Registration No. 333-37883
No. 811-08439
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Post-Effective Amendment No. 3
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. Frederick R. Bellamy, 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
Title of securities being registered: Flexible Payment Variable Life Insurance
Policies.
It is proposed that this filing will become effective:
__immediately upon filing pursuant to paragraph (b)
X on May 1, 1999 pursuant to paragraph (b)
__60 days after filing pursuant to paragraph (a)(1)
___ on pursuant to paragraph (a)(1)
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
Item No. of
Form N-8B-2 Caption in Prospectus
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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 of Transamerica, 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
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2
3
PROSPECTUS FOR
TRANSAMERICA SERIESsm TRANSAMERICA TRIBUTE(R)
VARIABLE UNIVERSAL LIFE INSURANCE
An Individual Flexible Payment Variable Life Insurance Policy
Issued By
Transamerica Occidental Life Insurance Company
Offering 17 Sub-Accounts Under Separate Account VUL-1
In Addition to a Fixed Account
Portfolio Options
Alger American Income & Growth MFS VIT Research
Alliance VPF Growth & Income MSDW UF Fixed Income
Alliance VPF Premier Growth MSDW UF High Yield
Dreyfus VIF Capital Appreciation MSDW UF International Magnum
Dreyfus VIF Small Cap OCC Accumulation Trust Managed
Janus Aspen Balanced OCC Accumulation Trust Small Cap
Janus Aspen Worldwide Growth Transamerica VIF Growth
MFS VIT Emerging Growth Transamerica VIF Money Market
MFS VIT Growth with Income
Please read and retain this prospectus.
It contains information you should know
before investing.
Neither the SEC nor the state securities commissions have approved this
investment offering or determined that this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
The SEC's web site is http://www.sec.gov
Transamerica's web site is
http://www.transamerica.com
You bear the entire investment risk for all assets you place in the
sub-accounts. Additionally, please analyze any current policies you may own
before investing in this policy. It may not be to your advantage to replace
existing insurance with this policy.
Transamerica has established adequate safeguards for monitoring whether a policy
may become a modified endowment contract for federal income tax purposes.
May 1, 1999
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Table of Contents
SUMMARY 5
DESCRIPTION OF TRANSAMERICA, THE SEPARATE ACCOUNT
AND THE
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PORTFOLIOS...............................................................................17
THE
POLICY................................................................................................18
Application for a
Policy.........................................................................18
Term Life Insurance
Conversions..................................................................19
Free Look
Period.................................................................................19
Conversion
Privilege.............................................................................20
Payments.........................................................................................20
Allocation of Net
Payments.......................................................................21
Transfer
Privilege...............................................................................21
Dollar Cost Averaging............................................................................
Automatic Asset Rebalancing......................................................................
Death
Benefit....................................................................................23
Level Option and Adjustable
Option...............................................................23
Change to Level or Adjustable
Option.............................................................24
Change in Face
Amount............................................................................25
Option to Accelerate Death Benefits (Living Benefits Rider)
.....................................26
Policy
Value.....................................................................................26
Maturity
Benefits................................................................................27
Payment
Options..................................................................................28
Optional Insurance
Benefits......................................................................28
Surrender........................................................................................28
Partial
Withdrawal...............................................................................28
Paid-Up Insurance
Option.........................................................................28
CHARGES AND
DEDUCTIONS....................................................................................29
Payment Expense
Charge...........................................................................29
Monthly Insurance Protection
Charge..............................................................29
Charges Against or Reflected in the Assets
of the Separate
Account.......................................................................31
Surrender
Charges................................................................................32
Partial Withdrawal
Costs.........................................................................33
Transfer
Charges.................................................................................33
Charges for Change in Face
Amount................................................................33
Other Administrative
Charges.....................................................................33
POLICY
LOANS..............................................................................................34
Preferred Loan
Option............................................................................34
Loan Interest
Charged............................................................................34
Repayment of Outstanding
Loan....................................................................34
Effect of Policy
Loans...........................................................................35
POLICY TERMINATION AND
REINSTATEMENT......................................................................35
Termination......................................................................................35
Reinstatement....................................................................................36
OTHER POLICY
PROVISIONS...................................................................................36
Policy Owner
....................................................................................36
Beneficiary......................................................................................36
Assignment.......................................................................................37
Limit on the Right to Challenge
Policy...........................................................37
Suicide..........................................................................................37
Misstatement of Age or
Sex.......................................................................37
Delay of
Payments................................................................................37
FEDERAL TAX
CONSIDERATIONS................................................................................38
Transamerica Occidental Life Insurance Company and
The Separate
Account..........................................................................38
Taxation of the
Policies.........................................................................38
Policy
Loans.....................................................................................39
Interest
Disallowance............................................................................39
Modified Endowment
Contracts.....................................................................39
Distribution Under Modified Endowment
Contracts..................................................39
VOTING
RIGHTS.............................................................................................40
DIRECTORS AND PRINCIPAL OFFICERS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY...................................................41
DISTRIBUTION..............................................................................................42
REPORTS 42
PERFORMANCE
INFORMATION...................................................................................43
LEGAL
PROCEEDINGS.........................................................................................48
ADDITIONS, DELETION OR SUBSTITUTION OF
INVESTMENTS........................................................48
YEAR 2000
ISSUE...........................................................................................49
FURTHER
INFORMATION.......................................................................................49
MORE INFORMATION ABOUT THE FIXED
ACCOUNT..................................................................49
General
Description..............................................................................49
Fixed Account
Interest...........................................................................50
Transfers, Surrenders, Partial Withdrawals and Policy
Loans......................................50
INDEPENDENT
AUDITORS......................................................................................50
FINANCIAL
STATEMENTS......................................................................................50
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 OF DEATH BENEFIT, Policy Values and Accumulated
Payments.......................A-4
APPENDIX E - MAXIMUM SURRENDER
CHARGES....................................................................A-13
APPENDIX F- SPECIAL
TERMS.................................................................................A-15
APPENDIX G - CONDENSED FINANCIAL INFORMATION..............................................................A-17
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50
51Summary
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.
The policies are not suitable for short-term investment because of the
substantial nature of the surrender charge.
What is the Policy's Objective?
The objective of the policy is to give permanent life insurance protection and
to help you build assets on a tax-deferred basis. Features available through the
policy include:
a net death benefit that can protect your family or beneficiaries;
payment options that can guarantee an income for life;
a personalized investment portfolio;
experienced professional investment advisers; and
tax deferral on earnings.
While the policy is in force, it will provide:
life insurance coverage on the insured;
policy value;
surrender rights and partial withdrawal rights;
loan privileges; and
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 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 partial withdrawals, partial withdrawal charges and any
outstanding loans, will guarantee that the policy will not lapse. See Payments
on page 20 and POLICY TERMINATION AND REINSTATEMENT on page 35.
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, or level option, the death benefit is the
greater of either:
(a) the face amount (the amount of insurance issued adjusted for policy
changes); or
(b) the guideline minimum sum insured, which constitutes the minimum death
benefit required by federal tax law.
Under the adjustable death benefit option, or adjustable option, the death
benefit is the greater of either:
(a) the sum of the face amount and policy value; or (b) the guideline minimum
sum insured.
The net death benefit is the death benefit less:
any outstanding loan;
any due and unpaid partial withdrawals;
any due and unpaid partial withdrawal charges; and
any monthly insurance protection charges due.
Except as provided otherwise under the Guaranteed Death Benefit Rider option,
after the final payment date, the net death benefit is 101% of the policy value
less:
any outstanding loan;
any due and unpaid partial withdrawals; and
any due and unpaid partial withdrawal charges.
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
on page 23.
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:
45 days after the application for the policy is signed; or
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:
amounts allocated to the fixed account; plus
the current value in the separate account; plus
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 on page 19.
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:
Alger American Income & Growth Alliance VPF Growth & Income Alliance VPF Premier
Growth Dreyfus VIF Capital Appreciation Dreyfus VIF Small Cap Janus Aspen
Balanced Janus Aspen Worldwide Growth MFS VIT Emerging Growth MFS VIT Growth
with Income MFS VIT Research MSDW UF Fixed Income MSDW UF High Yield MSDW UF
International Magnum OCC Accumulation Trust Managed OCC Accumulation Trust Small
Cap Transamerica VIF Growth Transamerica VIF Money Market
This range of investment choices allows you to allocate your money among the
sub-accounts to meet your investment needs. Your policy may provide for a full
refund under its right to examine policy provision as required in your state. If
so, 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. We will maintain this allocation
until the end of four calendar days plus the number of days under the state free
look period. This period is 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 on page
50.
Investment Objectives and Policies, and Investment Advisers
A summary of investment objectives of the portfolios is set forth below. Before
investing, carefully read the 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. The 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. 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 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 expenses incurred in its operation, other than the expenses
its advisers assume under the management agreement. Portfolio expenses include:
costs to register and qualify the portfolio's shares under the Securities
Act of 1933, or 1933 Act. other fees payable to the SEC.
independent public accountant, legal and custodian fees.
association membership dues, taxes, interest, insurance payments and
brokerage commissions.
fees and expenses of the board members who are not affiliated with the
advisers.
The management fees listed below are fees specified in the applicable advisory
contract before any fee waivers. The portfolios' prospectuses contain more
detailed informa-tion on the portfolio's investment objectives, restrictions,
risks, expenses and advisers.
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 Premier Growth Portfolio of the 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 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. These equity
securities will consist of common stocks, securities convertible into common
stocks and rights and warrants to subscribe for or purchase common stocks. 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: 1.00%.
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 characterized by market strength, the portfolio acts
aggressively to increase shareholder's 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 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 of domestic and foreign issuers. 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 adviser believes to be characterized by new or innovative
products or services, or processes which should enhance prospects for growth in
future earnings.
Adviser: The Dreyfus Corporation.
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 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 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 investment policy is to invest primarily, that is, 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 as 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 net 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 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 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, 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 known 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 Fixed Income Portfolio of the MSDW 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 securities, 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 High Yield Portfolio of the MSDW 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 the first
$500 million plus 0.45% of the next $500 million plus 0.40% of the assets over
$1 billion.
The International Magnum Portfolio of the MSDW 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: MSDW Investment 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 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 the first $400 million plus
0.75% of the next $400 million plus 0.70% of the assets over $800 million.
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 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. The Growth Portfolio invests primarily in common stocks of growth
companies that are considered by the sub-adviser to be premier companies. In the
sub-adviser's view, characteristics of premier companies include one or more of
the following: dominant market share; leading brand recognition; proprietary
products or technology; low-cost production capability; and excellent management
with shareholder orientation. The sub-adviser of the portfolio believes in
long-term investing and places great emphasis on the sustainability of the above
competitive advantages. Unless market conditions indicate otherwise, the
sub-adviser also tries to keep the portfolio fully invested in equity-type
securities and does not try to time stock market movements. 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 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:
effective date of the change in the investment policy, or
receipt of the notice of your right to transfer.
Portfolios Not Publicly Available
The portfolios are open-end management investment companies or portfolios of
series, open-end management companies registered with the SEC under the 1940 Act
that are often 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. These portfolios are not the same as mutual funds
that may have very similar names that are sold directly to the public. 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.
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. Under current tax law, 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 on page 21.
How Much Can I Invest and How Often?
The number and frequency of your payments are flexible, within limits. See
Payments on page 20.
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:
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%.
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 annual interest
rate credited is 7.2%. We may change the interest rate credited at any time
in our sole discretion.
For policies issued subject to the jurisdiction of the Virgin Islands, the
guaranteed annual interest rate credited on a preferred loan is 5.5%; the
guaranteed annual interest rate credited on a non-preferred loan is 4.0%; and
the current annual interest rate credited on a non-preferred loan is 5.2%.
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.
You may surrender your policy and receive its surrender value. 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. A surrender or partial withdrawal may have
tax consequences.
Can I Make Future Changes Under My Policy?
Yes. There are several changes you can make after receiving your policy, within
limits. You may:
cancel your policy under its right to examine and cancel provision.
transfer your ownership to someone else.
change the beneficiary.
change the allocation of payments.
transfer portions of the policy value among the fixed account and the
sub-accounts, with no tax consequences under current law.
adjust the death benefit by increasing or decreasing the face amount.
change your choice of death benefit options between the level option and
adjustable option.
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 on page 29.
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.
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. It is deducted on
each monthly processing date starting with the date of issue and continuing
through the final payment date.
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. They
are described in the section entitled What are the Fees and Expenses of the
Portfolios? on page 15.
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 the policy value. In
some jurisdictions, no charge is imposed for increases in face amount.
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:
changing net payment allocation instructions
changing the allocation of monthly insurance protection charges among
the various sub-accounts
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 - These charges only apply if you request a full
surrender of your policy or a decrease in face amount during the time the
charges are in effect. Surrender charges are intended to help compensate us
for certain administrative expenses and certain distribution expenses.
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. 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 charge 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 charges from
the policy value for partial withdrawals:
a transaction fee of 2.0% of the amount withdrawn, not to exceed $25,
for each partial withdrawal for processing costs.
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:
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).
withdrawals when no surrender charges apply.
We reduce the policy's outstanding surrender charges, if any, by partial
withdrawal charges that we previously deducted.
<PAGE>
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 1998. For more information concerning these fees and expenses,
see the prospectuses of the portfolios.
<PAGE>
<TABLE>
<CAPTION>
Portfolio Expenses
(as a percentage of assets after fee waiver and/or expense reimbursement)(1)
Total
Portfolio
Management Other Annual
Portfolio Fees (2) Expenses Expenses
- --------- ---- -------- --------
<S> <C> <C> <C>
Alger American Income and Growth 0.625% 0.075% 0.70%
Alliance VPF Growth and Income 0.625% 0.105% 0.73%
Alliance VPF Premier Growth 0.97% 0.09% 1.06%
Dreyfus VIF Capital Appreciation 0.75% 0.06% 0.81%
Dreyfus VIF Small Cap 0.75% 0.02% 0.77%
Janus Aspen Balanced 0.72% 0.02% 0.74%
Janus Aspen Worldwide Growth 0.65% 0.07% 0.72%
MFS VIT Emerging Growth 0.75% 0.10% 0.85%
MFS VIT Growth with Income 0.75% 0.13% 0.88%
MFS VIT Research 0.75% 0.11% 0.86%
MSDW UF Fixed Income 0.06% 0.64% 0.70%
MSDW UF High Yield 0.15% 0.65% 0.80%
MSDW UF International Magnum 0.15% 1.00% 1.15%
OCC Accumulation Trust Managed 0.78% 0.04% 0.82%
OCC Accumulation Trust Small Cap 0.80% 0.08% 0.88%
Transamerica VIF Growth 0.64% 0.21% 0.85%
Transamerica VIF Money Market 0.00% 0.60% 0.60%
</TABLE>
We may receive payment 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. We have no reason to doubt the accuracy of that information, but we
have not verified those figures. These figures are for the year ended December
31, 1998. Actual expenses in future years may be higher or lower than these
figures.
Notes to Fee Table:
(1) From time to time, the portfolio's 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
Portfolio Expenses table are the expenses paid for 1998. The expenses shown
in the table reflect a portfolio's adviser's waivers of fees or
reimbursement of expenses, if applicable. It is anticipated that such
waivers or reimbursements will continue for calendar year 1999. Without
such waivers or reimbursements, the annual expenses for 1998 for certain
portfolios would have been, as a percentage of assets, as follows:
<TABLE>
<CAPTION>
Total Portfolio
Management Fee Other Annual
Portfolio Expenses Expenses
- --------- -------- --------
<S> <C> <C> <C>
Alliance VPF Premier Growth 1.00% 0.09% 1.09%
Janus Aspen Worldwide Growth 0.75% 0.07% 0.74%
MSDW UF Fixed Income 0.40% 0.64% 1.04%
MSDW UF High Yield 0.50% 0.65% 1.15%
MSDW UF International Magnum 0.80% 1.00% 1.80%
Transamerica VIF Growth 0.75% 0.21% 0.96%
Transamerica VIF Money Market 0.35% 2.68% 3.03%
</TABLE>
There were no fee waivers or expense reimbursements during 1998 for the
Alger American Income and Growth Portfolio, Alliance VPF Growth and Income,
Dreyfus VIF Capital Appreciation Portfolio, Dreyfus VIF Small Cap
Portfolio, Janus Aspen Balanced Portfolio, MFS VIT Emerging Growth
Portfolio, MFS VIT Growth with Income Portfolio, MFS VIT Research
Portfolio, OCC Accumulation Trust Managed Portfolio or OCC Accumulation
Trust Small Cap 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, and Investment Advisers,
on page 7 and in the prospectuses for the portfolios.
<PAGE>
What are the Lapse and Reinstatement Provisions of My Policy?
The policy will not lapse if you fail to make payments unless the surrender
value is insufficient to cover the next monthly insurance protection charge and
loan interest accrued. Additionally, if the outstanding loan exceeds the policy
value less surrender charges, the outstanding loan will be in default.
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, adjusted for
policy changes, if any.
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. Once terminated, this rider may not be reinstated. The
Guaranteed Death Benefit Rider will not prevent an outstanding loan from going
into default if the outstanding loan exceeds the policy value less surrender
charges. In that case, your policy will terminate without value unless you pay
the required premium within the 62-day grace period. The Guaranteed Death
Benefit Rider may not be available in all jurisdictions and is not available in
Texas. See POLICY TERMINATION AND REINSTATEMENT on page 35.
You may reinstate your policy within three years after the date of default,
within limits and subject to state law.
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 on page 28.
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. However, during the first 15 policy years an income-out first rule
applies to certain distributions required under Section 7702 of the Internal
Revenue Code (Code) because of a reduction of 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 the
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 during the insured's lifetime, including
policy loans, partial withdrawals, surrenders, pledges 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. See Federal Tax
Considerations - Modified Endowment Contracts on page 39.
DESCRIPTION OF TRANSAMERICA, THE SEPARATE ACCOUNT AND THE PORTFOLIOS
Transamerica Occidental Life Insurance Company, or Transamerica, is a stock life
insurance company incorporated under the laws of the State of California on June
30, 1906. Transamerica is principally engaged in the sale of life insurance and
annuity policies. The home office of Transamerica is 1150 South Olive Street,
Los Angeles, California 90015. Transamerica is a wholly-owned subsidiary of
Transamerica Insurance Corporation of California, which in turn is a subsidiary
of Transamerica Corporation.
On February 18, 1999, Transamerica Corporation announced that it had signed a
merger agreement with AEGON N.V., one of the world's leading international
insurance groups, providing for AEGON's acquisition of all of Transamerica's
outstanding common stock for a combination of cash and AEGON stock worth $9.7
billion. The closing of the transaction is expected to occur during the summer
of 1999.
Insurance Marketplace Standards
Association
In recent years, the insurance industry has recognized the need to develop
specific principles and practices to help maintain the highest standards of
marketplace behavior and enhance credibility with consumers. As a result, the
industry established the Insurance Marketplace Standards Association (IMSA).
As an IMSA member, we agree to follow a set of standards in our advertising,
sales and service for individual life insurance and annuity products. The IMSA
logo, which you will see on our advertising and promotional materials,
demonstrates that we take our commitment to ethical conduct seriously.
The Separate Account
Transamerica Occidental Life Separate Account VUL-1, designated as the 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 Exchange Commission, or
SEC, under the Investment Company Act of 1940, or 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
The Income and Growth Portfolio of the Alger American Fund
The Growth and Income Portfolio and
The Premier Growth Portfolio of the Alliance Variable Products Series Fund, Inc.
The Capital Appreciation Portfolio and The Small Cap Portfolio of the Dreyfus
Variable Investment Fund
The Balanced Portfolio and The Worldwide Growth Portfolio of the Janus Aspen
Series
The Emerging Growth Series, The Growth with Income Series and The Research
Series of the MFS Variable Insurance Trust
The Fixed Income Portfolio, The High Yield Portfolio and The International
Magnum Portfolio of the MSDW Universal Funds, Inc.
The Managed Portfolio and The Small Cap Portfolio of the OCC Accumulation Trust
The Growth Portfolio and The Money Market Portfolio of the Transamerica Variable
Insurance Fund, Inc.
THE POLICY
Application For a Policy
We offer policies to proposed insureds 80 years old and younger. In some
jurisdictions, however, the policy is not available to proposed insureds less
than 18 years old. 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 our 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, we will initially allocate your sub-account investments to the
sub-account investing in the Money Market portfolio. 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.
Term Life Insurance Conversions
Owners of term life insurance policies issued by us may convert their term
insurance coverage to coverage under a policy without providing new evidence of
insurability, within limits. Conversions are subject to the provisions of any
conversion option attached to the term life insurance policy or to any change of
plan option attached to certain term-like insurance policies. Generally, a
conversion permits an owner of a term life insurance policy to replace the term
life insurance coverage with an equal amount of life insurance coverage issued
under a Transamerica Tribute(R) policy. This is done under a policy issued on
the same insured at the same underwriting class, if available under the policy,
as on the term policy, without providing new evidence of insurability. Requests
for a change in underwriting class or other changes generally will require new
evidence of insurability, however.
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:
45 days after the application for the policy is signed; or
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:
amounts allocated to the fixed account; plus
the policy value in the separate account; plus
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:
45 days after the application for the increase is signed; or
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. 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 receive 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 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 by us, 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 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. The rider may not be available in all jurisdictions and is
not available in Texas.
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.
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 seventeen sub-accounts, plus the fixed account, 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 the combined percentages 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, we 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 our 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:
minimum amount that may be transferred;
minimum amount that may remain in a sub-account following a transfer
from that sub-account;
minimum period between transfers involving the fixed account; or
maximum amounts that may be transferred from the fixed account.
Transfers involving the fixed account are currently permitted only if:
there has been at least a 90 day period since the last transfer from the
fixed account; and
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, or
DCA option, or the automatic account rebalancing, or 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 you may not have value in more than seventeen
sub-accounts, including the Money Market sub-account, at any time. The DCA
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 AAR 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. You may not have value in more than seventeen sub-accounts at any
time. The minimum percentage allocation without our consent is 5% for each
selected sub-account. 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 DCA or AAR 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.
The following transfers will not count toward the 12 free transfers:
any transfers made for a conversion privilege;
transfers to or from the Money Market sub-account during the free-look
period if your policy provides for a full refund of payments under the
free-look provision;
transfers because of a policy loan or a policy loan repayment; and
transfers because of a material change in investment policy.
Death Benefit
If the policy is in force on the date the insured dies, 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. The beneficiary
may receive the net death benefit in a lump sum or under a payment option.
If the insured dies on or before the final payment date and before the paid-up
insurance option is exercised, the net death benefit is:
the death benefit provided under the level option or adjustable option,
whichever is elected and in effect on the date of death; plus
any other insurance on the insured's life that is provided by rider; minus
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.
If the insured dies after the final payment date and except as otherwise
provided in the Guaranteed Death Benefit Rider, the net death benefit is:
101% of the policy value; minus
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:
face amount; or
guideline minimum sum insured.
Under the adjustable option, the death benefit is the greater of the:
face amount plus policy value; or
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 under the
adjustable option 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 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 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 provision.
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:
the death benefit under the level option; minus
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:
the new face amount; or
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:
the monthly processing date on or next following the date of receipt of
your written request; or
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:
$40; plus
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. In some
jurisdictions, there is no transaction charge assessed for an increase in face
amount. In these jurisdictions, a payment must accompany a request for a face
amount increase if the surrender value is less than two minimum monthly
payments. 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. 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, for example, 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, the 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 is 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 smallest 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 actuarially
calculated present value of the option amount adjusted to reflect the actuarial
present value of lost future mortality charges and to reflect any outstanding
loans. The methodology used in this calculation is on file with state
departments of insurance, where required. 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 amount increase and ending with the initial face amount; and
the 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.
The rider may not be available in all jurisdictions.
Policy Value
The policy value is the total value of your policy. It is the sum of:
your accumulation in the fixed account, including amounts securing any
outstanding loans; plus
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 can not be predetermined.
Your policy value is affected by the:
frequency and amount of your net payments;
interest credited in the fixed account;
investment performance of your sub- accounts;
partial withdrawals;
loans, loan repayments and loan interest paid or credited;
charges and deductions under the policy; and
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:
the value of the amounts allocated to the fixed account and sub-accounts,
net of mortality and expense risk charges, administration charges and
portfolio expenses; minus
the monthly insurance protection charge due.
On each valuation date after the date of issue, the policy value is the sum of:
accumulations in the fixed account; plus
the sum of the product of:
(a) the number of units in each sub-account; times
(b) 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:
that part of the net payment allocated to the sub-account; divided by
the dollar value of a unit on the valuation date the payment is received
at our Variable Life Service Center.
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, except that the value for the Money Market sub-account was set at
$1.00. The value of a unit on any valuation date after the first valuation date
is the product of:
the dollar value of the unit on the preceding valuation date; times
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.
Maturity Benefits
If the insured is alive on the maturity date, we will pay the surrender value as
of the maturity date to you. 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 we are then offering. Payment options are paid from our
general account and are not based on the investment experience of the separate
account. 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. All riders may not be available
in all jurisdictions, and the names of the riders may vary by jurisdiction.
Surrender
You may surrender the policy and receive its surrender value. The surrender
value is:
the policy value; minus
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.
The surrender value may be paid in a lump sum or under a payment option then
offered by us. 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 by
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. 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:
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;
we will not allow transfers of policy value from the fixed account back to
the separate account;
you may not make further payments;
you may not increase or decrease the face amount or make partial
withdrawals; and
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 insured's 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.
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 0.50% and 3.50%. 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
On each monthly processing date through the final payment 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:
the insurance protection rate times
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:
the insurance protection rate times
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:
the insurance protection rate for the increase times
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:
the insurance protection rate for the increase times
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:
the insurance protection rate for the initial face amount, times
the difference between the guideline minimum insured and:
a) the greater of the face amount or the policy value, if you selected
the level option, divided by 1,000; 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.
Insurance Protection Rates - We base insurance protection rates on the:
male, female or unisex rate table,
age and underwriting class of the insured; and
the effective date of an increase or date of any rider.
For unisex policies, sex-distinct rates do not apply. Unisex rates are not
available in all jurisdictions. For policies issued subject to Montana's
jurisdiction, unisex rates apply to all policies. For the initial face amount,
the insurance protection rates are based on the insured's 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 the insured's 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, and for smokers and non-smokers. Unisex rates use male rates.
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. In some jurisdictions, policies
are not available for proposed insureds who are less than 18 years old.
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:
clerical, accounting, actuarial and legal services;
rent, postage, telephone, office equipment and supplies;
the expenses of preparing and printing registration statements and
prospectuses which are not allocable to sales expense; and
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%. We may realize a profit
from this charge.
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.
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 our
agents, 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 amount 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 that applies to your policy is based on whether:
the insured is male or female;
the insured's age; and
the number of years during which the surrender charges have been effective.
Male rates are used if the policy is issued using unisex rates. 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:
first, those related to the most recent increase;
second, those related to the next most recent increases, and so on; and
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 charges 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:
the decrease divided by the current face amount times
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:
10% of the policy value on the date we receive the written request at our
Variable Life Service Center, minus
the total of any prior free withdrawals in the same policy year, allowed
by the 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 for 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, for example, 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 under the dollar cost averaging or
automatic account rebalancing option, 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:
a conversion within the first 24 months from date of issue or increase;
a transfer to the fixed account to secure a loan;
a transfer from the fixed account because of a loan repayment;
a reallocation of the value in the Money Market sub-account as described
above under THE POLICY- Free Look Period; and
a transfer made because of a material change in investment 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. In some jurisdictions no charge is assessed for an increase in face
amount. 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:
changing net payment allocation instructions;
changing the allocation of monthly insurance protection charges among
the various sub-accounts and the fixed account; or
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:
the policy value minus
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:
the policy value minus
any surrender charges.
In some jurisdictions, the loan value after the first policy year is:
90% of the portion of the policy value in the sub-accounts, minus any
surrender charges which are allocated to the sub-accounts; plus
100% of the portion of the policy value in the fixed account, minus the
monthly insurance protection charges and the loan interest due to the end
of the policy year, which are allocated to the fixed account.
The loan value and the policy value in any 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 amount. 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%, or, for
preferred loans 7.5%. For policies issued subject to the jurisdiction of the
Virgin Islands, the annual interest rate will be at least 4.0% or, for preferred
loans, 5.5%. 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%, or for policies issued subject to the jurisdiction of the
Virgin Islands, 5.5%. There is some uncertainty as to the tax treatment of
preferred loans. Consult a qualified tax adviser.
Loan Interest Charged
Interest accrues daily at the annual rate of 8.0% or for policies issued subject
to the jurisdiction of the Virgin Islands, 6.0%. 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
outstanding loan 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.
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, that is,
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.
For a discussion of the federal tax considerations of policy loans, see FEDERAL
TAX CONSIDERATIONS Policy Loans on page 39.
POLICY TERMINATION AND
REINSTATEMENT
Termination
The policy will be in default if the surrender value is insufficient to cover
the next monthly insurance protection charge plus loan interest accrued.
Additionally, if an outstanding loan exceeds the policy value less surrender
charges, the outstanding loan 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 when you apply for the
policy. 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.
This rider may not be available in all jurisdictions and is not available in
Texas.
Reinstatement - A lapsed policy may be reinstated within three years 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. In some states, a time period other than three years applies
to the reinstatement provision. The reinstatement takes effect on the monthly
processing date following the date you submit to us:
a written application for reinstatement;
evidence of insurability satisfactory to us; and
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:
the minimum monthly payment for the three months beginning on the date of
reinstatement; or
the sum of:
(a) the amount by which the surrender charges or charges on the date of
reinstatement exceeds the policy value on the date of default; plus
(b) 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. In some jurisdictions, however, the surrender charge on
the date of reinstatement is the surrender charge that was in effect on the date
of default.
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. You, as the policy owner, name 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, you or your 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 such defense is 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. If your policy was
issued as a result of a conversion of a term life insurance policy issued by us,
the two year period during which we may challenge the policy with respect to the
coverage amount converted is measured from the later of:
the issue date of the term life insurance policy; or
the most recent date on which that policy was reinstated.
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. If your policy was issued as a result of a conversion
of a term life insurance policy issued by us, then, with respect to the coverage
amount converted, the two year period during which the net death benefit under
the policy will not be paid if the insured commits suicide will be measured from
the later of:
the issue date of the term life insurance policy; or
the most recent date on which that policy was reinstated.
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; or
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, we 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 Code Section 7702. 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 excludability 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 Code Section
7702 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
We believe 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 Code Section 264(a)(4), 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
adviser 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, or MEC, under Code Section 7702A. 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, due to 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 Code Section 72(e)(10), 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. 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 MECs 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 Code Section
72(v), 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 Code Section 72(e)(4)(A), 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, for example, 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 (that is, as of what date) income in the contract should
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:
each policy owner's policy value in the sub-account; divided by
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.
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
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.
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.
<PAGE>
James W. Dederer, CLU* Director, Executive Vice President, General Counsel and
Corporate Secretary of TOLIC since 1988.
Richard H. Finn**** Director and Executive Vice President of Transamerica
Corporation since 1993. Director, President and Chief Executive Officer of
Transamerica Finance Group, Inc. since 1990.
George A. Foegele***** Director and Senior Vice President; President and Chief
Executive Officer of Transamerica Life Insurance Company of Canada.
David E. Gooding* Director and Executive Vice President of TOLIC since 1992.
Edgar H. Grubb**** Director, Executive Vice President and Chief Financial
Officer of Transamerica Corporation since 1993. Senior Vice President of
Transamerica Corporation 1989-1993.
Frank C. Herringer**** Director, President and Chief Executive Officer of
Transamerica Corporation since 1991.
Daniel E. Jund, FLMI* Senior Vice President of TOLIC since 1988.
Richard N. Latzer**** Director, Senior Vice President and Chief Investment
Officer of Transamerica Corporation since 1989. Director, President and Chief
Executive Officer of Transamerica Investment Services, Inc. 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.
Gary U. Rolle'* Director, Executive Vice President and Chief Investment Officer
of Transamerica Investment Services, Inc. since 1981.
Larry Roy*** Senior Vice President Sales and Marketing of Transamerica
Corporation since 1994.
Paul E. Rutledge III*** Director and President, Reinsurance Division since
1998. President, Life Insurance Company of Virginia, 1991-1997.
William N. Scott, CLU, FLMI** Senior Vice President of TOLIC since 1993.
Vice President of TOLIC from 1988 to 1993.
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.
Claude W. Thau, FSA** Senior Vice President of TOLIC since 1996. Vice
President of TOLIC from 1985 to 1996.
Nooruddin S. Veerjee, FSA* President of Insurance Products Division
since 1997. Director, President of Group Pension Division of TOLIC
since 1993. Senior Vice President of TOLIC from 1992 to 1993. Vice
President of TOLIC from 1990 to 1992.
Ron F. Wagley* Senior Vice President and Chief Agency Officer of TOLIC since
1993. Vice President of TOLIC from 1989 to 1993.
Robert A. Watson**** Director and Executive Vice President of Transamerica
Corporation since 1995. President and Chief Executive Officer Westinghouse
Financial Services, 1992-1995.
William R. Wellnitz, FSA*** Senior Vice President and Actuary of TOLIC since
1996. Vice President and Reinsurance Actuary of TOLIC from 1988 to 1996.
*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 business address is 600
Montgomery Street, San Francisco, California 94111. *****The business
address is 300 Consilium Place, Scarborough, Ontario, Canada M1H3G2
Transamerica is insured under a broad manuscript fidelity bond program with
coverage limits of $80,000,000. The lead underwriter is Capital CNA.
DISTRIBUTION
Transamerica Securities Sales Corporation (TSSC) acts as the principal
underwriter and general distributor of the policies. TSSC is registered with the
SEC as a broker-dealer and is a member of the National Association of Securities
Dealers (NASD). Broker-dealers sell the policies through their registered
representatives who are appointed by us.
We pay commissions to broker-dealers who sell the policy based on a commission
schedule. After the date of issue or an increase in face amount, commissions
will be up to 90% of the first-year payments up to a payment amount we
established and up to 5% of any excess. After the first year, commissions will
be up to 2% of payments plus up to 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:
the payment expense charge;
the surrender charge; and
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:
payments;
changes in face amount;
changes in death benefit option;
transfers among sub-accounts and the fixed account;
partial withdrawals;
increases in loan amount or loan repayments;
lapse or default for any reason; and
reinstatement.
We will send you an annual statement that summarizes 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:
the insured is a male age 45, standard non-smoker underwriting class;
the policy owner had allocations in each of the sub-accounts for the
portfolio durations shown; and
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:
Standard & Poor's 500 Stock Index, S&P 500;
Dow Jones Industrial Average, the DJIA;
Shearson Lehman Aggregate Bond Index;
other unmanaged indices of unmanaged securities widely regarded by
investors as representative of the securities markets;
other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services;
other services, companies, publications, or persons such as Morningstar,
Inc., who rank the investment products on performance or other criteria;
and
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 portfolio 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:
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;
the advantages and disadvantages of investing in tax-deferred and taxable
investments;
customer profiles and hypothetical payment and investment scenarios;
financial management and tax and retirement planning; and
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,
1998. 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>
<CAPTION>
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, that 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, 1998.
- -----------------------------------------------------------------------------------------------------------------
10 Year or
Life of the
Portfolio (if
Less than 10 Number
5 Year Years Since of
Average Inception) Years Since
Sub-Account Portfolio 1 Year Total Annual Average Annual Inception
Investing in the Inception Return Total Total Return (if Less
Corresponding Portfolio Date Return than 10
Years)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Income & Growth 11/15/88 -95.05% 9.50% 9.00% 10.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Alliance VPF Growth & Income 1/14/91 -100.00% 8.88% 8.90% 7.97
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Alliance VPF Premier Growth 6/26/92 -81.46% 16.06% 17.08% 6.52
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dreyfus VIF Capital Appreciation 4/05/93 -96.98% 11.45% 11.52% 5.74
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dreyfus VIF Small Cap 8/31/90 -100.00% -0.29% 31.31% 8.34
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced 9/13/93 -93.40% 6.61% 8.22% 5.30
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 9/13/93 -98.07% 9.02% 13.07% 5.30
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MFS VIT Emerging Growth 7/24/95 -93.44% N/A 6.31% 3.44
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MFS VIT Growth with Income 10/09/95 -100.00% N/A 3.72% 3.23
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MFS VIT Research 7/26/95 -100.00% N/A 1.81% 3.44
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MSDW UF Fixed Income 1/02/97 -100.00% N/A -44.29% 1.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MSDW UF High Yield 1/02/97 -100.00% N/A -44.08% 1.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MSDW UF International Magnum 1/02/97 -100.00% N/A -47.52% 1.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Managed(1) 8/01/88 -100.00% 6.67% 13.16% 10.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Small Cap(2) 8/01/88 -100.00% -5.19% 6.26% 10.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth(3) 2/26/69 -85.56% 23.29% 20.85% N/A
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Transamerica VIF Money Market 1/02/98 N/A N/A -100.00%* 1.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-annualized, year-to-date return.
(1) 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.
(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.
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>
<CAPTION>
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.
Returns are for the period ending December 31,1998.
- -----------------------------------------------------------------------------------------------------------------
10 Year or Number
Life of the of
Portfolio (if Years Since
5 Year Less than 10 Inception
Average Years Since (if Less
Sub-Account Portfolio 1 Year Total Annual Inception) than 10
Investing in the Inception Return Total Average Annual Years)
Corresponding Portfolio Date Return Total Return
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Income & Growth 11/15/88 26.08% 19.33% 13.98% 10.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Alliance VPF Growth & Income 1/14/91 15.13% 18.76% 14.16% 7.97
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Alliance VPF Premier Growth 6/26/92 40.92% 25.34% 23.25% 6.52
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dreyfus VIF Capital Appreciation 4/05/93 23.97% 21.11% 19.33% 5.74
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dreyfus VIF Small Cap 8/31/90 -8.04% 10.56% 35.22% 8.34
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced 9/13/93 27.89% 16.71% 17.05% 5.30
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 9/13/93 22.78% 18.89% 21.53% 5.30
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MFS VIT Emerging Growth 7/24/95 27.85% N/A 23.19% 3.44
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MFS VIT Growth with Income 10/09/95 16.50% N/A 22.39% 3.23
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MFS VIT Research 7/26/95 17.43% N/A 19.23% 3.44
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MSDW UF Fixed Income 1/02/97 2.76% N/A 5.17% 1.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MSDW UF High Yield 1/02/97 -0.19% N/A 5.33% 1.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MSDW UF International Magnum 1/02/97 3.77% N/A 2.69% 1.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Managed(1) 8/01/88 2.02% 16.76% 17.69% 10.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Small Cap(2) 8/01/88 -13.36% 6.27% 11.59% 10.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth(3) 2/26/69 36.45% 32.08% 24.75% N/A
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Transamerica VIF Money Market 1/02/98 N/A N/A -0.07%* 1.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-annualized, year-to-date return.
(1) 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.
(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.
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>
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:
the shares of the portfolio are no longer available for investment; or
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. Shares of the
portfolios are also issued to other unaffiliated insurance companies. This
practice is referred to as 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. We do not believe that mixed
funding is currently disadvantageous to either variable life insurance policy
owners or variable annuity policy owners. We will monitor events to identify any
material conflicts among policy owners because of mixed funding. If we conclude
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:
operated as a management company under the 1940 Act;
deregistered under the 1940 Act if registration is no longer required; or
combined with other sub-accounts or our other separate accounts.
YEAR 2000 ISSUE
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because dates are encoded using the standard six-place format
that allows entry of only the last two digits of the year. This is commonly
known as the "Year 2000 Problem".
Regarding our systems and software that administer the policies, we believe that
our own internal systems will be Year 2000 ready. Additionally, we require third
party vendors that supply software or administrative services to us in
connection with the policy administration to certify that such software and/or
services will be Year 2000 ready.
The "Year 2000 Problem" could adversely impact the portfolios if the computer
systems used by the portfolios' investment adviser, sub-adviser, custodian and
transfer agent (including service providers' systems) do not accurately process
date information on or after January 1, 2000. The investment advisers are
addressing this issue by testing the computer systems they use to ensure that
those systems will operate properly on or after January 1, 2000, and seeking
assurances from other service providers they use that their computer systems
will be adapted to address the "Year 2000 Problem" in time to prevent adverse
consequences on or after January 1, 2000. However, especially when taking into
account interaction with other systems, it is difficult to predict with
precision that there will be no disruption of services in connection with the
year 2000.
We continue to believe that we will achieve Year 2000 readiness. However, the
size and complexity of our systems and the need for them to interface with other
systems internally and with those of our customers, vendors, partners,
governmental agencies and other outside parties, creates the possibility that
some systems may experience Year 2000 problems. Although we believe we will be
properly prepared for the date change, we are also developing contingency plans
to minimize any potential disruptions to operations, especially from externally
interfaced systems over which we have limited or no control.
This issue could also adversely impact the value of the securities that the
portfolios invest in if the issuing companies' systems do not operate properly
on or after January 1, 2000, and this risk could be heightened for portfolios
that invest internationally. Refer to the prospectuses for the portfolios for
more information.
The above information is subject to the Year 2000 Readiness Disclosure Act. This
act may limit your legal rights in the event of a dispute.
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.
<PAGE>
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 interest
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.
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% or,
for preferred loans, 7.5%. For policies issued subject to the jurisdiction of
the Virgin Islands, the effective annual yield will be at least 4.0% and, for
preferred loans, 5.5%.
We may delay transfers, surrenders, partial withdrawals, net death benefits and
policy loans from the fixed account for up to six months, subject to state law.
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, 1998 and
1997, and for each of the three years in the period ended December 31, 1998, and
the financial statements of Separate Account VUL-1 at December 31, 1998 and for
the period April 13, 1998 (commencement of operations) to December 31, 1998,
included herein have been audited by Ernst & Young LLP, Independent Auditors, as
set forth in their reports.. The financial statements audited by Ernst & Young
LLP have been included in reliance upon such reports given upon the authority of
such firm experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial statements for Transamerica are included in this prospectus, starting
on the next page. 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>
<PAGE>
04/27/99 9:41 AM
Audited Financial Statements Transamerica Occidental Life Separate Account VUL-1
Period April 13, 1998 (commencement of operations) to December 31, 1999 with
Report of Independent Auditors.
<PAGE>
Separate Account VUL-1
Transamerica Occidental Life Insurance Company
Audited Financial Statements
Period April 13, 1998 (commencement of operations) to December 31, 1998
Contents
Report of Independent Auditors......................1
Statement of Assets and Liabilities.................2
Statement of Operations.............................5
Statement of Changes in Net Assets..................8
Notes to Financial Statements......................11
<PAGE>
7
04/27/99 9:41 AM
Report of Independent Auditors
Unitholders of Separate Account VUL-1
of Transamerica Occidental Life Insurance Company
Board of Directors, Transamerica Occidental Life Insurance Company
We have audited the accompanying statement of assets and liabilities of Separate
Account VUL-1 of Transamerica Occidental Life Insurance Company (comprised of
the Alger American Income & Growth, Alliance VPF Growth & Income, Alliance VPF
Premier Growth, Dreyfus VIF Capital Appreciation, Dreyfus VIF Small Cap, Janus
Aspen Balanced, Janus Aspen Worldwide Growth, MFS VIT Emerging Growth, MFS VIT
Growth with Income, MFS VIT Research, Morgan Stanley UF Fixed Income, Morgan
Stanley UF High Yield, Morgan Stanley UF International Magnum, OCC Accumulation
Trust Managed, OCC Accumulation Trust Small Cap, Transamerica VIF Growth and
Transamerica VIF Money Market sub-accounts) as of December 31, 1998, the related
statement of operations and changes in net assets for the period April 13, 1998
(commencement of operations) to December 31, 1998. These financial statements
are the responsibility of Separate Account VUL-1's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the fund managers. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
sub-accounts comprising Separate Account VUL-1 of Transamerica Occidental Life
Insurance Company at December 31, 1998, the results of their operations and the
changes in their net assets for the period April 13, 1998 (commencement of
operations) to December 31, 1998, in conformity with generally accepted
accounting principles.
April 19, 1999
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Assets And Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Alger
American Alliance VPF Alliance VPF Dreyfus VIF Dreyfus VIF
Income & GrowthGrowth & Income Premier Capital Small
Sub-account Sub-account Growth Appreciation Cap
Sub-account Sub-account Sub-account
--------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C>
Investments, at fair value $ 82,358 $ 153,852 $ 132,853 $ 206,538 $ 224,025
Due from Transamerica Life 3 4 4 3 8
--------------------------------------------------------------------------------
Total assets 82,361 153,856 132,857 206,541 224,033
Liabilities:
Due to Transamerica Life - - - - -
--------------------------------------------------------------------------------
Total liabilities - - - - -
--------------------------------------------------------------------------------
Net assets $ 82,361 $ 153,856 $ 132,857 $ 206,541 $ 224,033
================================================================================
Accumulation units outstanding 6,363.647 13,038.515 9,669.055 16,715.999 23,048.974
================================================================================
Net asset value and redemption
price per unit $ 12.94 $ 11.80 $ 13.74 $ 12.36 $ 9.72
================================================================================
Investment sub-account information
Number of mutual fund shares 6,277.304 7,044.522 4,281.435 5,719.697 4,155.529
Net asset value per share $ 13.12 $ 21.84 $ 31.03 $ 36.11 $ 53.91
Investment cost $ 69,305 $ 141,818 $ 111,512 $ 188,932 $ 205,036
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Assets And Liabilities (continued)
December 31, 1998
Janus MFS VIT Morgan
Janus Aspen MFS VIT Growth Stanley UF
Aspen Worldwide Emerging With MFS VIT Fixed
Balanced Growth Growth Income Research Income
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C>
Investments, at fair value $ 151,540 $ 221,592 $ 122,434 $ 76,635$ 49,090 $ 37,048
Due from Transamerica Life 3 6 - 2 1 -
------------------------------------------------------------------------------------------------
Total assets 151,543 221,598 122,434 76,637 49,091 37,048
Liabilities:
Due to Transamerica Life - - 5 - - -
------------------------------------------------------------------------------------------------
Total liabilities - - 5 - - -
------------------------------------------------------------------------------------------------
Net assets $ 151,543 $ 221,598 $ 122,429 $ 76,637$ 49,091 $ 37,048
================================================================================================
Accumulation units
outstanding 11,764.545 18,247.14 9,642.957 6,460.612 4,172.745 3,503.517
================================================================================================
Net asset value and
redemption price per unit $ 12.88 $ 12.14 $ 12.70 $ 11.86 $ 11.76 $ 10.57
================================================================================================
Investment sub-account
information
Number of mutual fund shares 6,735.090 7,617.480 5,702.544 3,810.803 2,576.908 3,462.490
Net asset value per share $ 22.50 $ 29.09 $ 21.47 $ 20.11$ 19.05 $ 10.70
Investment cost $ 133,745 $ 195,626 $ 102,304 $ 70,301$ 42,477 $ 38,367
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Assets And Liabilities (continued)
December 31, 1998
Morgan Morgan OCC Transamerica VF
Stanley UF Stanley UF OCC Accumulation Transamerica VF Money
High International Accumulation Trust Small Cap Growth Market
Yield Magnum Trust Managed Sub-account Sub-account Sub-account
Sub-account Sub-account Sub-account
------------------------------------------------------------------------------------------------
Assets:
Investments, at fair value $ 84,023 $ 28,936 $ 126,656 $ 31,026$ 742,196 $ 377,777
Due from Transamerica Life - - 2 1 - -
------------------------------------------------------------------------------------------------
Total assets 84,023 28,936 126,658 31,027 742,196 377,777
Liabilities:
Due to Transamerica Life 2 - - - 14 -
------------------------------------------------------------------------------------------------
Total liabilities 2 - - - 14 -
------------------------------------------------------------------------------------------------
Net assets $ 84,021 $ 28,936 $ 126,658 $ 31,027$ 742,182 $ 377,777
================================================================================================
Accumulation units
outstanding 8,300.149 2,776.612 12,247.234 3,419.633 55,929.097 364,086.150
================================================================================================
Net asset value and
redemption price per unit $ 10.12 $ 10.42 $ 10.34 $ 9.07 $ 13.27 $ 1.04
================================================================================================
Investment sub-account
information
Number of mutual fund shares 8,118.198 2,576.704 2,895.666 1,343.136 38,336.55 377,777.41
Net asset value per share $ 10.35 $ 11.23 $ 43.74 $ 23.10$ 19.36 $ 1.00
Investment cost $ 85,306 $ 28,390 $ 121,816 $ 28,734$ 698,738 $ 377,777
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Operations
Period April 13, 1998 (commencement of operations) to December 31, 1998
Alger
American Alliance VPF Alliance VPF Dreyfus VIF Dreyfus VIF
Income & Growth & Income Premier Capital Small
Growth Sub-account Growth Appreciation Cap
Sub-account Sub-account Sub-account Sub-account
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ 45 $ 177 $ - $ 1,052 $ 1,346
Expenses:
Mortality and expense risk charge (3,534) (4,069) (6,275) (6,351) (7,945)
------------------------------------------------------------------------
Net investment income (expense) (3,489) (3,892) (6,275) (5,229) (6,599)
Net realized and unrealized gain (loss) on investments:
Realized gain (loss) on investment
transactions (22) 65 269 (577) (3,418)
Unrealized appreciation
(depreciation) of investments 13,054 12,035 21,341 17,606 18,988
------------------------------------------------------------------------
Net gain (loss) on investments 13,032 12,100 21,610 17,029 15,570
------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 9,543 $ 8,208 $ 15,335 $ 11,730 $ 8,971
========================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Operations (continued)
Period April 13, 1998 (commencement of operations) to December 31, 1998
Janus MFS VIT Morgan
Janus Aspen MFS VIT Growth Stanley UF
Aspen Worldwide Emerging With MFS VIT Fixed
Balanced Growth Growth Income Research Income
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income $ 1,693 $ 448 $ 116 $ - $ - $ 1,637
Expenses:
Mortality and expense risk charge (3,908) (8,153) (5,660) (3,295) (1,575) (1,183)
---------------------------------------------------------------------------------
Net investment income (expense) (2,215) (7,705) (5,544) (3,295) (1,575) 454
Net realized and unrealized gain (loss) on investments:
Realized gain (loss) on investment
transactions 169 (1,358) (616) (153) (60) 2
Unrealized appreciation (depreciation) of
investments 17,794 25,966 20,130 6,335 6,613 (1,319)
---------------------------------------------------------------------------------
Net gain (loss) on investments 17,963 24,608 19,514 6,182 6,553 (1,317)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 15,748 $ 16,903 $ 13,970 $ 2,887 $ 4,978 $ (863)
=================================================================================
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Operations (continued)
Period April 13, 1998 (commencement of operations) to December 31, 1998
Morgan Morgan OCC Transamerica
Stanley UF Stanley UF OCC Accumulation Transamerica VF
High International Accumulation Trust Small VF Money
Yield Magnum Trust Managed Cap Growth Market
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
-----------------------------------------------------------------------------------
Investment income $ 5,519 $ 100 $ 16 $ - $ 61,152 $ 5,582
Expenses:
Mortality and expense risk charge (2,995) (1,623) (3,872) (992) (28,490) (29,529)
-----------------------------------------------------------------------------------
Net investment income (expense) 2,524 (1,523) (3,856) (992) 32,662 (23,947)
Net realized and unrealized gain (loss) on investments:
Realized gain (loss) on investment
transactions (345) - (745) (59) 794 -
Unrealized appreciation (depreciation)
of investments (1,283) 547 4,841 2,292 43,458 -
-----------------------------------------------------------------------------------
Net gain (loss) on investments (1,628) 547 4,096 2,233 44,252 -
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 896 $ (976) $ 240 $ 1,241 $ 76,914 $ (23,947)
===================================================================================
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets
Period April 13, 1998 (commencement of operations) to December 31, 1998
Alger
American Alliance VPF Alliance VPF Dreyfus VIF Dreyfus VIF
Income & Growth & Premier Capital Small
Growth Income Growth Appreciation Cap
Sub-account Sub-account Sub-account Sub-account Sub-account
------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations:
Net investment income (expense) $ (3,489) $ (3,892) $ (6,275) $ (5,299) $ (6,599)
Realized gain (loss) on investment transactions (22) 65 269 (577) (3,418)
Unrealized appreciation (depreciation)
of investments 13,054 12,035 21,341 17,606 18,988
------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 9,543 8,208 15,335 11,730 8,971
From policy related transactions:
Premiums deposited 62,119 74,612 98,221 118,326 113,208
Terminations - - - - -
Transfers between fixed account and sub-accounts 10,699 71,036 19,301 76,485 101,854
------------------------------------------------------------------------
Net increase in net assets resulting from policy
related transactions 72,818 145,648 117,522 194,811 215,062
------------------------------------------------------------------------
Total increase in net assets 82,361 153,856 132,857 206,541 224,033
Net assets at beginning of period - - - - -
------------------------------------------------------------------------
Net assets at end of period $ 82,361 $ 153,856 $ 132,857 $ 206,541 $ 224,033
========================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets (continued)
Period April 13, 1998 (commencement of operations) to December 31, 1998
Janus MFS VIT Morgan
Janus Aspen MFS VIT Growth Stanley UF
Aspen Worldwide Emerging With MFS VIT Fixed
Balanced Growth Growth Income Research Income
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (expense) $ (2,215) $ (7,705) $ (5,544) $ (3,295) $ (1,575) $ 454
Realized gain (loss) on investment
transactions 169 (1,358) (616) (153) (60) 2
Unrealized appreciation (depreciation)
of investments 17,794 25,966 20,130 6,335 6,613 (1,319)
------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 15,748 16,903 13,970 2,887 4,978 (863)
From policy related transactions:
Premiums deposited 119,245 147,074 71,964 66,031 26,441 33,772
Terminations - - - - - -
Transfers between fixed account and
sub-accounts 16,550 57,621 36,495 7,719 17,672 4,139
------------------------------------------------------------------------------------
Net increase in net assets resulting from
policy related transactions 135,795 204,695 108,459 73,750 44,113 37,911
------------------------------------------------------------------------------------
Total increase in net assets 151,543 221,598 122,429 76,637 49,091 37,048
Net assets at beginning of period - - - - - -
------------------------------------------------------------------------------------
Net assets at end of period $ 151,543 $ 221,598 $ 122,429 $ 76,637 $ 49,091 $ 37,048
====================================================================================
</TABLE>
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets (continued)
Period April 13, 1998 (commencement of operations) to December 31, 1998
<TABLE>
<CAPTION>
Morgan Morgan Stanley OCC Transamerica
Stanley UF UF OCC Accumulation Transamerica VF VF
High International Accumulation Trust Small Growth Money
Yield Magnum Trust Managed Cap Sub-account Market
Sub-account Sub-account Sub-account Sub-account Sub-account
-----------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (expense) $ 2,524 $ (1,523) $ (3,856) $ (992) $ 32,662 $ (23,947)
Realized gain (loss) on
investment transactions (345) - (745) (59) 794 -
Unrealized appreciation
(depreciation) of investments (1,283) 547 4,841 2,292 43,458 -
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 896 (976) 240 1,241 76,914 (23,947)
From policy related transactions:
Premiums deposited 77,414 23,861 48,709 21,651 539,439 1,045,010
Terminations - - - - - -
Transfers between fixed account and
sub-accounts 5,711 6,051 77,709 8,135 125,829 (643,286)
-----------------------------------------------------------------------------------------
Net increase in net assets resulting
from policy related transactions 83,125 29,912 126,418 29,786 665,268 401,724
-----------------------------------------------------------------------------------------
Total increase in net assets 84,021 28,936 126,658 31,027 742,182 377,777
Net assets at beginning of period - - - - - -
-----------------------------------------------------------------------------------------
Net assets at end of period $ 84,021 $ 28,936 $ 126,658 $ 31,027 $ 742,182 $ 377,777
=========================================================================================
</TABLE>
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements
December 31, 1998
1. Organization
Separate Account VUL-1 of Transamerica Occidental Life Insurance Company
("Separate Account") was established by Transamerica Occidental Life Insurance
Company ("Transamerica Life") as a separate account under the laws of the State
of California on June 11, 1996. The Separate Account is registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Company Act of 1940, as amended, as a unit investment trust and is designed to
provide life insurance benefits pursuant variable life insurance contracts
("Contract") issued by Transamerica Life. The Separate Account commenced
operations when initial deposits were received on April 13, 1998.
In accordance with the terms of the Policy, all payments are directed either to
the fixed account or to sub-accounts within the separate account Payments
allocated to the Separate Account by policy owners must be allocated to purchase
units of any or all of the Separate Account's seventeen sub-accounts, each of
which invests exclusively in a specific corresponding mutual fund portfolio
("Fund"). The mutual fund portfolios are comprised of the Alger American Income
& Growth, Alliance VPF Growth & Income, Alliance VPF Premier Growth, Dreyfus VIF
Capital Appreciation, Dreyfus VIF Small Cap, Janus Aspen Balanced, Janus Aspen
Worldwide Growth, MFS VIT Emerging Growth, MFS VIT Growth with Income, MFS VIT
Research, Morgan Stanley UF Fixed Income, Morgan Stanley UF High Yield, Morgan
Stanley UF International Magnum, OCC Accumulation Trust Managed, OCC
Accumulation Trust Small Cap, Transamerica VIF Growth and Transamerica VIF Money
Market sub-accounts. The Funds are open-end management investment companies
registered under the Investment Company Act of 1940.
2. Significant Accounting Policies
The accompanying financial statements of the Separate Account have been prepared
on the basis of generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes. Such
estimates and assumptions could change in the future as more information becomes
known which could impact the amounts reported and disclosed herein. The
accounting principles followed and the methods of applying those principles are
presented below:
Investment Valuation--Investments in the Funds' shares are carried at fair (net
asset) value. Realized investment gains or losses on investments are determined
on a specific identification basis. Investment transactions are accounted for on
the date the order to buy or sell is executed (trade date).
<PAGE>
Separate Account VUL-1 of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
December 31, 1998
2. Significant Accounting Policies (continued)
Investment Income--Investment income consists of dividend income (both ordinary
and capital gains) and is recognized on the ex-dividend date. All distributions
received are reinvested in the respective sub-accounts.
Federal Income Taxes--Operations of the Separate Account are part of, and will
be taxed with, those of Transamerica Life, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current federal income tax laws,
income from assets maintained in the Separate Account for the exclusive benefit
of participants generally is not subject to federal income tax.
3. Expenses and Charges
Mortality and expense risk charges are deducted from each sub-account on a daily
basis which is equal, on an annual basis, to 0.65% of the daily net asset value
of the sub-account. This amount may be increased to an annual rate no greater
than 0.80% and is paid to Transamerica Life. For a period not to exceed the
first 20 policy years, an administrative expense charge is also deducted by
Transamerica Life from each sub-account on a daily basis which is equal, on an
annual basis, to 0.15% of the daily net asset value of the sub-account.
The following charges are deducted from a policyholder account by Transamerica
Life and not directly from the Separate Account. Currently, 4% of each payment
is deducted as a payment expense charge. For each partial withdrawal, a
transaction fee of 2% of the amount withdrawn not to exceed $25, is deducted.
The first 12 transfers in a policy year are free. After that, a $10 transfer
charge is deducted from amounts transferred in that policy year. For each
increase or decrease in face amount a transaction charge of $40 is deducted from
the policy value to reimburse the administrative costs of the change.
4. Remuneration
The Separate Account pays no remuneration to directors, advisory boards or
officers or such other persons who may from time to time perform services for
the Separate Account.
<PAGE>
<TABLE>
<CAPTION>
5. Investment Transactions
The aggregate cost of purchases and the aggregate proceeds from the sales of
investments for the period ended December 31, 1998 were:
Alger
American Income Alliance VPF Alliance VPF Dreyfus VIF
& Growth Growth & Income Premier Capital
Sub-account Sub-account Growth Appreciation
Sub-account Sub-account
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate purchases $ 77,850 $ 164,213 $ 120,642 $ 210,827
================================================================
Aggregate proceeds from sales $ 8,524 $ 22,461 $ 9,399 $ 21,318
================================================================
Janus
Dreyfus VIF Janus Aspen MFS VIT
Small Aspen Worldwide Emerging Growth
Cap Balanced Growth Sub-account
Sub-account Sub-account Sub-account
----------------------------------------------------------------
Aggregate purchases $ 224,658 $ 137,047 $ 205,794 $ 111,132
================================================================
Aggregate proceeds from sales $ 16,204 $ 3,470 $ 8,810 $ 8,212
================================================================
MFS VIT Morgan Stanley Morgan Stanley
Growth UF UF
With MFS VIT Fixed High
Income Research Income Yield
Sub-account Sub-account Sub-account Sub-account
----------------------------------------------------------------
Aggregate purchases $ 74,331 $ 43,410 $ 39,377 $ 94,380
================================================================
Aggregate proceeds from sales $ 3,878 $ 874 $ 1,012 $ 8,728
================================================================
Morgan Stanley OCC Transamerica VF
UF OCC Accumulation Transamerica VF Money
International Accumulation Trust Small Cap Growth Market
Magnum Trust Managed Sub-account Sub-account Sub-account
Sub-account Sub-account
--------------------------------------------------------------------------------
Aggregate purchases $ 31,239 $ 132,549 $ 29,404 $ 718,023 $ 1,020,789
================================================================================
Aggregate proceeds from sales $ 2,850 $ 9,988 $ 611 $ 20,079 $ 643,011
================================================================================
</TABLE>
<PAGE>
Audited Consolidated Financial Statements
Transamerica Occidental Life Insurance Company and Subsidiaries
December 31, 1998
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Audited Consolidated Financial Statements
December 31, 1998
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>
-28-
04/21/99 3:12 PM
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transamerica Occidental Life Insurance Company
We have audited the accompanying consolidated balance sheets of Transamerica
Occidental Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, 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,
1998. 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, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
January 22, 1999
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31
1998 1997
--------------------- -------------
(In thousands, except
for share data)
ASSETS
Investments:
<S> <C> <C>
Fixed maturities available for sale $ 28,997,454 $ 29,231,998
Equity securities available for sale 880,141 791,221
Mortgage loans on real estate 789,959 706,939
Policy loans 455,481 451,023
Other long-term investments 121,107 89,426
Short-term investments 1,186,166 324,672
--------------------- ---------------------
32,430,308 31,595,279
Cash 87,125 36,656
Accrued investment income 449,289 481,913
Other receivables 292,694 294,542
Reinsurance recoverable on paid and unpaid losses 1,172,022 920,847
Deferred policy acquisitions costs 2,082,506 2,102,588
Other assets 342,129 299,500
Separate account assets 9,101,014 5,494,703
--------------------- ---------------------
$ 45,957,087 $ 41,226,028
===================== =====================
LIABILITIES AND SHAREHOLDER'S EQUITY
Policy and contract liabilities:
Policyholder contract deposits $ 24,077,627 $ 24,061,811
Reserves for future policy benefits 5,689,577 5,468,611
Policy claims and other 452,534 557,822
--------------------- ---------------------
30,219,738 30,088,244
Income tax liabilities 992,667 814,088
Accounts payable and other liabilities 843,988 482,716
Separate account liabilities 9,101,014 5,494,703
--------------------- ---------------------
41,157,407 36,879,751
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 374,968 422,342
Retained earnings 3,175,020 2,738,151
Foreign currency translation adjustments (49,168) (33,440)
Net unrealized investment gains 1,271,273 1,191,637
--------------------- ---------------------
4,799,680 4,346,277
--------------------- ---------------------
$ 45,957,087 $ 41,226,028
===================== =====================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31
1998 1997 1996
--------------- --------------- ----------
(In thousands)
Revenues:
<S> <C> <C> <C>
Premiums and other considerations $ 1,804,896 $ 1,777,371 $ 1,641,985
Net investment income 2,243,321 2,165,565 2,077,232
Net realized investment gains 277,654 40,263 17,471
--------------- --------------- ---------------
TOTAL REVENUES 4,325,871 3,983,199 3,736,688
Benefits:
Benefits paid or provided 2,782,127 2,727,064 2,558,792
Increase in policy reserves and liabilities 70,221 59,246 57,968
--------------- --------------- ---------------
2,852,348 2,786,310 2,616,760
Expenses:
Amortization of deferred policy acquisition costs 269,261 265,264 235,180
Salaries and salary related expenses 166,832 165,768 158,699
Other expenses 264,198 284,220 224,084
--------------- --------------- ---------------
700,291 715,252 617,963
--------------- --------------- ---------------
TOTAL BENEFITS AND EXPENSES 3,552,639 3,501,562 3,234,723
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 773,232 481,637 501,965
Provision for income taxes 256,363 149,581 164,685
--------------- --------------- ---------------
NET INCOME $ 516,869 $ 332,056 $ 337,280
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Net
Foreign Unrealized
Additional Currency Investment
Common Stock Paid-in Comprehensive Retained Translation Gains
Shares Amount Capital Income Earnings Adjustments (Losses)
(In thousands, except for share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,206,933 $ 27,587 $ 333,578 $ 2,171,412 $ (23,618) $ 38,932
Comprehensive income
Net income $ 337,280 337,280
Other comprehensive income,
net of tax:
Unrealized losses from
investments marked to
fair value (377,804) (377,804)
Reclassification adjustment
for (gains) included in
net income (11,356) (11,356)
Foreign currency
translation adjustment (854) (854)
-------------
Comprehensive loss $ (52,734)
=============
Capital contributions from
parent 2,041
Dividends declared (41,286)
Balance at December 31,
1996 2,206,933 27,587 335,619 2,467,406 (24,472) 549,772
Comprehensive income
Net income $ 332,056 332,056
Other comprehensive income,
net of tax:
Unrealized gains from
investments marked
to fair value 668,036 668,036
Reclassification adjustment
for (gains) included in
net income (26,171) (26,171)
Foreign currency
translation adjustment (8,968) (8,968)
-------------
Comprehensive income $ 964,953
=============
Capital transactions with
parent 86,723
Dividends declared (61,311)
Balance at December 31,
1997 2,206,933 27,587 422,342 2,738,151 (33,440) 1,191,637
Comprehensive income
Net income $ 516,869 516,869
Other comprehensive income,
net of tax:
Unrealized gains (losses)
from investments
marked to fair value (47,374) 260,111 260,111
Reclassification adjustment
for (gains) included in
net income (180,475) (180,475)
Foreign currency
translation adjustment (15,728) (15,728)
------------- -----------
Comprehensive income $ 580,777
=============
Dividends declared (80,000)
Balance at December 31,
1998 2,206,933 $ 27,587 $ 374,968 $ 3,175,020 $ (49,168) $ 1,271,273
============ ========== =========== ============= ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31
1998 1997 1996
--------------- ---------------- ----------
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 516,869 $ 332,056 $ 337,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in:
Reinsurance recoverable (251,175) (91,194) (73,328)
Accounts receivable 130,229 (15,983) (159,309)
Policy liabilities 989,989 1,102,246 949,108
Other assets, accounts payable and other
liabilities, and income taxes 530,661 (89,954) (32,662)
Policy acquisition costs deferred (512,599) (467,730) (388,003)
Amortization of deferred policy acquisition costs 427,203 256,303 268,770
Net realized gains on investment transactions (435,596) (31,302) (51,061)
Other (73,788) (64,651) (15,758)
---------------- ---------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,321,793 929,791 835,037
INVESTMENT ACTIVITIES
Purchases of fixed and equity securities (6,040,371) (9,825,763) (7,362,635)
Purchases of other investments (244,907) (127,437) (334,895)
Sales of fixed and equity securities 6,317,188 8,193,409 5,064,780
Sales of other investments 128,315 129,671 175,001
Maturities of securities 489,280 559,361 506,941
Net change in short-term investments (861,494) (188,946) 75,774
Other (40,665) (53,478) (21,358)
---------------- ---------------- ---------------
NET CASH USED IN
INVESTING ACTIVITIES (252,654) (1,313,183) (1,896,392)
FINANCING ACTIVITIES
Additions to policyholder contract deposits 9,538,924 6,851,644 6,260,653
Withdrawals from policyholder contract deposits (10,477,594) (6,411,213) (5,173,419)
Capital contributions from parent - 3,800 -
Dividends paid to parent (80,000) (60,000) (40,000)
---------------- ---------------- ----------------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (1,018,670) 384,231 1,047,234
---------------- --------------- ---------------
INCREASE (DECREASE) IN CASH 50,469 839 (14,121)
Cash at beginning of year 36,656 35,817 49,938
--------------- --------------- ---------------
CASH AT END OF YEAR $ 87,125 $ 36,656 $ 35,817
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation.
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.
Reclassification: Certain prior year amounts have been reclassified to conform
with current year presentation.
Use of Estimates: Certain amounts reported in the accompanying consolidated
financial statements are based on management's best estimates and judgment.
Actual results could differ from those estimates.
New Accounting Standards: In 1997, the Financial Accounting Standards Board
issued a new standard on reporting comprehensive income, which establishes
standards for reporting and displaying comprehensive income and its components
in the financial statements. This standard is effective for 1998; 1997 and 1996
have been reclassified to reflect the 1998 presentation. Application of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's consolidated results of operations or
financial position.
In 1998, the Financial Accounting Standards Board issued a new standard on
accounting for derivative instruments and hedging activities. This standard is
effective for all quarters of fiscal years beginning after June 15, 1999
(effective for year 2000 for the Company). Application of the statement is not
expected to have a material impact on TOLIC's combined financial position or
results of operations.
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.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 L - 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.
Policy loans--at unpaid balances.
Other long-term investments--at cost, less allowance for possible
impairment.
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.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 related to
non-traditional and investment type products 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. Substantially all 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, funding
agreements, and other 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 2.8% to 13.5% in 1998, 3.0% to 9.7% in 1997 and 2.6% to 9.8% in
1996.
<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 2.25% to 12.0%. 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
1998, 1997 or 1996.
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. The revenue as well as 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.
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.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 agreement generally requires TOLIC to accrue and
settle income tax obligations in amounts that would result if TOLIC filed
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, 1998
U.S. Treasury securities and
obligations of U.S. government
<S> <C> <C> <C> <C>
corporations and agencies $ 297,609 $ 112,717 $ 34 $ 410,292
Obligations of states and political
subdivisions 235,529 23,292 - 258,821
Foreign governments 62,000 7,417 - 69,417
Corporate securities 18,901,026 1,692,527 153,029 20,440,524
Public utilities 3,949,600 426,218 2,255 4,373,563
Mortgage-backed securities 2,988,703 304,073 3,238 3,289,538
Redeemable preferred stocks 148,783 15,519 9,003 155,299
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 26,583,250 $ 2,581,763 $ 167,559 $ 28,997,454
================ ================ ================ ================
Equity securities $ 313,490 $ 578,708 $ 12,057 $ 880,141
================ ================ ================ ================
December 31, 1997
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 273,949 $ 78,390 $ - $ 352,339
Obligations of states and political
subdivisions 219,391 16,765 31 236,125
Foreign governments 81,425 6,996 2 88,419
Corporate securities 18,596,027 1,438,385 57,729 19,976,683
Public utilities 4,017,154 340,580 811 4,356,923
Mortgage-backed securities 3,795,464 342,805 1,977 4,136,292
Redeemable preferred stocks 69,773 24,326 8,882 85,217
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 27,053,183 $ 2,248,247 $ 69,432 $ 29,231,998
================ ================ ================ ================
Equity securities $ 309,637 $ 488,322 $ 6,738 $ 791,221
================ ================ ================ ================
</TABLE>
The cost and fair value of fixed maturities available for sale at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual
<PAGE>
NOTE B--INVESTMENTS (Continued)
<TABLE>
<CAPTION>
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties (in thousands):
Fair
Cost Value
Maturity
<S> <C> <C> <C>
Due in 1999 $ 736,903 $ 776,522
Due in 2000-2003 3,440,803 3,602,491
Due in 2004-2008 5,852,742 6,235,162
Due after 2008 13,415,316 14,938,442
---------------- ----------------
23,445,764 25,552,617
Mortgage-backed securities 2,988,703 3,289,538
Redeemable preferred stock 148,783 155,299
---------------- ----------------
$ 26,583,250 $ 28,997,454
================ ================
</TABLE>
As of December 31, 1997, the Company held a total investment in one issuer,
other than the United States Government or a United States Government agency or
authority, which exceeded 10% of total shareholder's equity as follows (in
thousands):
Name of Issuer Carrying Value
Hill Street Funding LP $ 989,283
The carrying value of those assets that were on deposit with public officials in
compliance with regulatory requirements was $21.4 million and $21.7 million at
December 31, 1998 and 1997, respectively.
<PAGE>
NOTE B--INVESTMENTS (Continued)
<TABLE>
<CAPTION>
Net investment income by major investment category is summarized as follows (in
thousands):
1998 1997 1996
---------------- ---------------- ----------
<S> <C> <C> <C>
Fixed maturities $ 2,138,442 $ 2,096,543 $ 2,005,764
Equity securities 11,153 5,339 5,458
Mortgage loans on real estate 65,350 62,877 58,165
Real estate 9,344 10,886 12,821
Policy loans 27,408 28,080 27,012
Other long-term investments 16,365 511 978
Short-term investments 25,401 12,770 10,616
---------------- ---------------- ----------------
2,293,463 2,217,006 2,120,814
Investment expenses (50,142) (51,441) (43,582)
----------------- ----------------- ----------------
$ 2,243,321 $ 2,165,565 $ 2,077,232
================ ================ ================
Significant components of net realized investment gains (losses) are as follows
(in thousands):
1998 1997 1996
---------------- ---------------- ----------
Net gains (losses) on disposition of investments in:
Fixed maturities $ 74,887 $ (14,482) $ 40,967
Equity securities 402,542 59,834 15,750
Other 5,958 3,459 3,424
---------------- ---------------- ----------------
483,387 48,811 60,141
Provision for impairment (47,791) (17,509) (9,080)
Accelerated amortization of DPAC (157,942) 8,961 (33,590)
----------------- ---------------- ----------------
$ 277,654 $ 40,263 $ 17,471
================ ================ ================
The components of net gains (losses) on disposition of investment in fixed maturities are as follows (in thousands):
1998 1997 1996
Gross gains $ 89,655 $ 82,452 $ 74,817
Gross losses (14,768) (96,934) (33,850)
----------------- ---------------- ----------------
$ 74,887 $ (14,482) $ 40,967
================ ================= ================
</TABLE>
Proceeds from disposition of investment in fixed maturities available for sale
were $5,702.4 million in 1998, $7,896.5 million in 1997 and $4,969.2 million in
1996.
<PAGE>
NOTE B--INVESTMENTS (Continued)
<TABLE>
<CAPTION>
The costs of certain investments have been reduced by the following allowances
for impairment in value (in thousands):
December 31
1998 1997
---------------- -----------
<S> <C> <C>
Fixed maturities $ 70,123 $ 64,168
Mortgage loans on real estate 24,697 24,508
Real estate 665 5,854
Other long-term investments 5,737 5,900
---------------- ----------------
$ 101,222 $ 100,430
================ ================
</TABLE>
<TABLE>
<CAPTION>
The components of net unrealized investment gains in the accompanying
consolidated balance sheet are as follows (in thousands):
December 31
1998 1997
---------------- ----------
Unrealized gains on investment in:
<S> <C> <C>
Fixed maturities $ 2,414,204 $ 2,178,815
Equity securities 566,651 481,584
---------------- ----------------
2,980,855 2,660,399
Fair value adjustments to:
DPAC (633,795) (546,111)
Reserves for future policy benefits (377,000) (281,000)
Reserves for guaranteed index fund (14,255) -
----------------- ----------------
(1,025,050) (827,111)
Related deferred taxes (684,532) (641,651)
----------------- ----------------
$ 1,271,273 $ 1,191,637
================ ================
</TABLE>
<PAGE>
NOTE C--DEFERRED POLICY ACQUISITION COSTS (DPAC)
<TABLE>
<CAPTION>
Significant components of changes in DPAC are as follows (in thousands):
1998 1997 1996
----------------- ---------------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 2,102,588 $ 2,138,203 $ 1,974,211
Amounts deferred:
Commissions 398,578 352,300 290,512
Other 114,021 115,431 97,491
Amortization attributed to:
Net gain on disposition of investments (157,942) 8,961 (33,590)
Operating income (269,261) (265,264) (235,180)
Fair value adjustment (87,684) (239,509) 48,969
Foreign currency translation adjustment (17,794) (7,534) (4,210)
----------------- ----------------- ----------------
Balance at end of year $ 2,082,506 $ 2,102,588 $ 2,138,203
================ ================ ================
</TABLE>
NOTE D--POLICY AND CONTRACT LIABILITIES
<TABLE>
<CAPTION>
Components of policyholder contract deposits are as follows (in thousands):
December 31
1998 1997
---------------- -----------
Liabilities for investment-type products:
Guaranteed investment contracts and
<S> <C> <C>
funding agreements $ 7,444,192 $ 7,766,601
Annuity contracts 11,034,394 11,531,365
Liabilities for non-traditional life insurance
products 5,599,041 4,763,845
--------------- ---------------
$ 24,077,627 $ 24,061,811
=============== ===============
</TABLE>
Obligations under guaranteed investment contracts and funding agreements are
recorded as liabilities at the face value of the agreement, adjusted for draws
paid and interest credited to the account.
<PAGE>
NOTE D-- POLICY AND CONTRACT LIABILITIES (Continued)
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 $377 million as of December 31, 1998, $281 million as of
December 31, 1997, and $195 million as of December 31, 1996.
NOTE E--COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
The components of comprehensive income in the statement of shareholder's equity
are shown net of the following tax provision (benefit) (in thousands):
December 31
1998 1997 1996
---------------- ---------------- -----------
<S> <C> <C> <C>
Unrealized investment gains (losses) $ 140,060 $ 359,712 $ (203,433)
Reclassification adjustment for (gains) included in
net income (97,179) (14,092) (6,115)
Foreign currency transaction adjustments (8,469) (4,829) (460)
----------------- ----------------- -----------------
Income tax effect on comprehensive income $ 34,412 $ 340,791 $ (210,008)
================ ================ =================
</TABLE>
NOTE F--INCOME TAXES
<TABLE>
<CAPTION>
Components of income tax liabilities are as follows (in thousands):
December 31
1998 1997
---------------- -----------
<S> <C> <C>
Current tax liabilities $ 64,412 $ 44,510
Deferred tax liabilities 928,255 769,578
---------------- ----------------
$ 992,667 $ 814,088
================ ================
<PAGE>
NOTE F--INCOME TAXES (Continued)
Significant components of deferred tax liabilities (assets) are as follows (in
thousands):
December 31
1998 1997
---------------- -----------
Deferred policy acquisition costs $ 802,953 $ 783,624
Unrealized investment gains 684,532 641,651
---------------- --------------
Total deferred tax liabilities 1,487,485 1,425,275
Life insurance policy liabilities (517,130) (613,874)
Provision for impairment of investments (35,428) (35,151)
Other-net (6,672) (6,672)
---------------- --------------
Total deferred tax assets (559,230) (655,697)
---------------- --------------
$ 928,255 $ 769,578
================ ==============
</TABLE>
<TABLE>
<CAPTION>
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):
1998 1997 1996
----------------- ---------------- -----------
<S> <C> <C> <C>
Current tax expense $ 132,398 $ 122,201 $ 99,692
Deferred tax expense:
Domestic 112,139 14,731 55,261
Foreign 11,826 12,649 9,732
---------------- ---------------- ---------------
$ 256,363 $ 149,581 $ 164,685
================ ================ ===============
<PAGE>
NOTE F--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):
1998 1997 1996
---------------- ---------------- -----------
Income before income taxes:
Income from U.S. operations $ 724,702 $ 430,449 $ 474,160
Income from foreign operations 48,530 51,189 27,805
--------------- --------------- ---------------
773,232 481,638 501,965
Tax rate 35% 35% 35%
---------------- --------------- ---------------
Federal income taxes at statutory rate 270,631 168,573 175,688
Income not subject to tax (1,949) (3,284) (2,262)
Low income housing credits (17,604) (10,156) (8,175)
Other, net 5,285 (5,552) (566)
--------------- --------------- ---------------
$ 256,363 $ 149,581 $ 164,685
=============== =============== ===============
</TABLE>
Income not subject to tax represents permanent differences between financial
statements and tax income and is composed principally of dividends on common
stock for which a dividend received deduction is taken for federal income tax
purposes. Low income housing credits are recognized over the productive life of
acquired assets. In 1998, the Company recognized a $3.3 million tax expense,
included in other differences, related to an unfavorable settlement of prior
year tax matters.
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, 1998 was $138 million. At
December 31, 1998, $2,305 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 $107.3 million, $58.5 million and $149.1 million were paid
principally to the Company's parent in 1998, 1997 and 1996, respectively.
NOTE G--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 G--REINSURANCE (Continued)
<TABLE>
<CAPTION>
The components of the Company's life insurance in force and premiums and other
considerations are summarized as follows (in thousands):
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
1998
Life insurance in force,
<S> <C> <C> <C> <C>
at end of year $ 232,996,314 $ 315,629,686 $ 307,192,042 $ 224,558,670
==================== =================== =================== ===================
Premiums and other
considerations $ 1,465,483 $ 1,196,972 $ 1,536,385 $ 1,804,896
==================== =================== =================== ===================
Benefits paid or
provided $ 2,392,139 $ 1,243,706 $ 1,633,694 $ 2,782,127
==================== =================== =================== ===================
1997
Life insurance in force,
at end of year $ 241,379,957 $ 207,533,095 $ 225,685,653 $ 259,532,515
==================== =================== =================== ===================
Premiums and other
considerations $ 1,854,918 $ 1,116,613 $ 1,039,066 $ 1,777,371
==================== =================== =================== ===================
Benefits paid or
provided $ 2,287,025 $ 940,461 $ 1,380,500 $ 2,727,064
==================== =================== =================== ===================
1996
Life insurance in force,
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 $ 972,211 $ 1,641,985
==================== =================== =================== ===================
Benefits paid or
provided $ 2,292,822 $ 1,344,790 $ 1,610,760 $ 2,558,792
==================== =================== =================== ===================
</TABLE>
<PAGE>
NOTE H--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 benefits recognized for all plans were $9.1 million
in 1998, $5.4 million in 1997 and $3.1 million in 1996, of which $9.1 million in
1998, $6.1 million in 1997 and $3.7 million in 1996, 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 1998, 1997 and 1996.
NOTE I--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 loans and advances, a fixed maturity investment in a special purpose
subsidiary of Transamerica, investments in a money market fund managed by an
affiliated company, rental of space, and other specialized services, including
administration of pension funds. At December 31, 1998, pension funds
administered for these related companies aggregated $1,969.0 million, the
investment in the special purpose subsidiary was $413.9 million and the
investment in an affiliated money market fund, included in short-term
investments, was $29.5 million. In December 1998, the Company reinsured certain
life insurance obligations totaling $59.0 million with a subsidiary of
Transamerica Corporation.
During 1997, equity securities with a fair value of $177.2 million were received
from Transamerica Corporation. $50 million was used as a partial paydown on a
$200 million note due from Transamerica Corporation. The excess of fair value
over cost less the amount applied to the note was recorded as additional paid-in
capital. During 1998, the Company refined its accounting for this transaction
and decreased the cost of the equity securities obtained and charged paid-in
capital in the amount of $47.4 million. The remaining balance on the note, which
is due in 2013 and bears interest at 7% is $150 million.
In addition, during 1997 the Company received a capital contribution of $15
million from Transamerica corporation.
<PAGE>
NOTE J--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>
1998 1997 1996
------------------- ------------------- ------------
<S> <C> <C> <C>
Statutory net income $ 200,482 $ 96,472 $ 112,296
Statutory capital and surplus, at
end of year 1,844,161 1,556,228 1,249,045
</TABLE>
NOTE K-COMMITMENTS AND CONTINGENCIES
The Company issues synthetic guaranteed investment contracts which guarantee, 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, 1998, commitments to maintain liquidity for
benefit payments on notional amounts of $5.2 billion were outstanding ($3.3
billion at December 31, 1997).
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 the National Organization of Life and Health Insurance Guaranty
Associations. At December 31, 1998 and 1997, the estimated exposures and the
resultant accruals recorded were not material to the consolidated financial
position or results of operations of the Company.
<PAGE>
NOTE K-COMMITMENTS AND CONTINGENCIES (Continued)
Substantially all leases of the Company are operating leases principally for the
rental of real estate. Rental expenses for equipment and properties were $31.0
million in 1998, $28.7 million in 1997 and $20.6 million in 1996. 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, 1998 (in thousands):
Year ending December 31:
1999 $ 17,731
2000 14,913
2001 12,452
2002 11,450
2003 11,499
Later years 56,549
$ 124,594
==================
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 entered into a settlement which was approved on
June 26, 1997. The settlement required prompt notification to affected
policyholders. Administrative and policy benefit costs associated with the
settlement of $31 million pre-tax were accrued in 1997 and $12 million of
additional costs were incurred in 1998. Additional costs related to the
settlement, which are not currently determinable, are not expected to be
material and will be incurred over a period of years. In the opinion of the
Company, any ultimate liability which might result from other litigation would
not have a materially adverse effect on the combined financial position of the
Company or the results of its operations.
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
The carrying values and estimated fair values of financial instruments are as
follows (in thousands):
December 31
-----------------------------------------
1998 1997
----------------------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
Financial Assets:
<S> <C> <C> <C> <C>
Fixed maturities available for sale $ 28,997,454 $ 28,997,454 $ 29,231,998 $ 29,231,998
Equity securities available for sale 880,141 880,141 791,221 791,221
Mortgage loans on real estate 789,959 870,173 706,939 774,556
Policy loans 455,481 432,929 451,023 427,924
Short-term investments 1,186,166 1,186,166 324,672 324,672
Cash 87,125 87,125 36,656 36,656
Accrued investment income 449,289 449,289 481,913 481,913
Financial Liabilities:
Liabilities for investment-type contracts:
Single and flexible premium
deferred annuities 6,180,292 5,828,950 6,779,951 6,261,707
Single premium immediate annuities 4,382,389 5,305,667 4,361,311 5,122,562
Guaranteed investment contracts 3,112,929 3,183,266 3,211,834 3,265,384
Funding agreements and other 4,616,150 4,624,033 4,944,870 4,992,906
Off-balance-sheet assets (liabilities):
Interest rate swap agreements designated
as hedges of liabilities in a:
Receivable position - 20,435 - 8,189
Payable position - (3,507) - (5,247)
</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 income. The
differential to be paid or
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
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 L--FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
The information on derivative instruments is summarized as follows (in
thousands):
Aggregate Weighted
Notional Average
Amount Fixed Rate Fair Value
December 31, 1998
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
<S> <C> <C> <C>
Fixed rate interest $ 577,973 5.37% $ (16,484)
Floating rate interest 325,000 4.75% 22,279
Floating rate interest based on one index and
receives floating rate interest based on
another index 147,562 - 1,096
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest 28,600 5.54% 177
Floating rate interest 2,718,089 5.41% 18,891
Floating rate interest based on one index and
receives floating rate interest based on
another index 262,666 - (2,140)
Interest rate floor agreements 560,500 6.45% 38,380
Swaptions 8,270,000 5.27% 140,482
Others 35,576 .55% 28,536
December 31, 1997
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
Fixed rate interest $ 419,715 6.81% $ 1,820
Floating rate interest 280,905 6.48% 3,000
Floating rate interest based on one index and
receives floating rate interest based on
another index 337,371 - (320)
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest - - -
Floating rate interest 2,252,089 6.17% 4,507
Floating rate interest based on one index and
receives floating rate interest based on
another index 304,820 - (1,565)
Interest rate floor agreements 560,500 6.46% 25,254
Swaptions 8,326,030 4.50% 103,018
Others 29,117 - 15,314
</TABLE>
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
Generally, notional amounts indicate the volume of transactions and estimated
fair values indicate the amounts subject to credit risk.
<TABLE>
<CAPTION>
Activities with respect to the notional amounts are summarized as follows (in
thousands):
Beginning End
of Year Additions Maturities Terminations of Year
1998:
Interest rate swap agreements
designated as hedges of
<S> <C> <C> <C> <C> <C>
securities available for sale $ 1,037,991 $ 469,126 $ 268,364 $ 188,218 $ 1,050,535
Interest rate swap agreements
designated as hedges of
financial liabilities 2,556,909 3,748,545 207,345 3,088,754 3,009,355
Interest rate floor agreements 560,500 - - - 560,500
Swaptions 8,326,030 - 56,030 - 8,270,000
Others 7,359 - 900 35,576
------------------------------- -------------- ------------ ----------------
29,117
$ 12,510,547 $ 4,225,030 $ 531,739 $ 3,277,872 $ 12,925,966
============== ============== ============== ============ ================
1997:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 847,584 $ 322,165 $ 91,858 $ 39,900 $ 1,037,991
Interest rate swap agreements
designated as hedges of
financial liabilities 1,829,301 2,297,133 1,554,525 15,000 2,556,909
Interest rate floor agreements 560,500 - - - 560,500
Swaptions 8,327,570 - - 1,540 8,326,030
Others 20,572 100,200 - 29,117
------------------------------- -------------- ------------ ----------------
108,745
$ 11,673,700 $ 2,639,870 $ 1,746,583 $ 56,440 $ 12,510,547
============== ============== ============== ============ ================
1996:
Interest rate swap agreements
designated as hedges of
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 8,745 - - 108,745
------------------------------- -------------- ------------ ----------------
100,000
$ 3,764,491 $ 9,632,116 $ 1,606,649 $ 116,258 $11,673,700
============== ============== ============== ============ ===========
</TABLE>
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments, derivatives,
fixed maturities and mortgage loans on real estate. The Company places its
temporary cash investments and enters into derivative transactions 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, 1998, the
Company had no significant concentration of credit risk.
NOTE M--SUBSEQUENT EVENT(Unaudited)
On February 18, 1999, Transamerica Corporation announced that it had signed an
agreement with AEGON N.V. (AEGON) providing for AEGON's acquisition of
Transamerica Corporation for cash and stock worth $9.7 billion. In addition,
AEGON N.V. will assume on a consolidated basis approximately $1.1 billion of
Transamerica Corporation's debt. Transamerica Corporation's corporate and
insurance operations will merge with AEGON USA's operations immediately after
closing, which is expected to occur during the summer of 1999.
NOTE N--YEAR 2000 (Unaudited)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations, causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar business
activities.
Based upon recent assessments, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications and replacements of
existing software and certain hardware, disruptions to business activities
caused by the Year 2000 Issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed on time, the Year 2000 Issue
could have an impact on the operations of the Company.
The Company's plan to address the Year 2000 Issue involves the following four
phases: (1) problem determination, (2) planning and resource acquisition, (3)
remediation, and (4) testing and acceptance. The Company has completed phase one
and phase two. A significant portion of the remediation phase was completed as
of December 31, 1998, and remediation is expected to be substantially complete
by March 1999. As of December 31, 1998, Year 2000 readiness testing was well
underway and is expected to be substantially complete by June 1999.
The Company's Year 2000 project also addresses issues related to non-information
technology, embedded software and equipment, the readiness of key business
partners and updating business continuity plans.
<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:
Guideline Minimum Sum Insured Table
<TABLE>
<CAPTION>
Attained Age Percentage Attained Age Percentage
<S> <C> <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>
A-1
<PAGE>
APPENDIX B -
OPTIONAL INSURANCE BENEFITS
<PAGE>
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. The names of the available
riders may vary by jurisdiction.
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 an amount you selected, or the
amount needed to pay the monthly insurance protection charges, or the amount
needed to pay the minimum monthly payment (during the time the minimum monthly
payment applies), whichever is greatest. 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>
B-1
<PAGE>
APPENDIX C -
PAYMENT OPTIONS
<PAGE>
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 us. 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>
C-1
<PAGE>
APPENDIX D -
ILLUSTRATIONS OF DEATH BENEFIT,
POLICY VALUES AND ACCUMULATED PAYMENTS
<PAGE>
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 are assumed to be at an
annual rate of 0.82% of the average daily net assets of the portfolios. The rate
of 0.82% is the simple average of the expense ratios of the portfolios for the
last fiscal year and takes into account expense reimbursement arrangements. The
fees and expenses of each portfolio vary, and in 1998 the total fees and
expenses ranged from an annual rate of 0.60% to an annual rate of 1.05% of
average daily net assets. Some of these expenses reflect expense waivers or
reimbursements by the portfolios' advisers as discussed in Note (1) to the
Portfolio Expenses table. Without these expense waivers or reimbursements, the
expenses for those portfolios would be higher and the simple average would have
been at the annual rate of 1.15% of average net assets. The fees and expenses of
your policy may be more or less than 0.82% in the aggregate, depending on how
you make the allocations of policy value among the sub-accounts. For more
information on portfolio expenses, see the Portfolio Expenses table in this
prospectus and the prospectuses for the portfolios.
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
0.82% of average net assets, the gross annual rates of investment return of 0%,
6% and 12% would produce net annual rates of -1.62%, 4.38% and 10.38%,
respectively, during the first 10 policy years and -1.47%, 4.53% and 10.53%,
respectively, after that.
<PAGE>
D-1
<PAGE>
The hypothetical returns shown in the tables 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>
D-2
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 30
Face Amount: $100,000
Level Option
BASED ON CURRENT MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
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 $685 $100,000 $0 $731 $100,000 $0 $777 $100,000
2 $1,883 $373 $1,359 $100,000 $508 $1,494 $100,000 $649 $1,635 $100,000
3 $2,896 $1,148 $2,024 $100,000 $1,417 $2,293 $100,000 $1,708 $2,584 $100,000
4 $3,960 $1,912 $2,679 $100,000 $2,360 $3,127 $100,000 $2,865 $3,632 $100,000
5 $5,077 $2,656 $3,313 $100,000 $3,331 $3,988 $100,000 $4,122 $4,779 $100,000
6 $6,249 $3,378 $3,926 $100,000 $4,327 $4,875 $100,000 $5,488 $6,036 $100,000
7 $7,480 $4,092 $4,530 $100,000 $5,366 $5,804 $100,000 $6,987 $7,425 $100,000
8 $8,773 $4,786 $5,114 $100,000 $6,435 $6,763 $100,000 $8,621 $8,949 $100,000
9 $10,131 $5,459 $5,678 $100,000 $7,535 $7,754 $100,000 $104047 $10,623 $100,000
10 $11,556 $6,114 $6,223 $100,000 $8,671 $8,780 $100,000 $12,354 $12,463 $100,000
11 $13,052 $6,755 $6,755 $100,000 $9,851 $9,851 $100,000 $14,502 $14,502 $100,000
12 $14,624 $7,264 $7,264 $100,000 $10,957 $10,957 $100,000 $16,746 $16,746 $100,000
13 $16,274 $7,750 $7,750 $100,000 $12,100 $12,100 $100,000 $19,216 $19,216 $100,000
14 $18,006 $8,213 $8,213 $100,000 $13,281 $13,281 $100,000 $21,138 $21,138 $100,000
15 $19,825 $8,652 $8,652 $100,000 $14,499 $14,499 $100,000 $24,937 $24,937 $100,000
16 $21,735 $9,069 $9,069 $100,000 $15,762 $15,762 $100,000 $28,249 $28,249 $100,000
17 $23,741 $9,459 $9,459 $100,000 $17,065 $17,065 $100,000 $31,902 $31,902 $100,000
18 $25,847 $9,828 $9,828 $100,000 $18,415 $18,415 $100,000 $35,940 $35,940 $100,000
19 $28,058 $10,175 $10,175 $100,000 $19,815 $19,815 $100,000 $40,406 $40,406 $100,000
20 $30,379 $10,498 $10,498 $100,000 $21,266 $21,266 $100,000 $45,349 $45,349 $100,000
Age 60 $61,041 $12,034 $12,034 $100,000 $38,958 $38,958 $100,000 $134,396 $134,396 $180,090
Age 65 $82,982 $11,221 $11,221 $100,000 $50,554 $50,554 $100,000 $224,738 $224,738 $274,180
Age 70 $110,985 $8,900 $8,900 $100,000 $64,874 $64,874 $100,000 $372,198 $372,198 $431,750
Age 75 $146,725 $3,848 $3,848 $100,000 $83,093 $83,093 $100,000 $613,635 $613,635 $656,590
- --------------------------------------------------------------------------------------------------------------------------------
</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.
D-3
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 30
Face Amount: $100,000
Level Option
BASED ON GUARANTEED MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- -------------------------------------------------------------------------------------------------------------------------------
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 $729 $100,000 $0 $775 $100,000
2 $1,883 $370 $1,356 $100,000 $505 $1,491 $100,000 $645 $1,631 $100,000
3 $2,896 $1,142 $2,018 $100,000 $1,410 $2,286 $100,000 $1,700 $2,576 $100,000
4 $3,960 $1,901 $2,668 $100,000 $2,348 $3,115 $100,000 $2,852 $3,619 $100,000
5 $5,077 $2,640 $3,297 $100,000 $3,312 $3,969 $100,000 $4,101 $4,758 $100,000
6 $6,249 $3,356 $3,904 $100,000 $4,301 $4,849 $100,000 $5,456 $6,004 $100,000
7 $7,480 $4,064 $4,502 $100,000 $5,330 $5,768 $100,000 $6,941 $7,379 $100,000
8 $8,773 $4,750 $5,078 $100,000 $6,387 $6,715 $100,000 $8,558 $8,886 $100,000
9 $10,131 $5,415 $5,634 $100,000 $7,475 $7,694 $100,000 $10,320 $10,539 $100,000
10 $11,556 $6,061 $6,170 $100,000 $8,595 $8,704 $100,000 $12,245 $12,354 $100,000
11 $13,052 $6,676 $6,676 $100,000 $9,737 $9,737 $100,000 $14,336 $14,336 $100,000
12 $14,624 $7,163 $7,163 $100,000 $10,805 $10,805 $100,000 $16,515 $16,515 $100,000
13 $16,274 $7,620 $7,620 $100,000 $11,899 $11,899 $100,000 $18,903 $18,903 $100,000
14 $18,006 $8,060 $8,060 $100,000 $13,032 $13,032 $100,000 $21,531 $21,531 $100,000
15 $19,825 $8,471 $8,471 $100,000 $14,195 $14,195 $100,000 $24,417 $24,417 $100,000
16 $21,735 $8,854 $8,854 $100,000 $15,390 $15,390 $100,000 $27,589 $27,589 $100,000
17 $23,741 $9,211 $9,211 $100,000 $16,619 $16,619 $100,000 $31,078 $31,078 $100,000
18 $25,847 $9,530 $9,530 $100,000 $17,874 $17,874 $100,000 $34,913 $34,913 $100,000
19 $28,058 $9,823 $9,823 $100,000 $19,167 $19,167 $100,000 $39,141 $39,141 $100,000
20 $30,379 $10,806 $10,806 $100,000 $20,491 $20,491 $100,000 $43,798 $43,798 $100,000
Age 60 $61,041 $9,819 $9,819 $100,000 $35,527 $35,527 $100,000 $127,349 $127,349 $170,648
Age 65 $82,982 $6,131 $6,131 $100,000 $43,594 $43,594 $100,000 $210,138 $210,138 $256,368
Age 70 $110,985 $0 $0 $100,000 $51,201 $51,201 $100,000 $341,934 $341,934 $396,644
Age 75 $146,725 $0 $0 $100,000 $57,174 $57,174 $100,000 $552,909 $552,909 $591,613
- -------------------------------------------------------------------------------------------------------------------------------
</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.
D-4
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 45
Face Amount: $250,000
Level Option
BASED ON CURRENT MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- -------------------------------------------------------------------------------------------------------------------------------
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 $3,175 $250,000 $0 $3,392 $250,000 $0 $3,609 $250,000
2 $9,041 $1,907 $6,252 $250,000 $2,539 $6,884 $250,000 $3,199 $7,544 $250,000
3 $13,903 $5,348 $9,211 $250,000 $6,600 $10,462 $250,000 $7,957 $11,820 $250,000
4 $19,008 $8,689 $12,069 $250,000 $10,765 $14,145 $250,000 $13,110 $16,490 $250,000
5 $24,368 $11,910 $14,808 $250,000 $15,021 $17,919 $250,000 $18,682 $21,580 $250,000
6 $29,996 $15,013 $17,428 $250,000 $19,372 $21,787 $250,000 $24,717 $27,132 $250,000
7 $35,906 $17,989 $19,919 $250,000 $23,815 $25,745 $250,000 $31,261 $33,191 $250,000
8 $42,112 $20,822 $22,269 $250,000 $28,337 $29,784 $250,000 $38,354 $39,802 $250,000
9 $48,627 $23,504 $24,469 $250,000 $32,935 $33,900 $250,000 $46,054 $47,019 $250,000
10 $55,469 $26,022 $26,504 $250,000 $37,600 $38,082 $250,000 $54,418 $54,900 $250,000
11 $62,652 $28,824 $28,824 $250,000 $42,793 $42,793 $250,000 $63,985 $63,985 $250,000
12 $70,195 $31,033 $31,033 $250,000 $47,659 $47,659 $250,000 $74,006 $74,006 $250,000
13 $78,114 $33,134 $33,134 $250,000 $52,692 $52,692 $250,000 $85,075 $85,075 $250,000
14 $86,430 $35,125 $35,125 $250,000 $57,902 $57,902 $250,000 $97,320 $97,320 $250,000
15 $95,161 $37,002 $37,002 $250,000 $63,297 $63,297 $250,000 $110,878 $110,878 $250,000
16 $104,330 $38,761 $38,761 $250,000 $68,884 $68,884 $250,000 $125,907 $125,907 $250,000
17 $113,956 $40,398 $40,398 $250,000 $74,676 $74,676 $250,000 $142,588 $142,588 $250,000
18 $124,064 $41,904 $41,904 $250,000 $80,679 $80,679 $250,000 $161,124 $161,124 $250,000
19 $134,677 $43,270 $43,270 $250,000 $86,903 $86,903 $250,000 $181,746 $181,746 $250,000
20 $145,821 $44,488 $44,488 $250,000 $93,361 $93,361 $250,000 $204,723 $204,723 $250,000
Age 60 $95,161 $37,002 $37,002 $250,000 $63,297 $63,297 $250,000 $110,878 $110,878 $250,000
Age 65 $145,821 $44,488 $44,488 $250,000 $93,361 $93,361 $250,000 $204,723 $204,723 $250,000
Age 70 $210,477 $48,392 $48,392 $250,000 $129,961 $129,961 $250,000 $361,245 $361,245 $419,045
Age 75 $292,995 $46,470 $46,470 $250,000 $175,530 $175,530 $250,000 $617,501 $617,501 $660,726
- -------------------------------------------------------------------------------------------------------------------------------
</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.
D-5
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 45
Face Amount: $250,000
Level Option
BASED ON GUARANTEED MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- -------------------------------------------------------------------------------------------------------------------------------
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 $3,170 $250,000 $0 $3,387 $250,000 $0 $3,603 $250,000
2 $9,041 $1,891 $6,236 $250,000 $2,523 $6,868 $250,000 $3,182 $7,527 $250,000
3 $13,903 $5,310 $9,173 $250,000 $6,559 $10,421 $250,000 $7,914 $11,776 $250,000
4 $19,008 $8,632 $12,012 $250,000 $10,701 $14,081 $250,000 $13,039 $16,419 $250,000
5 $24,368 $11,831 $14,729 $250,000 $14,928 $17,826 $250,000 $18,573 $21,470 $250,000
6 $29,996 $14,884 $17,299 $250,000 $19,219 $21,634 $250,000 $24,534 $26,949 $250,000
7 $35,906 $17,823 $19,753 $250,000 $23,609 $25,539 $250,000 $31,006 $32,936 $250,000
8 $42,112 $20,622 $22,069 $250,000 $28,076 $29,524 $250,000 $38,015 $39,463 $250,000
9 $48,627 $23,259 $24,224 $250,000 $32,602 $33,567 $250,000 $45,603 $46,568 $250,000
10 $55,469 $25,712 $26,194 $250,000 $37,169 $37,652 $250,000 $53,817 $54,300 $250,000
11 $62,652 $27,985 $27,985 $250,000 $41,785 $41,785 $250,000 $62,739 $62,739 $250,000
12 $70,195 $29,576 $29,576 $250,000 $45,952 $45,952 $250,000 $71,953 $71,953 $250,000
13 $78,114 $30,970 $30,970 $250,000 $50,160 $50,160 $250,000 $82,045 $82,045 $250,000
14 $86,430 $32,146 $32,146 $250,000 $54,394 $54,394 $250,000 $93,112 $93,112 $250,000
15 $95,161 $33,081 $33,081 $250,000 $58,641 $58,641 $250,000 $105,268 $105,268 $250,000
16 $104,330 $33,755 $33,755 $250,000 $62,889 $62,889 $250,000 $118,650 $118,650 $250,000
17 $113,956 $34,144 $34,144 $250,000 $67,124 $67,124 $250,000 $133,417 $133,417 $250,000
18 $124,064 $34,225 $34,225 $250,000 $71,335 $71,335 $250,000 $149,761 $149,761 $250,000
19 $134,677 $33,948 $33,948 $250,000 $75,492 $75,492 $250,000 $167,898 $167,898 $250,000
20 $145,821 $33,234 $33,234 $250,000 $79,540 $79,540 $250,000 $188,082 $188,082 $250,000
Age 60 $95,161 $33,081 $33,081 $250,000 $58,641 $58,641 $250,000 $105,268 $105,268 $250,000
Age 65 $145,821 $33,234 $33,234 $250,000 $79,540 $79,540 $250,000 $188,082 $188,082 $250,000
Age 70 $210,477 $21,941 $21,941 $250,000 $98,382 $98,382 $250,000 $327,662 $327,662 $380,088
Age 75 $292,995 $0 $0 $250,000 $109,902 $109,902 $250,000 $551,432 $551,432 $590,033
- -------------------------------------------------------------------------------------------------------------------------------
</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.
D-6
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 30
Face Amount: $100,000
Adjustable Option
BASED ON CURRENT MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
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 $2,783 $1,264 $2,360 $102,360 $1,412 $2,508 $102,508 $1,560 $2,656 $102,656
2 $5,704 $3,696 $4,682 $104,682 $4,140 $5,126 $105,126 $4,602 $5,588 $105,588
3 $8,772 $6,090 $6,966 $106,966 $6,983 $7,859 $107,859 $7,948 $8,824 $108,824
4 $11,993 $8,446 $9,213 $109,213 $9,944 $10,711 $110,711 $11,629 $12,396 $112,396
5 $15,375 $10,755 $11,412 $111,412 $13,019 $13,676 $113,676 $15,669 $16,326 $116,326
6 $18,926 $13,016 $13,564 $113,564 $16,210 $16,758 $116,758 $20,104 $20,652 $120,652
7 $22,655 $15,242 $15,680 $115,680 $19,538 $19,976 $119,976 $24,988 $25,426 $125,426
8 $26,570 $17,423 $17,751 $117,751 $22,994 $23,322 $123,322 $30,356 $30,684 $130,684
9 $30,681 $19,557 $19,776 $119,776 $26,583 $26,802 $126,802 $36,255 $36,474 $136,474
10 $34,998 $21,647 $21,756 $121,756 $30,314 $30,423 $130,423 $42,744 $42,853 $142,853
11 $39,530 $23,723 $23,723 $123,723 $34,233 $34,233 $134,233 $49,943 $49,943 $149,943
12 $44,289 $25,644 $25,644 $125,644 $38,199 $38,199 $138,199 $57,762 $57,762 $157,762
13 $49,286 $27,519 $27,519 $127,519 $42,326 $42,326 $142,326 $66,385 $66,385 $166,385
14 $54,533 $29,347 $29,347 $129,347 $46,619 $46,619 $146,619 $75,896 $75,896 $175,896
15 $60,042 $31,128 $31,128 $131,128 $51,086 $51,086 $151,086 $86,382 $86,382 $191,768
16 $65,827 $32,865 $32,865 $132,865 $55,738 $55,738 $155,738 $97,935 $97,935 $210,560
17 $71,901 $34,551 $34,551 $134,551 $60,574 $60,574 $160,574 $110,649 $110,649 $231,256
18 $78,278 $36,194 $36,194 $136,194 $65,609 $65,609 $165,610 $124,650 $124,650 $253,040
19 $84,975 $37,793 $37,793 $137,793 $70,853 $70,853 $170,853 $140,073 $140,073 $275,943
20 $92,006 $39,347 $39,347 $139,347 $76,312 $76,312 $176,312 $157,060 $157,060 $299,985
Age 60 $184,866 $51,976 $51,976 $151,976 $144,446 $144,446 $244,446 $459,532 $459,532 $615,773
Age 65 $251,316 $55,914 $55,914 $155,914 $189,597 $189,597 $289,597 $766,213 $766,213 $934,780
Age 70 $336,125 $57,898 $57,898 $157,898 $244,003 $244,003 $344,003 $1,266,794 $1,266,794 $1,469,482
Age 75 $444,366 $56,866 $56,866 $156,866 $308,637 $308,637 $408,637 $2,086,404 $2,086,404 $2,232,452
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $2,650 (approximately 75% 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.
D-7
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 30
Face Amount: $100,000
Adjustable Option
BASED ON GUARANTEED MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
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 $2,783 $1,260 $2,356 $102,356 $1,408 $2,504 $102,504 $1,556 $2,652 $102,652
2 $5,704 $3,685 $4,671 $104,671 $4,129 $5,115 $105,115 $4,590 $5,576 $105,576
3 $8,772 $6,069 $6,945 $106,945 $6,959 $7,835 $107,835 $7,923 $8,799 $108,799
4 $11,993 $8,411 $9,178 $109,178 $9,904 $10,671 $110,671 $11,584 $12,351 $112,351
5 $15,375 $10,703 $11,360 $111,360 $12,958 $13,615 $113,615 $15,598 $16,255 $116,255
6 $18,926 $12,944 $13,492 $113,492 $16,122 $16,670 $116,670 $19,997 $20,545 $120,545
7 $22,655 $15,147 $15,585 $115,585 $19,417 $19,855 $119,855 $24,836 $25,274 $125,274
8 $26,570 $17,302 $17,630 $117,630 $22,834 $23,162 $123,162 $30,145 $30,473 $130,473
9 $30,681 $19,408 $19,627 $119,627 $26,378 $26,597 $126,597 $35,974 $36,193 $136,193
10 $34,998 $21,468 $21,577 $121,577 $30,057 $30,166 $130,166 $42,375 $42,484 $142,484
11 $39,530 $23,468 $23,468 $123,468 $33,860 $33,860 $133,860 $49,394 $49,394 $149,394
12 $44,289 $25,314 $25,314 $125,314 $37,698 $37,698 $137,698 $56,998 $56,998 $156,998
13 $49,286 $27,103 $27,103 $127,103 $41,675 $41,675 $141,675 $65,355 $65,355 $165,355
14 $54,533 $28,849 $28,849 $128,849 $45,807 $45,807 $145,807 $74,554 $74,554 $174,554
15 $60,042 $30,540 $30,540 $130,540 $50,089 $50,089 $150,089 $84,668 $84,668 $187,962
16 $65,827 $32,178 $32,178 $132,178 $54,528 $54,528 $154,528 $95,776 $95,776 $205,918
17 $71,901 $33,763 $33,763 $133,763 $59,130 $59,130 $159,130 $107,968 $107,968 $225,652
18 $78,278 $35,284 $35,284 $135,284 $63,891 $63,891 $163,891 $121,336 $121,336 $246,312
19 $84,975 $36,754 $36,754 $136,754 $68,827 $68,827 $168,827 $136,014 $136,014 $267,947
20 $92,006 $38,163 $38,163 $138,163 $73,936 $73,936 $173,936 $152,116 $152,116 $290,542
Age 60 $184,866 $48,475 $48,475 $148,475 $136,615 $136,615 $236,615 $436,733 $436,733 $585,222
Age 65 $251,316 $49,221 $49,221 $149,221 $175,059 $175,059 $275,059 $718,393 $718,393 $876,440
Age 70 $336,125 $44,768 $44,768 $144,768 $216,777 $216,777 $316,777 $1,166,772 $1,166,772 $1,353,455
Age 75 $444,366 $32,030 $32,030 $132,030 $258,551 $258,551 $358,551 $1,884,519 $1,884,519 $2,016,436
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $2,650 (approximately 75% 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.
D-8
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 45
Face Amount: $250,000
Adjustable Option
BASED ON CURRENT MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
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>
1 $13,020 $6,078 $10,908 $260,908 $6,766 $11,596 $261,596 $7,455 $12,285 $262,285
2 $26,691 $17,235 $21,580 $271,580 $19,294 $23,639 $273,639 $21,436 $25,781 $275,781
3 $41,046 $28,136 $31,999 $281,999 $32,264 $36,126 $286,126 $36,731 $40,593 $290,593
4 $56,118 $38,801 $42,181 $292,181 $45,710 $49,090 $299,090 $53,490 $56,870 $306,870
5 $71,944 $49,211 $52,108 $302,108 $59,632 $62,529 $312,529 $71,843 $74,741 $324,741
6 $88,561 $59,366 $61,781 $311,781 $74,045 $76,460 $326,460 $91,952 $94,367 $344,367
7 $106,009 $69,260 $71,190 $321,190 $88,961 $90,891 $340,891 $113,987 $115,917 $365,917
8 $124,329 $78,875 $80,322 $330,322 $104,377 $105,825 $355,825 $138,123 $139,570 $389,570
9 $143,566 $88,202 $89,167 $339,167 $120,304 $121,269 $371,269 $164,566 $165,531 $415,531
10 $163,764 $97,225 $97,708 $347,708 $136,741 $137,224 $387,224 $193,533 $194,015 $444,015
11 $184,972 $106,567 $106,567 $356,567 $154,403 $154,403 $404,403 $226,077 $226,077 $476,077
12 $207,241 $115,193 $115,193 $365,193 $172,254 $172,254 $422,254 $261,404 $261,404 $511,404
13 $230,623 $123,588 $123,588 $373,588 $190,806 $190,806 $440,806 $300,340 $300,340 $550,340
14 $255,174 $131,753 $131,753 $381,753 $210,089 $210,089 $460,089 $343,263 $343,263 $593,263
15 $280,953 $139,681 $139,681 $389,681 $230,124 $230,124 $480,124 $390,582 $390,582 $640,582
16 $308,021 $147,369 $147,369 $397,369 $250,939 $250,939 $500,939 $442,751 $442,751 $692,751
17 $336,442 $154,812 $154,812 $404,812 $272,561 $272,561 $522,561 $500,273 $500,273 $750,273
18 $366,284 $162,000 $162,000 $412,000 $295,013 $295,013 $545,013 $563,698 $563,698 $813,698
19 $397,618 $168,923 $168,923 $418,923 $318,317 $318,317 $568,317 $633,632 $633,632 $883,632
20 $430,519 $175,573 $175,573 $425,573 $342,499 $342,499 $592,499 $710,748 $710,748 $960,748
Age 60 $280,953 $139,681 $139,681 $389,681 $230,124 $230,124 $480,124 $390,582 $390,582 $640,582
Age 65 $430,519 $175,573 $175,573 $425,573 $342,499 $342,499 $592,499 $710,748 $710,748 $960,748
Age 70 $621,407 $204,805 $204,805 $454,805 $477,982 $477,982 $727,982 $1,233,406 $1,233,406 $1,483,406
Age 75 $865,034 $224,903 $224,903 $474,903 $639,060 $639,060 $889,060 $2,086,553 $2,086,553 $2,336,553
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $12,400 (approximately 75% 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.
D-9
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE
SEPARATE ACCOUNT VUL-1
FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Age 45
Face Amount: $250,000
Adjustable Option
BASED ON GUARANTEED MONTHLY INSURANCE
PROTECTION CHARGES (WITHOUT RIDERS), MORTALITY AND EXPENSE RISK CHARGE,
ADMINISTRATION CHARGE AND PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
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>
1 $13,020 $6,061 $10,891 $260,891 $6,749 $11,579 $261,579 $7,438 $12,268 $262,268
2 $26,691 $17,185 $21,530 $271,530 $19,242 $23,587 $273,587 $21,382 $25,727 $275,727
3 $41,046 $28,029 $31,891 $281,891 $32,148 $36,010 $286,010 $36,606 $40,468 $290,468
4 $56,118 $38,630 $42,010 $292,010 $45,518 $48,898 $298,898 $53,274 $56,654 $306,654
5 $71,944 $48,963 $51,860 $301,860 $59,341 $62,238 $312,238 $71,503 $74,401 $324,401
6 $88,561 $59,003 $61,418 $311,418 $73,605 $76,020 $326,020 $91,422 $93,837 $343,837
7 $106,009 $68,787 $70,717 $320,717 $88,364 $90,294 $340,294 $113,236 $115,166 $365,166
8 $124,329 $78,284 $79,732 $329,732 $103,600 $105,048 $355,048 $137,103 $138,551 $388,551
9 $143,566 $87,474 $88,439 $338,439 $119,308 $120,273 $370,273 $163,204 $164,169 $414,169
10 $163,764 $96,332 $96,814 $346,814 $135,475 $135,957 $385,957 $191,737 $192,219 $442,219
11 $184,972 $104,863 $104,863 $354,863 $152,121 $152,121 $402,121 $222,949 $222,949 $472,949
12 $207,241 $112,561 $112,561 $362,561 $168,755 $168,755 $418,755 $256,600 $256,600 $506,600
13 $230,623 $119,914 $119,914 $369,914 $185,876 $185,876 $435,876 $293,473 $293,473 $543,473
14 $255,174 $126,900 $126,900 $376,900 $203,477 $203,477 $453,477 $333,864 $333,864 $583,864
15 $280,953 $133,495 $133,495 $383,495 $221,546 $221,546 $471,546 $378,103 $378,103 $628,103
16 $308,021 $139,676 $139,676 $389,676 $240,073 $240,073 $490,073 $426,551 $426,551 $676,551
17 $336,442 $145,421 $145,421 $395,421 $259,045 $259,045 $509,045 $479,608 $479,608 $729,608
18 $366,284 $150,708 $150,708 $400,708 $278,453 $278,453 $528,453 $537,712 $537,712 $787,712
19 $397,618 $155,485 $155,485 $405,485 $298,251 $298,251 $548,251 $601,317 $601,317 $851,317
20 $430,519 $159,672 $159,672 $409,672 $318,365 $318,365 $568,365 $670,892 $670,892 $920,892
Age 60 $280,953 $133,495 $133,495 $383,495 $221,546 $221,546 $471,546 $378,103 $378,103 $628,103
Age 65 $430,519 $159,672 $159,672 $409,672 $318,365 $318,365 $568,365 $670,892 $670,892 $920,892
Age 70 $621,407 $172,069 $172,069 $422,069 $425,727 $425,727 $675,727 $1,138,090 $1,138,090 $1,388,090
Age 75 $865,034 $161,908 $161,908 $411,908 $533,966 $533,966 $783,966 $1,875,170 $1,875,170 $2,125,170
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a payment of $12,400 (approximately 75% 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.
D-10
<PAGE>
APPENDIX E -
<PAGE>
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.
2. Find the rate per $1,000 for age 45 under the column Male Rates ($) --
$19.32.
3. Divide the face amount by $1,000 -- $200,000 divided by $1,000 equals 200.
4. Multiply the rate in number 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 $386.
<PAGE>
Maximum Surrender Charge Rates
Insured's Male Rates ($Female Rates (Insured's Age Male Rates (Female Rates)
Age
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>
APPENDIX F- SPECIAL TERMS
<PAGE>
Age: how old the insured is on his or her birthday closest to the date of issue
and, subsequently, the policy anniversary.
Attained Age: the insured's age as of the insured's last birthday at the start
of the policy year. 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 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 charges, 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. 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 in a guaranteed death benefit
rider, if attached to the policy.
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 separate investment
accounts.
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:
the policy value times
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.
Issuance: the date we mail the policy for delivery to you if the application is
approved.
Loan Value: the maximum amount you may borrow under the policy.
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 the
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
deductions 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:
the death benefit under the elected death benefit option, either the level
option or adjustable option, minus
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:
101% of the policy value minus
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 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.
Policy Value: the total value of your policy. It is the sum of the:
value of the units of the sub-accounts credited to your policy, plus
accumulation in the fixed account credited to your policy.
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, us,
Company and Transamerica 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:
each day the New York Stock Exchange is open for trading, and
other days, such as those 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.
<PAGE>
Variable Life Service Center: our office at 440 Lincoln Street, Worcester,
Massachusetts 01653.
Our mailing address for all written requests and other correspondence is:
Transamerica Occidental Life Insurance Company
Variable Life Service Center
P.O. Box 8990
Boston, Massachusetts 02266-8990
Our address for express mail packages is:
Transamerica Occidental Life Insurance Company
Variable Life Service Center
2 Heritage Drive
Quincy, Massachusetts 02171
Our customer service telephone number is:
(800) 782-8315.
<PAGE>
Appendix G
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the variable account. You should read the data in conjunction with
the financial statements, related notes, and other financial information
included in the prospectus. The financial statements and reports of independent
auditors for the variable account and Transamerica are contained in the
prospectus.
The following table sets forth certain information regarding the sub-accounts
for the period from January 1, 1998, the commencement of business operations of
the sub-account through December 31, 1998. The variable accumulation unit values
and the number of variable accumulation units outstanding for each sub-account
for the periods shown are as follows:
<PAGE>
<TABLE>
<CAPTION>
Year Ending December 31, 1998
Alger American Alliance VPF Alliance VPF Dreyfus VIF Cap Dreyfus VIF
Income & Growth Growth & Income Premier Growth Appreciation Growth Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
Accumulation Unit Value
<S> <C> <C> <C> <C> <C>
at Beginning of Period $10.00 $10.00 $10.00 $10.00 $10.00
Accumulation Unit Value
at End of Period $12.94 $11.80 $13.74 $12.36 $9.72
Number of Accumulation
Units Outstanding
at End of Period 6,363.647 13,038.515 9,669.055 16,715.999 23,048.974
Janus Aspen Janus Aspen MFS MFS MFS
Balanced Worldwide Growth Emerging Growth Growth & Income Research
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
Accumulation Unit Value
at Beginning of Period$10.00 $10.00 $10.00 $10.00 $10.00
Accumulation Unit Value
at End of Period $12.88 $12.14 $12.69 $11.86 $11.76
Number of Accumulation
Units Outstanding
at End of Period 11,764.545 18,247.140 96,421.957 6,460.612 4,172.745
MSDW MSDW MSDW UF OCC Accumulation OCC Accumulation
UF Fixed Income UF High Yield International Magnum Trust Managed Trust Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
Accumulation Unit Value
at Beginning of Period$10.00 $10.00 $10.00 $10.00 $10.00
Accumulation Unit Value
at End of Period $10.57 $10.12 $10.42 $10.34 $9.07
Number of Accumulation
Units Outstanding
at End of Period 3,503.517 8,300.149 2,776.612 12,247.234 3,419.633
Transamerica Transamerica
VIF Growth VIF Money Market
Sub-Account Sub-Account
Accumulation Unit Value
at Beginning of Period$10.00 $1.00
Accumulation Unit Value
at End of Period $13.27 $1.04
Number of Accumulation
Units Outstanding
at End of Period 55,929.097 364,086.150
</TABLE>
<PAGE>
<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.
The directors and officers of Transamerica Occidental Life Insurance Company are
covered under a Directors and Officers liability program which includes direct
coverage to directors and officers (Coverage A) and corporate reimbursement
(Coverage B) to reimburse the Company for indemnification of its directors and
officers. Such directors and officers are indemnified for loss arising from any
covered claim by reason of any Wrongful Act in their capacities as directors or
officers. In general, the term "loss" means any amount which the insureds are
legally obligated to pay for a claim for Wrongful Acts. In general, the term
"Wrongful Acts" means any breach of duty, neglect, error, misstatement,
misleading statement or omission caused, committed or attempted by a director or
officer while acting individually or collectively in their capacity as such,
claimed against them solely by reason of their being directors and officers. The
limit of liability under the program is $95,000,000 for Coverage A and
$80,000,000 for Coverage B for the period 11/15/98 to 11/15/2000. Coverage B is
subject to a self insured retention of $15,000,000. The primary policy under the
program is with CNA Lloyds, Gulf, Chubb and Travelers.
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>
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 LLP
2. 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. 1/2/
(6) Organizational documents of the Company, as amended. 1/
(7) Not Applicable.
(8) Form of Participation Agreement between: Transamerica
Occidental Life Insurance Company and:
(a) The Alger American Fund 2/ (b) Alliance Variable Products
Series Fund, Inc.2/ (c) Janus Aspen Series 2/ (d) Morgan
Stanley Universal Funds, Inc. 2/ (e) OCC Accumulation Trust 2/
(9) Administrative Agreements between Transamerica Occidental Life
Insurance Company and First Allmerica Financial Life Insurance Company 2/
(10) Form of Application 1/
(11) Issuance, Transfer and Redemption Procedures Memorandum.2/
(12) Financial Data Schedule. 2/ 3/
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 2/4/
7. Consent of Independent Accountants 2/ 3/4/5/
8. Powers of Attorney 1/ 3/4/5/
1/ Incorporated herein by reference to the initial filing of this
Registration Statement (File No. 333-37883) on October 14, 1997.
2/ Incorporated herein by reference to the Pre-Effective Amendment No. 1
to this Registration Statement (File No. 333-37883) on December 24,
1998.
3/ Incorporated herein by reference to the Pre-Effective Amendment No. 2
to this Registration Statement (File No. 333-37883) on January 23,
1998.
4/ Incorporated herein by reference to the Post-Effective Amendment No.
1 to this Registration Statement (File No. 333-37883) on April 29,
1998.
5/ Filed herewith.
<PAGE>
SIGNATURE
As required by the Securities Act of 1933 and the Investment Company Act of
1940, Transamerica Occidental Life Insurance Company certifies that this
Amendment meets the requirements of Securities Act Rule 485(b) for effectiveness
of this Registration Statement and has caused this Registration Statement to be
signed on its behalf by the undersigned in the City of Los Angeles, State of
California on the 29th day of April, 1999.
Transamerica Occidental Life Separate Account VUL-1
(Registrant)
(SEAL)
Attest:_______________ By:__________________________________________
(Title) (Name) David M. Goldstein
(Title) Vice President
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 29th day of April, 1999.
Transamerica Occidental Life Insurance Company
(SEAL)
Attest:___________________________ By:___________________________________
(Title) (Name) David M. Goldstein
(Title) Vice President
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>
______________________* President, Chairman, Chief Executive April 29, 1999
Thomas J. Cusack Officer and Director
______________________* Executive Vice President, April 29, 1999
James W. Dederer General Counsel and Corporate Secretary
______________________* Directorand April 29, 1999
Karen MacDonald and Acting Chief Financial Officer
______________________* Director April 29, 1999
Frank Beardsley
______________________* Director April 29, 1999
George A. Foegele
______________________* Director April 29, 1999
David E. Gooding
______________________* Director April 29, 1999
Edgar H. Grubb
______________________* Director April 29, 1999
Frank C. Herringer
______________________* Director April 29, 1999
Richard N. Latzer
______________________* Director April 29, 1999
Karen MacDonald
______________________* Director April 29, 1999
Gary U. Rolle'
______________________* Director April 29, 1999
Paul E. Rutledge III
______________________* Director April 29, 1999
T. Desmond Sugrue
______________________* Director April 29, 1999
Nooruddin S. Veerjee
______________________* Director April 29, 1999
Robert A. Watson
</TABLE>
____________________________ On April 29, 1999 as Attorney-in-Fact pursuant to
*By: David M. Goldstein powers of attorney previously filed and filed herewith,
and in his own capacity as Vice President.
<PAGE>
Exhibit 7
<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 dated January 21, 1999 with respect to the
consolidated financial statements of Transamerica Occidental Life Insurance
Company and our report dated April 19, 1999 with respect to the financial
statements of Transamerica Occidental Life Separate Account VUL-1 in Post-
Effective Amendment No. 3 to the Registration Statement (Form S-6 No. 333-37883)
and related Prospectus of Transamerica Occidental Life Separate Account VUL-1.
Ernst & Young LLP
Los Angeles, California
April 27, 1999
<PAGE>
Exhibit 8
<PAGE>
POWER OF ATTORNEY
The undersigned director Transamerica Occidental Life Insurance Company, a
California corporation (the "Company"), hereby constitutes and appoints James W.
Dederer, David M. Goldstein, David E. Gooding, and William M. Hurst and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him and
on his behalf and in his name, place and stead, to execute and file any of the
documents referred to below relating to registrations under the Securities Act
of 1933 and under the Investment Company Act of 1940 with respect to any life
insurance and annuity policies: registration statements on any form or forms
under the Securities Act of 1933 and under the Investment Company Act of 1940,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this 24th day of
February, 1999.
______________________________
Frank Beardsley
