the current
prospectus, annual report, semi-annual report, fund profiles and other
shareholder communications, including any amendments or supplements to any of
the foregoing, for the Trust's Portfolios in which the Accounts invest, as the
Company shall reasonably request; or (b) provide the Company with a camera ready
copy of such documents in a form suitable for printing. The Trust shall provide
the Company with a copy of its statement of additional information in a form
suitable for duplication by the Company. The Trust (at its expense) shall
provide the Company with copies of any Trust-sponsored proxy materials in such
quantity as the Company shall reasonably require for distribution to Contract
owners.
2.3 The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
shall bear the costs of distributing proxy materials (or similar materials such
as voting solicitation instructions) to Contract owners. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4 The Company agrees and acknowledges that the Adviser is the sole
owner of the name and mark "Janus" and that all use of any designation comprised
in whole or part of Janus (a "Janus Mark") under this Agreement shall inure to
the benefit of the Adviser. Except as provided in Section 2.5, the Company shall
not use any Janus Mark on its own behalf or on behalf of the Accounts or
Contracts in any registration statement, advertisement, sales literature or
other materials relating to the Accounts or Contracts without the prior written
consent of the Adviser. Upon termination of this Agreement for any reason, the
Company shall cease all use of any Janus Mark(s) as soon as reasonably
practicable except with respect to shares of the Trust that continue to be made
available to Contract owners in accordance with Section 6.2.
2.5 The Company shall furnish, or cause to be furnished, to the Trust
or its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or the Adviser is named prior to the filing of
such document with the Securities and Exchange Commission. The Company shall
furnish, or shall cause to be furnished, to the Trust or its designee, each
piece of sales literature or other promotional material in which the Trust or
the Adviser is named, at least fifteen Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
the Adviser in connection with the sale of the Contracts other than information
or representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee.
2.7 The Trust and the Adviser shall not give any information or make
any representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state
insurance laws that restrict the Portfolios' investments or otherwise affect the
operation of the Trust and shall notify the Trust of any changes in such laws.
ARTICLE III
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of North
Carolina and that it has legally and validly established each Account as a
segregated asset account under such law.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests
in the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued in compliance in all material respects with all applicable federal and
state laws and the Company represents and warrants that it will make every
effort to see that the Contracts are 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.
3.4 The Trust and the Adviser represent and warrant that the Trust is
duly organized and validly existing under the laws of the State of Delaware.
<PAGE>
3.5 The Trust and the Adviser represent and warrant that the Trust
shares offered and sold pursuant to this Agreement will be registered under the
1933 Act and the Trust shall be registered under the 1940 Act prior to any
issuance or sale of such shares. The Trust shall amend its registration
statement 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 Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.6 The Trust and the Adviser represent and warrant that the
investments of each Portfolio will comply with the diversification requirements
set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder, that the Trust and Adviser will notify
the Company immediately upon having a reasonable basis for believing that the
Trust or any Portfolio has ceased to meet such diversification requirements and
will immediately take steps to adequately diversify the Trust and/or Portfolio
to achieve compliance within the grace period afforded by Treas. Reg. Section
1.817-5.
3.7 the Trust and the Adviser represent and warrant that the Trust and
each Portfolio is currently qualified as a regulated investment company under
Subchapter M of the Code, that they will maintain that qualification and that
they will notify the Company immediately upon having a reasonable basis for
believing that the Trust has ceased to qualify or may not qualify in the future.
ARTICLE IV
Potential Conflicts
4.1 The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. 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 contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not 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 change; and (b) establishing a new registered
management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
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 Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 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 Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform 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
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
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 Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform 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 Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8 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 Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Trust 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.
ARTICLE V
Indemnification
5.1 Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust, the Adviser, and each of their Trustees, Directors,
officers, employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively, "Company Documents"
for the purposes of this Article V), 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 indemnity 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 was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) 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
statement or omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from 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 of this Agreement
by the Company.
5.2 Indemnification By the Trust and the Adviser. The Trust and the
Adviser agree to indemnify and hold harmless the Company and each of its
directors, officers, employees and agents and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust or the Adviser) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses:
<PAGE>
(a) 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 for the Trust (or any amendment or
supplement thereto), (collectively, "Trust Documents" for the purposes
of this Article V), 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 indemnity 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 was accurately
derived from written information furnished to the Trust by or on behalf
of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Trust or
Adviser or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents 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 statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Trust or the Adviser;
or
(d) arise out of or result from any failure by the Trust or
the Adviser to provide the services or furnish the materials required
under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Adviser in this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification or Sub-Chapter M
requirements of Article III of this Agreement) or arise out of or
result from any other material breach of this Agreement by the Trust or
the Adviser.
(f) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value per
share or dividend or capital gain distribution rate.
5.3 Neither the Company nor the Trust or the Adviser shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against an Indemnified Party that
arise from 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.
5.4 Neither the Company nor the Trust or the Adviser shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the other party in writing within a reasonable time
after the summons, or other first written notification, giving information of
the nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified 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.
ARTICLE VI
Termination
6.1 This Agreement may be terminated
(a) by any party for any reason by ninety (90) days' advance
written notice delivered to the other parties.
(b) at the option of the Company to the extent that the
Portfolios are not reasonably available to meet the requirements of the
Contracts or are not "appropriate funding vehicles" for the Contracts,
as reasonably determined by the Company. Without limiting the
generality of the foregoing, the Portfolios would not be "appropriate
funding vehicles" if, for example, such Portfolios did not meet the
diversification or other requirements referred to in Article III
hereof; or if the Company would be permitted to disregard Contract
owner voting instructions pursuant to Rule 6e-2 or 6e-3(T) under the
1940 Act. Prompt notice of the election to terminate for such cause and
an explanation of such cause shall be furnished to the Trust by the
Company; or
(c) at the option of the Trust or the Adviser upon institution
of formal proceedings against the Company by the NASD, the SEC, or any
insurance department or other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts,
the operation of the Accounts, or the purchase of the shares of the
Portfolios; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body
regarding the Trust's or the Adviser's duties under this Agreement or
related to the sale of the shares of the Portfolios; or
(e) at the option of the Company, the Trust or the Adviser
upon receipt of any necessary regulatory approvals and/or the vote of
the Contract owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment company for
the corresponding Portfolio shares in accordance with the terms of the
Contracts for which those Portfolio shares had been selected to serve
as the underlying investment media. The Company will give thirty (30)
days' prior written notice to the Trust of the date of any proposed
vote or other action taken to replace the Portfolio shares; or
(f) termination by either the Trust or the Adviser by written
notice to the Company, if either one or both of the Trust or the
Adviser respectively, shall determine, in their sole judgment exercised
in good faith, that the Company has suffered a material adverse change
in its business, operations, financial condition, or prospects since
the date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Trust
and the Adviser, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or the Adviser has suffered a
material adverse change in this business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
6.2 Notwithstanding any termination of this Agreement, the Trust and
the Adviser shall, at the option of the Company, continue to make available
additional shares of the Trust (or any Portfolio) pursuant to the terms and
conditions of this Agreement for all Contracts in
<PAGE>
effect on the effective date of termination of this Agreement, provided
that the Company continues to pay the costs set forth in Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
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 party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Adviser:
Janus Capital Corporation
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Transamerica Life Insurance and Annuity Company
1150 South Olive Street
Los Angeles, California 90015
Attention: Corporate Secretary
<PAGE>
ARTICLE VIII
Miscellaneous
8.1 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.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 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.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of North
Carolina.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., 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.
8.7 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.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
JANUS ASPEN SERIES
By:
Name:
Title:
JANUS CAPITAL CORPORATION
By:
Name:
Title:
TRANSAMERICA LIFE INSURANCE AND
ANNUITY COMPANY
By:
Name:
Title:
<PAGE>
-17-
N:\BMH\JAS\TRANSAME\PARTAGT.TLI
Schedule A
Separate Accounts and Associated Contracts
Contracts Funded
Name of Separate Account By Separate Account
Separate Account VA-6 TCG-311-197
-------------
TCG-313-197
<PAGE>
4
THIS AGREEMENT, made and entered into as of the 15th day of
December , 1997 by and among TRANSAMERICA LIFE INSURANCE AND ANNUITY
COMPANY (hereinafter the "Company"), a North Carolina corporation, 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"), and
MORGAN STANLEY UNIVERSAL FUNDS, INC. (hereinafter the "Fund"), a
Maryland corporation, and MORGAN STANLEY ASSET MANAGEMENT INC. and
MILLER ANDERSON & SHERRERD, LLP (hereinafter collectively the
"Advisers" and individually the "Adviser"), a Delaware corporation and
a Pennsylvania limited liability partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Contracts enter into
participation agreements with the Fund and the Advisers (the "Participating
Insurance Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto (each such series hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product 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 Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each 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, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
in the Portfolios, set forth in Schedule B attached to this Agreement, to fund
certain of the aforesaid Variable Insurance Products and the Underwriter is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Purchase of Fund Shares
1.1. The Fund agrees to make available for purchase by the Company
shares of the Fund and shall execute orders placed for each Account on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of such order. For purposes of this Section 1.1, the Company or its
administrator shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall 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. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading.
1.2. The Fund, so long as this Agreement is in effect, agrees to make
its shares available indefinitely for purchase at the applicable net asset value
per share by the Company and its Accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission and the Fund shall use reasonable efforts to 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 permit the Fund 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 Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, V,VI, VII and Section 2.5 of Article II of
this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on 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 by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company or its administrator shall be the designee of the Fund
for receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Variable Insurance
Products issued by the Company, under which amounts may be invested in the Fund
(hereinafter the "Contracts"), are listed on Schedule A attached hereto and
incorporated herein by reference, as such Schedule A may be amended from time to
time by mutual written agreement of all of the parties hereto. The Company will
give the Fund and the Adviser 45 days written notice of its intention to make
available in the future, as a funding vehicle under the Contracts, any other
investment company.
1.7. The Company shall pay for Fund shares 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.
For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
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.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company or its administrator of any
income, dividends or capital gain distributions payable on the Fund's shares.
The Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company or its administrator, as directed by the Company,
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
Portfolio available to the Company or its administrator, as directed by the
Company, on a daily basis as soon as reasonably practical after the net asset
value per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
its best efforts to make such net asset value per share available by 7:00 p.m.
Eastern time.
1.11. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company or its administrator
shall be entitled to an adjustment with respect to the Fund shares purchased or
redeemed to reflect the correct net asset value per share. The determination of
the materiality of any net asset value pricing error shall be based on the SEC's
recommended guidelines regarding such errors. The correction of any such errors
shall be made at the Company level and shall be made pursuant to the SEC's
recommended guidelines. Any material error in the calculation or reporting of
net asset value per share, dividend or capital gain information shall be
reported promptly upon discovery to the Company.
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 in
compliance in all material respects with all applicable federal and state laws.
The Company represents and warrants that it will make every effort to ensure
that the Contracts are sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the Contracts comply in
all material respects with 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 prior to any issuance or sale thereof as a segregated
asset account under North Carolina Law and has registered or, prior to any
issuance or sale of the Contracts, will register each 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.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and state securities laws 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. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3 The Fund and each Adviser represents with respect to the Portfolios
for which it acts as investment adviser, that the Portfolios to which this
agreement applies are currently qualified as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), that the Portfolios will maintain such qualification (under Subchapter
M or any successor or similar provision) and that they 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.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under Sections 7702, 7702A or 72,
their amendments and successors thereto, of the Code and that it will maintain
such treatment and that it will notify the Fund 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.
2.5.. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
2.7. The Fund represents 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.
2.8. Each Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall 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 blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy
Statements; Voting
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus (relating to the Portfolios) and
statement of additional information as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies the Fund shall
provide camera-ready film or computer diskettes containing the Fund's prospectus
(relating to the Portfolios) and statement of additional information, and such
other assistance as is reasonably necessary in order for the Company once each
year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus (relating to the Portfolios) printed
together in one document, and to have the statement of additional information
for the Fund and the statement of additional information for the Contracts
printed together in one document. Alternatively, the Company may print the
Fund's prospectus and/or its statement of additional information in combination
with other fund companies' prospectuses and statements of additional
information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses and statements of additional information
shall be the expense of the Company. For prospectuses and statements of
additional information provided by the Company to its existing owners of
Contracts who currently own shares of one or more of the Fund's Portfolios, in
order to update disclosure as required by the 1933 Act and/or the 1940 Act, the
cost of printing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus, the Fund will reimburse the Company in an amount equal to
the product of x and y where x is the number of such prospectuses distributed to
owners of the Contracts who currently own shares of one or more of the Fund's
Portfolios, and y is the Fund's per unit cost of typesetting and printing the
Fund's prospectus. The same procedures shall be followed with respect to the
Fund's statement of additional information. The Company agrees to provide the
Fund or its designee with such information as may be reasonably requested by the
Fund to assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those actually
distributed to existing owners of the Contracts.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract
owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions
have been received in the same proportion as
Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. 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 Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
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 or 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 Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.8. The Fund shall use reasonable efforts to provide Fund
prospectuses, reports to shareholders, proxy materials and other Fund
communications (or camera-ready equivalents) to the Company sufficiently in
advance of the Company's mailing dates to enable the Company to complete, at
reasonable cost, the printing, assembling and/or distribution of the
communications in accordance with applicable laws and regulations.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within ten Business Days after receipt
of such material. The Fund and the Adviser(s) shall use their best efforts to
review any such material within five Business Days of receipt from the Company.
4.2. The Company shall 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 or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s)
is named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material. The Company shall use its best
efforts to review any such material within five Business Days of receipt from
the Fund or the Fund's designee.
4.4. The Fund and the Advisers shall not give any information or make
any representations 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 or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
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, which are relevant
to the Company or the Contracts.
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 investment
in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: 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), 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 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 registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6.1. The Advisers and the Fund each represent and warrant that they
will at all times invest money from the Contracts in such a manner as to ensure
that the Contracts will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will at all times comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5, and Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify immediately the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 817-5.
ARTICLE VII. Potential Conflicts
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) 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 Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
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 Board. The Company will assist the Board in carrying
out its responsibilities under the 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 the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the 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 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 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 policy
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 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 the Company to disregard contract owner 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 affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); 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.
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 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 Board.
Until the end of the foregoing six month period, the Underwriter and 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 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. The Company 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 Contract owners materially adversely affected by the
irreconcilable material conflict.
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 Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the 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 3.4, 3.5, 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.
<PAGE>
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and officers, and each Adviser and each director and
officer of each Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including 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 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 for the Contracts or
contained in the Contracts or sales literature 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 to the Company by or on behalf of the Fund for use
in the registration statement or prospectus 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
(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 of the
Fund not supplied by the Company, or persons under its control
and other than statements or representations authorized by the
Fund or an Adviser) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature 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 and in conformity with
information furnished to the Fund by or on behalf of the
Company; or
(iv) 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
(v) arise out of or result from 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 of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
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.
8.1(c). The Company 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 Company 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 Company of any such claim
shall not relieve the Company 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. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Company to such party of
the Company'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 Company 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
the Company 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 Advisers
8.2(a). Each Adviser agrees, with respect to each
Portfolio that it manages, to indemnify and hold harmless the
Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes
of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement
with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, 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 shares
of the Portfolio that it manages 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
sales literature 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 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 to the Fund by or on behalf of the
Company for use in the registration
statement or prospectus for the Fund or in
sales literature (or any amendment or
supplement) or otherwise for use in
connection with the sale of the Contracts or
Portfolio 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 for the Contracts not
supplied by the Fund or persons under its
control and other than statements or
representations authorized by the Company)
or unlawful conduct of the Fund, Adviser(s)
or Underwriter or persons under their
control, with respect to the sale or
distribution of the Contracts or Portfolio
shares; or
(iii) arise out of or as a result of
any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales
literature 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 to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any
failure by the Fund 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 the Adviser in this
Agreement or arise out of or result from any
other material breach of this Agreement by
the Adviser (including a failure, whether
unintentional or in good faith or otherwise,
to comply with the diversification
requirements of Article IV or the Subchapter
M qualification of Section 2.3 of this
Agreement); as limited by and in accordance
with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.2(c). An 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. 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 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). The Company 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
each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold
harmless the Company, and each of its directors and officers
and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.3) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the
Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or
any member thereof, 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; 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 (including a
failure, whether unintentional or in good
faith or otherwise, to comply with the
diversifictation requirements of Article IV
or the Subchapter M qualification of Section
2.3 of this Agreement);
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
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 the Fund 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.
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 also shall 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). The Company agrees promptly to notify the
Fund of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in
connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
<PAGE>
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 York.
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 Securities
and Exchange Commission may grant (including, but not limited
to, the Shared Funding Exemptive Order) and the terms hereof
shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by
ninety (90) days advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio based
upon the Company's determination that shares of such Portfolio
is not reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio in the
event any of the 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
the Company; or
(d) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio falls to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund by written notice
to the Company if the Fund shall determine, in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity, or
(g) termination by the Company by written notice to
the Fund and the Adviser, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Adviser has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Adviser by written
notice to the Company, if the Company gives the Fund and the
Adviser the written notice specified in Section 1.6 hereof and
at the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five 45 days after
the notice specified in Section 1.6 was given.
10.2. Notwithstanding any termination of this
Agreement, the Fund shall 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 shall be permitted to direct
reallocation of investments in the Fund, redemption of
investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 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.
10.3. The Company shall not redeem Fund shares
attributable to the Contracts (as distinct from Fund shares
attributable to the Company's assets held in the Account)
except (i) as necessary to implement Contract Owner initiated
or approved transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal
precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an
order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Fund the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the
Fund) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the
Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund 90
days prior written notice of its intention to do so.
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
party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Secretary
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Transamerica Life Insurance and Annuity Company
1150 South Olive Street
Los Angeles, California 90015
Attention: Corporate Secretary
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 Board, officers, agents
or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
12.2. 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 until such time as it may come into
the public domain without the express written consent of the
affected party.
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
shall constitute one and the same instrument.
12.5. 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.
12.6. Each party hereto shall cooperate with each
other party and all appropriate governmental authorities
(including without limitation the Securities and Exchange
Commission, the National Association of Securities Dealers 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 California Insurance Commissioner with any
information or reports in connection with services provided
under this Agreement which such Commissioner may request in
order to ascertain whether the insurance operations of the
Company are being conducted in a manner consistent with the
California Insurance Regulations and any other applicable law
or regulations.
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; provided,
however, that an Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company
under common control with the Adviser, if such assignee is
duly licensed and registered to perform the obligations of the
Adviser under this Agreement.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following
reports:
(a) the Company's annual statement (prepared
under statutory accounting principles) and annual
report (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of each
fiscal year;
(b) the Company's quarterly statements
(statutory) (and GAAP, if any), as soon as practical
and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy
statement, notice or report of the Company sent to
stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without
exhibits) and financial reports of the Company filed
with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after
the filing thereof;
(e) any other report submitted to the
Company by independent accountants in connection with
any annual, interim or special audit made by them of
the books of the Company, as soon as practical after
the receipt thereof.
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 above.
<PAGE>
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY
By: ______________________________
Name:
Title:
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: ______________________________
Name:
Title:
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
Name:
Title:
MILLER ANDERSON & SHERRERD, LLP
By: ______________________________
Name:
Title:
<PAGE>
PartTrans.doc
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account Form Number and Name of Contract Funded by Separate
-------------------
Account
Sep Acct VA-6
Variable Annuity - Products A, B and C
(A) Policy Form No. TCG - 311-197
(B) Policy Form No. - Not yet assigned
(C) Policy Form No. TCG - 313-197
A-1
<PAGE>
SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY
UNIVERSAL FUNDS, INC.
Fixed Income Portfolio
High Yield Portfolio
International Magnum Portfolio
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to
call in the number of Customers to the Fund , as soon as possible, but
no later than two weeks after the Record Date.
. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
C-1
. name (legal name as found on account registration)
. address
. fund or account number
. coding to state number of units
. individual Card number for use in tracking and verification of
votes (already on Cards as
printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
. During this time, the Fund will develop, produce and pay for the Notice
of Proxy and the Proxy Statement (one document). Printed and folded
notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by
the Company). Contents of envelope sent to Customers by the Company
will include:
. Voting Instruction Card(s)
. One proxy notice and statement (one document)
. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that
requests Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by the
Fund.)
. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
C-2
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance
company's internal procedure and has not been required by the Fund in
the past.
. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, if the account registration is under "John A.
Smith, Trustee," then that is the
exact legal name to be printed on the Card and is the signature needed
on the Card.
. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important
that the Fund receives the tabulations stated in terms of a percentage
and the number of shares.) The
Fund must review and approve tabulation format.
. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 a.m. Eastern time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
C-3
. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
C-4
<PAGE>
PARTICIPATION AGREEMENT
Among
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
and
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY
DATED AS OF
DECEMBER 15, 1997
PartTran.doc
<PAGE>
<PAGE>
10
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY
And
OCC DISTRIBUTORS
And
OpCap Advisors
THIS AGREEMENT, made and entered into this 18th day of
December, 1997, by and among Transamerica Life Insurance and Annuity Company, a
North Carolina Corporation (hereinafter the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement, as may be amended from time to time (each account referred to as the
"Account"), OCC ACCUMULATION TRUST, an open-end diversified management
investment company organized under the laws of the State of Massachusetts
(hereinafter the "Fund"), OpCap Advisors (hereinafter the "Adviser") and OCC
DISTRIBUTORS, a Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end
diversified, management investment company and was established for the purpose
of serving as the investment vehicle for separate accounts established for
variable life insurance contracts and variable annuity contracts to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, beneficial interests in the Fund are divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated February 22, 1995 (File No. 812-9290), granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief 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 separate accounts and variable life insurance
separate accounts of both affiliated and unaffiliated Participating Insurance
Companies and qualified pension and retirement 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 its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain
variable annuity or life insurance contracts (the "Contracts") under the 1933
Act; and
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company under the insurance laws of the State of North Carolina, to set
aside and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act;
and
WHEREAS, the Underwriter is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934, as amended (hereinafter the
"1934 Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios named
in Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as the Account
at net asset value;
WHEREAS, the Company may contract with an Administrator to
perform certain services with regard to the Contracts and, therefore, certain
obligations and services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those
shares of the Fund which the Company or its Administrator orders on behalf of
the Account, executing such orders on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its agent of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company or its
Administrator shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall 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. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading.
1.2. The Company shall pay for Fund shares on the next
Business Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by Participating
Insurance Companies and their separate accounts each Business Day; provided,
however, that the Board of Trustees of the Fund (hereinafter the "Directors")
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 Directors, acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the
Fund shall 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 shall be sold to the general public.
1.5. The Fund and the Underwriter shall not sell Fund shares
to any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VI and VII of this
Agreement are in effect to govern such sales. The Fund shall make available upon
written request from the Company (i) a list of all other Participating Insurance
Companies and (ii) a copy of the Participation Agreement executed by any other
Participating Insurance Company.
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 or its Administrator
shall be the designee of the Fund for receipt of requests for redemption from
each Account and receipt by such designee shall 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 shall 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 except that 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 under Section 22(e) of the 1940 Act.
Neither the Fund nor the Underwriter shall bear any responsibility whatsoever
for the proper disbursement or crediting of redemption proceeds to Contract
owners; the Company alone shall 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 Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
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.
1.9. The Fund shall furnish notice to Company or its
Administrator by Company, two days prior to the distribution of any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Portfolio shares in the form of additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such dividends and distributions in cash. The Fund shall notify the Company
of the number of shares so issued as payment of such dividends and distributions
the day of distribution when it reports the Portfolio's NAV pursuant to Section
1.10.
1.10. The Fund shall report the net asset value per share for
each Portfolio to the Company or its Administrator, as directed by Company, on a
daily basis as soon as reasonably practical after the net asset value per share
is calculated and shall use its best efforts to make such net asset value per
share available by 5:30 p.m., Eastern Time, each business day. If the Fund
provides materially incorrect share net asset value information, the Fund shall
make an adjustment to the number of shares purchased or redeemed for the
Accounts to reflect the correct net asset value per share. Any material error in
the calculation or reporting of net asset value per share, dividend or capital
gains information shall be reported promptly upon discovery to the Company.
<PAGE>
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. 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 segregated asset account under applicable
state law and has registered each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as segregated investment
accounts for the Contracts, and that it will maintain such registration for so
long as any Contracts are outstanding. The Company shall 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 shall 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 life insurance or annuity
contracts under Sections 7702 or 72 of the Internal Revenue Code and that it
will maintain such treatment and that it will notify the Fund and the
Underwriter 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 Fund and Adviser represent and warrant that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and shall remain registered under the 1940 Act for as long as the Fund
shares are sold. 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. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund and Adviser represent and warrant that the Fund
and each of the Portfolios is currently qualified as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code, and that they will
maintain such qualification (under Subchapter M or any successor or similar
provision) (or correct any failure during the applicable grace period) and that
they 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.
2.5. The Fund represents that its investment objectives,
policies and restrictions comply with applicable state investment laws as they
may apply to the Fund. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws and regulations of any
state. The Company alone shall be responsible for informing the Fund of any
insurance restrictions imposed by state insurance laws which are applicable to
the Fund. To the extent feasible and consistent with market conditions, the Fund
will adjust its investments to comply with the aforementioned state insurance
laws upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments
to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is a
member in good standing of the National Association of Securities Dealers, Inc.,
("NASD") and is registered as a broker-dealer with the SEC. The Underwriter
further represents that it will sell and distribute the Fund shares in
accordance with all applicable federal and state securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of Massachusetts and that it does and will
comply with applicable provisions of the 1940 Act.
2.9. The Underwriter and the Adviser represent and warrant
that Adviser is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund, Adviser and Underwriter represent and warrant
that all of their directors, 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.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, in an amount not less than $5 million. The aforesaid includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and agrees to notify the
Fund and the Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the
Company's expense, with as many copies of the current prospectuses for the
Portfolios listed on Schedule 2 as the Company may reasonably request for use
with prospective contractowners and applicants. The Underwriter shall print and
distribute, at the Fund's or Underwriter's expense, as many copies of said
prospectuses as necessary for distribution to existing contractowners or
participants. If requested by the Company in lieu thereof, the Fund shall
provide such documentation including a final copy of a current prospectus set in
type at the Fund's expense and other assistance as is reasonably necessary in
order for the Company at least annually (or more frequently if the said
prospectuses are amended more frequently) to have the new prospectus for the
Contracts and the Portfolios' new prospectuses printed together in one document.
In such case the Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with
copies of proxy material, if any, reports to shareholders and other
communications to shareholders with regard to the Portfolios listed in Schedule
2 in such quantity as the Company shall reasonably require and shall bear the
costs of distributing them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contract
owners or participants;
(ii) vote the Fund shares held in the Account in
accordance with instructions received from
contractowners or participants; and
(iii) vote Fund shares held in the Account for
which no timely instructions have been
received, in the same proportion as Fund
shares of such Portfolio for which
instructions have been received from the
Company's contractowners or participants;
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. 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. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or 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 interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or the Underwriter, each piece of sales literature or
other promotional material in which the Fund or the Fund's adviser or the
Underwriter is named, at least five business days prior to its use. No such
material shall be used if the Fund or the Underwriter reasonably objects in
writing to such use within fifteen business days after receipt of such material.
4.2. The Company shall 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 or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall 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 separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any
information or make any representations 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 or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to
contractowners or participants, or in sales literature or other promotional
material approved by the Company, except with the 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 or other
regulatory authorities.
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 or other regulatory authorities.
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),
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 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, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then, subject to obtaining any required exemptive orders
or other regulatory approvals, the Underwriter may make payments to the Company
or to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, 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, and 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.
5.3 Adviser will quarterly reimburse the Company certain of
the administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Contract owners of shares
of the Portfolios of the Fund, equal to 0.15% per annum of the average daily net
assets of the Fund attributable to variable life or variable annuity contracts
offered by the Company or its affiliates up to $300 million and 0.20% per annum
of the average daily net assets of the Fund attributable to such contracts in
excess of $300 million but less than $600 million and 0.25% per annum of the
average daily net assets of the Fund attributable to such contracts in excess of
$600 million. In no event shall such fee be paid by the Fund, its shareholders
or by the contract holders.
ARTICLE VI. Diversification
6.1. The Fund and the Adviser represent and warrant 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 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, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. 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 with the grace period
afforded by Treasury Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
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
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to 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. The Fund Board shall
record in its minutes or other appropriate records, all reports received by it
and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
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 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 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., variable annuity contractowners or variable life
insurance contractowners, 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 (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of contractowner voting instructions, and the
Company's judgment 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
such Account. Any such withdrawal and termination must take place within 60 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 60 day period the Underwriter and 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 particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state insurance
regulators, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement with respect to such Account. Any such withdrawal
and termination must take place within 60 days after the Fund gives written
notice to the Company that this provision is being implemented. Until the end of
such 60 day period the Underwriter and 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 Sections 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 or Quest Advisors 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 Contracts if
an offer to do so has been declined by vote of a majority of contractowners
materially adversely affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund
Board such reports, materials or data as the Fund Board may reasonably request
so that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Mixed and Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Fund Board.
7. 8. 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 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, (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 3.4, 3.5, 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 The Company
(a) The Company agrees to indemnify and hold harmless the
Fund, the Adviser, the Underwriter, and each of the Fund's or the Underwriter's
directors, officers, employees or agents and each person, if any, who controls
or is associated with the Fund or the Underwriter within the meaning of such
terms under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.1) against any and all losses, claims, 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:
(i) 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 therein or necessary to make
the
statements therein not misleading in light of the circumstances in which
they
were made; provided that this agreement to indemnify shall not apply as to
any
indemnified party if such statement or omission or such alleged statemen
or
omission was made in reliance upon and in conformity with
information
furnished to the Company by or on behalf of the Fund for use in
the
registration statement, prospectus or statement of additional information
for
the Contracts or in the Contracts or sales literature or other
promotional
material for the Contracts (or any amendment or supplement) 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 by or on behalf of the
Company (other than statements or
representations contained in the Fund
registration statement, Fund prospectus,
Fund statement of additional information or
sales literature or other promotional
material of the Fund not supplied by the
Company or persons under its control) 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
(iii)
arise out of any untrue statement or alleged untrue statement of a material
fact contained in the Fund registration statement, Fund prospectus, statement
of additional information 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 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
(iv) arise as a result of any failure by the
Company to provide the services and furnish
the materials or to make any payments under
the terms of this Agreement; or
(v) 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 shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such
loss, claim, damage, liability or litigation is due to the willful misfeasance,
bad faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company
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 Underwriter
(a) The Underwriter and Adviser, on their own behalf and on
behalf of the Fund, joint and severally agree to indemnify and hold harmless the
Company and each of its directors, officers, employees or agents and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws (collectively, the
"indemnified parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter or 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:
(i)
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 therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made; 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 to the Underwriter
or 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 or other promotional material 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
(ii)
arise out of or as a result of statements or representations (other than
statements or representations contained in the Contracts or in the Contract or
Fund registration statement, the Contract or Fund prospectus, statement of
additional information, or sales literature or other promotional material for
the Contracts or of the Fund not supplied by the Underwriter or the Fund or
persons under the control of the Underwriter or the Fund respectively) or
wrongful conduct of the Underwriter or the Fund or persons under the control
of the Underwriter or the Fund respectively, 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, statement of additional
information 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 in light of the circumstances
in which they were made, if such statement
or omission was made in reliance upon and in
conformity with information furnished to the
Company by or on behalf of the Underwriter
or the Fund or persons under the control of
the Underwriter or the Fund; or
(iv) 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 requirements and
procedures related thereto specified in
Article VI or the Sub-Chapter M
qualification specified in Section 2.4 of
this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty
made by the Underwriter or the Fund in this
Agreement or arise out of or result from any
other material breach of this Agreement by
the Underwriter or the Fund; or
(vi) arise out of or result from the materially
incorrect or untimely calculation or
reporting of the daily net asset value per
share or dividend or capital gain
distribution rate;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such
loss, claim, damage, liability or litigation is due to the willful misfeasance,
bad faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the
Underwriter of the commencement of any litigation or proceedings 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) shall
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 shall 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 shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under 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 indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall 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 shall 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 (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) 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 shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be 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 shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. Contribution
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
parties to this Agreement in connection with the offering of Fund shares to the
Account and the acquisition, holding or sale of Fund shares by the Account, or
if such allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
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
York.
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.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advanc
written notice to the other
parties unless otherwise agreed in a separate written agreement among the
parties; or
(b) at the option of the Company if shares of the
Portfolios delineated in Schedule
2 are not reasonably available to meet the requirements of the Contracts as
determined by the Company; or
(c) at the option of the Fund 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, which would have a material
adverse effect on the Company's ability to perform its obligations under this
Agreement; or
(d) at the option of the Company upon institution of
formal proceedings against the
Fund or the Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, which would have a material
adverse effect on the Fund's or the Underwriter's ability to perform its
obligations under this Agreement; or
(e) 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 Portfolio shares of the Fund in accordance with
the terms of the Contracts for which those Portfolio shares had been selected to
serve as the underlying investment media. The Company will give 30 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
(f) 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 (i) all
contractowners of variable insurance products of all separate accounts or (ii)
the interests of the Participating Insurance Companies investing in the Fund as
delineated in Article VII of this Agreement; or
(g) at the option of the Company 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 believes that the
Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails
to meet the diversification
requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement,
upon another party's material
breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company
determines in its sole judgment
exercised in good faith, that either the Fund or the Underwriter 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; or
(k) at the option of the Fund or Underwriter, if the
Fund or Underwriter respectively,
shall determine 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 Underwriter; or
(l) 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 shall be
effective immediately upon such occurrence without notice.
10.2. Notice Requirement
(a) In the event that any termination of this
Agreement is based upon the provisions
of Article VII, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions.
(b) In the event that any termination of this
Agreement is based upon the provisions
of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating the Agreement to the non-terminating parties, with said termination
to be effective upon receipt of such notice by the non-terminating parties.
(c) In the event that any termination of this
Agreement is based upon the provisions
of Sections 10.1(j) or 10.1(k), prior written notice of the election to
terminate this Agreement for cause shall be furnished by the party terminating
this Agreement to the non-terminating parties. Such prior written notice shall
be given by the party terminating this Agreement to the non-terminating parties
at least 30 days before the effective date of termination.
10.3. It is understood and agreed that the right to terminate
this Agreement pursuant to Section 10.1(a) may be exercised for any reason or
for no reason.
10.4. Effect of Termination
(a) Notwithstanding any termination of this
Agreement pursuant to Section 10.1 of
this Agreement, and subject to Section 1.3 of this Agreement, the Company may
require the Fund and the Underwriter to, continue to make available additional
shares of the Fund for so long after the termination of this Agreement as the
Company desires pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, 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 Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.4 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.
(b) If shares of the Fund continue to be made
available after termination of this
Agreement pursuant to this Section 10.4, the provisions of this Agreement shall
remain in effect except for Section 10.1(a) and thereafter the Fund, the
Underwriter, or the Company may terminate the Agreement, as so continued
pursuant to this Section 10.4, upon written notice to the other party, such
notice to be for a period that is reasonable under the circumstances but, if
given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated
or approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
90 days after the Company shall have notified the Fund or Underwriter of its
intention to do so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand, evidenced
by written receipt or by certified mail, return receipt requested, 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. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
[Name]
[Title]
[Co. Name]
[Address]
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
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, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party
hereto shall treat as confidential all information reasonably identified as such
in writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
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 shall constitute one and the
same instrument.
12.5. 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.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. 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 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.
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 trust 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 Portfolios of the Fund.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
Company:
TRANSAMERICA LIFE INSURANCE AND
ANNUITY COMPANY
SEAL By: ______________________________
Fund:
OCC ACCUMULATION TRUST
SEAL By: ______________________________
Underwriter:
OCC DISTRIBUTORS
By: ______________________________
Adviser:
OpCap Advisors
By:_______________________________
<PAGE>
Schedule 1
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Life Insurance and Annuity Company
and
OCC Distributors
The following separate accounts of Transamerica Life Insurance and
Annuity Company are permitted in accordance with the provisions of this
Agreement to invest in Portfolios of the Fund shown in Schedule 2:
Separate Account VUL-1
[Date]
<PAGE>
Schedule 2
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Life Insurance and Annuity Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
[Date]
Oppenheimer Capital Managed
Oppenheimer Capital Value Equity
<PAGE>
<PAGE>
(9) Administrative Agreements
PRODUCT DEVELOPMENT
AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT, effective this 1st day of November, 1997, by and between First
Allmerica Financial Life Insurance Company ("Allmerica Financial"), a life
insurance company organized and existing under the laws of the Commonwealth of
Massachusetts, with a principal place of business at 440 Lincoln Street,
Worcester, Massachusetts 01653 and Transamerica Occidental Life Insurance
Company ("Transamerica"), a life insurance company organized and existing under
the laws of the State of California, with a principal place of business at 1150
South Olive Street, Los Angeles, California 90015.
WHEREAS, Allmerica Financial, directly and through its affiliate, Allmerica
Financial Life Insurance and Annuity Company ("AFLIAC"), has developed and is
marketing various variable universal life insurance policy forms; and
WHEREAS, through such development and marketing efforts Allmerica Financial has
acquired significant expertise in developing, designing and servicing flexible
premium variable universal life insurance products; and
WHEREAS, through such development and marketing efforts Allmerica Financial has
also acquired significant expertise in obtaining necessary state regulatory
approvals for the sale of variable universal life insurance policies; and
WHEREAS, Transamerica and Allmerica Financial have agreed that Allmerica
Financial shall provide assistance to Transamerica in developing and bringing to
market a flexible premium variable universal life insurance policy (the
"Policy", collectively the "Policies") and certain related forms, as described
herein; and
WHEREAS, Transamerica and Allmerica Financial have also agreed that Allmerica
Financial shall contract with Transamerica to provide, on behalf of
Transamerica, Policy underwriting, claims, and Policy and other administrative
services;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
PRODUCT DEVELOPMENT
<PAGE>
- 35 -
1.01 Development of Policy Forms. Prior to the effective date of this
Agreement, Transamerica and Allmerica Financial jointly drafted the
standard Policy, Policy applications and Policy riders, which are
referred to herein collectively as the "Policy Forms". Such Policy
Forms are based on the AFLIAC Policy Forms listed on Schedule 1.01
hereto. Transamerica agrees that it approved the final drafts of the
standard Policy Forms prior to the effective date of this Agreement.
When required, Allmerica Financial shall appropriately modify the
standard Policy Forms for each jurisdiction in which the Policy Forms
will be offered for sale. Such modifications shall represent Allmerica
Financial's best judgment as to what changes to the Policy Forms will
be necessary in order to secure insurance department approval. Because
the Policy Forms include numerous changes requested by Transamerica
which differ from the original AFLIAC Policy Forms which are listed on
Schedule 1.01 hereto, it is understood and agreed by Transamerica that
Allmerica Financial makes no representation that the Policy Forms will
be approved for sale by any particular jurisdiction.
1.02 Policy Form Filings and Submission Dates. All insurance department
filings will be made by Allmerica Financial on behalf of Transamerica.
It is the intent of the parties that the Policy Forms will be filed
with all states of the U.S. except New York and also with the District
of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands and that
Transamerica will be responsible for all insurance department filing
fees, although such fees will be advanced by Allmerica Financial.
Transamerica agrees to reimburse Allmerica Financial for the amount of
any advanced filing fees within 30 days of receipt of a written request
for reimbursement. Transamerica understands and agrees that late
payments of such reimbursements shall be assessed a late payment charge
at the rate of 12% per annum.
Transamerica acknowledges that prior to the effective date of this
Agreement Allmerica delivered and Transamerica received and approved
the following:
(i) The Policy Forms in final print, the Actuarial
Memorandum and all related documents for filing with
the California Insurance Department,
(ii) Sample annual and quarterly statements and
illustration formats, and
(iii) The basic submission letter.
The parties shall comply with the following time frames and delivery
dates:
(a) Not later than the effective date of this Agreement,
Transamerica shall provide Allmerica Financial with the
following:
(i) Final product specifications for the Policy Forms.
The final product specifications are listed on
Schedule 1.02 hereto. The final product
specifications highlight the specifications which
vary from the corresponding AFLIAC Policy Forms,
(ii) A draft policy prospectus, and
(iii) Any other information deemed necessary by Allmerica
Financial for the filing of the Policy Forms which is
not to be prepared by Allmerica Financial.
(b) If Transamerica furnishes the materials described in
paragraph (a) to Allmerica Financial not
later than November 1, 1997, Allmerica Financial agrees
(i) to submit the Policy Forms to all
jurisdictions that do not require California's prior
approval prior to December 1, 1997 and
(ii) to submit the Policy Forms to all jurisdictions
requiring California approval within 10
business days from the date Allmerica Financial
receives notification of California's
approval. To expedite the Policy Form submission
process, Transamerica agrees to grant a
limited Power of Attorney to appropriate Allmerica
Financial personnel to enable them to sign
letters and other correspondence on behalf of Transamerica.
Notwithstanding the above, if Transamerica fails to deliver
the materials described in paragraph (a) by the agreed upon
delivery date or fails to obtain any necessary approvals by
California of the separate account or accounts offered as
funding choices under the Policy, Allmerica Financial cannot
guarantee insurance department submission by the agreed upon
deadlines. However, in the event of any such delay, Allmerica
Financial does agree to make such submissions within 30 days
following receipt of all necessary approvals and other
materials.
1.03 Development and Filing of Policy Prospectus and Registration Statement;
Separate Account State Regulatory Approvals. The parties understand and
agree that the Policy Prospectus and `40 Act Registration Statement
development, printing and filing with the SEC will be the
responsibility of Transamerica, which will also be responsible for all
SEC filing fees. Further, the parties understand and agree that
Transamerica is responsible for obtaining any necessary California
Insurance Department or other state regulatory approvals of the
separate account or accounts that will be offered as funding choices
under the Policy.
1.04 State Submission Follow-Up Assistance. After filing the insurance
department Policy Form submissions contemplated by this Agreement,
Allmerica Financial shall provide all necessary follow-up to insurance
department correspondence in a prompt manner in order to secure
insurance department approvals on behalf of Transamerica. However,
Allmerica Financial makes no representation that Policy Form approvals
will be obtained from all jurisdictions. Allmerica Financial
understands and agrees that Transamerica must approve all material
changes to Policy Forms requested or required by insurance departments.
Allmerica Financial agrees to provide Transamerica weekly written
status reports of the approval status of each state filing.
1.05 Product Development Compensation. For the services described in
Sections 1.01 through 1.04 of this Agreement, Transamerica agrees to
pay Allmerica Financial $840,000 for assistance in developing and
bringing to market the Policy Forms. The $840,000 fee shall be paid to
Allmerica Financial, as follows:
(i) $100,000 shall be paid to Allmerica Financial within five (5)
business days following the date of execution of this
Agreement;
(ii) $100,000 shall be paid to Allmerica Financial within ten (10)
business days after the date of final approval by Transamerica
of the Policy Forms;
(iii) $100,000 shall be paid to Allmerica Financial within ten (10)
business days of notice to Transamerica of Policy approval in
twenty (20) states; and
(iv) the remainder, $540,000, shall be paid by Transamerica in
monthly installments. Each monthly
installment shall be equal to $1.50 multiplied by the
number of Policies in force during the
month, including any Policies surrendered during the month
Such monthly installments shall
only be paid until Allmerica Financial has been paid its
remaining product development fee.
Except as provided below, if this Agreement is terminated for
any reason, including termination
by Transamerica for cause in accordance with Section
11.03 or 11.05, prior to Allmerica
Financial having been paid its total product development
fee of $840,000, Transamerica agrees
to pay the balance in one sum within 30 days following the
date of termination.
Notwithstanding the foregoing, Transamerica reserves the right to
withhold amounts payable to Allmerica Financial pursuant to clause (iv)
above without the payment of any late payment charge if, in good faith,
Transamerica concludes that Allmerica Financial has materially breached
its product development duties and responsibilities, as set forth in
Sections 1.01 through 1.04 hereof. Additionally, Transamerica reserves
the right, to the extent permitted by law, to offset amounts payable to
Allmerica Financial pursuant to clause (iv) above against any damages
payable to Transamerica as a result of a material breach of the
Agreement by Allmerica Financial resulting in Transamerica's
terminating the Agreement for cause pursuant to Section 11.03 or 11.05
hereof.
Transamerica shall not withhold or offset any amounts otherwise payable
to Allmerica Financial under this Section 1.05 unless and until (i)
Transamerica provides Allmerica Financial with written notice
describing in detail the basis for the withholding or offset, such
notice to be provided before the payment is due; (ii) the parties use
their best efforts to resolve any dispute that formed the basis for the
withholding or offset; (iii) in the event the dispute is not resolved
within 90 days, Transamerica immediately pays all amounts due under
this Section 1.05, regardless of the dispute, into an escrow account,
where such amounts shall remain until the dispute is resolved; and (iv)
the dispute is then submitted to binding arbitration, as provided in
Section 12.18 hereof.
Transamerica understands and agrees that, except as provided above,
late payments shall be assessed a late payment charge at the rate of
12% per annum.
1.06 Ownership of Policy Forms. Allmerica Financial hereby transfers all of
its right, title and interest in the Policy Forms, including the
actuarial basis for the Policy Forms, it has developed on behalf of
Transamerica, to Transamerica.
Allmerica Financial warrants that it is the sole developer of the
Policy Forms and, except to the extent that the Policy Forms utilize
Transamerica's logo or Policy provisions or other material provided by
Transamerica, Allmerica Financial warrants that neither the Policy
Forms nor any of their elements will violate or infringe upon any
patent, copyright, trade secret or other property right of any other
person. This warranty shall survive termination of this Agreement.
1.07 New Products, Product Enhancements, etc. At any time and from time to
time while this Agreement remains in force, Transamerica may request
that Allmerica Financial enhance, modify or otherwise change the Policy
Forms ("Product Changes") or develop new variable life insurance
products ("New Products"), including New Products to be developed for
sale in New York State. After receipt of any such request Allmerica
Financial agrees to negotiate in good faith with Transamerica the terms
and conditions (including compensation and delivery time frames) under
which Allmerica Financial shall develop and, if so requested, file with
the various insurance departments the requested Product Changes or New
Products.
Allmerica Financial agrees to promptly review any Product Change or New
Product request and to respond to such request in writing within 30
days of its receipt of the request. In negotiating with Transamerica
the terms and conditions under which Allmerica Financial will comply
with any such request, Allmerica Financial agrees to assign the same
priority to such request, if it concludes that it is able to
accommodate the request, as would be assigned in the event of a similar
Product Change or New Product request related to its own variable life
insurance business.
ARTICLE 2
SERVICES
2.01 In General. During the term of this Agreement, Allmerica Financial
shall provide Transamerica the Policy underwriting, issue, servicing,
claims, computer system and other Policy administrative services
described in detail in Schedule 2.01A, Section 2.02 and in Article 3
(collectively, the "Policy Services") in support of the Policies, the
specifications for which are listed on Schedule 1.02 hereto, subject to
the terms and conditions set forth in this Agreement. The performance
of Policy Services shall occur in three (3) phases described as
follows, in accordance with the schedule of events set forth in
Schedule 2.01B hereto. Throughout each such phase, the parties agree to
discharge their respective obligations as further specified herein. The
phases shall consist of:
(a) The Implementation Phase. This phase will consist of the
recruitment and hiring by Allmerica
--------------------------
Financial of any additional personnel deemed necessary by
Allmerica Financial to perform its
Policy Services obligations hereunder, personnel training
and the installation (including any
necessary modifications) by Allmerica Financial of the
Computer System (as defined in Section
3.01(a)) necessary for Allmerica Financial to perform Policy
Services, Computer System testing,
business workflow testing, financial control and
compliance testing and Allmerica
Financial/Transamerica systems interface testing and
implementation and delivery of the
Computer System, as described in Articles 3 and 8.
Allmerica Financial covenants and agrees that it will use its
best efforts to hire sufficient personnel and devote adequate
resources to meet the planned timetables set forth in this
Agreement.
(b) The Operational Phase. This phase will consist of
Allmerica's performance of Policy Services
-----------------------
utilizing the accepted Computer System, all Policy
Services to be accomplished in accordance
with the Service Standards listed on Schedule 2.01C
hereto. Whenever the parties have not
agreed to a Service Standard for a particular Policy
Service, Allmerica Financial agrees that
the Service shall be performed utilizing the same service
standard as is then applicable to its
own variable life insurance business, but in no event
shall such standard be less than
standards consistent with prudent administrative
practices in the life insurance industry
generally and with any applicable legal and regulatory
requirements.
If at any time Allmerica Financial's performance of a Policy
Service does not meet the applicable Service Standard listed
on Schedule 2.01C or described in the preceding paragraph,
Allmerica Financial shall use its best efforts to take
necessary curative actions to bring its performance into
compliance within thirty (30) days of Transamerica giving
Allmerica Financial written notice of its non-compliance.
Provided, however, that if the non-compliance occurs as a
result of an unanticipated event, such as an unanticipated
increase in new Policy sales above the projections set forth
below or an unanticipated level of Policy Service activity,
the parties understand and agree that even with Allmerica's
best efforts, it may not be possible to cure the problem
within such thirty (30) day period.
Projected New Policy Sales Year
$12.5 million 11/1/97 - 10/31/98
$22.0 million 11/1/98 - 10/31/99
$27.5 million 11/1/99 - 10/31/00
$35.0 million 11/1/00 - 10/31/01
(c) The Conversion Phase. Upon termination of this Agreement
for any reason (including a default
- ---------------------
by either party), Allmerica Financial and Transamerica shall promptly retur
all Property (as
defined in Section 3.01(d)) held by the other party, including, but not
limited to, data,
records, files, materials and supplies and computer software. A cooperative
conversion work
plan and program will be developed by Allmerica Financial and Transamerica
to accomplish the
transfer of records and other Property. Each party will work in good
faith to effect the
conversion and minimize the cost of business interruption resulting from
the conversion. If
and to the extent requested by Transamerica, during the Conversion Phase
Allmerica Financial
agrees to continue to provide Policy Services in accordance with the Service
Standards listed
on Schedule 2.01C hereto. If Policy Services are being provided during the
Conversion Phase,
Transamerica's rights under the Agreement to receive such Services and
Allmerica Financial's
obligations under the Agreement to provide such Services shall continue and
remain in effect on
the same basis and to the same extent as such rights and obligations
existed under the
Agreement prior to its termination, including Sections 4.02, 5.02, 5.03,
5.04, 6.02, 6.05,
6.06, 6.08, 6.10, 12.08 and 12.14. If Allmerica Financial continues to
provide Policy Services
during the Conversion Phase, Transamerica understands and agrees that it
will continue to
compensate Allmerica Financial for such Services as provided in Section
2.04 hereto, even if
the Agreement is being terminated by Transamerica for cause in accordance
with Sections 11.03
or 11.05 hereof. Notwithstanding Transamerica's rights under Section
2.04 to withhold or
offset amounts payable for Policy Services, Transamerica agrees not to
withhold or offset
compensation or reimbursements payable for Policy Services provided by
Allmerica during the
Conversion Phase.
All expenses incurred in connection with the return of
Property as a result of termination of this Agreement shall be
borne by the party requesting the termination; provided,
however, that if this Agreement is terminated by a party for
cause, then, except for each party's personnel costs and
expenses, which costs shall be borne by the party incurring
such costs and expenses, any costs or expenses incurred in
connection with any such return of Property shall be borne by
the defaulting party.
Upon completion of the Conversion Phase, each party shall
certify to the other that all records and other Property has
been returned to its owner.
2.02 Policy Underwriting. All Policy underwriting services shall be
performed by Allmerica Financial on behalf of Transamerica. Policies
shall be underwritten based upon Transamerica's underwriting criteria,
requirements and standards ("Underwriting Standards"). Transamerica's
Underwriting Standards relating to the Policies must be satisfactory to
Allmerica Financial, and cannot be changed without Allmerica
Financial's written consent, which consent shall not be unreasonably
withheld. Copies of Transamerica's underwriting manuals and other
relevant materials necessary for Allmerica Financial to perform its
Policy underwriting obligations hereunder shall be furnished to
Allmerica Financial at Transamerica's expense. Transamerica
underwriting personnel (to be specified by Transamerica) shall be made
available at Transamerica's expense to answer any questions that might
arise from Allmerica Financial's underwriters relating to
Transamerica's Underwriting Standards. Vendors used for medical
underwriting services must be acceptable to both parties. The costs of
medical underwriting shall be paid initially by Allmerica Financial.
One hundred percent of such costs shall be reimbursed by Transamerica.
Medical underwriting cost reimbursements shall be paid to Allmerica
Financial as provided in Section 2.04.
In addition to the foregoing, in the case of a proposed underwriting
declination, which declination is not clearly a medical decline
described in Transamerica's underwriting manual, Allmerica Financial
shall communicate the proposed declination to appropriate Transamerica
personnel who must agree with and approve the proposed declination
before the underwriting decision is finalized. Allmerica Financial will
communicate appropriate details of any proposed declination in
accordance with notification procedures to be jointly developed by the
parties. If no response is received within five (5) days of the
transmission, Allmerica Financial shall have the right to proceed on
the basis that Transamerica is in agreement with the decision to
decline the risk.
2.03 Policy Claims. All Policy claims processing services shall be performed
by Allmerica Financial on behalf of Transamerica. All Policy claims
shall be investigated, processed and paid in accordance with
Transamerica's claims processing rules and requirements. Copies of
Transamerica's claims manuals and other relevant materials necessary
for Allmerica Financial to perform its Policy claims investigation,
processing and payment obligations hereunder shall be furnished to
Allmerica Financial at Transamerica's expense. Transamerica claims
personnel (to be specified by Transamerica) shall be made available at
Transamerica's expense to answer any questions that might arise from
Allmerica Financial's claims personnel relating to the investigation,
processing or payment of Policy claims.
In addition to the foregoing, in the case of a decision by Allmerica
Financial that a Policy claim should be denied, Allmerica Financial
shall communicate its proposed action to appropriate Transamerica
personnel who must agree with and approve the proposed claim denial
before the claims decision is finalized. Allmerica Financial will
communicate appropriate details of any proposed Policy claim denial in
accordance with notification procedures to be jointly developed by the
parties. If no response is received within five (5) days of the
transmission, Allmerica Financial shall have the right to proceed on
the basis that Transamerica is in agreement with the decision to deny
the claim.
2.04 Compensation and Reimbursement for Policy Services. For the Policy
Services described in this Agreement, while this Agreement remains in
force Transamerica agrees to pay Allmerica the following amounts:
(a) Reimbursement of 100% of Policy medical underwriting costs,
as described in Section 2.02.
(b) A single one time per Policy issued charge of $166.67.
(c) A monthly policy charge for each policy in force during a
calendar month, including any Policies surrendered during the
month. The total monthly policy charge shall be $4.50.
Provided, however, that commencing with the third calendar
month following the month the first Policy is issued, the
minimum amount payable to Allmerica Financial under this
Subsection (c) shall be $10,000 per calendar month.
Compensation and reimbursements described in this Section 2.04 shall be
payable to Allmerica Financial on such basis and at such time or times
as shall be mutually agreeable to the parties. Provided, however, that
in no event shall compensation and reimbursements payable for a
calendar month be paid later than ten business days from the date of
receipt by Transamerica of Allmerica Financial's bill for the month.
Transamerica understands and agrees that, except as provided below,
late payments shall be assessed a late payment charge at the rate of
12% per annum.
Notwithstanding the foregoing, Transamerica reserves the right to
withhold amounts payable to Allmerica Financial pursuant to this
Section 2.04 without the payment of any late payment charge if, in good
faith, Transamerica disputes Allmerica Financial's right to receive
payment. Additionally, Transamerica reserves the right, to the extent
permitted by law, to offset amounts payable to Allmerica Financial
pursuant to this Section 2.04 against any damages payable to
Transamerica as a result of a material breach of the Agreement by
Allmerica Financial resulting in Transamerica's terminating the
Agreement for cause pursuant to Section 11.03 or 11.05 hereof.
Transamerica shall not withhold or offset any amounts otherwise payable
to Allmerica Financial pursuant to this Section 2.04 unless and until
(i) Transamerica provides Allmerica Financial with written notice
describing in detail the basis for the withholding or offset, such
notice to be provided before the payment is due; (ii) the parties use
their best efforts to resolve any dispute that formed the basis for the
withholding or offset; (iii) in the event the dispute is not resolved
within 90 days, Transamerica immediately pays all amounts then due
under this Section 2.04, regardless of the dispute, into an escrow
account, where such amounts shall remain until the dispute is resolved;
and (iv) the dispute is then submitted to binding arbitration, as
provided in Section 12.18 hereof.
ARTICLE 3
COMPUTER SYSTEM AND PROPRIETARY RIGHTS
3.01 Definitions. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Administrative Computer System" or "Computer System" shall
refer to all computer systems and related materials used by
Allmerica Financial to administer the Policies, including
Allmerica Financial proprietary software and third party
licensed software comprised of computer programs and
supporting documentation, including, but not limited to,
source code, object code input and output formats, program
listings, narrative descriptions and operating instructions
and shall include the tangible media upon which the computer
programs and supporting documentation are recorded as well as
the deliverable forms and documents.
Allmerica Financial's proprietary software and third party
licensed software used to administer the Policies shall be
listed in Schedule 3.01A attached hereto. Such Schedule shall
be updated from time to time to reflect the addition or
deletion of software used in the administration of the
Policies.
The Computer System shall support, administer and process
Transamerica's business and product requirements as outlined
in Schedules 2.01A and 2.01C.
(b) "Functional Outline Documents" shall mean the detailed
description of the functions and features being added to the
Computer System and those necessary changes to be made to the
Computer System, all in support of Transamerica and which are
included in this Agreement in Schedule 3.01B.
(c) "Specifications" shall mean Functional Outline Documents,
Policy Specifications, Policyholder Documents, Variable Life
Prospectus and Policy Forms, Schedules and Reports, as
described in Schedules 1.02, 2.01C and 3.01B.
(d) "Property" shall mean all property of either party including,
but not limited to, data records, materials, supplies,
computer software, customer records, premium information,
underwriting files, customer lists, sales data, policyholder
and insured data, data on agents, agencies and distribution
systems.
3.02 Computer System. The Computer System will be and remain the Property of
Allmerica Financial and Transamerica shall have no rights or interest
in the Computer System except as provided in this Agreement.
Modifications to the Computer System developed for Transamerica that
are mutually agreed to be proprietary to Transamerica shall not be
sold, licensed, transferred, assigned or otherwise distributed without
the express written consent of Transamerica.
(a) The Computer System currently uses the LIFE-COMM III
Computer System, licensed to Allmerica
Financial by CSC Continuum Inc., ("Continuum"), as successo
to Informatics, Inc., pursuant to
a License Agreement ("Licensed Software") dated October
15, 1976, as amended, and Allmerica
Financial warrants that it has the right to use the
Licensed Software to provide the Policy
Services described in this Agreement. Transamerica
understands and agrees that, at Allmerica
Financial's option, the Licensed Software or any
replacement software may be replaced at any
time and from time to time, at Allmerica Financial's
expense, with other suitable software of
Allmerica Financial's choice. Allmerica Financial
agrees that neither the Licensed Software
nor any replacement software shall be replaced without at
least six months' written notice to
Transamerica of the pending replacement.
In the event that Allmerica Financial decides to replace such
licensed software, Allmerica Financial agrees to test the
replacement software prior to its installation to be certain
that it will properly perform the Policy Services contemplated
by this Agreement. The testing standards and the testing
process for any such replacement software must be approved by
Transamerica.
(b) In order for Allmerica Financial to utilize the Licensed
Software to provide the Policy Services contemplated by this
Agreement, Transamerica agrees to execute a Non-Disclosure and
Non-Use Agreement with Continuum and First Allmerica, in the
form set forth in Schedule 3.02.
Allmerica Financial agrees to use its best efforts to convince
Continuum to enter into an agreement with Transamerica. Such
agreement shall provide, in substance, that should this
Agreement terminate for any reason prior to an agreed upon
date, then Continuum shall, at Transamerica's option, issue to
Transamerica, or to a Transamerica affiliate specified by
Transamerica, a license agreement to use the version of the
LIFE-COMM III Computer System then currently used to service
Transamerica's business. Any such agreement shall provide that
the fee for any such license shall not exceed the current
market price for the product. Allmerica Financial further
agrees that it shall not replace the LIFE-COMM III Computer
System with another computer system unless and until the
product vendor enters into a separate agreement with
Transamerica similar to the agreement with Continuum
contemplated by this provision.
In addition, (i) if Transamerica terminates this Agreement for
cause, as described in Section 11.03, or as a result of
Allmerica Financial's insolvency, as described in Section
11.05, or (ii) if Allmerica Financial chooses not to renew or
to terminate this Agreement (other than for cause), then, in
the case of any such event, Allmerica Financial further agrees
to grant Transamerica, at no cost to Transamerica, a license
with respect to all of the modifications and enhancements
Allmerica Financial has made to the LIFE-COMM III Computer
System, or any replacement thereof, which are necessary to
allow Transamerica to continue to provide the Policy Services
contemplated by this Agreement.
Notwithstanding the above, Transamerica understands and agrees
that in no event shall Allmerica Financial provide to
Transamerica during the term of this Agreement or any
extension thereto, access to Continuum proprietary software
source codes, technical design documentation, detailed
business or technical practices or techniques, Continuum
confidential correspondence or documentation.
Allmerica Financial agrees to identify and inventory all
confidential information of Continuum provided to Transamerica
under the terms of this Agreement and shall secure written
acknowledgment from an authorized Transamerica representative
of receipt of such property.
Allmerica Financial warrants that the Computer System is the
Property of Allmerica Financial and utilizes software
developed by or licensed to Allmerica Financial. Allmerica
Financial further warrants that the use of the Computer System
to provide the Policy Services contemplated by this Agreement
will not infringe upon or violate any patent, copyright, trade
secret or other proprietary right of any third party. These
warranties shall survive termination of this Agreement.
ARTICLE 4
CONFIDENTIALITY AND AUDIT RIGHTS
4.01 Confidentiality. Except as otherwise provided in this Agreement, all
information communicated by Transamerica to Allmerica Financial and by
Allmerica Financial to Transamerica shall be and is received in
confidence and shall be used only for purposes of this Agreement. No
such information shall be disclosed by Allmerica Financial, by
Transamerica or by their respective agents or employees without the
prior written consent of the non-disclosing party, except as may be
necessary by reason of legal, accounting, or regulatory requirements
beyond the reasonable control of the disclosing party. The provisions
of this Section 4.01 shall survive termination or expiration of this
Agreement for any reason.
Allmerica Financial and Transamerica each agree not to disclose to any
person, firm or corporation or to utilize or reproduce for their own
use any proprietary or confidential information concerning the business
or data of the other party which it may have acquired pursuant to or in
the course of the performance of its obligations under this Agreement.
Proprietary information shall include, but not be limited to, data,
marketing information and materials, sales data, customer lists,
financial plans, investment strategies, policyholder and insured data,
data on agents, agencies and distribution systems. The foregoing
notwithstanding, the following shall not be considered proprietary
information for purposes of this provision: (i) information publicly
available or generally known within the life insurance industry; (ii)
information obtained from other sources, to the knowledge of Allmerica
Financial or Transamerica, as the case may be, not under a duty of
confidentiality to Transamerica or Allmerica Financial with respect to
such information; and (iii) information that is developed or created
independently by either party without breach of this Agreement.
In addition to the foregoing, Allmerica Financial agrees that during
the term of this Agreement and thereafter it shall not, directly or
indirectly, or through any third party utilize confidential information
obtained pursuant to this Agreement to recruit or attempt to recruit
any Transamerica insurance agents, brokers, general agents or other
producers.
In addition to the foregoing, Transamerica agrees that during the term
of this Agreement and thereafter it shall not, directly or indirectly,
or through any third party utilize confidential information obtained
pursuant to this Agreement to recruit or attempt to recruit any
Allmerica Financial or AFLIAC insurance agents, brokers, general agents
or other producers.
4.02 Audit Rights. Allmerica Financial shall provide reasonable access
during normal business hours to any location from which Allmerica
Financial conducts its business and provides Policy Services to
Transamerica pursuant to this Agreement to auditors designated in
writing by Transamerica for the purposes of performing audits for
Transamerica. Transamerica shall give reasonable advance written notice
of an audit and include in that notice the matters which it will audit.
Allmerica Financial shall provide the auditors any assistance they may
reasonably require. Such auditors shall have the right during normal
business hours to audit any business record, activity, procedure or
operation of Allmerica Financial that is reasonably related to the
provision the Policy Services provided under this Agreement, including
the right to interview any Allmerica Financial personnel involved in
providing or supporting such Policy Services.
If Transamerica determines, following an audit, that errors have been
made in Allmerica Financial's records, procedures or operations,
Allmerica Financial will make prompt correction and forward evidence of
such corrections to Transamerica. Allmerica Financial will use its best
efforts to make all such corrections within thirty (30) business days.
ARTICLE 5
RECORDS AND DATA MAINTENANCE
5.01 Maintenance of Allmerica Financial Records. Allmerica Financial records
relating to Policies and the Policy Services provided under this
Agreement will be maintained at Allmerica Financial's principal
administrative office and at other storage facilities used for
maintenance of records relating to Allmerica Financial's variable life
insurance business. Such records shall be maintained: (i) in the case
of records relating to a particular Policy, while the Policy remains in
force and for a period of seven (7) years following termination of the
Policy and (ii) for all other such records, for the duration of this
Agreement and, for any records not transferred to Transamerica after
termination of this Agreement, for a period of seven (7) years
following such termination.
Notwithstanding the foregoing, voice recording tapes shall only be
maintained for one (1) year from the date of the call.
All such Allmerica Financial records will be maintained in accordance
with prudent standards of recordkeeping as required by state insurance
laws and regulations and the Investment Company Act of 1940, as well as
other federal and state securities laws and regulations.
5.02 Records and Data Management. Allmerica Financial shall:
(i) maintain all Policy paper-based files provided to Allmerica
Financial on behalf of Transamerica, including, but not
limited to, Policy applications, transaction documents and
authorizations, correspondence, beneficiary designations and
all other relevant Policy servicing documents;
(ii) maintain voice recording tapes for all telephone based service
requests. These tapes shall be maintained in a safe and secure
location;
(iii) maintain Policy machine sensible records, including values,
options, status and payments;
(iv) store Transamerica Computer System data under Allmerica
Financial's retention schedule, as mutually agreed upon, on
magnetic tapes and disc packs when in the possession or
custody of Allmerica Financial in accordance with the
confidentiality and security safeguards specified in this
Agreement. In the event a longer retention schedule is desired
by Transamerica, Allmerica Financial shall comply with such
requirements, and Transamerica shall reimburse Allmerica
Financial at an agreed upon rate for any additional costs
reasonably incurred by Allmerica Financial;
(v) maintain all records and files relating to Policies and Policy
Services as the Property of Transamerica and promptly return
such Property to Transamerica upon termination of this
Agreement, as provided in Subsection 2.01(c) hereof;
(vi) maintain all such records and files in an accessible and
useable form; and
(vii) not destroy any such records and files without the approval of
Transamerica and only after 30 days' written notice to
Transamerica of the proposed destruction.
5.03 Transamerica's Records. Transamerica's files, records, and documents
and the data contained therein shall be and remain Transamerica's
Property and shall be returned to Transamerica promptly upon request or
the expiration or termination of this Agreement or, with respect to any
particular data files and data, on the earlier date the data files and
data are no longer required by Allmerica Financial to provide services
to Transamerica pursuant to this Agreement. Transamerica's data is
confidential and proprietary and shall not be utilized by Allmerica
Financial for any purpose other than that of providing services to
Transamerica and shall not be disclosed, sold, assigned, leased or
otherwise disposed of or commercially exploited by or on behalf of
Allmerica Financial or its affiliates or their employees or agents
without the prior written consent of Transamerica.
At any time and from time to time, Transamerica may request Allmerica
Financial for copies of Transamerica's files, records and documents
then in the possession of Allmerica Financial. Unless prohibited by its
license agreement with Continuum or any other agreement with a software
vendor, Allmerica Financial shall promptly comply with any such request
for copies. Transamerica understands and agrees that any costs or
expenses, including personnel costs, incurred by Allmerica Financial in
complying with any such requests for copies shall be reimbursed by
Transamerica. Any such reimbursement shall be paid by Transamerica
within 30 business days of its receipt of a written request for
reimbursement.
5.04 Safeguarding Transamerica Data and Records. In order to properly
safeguard Transamerica data and records in its possession, Allmerica
Financial will establish and maintain full and complete safeguards no
less rigorous than those in effect at Allmerica Financial to protect
its own confidential data and records against destruction, loss,
alteration or unauthorized access.
ARTICLE 6
ALLMERICA FINANCIAL'S OBLIGATIONS
6.01 Implementation Duties and Responsibilities. Commencing on the Effective
Date, Allmerica Financial shall, in accordance with the time schedules
set forth in Article 1 and in Schedule 2.01B: (a) Develop the Policy
Forms and perform its additional duties and responsibilities as set
forth in
Article 1.
(b) Jointly develop with Transamerica the detail requirements and
specifications for each of the Functional Outline Documents to
be included in Schedule 3.01B. These documents will be the
detailed business specifications for all product and service
modifications. Allmerica Financial and Transamerica expect to
complete this task within six (6) weeks from the date the
Agreement is executed by both parties.
(c) Jointly develop with Transamerica the Computer System
interfaces to Transamerica's Home Office and Kansas City
Operational Center. The Allmerica Financial time frames for
completion of such interfaces will be negotiated by the
parties. Transamerica understands and agrees that, to the
extent compatible, Allmerica Financial intends to utilize file
formats currently in use in developing such interfaces.
(d) Modify and implement the Administrative Computer System as
necessary to support the Policy and Policy Services covered by
this Agreement. The time frames for Computer System
modification and implementation will be negotiated by the
parties.
(e) Develop illustration software and illustration formats to be
used with the Policy Forms, as more fully described in Section
6.04.
6.02 Computer System Operation. Upon the successful completion of acceptance
testing and the implementation of the Computer System, Allmerica
Financial shall provide Transamerica the following Computer System
services:
(a) Operate the Computer System and process Transamerica business
and data in accordance with Schedules 2.01A, 2.01B and 3.01B
to achieve the Service Standards called for in Schedule 2.01C.
In the event that the Service Standards in Schedule 2.01C are
not achieved, Allmerica Financial shall institute corrective
action, as described in Section 2.01(b), in order for such
standards to be achieved.
(b) Provide all necessary man-hours to install new releases of the
Computer System and maintain the Computer System in accordance
with the specifications and Functional Outline Documents set
forth in Schedules 2.01A, 2.01B and 3.01B by making routine
corrections and by accomplishing ordinary day-to-day changes
to the computer programs in the Computer System.
(c) Store Transamerica data, as provided in clause (iv) of Section 5.02
hereof.
(d) Use its best efforts to ensure that the Computer System is Year
2000 ready.
6.03 Computer System Maintenance, Changes and Enhancements. Allmerica
Financial agrees to maintain the Computer System in accordance with the
specifications and Functional Outline Documents set forth in this
Agreement at no additional cost to Transamerica. At any time and from
time to time while this Agreement remains in force Transamerica may
request that Allmerica Financial modify, enhance or otherwise make
changes to the Computer System ("System Changes") other than changes
required as part of Allmerica Financial's responsibility to perform
normal Computer System maintenance. After receipt of any such request,
Allmerica Financial agrees to negotiate in good faith with Transamerica
the terms and conditions (including compensation and delivery time
frames) under which Allmerica Financial shall develop and implement any
such requested Systems Change.
Allmerica Financial agrees to promptly review any Systems Change
request and to respond to such request in writing within 30 days of its
receipt of the request. In negotiating with Transamerica the terms and
conditions under which Allmerica Financial will comply with any such
request, Allmerica Financial agrees to assign the same priority to such
request, if it concludes that it is able to accommodate the request, as
would be assigned in the event of a similar Systems Change request
related to its own variable life insurance products.
6.04 Policy Illustrations. Allmerica Financial agrees to develop
illustration software to be used with the Policy Forms. Transamerica
understands and agrees that such software shall be substantially
similar to the illustration software currently used by Allmerica
Financial in its variable life insurance business. Allmerica Financial
agrees to finalize such illustration software within a mutually
agreeable time frame after the date the final specifications for the
Policy Forms are agreed to by the parties.
In addition to the foregoing, Allmerica Financial agrees to modify its
illustration software whenever modifications are necessary to comply
with any regulatory and/or statutory changes applicable to
illustrations used in connection with the sale and servicing of the
Policy Forms.
Allmerica Financial represents and warrants that illustrations produced
by such illustration software shall comply with all applicable state
and federal regulatory and statutory requirements. This warranty shall
survive termination of this Agreement.
6.05 Acknowledgment and Additional Responsibilities of Allmerica Financial.
Allmerica Financial shall have no authority, nor shall it represent
itself as having such authority, other than as specifically set forth
in this Agreement. Without limiting the generality of the foregoing
sentence, Allmerica Financial specifically agrees that it will not do
any of the following without the prior written consent of Transamerica:
(a) Litigation. Institute or prosecute any legal proceedings in
connection with any matter pertaining to the Policy Services
provided pursuant to this Agreement or Transamerica's business
or accept service of process on behalf of Transamerica.
(b) Alterations. Waive, amend, modify, alter, terminate or change
any term, provision or condition stated in any Policy Form or
discharge any contract in the name of Transamerica, except as
otherwise specifically provided in this Agreement.
(c) Advice to Policyholders/Prospective Policyholders. Offer tax,
legal, or investment advice to any Policyholder or prospective
Policyholder of Transamerica under any circumstances, with
respect to a Policy or the Policy Services provided pursuant
to this Agreement.
6.06 Cooperation. Allmerica Financial agrees to cooperate at all times with
Transamerica to ensure that the Policy Services provided pursuant to
this Agreement are provided properly to any Policyholder or prospective
Policyholder of Transamerica. Allmerica Financial shall use its best
efforts to comply with any and all written directives from Transamerica
for the correction of deficiencies or problems associated with
Allmerica Financial's performance of Policy Services or its obligations
hereunder (each, a "Correction Letter"). Such deficiencies or problems
shall include, without limitation, (i) Allmerica Financial's failure to
provide Policy Services in a timely manner, or (ii) Allmerica
Financial's failure to provide Policy Services in accordance with the
Service Standards specified in Schedule 2.01C. Allmerica Financial
shall use its best efforts to comply with a Correction Letter within
thirty (30) days of its receipt of the Letter (or such longer period as
shall be specified in the Correction Letter, in situations where it is
not reasonably possible to comply within such thirty (30) day period).
6.07 Notification of Service Deficiencies. Allmerica Financial shall
promptly notify Transamerica, in writing, of (i) any material
weaknesses relating to the provision of Policy Services under the
Agreement and (ii) any comment of a material nature made pursuant to a
regulatory examination relating to the provision of such Policy
Services. Written notification shall be provided within seven (7) days
of when Allmerica becomes aware, through written notification, of the
material weakness or regulatory comment. If Allmerica has not corrected
the material weakness or material problem that caused the regulatory
comment to the satisfaction of Transamerica within a time frame set
reasonably by Transamerica in writing and agreed to by Allmerica
Financial, Transamerica may then immediately terminate this Agreement
without prejudice to any of Transamerica's rights or remedies against
Allmerica Financial pursuant to Section 11.03 of this Agreement.
6.08 Administrative Services Provided. Allmerica Financial shall perform the
administrative services specified in Schedules 2.01A, 2.01B and 3.01B
within the time frames and Service Standards specified in Schedule
2.01C.
6.09 Records and Data Maintenance. Allmerica Financial shall provide the
records and data maintenance, management and other services described
in Article 5.
6.10 Personnel. Allmerica Financial shall use its best efforts to ensure
that adequate personnel are assigned to perform the services required
under this Agreement, to include a Project/Account Manager and the
staffing levels needed in order to achieve the Service Standards
specified in Schedule 2.01C.
Except for third party vendors used to service Allmerica Financial's
variable life insurance business, Transamerica's business will be
serviced only by employees of Allmerica Financial.
Before Allmerica Financial communicates any confidential information
described in Section 4.01 and relating to Transamerica to a vendor, the
vendor must execute a confidentiality agreement acceptable to
Transamerica.
ARTICLE 7
TRANSAMERICA'S OBLIGATIONS
7.01 Transamerica's Duties and Responsibilities. Transamerica shall:
(a) Assist Allmerica Financial in the development of the Policy
Forms and perform its additional duties and responsibilities
set forth in Article 1.
(b) Jointly develop with Allmerica Financial an implementation
plan and schedule as set forth in Schedule 2.01B.
(c) Provide designated Transamerica personnel dedicated to work
with Allmerica Financial personnel in the performance of this
Agreement and all other reasonable and necessary cooperation
and support.
(d) Develop business specifications and jointly develop with
Allmerica Financial the Functional Outline Documents.
(e) Provide all the requirements for the operation of the
Administrative Computer System at Transamerica's facilities
necessary for Computer System interfaces and output.
(f) Provide necessary input data for the operation of the Computer
System.
(g) Jointly develop with Allmerica Financial the interface
specifications for the Computer System and Transamerica
systems.
(h) Assist Allmerica Financial in the development of the
illustration software and formats described in Section 6.04.
(i) Make all necessary payments due under the terms of this Agreement.
ARTICLE 8
ACCEPTANCE TESTING
8.01 Contents. Allmerica Financial and Transamerica shall conduct tests of
the Computer System. The standard to be used to determine the
successful completion for all tests shall be the Computer System's
performance of the functions and features described in the Functional
Outline Documents set forth in Schedule 3.01B and the specifications
set forth in Schedules 1.02 and 2.01A. The testing standards and the
testing process must be approved by Transamerica, whose approval shall
not be unreasonably withheld.
8.02 Usability Testing. Allmerica Financial and Transamerica shall conduct
a joint usability test as follows:
(a) The test will be performed utilizing Allmerica Financial's existing
test environment.
(b) A test sample of Policies and business transactions shall be
determined and processed by Allmerica Financial and will be
made available to Transamerica for review.
(c) Allmerica Financial and Transamerica will jointly review the
test results to determine completeness, accuracy and
performance.
(d) Transamerica will process all Allmerica Financial generated
system interface files to determine successful use by internal
Transamerica systems.
(e) Allmerica Financial and Transamerica will evaluate overall
business and system processing flow for capability to meet
operational performance standards.
(f) Allmerica Financial and Transamerica will make all necessary
revisions to business and technical systems identified in the
usability test.
(g) In order to satisfy usability testing, the Computer System
must process all sample Policies and related transactions to
such standards as would be acceptable to Allmerica Financial
in the processing of AFLIAC's variable life insurance
business. Transamerica and Allmerica Financial must mutually
agree that usability testing has been successfully
accomplished. Transamerica and Allmerica Financial must also
mutually agree that usability testing has been performed with
true representation of Transamerica sales force illustration
and investment scenarios.
(h) In the event the usability testing has not been successfully
completed within six months from the Effective Date of this
Agreement, unless the parties agree to an extension,
Transamerica and Allmerica Financial shall proceed in
accordance with the provisions of Subsection 2.01(c) of this
Agreement.
ARTICLE 9
ADDITIONAL REPRESENTATIONS AND WARRANTIES
9.01 Corporate Authority, etc. Allmerica Financial represents and warrants:
(a) That it is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Massachusetts.
(b) That Allmerica Financial has the power and authority under the
laws of the Commonwealth of Massachusetts and under its
charter and by-laws to enter into and perform the Product
Development and Policy Services contemplated in this
Agreement.
(c) That all requisite corporate and other acts or proceedings
required to be taken to authorize the execution, delivery and
performance of this Agreement have been taken.
(d) That in performing the Policy Services contemplated in this
Agreement it will be in compliance with all applicable state
and federal laws and regulations and will use its best efforts
to perform the Policy Services in compliance with
Transamerica's policies and procedures that are designed to
achieve IMSA (Insurance Marketplace Standards Association)
certification.
(e) That it has and will use its best efforts to continue to have
and maintain the necessary facilities to perform Policy
Services in accordance with the provisions of this Agreement.
9.02 Survivability. The warranties provided for in this Article 9
shall survive termination of this
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Agreement.
ARTICLE 10
INDEMNITIES AND LIABILITY
10.01 Cross Indemnity. Each party shall indemnify, defend and hold harmless
the other, and the other's subsidiaries, parent and affiliates, from
and against any and all claims, actions, damages, liabilities, costs
and expenses (including reasonable attorneys' fees and expenses),
arising out of the death or bodily injury of any agent, employee,
customer, business invitee or business visitor of the indemnitor
occurring on premises under the control of the indemnitor or its parent
or one of its subsidiaries or affiliates.
10.02 Allmerica Financial Limitation of Liability; Indemnification by
Transamerica. Allmerica Financial, its subsidiaries, parent, affiliates
and its or their officers, directors, employees and agents
(collectively "Allmerica Indemnitees") shall not be responsible for,
and Transamerica shall indemnify and hold harmless Allmerica
Indemnitees from and against any and all claims, demands, losses,
damages, charges, costs, expenses (including reasonable attorneys' fees
and expenses), judgments, awards and settlements, including any
punitive, consequential, special or indirect damages (herein "Losses")
arising out of or attributable to:
(a) All actions of Allmerica Indemnitees related to Policy
underwriting or the investigation, processing, denial or
payment of Policy claims, including death claims, provided
that:
(i) in the case of an underwriting matter, Allmerica
Financial properly utilized Transamerica's
Underwriting Standards (as described in Section 2.02)
in underwriting, rating or declining an applicant for
insurance and, in the event of the declination of a
proposed insured, which declination is not clearly a
medical decline described in Transamerica's
underwriting manual, that the matter was communicated
to authorized Transamerica personnel who agreed with
and approved the declination; and
(ii) in the case of a Policy claim, Allmerica Financial
followed Transamerica's claims investigation and
processing rules and requirements and, in the event
of the denial of a claim, that the matter was
communicated to authorized Transamerica personnel who
agreed with and approved the denial.
Allmerica Financial will communicate appropriate details of
any required communication described in (a) (i) and (ii) above
in accordance with notification procedures to be jointly
developed by the parties. If no response is received within
five (5) days from the day of the transmission, Allmerica
Financial shall have the right to proceed on the basis that
Transamerica is in agreement with the decision to decline the
risk or deny the payment of the claim and will proceed with
appropriate action.
(b) A claim against an Allmerica Indemnitee by any third party, to
the extent it arises out of or results from any act or
omission of Transamerica, its employees, agents, brokers or
representatives relating to the sale or servicing of any
Policy.
(c) A claim against an Allmerica Indemnitee by any third party, to
the extent it arises out of or results from the reasonable
reliance of an Allmerica Indemnitee on information, records or
documents furnished to it by or on behalf of Transamerica.
(d) A claim against an Allmerica Indemnitee by any third party, to
the extent it arises out of or results from the reasonable
reliance on, or the carrying out of by an Allmerica Indemnitee
of, any instructions of authorized personnel of Transamerica.
10.03 Transamerica Limitation of Liability; Indemnification by Allmerica
Financial. Transamerica, its subsidiaries, affiliates and its or their
officers, directors, employees and agents (collectively "Transamerica
Indemnitees") shall not be responsible for, and Allmerica Financial
shall indemnify and hold harmless Transamerica Indemnitees from and
against any and all Losses arising out of or attributable to:
(a) A breach or negligent failure of Allmerica Financial to
perform any of Allmerica Financial's representations,
warranties, covenants or obligations set forth in this
Agreement.
(b) A claim against a Transamerica Indemnitee by any third party,
to the extent it arises out of or results from the reasonable
reliance of a Transamerica Indemnitee on information, records
or documents furnished to it by or on behalf of Allmerica
Financial.
(c) A claim against a Transamerica Indemnitee by any third party,
to the extent it arises out of or results from the reasonable
reliance on, or the carrying out of by a Transamerica
Indemnitee of, any instructions of authorized personnel of
Allmerica Financial.
In addition to the foregoing, Allmerica Financial shall indemnify and
hold harmless Transamerica Indemnitees from and against any tax,
interest or penalties imposed by the IRS or any state or local taxing
authority on Transamerica, as well as any liability Transamerica may
incur to Policyholders caused by or related to Allmerica Financial's
failure to properly test and apply the life insurance testing rules
under IRC Sections 7702 and 7702A or its failure to perform its tax
withholding and information reporting duties and responsibilities under
this Agreement, including, but not limited to, failures to: (i) deposit
the correct amount of income tax withholding on time; (ii) issue timely
information returns; (iii) issue correct information returns; (iv)
correctly process tax-related transactions related to nonresident
aliens; and (v) correctly process tax-related transactions related to
death claims.
10.04 Notice and Opportunity to Defend. Promptly after receipt by any party
hereto of notice of the assertion of any claim for a Loss with respect
to which such party hereto expects to make a request for
indemnification hereunder, such party shall give the party which may
become obligated to provide indemnification hereunder (the
"Indemnifying Party") written notice describing such claim in
reasonable detail. The Indemnifying Party shall have the right, at its
option and at its own expense and by its own counsel, to participate in
the defense of any such claim, provided that the Indemnifying Party
shall have agreed in writing to indemnify the party seeking
indemnification hereunder (the "Indemnified Party"). Notwithstanding
the foregoing, the Indemnifying Party shall not have the right to
control or to represent the Indemnified Party in the defense of any
claim.
10.05 Processing Liability. Notwithstanding the provisions of Sections 10.02
and 10.03, in the event of any liability incurred by Allmerica
Financial or Transamerica as a result of Policy processing errors made
by Allmerica Financial, Allmerica Financial shall be liable for the
first ten thousand dollars incurred during each twelve (12) month
period from the commencement of the Operational Phase ("Liability
Period") for the term of this Agreement. For liability arising from
Allmerica Financial processing errors incurred in a Liability Period in
excess of ten thousand dollars, Allmerica Financial shall be liable for
40% of such amount and Transamerica shall be liable for 60% of such
amount. Provided, however, that Transamerica shall not be liable with
respect to any Liability Period for any such amount in excess of .35%
of Policy premiums (including first year target and excess premiums and
renewal premiums) paid during the Liability Period. Allmerica Financial
agrees that it shall be responsible for the dollar amount of processing
errors incurred during a Liability Period in excess of such .35% cap.
If such cap is not determined until after the end of a Liability
Period, both parties agree to a true-up by Allmerica Financial (or to a
reimbursement by Transamerica, if appropriate) within 30 days following
the date the cap is both calculated and agreed to by both parties. For
purposes of calculating processing errors, both parties understand and
agree that liabilities shall only mean and include amounts payable or
creditable to Policyholders and their beneficiaries and shall not
include internal costs incurred by either party to correct such errors.
For purposes of this Agreement, the term "processing errors" shall mean
and include:
(i) errors or delays relating to the processing of Policy premium
payments;
(ii) errors or delays relating to the processing of Policy fund
transfer requests;
(iii) errors or delays relating to Policy Services involving Policy
dollar cost averaging or automatic account rebalancing;
(iv) errors or delays related to the processing of Policy changes
(e.g., processing of title changes, beneficiary changes or
insurance increases or decreases);
(v) errors or delays related to the processing of Policy
surrenders, exchanges or withdrawals;
(vi) errors or delays related to the processing of Policy loans; and
(vii) other errors or delays related to the Policy Administration
functions described in Part B of Schedule 2.01C.
Notwithstanding the foregoing, processing errors shall not include
systemic Computer System errors, errors related to Policy underwriting,
Policy claims processing or errors related to Allmerica Financial's
Code Section 7702 and 7702A policy testing and tax withholding and
information reporting duties and responsibilities, as described in the
last paragraph of Section 10.03 hereof.
10.06 Acknowledgment. Allmerica Financial and Transamerica expressly
acknowledge that the limitations contained in this Article 10 represent
the express agreement of the parties with respect to allocation of
risks between the parties, including the level of risk to be associated
with the provision of the Policy Services described herein as related
to the amount of the payments to be made to Allmerica Financial for
such Services, and each party fully understands and accepts such
limitations.
10.07 Survivability. The indemnifications provided for in this Article 10
shall survive termination of this
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Agreement for any reason.
ARTICLE 11
TERM AND TERMINATION
11.01 Term.
(a) The Product Development obligations of the parties and the
Policy Services Implementation Phase
shall commence upon the Effective Date of this Agreement. The
Implementation Phase shall
expire upon successful completion of all acceptance testing of the
Computer System under
Article 8. The Operational Phase shall commence upon certification by
Allmerica Financial that
it is ready to commence production processing of Transamerica data,
and shall expire
forty-eight (48) full calendar months from the date of receipt of said
certification from
Allmerica Financial, unless terminated earlier or extended in accordance with
the provisions of
this Agreement.
(b) A failure to commence the Operational Phase on or before
the date which is six months from the
date the Functional Outline Documents have been finalized and agreed to by
the parties shall
result in a sixty (60) day cure period during which Transamerica and Allmerica
Financial shall
take all necessary steps to complete the work to commence the
Operational Phase. If the
Operational Phase is not commenced by the end of the 60-day cure period,
then, at its option,
either party shall have the right to terminate the Agreement. In such event,
neither Allmerica
Financial nor Transamerica shall have any further responsibility under this
Agreement except
for Transamerica's responsibility to pay the balance of the
Compensation due Allmerica
Financial for its Product Development services, as specified in Section 1.05.
11.02 Extension. This Agreement shall continue in force after the initial
48-month termination date specified in Subsection 11.01(a) unless
either party elects to terminate the Agreement on said initial
termination date by notifying the other party in writing of its
intention to do so. Such notice must be given at least twelve months
prior to said initial termination date unless both parties agree to
accept a later date of notification. If this Agreement is continued
beyond said initial termination date, Transamerica and Allmerica
Financial shall each have the right to cancel this Agreement on any
date thereafter upon twelve months' written notice to the other party.
11.03 Termination for Cause. Except as otherwise provided in this Agreement,
in the event either party defaults in the performance of any of that
party's material duties or obligations under this Agreement, which
default shall not be substantially cured within thirty (30) days after
written notice is given to the defaulting party specifying the default
or, with respect to those defaults which cannot reasonably be cured
within thirty (30) days, should the defaulting party fail to proceed
within sixty (60) days to commence curing the default and thereafter to
proceed with all due diligence to substantially cure the default, the
party not in default may terminate this Agreement for cause by giving
written notice to the defaulting party.
For purposes of this Agreement, material breach shall include, but not
be limited to, the following events: (i) fraud, material
misrepresentation, conversion or unlawful withholding of funds by
either party; (ii) the disqualification by either party to do business
under any applicable state or federal law where its ability to do
business is materially impaired; (iii) any breach of confidentiality by
either party or the use of confidential information by either party in
a competitive manner; and (iv) any failure by Allmerica Financial to
maintain fidelity bond coverage in an amount of at least $10,000,000.
Circumstances described in clauses (i) and (iii) shall not be subject
to the cure provisions described in the preceding paragraph.
In addition to the foregoing, (i) if Allmerica Financial breaches its
agreement with Continuum (or any replacement software vendor), such
that Allmerica Financial's license to use the then current Computer
System is revoked, and (ii) if at the time of such license revocation
the LIFE-COMM III Computer System (or the software of any replacement
vendor whose agreement with Allmerica Financial has been breached by
Allmerica Financial), is being utilized to perform the Policy Services
contemplated by this Agreement, then in such event, Transamerica may
terminate this Agreement for cause.
In the event this Agreement is terminated for cause, the party
materially breaching the Agreement shall be liable for all damages
incurred by the aggrieved party as a result of the breach. In the event
either party terminates the Agreement for cause, Transamerica agrees to
pay Allmerica Financial the balance of any compensation for Product
Development required to be paid to Allmerica Financial under Section
1.05 and to pay compensation for Policy Services rendered, required to
be paid to Allmerica Financial under Sections 2.04. In the event that
either party terminates this Agreement for cause, Allmerica Financial
and Transamerica shall jointly develop and implement a cooperative
conversion workplan under Subsection 2.01(c) of this Agreement.
Notwithstanding the foregoing, if Transamerica terminates this
Agreement for cause, subject to the requirements set forth in Sections
1.05 and 2.04, Transamerica shall have the right to offset amounts
otherwise payable to Allmerica Financial against any damages incurred
by Transamerica as a result of Allmerica Financial's breach of this
Agreement.
11.04 Termination for Nonpayment. In the event Transamerica defaults in the
payment of any amount due Allmerica Financial under this Agreement and
does not cure the default within thirty (30) days after written notice
of the default or unless such payment shall be in dispute, Allmerica
Financial may terminate this Agreement for cause by giving thirty (30)
days written notice to Transamerica.
11.05 Termination for Insolvency. In the event either party becomes or is
declared insolvent or bankrupt, is the subject of any proceedings
relating to its liquidation, insolvency or for the appointment of a
receiver or similar officer for it, makes an assignment for the benefit
of all or substantially all of its creditors, or enters into an
agreement for the continuation, extension, or readjustment of all or
substantially all of its obligations, the other party may immediately
terminate this Agreement for cause.
ARTICLE 12
MISCELLANEOUS
12.01 Binding Nature and Assignment. This Agreement shall be binding on the
parties and their respective successors and assigns. Neither party may
assign this Agreement without the prior written consent of the other,
which shall not be unreasonably withheld.
12.02 Notices. Any notice or other instrument authorized or required by this
Agreement shall be deemed given upon receipt and shall be effective
only if it is in writing and delivered personally, by facsimile
transmission with telephone confirmation, by registered or certified
return receipt mail, postage prepaid, or by nationally recognized
overnight courier service addressed as set forth below or to such other
person or address as each party may from time to time designate by
notice to the other party.
In the case of Allmerica Financial:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Mammen G. Verghis
Vice President
In the case of Transamerica:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, California 90015
Attention: General Counsel
and with copy to:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, California 90015
Attention: Mark Madden
A party may from time to time change its address or designees for
notification purposes by giving the other party prior notice in the
manner specified above of the new address or the new designee and the
subsequent date upon which the change shall be effective.
12.03 Amendment. This Agreement may be amended or modified only by a written
agreement executed by both parties, as evidenced in writings signed by
a Vice President of Allmerica Financial and Transamerica.
12.04 Counterparts. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
12.05 Certain Construction Rules; Governing Law. All Schedules attached
hereto and referred to herein, are hereby incorporated in and made a
part of this Agreement as if set forth herein. Any matter disclosed on
any Schedule referred to herein shall be deemed also to have been
disclosed on any other applicable Schedule referred to herein. All
Section titles or captions contained in this Agreement or in any
Schedule are for convenience only, shall not be deemed a part of this
Agreement and shall not affect the meaning or interpretation of this
Agreement. Any reference to a "Section" or "Schedule" shall be deemed
to refer to a Section of this Agreement or Schedule attached to this
Agreement. The recitals set forth on the first page of this Agreement
are incorporated into and made a part of this Agreement. Unless the
context clearly indicates, words used in the singular include the
plural, and words in the plural include the singular.
This Agreement is to be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts and without regard to the
conflicts of laws principles thereof.
12.06 Relationship of Parties. Transamerica understands and agrees that
Allmerica Financial in furnishing services to Transamerica is acting
only as an independent contractor. Unless otherwise provided in this
Agreement, Allmerica Financial has the sole right and obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed all work to be performed by Allmerica Financial pursuant to
this Agreement.
12.07 Approvals and Similar Actions. Where agreement, approval, acceptance,
consent or similar action is required by any provision of this
Agreement, such action shall not be unreasonably delayed or withheld.
12.08 Force Majeure. Each party shall be excused from performance for any
period and to the extent that the party is prevented from performing
any services, in whole or in part, as a result of delays caused by an
act of God, war, civil disturbance, court order, labor dispute, or
other cause beyond that party's reasonable control, including failures
or fluctuations in electrical power, heat, light, air conditioning or
telecommunications equipment and such nonperformance shall not be a
default or a ground for termination. Notwithstanding the above,
Allmerica Financial agrees that it will establish and maintain
reasonable recovery steps, including technical disaster recovery
facilities, uninterruptable power supplies for computer equipment and
communications and that as a result thereof Allmerica Financial will
use its best efforts to ensure that the Computer System shall be
operational within forty-eight (48) hours of a performance failure.
12.09 Severability. The provisions of this Agreement are severable and the
invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision
hereof. In addition, in the event that any provision of this Agreement
(or portion thereof) is determined by a court of competent jurisdiction
to be unenforceable as drafted by virtue of the scope, duration, extent
or character of any obligation contained therein, it is the mutual
agreement of the parties that such provision (or portion thereof)
shall, to the extent equitable, be construed in a manner designed to
effectuate the purposes of such provision to the maximum extent
enforceable under applicable law.
12.10 Construction and Representation by Counsel. The parties hereto
represent that in the negotiation and drafting of this Agreement they
have been represented by and relied upon the advice of counsel of their
choice. The parties affirm that their counsel have had a substantial
role in the drafting and negotiation of this Agreement and, therefore,
the rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any Schedule attached hereto.
12.11 Media Releases. Transamerica and Allmerica Financial shall consult with
each other as to the form, substance and timing of any press release or
other public disclosure of matters related to this Agreement or any of
the transactions contemplated hereby, and no such press release or
other public disclosure shall be made without the consent of the other
party, which shall not be unreasonably withheld or delayed; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other
party.
12.12 Reinsurance Agreement. The parties understand and agree that certain
policy expenses and mortality risks assumed under the Policies serviced
under this Agreement will be 40% reinsured by Allmerica Financial
pursuant to the terms of a separate Reinsurance Agreement to be
negotiated between the parties.
12.13 Agreement Relating to Additional Services. The parties understand and
agree that certain investment accounting, separate account and treasury
services to be provided by Allmerica Financial will be set forth in a
separate agreement to be negotiated by the parties.
12.14 Waiver. No delay or omission by either party to exercise any right or
power shall impair such right or power or be construed as a waiver. A
waiver by either of the parties of any of the covenants to be performed
by the other or any breach shall not be construed to be a waiver of any
succeeding breach or of any other covenant.
12.15 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. There
are no representations, understandings or agreements which are not
fully expressed in this Agreement. No change, waiver, or discharge
shall be valid unless in writing and signed by an authorized
representative of the party against whom such change, waiver or
discharge is sought to be enforced.
12.16 Hiring of Employees. During the term of this Agreement and for one (1)
year thereafter, Transamerica and Allmerica Financial and any of their
affiliates shall not, directly or indirectly, solicit for employment
any person employed or working on the services provided hereunder
within the preceding twelve (12) months by the other party or any
affiliate of the other party without the prior written consent of the
other party, which shall not be unreasonably withheld; provided,
however, that (i) in the event either party uses the services of a
professional recruiter and provides such recruiter solely with generic
job duties and job descriptions (without making any reference to the
other party or the other party's affiliates) and such recruiter
contacts a qualified candidate who happens to be an employee of the
other party and that candidate initiates contact through the recruiter
with that party, then that party may employ that employee, or (ii) in
the event an employee of the other party responds to a general
advertisement placed by a party, then that party may employ that
employee.
12.17 Taxes. Any taxes or similar assessments charged against Allmerica
Financial or charged in connection with the services provided under
this Agreement shall be the responsibility of Allmerica Financial,
whether such tax or assessment is imposed by the Federal government, a
state, a municipality or an administrative organization thereof.
12.18 Arbitration. All disputes and differences between the parties with
respect to this Agreement will be decided by arbitration, regardless of
the insolvency of either party, unless the conservator, receiver,
liquidator, or statutory successor is specifically exempted from an
arbitration proceeding by applicable state law. Either party may
initiate arbitration by providing written notification to the other
party. Such written notice shall set forth a brief statement of the
issue(s), the failure of the parties to reach agreement, and the date
of the demand for arbitration.
An arbitration panel shall be chosen consisting of three arbitrators.
The arbitrators must be impartial and must be or must have been
officers of life insurance companies other than the parties or their
affiliates. Each party shall select an arbitrator within thirty days
from the date of the demand. If either party shall refuse or fail to
appoint an arbitrator within the time allowed, the party that has
appointed an arbitrator may notify the other party that, if it has not
appointed its arbitrator within the following ten days, the arbitrator
will appoint an arbitrator on its behalf. The two arbitrators shall
select a third arbitrator within thirty days of the appointment of the
second arbitrator. If the two arbitrators fail to agree on the
selection of the third arbitrator within the time allowed, either party
may ask ARIASo US to appoint the third arbitrator. However, if ARIASo
US is unable to appoint an arbitrator who is impartial and who is or
was an officer of a life insurance company other than the parties or
their affiliates, then either party may ask a court to appoint the
third arbitrator pursuant to the Uniform Arbitration Act or any similar
statute empowering the court to appoint an arbitrator.
The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely a legal obligation, and shall consider
practical business and equitable principles as well as industry custom
and practice. The panel is released from judicial formalities and shall
not be bound by strict rules of procedure and evidence.
The arbitration panel shall determine all arbitration schedules and
procedural rules. Organizational and other meetings shall be held in
Worcester, Massachusetts, unless the panel shall select another
location. The panel shall decide all matters by majority vote.
Decisions of the arbitration panel shall be final and binding on both
parties. The panel may, at its discretion, award costs and expenses it
deems appropriate, including but not limited to attorneys' fees and
interest. Judgment may be entered upon the final decision of the panel
in any court of competent jurisdiction. The panel may not award
exemplary or punitive damages. Unless the panel decides otherwise, each
party will be separately responsible for paying all fees and expenses
charged by its respective counsel, accountants, actuaries, and other
representatives in connection with the arbitration, and the parties
shall bear equally the fees and expenses of the arbitrators and any
ancillary expenses associated with a hearing (e.g., any rental fee for
use of the hearing room, etc.).
12.19 Legal Proceedings and Complaints. If Allmerica Financial receives:
(a) notice of the commencement of any legal proceeding involving
any of Transamerica's customers; or
(b) a communication from any insurance department, other
administrative agency or any other person identifying a
complaint by any Transamerica customer or calling a hearing
involving any Transamerica practice; or
(c) written or oral complaints from customers of Transamerica; or
(d) a demand or request by any court, government agency or
regulatory body to examine any of the books and records of
Transamerica relating to Policies or Policy Services;
Allmerica Financial will use its best efforts to notify Transamerica
within one (1) business day. Allmerica Financial will send copies of
any necessary documentation to Transamerica within two (2) business
days.
Allmerica Financial and Transamerica will jointly develop a complaint
handling process.
Allmerica Financial will maintain a file containing any correspondence
relating to complaints received from Transamerica customers or service
providers for a period of seven (7) years from receipt of the complaint
letter.
12.20 Trademarks and Tradenames. Allmerica Financial will not use
Transamerica's name, trademarks, logo, or the name of any affiliate of
Transamerica in any way or manner not specifically authorized in
writing by Transamerica.
Transamerica will not use Allmerica Financial's name, trademarks, logo
or the name of any affiliate of Allmerica Financial in any way or
manner not specifically authorized in writing by Allmerica Financial.
On August 17, 1997, Transamerica provided Allmerica Financial with
electronic formats of its trademark, pyramid logo and digitized
officers' signatures for use on Policy Forms. Those properties combined
with those Transamerica marks listed on Schedule 12.20 make up the
Transamerica marks and names ("Marks and Names") licensed herein. Any
marketing name or service mark adopted by the parties to identify the
Policy contemplated in this Agreement shall be owned by Transamerica
and considered one of the Marks and Names.
As Transamerica is an owner-authorized user of those Marks and Names,
Transamerica desires to exercise control over the use of said Marks and
Names. Transamerica desires to license the Marks and Names for use by
Allmerica Financial in the underwriting, claims servicing, Policy
servicing and administrative services outlined in this Agreement.
Accordingly the parties agree as follows:
(a) License of Marks and Names. Transamerica hereby grants a
nonexclusive license unto Allmerica Financial to use the Marks
and Names solely in connection with the Services provided
under this Agreement.
(b) Manner of Use. Allmerica Financial shall not use the Marks and
Names in any manner or format which differs from the
electronic versions provided by Transamerica to Allmerica
Financial on August 17, 1997 or as shown in Schedule 12.20. If
Allmerica Financial deems a change in format for its limited
use is necessary, a request for such change must be submitted
in writing to Transamerica for its approval. Said request must
include the version as originally supplied by Transamerica and
the requested change, as well as the reason such a change is
requested. Transamerica's approval of a requested change shall
not be unreasonably withheld.
(c) Quality Control. Allmerica Financial's usage of the Marks and
Names shall be under the quality control of Transamerica as
provided herein and shall comply with Transamerica's
standards. As provided in Section 4.02, Transamerica may
conduct reasonable audits of Allmerica's usage of the Marks
and Names in relation to the Services provided under this
Agreement to ensure compliance with the terms set forth in
this Section.
(d) Indemnification. Transamerica shall protect, indemnify, defend
and hold harmless Allmerica Financial from any and all
liability, damages, costs or expenses, including reasonable
attorneys' fees incurred in connection with any claim or
action arising from Allmerica Financial's use of the Marks and
Names, limited to causes of action sounding in state or
federal trademark infringement and/or state or federal
trademark dilution. This indemnification shall survive
termination of this Agreement.
(e) Termination. The License to use the Marks and Names shall
terminate in accordance with the provisions of Article 11. Any
use of the Marks and Names that does not comply with the terms
as set forth in this Section will be considered a default in
the performance of Allmerica's material duties and or
obligations. Upon termination under Article 11, Allmerica
shall cease and desist use of the Marks and Names, except for
limited use in administering and servicing of Policies issued
prior to the date of termination.
12.21 Advertisement. Allmerica Financial shall not advertise the existence of
this Agreement or announce its existence to other insurance companies
or broker-dealers without the express written consent of Transamerica.
Notwithstanding the foregoing, Transamerica agrees that Allmerica
Financial may disclose the existence of this Agreement to insurance
companies or other organizations that are prospective purchasers of
services similar to the product development and administrative services
to be provided under this Agreement.
12.22 Continuation. Sections 1.05, 1.06, 2.01(c), 2.03, 3.02, 4.01, 5.01,
6.04, 12.15, 12.16, 12.17, 12.18, 12.19, 12.20, and Articles 9 and 10
shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to take
effect on the effective date specified above.
Transamerica Occidental Life
Insurance Company
By: ______________________________
Name: ______________________________
Title: ______________________________
Date: ______________________________
First Allmerica Financial Life
Insurance Company
By: _______________________________
Name: _______________________________
Title: _______________________________ <PAGE>
Date: _______________________________
Schedule 1.01 To Product
Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
AFLIAC POLICY FORMS
The Transamerica Policy, Policy Application and related Policy forms
contemplated by the Agreement will be substantially the same as the following
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC") forms:
Name of AFLIAC Form AFLIAC Form Numbers
1. Flexible Premium Variable Life 1027-95
Insurance Policy*
2. Policy Application Forms AS-156, AS-158-95,
AS-159, 1AM-90
3. Children's Insurance Rider 1068-95
4. Guaranteed Insurability Rider 1087-95
5. Waiver of Payment Rider 1086-94
6. Living Benefits Rider 1089.13-95
7. Guaranteed Death Benefit Rider 1099-97
* The Preferred Loan Option in Form 1027-95 will be deleted and the Preferred
Loan Option described in END 260-96 will be substituted.
<PAGE>
Schedule 1.02 To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
POLICY FORM SPECIFICATIONS
See Attachment
<PAGE>
Schedule 3.01B To Product Development and Administrative Services Agreement
between First Allmerica Financial
Life Insurance Company ("Allmerica Financial") and Transamerica
Occidental Life Insurance Company
("Transamerica"), effective November 1, 1997.
FUNCTIONAL OUTLINE DOCUMENTS
PRODUCT DIFFERENCES
- Mortality Rates
Mortality rates are extended to age 115
For Montana, male rates will be used instead of unisex rates
- Target Rates on some base cases
Target rates for this product are shown in Attachment 1
- Surrender charges
The surrender charges to be used for this product are shown in
Attachment 2
- Maturity at age 115
Maturity date is the policy anniversary nearest age 115
- Any processes or procedures that differ significantly from
Allmerica's usual and customary procedures will be documented via
memo
[Policy Underwriting, Claims Processing and Escheat procedures
differ significantly - a Memorandum of Understanding needs to be
developed with regard to each such process and procedure].
DOCUMENTS AND REPORTS
- Revisions to reflect Transamerica company name, address,
names and phone numbers in place of
Allmerica information
ELECTRONIC INTERFACES
Allmerica to Transamerica
- Alpha (daily) - Attachment 3
- Reinsurance (monthly) - Attachment 4
- Accounting (daily) - Attachment 5
- Compensation (daily) - Attachment 6
- Sales Reporting (daily) - Attachment 7
Transamerica to Allmerica
- Agency and Agent Data (initial file at conversion and then daily
- Attachment 8
<PAGE>
Schedule 3.02 To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company, effective November 1, 1997.
CONTINUUM NON-DISCLOSURE AND NON-USE AGREEMENT
CSC Continuum Inc. ("Continuum"), First Allmerica Financial Life Insurance
Company ("Customer"), and Transamerica
Occidental Life Insurance Company ("Company"), agree as follows:
1. RECITALS
Customer is a licensee of all or part of the following computer
software product: LIFE-COMM III (collectively, the "Software Product").
The Software Product (including the program code, specifications,
logic, and design), all related documentation, and any information
about the Software Product (the "Confidential Information") are
confidential trade secrets of Continuum. Customer has also been granted
limited rights to process the data and files of Company using the
Software Product at Customer's site (the "Services"), which will
require that Company have restricted access to certain of the
Confidential Information in order to use the software product input and
output capabilities.
2. CONSENT
Continuum consents to the disclosure by Customer to Company of only
such Confidential Information as is reasonably necessary for Customer
to perform the Services. However, such disclosure to Customer shall in
no event include the disclosure of or access to any code or
documentation of the Software Products.
3. CONFIDENTIAL RELATIONSHIP
Customer and Company acknowledge that the Confidential Information
contains valuable trade secrets of Continuum. Any disclosures of
Confidential Information to Company shall be made in the strictest
confidence. Company shall take all appropriate action, whether by
instruction, agreement or otherwise, to ensure the protection,
confidentiality and security of any Confidential Information in its
possession.
4. NON-DISCLOSURE
Company may disclose the Confidential Information to its own employees
and to employees of Customer as reasonably necessary for Customer to
provide the Services. Company and its employees shall not otherwise
disclose or permit access to any Confidential Information to anyone
other than such employees of Company and Customer. Before disclosing
any Confidential Information to its employees, Company shall instruct
its employees to comply with the terms of this Agreement.
5. NON-USE
Company shall not use any Confidential Information for any purpose
other than for receiving the benefit of the Services.
6. COPIES
Company shall not copy or record any Confidential Information. Company
shall not remove any materials containing Confidential Information from
Customer's premises. Within ten (10) days after the completion of the
Services, Company shall destroy or deliver to Customer all copies or
records of Confidential Information in Company's possession.
7. CONTINUING OBLIGATIONS
Company's obligations under this Agreement shall survive termination of
this Agreement and shall continue as long as any Confidential
Information disclosed to Company remains confidential. Confidential
Information does not include any information which (a) is known to
Company prior to disclosure to Company by Continuum or Customer; (b)
becomes publicly known in the data processing industry through no
wrongful act of Company; or (c) is approved by release by written
authorization of Continuum. The existence of a copyright notice will
not cause, or be construed as causing, any part of the Software Product
to be a published copyrighted work or to be in the public domain.
8. INDEMNITY
Company agrees that it is fully responsible for the actions of its
employees with respect to the Confidential Information, whether or not
such employee was acting within the scope of his or her employment.
Customer and Company agree to indemnify Continuum for any damages,
costs, or expenses (including court costs and reasonable attorneys'
fees) suffered by Continuum as a result of any breach of this Agreement
by Company.
9. INJUNCTION
Customer and Company agree that, in the event of a breach or threatened
breach of this Agreement, Continuum will have no adequate remedy at law
and shall be entitled to a temporary restraining order and/or a
preliminary injunction without bond, and thereafter to a permanent
injunction.
10. TERM
Continuum's consent granted by this Agreement shall terminate
immediately upon the expiration or termination of the agreement for
processing services between Customer and Company. Company shall have no
access to Confidential Information after such date.
- 2 -
At the termination of the Product Development and Administrative
Services Agreement between First Allmerica Financial Life Insurance and
Annuity Company and Transamerica Occidental Life Insurance Company
effective November 1, 1997, but no later than the expiry of the
48-month initial term of the Agreement, CSC Continuum Inc. would be
willing to: (1) grant to Transamerica Occidental Life Insurance Company
a license for the base release of the version of the software product
LIFE-COMM III used by First Allmerica Financial Life Insurance Company
to service the Company's business at CSC Continuum's then current price
and then current terms, (2) grant to Transamerica Occidental Life
Insurance Company a license for them to use First Allmerica Financial
Life Insurance Company modifications to such base release for no
additional license fee and on the same terms as those for the base
release, but without any indemnity for infringement of intellectual
property by such modifications, and (3) consent to First Allmerica
Financial Life Insurance Company delivery of such base release and
modifications to Transamerica Occidental Life Insurance Company
following execution of foregoing licenses.
Upon execution by all of the parties, this Agreement shall be effective as of
the date of Continuum's signature below.
Transamerica Occidental Life Insurance Company
By: _____________________________________
(Signature)
Name: _____________________________________
(Printed)
Title: _____________________________________
Date: _____________________________________
CSC Continuum Inc.
By: _____________________________________
(Signature)
Name: _____________________________________
(Printed)
Title: _____________________________________
Date: _____________________________________
First Allmerica Financial Life Insurance Company
By: _____________________________________
(Signature)
Name: _____________________________________
(Printed)
Title: _____________________________________
Date: _____________________________________
- 3 -
<PAGE>
Schedule 2.01A To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
<TABLE>
<CAPTION>
INVENTORY OF SERVICES AND FUNCTIONS
REGISTERED REPRESENTATIVE LICENSING/SELLING FUNCTIONS (INCLUDING
<S> <C> <C> <C> <C> <C> <C>
PRODUCT ILLUSTRATIONS).......................................................................................Transamerica
PRODUCT MARKETING ILLUSTRATION SUPPORT FUNCTIONS...............................................................Transamerica
800-LINE TECHNICAL SUPPORT FOR ILLUSTRATIONS AND ASSET
ALLOCATION SOFTWARE..................................................................................Allmerica Financial
RECEIPT OF INITIAL APPLICATION FOR BUSINESS AND INITIAL PREMIUM.........................................Allmerica Financial
BUSINESS SUITABILITY...........................................................................................Transamerica
UNDERWRITING REVIEW/APPROVAL............................................................................Allmerica Financial
PROCESS INCOMPLETES/DECLINES............................................................................Allmerica Financial
POLICY ISSUE............................................................................................Allmerica Financial
POLICY PRINTING.........................................................................................Allmerica Financial
POLICY MAILING..........................................................................................Allmerica Financial
(POLICY LEVEL) FUND ALLOCATION..........................................................................Allmerica Financial
INITIAL PREMIUM COLLECTION..............................................................................Allmerica Financial
FREE LOOK REFUNDS/NOT TAKENS............................................................................Allmerica Financial
COMMISSION PROCESSING/PAYMENT..................................................................................Transamerica
BILLING (ANNUAL, SEMI-ANNUAL, QUARTERLY)................................................................Allmerica Financial
COLLECTIONS.............................................................................................Allmerica Financial
LOCK BOX MANAGEMENT.....................................................................................Allmerica Financial
MONTHLY AUTOMATIC PREMIUM...............................................................................Allmerica Financial
FUND TRANSFER/REALLOCATIONS.............................................................................Allmerica Financial
800-LINE TELEPHONE CUSTOMER SERVICES....................................................................Allmerica Financial
INVENTORY OF SERVICES AND FUNCTIONS (Continued)
POLICY HISTORY REQUESTS.................................................................................Allmerica Financial
BENEFICIARY AND OWNER CHANGES...........................................................................Allmerica Financial
CUSTOMER CONFIRMATIONS (FINANCIAL TRANSACTIONS).........................................................Allmerica Financial
POLICY CHANGES..........................................................................................Allmerica Financial
ADDRESS CHANGES.........................................................................................Allmerica Financial
LOANS/PARTIAL WITHDRAWALS...............................................................................Allmerica Financial
1035 EXCHANGES..........................................................................................Allmerica Financial
SURRENDERS..............................................................................................Allmerica Financial
CONSERVATION...................................................................................................Transamerica
WRITTEN CORRESPONDENCE
PRE SALE (i.e., BEFORE APPLICATION SIGNED)............................................................Transamerica
POST SALE......................................................................................Allmerica Financial
DEATH AND OTHER POLICY CLAIMS
NOTIFICATION...................................................................................Allmerica Financial
SYSTEM PROCESSING..............................................................................Allmerica Financial
INVESTIGATION/REVIEW...........................................................................Allmerica Financial
SETTLEMENT OPTIONS.............................................................................................Transamerica
ANNUAL STATEMENTS.......................................................................................Allmerica Financial
INSURANCE ACCOUNTING (e.g., POLICY GAAP AND STATUTORY ACCOUNTING)..............................................Transamerica
TAX WITHHOLDING AND INFORMATION REPORTING...............................................................Allmerica Financial
</TABLE>
<PAGE>
Schedule 2.01B To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
POLICY SERVICES - PROJECT SCHEDULE OF EVENTS
DEVELOPMENT OF DETAILED BUSINESS SPECIFICATIONS........September 15, 1997
LIFE-COMM, ALLMERICA FINANCIAL AND TRANSAMERICA
INTERFACE SYSTEMS PROGRAMMING AND SYSTEM TESTING.........October 3, 1997
BUSINESS ACCEPTANCE AND MODEL OFFICE TESTING.............December 5, 1997
IMPLEMENTATION OF OPERATIONAL PHASE......................December 8, 1997
<PAGE>
Schedule 2.01C To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company, effective November 1, 1997.
SERVICE STANDARDS
<TABLE>
<CAPTION>
Service Standard
A. Underwriting
<S> <C>
Initial Underwriting Review........................................................................3 Business Days
Pending Underwriting Review........................................................................3 Business Days
Follow-Up..........................................................................................3 Business Days
Final Action.......................................................................................2 Business Days
B. Policy Administration
Premium Payments Applied....................................................98% Applied Within 1 Business Day
Fund Transfers/Reallocations Processed................................................98% Processed Within 1 Business Day
New Business*..............................................................98% Issued Within 2 Business Days
1035 Exchanges*.............................................................98% Mailed Within 3 Business Days
Loans/Partial Withdrawals.....................................................98% Processed Within 2 Business Days
Policy Changes (i.e. increases, decreases
reinstatements)*............................................................98% Processed Within 5 Business Days
Policy Surrenders.............................................................98% Processed Within 5 Business Days
Address Changes...............................................................95% Processed Within 5 Business Days
Beneficiary and Owner Changes.................................................95% Processed Within 5 Business Days
C. Customer Service
Average Speed to Answer.................................................................................20 Seconds
Abandonment Rate................................................................................................3%
Return Calls.........................................................................Within 3 Hours or as Promised
Correspondence............................................Letter to Inquirer within 5 Business Days or as Promised
Complaint Handling...............................................Acknowledge within 1 Business Day, Final Response
to be sent within a mutually acceptable time frame
intended to meet all state regulatory requirements
D. Death and Other Policy Claims......................................Policy claims will be processed within mutually
acceptable time frames intended to meet
all state regulatory requirements
</TABLE>
* Measured from date of Policy underwriting approval
<PAGE>
Schedule 12.20 To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company, effective November 1, 1997.
Transamerica Marks and Names
Transamerica
Transamerica Occidental
Transamerica Occidental Life
The Pyramid Logo
<PAGE>
Schedule 3.01A To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company ("Transamerica"), effective November 1, 1997.
1. LIFE-COMM III - Licensed by CSC Continuum, Inc.
2. Variable Product Administration System - Licensed by Douglas G. Draeseke
3. Triton Valuation System - Licensed by Price Waterhouse
4. R2 Reinsurance System - Licensed by The Actuarial Network
5. Life Underwriting System - Licensed by Lincoln National
6. Illustration - Allmerica Financial**
7. Asset Allocator - Allmerica Financial**
**Software that Allmerica Financial is developing specifically for Transamerica.
Transamerica understands and agrees that the source codes for this software
are proprietary to Allmerica Financial and will not be given to
Transamerica under any circumstances.
<PAGE>
LIST OF SCHEDULES
TO
PRODUCT DEVELOPMENT
AND ADMINISTRATIVE SERVICES AGREEMENT
Schedule 1.01 AFLIAC Policy Forms
Schedule 1.02 Policy Form Specifications
Schedule 2.01A Inventory of Services and Functions
Schedule 2.01B Policy Services - Project Schedule of Events
Schedule 2.01C Service Standards
Schedule 3.01A Computer System Software
Schedule 3.01B Functional Outline Documents
Schedule 3.02 Continuum Non-Disclosure and Non-Use Agreement
Schedule 12.20 Transamerica Marks and Names
<PAGE>
(11) Issuance, Transfer and Redemption Procedures
Memorandum
1
Description of Issuance, Transfer and Redemption Procedures for Policies
Offered by the Transamerica Occidental Life Separate Account VUL-1 of
Transamerica Occidental Life Insurance
Company
The Transamerica Occidental Life Separate Account VUL-1 ("Separate Account") of
Transamerica Occidental Life Insurance Company ("Company" and "we") is
registered under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust (File No. 333-37883). There are currently 17 sub-accounts
within the Separate Account. Procedures apply equally to each sub-account and
for purposes of this description are defined in terms of the Separate Account,
except where a discussion of both the Separate Account and the individual
sub-accounts is necessary. Each sub-account invests in shares of a corresponding
portfolio. Currently, there are 17 portfolios available from eight mutual funds.
The investment experience of a sub-account of the Separate Account depends on
the market performance of its corresponding portfolio. Although flexible premium
variable life insurance policies funded through the Separate Account may also
provide for fixed benefits supported by the Company's General Account, this
description assumes that net payments are allocated exclusively to the Separate
Account and that all transactions involve only the sub-accounts of the Separate
Account, except as otherwise explicitly stated herein.
1. "Public Offering Price" Purchase and Related Transactions -
Section 22(d) and Rule 22c-1
This section outlines Policy provisions and administrative procedures which
might be deemed to constitute, either directly or indirectly, a "purchase"
transaction. Because of the insurance nature of the policies, the procedures
involved necessarily differ in certain significant respects from the purchase
procedures for mutual funds and annuity plans. The chief differences revolve
around the structure of the cost of insurance charges and the insurance
underwriting process. Certain Policy provisions, such as reinstatement and loan
repayment, do not result in the issuance of a Policy but require certain
payments by the Policy owners and involve a transfer of assets supporting Policy
reserve into the Separate Account.
a. Insurance Charges and Underwriting Standards
Premium payments are not limited as to frequency and number,
but there are limitations as to amount. No premium payment may
be less than $100 without the Company's consent, and the total
of all payments paid can never exceed the then current maximum
payments as determined by Internal Revenue Service rules (the
guideline premium limits). If at any time a payment is
received which would result in total payments exceeding the
current maximum premium limitations, the Company will return
the amount in excess of such maximums to the Policy owner
after first applying the excess as a loan repayment if there
is an outstanding loan on the Policy. Excess payments will be
refunded as soon as practicable but in no event later than 60
days after the end of the Policy year in which the excess
payment was received.
The Policy will remain in force so long as the Policy Value
less any outstanding debt is sufficient to pay certain monthly
charges imposed in connection with the Policy. Cost of
insurance charges ("insurance protection charges") for the
policies will not be the same for all Policy owners. The
insurance principle of pooling and distribution of mortality
risk is based upon the assumption that each Policy owner pays
a cost of insurance charge commensurate with the insured's
mortality risk, which is actuarially determined based upon
factors such as age, health and occupation. In the context of
life insurance, a uniform mortality charge (the "cost of
insurance charge") for all insureds would discriminate
unfairly in favor of those insureds representing greater
mortality risks to the disadvantage of those representing
lesser risks. Accordingly, there will be a different "price"
for each actuarial category of insureds because different cost
of insurance rates will apply. While not all insureds will be
subject to the same cost of insurance rate, there will be a
single "rate" for all insureds in a given actuarial category.
The Policies will be offered and sold pursuant to the
Company's underwriting standards and in accordance with state
insurance laws. Such laws prohibit unfair discrimination among
insureds, but recognize that payments must be based upon
factors such as age, health and occupation. Tables showing the
maximum cost of insurance charges will be delivered as part of
the Policy.
The policy anniversary nearest the insured's 100th birthday is
the Final Payment Date for the Policy. After this date, no
more payments may be made to the policy and no more deductions
for cost of insurance will be taken.
b. Application and Initial Premium Processing
Upon receipt of a completed application from a prospective
Policy owner, the Company will follow certain insurance
underwriting procedures designed to determine whether the
proposed insured is insurable. This process may involve such
verification procedures as medical examinations and may
require that further information be provided by the proposed
Policy owner and/or proposed insured, if other than the
proposed owner, before a determination can be made. A Policy
cannot be issued until this underwriting procedure has been
completed.
If at the time of application a proposed Policy owner makes a
payment equal to at least one monthly deduction for the Policy
as applied for, the Company will provide fixed conditional
insurance in the amount of insurance applied for, up to a
maximum of $250,000, pending underwriting approval and subject
to completion of all conditions of the conditional receipt
which provides the fixed, conditional insurance. If the
application is approved, the Policy generally will be issued
within two days of the date we approve the application. If the
prospective Policy owner does not wish to make any payment
until the Policy is issued, upon delivery of the Policy the
Company will require payment of sufficient premium to place
the insurance in-force.
Pending completion of insurance underwriting and Policy
issuance procedures, the initial premium will be held in the
Company's General Account. If the application is approved and
the Policy is issued, the initial premium held in the General
Account will be credited with interest no later than the date
of receipt of the premium at the Company's Variable Life
Service Center. If a Policy is not issued, the premium will be
returned to the Applicant without interest.
If the application is approved and the Policy is issued, the
Company generally allocates the Policy Value according to the
Policy owner's instructions. However, if the Policy provides
for a full refund of payments under its "Right to Examine
Policy" provision as required in certain states and as
described below under Section II(g), during the free look
period the Company will initially allocate sub-account
investments to the sub-account investing in the Transamerica
Variable Insurance Fund, Inc., Money Market Portfolio ("Money
Market sub-account"). The allocation to the Money Market
sub-account will be for 14 calendar days (or longer, if the
state's free look period provides for a longer period than 10
days). At the end of that period, values in the Money Market
sub-account will be allocated among the sub-accounts in
accordance with the Policy owner's then current election.
These processing procedures are designed to provide insurance,
starting with the date of the application, to the proposed
Policy owner in connection with payment of the initial premium
and will not dilute any benefit payable to any existing Policy
owner. Although a Policy cannot be issued until the
underwriting process has been completed, the proposed Policy
owner will receive immediate insurance coverage, if he or she
has paid an initial premium and the proposed insured proves to
be insurable, after the completion of all requirements under
the conditional receipt.
The Company will require that the Policy be delivered within a
specific delivery period to protect itself against
anti-selection by the prospective Policy owner resulting from
a deterioration of the health of the proposed insured.
Generally, the period will not exceed the shorter of 30 days
from the date the Policy is issued and 75 days from the date
of Part 2 of the Application.
c. Payment Allocation
"Net payments" are credited to the Policy as of the date the
payments are received by the Company, with the possible
exception of the first net payments. Net payments are equal to
the gross payments minus the payment expense charge. The
payment expense charge compensates the Company for applicable
state and local taxes on payments paid for the Policy, and for
federal taxes imposed for Deferred Acquisition Costs ("DAC
taxes"), and to partially compensate for sales and
administrative expenses. It will be adjusted to reflect any
increase or decrease in applicable state or local premium tax
rates, as well as changes in DAC taxes paid by the Company.
The Policy owner may allocate net payments among the Fixed
Account (part of the Company's General Account) and up to
seven sub-accounts of the Separate Account. The Policy owner
may change the allocation of net payments without charge at
any time by providing written notice to the Variable Life
Service Center. The change will be effective as of the date of
receipt of the notice at the Variable Life Service Center. The
Policy owner may transfer amounts among all of the
sub-accounts and the Fixed Account, subject to certain
restrictions, but at no time may have allocations in more than
seven sub-accounts.
d. Repayment of Loan
A loan made under this Policy may be repaid with an amount
equal to the original loan plus loan interest.
When a loan is made, the Company will transfer from each
sub-account of the Separate Account to the Fixed Account an
amount of the sub-account's Policy Value equal to the loan
amount allocated to the sub-account. Since the Company will
credit such assets with interest at not less than 6% per year
(not less than 7.5% on a preferred loan), which is below the
8% annual interest rate charged on the loan, the Company will
retain the difference between these rates in order to cover
certain expenses and contingencies. Upon repayment of debt,
the Company will reduce the Policy Value in the Fixed Account
attributable to the loans and transfer assets supporting
corresponding reserves to the sub-accounts according to either
the Policy owner's instruction or, if none, the payment
allocation percentages then in effect. Loan repayments
allocated to the Separate Account cannot exceed Policy Value
previously transferred from the Separate Account to secure the
debt.
A preferred loan option is available after the tenth Policy
year and, after that date, any outstanding loan will be
treated as a preferred loan unless the Policy owner provides
the Company with a written election revoking the preferred
loan privilege. The guaranteed annual interest rate credited
to the Policy Value securing a preferred loan will be 7.5%.
The administrative procedures described above are also
applicable to preferred loans.
<PAGE>
e. Policy Reinstatement
If the surrender value is insufficient to cover the next
monthly deduction for insurance protection charges plus loan
interest accrued, or if Policy debt ("outstanding loan")
exceeds the Policy Value less surrender charges, we will
notify the Policy owner and any assignee of record. The Policy
owner will then have a grace period of 62 days, measured from
the date the notice is mailed, to pay sufficient premiums to
prevent termination.
Failure to pay sufficient premiums within the grace period
will result in termination of the Policy without any Policy
Value. The death benefit payable during the grace period will
be reduced by any overdue charges. If the insured dies during
the grace period, the death proceeds will still be payable,
but any monthly deductions due and unpaid through the Policy
month in which the insured dies will be deducted from the
death proceeds.
If the Policy has not been surrendered and the insured is
alive, the terminated Policy may be reinstated anytime within
three years after the date of default and before the Final
Payment Date by submitting the following to the Company: (1) a
written application for reinstatement; (2) evidence of
insurability satisfactory to us; and (3) a premium that, after
the deduction of the payment expense charge, is large enough
to cover the minimum amount payable, as described below.
If reinstatement is requested less than 48 months after the
date of issue or of an increase in the face amount, the Policy
owner must pay the lesser of the amount shown in 1 or 2:
1. The minimum amount payable is the minimum monthly
factor for the three-month period beginning on the
date of reinstatement.
2. The minimum amount payable is the sum of the amount
by which the surrender charge as of the date of the
reinstatement exceeds the Policy Value on the date of
default, plus insurance protection charges for the
three-month period beginning on the date of
reinstatement.
If reinstatement is requested 48 months or more after the date
of issue or of an increase in the face amount, the Policy
owner must pay the amount shown in 2, above. The surrender
charge on the date of reinstatement is the surrender charge
which would have been in effect had the Policy remained in
force from the date of issue. The Policy Value less debt on
the date of default will be restored to the Policy to the
extent it does not exceed the surrender charge on the date of
reinstatement. Any Policy Value less debt as of the date of
default which exceeds the surrender charge on the date of
reinstatement will be forfeited to us. A lesser amount may be
required as the minimum amount payable if the Guaranteed Death
Benefit Rider is in effect.
If the Policy lapsed because the outstanding loan exceeded the
surrender value and if the insured is alive, the Policy may be
reinstated within three years of the date of default, and
before the Maturity Date (policy anniversary nearest the
insured's 115th birthday).
Policy Value on Reinstatement - The Policy Value on the date
of reinstatement is:
1. The net premium paid to reinstate the Policy increased by
interest from the date the payment was received at the
Company's Variable Life Service Center; plus
2. An amount equal to the Policy Value
less debt on the date of default to the
extent
it does not exceed the surrender charge on the date of
reinstatement; minus
3. The monthly insurance protection charge due on the
date of reinstatement.
The Policy owner may repay or reinstate any debt outstanding
on the date of default or foreclosure.
f. Correction of Misstatement of Age
If the Company discovers that the age of the insured
has been misstated, the death benefit and any rider
benefits will be those which would be purchased by
the most recent deduction for the cost of insurance
and the cost of rider benefits at the correct age.
g. Contestability
A Policy is contestable for two years, measured from
the date of issue, for fraud (as permitted under
state law) or for material misrepresentations made in
the initial application for the Policy. Policy
changes may be contested for two years after the
effective date of a change, and a reinstatement may
be contested for two years after the effective date
of reinstatement. No statement will be used to
contest a Policy unless it is contained in an
application.
h. Reduction in Cost of Insurance Rate Classification
By administrative practice, the Company will reduce
the cost of insurance rate classification for an
outstanding Policy if new evidence of insurability
demonstrates that the Policy owner qualifies for a
different classification with lower cost of insurance
rates. After the reduced rating is determined, the
Policy owner will pay a lower monthly cost of
insurance charge each month. If new evidence of
insurability provided in connection with an increase
in face amount demonstrates that the Policy owner is
in a higher risk classification, the higher cost of
insurance rate will apply only to the increase in
face amount.
II. "Redemption Procedure" - Surrender and Related Transactions
The Policies provide for the payment of monies to a Policy
owner or beneficiary upon presentation of a Policy. Generally
except for the payments of death proceeds, the imposition of
cost of insurance and administrative charges, and the possible
effect of a contingent surrender charge, the payee will
receive a pro rata or proportionate share of the Separate
Account's assets, within the meaning of the 1940 Act, in any
transaction involving "redemption procedures". The amount
received by the payee will depend upon the particular benefit
for which the Policy is presented, including, for example, the
surrender value or net death benefit. There are also certain
Policy provisions (e.g., partial withdrawals or the loan
privilege) under which the Policy will not be presented to us
but which will affect the Policy owner's benefits and may
involve a transfer of the assets supporting the Policy reserve
out of the Separate Account. Any combined transactions on the
same day which counteract the effect of each other will be
allowed. We will assume the Policy owner is aware of the
possible conflicting nature of the transactions and desires
their combined result. If a transaction is requested which we
will not allow (e.g., a request for a decrease in face amount
which lowers the face amount below the stated minimum) we will
reject the whole transaction and not just the portion which
causes the disallowance. The Policy owner will be informed of
the rejection and will have an opportunity to give new
instructions.
a. Surrender for Cash Values
We will pay the surrender value within seven days
after receipt, at our Variable Life Service Center,
of a signed request for surrender. Computations with
respect to the investment experience of each
sub-account will be made at the close of trading of
the New York Stock Exchange on each day in which the
degree of trading in the corresponding portfolio
might materially affect the net return of the
sub-account and on which Transamerica is open for
business. This will enable us to pay a net cash value
on surrender based on the next computed value after
the surrender request is received. For valuation
purposes, the surrender is effective on the date we
receive the request at our Variable Life Service
Center (although insurance coverage ends the day the
request is mailed to us).
The portion of the Policy Value equal to the value of
all accumulations in the Separate Account may
increase or decrease from day to day depending on the
investment experience of the Separate Account.
Calculation of the Policy Value for any given day
will reflect the actual payments made to the Policy,
expenses charged and deductions taken. We will deduct
a charge for premium taxes, DAC taxes, and a 0.5%
sales load from each payment. The balance (net
payment) is allocated to the Separate Account
according to Policy owner's instructions (except as
otherwise provided for payments made before the end
of the free look period). We will also make monthly
deductions from a Policy to cover the cost of
insurance, including optional benefits provided by
rider. Other possible deductions from the Policy
(which will occur on a Policy-specific basis) include
a charge for partial withdrawals, a charge for
increases or decreases in face amount, a charge for
certain transfers, and a one-time charge for electing
the Guaranteed Death Benefit Rider. Although not
currently imposed, we may also assess a deduction for
changes in allocation elections for net payments
and/or for monthly insurance protection charges, as
well as for providing more than one statement of
projected values each Policy Year.
A surrender charge applies only on a full surrender
or decrease in face amount within ten years of the
date of issue or from the effective date of an
increase in face amount. The surrender charge is
calculated as a rate per $1,000 of face amount. The
surrender charge rate is based on the age and sex
(male, female or unisex) of the insured, as well as
the number of Policy years since the date of issue of
the Policy or the effective date of an increase in
face amount. The surrender charge rate reduces each
year, on the Policy anniversary or the anniversary of
the date of an increase in the face amount.
We will make the payment of net cash surrender value
out of our General Account and, at the same time,
transfer assets from the Separate Account to the
General Account in an amount equal to the Policy
reserves in the Separate Account.
A surrender charge may be deducted from the Policy
Value on a decrease in the face amount. On a
decrease, the surrender charge deducted is the charge
which applies first to the most recent face amount
increase, then to the next most recent face amount
increase in order and, lastly, to the initial face
amount. Where a decrease causes a partial reduction
in an increase or in the initial face amount, we will
deduct a proportionate share of the surrender charge
for that increase or for the initial face amount.
b. Charges on Partial Withdrawal
For each partial withdrawal, we deduct a transaction
fee of 2.0% of the amount withdrawn, not to exceed
$25. This fee is intended to reimburse us for the
cost of processing the withdrawal.
A partial withdrawal charge may also be deducted from
Policy Value. However, in any Policy year after the
first policy year, the Policy owner may withdraw,
without a partial withdrawal charge, up to 10% of the
Policy Value minus the total of any prior free
withdrawals in the same Policy year ("Free 10%
Withdrawal"). The right to make the Free 10%
Withdrawal is not cumulative from Policy year to
Policy year.
We impose the partial withdrawal charge on any
withdrawal greater than the Free 10% Withdrawal. The
charge is 5.0% of the excess withdrawal up to the
amount of the surrender charge. If no surrender
charge applies on surrender, no partial withdrawal
charge will apply. We will reduce the Policy's
outstanding surrender charge by the amount of the
partial withdrawal charge deducted. The partial
withdrawal charge deducted will decrease existing
surrender charges in inverse order.
c. Death Benefit
We will normally pay a death benefit to the
beneficiary within seven days after receipt, at our
Variable Life Service Center, of due proof of death
of the insured and all other requirements necessary
to make payment.
The death proceeds payable will depend on the option
in effect at the time of death. Under the Level
Option, the death benefit is the greater of either
(1) the face amount of insurance or (2) the guideline
minimum sum insured. Under the Adjustable Option, the
death benefit is the greater of either (1) the face
amount of insurance plus Policy Value or (2) the
guideline minimum sum insured. The guideline minimum
sum insured is calculated by multiplying the Policy
Value by the applicable percentage from the following
table for the insured person's attained age nearest
birthday at the beginning of the Policy year of
determination.
<PAGE>
Guideline Minimum Sum Insured Table
Attained Age Percentage Attained Age Percentage
------------ ---------- ------------ ----------
40 or less 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94-115 101%
After the Final Payment Date, the death benefit will
be 101% of the Policy Value, except as otherwise
provided under the Guaranteed Death Benefit Rider.
After the paid-up option is exercised, the death
benefit is the paid-up insurance amount.
We will make payment of death proceeds out of our
General Account and will transfer assets from the
Separate Account to the General Account in an amount
equal to the reserve in the Separate Account
attributable to the Policy. The excess, if any, of
the death proceeds over the amount transferred will
be paid out of the General Account reserve maintained
for that purpose.
d. Default and Options on Lapse
The duration of insurance coverage depends upon the
Policy Value being sufficient to cover the monthly
deductions plus loan interest accrued, subject to the
guarantees during the first 48 months following the
date of issue or certain policy changes, as well as
those guarantees under the Guaranteed Death Benefit
Option. Generally, if the surrender value at the
beginning of a month is less than the deductions for
that month plus loan interest accrued, the policy
will go into default and a grace period of 62 days
will begin. Written notice will be sent to the Policy
owner and any assignee on our records stating that
the policy is in default and such a grace period has
begun. This notice will inform the Policy owner or
assignee of the amount of premium payment necessary
to prevent termination.
If a sufficient premium payment is not received
during the grace period, the Policy will terminate
without value. Notice of such termination will be
sent to the owner and any assignee of record. If the
insured should die during the grace period, an amount
sufficient to cover the overdue monthly insurance
protection charges and other charges will be deducted
from the death proceeds.
e. Policy Loan
The policies provide that, in the first Policy year,
the loan requested by the Policy owner plus any other
outstanding loans may not exceed 75% of (1) the
Policy Value minus (2) surrender charges, monthly
insurance protection charges due through the end of
the policy year, and interest on loans accrued to the
end of the Policy year. Thereafter, the loan
requested by the Policy owner plus any other
outstanding loan may not exceed 90% of an amount
equal to (1) Policy Value less (2) surrender charges.
The Policy Value for this purpose will be that next
computed after receipt, at the Variable Life Service
Center, of a loan request. Payment of the loan amount
will be made to the Policy owner within seven days
after such receipt.
The amount of any outstanding loan plus accrued
interest is called "debt". When a loan is made, the
portion of the assets in the Separate Account (which
is a portion of the surrender value and which also
constitutes a portion of the reserves for the death
benefit) equal to the debt created thereby is
transferred by us from the Separate Account to the
General Account. Allocation of the loan among
sub-accounts will be according to the Policy owner's
request. If this allocation is not specified or not
possible, the loan will be allocated based on the
proportion that the Policy Value in the Fixed
Account, less debt, and the Policy Value in each
sub-account bears to the total Policy Value, less
debt. The portion of the Policy Value in each
sub-account equal to the Policy loan allocated to
such sub-account will be transferred to the Fixed
Account, and the number of Units equal to the Policy
Value so transferred will be canceled. Because of the
transfer, a portion of the Policy is not variable
during the loan period and, therefore, the death
benefit and the surrender value are permanently
affected by any debt, whether or not repaid in whole
or in part. We credit the Policy Value in the Fixed
Account attributable to the loan with an annual rate
of return equal to an effective annual yield of not
less than 6% (7.5% for preferred loans).
Interest is payable in arrears at the annual rate of
8%. Interest is payable at the end of each Policy
year or on a pro rata basis for such shorter period
as the loan may exist. Loan interest is due on each
Policy anniversary. If not paid when due, it is added
to the loan principal and bears interest at the same
rate of interest. If the resulting loan principal
exceeds the portion of the Policy Value in the Fixed
Account, we will transfer Policy Value equal to the
excess debt from the portion of the Policy Value in
each sub-account to the Fixed Account as security for
the excess debt. We will allocate the amount
transferred among the sub-accounts in the same
proportion that the portion of the Policy Value in
each sub-account bears to the total Policy Value in
all sub-accounts.
Failure to repay a loan will not necessarily
terminate the Policy. If the surrender value is not
sufficient to cover the monthly deductions for the
cost of insurance and administrative expenses, the
Policy will go into a 62 day grace period as
described above.
f. Transfers Among Sub-Accounts
Amounts may be transferred, upon request, at any time
from any sub-account of the Separate Account to one
or more other sub-accounts. Transfers (other than
automatic transfers) from a sub-account of the
Separate Account will take effect as of the receipt
of a written request at the Variable Life Service
Center. The first twelve transfers in a Policy year
are free of charge; however, we will deduct an
administrative charge, currently equal to $10 and
guaranteed not to exceed $25, for additional
transfers in a Policy Year. Transfers resulting from
Policy loans, the exercise of conversion rights, and
reallocation of Policy Value at the end of the free
look period in states requiring a full refund if the
free look option is exercised will not be subject to
a transfer charge, and will not be counted for
purposes of the limitation on the number of `free'
transfers allowed in each Policy year. If a Policy
owner elects to have automatic transfers (Dollar Cost
Averaging or Automatic Account Rebalancing) made, the
first automatic transfer for the elected option
counts as one transfer towards the twelve free
transfers allowed in each Policy year; each
subsequent automatic transfer for the elected option
does not reduce the remaining number of transfers
which may be made without charge. Automatic transfers
are generally effective on the 15th of the month in
which the transfer is scheduled to occur.
Transfer charges, if any, are deducted from amounts
transferred out and are allocated based on the
proportion that the value in each of the sub-accounts
from which amounts are transferred out bears to the
total amount transferred out.
g. Right to Examine Policy ("Free Look") Procedures
The Policy owner has the right to examine and cancel
the Policy be returning it to us along with a written
request for cancellation to us or one of our
representatives by the later of:
1.45 days after the application for the Policy is signed,
or
2. 10 days after receipt of the Policy (or such
longer period required by state law due to
replacements or other reasons).
In some states, the 45 day provision noted above does
not apply and only the 10 day (or longer) provision
applies.
If the Policy provides for a full refund under its
"Right to Examine Policy" provision as required in a
particular state, the refund will be the total amount
of payments made to the Policy. If the Policy does
not provide for a full refund, the refund will be the
amounts allocated to the Fixed Account, the portion
of the Policy Value in the Separate Account, and all
fees, charges and taxes which have been imposed.
A free look privilege also applies after a requested
increase in face amount. After an increase, we will
mail or deliver notice of the "Free Look" with
respect to the increase. The Policy owner will have
the right to cancel the increase by the later of 45
days after the request for an increase in the face
amount was signed or within 10 days of receipt of the
new specification pages for the face increase, and
receive a credit for charges which would not have
been deducted but for the increase. Such charges with
respect to the increase will be added to Policy
Value, unless the Policy owner requests a refund of
such charges.
h. Paid-up option. The Policy owner may elect to use the
Policy's surrender value to provide insurance with no
further premiums due. When the paid-up option is
exercised, Policy Value in the Separate Account will
be transferred to our General Account. This transfer
will use the value of the applicable sub-accounts
next computed following receipt of the request at our
Variable Life Service Center. After the paid-up
option is exercised, the Policy will no longer have a
variable component.
<PAGE>
Exhibit 6 Actuarial Consent
December 18, 1997
Gentlemen:
This opinion is furnished in connection with the filing, by Transamerica
Occidental Life Insurance Company, of the initial Registration Statement on Form
S-6 of its flexible premium variable life insurance policies ("Policies")
allocated to Transamerica Separate Account VUL-1 under the Securities Act of
1933. The prospectus included in the initial Registration Statement on Form S-6
describes the Policies. I am familiar with and have provided actuarial advice
concerning the preparation of the Registration Statement, including exhibits.
In my professional opinion, the illustration of death benefits and cash values
included in Appendix D of the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policies has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy for a person age 30 or a person
age 45 than to prospective purchasers of Policies for people at other ages or
underwriting classes.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Michael Palace, ASA
Vice President and Associate Actuary
<PAGE>
Exhibit 7 Consent of Independent Accountants
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Independent
Auditors" and to the use of our report date February 12, 1997 on the
consolidated financial statements of Transamerica Occidental Life Insurance
Company contained in the Registration Statement (Form S-6 No.333-37883)
of Transamerica Occidental Life Separate Account VUL-1.
ERNST & YOUNG LLP
Los Angeles, California
December 19, 1997
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