As filed with the Securities and Exchange Commission on February 1, 1999
Registration No. 333-63215
811-08997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
Pre-Effective Amendment No. 3
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
INITIAL REGISTRATION STATEMENT
TRANSAMERICA OCCIDENTAL LIFE SEPARATE ACCOUNT VUL-2 OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
1150 SOUTH OLIVE STREET
LOS ANGELES, CA 90015
(Address of Principal Executive Office)
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
It is proposed that this filing will become effective:
_____immediately upon filing pursuant to paragraph (b)
_____On (________)pursuant to paragraph (b)
_____60 days after filing pursuant to paragraph (a)(1)
_____On (date) pursuant to paragraph (a)(1)
_____On (date) pursuant to paragraph (a)(2) of Rule 485
Title of securities being registered: Modified Single Payment Variable Life
Insurance Contracts.
Approximate date of proposed public offering: as soon as practicable after the
effective date of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
shall determine.
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8b-2 AND THE PROSPECTUS
Item No. of
Form N-8b-2 Caption in Prospectus
- - ----------- ---------------------
1 ........................... Cover Page
2 ........................... Cover Page
3 ........................... Not Applicable
4 ........................... Distribution
5 ........................... The Company, The Separate Account
6 ........................... The Separate Account
7 ........................... Not Applicable
8 ........................... Not Applicable
9 ........................... Legal Proceedings
10........................... Summary; Description of the Company, Variable
Account, and Underlying Funds; The Contract;
Contract Termination and Reinstatement; Other
Contract Provisions
11 ........................... Summary; The Trust; VIP; T. Rowe Price;
Investment Objectives and Policies
12 ........................... Summary; The Trust; VIP; T. Rowe Price;
13 ........................... Summary; The Trust; VIP; T. Rowe Price;
Investment Advisory Services to VIP;
Investment Advisory Services to the Trust;
Investment Advisory Services to T. Rowe
Price; Charges and Deductions
14 ........................... Summary; Application for a Contract
15 ........................... Summary; Application for a Contract; Premium
Payments; Allocation of Net Premiums
16 ........................... The Separate Account; The Trust; VIP; T. Rowe
Price; Allocation of Net Premiums
17 ........................... Summary; Surrender; Partial Withdrawal;
Charges and Deductions; Contract Termination
and Reinstatement
18 ........................... The Separate Account; The Trust; VIP; T. Rowe
Price; Premium Payments
19 ........................... Reports; Voting Rights
20 ........................... Not Applicable
21 ........................... Summary; Contract Loans; Other Contract
Provisions
22 ........................... Other Contract Provisions
23 ........................... Not Required
24 ........................... Other Contract Provisions
25 ........................... Allmerica Financial
26 ........................... Not Applicable
27 ........................... The Company
28 ........................... Directors and Principal Officers
29 ........................... The Company
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 ........................... The Company; Distribution
42 ........................... Not Applicable
43 ........................... Not Applicable
44 ........................... Premium Payments; Contract Value and Cash
Surrender Value
45 ........................... Not Applicable
46 ........................... Contract Value and Cash Surrender Value;
Taxation of the Contracts
47 ........................... The Company
48 ........................... Not Applicable
49 ........................... Not Applicable
50 ........................... The Separate Account
51 ........................... Cover Page; Summary; Charges and Deductions;
The Contract; Contract Termination and
Reinstatement; Other Contract Provisions
52 ........................... Addition, Deletion or Substitution of
Investments
53 ........................... Taxation of the Contracts
54 ........................... Not Applicable
55 ........................... Not Applicable
56 ........................... Not Applicable
57 ........................... Not Applicable
58 ........................... Not Applicable
59 ........................... Not Applicable
<PAGE>
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACTS
FUNDED THROUGH TRANSAMERICA OCCIDENTAL LIFE SEPARATE ACCOUNT VUL-2
OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Transamerica Occidental Life Separate Account VUL-2 ("Separate Account") is a
separate investment account of Transamerica Occidental Life Insurance Company
("Transamerica"). Transamerica issues the Transamerica Lineagesm modified single
payment variable life insurance contracts ("Contracts") described in this
prospectus.
You may direct your payments, as well as any value accumulated under the
Contract, among sub-accounts of the Separate Account or to the Fixed Account, or
to both. At any time, you may have value in up to seventeen (17) sub-accounts
plus the Fixed Account. The money you place in each sub-account will be invested
solely in a corresponding mutual fund investment portfolio ("portfolio"). The
value of each sub-account will vary in accordance with the investment
performance of the portfolio in which that sub-account invests. You bear the
entire investment risk for all assets you place in the sub-accounts. This means
that, depending on market conditions, the amount you invest in the sub-accounts
may increase or decrease. Currently, you may choose among the following
sub-accounts:
Alger American Income & Growth MFS VIT Growth with Income
Alliance VPF Growth & Income Morgan Stanley UF Fixed Income
Alliance VPF Premier Growth Morgan Stanley UF High Yield
Dreyfus VIF Capital Appreciation Morgan Stanley 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 Portfolio
MFS VIT Emerging Growth Transamerica VIF Money Market
MFS VIT Research
Contract Owners may, within limits, choose the amount of initial payment and
vary the frequency and amount of future payments. The Contract allows partial
withdrawals within limits and full surrender of the Contract's surrender value.
The Contracts are not suitable for short-term investment because of the
substantial nature of the surrender charge.
Each Contract is a "modified endowment contract" for federal income tax
purposes, except in certain circumstances described in "TAXATION OF THE
CONTRACTS." If the contract is classified as a modified endowment contract, any
policy loan, partial withdrawal or surrender may result in adverse tax
consequences and/or penalties. A loan, distribution or other amounts received
from a modified endowment contract during the life of the Insured will be taxed
to the extent of accumulated income in the Contract. Death benefits under a
modified endowment contract, however, are generally not subject to federal
income tax. See "TAXATION OF THE CONTRACTS."
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH THE CONTRACT. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF EACH OF THE
PORTFOLIOS. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND ARE DISTRIBUTED BY TRANSAMERICA SECURITIES SALES CORPORATION. THE CONTRACTS
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR
CREDIT UNION. THE POLICIES ARE NOT INSURED BY THE U. S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS
IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF
VALUE AND POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS SETS FORTH THE INFORMATION YOU SHOULD KNOW BEFORE DECIDING TO
PURCHASE A CONTRACT. YOU SHOULD RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
PORTFOLIOS. THE PORTFOLIO PROSPECTUSES SHOULD BE READ IN CONJUNCTION WITH THIS
PROSPECTUS.
Dated February 1, 1999
<PAGE>
TABLE OF CONTENTS
SPECIAL TERMS............................................................
SUMMARY..................................................................
PERFORMANCE INFORMATION..................................................
DESCRIPTION OF THE COMPANY, SEPARATE ACCOUNT, AND UNDERLYING FUNDS.......
THE CONTRACT.............................................................
Applying for a Contract............................................
Free Look Period...................................................
Conversion Privilege...............................................
Payments...........................................................
Allocation of Payments.............................................
Transfer Privilege.................................................
Death Benefit......................................................
Guaranteed Death Benefit Rider.....................................
Contract Value.....................................................
Payment Options....................................................
Optional Insurance Benefits........................................
Surrender..........................................................
Partial Withdrawal.................................................
CHARGES AND DEDUCTIONS...................................................
Monthly Deductions.................................................
Daily Deductions...................................................
Surrender Charge...................................................
Partial Withdrawal Costs...........................................
Transfer Charges...................................................
CONTRACT LOANS...........................................................
CONTRACT TERMINATION AND REINSTATEMENT...................................
OTHER CONTRACT PROVISIONS................................................
TAXATION OF THE CONTRACTS..................................................
The Company and The Separate Account.................................
Taxation of The Contracts............................................
VOTING RIGHTS..............................................................
DIRECTORS AND PRINCIPAL OFFICERS...........................................
DISTRIBUTION...............................................................
REPORTS....................................................................
SERVICES...................................................................
LEGAL PROCEEDINGS..........................................................
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..........................
PREPARING FOR YEAR 2000....................................
FURTHER INFORMATION........................................................
MORE INFORMATION ABOUT THE FIXED ACCOUNT...................................
INDEPENDENT ACCOUNTANTS....................................................
FINANCIAL STATEMENTS.......................................................
UNAUDITED FINANCIAL STATEMENTS.............................................
APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE.......................... A-1
APPENDIX B -- OPTIONAL INSURANCE BENEFITS.................................. B-1
APPENDIX C -- PAYMENT OPTIONS.............................................. C-1
APPENDIX D -- ILLUSTRATIONS................................................ D-1
<PAGE>
SPECIAL TERMS
AGE: how old the Insured is on his or her last birthday measured on the date of
issue and each Contract anniversary, thereafter.
ATTAINED AGE: the Insured's age as of the Insured's birthday closest to the
start of the Contract year of determination. Attained age is used in the
calculation of the guideline minimum sum insured. For Second-to-Die Contracts,
the attained age used is that of the younger Insured, even if the younger
Insured is the first of the two Insureds to die.
BENEFICIARY: the person or persons you name to receive the net death benefit
when the Insured dies.
CONTRACT OWNER: the person who may exercise all rights under the Contract, with
the consent of any irrevocable
beneficiary. "You" and "your" refer to the Contract Owner in this prospectus.
CONTRACT VALUE: the total value of your Contract. It is the SUM of the:
- Value of the units of the sub-accounts credited to your Contract; PLUS
- Accumulation in the Fixed Account credited to the Contract.
DATE OF DEFAULT: the first day of the grace period.
DATE OF ISSUE: the date the Contract was issued. It is used to measure the
monthly processing date, Contract months, Contract years and Contract
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, withdrawal transaction fees, applicable surrender charges, and
monthly deductions.
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 Contract
may be reinstated.
FACE AMOUNT: the amount of insurance coverage. The face amount is shown in your
Contract.
FINAL PAYMENT DATE: the Contract anniversary immediately before the Insured's
100th birthday or, for a Second-to-Die Contract, the younger insured's 100th
birthday. No payments may be made by you after this date. No monthly deductions
will be deducted from the Contract Value after this date. Generally, the net
death benefit after this date will equal 101% of the Contract Value minus any
outstanding loan, except as otherwise provided under the Guaranteed Death
Benefit Rider.
FIXED ACCOUNT: an account that is a part of the General Account and that
guarantees a fixed interest rate.
FORECLOSURE: the reclassification of an outstanding loan at the end of the grace
period if (a) the Contract lapses with an outstanding loan, and the Contract is
subsequently terminated at the end of the grace period; or (b) the outstanding
loan is in default, and the excess outstanding loan is not paid back by the end
of the grace period, resulting in the termination of the Contract.
GENERAL ACCOUNT: all our assets other than those held in separate investment
accounts.
GRACE PERIOD: the 62-day period beginning on (a) the monthly processing date on
which the surrender value is less than zero (0) and the Contract lapses; or (b)
the date on which the outstanding loan exceeds the Contract Value less surrender
charges.
GUIDELINE MINIMUM SUM INSURED: the minimum death benefit required to qualify the
Contract as "life insurance" consistent with federal tax laws. The guideline
minimum sum insured is the PRODUCT of
- The Contract Value TIMES
- A percentage based on the Insured's attained age, listed in Appendix A.
GUIDELINE SINGLE PREMIUM: used to determine the face amount under the Contract.
INSURANCE PROTECTION AMOUNT: the death benefit less the Contract Value.
INSURED: the person or persons covered under the Contract. If more than one
person is named, all provisions of the Contract that are based on the death of
the Insured will be based on the date of death of the last surviving Insured.
INTERNAL REVENUE CODE OR CODE: the Internal Revenue Code of 1986, as amended,
and rules and regulations.
LOAN VALUE: the maximum amount you may borrow under the Contract.
MATURITY DATE: the Contract anniversary immediately before the Insured's 115th
birthday. If there are two insureds, the younger insured's 115th birthday is
used.
MONTHLY DEDUCTIONS: the amount of money that we deduct from the Contract Value
each month to pay for the Administration Charge, Monthly Insurance Protection
Charge, Distribution Fee and the Tax Charge.
MONTHLY INSURANCE PROTECTION CHARGE: the amount of money that we deduct from the
Contract Value each month to pay for the insurance and any riders.
MONTHLY PROCESSING DATE: the date, shown in your Contract, when monthly
deductions are deducted.
NET DEATH BENEFIT: Through the final payment date the net death benefit is:
- The death benefit; MINUS
-Any outstanding loan, rider charges and monthly deductions due and unpaid
through the Contract month in which the Insured dies, as well as any unpaid
partial withdrawals, withdrawal transaction fees, and applicable surrender
charges.
After the final payment date, if the Guaranteed Death Benefit Rider is NOT in
effect, the net death benefit is:
-Guideline minimum sum insured; MINUS
-Any outstanding loan through the Contract month in which the Insured dies
as well as any unpaid partial withdrawals, withdrawal transaction fees, and
applicable surrender charges.
If the Guaranteed Death Benefit Rider is in effect after the final payment date,
the net death benefit will be either the face amount as of the final payment
date or the Guideline minimum sum insured as of the date due proof of death is
received by the Company, whichever is greater, reduced by any outstanding loan
through the Contract month in which the Insured dies.
OUTSTANDING LOAN: all unpaid Contract loans plus loan interest due or accrued.
PORTFOLIO: a mutual fund investment portfolio in which a corresponding
sub-account invests.
PRO RATA ALLOCATION: an allocation among the Fixed Account and the sub-accounts
of the Separate Account in the same proportion that, on the date of allocation,
the portion of the Contract Value in the Fixed Account (other than value subject
to outstanding loan) and the portion of the Contract Value in each sub-account
bear to the total Contract Value.
SECOND-TO-DIE: the Contract may be issued as a joint survivorship
("Second-to-Die") Contract. Life insurance coverage is provided for two
Insureds, with death benefits payable at the death of the last surviving
Insured.
SEPARATE ACCOUNT: Transamerica Occidental Life Separate Account VUL-2 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 amount payable on a full surrender. It is the Contract
Value less any outstanding loan and surrender charges.
TRANSAMERICA: Transamerica Occidental Life Insurance Company. "We", "our", "us"
and "Company" 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.
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 (other than a day during which no payment, partial withdrawal
or surrender of a Contract 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-accounts may be materially affected.
VALUATION PERIOD: the interval between two consecutive valuation dates.
VARIABLE LIFE SERVICE CENTER: our office at 440 Lincoln Street, Worcester,
Massachusetts 01653. Our mailing address for all written requests and other
correspondence is: 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.
WRITTEN REQUEST: your request in writing, satisfactory to us, received at our
Variable Life Service Center.
<PAGE>
SUMMARY
This summary provides a brief overview of the more significant aspects of the
Contract. The prospectus and the Contract provide further detail. The Contract
provides insurance protection for the named beneficiary. We do not claim that
the Contract is similar or comparable to an investment plan of a mutual fund.
The Contract and its attached application are the entire agreement between you
and Transamerica.
WHAT IS THE CONTRACT'S OBJECTIVE?
The objective of the Contract is to give permanent life insurance protection and
to help you build assets on a tax-deferred basis. Benefits available through the
Contract include:
- A life insurance benefit that can protect your family or other heirs;
- Payment options that can guarantee an income for life;
- A personalized investment portfolio you may tailor to meet your
needs, time frame and risk tolerance level;
- Experienced professional investment advisers; and
- Tax deferral on earnings while your money is accumulating.
The Contract combines features and benefits of traditional life insurance with
the advantages of professional money management. Unlike the fixed benefits of
ordinary life insurance, the Contract Value will increase or decrease depending
on investment results. Unlike traditional insurance policies, the Contract has
no fixed schedule for payments.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is a contract between you and us. Each Contract has a Contract
Owner ("you"), the Insured and a beneficiary. As Contract Owner, you make the
payment, choose investment allocations and select the Insured and beneficiary.
The Insured is the person covered under the Contract. 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 Contract is in effect. If the Contract was issued as a Second-to-Die
Contract, the net death benefit will be paid on the death of the last surviving
Insured.
Through the final payment date, the death benefit is either the face amount (the
amount of insurance determined by your payment) or the minimum death benefit
provided by the guideline minimum sum insured, whichever is greater. The net
death benefit is the death benefit less any outstanding loan, rider charges and
monthly deductions due and unpaid through the Contract month in which the
Insured dies, as well as any unpaid partial withdrawals, withdrawal transaction
fees, and applicable surrender charges.
After the final payment date, if the Guaranteed Death Benefit Rider is NOT in
effect, the net death benefit is guideline minimum sum insured less any
outstanding loan, and any due and unpaid partial withdrawals, withdrawal
transaction fees, and applicable surrender charges. The beneficiary may receive
the net death benefit in a lump sum or under one of the Company's benefit
payment options.
If the Guaranteed Death Benefit Rider is in effect on the final payment date, a
Guaranteed Death Benefit will be provided unless the Rider is subsequently
terminated. The Guaranteed Death Benefit will be either the face amount as of
the final payment date or guideline minimum sum insured as of the date due proof
of death is received by the Company, whichever is greater. The net death benefit
will be the death benefit reduced by any outstanding loan through the Contract
month in which the insured dies. For more information, see "Guaranteed Death
Benefit Rider" page xx.
CAN I EXAMINE THE CONTRACT?
Yes. You have the right to examine and cancel your Contract by returning it to
us or to one of our representatives within 10 days (or such later date as
provided by state law) after you receive the Contract.
If your Contract provides for a full refund under its "Right to Cancel"
provision as required in your state, your refund will be your entire payment.
If your Contract does not provide for a full refund, you will receive:
- Amounts allocated to the Fixed Account; PLUS
- The value of the units in the Separate Account; PLUS
- All fees, charges and taxes which have been imposed.
Your refund will be determined as of the valuation date that your written
request is received at our Variable Life Service Center.
WHAT ARE MY INVESTMENT CHOICES?
The Contract gives you an opportunity to select among a number of investment
options, including sub-accounts and a Fixed Account. The sub-accounts invest in
seventeen portfolios from eight mutual fund families, and offer a wide range of
investment objectives. The available sub-accounts are as follows:
Alger American Income & Growth MFS VIT Growth with Income
Alliance VPF Growth & Income Morgan Stanley UF Fixed Income
Alliance VPF Premier Growth Morgan Stanley UF High Yield
Dreyfus VIF Capital Appreciation Morgan Stanley 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 Portfolio
MFS VIT Emerging Growth Transamerica VIF Money Market
MFS VIT Research
This range of investment choices allows you to allocate your money among the
sub-accounts to meet your investment needs. You may allocate payments and value
among up to seventeen (17) sub-accounts and the Fixed Account. If your Contract
provides for a full refund under its "Right to Examine Contract" provision as
required in your state, after the Contract is issued by us we will allocate all
sub-account investments to the sub-account investing in the Money Market
Portfolio of Transamerica Variable Insurance Fund, Inc., until the end of four
calendar days plus the number of days under the state free look period (usually
10 days, but longer under some circumstances). After this, we will allocate all
amounts to the sub-accounts as you have chosen.
The Contract also offers a Fixed Account, which provides a guaranteed minimum
interest rate of 4% annually on amounts allocated to the Fixed Account. We may
declare a higher rate. The Fixed Account is part of the General Account of
Transamerica. Amounts in the Fixed Account do not vary with the investment
performance of a portfolio. See "MORE INFORMATION ABOUT THE FIXED ACCOUNT" at
page xx.
WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS?
A summary of investment objectives of the portfolios is set forth below. See
"The Portfolios" at page xx for more information. Before investing, read
carefully the profiles or prospectuses of the portfolios that accompany this
Prospectus. Statements of Additional Information for the portfolios are
available without charge on request. There is no guarantee that the investment
objectives of the portfolios will be achieved. The Contract Value may be less
than the aggregate payments made to the Contract.
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.
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.
The Premier Growth Portfolio of Alliance Variable Products Series Fund, Inc.
seeks growth of capital by pursuing aggressive investment policies.
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.
The Small Cap Portfolio of the Dreyfus Variable Investment Fund seeks to
maximize capital appreciation.
The Balanced Portfolio of the Janus Aspen Series seeks long-term capital growth,
consistent with preservation of capital and balanced by current income.
The Worldwide Growth Portfolio of the Janus Aspen Series seeks long-term growth
of capital in a manner consistent with the preservation of capital.
The Emerging Growth Series of the MFS Variable Insurance Trust seeks to provide
long-term growth of capital.
The Growth with Income Series of the MFS Variable Insurance Trust seeks
reasonable current income and long-term growth of capital and income.
The Research Series of the MFS Variable Insurance Trust seeks long-term growth
of capital and future income.
The Fixed Income Portfolio of the Morgan Stanley Universal Funds, Inc. seeks
above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of U.S. government and agencies
securities, corporate bonds, mortgage backed securities, foreign bonds and other
fixed income securities and derivatives.
The High Yield Portfolio of the Morgan Stanley Universal Funds, Inc. seeks
above-average total return over a market cycle of three to five years by
investing primarily in high yield securities of U. S. and foreign issuers,
including corporate bonds and other fixed income securities and derivatives.
The International Magnum Portfolio of the Morgan Stanley Universal Funds, Inc.
seeks long-term capital appreciation by investing primarily in equity securities
of non-U.S. issuers domiciled in European, Australian, and Far East (EAFE)
countries.
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.
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.
The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc. seeks
long-term capital growth.
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.
CAN I MAKE TRANSFERS AMONG THE SUB-ACCOUNTS AND THE FIXED ACCOUNT?
Yes. You may transfer Contract Value among the sub-accounts and the Fixed
Account, subject to our consent and then current rules. You will incur no
current taxes on transfers while your money is in the Contract. You also may
elect automatic account rebalancing so that assets remain allocated according to
a desired mix or choose automatic dollar cost averaging to gradually move funds
into one or more sub-accounts. See TRANSFER PRIVILEGE.
The first 18 transfers of Contract Value in a Contract year are free. A transfer
charge not to exceed $25 may apply for each additional transfer in the same
Contract year. This charge is for the costs of processing the transfer.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The Contract requires a single payment of at least $10,000 on or before the date
of issue. Additional payment(s) of at least $10,000 may be made as long as the
total payments do not exceed the maximum payment amount specified in the
Contract. Additional payments may be accepted, subject to our underwriting
approval if the payment would increase the death benefit.
WHAT IF I NEED MY MONEY?
You may borrow up to the loan value of your Contract. The maximum loan value is
90% of the result of Contract Value less surrender charges. You may also make
partial withdrawals and you may surrender the Contract for its surrender value.
The guaranteed annual interest rate credited to the Contract Value securing a
loan will be at least 4.0%. However, any portion of the outstanding loan that is
a preferred loan will be credited interest at an annual rate not less than
5.50%.
We will allocate Contract 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. We will transfer the portion of the Contract Value in each
sub-account equal to the Contract loan to the Fixed Account.
You may surrender your Contract and receive its surrender value. You may make
partial withdrawals of $1,000 or more from the Contract Value, subject to
partial withdrawal costs, including any applicable surrender charges. The face
amount is proportionately reduced by each partial withdrawal. We will not allow
a partial withdrawal if it would reduce the Contract Value below $10,000.
A loan, surrender or partial withdrawal may have tax consequences. See TAXATION
OF CONTRACTS.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
Yes. There are several changes you can make after receiving your Contract,
within limits. You may
- Cancel your Contract under its "Right to Cancel" provision;
- Transfer your ownership to someone else;
- Change the beneficiary;
- - Change the allocation for any additional payment, with no federal income tax
consequences under current law;
- Make transfers of the Contract Value among the Fixed Account and the
sub-accounts, with no federal income taxes incurred under current law;
and
- Add or remove certain optional insurance benefits provided by rider.
CAN I CONVERT MY CONTRACT INTO A NON-VARIABLE CONTRACT?
Yes. You can convert your Contract without charge during the first 24 months
after the date of issue. On conversion, we will transfer the portion of the
Contract Value in the sub-accounts to the Fixed Account. We will allocate any
future payment(s) to the Fixed Account, unless you instruct us otherwise.
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
The following charges will apply to your Contract under the circumstances
described. Some of these charges apply throughout the Contract's duration.
Through the final payment date or, for the distribution fee and the tax charge,
only for the first ten Contract years, we deduct the following monthly charges
from the Contract Value:
- 0.30% on an annual basis for the administrative expenses (see
"Administration Charge" page _____);
- A deduction for the cost of insurance, which varies depending on the type
of Contract and underwriting class (see "Monthly Insurance Protection
Charge" page );
- - 0.40% on an annual basis for distribution expenses deducted only during the
first ten Contract years (see "Distribution Fee" page ); and
- 0.20% on an annual basis for federal,
state and local taxes deducted only during the first ten Contract years
(see "Tax Charge" page ).
The following daily charge is deducted from the Separate Account:
- 0.80% on an annual basis for the mortality and expense risks (see
"Mortality and Expense Risk Charge" page ).
The following charges and fees apply if you exercise certain Contract rights:
- - A $25 transfer charge for transfers in excess of eighteen (18) in a
Contract year may be assessed. See Transfer Charges page ___.
- During the first nine Contract years, adjusted for reinstatements, a
surrender charge applies for surrenders and for partial withdrawals in
excess of the "Free 10% Withdrawal" amount.
- - A withdrawal transaction fee for partial withdrawals may be assessed, equal
to 2% of the amount withdrawn up to a $25 maximum. Currently, no charge is
imposed. See Partial Withdrawal Costs page ___.
There are also deductions from and expenses paid out of the assets of the
portfolios that are described in the accompanying prospectuses.
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 1997, except where otherwise noted. 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 & Growth 0.63 0.11 0.74
Alliance VPF Growth & Income 0.63 0.09 0.72
Alliance VPF Premier Growth 1.00 0.10 1.10
Dreyfus VIF Capital Appreciation 0.75 0.05 0.80
Dreyfus VIF Small Cap 0.75 0.03 0.78
Janus Aspen Balanced 0.77 0.06 0.83
Janus Aspen Worldwide Growth 0.66 0.08 0.74
MFS VIT Emerging Growth 0.75 0.12 0.87
MFS VIT Growth with Income 0.75 0.25 1.00
MFS VIT Research 0.75 0.13 0.88
Morgan Stanley UF Fixed Income 0.00 0.70 0.70
Morgan Stanley UF High Yield 0.00 0.80 0.80
Morgan Stanley UF International Magnum 0.00 1.15 1.15
OCC Accumulation Trust Managed 0.80 0.07 0.87
OCC Accumulation Trust Small Cap 0.80 0.17 0.97
Transamerica VIF Growth 0.62 0.23 0.85
Transamerica VIF Money Market 0.35 0.25 0.60
</TABLE>
Transamerica may receive payments from some or all of the portfolios or their
advisers in varying amounts that may be based on the amount of assets allocated
to the portfolios. The payments are for administrative or distribution services.
Expense information regarding the portfolios has been provided by the
portfolios. Transamerica has no reason to doubt the accuracy of that
information, but Transamerica has not verified those figures. These figures are
for the year ended December 31, 1997, except for the Transamerica VIF Money
Market Portfolio, which are annualized estimates for the year 1998, the first
year of operation for the portfolio. Actual expenses in future years may be
higher or lower than these figures.
Notes to Portfolio Expenses Table: (1) From time to time, the portfolios'
investment advisers, each in its own discretion, may voluntarily waive all or
part of their fees and/or voluntarily assume certain portfolio expenses. The
expenses shown in the Portfolio Expenses table are the expenses paid for 1997
(except for the Transamerica VIF Money Market Portfolio, which is an estimate
for the year 1998, the first year of operation for the portfolio). The expenses
shown in the table reflect a portfolio's adviser's waivers of fees or
reimbursement of expenses, if applicable, except for Alliance VPF Premier Growth
for which expenses shown are before waivers or reimbursements. It is anticipated
that such waivers or reimbursements will continue for calendar year 1998, except
for Alliance VPF Premier Growth, for which the management fee, other expenses
and total portfolio annual expenses for 1998, without waivers or reimbursements,
are estimated to be 1.00%, 0.08% and 1.08%, respectively. Without such waivers
or reimbursements, the annual expenses for 1997 for certain portfolios would
have been, as a percentage of assets, as follows:
<TABLE>
<CAPTION>
Total Portfolio
Management Fee Other Annual Expenses
Portfolio Expenses
<S> <C> <C> <C>
Janus Aspen Worldwide Growth 0.72 0.09 0.81
MFS VIT Growth with Income 0.75 0.35 1.10
Morgan Stanley UF Fixed Income 0.40 1.31 1.71
Morgan Stanley UF High Yield 0.80 0.88 1.68
Morgan Stanley UF International Magnum 0.80 1.98 2.78
Transamerica VIF Growth 0.75 0.23 0.98
</TABLE>
Without expense reimbursements, the management fee, other expenses and
total portfolio expenses for the first year of operation for the
Transamerica VIF Money Market Portfolio are expected to be 0.35%, 0.45%
and 0.80%, respectively. There were no fee waivers or expense
reimbursements during 1997 for the Alger American Income and Growth
Portfolio, Alliance VPF Growth and Income Portfolio, Dreyfus VIF
Capital Appreciation Portfolio, Dreyfus VIF Small Cap Portfolio, Janus
Aspen Balanced Portfolio, MFS VIT Emerging Growth 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 "DESCRIPTION OF TRANSAMERICA, THE SEPARATE ACCOUNT, AND THE PORTFOLIOS -
THE PORTFOLIOS" at page xx and in the prospectuses for the portfolios.
WHAT CHARGES WILL I INCUR IF I SURRENDER MY CONTRACT OR MAKE A PARTIAL
WITHDRAWAL?
The charges below apply only if you surrender your Contract or make partial
withdrawals:
- Surrender Charge -- This charge applies on full surrenders within the
first nine Contract years. The surrender charge begins at 9.00% of the
payment(s) withdrawn and decreases by 1% each Contract year until it is 0%
at the start of the tenth Contract year. If you
reinstate your Contract, however, the surrender charges which will apply
upon reinstatement are those which were in effect on the date of default.
-Partial Withdrawal Costs -- We deduct from the Contract Value a surrender
charge on a withdrawal exceeding the "Free 10% Withdrawal," described
below, on partial withdrawals taken during the first nine Contract years
(adjusted as applicable for reinstatements).
Currently, we do not impose a withdrawal transaction fee. We reserve the right,
however, to impose a withdrawal transaction fee equal to 2% of the amount
withdrawn, not to exceed $25 for each partial withdrawal taken.
WHAT ARE THE LAPSE AND REINSTATEMENT PROVISIONS OF MY CONTRACT?
If the Guaranteed Death Benefit Rider is not in effect on your Contract, the
Contract will lapse if, on a monthly processing date, the surrender value is
less than the monthly deductions due. If the Contract lapses, you will have a
62-day grace period in which to pay required premium. If sufficient premium is
not paid by the end of the grace period, the Contract will terminate without
value.
If the Guaranteed Death Benefit Rider is in effect on your Contract, the
Contract will not lapse. If the Guaranteed Death Benefit Rider is terminated,
however, your Contract may then lapse.
Additionally, whether the Guaranteed Death Benefit Rider is or is not in effect
on the Contract, if the outstanding loan at any time exceeds the Contract Value
minus the surrender charges, the outstanding loan will be in default. If the
outstanding loan goes into default, you will have a 62-day grace period in which
to pay back the excess outstanding loan. If you do not pay back the excess
outstanding loan by the end of the grace period, the loan will be foreclosed and
the Contract will terminate without value.
If the Guaranteed Death Benefit Rider is in effect on the Contract, the
Guaranteed Death Benefit Rider will terminate if the loan is foreclosed. Once
terminated, the Guaranteed Death Benefit Rider may not be reinstated.
Within limits, the Contract may be reinstated within three years from the date
of default if it lapses or the outstanding loan is foreclosed.
See CONTRACT TERMINATION AND REINSTATEMENT, page , and THE CONTACT - Guaranteed
Death Benefit Rider, page .
HOW IS MY CONTRACT TAXED?
The Contract has been designed to be a "modified endowment contract." However,
under Section 1035 of the Internal Revenue Code an exchange of (1) a life
insurance contract entered into before June 21, 1988, or (2) a life insurance
contract that is not itself a modified endowment contract will not cause the
Contract to be treated as a modified endowment contract if no additional
payments are made and there is no increase in the death benefit as a result of
the exchange.
If the Contract is considered a modified endowment contract, all distributions
(including Contract loans, partial withdrawals, surrenders and assignments) will
be taxed on an "income-out-first" basis. Also, a 10% federal penalty tax may be
imposed on that part of a distribution that is includible in income. However,
the net death benefit under the Contract is generally excludable from the gross
income of the beneficiary. In some circumstances, federal estate tax may apply
to the net death benefit or the Contract Value. See TAXATION OF THE CONTRACT,
page ____.
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1999. However, the Company may
advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the portfolios have been in existence.
The portfolios are not available for purchase directly by the general public and
are not the same as mutual funds that may have similar names that are sold
directly to the public. There can be no assurance, and no representation is
made, that the investment performance of the portfolios will be comparable to a
fund with a similar name or same investment objective or adviser.
The results for any period prior to the Contracts being offered will be
calculated as if the Contracts had been offered during that period of time when
the portfolio was in existence, 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 Contract 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 Contracts is net of portfolio expenses,
monthly deductions and surrender charges. We take a representative Contract
Owner and assume that:
- The Insured is a male Age 55, standard (non-tobacco user) underwriting
class, issued under simplified underwriting guidelines;
- The Contract 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.
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.
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 ("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 administrative charges, separate account
charges and portfolio management costs and expenses.
In advertising, sales literature, publications or other materials, we may give
information on various topics of interest to Contract Owners and prospective
Contract 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 Contracts and the
characteristics of and market for the financial instruments.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues but
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the
portfolios.
TABLE I
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997, SINCE
INCEPTION OF THE PORTFOLIOS NET OF PORTFOLIO EXPENSES, SUB-ACCOUNT CHARGES, ALL
MONTHLY DEDUCTIONS (CHARGES) AND ASSUMING SURRENDER OF THE CONTRACT
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 Contract charges (including
surrender charges) for a representative Contract. It is assumed that the Insured
is male, Age 55, standard (non-tobacco user) underwriting class; a single
payment of $25,000 was made; the Contract was issued under simplified
underwriting criteria; the entire payment was allocated to each sub-account
individually; and there was a full surrender of the Contract at the end of the
applicable period.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
10 Year or
Life of the Number
Portfolio (if of
Less than 10 Years Since
Years Since Portfolio
5 Year Portfolio Inception
Average Inception) (if Less
Sub-Account Portfolio 1 Year Total Annual Average Annual than 10
Investing in the Inception Return Total Total Return Years)
Corresponding Portfolio Date Return
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Income & Growth 11/15/88 24.18% 14.15% 11.20% 9.13
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Alliance VPF Growth & Income 1/14/91 16.86% 16.02% 12.46% 6.96
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Alliance VPF Premier Growth 6/26/92 21.81% 17.79% 18.61% 5.52
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Capital Appreciation 4/05/93 16.18% N/A 16.55% 4.74
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Small Cap 8/31/90 5.09% 22.82% 40.65% 7.34
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced 9/13/93 10.32% N/A 12.86% 4.30
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 9/13/93 10.37% N/A 19.45% 4.30
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MFS VIT Emerging Growth 7/24/95 10.05% N/A 18.43% 2.44
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MFS VIT Growth with Income 10/09/95 17.83% N/A 22.25% 2.23
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MFS VIT Research 7/26/95 8.60% N/A 17.09% 2.44
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley UF Fixed Income 1/02/97 -1.57% N/A -1.57% 1.00
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley UF High Yield 1/02/97 1.96% N/A 1.96% 1.00
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley UF International Magnum 1/02/97 N/A -4.13% 1.00
-4.13%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Managed(1) 8/01/88 10.51% 16.61% 17.58% 9.42
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Small Cap(2) 8/01/88 10.46% 11.37% 12.83% 9.42
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth (3) 2/26/69 34.17% 27.23% 22.79% N/A
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Transamerica VIF Money Market 1/01/98 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
TABLE II
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997 SINCE
INCEPTION OF THE PORTFOLIOS EXCLUDING
MONTHLY DEDUCTIONS (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 and all sub-account charges. THE DATA DOES NOT REFLECT
MONTHLY DEDUCTIONS (CHARGES) UNDER THE CONTRACTS OR SURRENDER CHARGES.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
10 Year or
Life of the Number
Portfolio (if of
Less than 10 Years Since
Years Since Portfolio
5 Year Portfolio Inception
Average Inception) (if Less
Sub-Account Portfolio 1 Year Total Annual Average Annual than 10
Investing in the Inception Return Total Total Return Years)
Corresponding Portfolio Date Return
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Income & Growth 11/15/88 35.20% 16.47% 12.88% 9.13
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Alliance VPF Growth & Income 1/14/91 27.77% 18.33% 14.38% 6.96
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Alliance VPF Premier Growth 6/26/92 32.79% 20.09% 20.74% 5.52
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Capital Appreciation 4/05/93 27.07% N/A 18.91% 4.74
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Small Cap 8/31/90 15.81% 25.11% 42.80% 7.34
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced 9/13/93 21.12% N/A 15.35% 4.30
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 9/13/93 21.18% N/A 21.90% 4.30
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MFS VIT Emerging Growth 7/24/95 20.85% N/A 22.47% 2.44
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MFS VIT Growth with Income 10/09/95 28.75% N/A 26.55% 2.23
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MFS VIT Research 7/26/95 19.37% N/A 21.16% 2.44
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley UF Fixed Income 1/02/97 9.08% N/A 9.08% 1.00
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley UF High Yield 1/02/97 12.66% N/A 12.66% 1.00
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley UF International Magnum 1/02/97 6.48% N/A 6.48% 1.00
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Managed(1) 8/01/88 21.32% 18.92% 19.36% 9.42
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Small Cap(2) 8/01/88 21.26% 13.70% 14.53% 9.42
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth (3) 2/26/69 45.33% 29.53% 24.64% N/A
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Transamerica VIF Money Market 1/01/98 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
DESCRIPTION OF TRANSAMERICA,
THE SEPARATE ACCOUNT, AND THE PORTFOLIOS
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY. Transamerica Occidental Life
Insurance Company ("Transamerica") is a stock life insurance company
incorporated under the laws of the State of California in 1906. Transamerica is
principally engaged in the sale of life insurance and annuity policies.
Transamerica is a wholly-owned subsidiary of Transamerica Insurance Corporation
of California, which in turn is a direct subsidiary of Transamerica Corporation.
The home office of Transamerica is 1150 South Olive Street, Los Angeles,
California 90015.
The Company is a charter member of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE SEPARATE ACCOUNT. Transamerica Occidental Life Separate Account VUL-2
("Separate Account") was established by us as a separate account under the laws
of the State of California, pursuant to resolutions adopted by our Board of
Directors on June 11, 1996. The Separate Account is registered with the
Securities and Exchange Commission ("SEC" or "Commission") under the Investment
Company Act of 1940 ("1940 Act") as a unit investment trust. It meets the
definition of a separate account under the federal securities laws. However, the
Commission does not supervise the management of the investment practices or
policies of the Separate Account.
The assets used to fund the variable part of the Contracts 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 contracts and 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 (17) 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. 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.
The sub-accounts available under the Contracts invest in the following
portfolios:
Income and Growth Portfolio of The Alger American Fund
Growth and Income Portfolio and
Premier Growth Portfolio of Alliance Variable Products Series Fund, Inc.
Capital Appreciation Portfolio and
Small Cap Portfolio of Dreyfus Variable Investment Fund
Balanced Portfolio and
Worldwide Growth Portfolio of Janus Aspen Series
Emerging Growth Series,
Growth with Income Series and
Research Series of MFS Variable Insurance Trust
Fixed Income Portfolio,
High Yield Portfolio and
International Magnum Portfolio of Morgan Stanley Universal Funds, Inc.
Managed Portfolio and
Small Cap Portfolio of OCC Accumulation Trust
Growth Portfolio and
Money Market Portfolio
of Transamerica Variable Insurance Fund, Inc.
A summary of the investment objectives and policies of the portfolios is set
forth below. Before investing, read carefully the prospectuses of the portfolios
that accompany this prospectus. Statements of Additional Information for the
portfolios are available without charge by contacting the Variable Life Service
Center.
There is no guarantee that the investment objectives of the portfolios will be
achieved. Contract Value may be more or less than the aggregate payments made to
the Contract. The management fees listed below are fees specified in the
applicable advisory contract (i.e., before any fee waivers). The portfolios'
prospectuses contain more detailed information on the portfolios' 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 Alliance Variable Products Series Fund, Inc.
seeks growth of capital by pursuing aggressive investment policies. Since
investments will be made based upon their potential for capital appreciation,
current income will be incidental to the objective of capital growth. The
portfolio will invest predominantly in the equity securities (common stocks,
securities convertible into commons stocks and rights and warrants to subscribe
for or purchase common stocks) of a limited number of large, carefully selected,
high-quality U.S. companies that, in the judgment of the Adviser, are likely to
achieve superior earnings growth. The portfolio investments in the 25 such
companies most highly regarded at any point in time by the Adviser will usually
constitute approximately 70% of the portfolio's net assets. The portfolio thus
differs from more typical equity mutual funds by investing most of its assets in
a relatively small number of intensively researched companies. The portfolio
will, under normal circumstances, invest at least 85% of the value of its total
assets in the equity securities of U.S. companies.
Adviser: Alliance Capital Management L.P. Management Fee: 1%.
The Capital Appreciation Portfolio of the Dreyfus Variable Investment Fund is a
diversified portfolio, the primary investment objective of which is to provide
long-term capital growth consistent with the preservation of capital; current
income is a secondary investment objective. During periods which the Sub-Adviser
determines to be of market strength, the portfolio acts aggressively to increase
shareholders' capital by investing principally in common stocks of domestic and
foreign issuers, common stocks with warrants attached and debt securities of
foreign governments. The portfolio will seek investment opportunities generally
in large capitalization companies (those with market capitalizations exceeding
$500 million) which the Sub-Adviser believes have the potential to experience
above average and predictable earnings growth.
Adviser: The Dreyfus Corporation. Sub-Adviser: Fayez Sarofim & Co. Management
Fee: 0.75%.
The Small Cap Portfolio of the Dreyfus Variable Investment Fund seeks to
maximize capital appreciation. It seeks to achieve its objective by investing
principally in common stocks. Under normal market conditions, the portfolio will
invest at least 65% of its total assets in companies with market capitalizations
of less than $1.5 billion at the time of purchase which the Adviser believes to
be characterized by new or innovative products, services or processes which
should enhance prospects for growth in future earnings.
Adviser: The Dreyfus Corporation. Management Fee: 0.75%.
The 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 (i.e., at least
80% of its assets under normal circumstances) in common stocks of companies that
the Adviser believes are early in their life cycle but which have the potential
to become major enterprises (emerging growth companies). While the portfolio
will invest primarily in common stocks, the portfolio may, to a limited extent,
seek appreciation in other types of securities such as fixed income securities
(which may be unrated), convertible securities and warrants when relative values
make such purchases appear attractive either as individual issues or as types of
securities in certain economic environments. The portfolio may invest in
non-convertible fixed income securities rated lower than "investment grade"
(commonly known as "junk bonds") or in comparable unrated securities, when, in
the opinion of the Adviser, such an investment presents a greater opportunity
for appreciation with comparable risk to an investment in "investment grade"
securities. Under normal market conditions the portfolio will invest not more
than 5% of its nets assets in these securities. Consistent with its investment
objective and policies described above, the portfolio may also invest up to 25%
(and generally expects to invest not more than 15%) of its net assets in foreign
securities (including emerging market securities and Brady Bonds) which are not
traded on a U.S. exchange.
Adviser: Massachusetts Financial Services Company. Management Fee: 0.75%.
The 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 know as "junk bonds").
Consistent with its investment objective and policies described above, the
portfolio may also invest up to 20% of its net assets in foreign securities
(including emerging market securities) which are not traded on a U.S. exchange.
Adviser: Massachusetts Financial Services Company. Management Fee: 0.75%.
The Fixed Income Portfolio of the Morgan Stanley Universal Funds, Inc. seeks
above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of U.S. government and agencies
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 Morgan Stanley Universal Funds, Inc. seeks
above-average total return over a market cycle of three to five years by
investing primarily in high yield securities of U. S. and foreign issuers,
including corporate bonds and other fixed income securities and derivatives.
High yield securities are rated below investment grade and are commonly referred
to as "junk bonds." The portfolio's average weighted maturity will ordinarily
exceed five years and will usually be between five and fifteen years.
Adviser: Miller Anderson & Sherrerd, LLP. Management Fee: 0.50% of 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 Morgan Stanley Universal Funds, Inc.
seeks long-term capital appreciation by investing primarily in equity securities
of non-U.S. issuers domiciled in EAFE countries. The countries in which the
portfolio will invest are those comprising the Morgan Stanley Capital
International EAFE Index, which includes Australia, Japan, New Zealand, most
nations located in Western Europe and certain developed countries in Asia, such
as Hong Kong and Singapore (collectively the "EAFE countries"). The portfolio
may invest up to 5% of its total assets in securities of issuers domiciled in
non-EAFE countries. Under normal circumstances, at least 65% of the total assets
of the portfolio will be invested in equity securities of issuers in at least
three different EAFE countries.
Adviser: Morgan Stanley Asset Management Inc. Management Fee: 0.80% of the first
$500 million plus 0.75% of the next $500 million plus 0.70% of the assets over
$1 billion.
The 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 objective or policy of a
portfolio, we will notify you of the change. If you have Contract Value
allocated to that portfolio, you may reallocate the Contract Value to another
portfolio or to the Fixed Account without charge. 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 material change in the investment objective or policy;
or
- Receipt of the notice of your right to transfer.
THE CONTRACT
APPLYING FOR A CONTRACT
Individuals wishing to purchase a Contract must complete an application. We
offer Contracts to individuals 89 years old and under. For applications for
Second-to-Die Contracts, both proposed Insureds must be 89 years old or under.
After receiving a completed application from a prospective Contract 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 Contract only after underwriting has been completed. We
may reject an application that does not meet our underwriting guidelines.
A prospective Contract Owner may make a payment at the time the application is
completed. The payment must be at least $10,000 and at least 80% of the
guideline single premium for the face amount requested. Under these
circumstances, 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 (to the
extent required by our underwriting guidelines), completion of all underwriting
requirements, and the proposed Insured must be insurable under Transamerica's
rules for insurance under the Contract, 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 made the initial payment before the date we approve the application, we
will allocate the payment to our Fixed Account within two business days of
receipt of the payment at our Variable Life Service Center. IF WE ARE UNABLE TO
ISSUE THE CONTRACT, THE PAYMENT WILL BE RETURNED TO THE CONTRACT OWNER WITHOUT
INTEREST.
If your application is approved and the Contract is issued, we will allocate
your Contract Value within two days of the date we approve your application
according to your allocation instructions. However, if your Contract provides
for a full refund of payments under its "Right to Cancel" provision as required
in your state (see THE CONTRACT -- "Free Look Period," below), we will initially
allocate your sub-account investments to the sub-account investing in the Money
Market portfolio. We will reallocate all amounts according to your investment
choices no later than the expiration of four calendar days plus the number of
days under the state free look period (usually 10 days, but longer in some
circumstances).
If your initial payment is equal to the amount of the Guideline Single Premium,
the contract will be issued with the Guaranteed Death Benefit Rider at no
additional cost. If the Guaranteed Death Benefit Rider is in effect on the final
payment date, a guaranteed net death benefit will be provided thereafter unless
the Guaranteed Death Benefit Rider is subsequently terminated. See THE CONTRACT
- -- "Death Benefit" -- "Guaranteed Death Benefit Rider," below. THE GUARANTEED
DEATH BENEFIT RIDER MAY NOT BE AVAILABLE IN ALL JURISDICTIONS.
FREE LOOK PERIOD
The Contract provides for a free look period under the Right to Cancel
provision. You have the right to examine and cancel your Contract by returning
it to us or to one of our representatives on or before the tenth day (or such
later date as required in your state) after you receive the Contract.
If your Contract provides for a full refund under its "Right to Cancel"
provision as required in your state, your refund will be your entire payment. If
your Contract does not provide for a full refund, you will receive:
- Amounts allocated to the Fixed Account; PLUS
- The Contract Value in the sub-accounts; PLUS
- All fees, charges and taxes which have been imposed.
We may delay a refund of any payment made by check until the check has cleared
your bank. Your refund will be determined as of the Valuation Date that the
Contract is received at our Variable Life Service Center.
CONVERSION PRIVILEGE
Within 24 months of the date of issue, you can convert your Contract into a
non-variable Contract by transferring all Contract 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 any future payment(s) to the Fixed Account, unless you instruct us
otherwise.
PAYMENTS
The Contracts are designed for a large single payment to be paid by the Contract
Owner on or before the date of issue. The minimum initial payment is $10,000.
The initial payment is used to determine the face amount. The face amount will
be determined by treating the payment as equal to 100% of the guideline single
premium except as provided below.
You also indicate the desired face amount on the application. If the face amount
specified exceeds 100% of the guideline single premium for the payment amount,
the application will be amended and a Contract with a higher face amount will be
issued. If the face amount specified is less than 80% of the guideline single
premium for the payment amount, the application will be amended and a Contract
with a lower face amount will be issued. The Contract Owner must agree to any
amendment to the application.
Under our underwriting rules, the face amount must be based on 100% of the
guideline single premium to be eligible for simplified underwriting and to
qualify for the Guaranteed Death Benefit Rider.
Payments are payable to the Company. Payments may be made by mail to our
Variable Life Service Center or through our authorized representative. Any
additional payment, after the initial payment, is credited to the sub-accounts
or Fixed Account on the date of receipt at the Variable Life Service Center .
The Contract limits the ability to make additional payments. Any additional
payment(s) may not cause total payments to exceed the maximum payment on the
specifications pages of your Contract. Additional payments may be accepted by us
subject to our underwriting approval if the payment would increase the amount of
the death benefit. No additional payment may be less than $10,000 without our
consent except as necessary to keep a Contract in force.
Total payments may not exceed the current maximum payment limits under federal
tax law. 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. We will return any part of a payment that is greater than that
amount. However, we will accept a payment needed to prevent Contract lapse
during a Contract year. See CONTRACT TERMINATION AND REINSTATEMENT.
ALLOCATION OF PAYMENTS
In the application for your Contract, you decide the initial allocation of the
payment among the sub-accounts and the Fixed Account. You may allocate the
payment to one or more of the sub-accounts and/or the Fixed Account. You may
allocate payment among up to seventeen (17) sub-accounts, plus the Fixed
Account. The minimum amount that you may allocate to a sub-account or to the
Fixed Account without our consent is 5.0% of the payment. Allocation percentages
must be in whole numbers (for example, 33 1/3% may not be chosen) and must total
100%.
You may change the allocation of any future payment 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 the Company
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, the Company may be liable for
any losses from unauthorized or fraudulent instructions. We require that callers
on behalf of a Contract Owner identify themselves by name and identify the
Contract Owner by name, date of birth and Social Security number. All telephone
requests are tape recorded. An allocation change will take effect on the date of
receipt of the notice at the Variable Life Service Center.
The Contract Value in the sub-accounts will vary with investment experience. You
bear this investment risk. Investment performance may also affect the death
benefit. Review your allocations of Contract Value as market conditions and your
financial planning needs change.
TRANSFER PRIVILEGE
At any time prior to the election of a benefit payment option, subject to our
then current rules, you may transfer amounts among the sub-accounts or between a
sub-account and the Fixed Account. (You may not transfer that portion of the
Contract Value held in the Fixed Account that secures a Contract loan.)
We will make transfers at your written request or telephone request, as
described in THE CONTRACT -- ALLOCATION OF PAYMENTS. Transfers are effected at
the value next computed after receipt of the transfer order.
The first 18 transfers in a Contract year are free. After that, we may deduct a
transfer charge, not to exceed $25, from amounts transferred on each additional
transfer in that Contract year.
Transfers involving the Fixed Account are currently permitted only if:
- - - There has been at least a ninety (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 Contract Value.
These limitations do not apply to automatic transfers from the Fixed Account you
elect to make under the Dollar Cost Averaging Option.
You may apply for automatic transfers under either the Dollar Cost Averaging
(DCA) option or the Automatic Account Rebalancing (AAR) option by submitting
your written request to our Variable Life Service Center. Transfers under either
DCA or AAR are generally effective on the 15th day of each scheduled month. If
your written request is received by us prior to the 15th of the month, your
option may begin as early as the 15th of the month in which we receive your
request. Otherwise, your option may begin as early as the 15th of the following
month. You may cancel your election of an option by written request at any time
with regard to future transfers. The DCA option and the AAR option may not be
effective at the same time on your Contract. 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 a "source account" you select for your Contract on a monthly,
quarterly, or semi-annual basis to one or more sub-accounts. You may choose
either the Money Market sub-account or the Fixed Account as your "source
account". The minimum amount of each DCA transfer from the "source account" is
$100, and you may not have value in more than seventeen sub-accounts. The Dollar
Cost Averaging option is designed to reduce the risk of your purchasing units
only when the price of the units is high, but you should carefully consider your
financial ability to continue the option over a long enough period of time to
purchase units when their value is low as well as when they are 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 "source 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. Transfers from the Fixed
Account as the "source account" will not be subject to the limitations on
transfers from the Fixed Account. We reserve the right to terminate the DCA
option at any time and for any reason.
Automatic Account Rebalancing (AAR). Once your payments and requested transfers
have been allocated among your sub-account choices, the performance of each
sub-account may cause your allocation to shift such that the relative value of
one or more sub-accounts is no longer consistent with your overall objectives.
Under the Automatic Account Rebalancing option, the balances in your selected
sub-accounts can be restored to the allocation percentages you elect on your
written request by transferring values among the sub-accounts. You may not have
value in more than seventeen sub-accounts. The minimum percentage allocation for
each selected sub-account without our consent is 5%, and percentage allocations
must be in whole numbers. The AAR option is available on a quarterly,
semi-annual or annual basis. The minimum total amount of the transfers under the
AAR option is $100 per scheduled date. If the total transfer amount would be
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 or from
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 automatic transfer for the elected option counts as one transfer
toward the 18 free transfers allowed in each Contract 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 Contract year.
The following transfers will not count toward the 18 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 Contract provides for a full refund of payments under the
free-look provision (see "THE CONTRACT - APPLYING FOR A CONTRACT");
- transfers because of a Contract loan or a Contract loan repayment; and
- transfers because of a material change in investment policy.
TRANSFER PRIVILEGES SUBJECT TO POSSIBLE LIMITS
All of the transfer privileges described above are 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; and
- Maximum amounts that may be transferred from the Fixed Account.
These rules are subject to change by the Company.
DEATH BENEFIT
If the Contract is in force on the Insured's death, we will, with due proof of
death, pay the net death benefit to the named beneficiary. For Second-to-Die
Contracts, the net death benefit is payable on the death of the last surviving
Insured. There is no death benefit payable on the death of the first Insured to
die. We will normally pay the net death benefit within seven days of receiving
due proof of the Insured's death, but we may delay payment of net death
benefits. (See OTHER CONTRACT PROVISIONS - "Delay of Benefit Payments.") The
beneficiary may receive the net death benefit in a lump sum or under a benefit
payment option, unless the benefit payment option has been restricted by the
Contract Owner. (See APPENDIX C - BENEFIT PAYMENT OPTIONS.) The net death
benefit is the amount of the death benefit reduced by certain amounts, as
described below. The amount of the death benefit in some instances depends on
whether the Guaranteed Death Benefit Rider is in effect on the Contract at the
time of the Insured's death.
GUARANTEED DEATH BENEFIT RIDER (NOT AVAILABLE IN ALL JURISDICTIONS) - If at the
time of issue the Contract Owner has made payments equal to 100% of the
guideline single premium, a Guaranteed Death Benefit Rider will be added to the
Contract at no additional charge, if the Rider is available in your state. The
Contract will not lapse while the Guaranteed Death Benefit Rider is in force.
The Guaranteed Death Benefit Rider will terminate (AND MAY NOT BE REINSTATED) on
the first to occur of:
-- Foreclosure of the outstanding loan;
-- A request for a partial withdrawal or a loan after the final payment
date; or
--Your written request to terminate the Rider.
DEATH BENEFIT AND NET DEATH BENEFIT - Through the final payment date, the death
benefit is equal to the GREATER of the:
-- Face amount, or
-- Guideline minimum sum insured.
Through the final payment date, the net death benefit is:
-- The death benefit MINUS
-- Any outstanding loan, rider charges and monthly deductions due and
unpaid through the Contract month in which the Insured dies, as well as
any unpaid partial withdrawals, withdrawal transaction fees, and
applicable surrender charges.
If the Guaranteed Death Benefit Rider is in effect on the final payment date,
and is not subsequently terminated, then the death benefit after the final
payment date is the GREATER of:
-- The face amount on the final payment date, or
--The guideline minimum sum insured as of the date due proof of death
is received by us.
The net death benefit after the final payment date if the Guaranteed Death
Benefit Rider is in effect is:
-- The death benefit MINUS
-- Any outstanding loan, through the month in which the Insured dies.
If the Guaranteed Death Benefit Rider is NOT in effect, then the death benefit
after the final payment date is the guideline minimum sum insured as of the date
due proof of death is received by us.
The net death benefit after the final payment date if the Guaranteed Death
Benefit Rider is NOT in effect is:
-- The death benefit MINUS
-- Any outstanding loan, through the month in which the Insured dies,
as well as any unpaid partial withdrawals, withdrawal transaction fees,
and applicable surrender charges.
GUIDELINE MINIMUM SUM INSURED -- The guideline minimum sum insured is a
percentage of the Contract Value as set forth in APPENDIX A -- GUIDELINE MINIMUM
SUM INSURED TABLE. The guideline minimum sum insured is computed based on
federal income tax regulations to ensure that the Contract qualifies as a life
insurance contract and that the insurance proceeds generally will be excluded
from the gross income of the beneficiary.
ILLUSTRATION -- In this illustration, assume that the Insured is under the age
of 40, and that there is no outstanding loan.
A Contract with a $100,000 face amount will have a death benefit of at least
$100,000. However, because the death benefit must be equal to or greater than
265% of Contract Value, if the Contract Value exceeds $37,736 the death benefit
will exceed the $100,000 face amount. In this example, each dollar of Contract
Value above $37,736 will increase the death benefit by $2.65. For example, a
Contract with a Contract Value of $50,000 will have a guideline minimum sum
insured of $132,500 ($50,000 X 2.65); Contract Value of $60,000 will produce a
guideline minimum sum insured of $159,000 ($60,000 X 2.65); and Contract Value
of $75,000 will produce a guideline minimum sum insured of $198,750 ($75,000 X
2.65).
Similarly, if the Contract Value exceeds $37,736, each dollar taken out of the
Contract Value will reduce the death benefit by $2.65. If, for example, the
Contract 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 $159,000 to $132,500. If, however, the Contract Value multiplied
by 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 age in the above example were, for example, 50 (rather than between
zero and 40), the applicable percentage would be 200%. The death benefit would
not exceed the $100,000 face amount unless the Contract Value exceeded $50,000
(rather than $37,736), and each dollar then added to or taken from Contract
Value would change the death benefit by $2.00.
OPTION TO ACCELERATE DEATH BENEFITS (LIVING BENEFITS RIDER) - Subject to state
law and approval, you may elect to add the Option to Accelerate Death Benefits
(Living Benefits Rider) to your Contract. This rider is only available for
Contracts providing insurance coverage on a single life. The rider is not
available on Second-to-Die Contracts. 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 Contract
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 Contract.
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 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 the Contract Value if you exercise the
option under this rider.
If you elect to exercise this option, your Contract 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 Contract's death benefit will be decreased by the option amount; and
- The Contract Value will be reduced in the same proportion as the reduction
in the death benefit.
The portion of the outstanding loan which will be deducted from the living
benefit will equal the outstanding loan times the option amount divided by the
death benefit.
There will be no surrender charges assessed on the reduction in Contract Value.
If you elect to exercise this option, we will provide you with a written
statement of the effect exercising this option will have on the values in your
Contract, including the effect on the outstanding loan amount, the death
benefit, and the surrender value. We will not distribute the living benefit to
you until you authorize the distribution after we have provided this written
statement.
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.
CONTRACT VALUE
The Contract Value is the total value of your Contract. It is the SUM of:
- Your accumulation in the Fixed Account; PLUS
- The value of your units in the sub-accounts.
There is no guaranteed minimum Contract Value. The Contract Value on any date
depends on variables that cannot be predetermined.
Your Contract Value is affected by the:
- Amount of your payment(s);
- Interest credited in the Fixed Account;
- Investment performance of the sub-accounts you select;
- Partial withdrawals;
- Loans, loan repayments and loan interest paid or credited; and
- Charges and deductions under the Contract.
COMPUTING CONTRACT VALUE -- We compute the Contract Value on the date of issue
and on each valuation date. On the date of issue, the Contract Value is:
- Your payment plus any interest earned during the period it was allocated
to the Fixed Account (see "THE CONTRACT -- APPLYING FOR A CONTRACT");
MINUS
- The monthly deductions due.
On each valuation date after the date of issue, the Contract Value is the SUM
of:
- Accumulations in the Fixed Account; PLUS
- The SUM of the PRODUCTS of:
- The number of units in each sub-account; TIMES
- The value of a unit in each sub-account on the valuation date.
THE UNIT -- We allocate each payment to the sub-accounts you selected. 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 Contract is the QUOTIENT
of:
- That part of the 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. (Prior to the end of the free-look
period for your Contract, however,
different rules may apply. See THE CONTRACT - APPLYING FOR A CONTRACT.)
The number of units will remain fixed unless changed by a split of unit value,
transfer, transfer charge, loan, partial withdrawal or surrender. Also, monthly
deductions taken from a sub-account will result in 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 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 just ended. The net
investment factor for each sub-account is the result of:
- The net asset value per share of a portfolio held in the sub-account
determined at the end of the current valuation period; PLUS
- The per share amount of any dividend or capital gain distributions made by
the portfolio on shares in the sub-account if the "ex-dividend" date
occurs during the current valuation period; DIVIDED BY
- 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;
MINUS
- The mortality and expense risk charge for each day in the valuation period
at an annual rate of 0.80% of the daily net asset value of that
sub-account.
The net investment factor may be more or less than one.
BENEFIT PAYMENT OPTIONS
The net death benefit payable may be paid in a single sum or under one or more
of the benefit payment options then offered by the Company. Benefit payment
options are paid from the General Account and are not based on the investment
experience of the Separate Account. See "APPENDIX C - BENEFIT PAYMENT OPTIONS."
These benefit payment options also are available at the maturity date or if the
Contract is surrendered. If no election is made, we will pay the net death
benefit in a single sum.
OPTIONAL INSURANCE BENEFITS
You may add an optional insurance benefit to the Contract by rider, as described
in APPENDIX B -- OPTIONAL INSURANCE BENEFITS. The cost of optional insurance
benefits, if any, becomes part of the monthly insurance protection charge.
SURRENDER
You may surrender the Contract and receive its surrender value. The surrender
value is:
- The Contract 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 Contract within nine full Contract years of the date of issue. See
CHARGES AND DEDUCTIONS -- "Surrender Charge." If you reinstate your Contract,
however, your surrender charges upon reinstatement will be the charges which
applied on the date of default, and Contract years will be adjusted accordingly.
See CONTRACT TERMINATION AND REINSTATEMENT. The surrender value may be paid in a
lump sum or under a benefit payment option then offered by us. See APPENDIX C -
BENEFIT PAYMENT OPTIONS. We will normally pay the surrender value within seven
days following our receipt of your written request. We may delay benefit
payments under the circumstances described in OTHER CONTRACT PROVISIONS --
"Delay of Benefit Payments."
The surrender value will generally be includible in gross income to the extent
that the surrender value plus any outstanding loan at the time of surrender
exceeds the "tax basis" in the Contract. In addition, if the Contract is a
modified endowment contract (MEC), a 10% federal tax penalty may apply to the
taxable portion of the surrender value if the Contract Owner is less than 59 1/2
years old at the time of the distribution. See TAXATION OF THE CONTRACTS for
important information about surrenders.
PARTIAL WITHDRAWAL
You may withdraw part of the Contract Value of your Contract on written request.
Your written request must state the dollar amount you wish to receive. You may
allocate the amount withdrawn among the sub-accounts and the Fixed Account. If
you do not provide allocation instructions, we will make a pro rata allocation.
Each partial withdrawal must be at least $1,000. We will not allow a partial
withdrawal if it would reduce the Contract Value below $10,000. The face amount
is reduced proportionately based on the ratio of the amount of the partial
withdrawal plus withdrawal transaction fees and applicable surrender charges to
the Contract Value on the date of withdrawal.
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 withdrawal transaction fee plus the applicable surrender
charges. See CHARGES AND DEDUCTIONS -- "Surrender Charges" and CHARGES AND
DEDUCTIONS -- "Partial Withdrawal Costs." We will normally pay the partial
withdrawal within seven days following our receipt of the written request. We
may delay payment as described in OTHER CONTRACT PROVISIONS -- "Delay of Benefit
Payments."
If the Contract is considered a modified endowment contract (MEC), a partial
withdrawal will be includible in gross income on an "income-out-first" basis.
Additionally, a 10% federal tax penalty may apply to the taxable portion of a
partial withdrawal if the Contract Owner is less than 59 1/2 years old at the
time of the distribution. See TAXATION OF THE CONTRACTS for important
information about partial withdrawals.
CHARGES AND DEDUCTIONS
The following charges will apply to your Contract under the circumstances
described. Some of these charges apply throughout the Contract's duration.
MONTHLY DEDUCTIONS
On the monthly processing date, the Company will deduct an amount to cover
charges and expenses incurred in connection with the Contract. No monthly
deductions will be taken after the final payment date or, for the Distribution
Fee and the Tax Charge, after the end of the tenth Contract year. This monthly
deduction will be deducted by subtracting values from the Fixed Account
accumulation and/or canceling units from each applicable sub-account in the
ratio that the portion of the Contract Value in the sub-account bears to the
Contract Value. The amount of the monthly deduction will vary from month to
month. If the Contract Value is not sufficient to cover the monthly deduction
which is due, the Contract may lapse. (See CONTRACT TERMINATION AND
REINSTATEMENT.)
The monthly deduction is comprised of the following charges:
- - - ADMINISTRATION CHARGE: The Company imposes a monthly charge at an annual
rate of 0.30% of the Contract Value. This charge is to reimburse us for
administrative expenses incurred in the administration of the Contract. It is
not expected to be a source of profit.
- - - MONTHLY INSURANCE PROTECTION CHARGE: Immediately after the Contract is
issued the death benefit will be greater than the payment. While the Contract is
in force, the death benefit generally will be greater than the payment(s). To
enable us to pay this excess of the death benefit over the Contract Value, a
monthly cost of insurance charge is deducted. This charge varies depending on
the type of Contract and the underwriting class of the insured. In no event will
the current deduction for the cost of insurance exceed the guaranteed maximum
insurance protection rates set forth in the Contract. These guaranteed rates are
based on the Commissioners 1980 Standard Ordinary Mortality Tables (Age Last
Birthday), Tobacco User or Non-Tobacco User (males rates are used for unisex
Contracts and Mortality Table D for Second-to-Die Contracts) and the Insured's
sex and Age. There are appropriate adjustments in the rates for non-standard
ratings. The Tables used for this purpose set forth different mortality
estimates for males and females and for tobacco user and non-tobacco user. Any
change in the insurance protection rates will apply to all Insureds of the same
Age, sex and underwriting class whose Contracts have been in force for the same
period.
The underwriting class of an Insured will affect the insurance protection rate.
We currently place Insureds into standard underwriting classes and non-standard
underwriting classes. The underwriting classes are also divided into two
categories: tobacco user and non-tobacco user. We will place Insureds under the
age of 18 at the date of issue in a standard or non-standard underwriting class.
We will then classify the Insured as a non-tobacco user when the Insured reaches
age 18.
We also charge different current monthly insurance protection rates depending
upon whether the Contract was issued based on simplified underwriting criteria
or, instead, was issued based on full underwriting. For example, the rates
charged for a standard, non-tobacco user underwriting class will differ between
individuals in that class covered under Contracts issued on a simplified
underwriting basis compared to individuals in that class covered under Contracts
issued on a fully underwritten basis.
Currently, simplified underwriting applies to all applications which meet all of
the following conditions:
- The Insured (younger Insured for Second-to-Die applications) is at
least 30 years old but not older than 80 on the date of issue;
- The premium paid is 100% of the guideline single premium;
- - The premium is at least $10,000 but not more than the maximum permitted
under our current simplified underwriting guidelines; and
- Information disclosed on the application and received by us from the
Medical Information Bureau, Inc. (MIB) is consistent with our current
simplified underwriting guidelines.
Any application which does not meet all of the conditions listed above will be
fully underwritten. We may change our simplified underwriting criteria at any
time.
- - - DISTRIBUTION FEE: During the first ten Contract years, we make a monthly
deduction to compensate us for a portion of the sales expenses which are
incurred by us with respect to the Contracts. This charge is equal to an annual
rate of 0.40% of the Contract Value.
- - - TAX CHARGE: During the first ten Contract years, we make a monthly deduction
to partially compensate us for state and local premium taxes, and federal income
tax treatment of Deferred Acquisition Costs. This charge is equal to an annual
rate of 0.20% of Contract Value. Premium tax rates vary from state to state and
are a percentage of payments made by Contract Owners to us. Currently, rates in
the fifty states and the District of Columbia range between 0.75% and 3.5%.
Since we are subject to retaliatory tax, the effective premium tax for us
typically ranges between 2.35% and 3.5%. Typically, we pay premium taxes
(including retaliatory tax) in all jurisdictions, but the Tax Charge will be
deducted, even if we are not subject to premium or retaliatory tax in a state.
The Company does not intend to profit from this charge.
- - - RIDER CHARGES: any charges for riders are deducted monthly. Currently we
do not impose any charges for riders available under the Contract.
- - - DAILY DEDUCTIONS: We assess each sub-account with a charge for mortality and
expense risks we assume. Portfolio expenses are also reflected in the Separate
Account.
- - - MORTALITY AND EXPENSE RISK CHARGE: We impose a daily charge at an annual
rate of 0.80% 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 Contracts.
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 Contracts will exceed those compensated by the
administration charges in the Contracts. If the charge for mortality and expense
risks is not sufficient to cover mortality experience and expenses, we will
absorb the losses. If the charge turns out to be higher than mortality and
expense risk expenses, the difference will be a profit to us. If the charge
provides us with a profit, the profit will be available for our use to pay
distribution, sales and other expenses.
- - - PORTFOLIO EXPENSES: The value of the units of the sub-accounts will reflect
the investment advisory fee and other expenses of the portfolios whose shares
the sub-accounts purchase. The prospectuses and statements of additional
information of the portfolios contain more information concerning the fees and
expenses.
No charges are currently made against the sub-accounts for federal or state
income taxes. Should income taxes be imposed, we may make deductions from the
sub-accounts to pay the taxes. See TAXATION OF THE CONTRACTS.
SURRENDER CHARGE
The Contract's contingent surrender charge is a deferred sales charge and an
unrecovered tax charge. The deferred sales charge compensates us for
distribution expenses, including commissions to our representatives, advertising
and the printing of prospectuses and sales literature.
<TABLE>
<CAPTION>
- --------------------------- -------------------------- -------------------------- --------------------------
Contract Year Surrender Charge Contract Year Surrender Charge
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
1 9% 6 4%
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
2 8% 7 3%
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
3 7% 8 2%
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
4 6% 9 1%
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
5 5% 10+ 0%
- --------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
The surrender charge applies for nine Contract years. (See REINSTATEMENT,
however for how surrender charges and applicable Contract years are adjusted if
a contract is reinstated.) We impose the surrender charge only if, during its
duration, you request a full surrender or a partial withdrawal in excess of the
free withdrawal amount.
PARTIAL WITHDRAWAL COSTS - SURRENDER CHARGES AND WITHDRAWAL TRANSACTION FEES.
A surrender charge may be deducted from Contract Value due to partial
withdrawal. However, in any Contract year, you may withdraw, without a surrender
charge, up to:
- 10% of the Contract Value; MINUS
- The total of any prior free withdrawals in the same Contract year ("Free
10% Withdrawal").
The right to make the Free 10% Withdrawal is not cumulative from Contract year
to Contract year. For example, if only 8% of Contract Value were withdrawn in
the second Contract year, the amount you could withdraw in future Contract years
would not be increased by the amount you did not withdraw in the second Contract
year.
We impose any applicable surrender charge on any withdrawal greater than the
Free 10% Withdrawal.
Currently, we do not impose a withdrawal transaction fee for partial
withdrawals. We reserve the right to impose a withdrawal transaction fee of 2.0%
of the amount withdrawn, not to exceed $25.
TRANSFER CHARGES
The first 18 transfers in a Contract year are free. After that, we may deduct a
transfer charge not to exceed $25 from amounts transferred in that Contract
year. This charge reimburses us for the administrative costs of processing the
transfer.
If you apply for automatic transfers, the first automatic transfer for the
elected option counts as one transfer. 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 Contract Value is free and does not count as
one of the 18 free transfers in a Contract year:
- A conversion within the first 24 months from date of issue;
- A transfer to the Fixed Account to secure a loan;
- A transfer from the Fixed Account as a result of a loan repayment;
- A reallocation of value in the Money Market sub-account as described above
under "THE CONTRACT - Applying for a Contract"; and
- A transfer made because of a material change in investment policy.
CONTRACT LOANS
You may borrow money secured by your Contract Value, both during and after the
first Contract year. The total amount you may borrow is the loan value. The
maximum loan value is 90% of the result of Contract Value less surrender
charges. Contract Value equal to the outstanding loan will earn monthly interest
in the Fixed Account at an annual rate of at least 4.0%.
The minimum loan amount is $1,000. The maximum loan amount is the loan value
minus any outstanding loan. We will usually pay the loan within seven days after
we receive the written request. We may delay the payment of loans as stated in
"OTHER CONTRACT PROVISIONS -- Delay of Payments."
We will allocate the loan 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. We will transfer the portion of the Contract Value in each
sub-account equal to the Contract loan to the Fixed Account. We will not count
this transfer as a transfer subject to the transfer charge.
PREFERRED LOAN OPTION
Any portion of the outstanding loan that represents (1) earnings in this
Contract, (2) a loan from an exchanged life insurance policy that was carried
over to this Contract, or (3) the gain in the exchanged life insurance policy
that was carried over to this Contract may be treated as a preferred loan. The
available percentage of the gain carried over from an exchanged policy, less any
policy loan carried over, which will be eligible for preferred loan treatment is
as follows:
<TABLE>
<CAPTION>
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
Beginning Unloaned Beginning Unloaned Beginning Unloaned
of Contract Year Gain Available of Contract Year Gain Available of Contract Gain Available
Year
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1 0% 6 50% 11+ 100%
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
2 10% 7 60%
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
3 20% 8 70%
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
4 30% 9 80%
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
5 40% 10 90%
- ------------------- ------------------ ------------------ ------------------ ---------------- ----------------
</TABLE>
The annual interest rate credited to the Contract Value securing a preferred
loan will be at least 5.5%.
There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser. See TAXATION OF THE CONTRACTS.
LOAN INTEREST CHARGED
Interest accrues daily at the annual rate of 6.0%. Interest is due and payable
in arrears at the end of each Contract year or for as short a period as the loan
may exist. Interest not paid when due will be added to the outstanding loan by
transferring the portion of the Contract Value equal to the interest due to the
Fixed Account. The interest due will bear interest at the same rate.
REPAYMENT OF OUTSTANDING LOAN
You may pay any loans before Contract lapse or foreclosure and before the
maturity date. We will allocate that part of the Contract 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 Contract Value according to your most recent payment allocation
instructions. However, loan repayments allocated to the Separate Account cannot
exceed that portion of the Contract Value previously transferred from the
Separate Account to secure the outstanding loan.
If the outstanding loan exceeds the Contract Value less the surrender charge,
the outstanding loan will be in default and the Contract will enter a grace
period. We will mail a notice of default and minimum required payment 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 Contract will terminate
with no value. See CONTRACT TERMINATION AND REINSTATEMENT.
EFFECT OF CONTRACT LOANS
Contract loans will permanently affect the Contract 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 Contract 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 Contract exceeds the Contract Value minus
surrender charges, the Contract will be in default. There is no charge imposed
solely because the Contract goes into default. If you do not pay the required
premium within the grace period, however, the Contract will terminate without
value.
If you have an outstanding loan, decreases in Contract Value, including
decreases due to negative investment results in your sub-account allocations,
could result in default of your Contract. 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 Contract Value minus
surrender charges, resulting in your Contract going into default.
In the event the Contract 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 Contract for income tax purposes. See TAXATION OF THE
CONTRACTS.
If the Contract is considered a modified endowment contract (MEC), a loan taken
from the Contract will be includible in gross income on an "income-out-first"
basis. Additionally, a 10% federal tax penalty may apply to the taxable portion
of a loan if the Contract Owner is less than 59 1/2 years old at the time of the
distribution.
See TAXATION OF THE CONTRACTS for important information about loans.
CONTRACT TERMINATION AND REINSTATEMENT
CONTRACT LAPSE AND TERMINATION
If the Guaranteed Death Benefit Rider is not in effect on your Contract, the
Contract will lapse if, on a monthly processing date, the surrender value is
less than the monthly deductions due. If the Contract lapses, you will have a
62-day grace period in which to pay required premium. If sufficient premium is
not paid by the end of the grace period, the Contract will terminate without
value.
If the Guaranteed Death Benefit Rider is in effect on your Contract, the
Contract will not lapse. If the Guaranteed Death Benefit Rider is terminated,
however, your Contract may then lapse.
Additionally, whether the Guaranteed Death Benefit Rider is or is not in effect
on the Contract, if the outstanding loan at any time exceeds the Contract Value
minus the surrender charges, the outstanding loan will be in default. If the
outstanding loan goes into default, you will have a 62-day grace period in which
to pay back the excess outstanding loan. If you do not pay back the excess
outstanding loan by the end of the grace period, the loan will be foreclosed and
the Contract will terminate without value.
If the Guaranteed Death Benefit Rider is in effect on the Contract, the
Guaranteed Death Benefit Rider will terminate if the loan is foreclosed. Once
terminated, the Guaranteed Death Benefit Rider may not be reinstated.
See THE CONTACT - Guaranteed Death Benefit Rider.
REINSTATEMENT
A terminated Contract may be reinstated within three years (or such other time
period required by state law) of the date of default and before the final
payment date (or, before the maturity date if the default occurred because the
outstanding loan exceeded the Contract Value less surrender charges). The
reinstatement takes effect on the monthly processing date following the date you
submit to us:
- Written application for reinstatement;
- Evidence of insurability showing that the Insured is insurable according
to our current underwriting rules;
- A payment that is large enough to cover the cost of all Contract charges
and deductions that were due and unpaid during the grace period;
- A payment that is large enough to keep the Contract in force for three
months; and
- A payment or reinstatement of any loan against the Contract that existed
at the end of the grace period.
Contracts which have been surrendered may not be reinstated. The Guaranteed
Death Benefit Rider may not be reinstated.
SURRENDER CHARGE -- For the purpose of measuring the surrender charge period,
the Contract will be reinstated as of the date of default. The surrender charge
on the date of reinstatement is the surrender charge that would have been in
effect on the date of default. The remaining period during which surrender
charges apply, as well as the percentage charge applicable, will be adjusted
accordingly.
CONTRACT VALUE ON REINSTATEMENT -- The Contract Value on the date of
reinstatement is:
- The payment made to reinstate the Contract and interest earned from the
date the payment was received at our Variable Life Service Center; PLUS
- The Contract Value less any outstanding loan on the date of default; MINUS
- The monthly deductions due on the date of reinstatement.
You may reinstate any outstanding loan.
OTHER CONTRACT PROVISIONS
CONTRACT OWNER
The Contract Owner named on the specification pages of the Contract is the
Insured unless another Contract Owner has been named in the application. As
Contract Owner, you are entitled to exercise all rights under your Contract
while the Insured is alive, with the consent of any irrevocable beneficiary.
BENEFICIARY
The beneficiary is the person or persons to whom the net death benefit is
payable on the Insured's death. Unless otherwise stated in the Contract, the
beneficiary has no rights in the Contract before the Insured dies. While the
Insured is alive, you may change the beneficiary, unless you have declared the
beneficiary to be irrevocable. An irrevocable beneficiary may only be changed
with the consent of the irrevocable beneficiary. If no beneficiary is alive when
the Insured dies, the Contract Owner (or the Contract Owner's estate) will be
the beneficiary. If more than one beneficiary is alive when the Insured dies, we
will pay each beneficiary in equal shares, unless you have chosen otherwise.
Where there is more than one beneficiary, the interest of a beneficiary who dies
before the Insured will pass to surviving beneficiaries proportionally, unless
the Contract Owner has requested otherwise.
ASSIGNMENT
You may assign a Contract as collateral or make an absolute assignment. All
Contract 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 Contract. 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 on
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 CONTRACT PROVISIONS MAY VARY BY STATE.
LIMIT ON RIGHT TO CHALLENGE THE CONTRACT
Except for fraud (unless such defense is prohibited by state law) or non-payment
of premium, we cannot challenge the validity of your Contract if the Insured was
alive after the Contract has 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. We may also challenge the validity of your
Contract for two years from the effective date of : (1) any change in
underwriting class that you request; and (2) any reinstatement.
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 Contract, without interest, less any
outstanding loan and partial withdrawals.
MISSTATEMENT OF AGE OR SEX
If the Insured's Age or sex is not correctly stated in the Contract application,
we will adjust the death benefit and the face amount under the Contract to
reflect the correct Age and sex. The adjustment will be based upon the ratio of
the maximum payment for the Contract to the maximum payment for the Contract
issued for the correct Age or sex. We will not reduce the death benefit to less
than the guideline minimum sum insured. For a unisex Contract, there is no
adjusted benefit solely for misstatement of sex. No adjustment will be made if
the Insured dies after the final payment date, if the Guaranteed Death Benefit
Rider is not in effect on the Contract.
DELAY OF PAYMENTS
We may delay paying any amounts derived from a payment you made by check until
the check has cleared your bank. Amounts payable from the Separate Account for
surrender, partial withdrawals, net death benefit, Contract 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 reserve the right to defer amounts payable from the Fixed Account. This delay
may not exceed six months. However, if payment is delayed for 30 days or more,
we will pay interest at least equal to an effective annual yield of 3.0% per
year for the deferment. Amounts from the Fixed Account used to make payments on
Contracts that we or our affiliates issue will not be delayed.
TAXATION OF THE CONTRACTS
The following summary of federal tax considerations is 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 Contracts. 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 Contract Owner is
a corporation or the Trustee of an employee benefit plan. You should consult a
qualified tax adviser to apply the law to your circumstances.
THE COMPANY AND THE SEPARATE ACCOUNT
The Company is taxed as a life insurance company under Subchapter L of the
Internal Revenue 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. We do not currently charge for
federal income taxes with respect to 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, the Company 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 CONTRACTS
We believe that the Contracts described in this prospectus are life insurance
contracts under Section 7702 of the Code. Section 7702 affects the taxation of
life insurance contracts and places limits on the relationship of the Contract
Value to the death benefit. As life insurance contracts, the net death benefits
of the Contracts 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 Contract Value is not taxable until received by
you or your designee (but see "DISTRIBUTION UNDER MODIFIED ENDOWMENT
CONTRACTS").
Federal tax law requires that the investment of each sub-account funding the
Contracts 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 Contract
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 Contracts or our administrative rules may be modified as necessary
to prevent a Contract 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 face amount, lapse with Contract loan outstanding, or assignment of the
Contract may have tax consequences. Within the first fifteen Contract years, a
distribution of cash required under Section 7702 of the Code because of a
reduction of benefits under the Contract may be taxable to the Contract Owner as
ordinary income respecting any investment earnings. Federal, state and local
income, estate, inheritance, and other tax consequences of ownership or receipt
of Contract proceeds depend on the circumstances of each Insured, Contract Owner
or beneficiary.
A life insurance contract is treated as a modified endowment contract ("MEC") if
it otherwise meets the definition of life insurance under Code Section 7702 but
either fails the "7-pay test" of Code Section 7702A or is received in exchange
for a MEC. It is expected that most of the Contracts will be MECs, except where
a Contract is issued as part of an exchange under Code Section 1035. Under Code
Section 1035, an exchange of (1) a life insurance contract entered into before
June 21, 1988, or (2) a life insurance contract that is not itself a MEC, will
not cause the Contract to be treated as a MEC provided no additional payments
are made to the Contract and there is no increase in the death benefit as a
result of the exchange.
MODIFIED ENDOWMENT CONTRACTS
Special rules described below apply to the tax treatment of loans and other
distributions under any life insurance contract that is classified as a modified
endowment contract ("MEC") under Section 7702A of the Code. A MEC is a life
insurance contract that either fails the "7-pay test" or is received in exchange
for a MEC. In general, a Contract will fail this 7-pay test if the cumulative
premiums and other amounts paid for the Contract at any time during the first 7
contract years (or during any subsequent 7-year test period resulting from a
material change in the Contract) exceed the sum of the net level premiums which
would have been paid up to such time if the Contract 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 Contract's benefits (e.g., upon a withdrawal, death benefit
reduction or termination of a rider benefit) during a 7-pay test period, the
Contract 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 Contract may be
treated as producing a new contract for 7-pay test purposes, requiring the start
of a new 7-pay test period as of the date of such change.
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS
Under Section 72(e)(10) of the Code, loans, withdrawals and other distributions
made prior to the Insured's death under a MEC are includible in gross income on
an "income-out-first" basis, i.e., the amount received is treated as allocable
first to the "income in the contract" and then to a tax-free recovery of the
Contract's "investment in the contract" (or "tax basis"). Generally, a
Contract's tax basis is equal to its total premiums less amounts recovered
tax-free. To the extent that the Contract'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
Contractholder by the same insurer (or an affiliate) during a calendar year, all
such MEC's are aggregated for purposes of determining the amount of a
distribution from any such MEC that is includible in gross income. In addition,
any amount includible in gross income from a MEC distribution is subject to a
10% penalty tax on premature distributions under Section 72(v) of the Code,
unless the taxpayer has attained age 59 1/2 or is disabled or the payment is
part of a series of substantially equal periodic payments for a qualifying
lifetime period. Furthermore, under Section 72(e)(4)(A) of the Code, any loan,
pledge, or assignment of (or any agreement to assign or pledge) any portion of a
MEC's cash value is treated as producing an amount received for purposes of
these MEC distribution rules. It is unclear to what extent this assignment rule
applies to a collateral assignment that does not secure a loan or pledge (e.g.,
in certain split-dollar arrangements). Under Code Section 7702A(d) the MEC
distribution rules apply not only to all distributions made during the contract
year in which the Contract fails the 7-pay test (and later years), but also to
any distributions made "in anticipation of" such failure, which is deemed to
include any distributions made during the two years prior to such failure. The
Treasury Department has not yet issued regulations or other guidance indicating
what other distributions can be treated as made "in anticipation of" such a
failure or how (e.g., as of what date) should "income in the contract" be
determined for purposes of any distribution that is deemed to be made in
anticipation of a failure.
CONTRACT LOANS
As to Contracts that are not MECs, Transamerica believes that non-preferred
loans received under the Contract will be treated as an indebtedness of the
Contract Owner for federal income tax purposes. Under current law, these loans
will not constitute income for the Contract Owner while the Contract is in
force. There is a risk, however, that a preferred loan may be characterized by
the IRS as a withdrawal and taxed accordingly. At the present time, the IRS has
not issued any guidance on whether loans with the attributes of a preferred loan
should be treated differently from a non-preferred loan. This lack of specific
guidance makes the tax treatment of preferred loans uncertain.
INTEREST DISALLOWANCE
Under Section 264(a)(4) of the Code, as amended in 1997, interest on Contract
loans is generally nondeductible for a Contract issued or materially changed
after June 8, 1997. In addition, under Section 264(f) certain Contracts 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 Contract
is issued or materially changed after June 8, 1997), to the extent such interest
expense is allocable to the taxpayer's unborrowed cash values thereunder. You
should consult your tax advisor on how the rules governing the non-deductibility
of interest would apply in your individual situation.
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 Contract Owners with Contract 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 Contracts.
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 Contracts.
We will compute the number of votes that a Contract Owner has the right to
instruct on the record date established for the portfolio. This number is the
quotient of
- Each Contract Owner's Contract 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 Contract 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 Contract Owners.
DIRECTORS AND PRINCIPAL OFFICERS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NickiBair* 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.
JamesW. Dederer, CLU* Director, Executive Vice President, General Counsel and
Corporate Secretary of TOLIC since 1988.
George A. Foegele***** Director and Senior Vice President; President and Chief
Executive Officer of Transamerica Life Insurance Company of Canada.
DavidE. 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.
FrankC. 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.
KarenMacDonald* 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.
LarryRoy*** 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 Contract. TSSC is registered with the
SEC as a broker-dealer and is a member of the National Association of Securities
Dealers (NASD). TSSC was organized on February 26, 1986, under the laws of the
state of Maryland. Broker-dealers sell the Contracts through their registered
representatives who are appointed by us.
We pay to broker-dealers who sell the Contract commissions based on a commission
schedule, Broker-dealers may choose among available commission options. Each
option includes a commission equal to a percentage of the payment made to the
Contract. Certain options also include a commission equal to a percentage of the
unloaned Contract Value ("trail commission"), paid quarterly beginning with the
second Contract year on in force Contracts. Commission options provide for
commissions of up to 8.0% of payments made, with no trail commissions, and
lesser commissions on payments made but with trail commissions.
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 Contracts.
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 distribution fee;
- The surrender charges; and
- Investment earnings on amounts allocated under Contracts to the Fixed
Account.
Commissions paid on the Contract, including other incentives or payments, are
not charged to the Contract Owners or the Separate Account.
The following table furnishes information with respect to each director and
officer of TSSC.
Name Position with TSSC
Barbara Kelley Director & President
Regina Fink Director & Secretary
Nooruddin Veerjee Director
Dan Trivers Senior Vice President
Nicki Bair Vice President
Chris Shaw Second Vice President
Ben Tang Treasurer
The principal business address of each of the above is 1150 S. Olive Street,
Los Angeles, California 90015.
REPORTS
We will maintain the records for the Separate Account. We will promptly send you
statements of transactions under your Contract, including:
- Payments;
- Transfers among sub-accounts and the Fixed Account;
- Partial withdrawals;
- Increases in loan amount or loan repayments;
- Lapse, loan default, or termination for any reason; and
- Reinstatement.
We will send an annual statement to you that will summarize all of the above
transactions and deductions of charges during the Contract year. It will also
set forth the status of the death benefit, Contract Value, surrender value,
amounts in the sub-accounts and Fixed Account, and any Contract loans. We will
send you reports containing financial statements and other information for the
Separate Account and the Portfolios as the 1940 Act requires.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain portfolios in return for providing certain services to
Contract Owners.
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 Contract interest in a sub-account without notice to Contract
Owners and prior approval of the SEC and state insurance authorities. The
Separate Account may, as the law allows, purchase other securities for other
contracts or allow a conversion between contracts on a Contract 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 and that fund other
variable life contracts ("mixed funding"). Shares of the portfolios are also
issued to other unaffiliated insurance companies ("shared funding"). It is
conceivable that in the future such mixed funding or shared funding may be
disadvantageous for variable life insurance contract owners or variable annuity
contract owners. Transamerica does not believe that mixed funding is currently
disadvantageous to either variable life insurance contract owners or variable
annuity contract owners. Transamerica will monitor events to identify any
material conflicts because of mixed funding. If Transamerica concludes that
separate portfolios should be established for variable life and variable annuity
separate accounts, or for separate variable life separate accounts, we will bear
the expenses.
We may change the Contract to reflect a substitution or other change and will
notify Contract 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.
PREPARING FOR YEAR 2000
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 that have date-sensitive software 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 invoice or
engage in similar normal business activities. Although the Company does not
believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.
FURTHER INFORMATION
We have filed a registration statement under the Securities Act of 1933 ("1933
Act") 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 Contract 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
Contract relating to the Separate Account. For complete details on the Fixed
Account, read the Contract itself. The Fixed Account and other interests in the
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 Contract and the Fixed Account. The SEC has not reviewed the
disclosures in this section of the prospectus.
GENERAL DESCRIPTION
You may allocate part or all of your payment 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 Contract
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 Contract anniversary. At each Contract 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 Contract Value in
the Fixed Account which secures any outstanding loan. See "TRANSFERS,
SURRENDERS, PARTIAL WITHDRAWALS AND CONTRACT LOANS."
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND CONTRACT LOANS
If a Contract is surrendered or if a partial withdrawal is made, a surrender
charge and/or withdrawal transaction fee may be imposed. We deduct partial
withdrawals from Contract Value allocated to the Fixed Account on a
last-in/first out basis.
The first 18 transfers in a Contract year are free. After that, we may deduct a
transfer charge not to exceed $25 for each additional transfer in that Contract
year. The transfer privilege is subject to our consent and to our then current
rules.
Contract loans may also be made from the Contract Value in the Fixed Account. We
will credit that part of the Contract Value that is equal to any outstanding
loan with interest at an effective annual yield of at least 4.0% (5.5% for
preferred loans).
We may delay transfers, surrenders, partial withdrawals, net death benefits and
Contract loans up to six months. However, if payment is delayed for 30 days or
more, we will pay interest at least equal to an effective annual yield of 3.0%
per year for the deferment. Amounts from the Fixed Account used to make payments
on Contracts that we or our affiliates issue will not be delayed.
INDEPENDENT AUDITORS
The consolidated financial statements of Transamerica at December 31, 1997, have
been audited by Ernst & Young LLP, Independent Auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance on such report
given upon the authority of such firm as experts in accounting and auditing.
There are no audited financial statements for the Separate Account since it had
not commenced operations as of December 31, 1998.
FINANCIAL STATEMENTS
Financial Statements for Transamerica are included in this prospectus, starting
on the next page. Transamerica Occidental Life Separate Account VUL-2 had not
yet commenced operations as of December 31, 1998, and, therefore, no financial
statement is included for the Separate Account. The financial statements of
Transamerica should be considered only as bearing on our ability to meet our
obligations under the Contract. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
The most current financial statements of Transamerica are those as of December
31, 1997. Transamerica does not prepare financial statements more often than
annually and believes that any incremental benefit to prospective policy holders
that may result from preparing and delivering more current financial statements,
though unaudited, does not justify the additional cost that would be incurred.
In addition, Transamerica represents that there have been no adverse changes in
the financial condition or operations of the company between the end of the most
current fiscal year and the date of this prospectus.
<PAGE>
APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE
The guideline minimum sum insured is a percentage of the Contract Value as set
forth below. The percentages in the table are at least equal to the minimum
percentages required by federal income tax regulations.
Guideline Minimum Sum Insured Table
Attained Age Percentage Attained Age Percentage
40 or less 265% 64 137%
41 258% 65 135%
42 251% 66 134%
43 244% 67 133%
44 237% 68 132%
45 230% 69 131%
46 224% 70 130%
47 218% 71 128%
48 212% 72 126%
49 206% 73 124%
50 200% 74 122%
51 193% 75-85 120%
52 186% 86 118%
53 179% 87 116%
54 172% 88 114%
55 165% 89 112%
56 161% 90 110%
57 157% 91 108%
58 153% 92 106%
59 149% 93 -95 105%
60 145% 96 104%
61 143% 97 103%
62 141% 98 102%
63 139% 99-115 101%
The guideline minimum sum insured percentage for contracts issued subject to the
jurisdiction of Florida is 100% (rather than 101%) for attained ages 100-115.
A-1
<PAGE>
APPENDIX B -- OPTIONAL INSURANCE BENEFITS
This Appendix provides only a summary of other insurance benefits available by
rider. For more information, contact your representative. Certain riders may not
be available in all states.
OPTION TO ACCELERATE DEATH BENEFITS (LIVING BENEFITS RIDER)
This rider allows the Contract Owner to elect to receive part of the net death
benefit under the Contract prior to the Insured's death if the Insured becomes
terminally ill, as defined in the rider. This rider is not available on
Second-to-Die Contracts.
LIFE INSURANCE 1035 EXCHANGE RIDER
This rider provides preferred loan rates to: (a) any outstanding loan carried
over from an exchanged policy, the proceeds of which are applied to purchase the
Contract; and (b) a percentage of the gain under the exchanged policy, less the
outstanding policy loans carried over to the Contract, as of the date of
exchange.
GUARANTEED DEATH BENEFIT RIDER
If the Contract Owner pays 100% of the guideline single premium for the
Contract, this rider will be added to the Contract without additional charge. If
the rider is in effect, the Contract will not lapse through the final payment
date. After the final payment date, if the rider is in effect and is not
subsequently terminated, the rider provides that the death benefit after the
final payment date is the GREATER of (a) the face amount as of the final payment
date or (b) 101% of the Contract Value as of the date due proof of death is
received by the Company. The net death benefit under the rider after the final
payment date is the death benefit REDUCED by the outstanding loan, if any,
through the Contract month in which the Insured dies. The rider may terminate
under certain circumstances and, once terminated, may not be reinstated.
B-1
<PAGE>
APPENDIX C - BENEFIT PAYMENT OPTIONS
BENEFIT PAYMENT OPTIONS -- When the insured dies, we will pay the net death
benefit in a lump sum unless you or the beneficiary choose a benefit payment
option. You may choose a benefit payment option while the insured is living. The
beneficiary may choose a benefit option after the insured has died. The
beneficiary's right to choose will be subject to any benefit payment option
restrictions in effect at the insured's death. You may also choose one of these
options as a method of receiving the surrender or maturity proceeds, if any are
available under this Contract. When we receive a satisfactory written request,
we will pay the benefit according to one of these options.
The amounts payable under a benefit payment option are paid from the Fixed
Account. These amounts are not based on the investment experience of the
Separate Account.
OPTION A: INSTALLMENT FOR A GUARANTEED PERIOD -- We will pay equal installments
for a guaranteed period of from one to thirty years. Each installment will
consist of part benefit and part interest. We will pay the installments monthly,
quarterly, semi-annually or annually, as requested.
OPTION B: INSTALLMENTS FOR LIFE WITH A GUARANTEED PERIOD -- We will pay equal
monthly installments as long as the designated individual is living, but we will
not make payments for less than the guaranteed period the payee chooses. The
guaranteed period may be either 10 years or 20 years. We will pay the
installments monthly.
OPTION C: BENEFIT DEPOSITED WITH INTEREST -- We will hold the benefit on
deposit. It will earn interest at the annual interest rate we are paying as of
the date of death, surrender or maturity. We will not pay less than 2 1/2%
annual interest. We will pay the earned interest monthly, quarterly,
semi-annually or annually, as requested. The payee may withdraw part or all of
the benefit and earned interest at any time.
OPTION D: INSTALLMENTS OF A SELECTED AMOUNT -- We will pay installments of a
selected amount until we have paid the entire benefit and accumulated interest.
OPTION E: ANNUITY -- We will use the benefit as a single payment to buy an
annuity. The annuity may be payable based on the life of one or two designated
individuals. It may be payable for life with or without a guaranteed period, as
requested. The annuity payment will not be less than what our current annuity
contracts are then paying.
GENERAL -- The payee may arrange any other method of benefit as long as we agree
to it. There must be at least $10,000 available for any option and the amount of
each installment must be at least $100. If the benefit amount is not enough to
meet these requirements, we will pay the benefit in a lump sum.
Installments which vary by age of the designated individual will be determined
based on the age nearest birthday of the designated individual on the date of
death, maturity, or surrender. If the net death benefit is payable, the benefit
payment option starting date is the date of death of the insured. For purposes
of policy maturity or surrender, the date the written request is received in the
Variable Life Service Center is the benefit payment option starting date.
The first installment due under any option will be for the period beginning as
of the date of death, maturity or surrender. Any unpaid balance we hold under
Options A, B or D will earn interest at the rate we are paying at the time of
settlement. We will not pay less than 3% annual interest. Any benefit we hold
will be combined with our general assets.
If the payee does not live to receive all guaranteed payments under Options A,
B, D or E or any amount deposited under Option C, plus any accumulated interest,
we will pay the remaining benefit as scheduled to the payee's estate. The payee
may name and change a successor payee for any amount we would otherwise pay the
payee's estate.
<PAGE>
APPENDIX D -- ILLUSTRATIONS OF DEATH BENEFIT, CONTRACT VALUES
AND ACCUMULATED PAYMENTS
The following tables illustrate the way in which a Contract's death benefit and
Contract Value could vary over an extended period.
ASSUMPTIONS
The tables illustrate the following Contracts:
1. A Contract issued to a male, Age 55, under a standard underwriting class
and qualifying for the non-tobacco user discount, issued based on
simplified underwriting criteria;
2. A Contract issued to a male, Age 55, under a standard underwriting class
and qualifying for the non-tobacco user discount, issued on a fully
underwritten basis;
3. A Second-to Die Contract issued to a male, Age 55 and to a female, Age 55,
each Insured qualifying for a standard underwriting class and the
non-tobacco user discount, issued based on simplified underwriting
criteria;
4. A Second-to-Die Contract issued to a male, Age 55 and to a female, Age 55,
each Insured qualifying for a standard underwriting class and the
non-tobacco user discount, issued based on a fully underwritten basis;
5. A Contract issued to a male, Age 65, under a standard underwriting class
and qualifying for the non-tobacco user discount, issued based on
simplified underwriting criteria simplified underwriting criteria;
6. A Contract issued to a male, Age 65, under a standard underwriting class
and qualifying for the non-tobacco user discount, issued on a fully
underwritten basis;
7. A Second-to-Die Contract issued to a male, Age 65 and to a female, Age 65,
each Insured qualifying for a standard underwriting class and the
non-tobacco user discount, issued based on simplified underwriting
criteria; and
8. A Second-to-Die Contract issued to a male, Age 65 and to a female, Age 65,
each Insured qualifying for a standard underwriting class and the
non-tobacco user discount, issued based on a fully underwritten basis.
The tables illustrate Contract Values based on the assumptions that no Contract
loans have been made, that no partial withdrawals have been made, and that no
more than 18 transfers have been made in any Contract year (so that no
transaction fee or transfer charges have been incurred). On request, we will
provide a comparable illustration based on the proposed Insured's age, sex, and
underwriting class, and a specified payment.
The tables assume that the single payment is allocated to and remains 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) equal to
constant gross annual rates of 0%, 6%, and 12%. The second column of the tables
shows the amount that would accumulate if the single payment was invested to
earn interest (after taxes) at 5% compounded annually.
The Contract Values and death benefit 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 the averages for individual Contract
years. The values would also be different depending on the allocation of the
Contract's total Contract Value among the sub-accounts, if the rates of return
averaged 0%, 6% or 12%, but the rates of each portfolio varied above and below
the averages.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Separate Account since no charges are currently made.
However, if in the future the charges are made, to produce illustrated death
benefits and Contract Value, the gross annual investment rate of return would
have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges.
DEDUCTIONS FOR CHARGES
The amounts shown for the death proceeds and Contract Values take into account
the monthly deductions from Contract Value: (1) the administration charge
equivalent to 0.30% on an annual basis; (2) the tax charge equivalent to 0.20%
on an annual basis, deducted during the first ten Contract years; and (3) the
distribution fee equivalent to 0.40% on an annual basis, deducted during the
first ten Contract years. The amounts shown for the death proceeds and the
Contract Values also take into account the daily charge against the sub-accounts
for mortality and expense risks equivalent to 0.80% on an annual basis.
EXPENSES OF THE PORTFOLIOS
The amounts shown in the tables also take into account the portfolio management
fees and operating expenses, which are assumed to be at an annual rate of 0.85%
of the average daily net assets of the portfolios. The rate of 0.85% is the
simple average of the total portfolio annual expenses for all of the portfolios
as shown in the Portfolio Expenses table in the prospectus. The fees and
expenses of each portfolio vary, and, in 1997, ranged from an annual rate of
0.70% to an annual rate of 1.15% 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. As discussed in Note
(1) to the Portfolio Expenses table, such waivers or reimbursements continued
for 1998, except for Alliance VPF Premier Growth. It is not known if such
waivers or reimbursements will continue for 1999. Without these expense waivers
or reimbursements, if applicable, the expenses for the portfolio would be higher
and the simple average would have been at the annual rate of 1.08% of average
daily net assets. The fees and expenses associated with the Contract may be more
or less than 0.85% in the aggregate, depending upon how you make allocations of
the Contract Value among the sub-accounts.
NET ANNUAL RATES OF INVESTMENT
Taking into account the Separate Account mortality and expense risk charge of
0.80%, and the assumed 0.85% charge for portfolio management fees and operating
expenses, the gross annual rates of investment return of 0%, 6% and 12%
correspond to net annual rates of -1.65%, 4.35% and 10.35%, respectively.
UPON REQUEST, THE COMPANY WILL PROVIDE A COMPARABLE ILLUSTRATION BASED UPON THE
PROPOSED INSURED'S AGE AND UNDERWRITING CLASSIFICATION, THE SINGLE PAYMENT
AMOUNT, AND THE ALLOWABLE REQUESTED FACE AMOUNT.
<PAGE>
UPON REQUEST, THE COMPANY WILL PROVIDE A COMPARABLE ILLUSTRATION BASED UPON THE
PROPOSED INSURED'S AGE AND UNDERWRITING CLASSIFICATION, THE SINGLE PAYMENT
AMOUNT, AND THE ALLOWABLE REQUESTED FACE AMOUNT.
<PAGE>
<PAGE>
Audited Consolidated Financial Statements
Transamerica Occidental Life Insurance Company and Subsidiaries
December 31, 1997
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Audited Consolidated Financial Statements
December 31, 1997
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>
-26-
4367:Folder T
04/22/98 3:30 PM
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transamerica Occidental Life Insurance Company
We have audited the accompanying consolidated balance sheet of Transamerica
Occidental Life Insurance Company and Subsidiaries as of December 31, 1997 and
1996, 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,
1997. 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, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
January 23, 1998
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------- -------------
(In thousands, except
for share data)
ASSETS
Investments:
<S> <C> <C>
Fixed maturities available for sale $ 29,231,998 $ 26,980,676
Equity securities available for sale 791,221 471,734
Mortgage loans on real estate 706,939 716,669
Real estate 19,633 24,876
Policy loans 451,023 442,607
Other long-term investments 69,793 66,686
Short-term investments 324,672 135,726
--------------------- ---------------------
31,595,279 28,838,974
Cash 36,656 35,817
Accrued investment income 481,913 404,866
Accounts receivable 294,542 297,967
Reinsurance recoverable on paid and unpaid losses 920,847 829,653
Deferred policy acquisitions costs 2,102,588 2,138,203
Other assets 299,500 256,382
Separate account assets 5,494,703 3,527,950
--------------------- ---------------------
$ 41,226,028 $ 36,329,812
===================== =====================
LIABILITIES AND SHAREHOLDER'S EQUITY
Policy liabilities:
Policyholder contract deposits $ 24,061,811 $ 22,718,955
Reserves for future policy benefits 5,468,611 5,275,149
Policy claims and other 557,822 502,331
--------------------- ---------------------
30,088,244 28,496,435
Income tax liabilities 814,088 388,852
Accounts payable and other liabilities 482,716 560,663
Separate account liabilities 5,494,703 3,527,950
--------------------- ---------------------
36,879,751 32,973,900
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 422,342 335,619
Retained earnings 2,738,151 2,467,406
Foreign currency translation adjustments (33,440) (24,472)
Net unrealized investment gains 1,191,637 549,772
--------------------- ---------------------
4,346,277 3,355,912
--------------------- ---------------------
$ 41,226,028 $ 36,329,812
===================== =====================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
--------------- --------------- ----------
(In thousands)
Revenues:
<S> <C> <C> <C>
Premiums and other considerations $ 1,777,371 $ 1,641,985 $ 1,663,576
Net investment income 2,165,565 2,077,232 1,972,759
Net realized investment gains 40,263 17,471 28,112
--------------- --------------- ---------------
TOTAL REVENUES 3,983,199 3,736,688 3,664,447
Benefits:
Benefits paid or provided 2,727,064 2,558,792 2,439,156
Increase in policy reserves and liabilities 59,246 57,968 236,205
--------------- --------------- ---------------
2,786,310 2,616,760 2,675,361
Expenses:
Amortization of deferred policy acquisition costs 265,264 235,180 182,123
Salaries and salary related expenses 165,768 158,699 145,681
Other expenses 284,220 224,084 200,339
--------------- --------------- ---------------
715,252 617,963 528,143
--------------- --------------- ---------------
TOTAL BENEFITS AND EXPENSES 3,501,562 3,234,723 3,203,504
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 481,637 501,965 460,943
Provision for income taxes 149,581 164,685 149,647
--------------- --------------- ---------------
NET INCOME $ 332,056 $ 337,280 $ 311,296
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net
Foreign Unrealized
Additional Currency Investment
Common Stock Paid-in Retained Translation Gains
Shares Amount Capital Earnings Adjustments (Losses)
(In thousands, except for share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 2,206,933 $ 27,587 $ 319,279 $ 1,921,232 $ (28,347) $ (321,460)
Net income 311,296
Capital contributions from 14,299
parent
Dividends declared (61,116)
Change in foreign currency
translation adjustments 4,729
Change in net unrealized
investment gains 1,260,392
Balance at December 31, 1995 2,206,933 27,587 333,578 2,171,412 (23,618) 938,932
Net income 337,280
Capital contributions from
parent 2,041
Dividends declared (41,286)
Change in foreign currency
translation adjustments (854)
Change in net unrealized
investment gains (389,160)
Balance at December 31, 1996 2,206,933 27,587 335,619 2,467,406 (24,472) 549,772
Net income 332,056
Capital transactions with
parent 86,723
Dividends declared (61,311)
Change in foreign currency
translation adjustments (8,968)
Change in net unrealized
investment gains 641,865
Balance at December 31, 1997 2,206,933 $ 27,587 $ 422,342 $ 2,738,151 $ (33,440) $ 1,191,637
============ ========== =========== ============= ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
--------------- ---------------- ----------
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 332,056 $ 337,280 $ 311,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in:
Reinsurance recoverable (91,194) (73,328) (466,669)
Accounts receivable (15,983) (159,309) (58,866)
Policy liabilities 1,102,246 949,108 1,273,723
Other assets, accounts payable and other
liabilities, and income taxes (89,954) (32,662) (252,362)
Policy acquisition costs deferred (467,730) (388,003) (381,806)
Amortization of deferred policy acquisition costs 256,303 268,770 191,313
Net realized gains on investment transactions (31,302) (51,061) (37,302)
Other (64,651) (15,758) (22,862)
--------------- --------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 929,791 835,037 556,465
INVESTMENT ACTIVITIES
Purchases of securities (9,825,763) (7,362,635) (5,667,539)
Purchases of other investments (127,437) (334,895) (330,503)
Sales of securities 8,193,409 5,064,780 3,587,367
Sales of other investments 129,671 175,001 155,084
Maturities of securities 559,361 506,941 341,485
Net change in short-term investments (188,946) 75,774 (67,337)
Other (53,478) (21,358) (35,384)
--------------- --------------- ---------------
NET CASH USED IN
INVESTING ACTIVITIES (1,313,183) (1,896,392) (2,016,827)
FINANCING ACTIVITIES
Additions to policyholder contract deposits 6,851,644 6,260,653 5,151,428
Withdrawals from policyholder contract deposits (6,411,213) (5,173,419) (3,624,044)
Capital contributions from parent 3,800 - -
Dividends paid to parent (60,000) (40,000) (60,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 384,231 1,047,234 1,467,384
--------------- --------------- ---------------
INCREASE (DECREASE) IN CASH 839 (14,121) 7,022
Cash at beginning of year 35,817 49,938 42,916
--------------- --------------- ---------------
CASH AT END OF YEAR $ 36,656 $ 35,817 $ 49,938
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business: Transamerica Occidental Life Insurance Company ("TOLIC") and its
subsidiaries (collectively, the "Company"),
engage in providing life insurance, pension and annuity products, reinsurance,
structured settlements and investments,
which are distributed through a network of independent and company-affiliated
agents and independent brokers. The
Company's customers are primarily in the United States and Canada.
Basis of Presentation: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles which
differ from statutory accounting practices prescribed or permitted by regulatory
authorities.
Reclassifications: Certain reclassifications of 1996 and 1995 amounts have
been made to conform to the 1997
- -----------------
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 June of 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 interim and annual
periods beginning after December 15, 1997. Reclassification of financial
statements for all periods presented will be required upon adoption. Application
of this statement will not change recognition or measurement of net income and,
therefore, will not impact the Company's consolidated results of operations or
financial position.
In 1997, the Company adopted the Financial Accounting Standards Board's new
standard on accounting for transfers of financial assets, servicing of financial
assets and extinguishment of liabilities. The standard requires that a transfer
of financial assets be accounted for as a sale only if certain specified
conditions for surrender of control over the transferred assets exist. There was
no material effect on the consolidated financial position or results of
operations of the Company.
In 1996, the Company adopted the Financial Accounting Standards Board's new
standard on accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The standard requires that an impaired
long-lived asset be measured based on the fair value of the asset to be held and
used or the fair value less cost to sell of the asset to be disposed of. There
was no material effect on the consolidated financial position or results of
operations of the Company.
In 1995, the Company adopted the Financial Accounting Standards Board's standard
on accounting for impairment of loans, which requires that an impaired loan be
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent. There was no material effect on the consolidated
financial position or results of operations of the Company.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation: The consolidated financial statements of the
Company include the accounts of TOLIC and its subsidiaries, all of which operate
primarily in the life insurance industry. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation. All significant intercompany balances
and transactions have been eliminated in consolidation.
Investments: Investments are reported on the following bases:
Fixed maturities--All debt securities, including redeemable preferred
stocks, are classified as available for sale and carried at fair value.
The Company does not carry any debt securities principally for the
purpose of trading. Prepayments are considered in establishing
amortization periods for premiums and discounts and amortized cost is
further adjusted for other-than-temporary fair value declines. Derivative
instruments are also reported as a component of fixed maturities and are
carried at fair value if designated as hedges of securities available for
sale or at amortized cost if designated as hedges of liabilities. See
Note K - Financial Instruments.
Equity securities available for sale (common and nonredeemable preferred
stocks)--at fair value. The Company does not carry any equity securities
principally for the purpose of trading.
Mortgage loans on real estate--at unpaid balances, adjusted for
amortization of premium or discount, less allowance for possible
impairment.
Real estate--Investment real estate that the Company intends to hold for
the production of income is carried at depreciated cost less allowance
for possible impairment. Properties held for sale, primarily foreclosed
assets, are carried at the lower of depreciated cost or fair value less
estimated selling costs.
Policy loans--at unpaid balances.
Other long-term investments--at cost, less allowance for possible
impairment.
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 are adjusted as if unrealized gains
or losses on securities available for sale were realized. Changes in such
adjustments are included in net unrealized investment gains or losses on an
after tax basis as a separate component of shareholder's equity and,
accordingly, have no effect on net income.
Separate Accounts: The Company administers segregated asset accounts for certain
holders of universal life policies, variable annuity contracts, and other
pension deposit contracts. The assets held in these Separate Accounts are
invested primarily in fixed maturities, equity securities, other marketable
securities, and short-term investments. The Separate Account assets are stated
at fair value and are not subject to liabilities arising out of any other
business the Company may conduct. Investment risks associated with fair value
changes are borne by the contract holders. Accordingly, investment income and
realized gains and losses attributable to Separate Accounts are not reported in
the Company's results of operations.
Policyholder Contract Deposits: Non-traditional life insurance products include
universal life and other interest-sensitive life insurance policies.
Investment-type products include single and flexible premium deferred annuities,
single premium immediate annuities, guaranteed investment contracts, and other
group pension deposit contracts that do not have mortality or morbidity risk.
Policyholder contract deposits on non-traditional life insurance and
investment-type products represent premiums received plus accumulated interest,
less mortality charges on universal life products and other administration
charges as applicable under the contract. Interest credited to these policies
ranged from 3.0% to 9.7% in 1997 and 2.6% to 9.8% in 1996 and 2.8% to 10% in
1995.
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% in earlier years to 11.82%. 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.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
1997, 1996 or 1995.
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 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.
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.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 1997
U.S. Treasury securities and
obligations of U.S. government
<S> <C> <C> <C> <C>
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
================ ================ ================ ================
December 31, 1996
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 288,605 $ 25,118 $ 1,628 $ 312,095
Obligations of states and political
subdivisions 258,596 8,508 538 266,566
Foreign governments 110,283 4,479 520 114,242
Corporate securities 15,171,041 779,904 108,999 15,841,946
Public utilities 4,462,063 203,604 35,769 4,629,898
Mortgage-backed securities 5,548,067 252,094 56,293 5,743,868
Redeemable preferred stocks 66,856 10,281 5,076 72,061
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 25,905,511 $ 1,283,988 $ 208,823 $ 26,980,676
================ ================ ================ ================
Equity securities $ 199,494 $ 281,418 $ 9,178 $ 471,734
================ ================ ================ ================
</TABLE>
<PAGE>
NOTE B--INVESTMENTS (Continued)
The cost and fair value of fixed maturities available for sale at December 31,
1997, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
Fair
Cost Value
Maturity
<S> <C> <C> <C>
Due in 1998 $ 494,969 $ 510,261
Due in 1999-2002 3,877,467 4,019,436
Due in 2003-2007 5,908,618 6,249,016
Due after 2007 12,906,892 14,231,776
---------------- ----------------
23,187,946 25,010,489
Mortgage-backed securities 3,795,464 4,136,292
Redeemable preferred stock 69,773 85,217
---------------- ----------------
$ 27,053,183 $ 29,231,998
================ ================
The components of the carrying value of real estate are as follows (in
thousands):
1997 1996
--------------- ----------
Investment real estate $ 18,806 $ 22,814
Properties held for sale 827 2,062
---------------- ----------------
$ 19,633 $ 24,876
================ ================
</TABLE>
As of December 31, 1997, the Company held a total investment in one issuer,
other than the United States Government or a Unites States Government agency or
authority, which exceeded 10% of total shareholder's equity as follows (in
thousands):
Name of Issuer Carrying Value
Hill Street Funding $ 516,822
The carrying value of those assets that were on deposit with public officials in
compliance with regulatory requirements was $21.7 million at December 31, 1997.
<PAGE>
NOTE B--INVESTMENTS (Continued)
Net investment income by major investment category is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------
<S> <C> <C> <C>
Fixed maturities $ 2,096,543 $ 2,005,764 $ 1,904,519
Equity securities 5,339 5,458 3,418
Mortgage loans on real estate 62,877 58,165 40,702
Real estate (11,110) (7,435) 3,209
Policy loans 28,080 27,012 25,641
Other long-term investments 511 978 2,353
Short-term investments 12,770 10,616 13,286
---------------- ---------------- ----------------
2,195,010 2,100,558 1,993,128
Investment expenses (29,445) (23,326) (20,369)
----------------- ---------------- ----------------
$ 2,165,565 $ 2,077,232 $ 1,972,759
================ ================ ================
</TABLE>
Significant components of net realized investment gains are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------
Net gains (losses) on disposition of investments in:
<S> <C> <C> <C>
Fixed maturities $ (21,484) $ 40,967 $ 52,889
Equity securities 59,834 15,750 5,637
Other (1,410) 3,424 2,327
---------------- ---------------- ----------------
36,940 60,141 60,853
Provision for impairment (5,638) (9,080) (23,551)
Accelerated amortization of DPAC 8,961 (33,590) (9,190)
---------------- ---------------- ----------------
$ 40,263 $ 17,471 $ 28,112
================ ================ ================
The components of net gains (losses) on disposition of investment in fixed maturities are as follows (in thousands):
1997 1996 1995
Gross gains $ 82,452 $ 74,817 $ 61,504
Gross losses (103,936) (33,850) (8,615)
---------------- ---------------- ----------------
$ (21,484) $ 40,967 $ 52,889
================= ================ ================
</TABLE>
Proceeds from disposition of investment in fixed maturities available for sale
were $7,896.5 million in 1997, $4,969.2 million in 1996 and $3,461.1 million in
1995.
<PAGE>
NOTE B--INVESTMENTS (Continued)
The costs of certain investments have been reduced by the following allowances
for impairment in value (in thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
---------------- -----------
<S> <C> <C>
Fixed maturities $ 64,168 $ 54,160
Mortgage loans on real estate 24,508 22,654
Real estate 5,854 9,146
Other long-term investments 5,900 11,025
---------------- ----------------
$ 100,430 $ 96,985
================ ================
</TABLE>
The components of net unrealized investment gains in the accompanying
consolidated balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
---------------- ----------
Unrealized gains on investment in:
<S> <C> <C>
Fixed maturities $ 2,178,815 $ 1,075,165
Equity securities 481,584 272,240
---------------- ----------------
2,660,399 1,347,405
Fair value adjustments to:
DPAC (546,111) (306,602)
Reserves for future policy benefits (281,000) (195,000)
---------------- ----------------
(827,111) (501,602)
Related deferred taxes (641,651) (296,031)
---------------- ----------------
$ 1,191,637 $ 549,772
================ ================
</TABLE>
<PAGE>
NOTE C--DEFERRED POLICY ACQUISITION COSTS (DPAC)
Significant components of changes in DPAC are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 2,138,203 $ 1,974,211 $ 2,480,474
Amounts deferred:
Commissions 352,300 290,512 298,698
Other 115,431 97,491 83,108
Amortization attributed to:
Net gain on disposition of investments 8,961 (33,590) (9,190)
Operating income (265,264) (235,180) (182,123)
Fair value adjustment (239,509) 48,969 (706,915)
Foreign currency translation adjustment (7,534) (4,210) 10,159
----------------- --------------- ----------------
Balance at end of year $ 2,102,588 $ 2,138,203 $ 1,974,211
================ =============== ================
</TABLE>
NOTE D--POLICY LIABILITIES
Components of policyholder contract deposits are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
---------------- -----------
<S> <C> <C>
Liabilities for investment-type products $ 19,297,966 $ 18,126,119
Liabilities for non-traditional life insurance
products 4,763,845 4,592,836
--------------- ---------------
$ 24,061,811 $ 22,718,955
=============== ===============
</TABLE>
Reserves for future policy benefits were evaluated as if the unrealized gains on
securities available for sale had been realized and adjusted for resultant
premium deficiencies by $281 million as of December 31, 1997, $195 million as of
December 31, 1996 and $339 million as of December 31, 1995.
<PAGE>
NOTE E--INCOME TAXES
Components of income tax liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
---------------- -----------
<S> <C> <C>
Current tax liabilities (receivables) $ 44,510 $ (13,752)
Deferred tax liabilities 769,578 402,604
---------------- ----------------
$ 814,088 $ 388,852
================ ================
</TABLE>
Significant components of deferred tax liabilities (assets) are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
---------------- -----------
<S> <C> <C>
Deferred policy acquisition costs $ 783,624 $ 726,011
Unrealized investment gains 641,651 296,031
---------------- ----------------
Total deferred tax liabilities 1,425,275 1,022,042
Life insurance policy liabilities (613,874) (578,823)
Provision for impairment of investments (35,151) (33,945)
Other-net (6,672) (6,670)
----------------- -----------------
Total deferred tax assets (655,697) (619,438)
---------------- ----------------
$ 769,578 $ 402,604
================ ================
</TABLE>
The Company offsets all deferred tax assets and liabilities and presents them in
a single amount in the consolidated balance sheet.
Components of provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------
<S> <C> <C> <C>
Current tax expense $ 122,201 $ 99,692 $ 115,614
Deferred tax expense (benefit):
Domestic 14,731 55,261 21,784
Foreign 12,649 9,732 12,249
---------------- ---------------- ---------------
$ 149,581 $ 164,685 $ 149,647
================ ================ ===============
</TABLE>
<PAGE>
NOTE E--INCOME TAXES (Continued)
The differences between federal income taxes computed at the statutory rate and
the provision for income taxes as reported are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- -----------
Income before income taxes:
<S> <C> <C> <C>
Income from U.S. operations $ 430,449 $ 474,160 $ 425,946
Income from foreign operations 51,189 27,805 34,997
--------------- --------------- ---------------
481,638 501,965 460,943
Tax rate 35% 35% 35%
--------------- --------------- ---------------
Federal income taxes at statutory rate 168,573 175,688 161,330
Income not subject to tax (3,284) (2,262) (685)
Low income housing credits (10,156) (8,175) (3,137)
Other, net (5,552) (566) (7,861)
--------------- --------------- ---------------
$ 149,581 $ 164,685 $ 149,647
=============== =============== ===============
</TABLE>
Low income housing credits are recognized over the productive life of acquired
assets. In 1995, the Company recognized a $4.4 million tax benefit related to
the favorable settlement of a prior year tax matter.
Under the Life Insurance Company Income Tax Act of 1959, a portion of "gain from
operations" was not subject to current income taxation but was accumulated, for
tax purposes, in a memorandum account designated as "policyholders' surplus
account." The balance in this account was frozen at December 31, 1983 pursuant
to the Deficit Reduction Act of 1984. This amount becomes subject to tax when it
exceeds a certain maximum or when cash dividends are paid therefrom. The
policyholders' surplus account balance at December 31, 1997 was $138 million. At
December 31, 1997, $2,179 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 $58.5 million, $149.1 million and $153.3 million were paid
principally to the Company's parent in 1997, 1996 and 1995, respectively.
NOTE F--REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. Risks are reinsured with other companies to permit the recovery
of a portion of the direct losses, however, the Company remains liable to the
extent the reinsuring companies do not meet their obligations under these
reinsurance agreements.
<PAGE>
NOTE F--REINSURANCE (Continued)
The components of the Company's life insurance in force and premiums and other
considerations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
1997
Life insurance in force,
<S> <C> <C> <C> <C>
at end of year $ 241,379,957 $ 207,533,094 $ 225,685,653 $ 259,532,516
==================== =================== =================== ===================
Premiums and other
considerations $ 1,854,918 $ 1,163,259 $ 1,085,712 $ 1,777,371
==================== =================== =================== ===================
Benefits paid or
provided $ 2,950,335 $ 696,009 $ 472,738 $ 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 $ 2,922,967 $ 1,112,561 $ 748,386 $ 2,558,792
==================== =================== =================== ===================
1995
Life insurance in force,
at end of year $ 206,722,573 $ 116,762,869 $ 174,193,592 $ 264,153,296
==================== =================== =================== ===================
Premiums and other
considerations $ 1,857,439 $ 1,079,303 $ 885,440 $ 1,663,576
==================== =================== =================== ===================
Benefits paid or
provided $ 2,803,213 $ 1,065,545 $ 701,488 $ 2,439,156
==================== =================== =================== ===================
</TABLE>
<PAGE>
NOTE G--PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Substantially all employees of the Company are covered by noncontributory
defined pension benefit plans sponsored by the Company and the Retirement Plan
for Salaried Employees of Transamerica Corporation and Affiliates. Pension
benefits are based on the employee's compensation during the highest paid 60
consecutive months during the 120 months before retirement. Annual contributions
to the plans generally include a provision for current service costs plus
amortization of prior service costs over periods ranging from 10 to 30 years.
Assets of the plans are invested principally in publicly traded stocks and
bonds.
The Company's total pension costs (benefits) recognized for all plans were
$(5.4) million in 1997, $(3.1) million in 1996 and $2.5 million in 1995, of
which $(6.1) million in 1997, $(3.7) million in 1996 and $2.0 million in 1995,
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 1997, 1996 and 1995.
NOTE H--RELATED PARTY TRANSACTIONS
The Company has various transactions with Transamerica Corporation and certain
of its other subsidiaries in the normal course of operations. These transactions
include loans and advances, investments in a money market fund managed by an
affiliated company, rental of space, and other specialized services. At December
31, 1997, pension funds administered for these related companies aggregated
$1,467.4 million and the investment in an affiliated money market fund, included
in short-term investments, was $91.1 million.
During 1996, the Company transferred certain below investment grade bonds with
an aggregate book value of $424.9 million, including an aggregate interest
receivable of $9.6 million, to a special purpose subsidiary of Transamerica
Corporation in exchange for assets with a fair value of $438.9 million,
comprised of collateralized higher-rated bond obligations of $413.9 million
issued by the special purpose subsidiary and cash of $25 million. The excess of
fair value of the consideration received over the book value of the bonds
transferred is included in net realized investment gains.
During 1995, the Company transferred real estate with an aggregate book value of
$27.7 million to an affiliate within the Transamerica Corporation group of
consolidated companies in exchange for assets with a fair value of $49.7
million, comprising mortgage loans of $35.1 million and cash of $14.6 million.
The excess of fair value of the consideration received over the book value of
the real estates transferred, net of related tax payable to the parent, is
included as a capital contribution.
<PAGE>
NOTE H--RELATED PARTY TRANSACTIONS (Continued)
During 1997, equity securities with a fair value of $177.2 million (cost of
$55.5 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. The remaining balance on the note, which
is due in 2013 and bears interest at 7%, is $150 million.
In addition, the Company received a capital contribution of $15 million from
Transamerica Corporation.
NOTE I--REGULATORY MATTERS
TOLIC and its insurance subsidiaries are subject to state insurance laws and
regulations, principally those of TOLIC and each subsidiary's state of
incorporation. Such regulations include the risk-based capital requirement and
the restriction on the payment of dividends. Generally, dividends during any
year may not be paid, without prior regulatory approval, in excess of the
greater of 10% of the Company's statutory capital and surplus as of the
preceding year end or the Company's statutory net income from operations for the
preceding year. The insurance department of the domiciliary state recognizes
these amounts as determined in conformity with statutory accounting practices
prescribed or permitted by the insurance department, which vary in some respects
from generally accepted accounting principles. The Company's statutory net
income and statutory capital and surplus which are represented by TOLIC's net
income and capital and surplus are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------
<S> <C> <C> <C>
Statutory net income $ 96,472 $ 112,296 $ 131,607
Statutory capital and surplus, at
end of year 1,556,228 1,249,045 1,115,691
</TABLE>
NOTE J-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, 1997, commitments to maintain liquidity for
benefit payments on notional amounts of $3.3 billion were outstanding compared
to $1.9 billion at December 31, 1996.
<PAGE>
NOTE J-COMMITMENTS AND CONTINGENCIES (Continued)
The Company is subject to mandatory assessments by state guaranty funds to cover
losses to policyholders of those insurance companies that are under regulatory
supervision. Certain states allow such assessments to be used to reduce future
premium taxes. The Company estimates and recognizes its obligation for guaranty
fund assessments, net of premium tax deductions, based on the survey data
provided by National Organization of Life and Health Insurance Guaranty
Associations. At December 31, 1997 and 1996, the estimated exposures and the
resultant accruals recorded were not material to the consolidated financial
position or results of operations of the Company.
Substantially all leases of the Company are operating leases principally for the
rental of real estate. Rental expenses for equipment and properties were $16.5
million in 1997, $20.6 million in 1996 and $25.3 million in 1995. 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, 1997 (in thousands):
Year ending December 31:
1998 $ 15,115
1999 14,468
2000 12,208
2001 11,768
2002 6,874
Later years 55,597
--------------------
$ 116,030
====================
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 have been accrued. Additional costs related to
the settlement are not expected to be material and will be incurred over a
period of years. Additional costs related to the settlement are not currently
determinable. 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 K--FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1997 1996
----------------------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
Financial Assets:
<S> <C> <C> <C> <C>
Fixed maturities available for sale $ 29,231,998 $ 29,231,998 $ 26,980,676 $ 26,980,676
Equity securities available for sale 791,221 791,221 471,734 471,734
Mortgage loans on real estate 706,939 774,556 716,669 770,122
Policy loans 451,023 427,924 442,607 416,396
Short-term investments 324,672 324,672 135,726 135,726
Cash 36,656 36,656 35,817 35,817
Accrued investment income 481,913 481,913 404,866 404,866
Financial Liabilities:
Liabilities for investment-type contracts:
Single and flexible premium
deferred annuities 6,779,951 6,261,707 6,962,501 6,400,632
Single premium immediate annuities 4,361,311 5,122,562 4,115,047 4,476,968
Guaranteed investment contracts 3,211,834 3,265,384 3,153,769 3,207,342
Other deposit contracts 4,944,870 4,992,906 3,894,802 3,913,046
Off-balance-sheet assets (liabilities):
Interest rate swap agreements designated
as hedges of liabilities in a:
Receivable position - 8,189 - 43,916
Payable position - (5,247) - (5,485)
</TABLE>
The Company enters into various interest rate agreements in the normal course of
business, primarily as a means of managing its interest rate exposure in
connection with asset and liability management.
Interest rate swap agreements generally involve the periodic exchange of fixed
rate interest and floating rate interest payments by applying a specified market
index to the underlying contract or notional amount, without exchanging the
underlying notional amounts. The differential to be paid or received on those
interest rate swap agreements that are designated as hedges of financial assets
is recorded on an accrual basis as a component of net investment
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
income. The differential to be paid or received on those interest rate swap
agreements that are designated as hedges of financial liabilities is recorded on
an accrual basis as a component of benefits paid or provided. While the Company
is not exposed to credit risk with respect to the notional amounts of the
interest rate swap agreements, the Company is subject to credit risk from
potential nonperformance of counterparties throughout the contract periods. The
amounts potentially subject to such credit risk are much smaller than the
notional amounts. The Company controls this credit risk by entering into
transactions with only a selected number of high quality institutions,
establishing credit limits and maintaining collateral when appropriate.
Interest rate floor and cap agreements generally provide for the receipt of
payments in the event the average interest rates during a settlement period fall
below specified levels under interest rate floor agreements or rise above
specified levels under interest rate cap agreements. A swaption generally
provides for an option to enter into an interest rate swap agreement in the
event of unfavorable interest rate movements. These agreements generally require
upfront premium payments. The costs of swaptions and interest rate floor and cap
agreements are amortized over the contractual periods and resulting amortization
expenses are included in net investment income. Any conditional receipts under
these agreements are recorded on an accrual basis as a component of net
investment income if designated as hedges of financial assets or as a component
of benefits paid or provided if designated as hedges of financial liabilities.
Gains or losses on terminated interest rate agreements are deferred and
amortized over the remaining life of the underlying assets or liabilities being
hedged.
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
The information on derivative instruments is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Aggregate Weighted
Notional Average
Amount Fixed Rate Fair Value
December 31, 1997
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
<S> <C> <C> <C>
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
December 31, 1996
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
Fixed rate interest $ 270,035 6.73% $ 1,511
Floating rate interest 250,905 6.77% 5,877
Floating rate interest based on one index and
receives floating rate interest based on
another index 326,644 - (9,359)
Interest rate swap agreements designated as
----
hedges of financial liabilities, where TLC pays:
Fixed rate interest 60,000 4.39% 333
Floating rate interest 1,710,716 6.11% 37,655
Floating rate interest based on one index and
receives floating rate interest based on
another index 58,585 - 443
Interest rate floor agreements 560,500 6.46% 19,287
Swaptions 8,327,570 4.50% 54,198
Others 108,745 - 19,607
</TABLE>
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
Generally, notional amounts indicate the volume of transactions and estimated
fair values indicate the amounts subject to credit risk.
Activities with respect to the notional amounts are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Beginning End
of Year Additions Maturities Terminations of Year
1997:
Interest rate swap agreements
designated as hedges of
<S> <C> <C> <C> <C> <C>
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 108,745 20,572 100,200 - 29,117
-------------- -------------- -------------- ------------ ----------------
$ 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 100,000 8,745 - - 108,745
-------------- -------------- -------------- ------------ ----------------
$ 3,764,491 $ 9,632,116 $ 1,606,649 $ 116,258 $11,673,700
============== ============== ============== ============ ===========
1995:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 274,777 $ 246,790 $ 59,947 $ 21,447 $ 440,173
Interest rate swap agreements
designated as hedges of
financial liabilities 601,545 1,035,910 460,777 30,000 1,146,678
Interest rate floor agreements 560,500 - - - 560,500
Interest rate cap agreements 100,000 250,000 100,000 - 250,000
Swaptions 100,000 1,167,140 - - 1,267,140
Others 100,000 - - - 100,000
-------------- -------------- -------------- ------------ ----------------
$ 1,736,822 $ 2,699,840 $ 620,724 $ 51,447 $ 3,764,491
============== ============== ============== ============ ================
</TABLE>
<PAGE>
NOTE K--FINANCIAL INSTRUMENTS (Continued)
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments, derivatives,
fixed maturities, mortgage loans on real estate and reinsurance receivables. 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. The Company
places reinsurance with only highly rated insurance companies. At December 31,
1997, the Company had no significant concentration of credit risk.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $221,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $78,750 $65,987 $72,737 $221,000 $70,424 $77,174 $221,000 $74,862 $81,612 $221,000
2 $82,688 $64,542 $70,542 $221,000 $73,411 $79,411 $221,000 $82,806 $88,806 $221,000
3 $86,822 $63,163 $68,413 $221,000 $76,463 $81,713 $221,000 $91,384 $96,634 $221,000
4 $91,163 $61,848 $66,348 $221,000 $79,582 $84,082 $221,000 $100,653 $105,153 $221,000
5 $95,721 $60,596 $64,346 $221,000 $82,769 $86,519 $221,000 $110,673 $114,423 $221,000
6 $100,507 $59,404 $62,404 $221,000 $86,027 $89,027 $221,000 $121,510 $124,510 $221,000
7 $105,533 $58,271 $60,521 $221,000 $89,358 $91,608 $221,000 $133,236 $135,486 $221,000
8 $110,809 $57,195 $58,695 $221,000 $92,764 $94,264 $221,000 $145,929 $147,429 $221,000
9 $116,350 $56,174 $56,924 $221,000 $96,246 $96,996 $221,000 $159,676 $160,426 $222,992
10 $122,167 $55,206 $55,206 $221,000 $99,808 $99,808 $221,000 $174,568 $174,568 $239,158
11 $128,275 $53,970 $53,970 $221,000 $103,527 $103,527 $221,000 $191,483 $191,483 $258,502
12 $134,689 $52,762 $52,762 $221,000 $107,384 $107,384 $221,000 $210,037 $210,037 $281,450
13 $141,424 $51,581 $51,581 $221,000 $111,384 $111,384 $221,000 $230,390 $230,390 $306,418
14 $148,495 $50,426 $50,426 $221,000 $115,534 $115,534 $221,000 $252,714 $252,714 $333,582
15 $155,920 $49,298 $49,298 $221,000 $119,839 $119,839 $221,000 $277,201 $277,201 $363,134
16 $163,716 $48,194 $48,194 $221,000 $124,304 $124,304 $221,000 $304,062 $304,062 $395,280
17 $171,901 $47,115 $47,115 $221,000 $128,935 $128,935 $221,000 $333,525 $333,525 $426,912
18 $180,496 $46,061 $46,061 $221,000 $133,738 $133,738 $221,000 $365,843 $365,843 $460,962
19 $189,521 $45,030 $45,030 $221,000 $138,721 $138,721 $221,000 $401,292 $401,292 $497,602
20 $198,997 $44,022 $44,022 $221,000 $143,889 $143,889 $221,000 $440,176 $440,176 $537,015
Age 60 $95,721 $60,596 $64,346 $221,000 $82,769 $86,519 $221,000 $110,673 $114,423 $221,000
Age 65 $122,167 $55,206 $55,206 $221,000 $99,808 $99,808 $221,000 $174,568 $174,568 $239,158
Age 70 $155,920 $49,298 $49,298 $221,000 $119,839 $119,839 $221,000 $277,201 $277,201 $363,134
Age 75 $198,997 $44,022 $44,022 $221,000 $143,889 $143,889 $221,000 $440,176 $440,176 $537,015
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $75,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $221,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $78,750 $65,164 $71,914 $221,000 $69,601 $76,351 $221,000 $74,040 $80,790 $221,000
2 $82,688 $62,755 $68,755 $221,000 $71,637 $77,637 $221,000 $81,053 $87,053 $221,000
3 $86,822 $60,253 $65,503 $221,000 $73,587 $78,837 $221,000 $88,580 $93,830 $221,000
4 $91,163 $57,652 $62,152 $221,000 $75,452 $79,952 $221,000 $96,691 $101,191 $221,000
5 $95,721 $54,908 $58,658 $221,000 $77,195 $80,945 $221,000 $105,432 $109,182 $221,000
6 $100,507 $52,016 $55,016 $221,000 $78,812 $81,812 $221,000 $114,890 $117,890 $221,000
7 $105,533 $48,929 $51,179 $221,000 $80,266 $82,516 $221,000 $125,140 $127,390 $221,000
8 $110,809 $45,618 $47,118 $221,000 $81,533 $83,033 $221,000 $136,287 $137,787 $221,000
9 $116,350 $42,029 $42,779 $221,000 $82,572 $83,322 $221,000 $148,444 $149,194 $221,000
10 $122,167 $38,085 $38,085 $221,000 $83,320 $83,320 $221,000 $161,746 $161,746 $221,592
11 $128,275 $33,232 $33,232 $221,000 $83,528 $83,528 $221,000 $176,552 $176,552 $238,345
12 $134,689 $27,909 $27,909 $221,000 $83,409 $83,409 $221,000 $192,607 $192,607 $258,093
13 $141,424 $22,042 $22,042 $221,000 $82,905 $82,905 $221,000 $209,991 $209,991 $279,288
14 $148,495 $15,545 $15,545 $221,000 $81,954 $81,954 $221,000 $228,796 $228,796 $302,011
15 $155,920 $8,326 $8,326 $221,000 $80,481 $80,481 $221,000 $249,120 $249,120 $326,348
16 $163,716 $223 $223 $221,000 $78,369 $78,369 $221,000 $271,047 $271,047 $352,362
17 $171,901 $0 $0 $0* $75,460 $75,460 $221,000 $294,776 $294,776 $377,313
18 $180,496 $0 $0 $0* $71,588 $71,588 $221,000 $320,457 $320,457 $403,775
19 $189,521 $0 $0 $0* $66,497 $66,497 $221,000 $348,233 $348,233 $431,809
20 $198,997 $0 $0 $0* $59,932 $59,932 $221,000 $378,307 $378,307 $461,535
Age 60 $95,721 $54,908 $58,658 $221,000 $77,195 $80,945 $221,000 $105,432 $109,182 $221,000
Age 65 $122,167 $38,085 $38,085 $221,000 $83,320 $83,320 $221,000 $161,746 $161,746 $221,592
Age 70 $155,920 $8,326 $8,326 $221,000 $80,481 $80,481 $221,000 $249,120 $249,120 $326,348
Age 75 $198,997 $0 $0 $0* $59,932 $59,932 $221,000 $378,307 $378,307 $461,535
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $75,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
* If the Guaranteed Death Benefit Rider is in effect on the Contract, the death
benefit will be $221,000 based on the assumptions for this illustration.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $441,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $157,500 $131,973 $145,473 $441,000 $140,848 $154,348 $441,000 $149,723 $163,223 $441,000
2 $165,375 $129,083 $141,083 $441,000 $146,823 $158,823 $441,000 $165,612 $177,612 $441,000
3 $173,644 $126,326 $136,826 $441,000 $152,927 $163,427 $441,000 $182,769 $193,269 $441,000
4 $182,326 $123,697 $132,697 $441,000 $159,164 $168,164 $441,000 $201,306 $210,306 $441,000
5 $191,442 $121,192 $128,692 $441,000 $165,539 $173,039 $441,000 $221,346 $228,846 $441,000
6 $201,014 $118,809 $124,809 $441,000 $172,055 $178,055 $441,000 $243,019 $249,019 $441,000
7 $211,065 $116,542 $121,042 $441,000 $178,716 $183,216 $441,000 $266,471 $270,971 $441,000
8 $221,618 $114,390 $117,390 $441,000 $185,527 $188,527 $441,000 $291,858 $294,858 $441,000
9 $232,699 $112,347 $113,847 $441,000 $192,493 $193,993 $441,000 $319,351 $320,851 $445,983
10 $244,334 $110,412 $110,412 $441,000 $199,616 $199,616 $441,000 $349,136 $349,136 $478,316
11 $256,551 $107,940 $107,940 $441,000 $207,053 $207,053 $441,000 $382,966 $382,966 $517,004
12 $269,378 $105,524 $105,524 $441,000 $214,767 $214,767 $441,000 $420,075 $420,075 $562,900
13 $282,847 $103,162 $103,162 $441,000 $222,769 $222,769 $441,000 $460,779 $460,779 $612,836
14 $296,990 $100,853 $100,853 $441,000 $231,069 $231,069 $441,000 $505,428 $505,428 $667,165
15 $311,839 $98,595 $98,595 $441,000 $239,677 $239,677 $441,000 $554,403 $554,403 $726,268
16 $327,431 $96,388 $96,388 $441,000 $248,607 $248,607 $441,000 $608,123 $608,123 $790,560
17 $343,803 $94,231 $94,231 $441,000 $257,869 $257,869 $441,000 $667,049 $667,049 $853,823
18 $360,993 $92,121 $92,121 $441,000 $267,477 $267,477 $441,000 $731,685 $731,685 $921,923
19 $379,043 $90,059 $90,059 $441,000 $277,442 $277,442 $441,000 $802,584 $802,584 $995,204
20 $397,995 $88,043 $88,043 $441,000 $287,779 $287,779 $441,000 $880,353 $880,353 $1,074,030
Age 60 $191,442 $121,192 $128,692 $441,000 $165,539 $173,039 $441,000 $221,346 $228,846 $441,000
Age 65 $244,334 $110,412 $110,412 $441,000 $199,616 $199,616 $441,000 $349,136 $349,136 $478,316
Age 70 $311,839 $98,595 $98,595 $441,000 $239,677 $239,677 $441,000 $554,403 $554,403 $726,268
Age 75 $397,995 $88,043 $88,043 $441,000 $287,779 $287,779 $441,000 $880,353 $880,353 $1,074,030
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $150,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $441,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $157,500 $130,335 $143,835 $441,000 $139,211 $152,711 $441,000 $148,089 $161,589 $441,000
2 $165,375 $125,528 $137,528 $441,000 $143,291 $155,291 $441,000 $162,124 $174,124 $441,000
3 $173,644 $120,532 $131,032 $441,000 $147,204 $157,704 $441,000 $177,192 $187,692 $441,000
4 $182,326 $115,340 $124,340 $441,000 $150,946 $159,946 $441,000 $193,429 $202,429 $441,000
5 $191,442 $109,865 $117,365 $441,000 $154,446 $161,946 $441,000 $210,928 $218,428 $441,000
6 $201,014 $104,094 $110,094 $441,000 $157,696 $163,696 $441,000 $229,865 $235,865 $441,000
7 $211,065 $97,934 $102,434 $441,000 $160,622 $165,122 $441,000 $250,390 $254,890 $441,000
8 $221,618 $91,326 $94,326 $441,000 $163,178 $166,178 $441,000 $272,713 $275,713 $441,000
9 $232,699 $84,165 $85,665 $441,000 $165,280 $166,780 $441,000 $297,063 $298,563 $441,000
10 $244,334 $76,297 $76,297 $441,000 $166,805 $166,805 $441,000 $323,708 $323,708 $443,480
11 $256,551 $66,614 $66,614 $441,000 $167,255 $167,255 $441,000 $353,345 $353,345 $477,015
12 $269,378 $55,995 $55,995 $441,000 $167,055 $167,055 $441,000 $385,477 $385,477 $516,539
13 $282,847 $44,289 $44,289 $441,000 $166,093 $166,093 $441,000 $420,270 $420,270 $558,959
14 $296,990 $31,328 $31,328 $441,000 $164,242 $164,242 $441,000 $457,906 $457,906 $604,436
15 $311,839 $16,926 $16,926 $441,000 $161,358 $161,358 $441,000 $498,582 $498,582 $653,142
16 $327,431 $762 $762 $441,000 $157,203 $157,203 $441,000 $542,466 $542,466 $705,205
17 $343,803 $0 $0 $0* $151,467 $151,467 $441,000 $589,956 $589,956 $755,143
18 $360,993 $0 $0 $0* $143,820 $143,820 $441,000 $641,352 $641,352 $808,103
19 $379,043 $0 $0 $0* $133,752 $133,752 $441,000 $696,943 $696,943 $864,209
20 $397,995 $0 $0 $0* $120,760 $120,760 $441,000 $757,132 $757,132 $923,701
Age 60 $191,442 $109,865 $117,365 $441,000 $154,446 $161,946 $441,000 $210,928 $218,428 $441,000
Age 65 $244,334 $76,297 $76,297 $441,000 $166,805 $166,805 $441,000 $323,708 $323,708 $443,480
Age 70 $311,839 $16,926 $16,926 $441,000 $161,358 $161,358 $441,000 $498,582 $498,582 $653,142
Age 75 $397,995 $0 $0 $0* $120,760 $120,760 $441,000 $757,132 $757,132 $923,701
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $150,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
* If the Guaranteed Death Benefit Rider is in effect on the Contract, the death
benefit will be $441,000 based on the assumptions for this illustration.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $346,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death SurrenderContract 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 $78,750 $66,337 $73,087 $346,000 $70,797 $77,547 $346,000 $75,256 $82,006 $346,000
2 $82,688 $65,190 $71,190 $346,000 $74,147 $80,147 $346,000 $83,635 $89,635 $346,000
3 $86,822 $64,050 $69,300 $346,000 $77,547 $82,797 $346,000 $92,690 $97,940 $346,000
4 $91,163 $62,911 $67,411 $346,000 $80,991 $85,491 $346,000 $102,480 $106,980 $346,000
5 $95,721 $61,823 $65,573 $346,000 $84,483 $88,233 $346,000 $113,067 $116,817 $346,000
6 $100,507 $60,785 $63,785 $346,000 $88,064 $91,064 $346,000 $124,520 $127,520 $346,000
7 $105,533 $59,797 $62,047 $346,000 $91,735 $93,985 $346,000 $136,929 $139,179 $346,000
8 $110,809 $58,855 $60,355 $346,000 $95,500 $97,000 $346,000 $150,403 $151,903 $346,000
9 $116,350 $57,960 $58,710 $346,000 $99,362 $100,112 $346,000 $165,041 $165,791 $346,000
10 $122,167 $57,109 $57,109 $346,000 $103,324 $103,324 $346,000 $180,948 $180,948 $346,000
11 $128,275 $55,942 $55,942 $346,000 $107,388 $107,388 $346,000 $198,879 $198,879 $346,000
12 $134,689 $54,800 $54,800 $346,000 $111,612 $111,612 $346,000 $218,587 $218,587 $346,000
13 $141,424 $53,680 $53,680 $346,000 $116,002 $116,002 $346,000 $240,248 $240,248 $346,000
14 $148,495 $52,584 $52,584 $346,000 $120,565 $120,565 $346,000 $264,055 $264,055 $348,553
15 $155,920 $51,510 $51,510 $346,000 $125,307 $125,307 $346,000 $290,221 $290,221 $380,190
16 $163,716 $50,458 $50,458 $346,000 $130,236 $130,236 $346,000 $318,981 $318,981 $414,675
17 $171,901 $49,427 $49,427 $346,000 $135,359 $135,359 $346,000 $350,590 $350,590 $448,755
18 $180,496 $48,417 $48,417 $346,000 $140,683 $140,683 $346,000 $385,331 $385,331 $485,517
19 $189,521 $47,428 $47,428 $346,000 $146,216 $146,216 $346,000 $423,515 $423,515 $525,159
20 $198,997 $46,459 $46,459 $346,000 $151,968 $151,968 $346,000 $465,483 $465,483 $567,890
Age 60 $95,721 $61,823 $65,573 $346,000 $84,483 $88,233 $346,000 $113,067 $116,817 $346,000
Age 65 $122,167 $57,109 $57,109 $346,000 $103,324 $103,324 $346,000 $180,948 $180,948 $346,000
Age 70 $155,920 $51,510 $51,510 $346,000 $125,307 $125,307 $346,000 $290,221 $290,221 $380,190
Age 75 $198,997 $46,459 $46,459 $346,000 $151,968 $151,968 $346,000 $465,483 $465,483 $567,890
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $75,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $346,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death SurrenderContract 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 $78,750 $66,337 $73,087 $346,000 $70,797 $77,547 $346,000 $75,256 $82,006 $346,000
2 $82,688 $65,190 $71,190 $346,000 $74,147 $80,147 $346,000 $83,635 $89,635 $346,000
3 $86,822 $64,050 $69,300 $346,000 $77,547 $82,797 $346,000 $92,690 $97,940 $346,000
4 $91,163 $62,909 $67,409 $346,000 $80,991 $85,491 $346,000 $102,480 $106,980 $346,000
5 $95,721 $61,754 $65,504 $346,000 $84,470 $88,220 $346,000 $113,067 $116,817 $346,000
6 $100,507 $60,573 $63,573 $346,000 $87,976 $90,976 $346,000 $124,520 $127,520 $346,000
7 $105,533 $59,348 $61,598 $346,000 $91,494 $93,744 $346,000 $136,914 $139,164 $346,000
8 $110,809 $58,056 $59,556 $346,000 $95,007 $96,507 $346,000 $150,329 $151,829 $346,000
9 $116,350 $56,668 $57,418 $346,000 $98,490 $99,240 $346,000 $164,852 $165,602 $346,000
10 $122,167 $55,149 $55,149 $346,000 $101,915 $101,915 $346,000 $180,583 $180,583 $346,000
11 $128,275 $53,035 $53,035 $346,000 $105,135 $105,135 $346,000 $198,077 $198,077 $346,000
12 $134,689 $50,693 $50,693 $346,000 $108,277 $108,277 $346,000 $217,260 $217,260 $346,000
13 $141,424 $48,078 $48,078 $346,000 $111,308 $111,308 $346,000 $238,330 $238,330 $346,000
14 $148,495 $45,141 $45,141 $346,000 $114,189 $114,189 $346,000 $261,515 $261,515 $346,000
15 $155,920 $41,812 $41,812 $346,000 $116,869 $116,869 $346,000 $286,984 $286,984 $375,949
16 $163,716 $38,001 $38,001 $346,000 $119,280 $119,280 $346,000 $314,802 $314,802 $409,242
17 $171,901 $33,585 $33,585 $346,000 $121,330 $121,330 $346,000 $345,183 $345,183 $441,834
18 $180,496 $28,398 $28,398 $346,000 $122,897 $122,897 $346,000 $378,334 $378,334 $476,700
19 $189,521 $22,235 $22,235 $346,000 $123,833 $123,833 $346,000 $414,476 $414,476 $513,951
20 $198,997 $14,860 $14,860 $346,000 $123,964 $123,964 $346,000 $453,858 $453,858 $553,707
Age 60 $95,721 $61,754 $65,504 $346,000 $84,470 $88,220 $346,000 $113,067 $116,817 $346,000
Age 65 $122,167 $55,149 $55,149 $346,000 $101,915 $101,915 $346,000 $180,583 $180,583 $346,000
Age 70 $155,920 $41,812 $41,812 $346,000 $116,869 $116,869 $346,000 $286,984 $286,984 $375,949
Age 75 $198,997 $14,860 $14,860 $346,000 $123,964 $123,964 $346,000 $453,858 $453,858 $553,707
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $75,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User, Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $692,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $157,500 $132,675 $146,175 $692,000 $141,593 $155,093 $692,000 $150,512 $164,012 $692,000
2 $165,375 $130,380 $142,380 $692,000 $148,295 $160,295 $692,000 $167,270 $179,270 $692,000
3 $173,644 $128,101 $138,601 $692,000 $155,094 $165,594 $692,000 $185,380 $195,880 $692,000
4 $182,326 $125,822 $134,822 $692,000 $161,981 $170,981 $692,000 $204,959 $213,959 $692,000
5 $191,442 $123,646 $131,146 $692,000 $168,966 $176,466 $692,000 $226,133 $233,633 $692,000
6 $201,014 $121,571 $127,571 $692,000 $176,128 $182,128 $692,000 $249,040 $255,040 $692,000
7 $211,065 $119,593 $124,093 $692,000 $183,470 $187,970 $692,000 $273,858 $278,358 $692,000
8 $221,618 $117,710 $120,710 $692,000 $191,001 $194,001 $692,000 $300,807 $303,807 $692,000
9 $232,699 $115,919 $117,419 $692,000 $198,724 $200,224 $692,000 $330,082 $331,582 $692,000
10 $244,334 $114,218 $114,218 $692,000 $206,648 $206,648 $692,000 $361,896 $361,896 $692,000
11 $256,551 $111,885 $111,885 $692,000 $214,776 $214,776 $692,000 $397,758 $397,758 $692,000
12 $269,378 $109,599 $109,599 $692,000 $223,224 $223,224 $692,000 $437,174 $437,174 $692,000
13 $282,847 $107,361 $107,361 $692,000 $232,004 $232,004 $692,000 $480,495 $480,495 $692,000
14 $296,990 $105,168 $105,168 $692,000 $241,130 $241,130 $692,000 $528,110 $528,110 $697,105
15 $311,839 $103,019 $103,019 $692,000 $250,614 $250,614 $692,000 $580,442 $580,442 $760,380
16 $327,431 $100,915 $100,915 $692,000 $260,472 $260,472 $692,000 $637,961 $637,961 $829,349
17 $343,803 $98,854 $98,854 $692,000 $270,717 $270,717 $692,000 $701,179 $701,179 $897,510
18 $360,993 $96,835 $96,835 $692,000 $281,366 $281,366 $692,000 $770,662 $770,662 $971,035
19 $379,043 $94,857 $94,857 $692,000 $292,433 $292,433 $692,000 $847,031 $847,031 $1,050,318
20 $397,995 $92,919 $92,919 $692,000 $303,936 $303,936 $692,000 $930,967 $930,967 $1,135,779
Age 60 $191,442 $123,646 $131,146 $692,000 $168,966 $176,466 $692,000 $226,133 $233,633 $692,000
Age 65 $244,334 $114,218 $114,218 $692,000 $206,648 $206,648 $692,000 $361,896 $361,896 $692,000
Age 70 $311,839 $103,019 $103,019 $692,000 $250,614 $250,614 $692,000 $580,442 $580,442 $760,380
Age 75 $397,995 $92,919 $92,919 $692,000 $303,936 $303,936 $692,000 $930,967 $930,967 $1,135,779
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $150,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User, Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $692,000
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $157,500 $132,675 $146,175 $692,000 $141,593 $155,093 $692,000 $150,512 $164,012 $692,000
2 $165,375 $130,380 $142,380 $692,000 $148,295 $160,295 $692,000 $167,270 $179,270 $692,000
3 $173,644 $128,101 $138,601 $692,000 $155,094 $165,594 $692,000 $185,380 $195,880 $692,000
4 $182,326 $125,817 $134,817 $692,000 $161,981 $170,981 $692,000 $204,959 $213,959 $692,000
5 $191,442 $123,508 $131,008 $692,000 $168,940 $176,440 $692,000 $226,133 $233,633 $692,000
6 $201,014 $121,146 $127,146 $692,000 $175,951 $181,951 $692,000 $249,040 $255,040 $692,000
7 $211,065 $118,696 $123,196 $692,000 $182,988 $187,488 $692,000 $273,828 $278,328 $692,000
8 $221,618 $116,112 $119,112 $692,000 $190,014 $193,014 $692,000 $300,657 $303,657 $692,000
9 $232,699 $113,336 $114,836 $692,000 $196,979 $198,479 $692,000 $329,703 $331,203 $692,000
10 $244,334 $110,299 $110,299 $692,000 $203,830 $203,830 $692,000 $361,166 $361,166 $692,000
11 $256,551 $106,070 $106,070 $692,000 $210,270 $210,270 $692,000 $396,153 $396,153 $692,000
12 $269,378 $101,385 $101,385 $692,000 $216,554 $216,554 $692,000 $434,521 $434,521 $692,000
13 $282,847 $96,156 $96,156 $692,000 $222,616 $222,616 $692,000 $476,660 $476,660 $692,000
14 $296,990 $90,281 $90,281 $692,000 $228,378 $228,378 $692,000 $523,030 $523,030 $692,000
15 $311,839 $83,624 $83,624 $692,000 $233,739 $233,739 $692,000 $573,968 $573,968 $751,899
16 $327,431 $76,003 $76,003 $692,000 $238,561 $238,561 $692,000 $629,604 $629,604 $818,485
17 $343,803 $67,170 $67,170 $692,000 $242,660 $242,660 $692,000 $690,365 $690,365 $883,668
18 $360,993 $56,796 $56,796 $692,000 $245,795 $245,795 $692,000 $756,667 $756,667 $953,401
19 $379,043 $44,471 $44,471 $692,000 $247,665 $247,665 $692,000 $828,953 $828,953 $1,027,902
20 $397,995 $29,720 $29,720 $692,000 $247,928 $247,928 $692,000 $907,716 $907,716 $1,107,414
Age 60 $191,442 $123,508 $131,008 $692,000 $168,940 $176,440 $692,000 $226,133 $233,633 $692,000
Age 65 $244,334 $110,299 $110,299 $692,000 $203,830 $203,830 $692,000 $361,166 $361,166 $692,000
Age 70 $311,839 $83,624 $83,624 $692,000 $233,739 $233,739 $692,000 $573,968 $573,968 $751,899
Age 75 $397,995 $29,720 $29,720 $692,000 $247,928 $247,928 $692,000 $907,716 $907,716 $1,107,414
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $150,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $203,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $105,000 $87,982 $96,982 $203,000 $93,899 $102,899 $203,000 $99,815 $108,815 $203,000
2 $110,250 $86,056 $94,056 $203,000 $97,882 $105,882 $203,000 $110,408 $118,408 $203,000
3 $115,763 $84,217 $91,217 $203,000 $101,951 $108,951 $203,000 $121,846 $128,846 $203,000
4 $121,551 $82,465 $88,465 $203,000 $106,109 $112,109 $203,000 $134,204 $140,204 $203,000
5 $127,628 $80,795 $85,795 $203,000 $110,359 $115,359 $203,000 $147,564 $152,564 $203,000
6 $134,010 $79,206 $83,206 $203,000 $114,703 $118,703 $203,000 $162,013 $166,013 $215,817
7 $140,710 $77,695 $80,695 $203,000 $119,144 $122,144 $203,000 $177,648 $180,648 $231,229
8 $147,746 $76,260 $78,260 $203,000 $123,685 $125,685 $203,000 $194,572 $196,572 $247,681
9 $155,133 $74,898 $75,898 $203,000 $128,328 $129,328 $203,000 $212,901 $213,901 $265,237
10 $162,889 $73,608 $73,608 $203,000 $133,077 $133,077 $203,000 $232,757 $232,757 $283,964
11 $171,034 $71,960 $71,960 $203,000 $138,035 $138,035 $203,000 $255,311 $255,311 $306,373
12 $179,586 $70,349 $70,349 $203,000 $143,178 $143,178 $203,000 $280,050 $280,050 $336,060
13 $188,565 $68,775 $68,775 $203,000 $148,513 $148,513 $203,000 $307,186 $307,186 $368,623
14 $197,993 $67,235 $67,235 $203,000 $154,046 $154,046 $203,000 $336,952 $336,952 $404,342
15 $207,893 $65,730 $65,730 $203,000 $159,785 $159,785 $203,000 $369,602 $369,602 $443,522
16 $218,287 $64,259 $64,259 $203,000 $165,738 $165,738 $203,000 $405,416 $405,416 $486,499
17 $229,202 $62,820 $62,820 $203,000 $171,913 $171,913 $206,296 $444,700 $444,700 $533,639
18 $240,662 $61,414 $61,414 $203,000 $178,318 $178,318 $213,982 $487,790 $487,790 $585,348
19 $252,695 $60,040 $60,040 $203,000 $184,962 $184,962 $221,954 $535,056 $535,056 $642,067
20 $265,330 $58,696 $58,696 $203,000 $191,853 $191,853 $230,223 $586,902 $586,902 $704,282
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $127,628 $80,795 $85,795 $203,000 $110,359 $115,359 $203,000 $147,564 $152,564 $203,000
Age 75 $162,889 $73,608 $73,608 $203,000 $133,077 $133,077 $203,000 $232,757 $232,757 $283,964
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $100,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Undwrtiting Class
Simplified Underwriting Criteria
Face Amount: $203,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $105,000 $86,136 $95,136 $203,000 $92,068 $101,068 $203,000 $98,003 $107,003 $203,000
2 $110,250 $82,024 $90,024 $203,000 $93,947 $101,947 $203,000 $106,600 $114,600 $203,000
3 $115,763 $77,611 $84,611 $203,000 $95,604 $102,604 $203,000 $115,877 $122,877 $203,000
4 $121,551 $72,841 $78,841 $203,000 $97,005 $103,005 $203,000 $125,948 $131,948 $203,000
5 $127,628 $67,646 $72,646 $203,000 $98,109 $103,109 $203,000 $136,952 $141,952 $203,000
6 $134,010 $61,921 $65,921 $203,000 $98,848 $102,848 $203,000 $149,047 $153,047 $203,000
7 $140,710 $55,527 $58,527 $203,000 $99,129 $102,129 $203,000 $162,359 $165,359 $211,660
8 $147,746 $48,320 $50,320 $203,000 $98,862 $100,862 $203,000 $176,689 $178,689 $225,148
9 $155,133 $40,071 $41,071 $203,000 $97,897 $98,897 $203,000 $192,015 $193,015 $239,339
10 $162,889 $30,571 $30,571 $203,000 $96,097 $96,097 $203,000 $208,430 $208,430 $254,284
11 $171,034 $18,719 $18,719 $203,000 $92,894 $92,894 $203,000 $226,397 $226,397 $271,676
12 $179,586 $5,004 $5,004 $203,000 $88,536 $88,536 $203,000 $245,576 $245,576 $294,691
13 $188,565 $0 $0 $0* $82,765 $82,765 $203,000 $265,990 $265,990 $319,188
14 $197,993 $0 $0 $0* $75,269 $75,269 $203,000 $287,658 $287,658 $345,190
15 $207,893 $0 $0 $0* $65,613 $65,613 $203,000 $310,576 $310,576 $372,692
16 $218,287 $0 $0 $0* $53,152 $53,152 $203,000 $334,692 $334,692 $401,630
17 $229,202 $0 $0 $0* $37,027 $37,027 $203,000 $359,926 $359,926 $431,912
18 $240,662 $0 $0 $0* $15,950 $15,950 $203,000 $386,124 $386,124 $463,349
19 $252,695 $0 $0 $0* $0 $0 $0* $413,115 $413,115 $495,738
20 $265,330 $0 $0 $0* $0 $0 $0* $440,675 $440,675 $528,810
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $127,628 $67,646 $72,646 $203,000 $98,109 $103,109 $203,000 $136,952 $141,952 $203,000
Age 75 $162,889 $30,571 $30,571 $203,000 $96,097 $96,097 $203,000 $208,430 $208,430 $254,284
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $100,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
* If the Guaranteed Death Benefit Rider is in effect on the Contract, the death
benefit will be $203,000 based on the assumptions for this illustration.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $406,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $210,000 $175,965 $193,965 $406,000 $187,798 $205,798 $406,000 $199,631 $217,631 $406,000
2 $220,500 $172,111 $188,111 $406,000 $195,763 $211,763 $406,000 $220,816 $236,816 $406,000
3 $231,525 $168,434 $182,434 $406,000 $203,902 $217,902 $406,000 $243,692 $257,692 $406,000
4 $243,101 $164,929 $176,929 $406,000 $212,219 $224,219 $406,000 $268,409 $280,409 $406,000
5 $255,256 $161,590 $171,590 $406,000 $220,718 $230,718 $406,000 $295,128 $305,128 $406,000
6 $268,019 $158,412 $166,412 $406,000 $229,406 $237,406 $406,000 $324,026 $332,026 $431,633
7 $281,420 $155,390 $161,390 $406,000 $238,288 $244,288 $406,000 $355,295 $361,295 $462,458
8 $295,491 $152,520 $156,520 $406,000 $247,370 $251,370 $406,000 $389,145 $393,145 $495,362
9 $310,266 $149,796 $151,796 $406,000 $256,657 $258,657 $406,000 $425,802 $427,802 $530,474
10 $325,779 $147,215 $147,215 $406,000 $266,155 $266,155 $406,000 $465,514 $465,514 $567,927
11 $342,068 $143,920 $143,920 $406,000 $276,071 $276,071 $406,000 $510,622 $510,622 $612,746
12 $359,171 $140,699 $140,699 $406,000 $286,356 $286,356 $406,000 $560,100 $560,100 $672,120
13 $377,130 $137,549 $137,549 $406,000 $297,025 $297,025 $406,000 $614,372 $614,372 $737,247
14 $395,986 $134,470 $134,470 $406,000 $308,091 $308,091 $406,000 $673,904 $673,904 $808,685
15 $415,786 $131,460 $131,460 $406,000 $319,570 $319,570 $406,000 $739,204 $739,204 $887,045
16 $436,575 $128,518 $128,518 $406,000 $331,476 $331,476 $406,000 $810,831 $810,831 $972,997
17 $458,404 $125,641 $125,641 $406,000 $343,826 $343,826 $412,591 $889,399 $889,399 $1,067,279
18 $481,324 $122,829 $122,829 $406,000 $356,636 $356,636 $427,963 $975,580 $975,580 $1,170,696
19 $505,390 $120,079 $120,079 $406,000 $369,923 $369,923 $443,908 $1,070,112$1,070,112$1,284,134
20 $530,660 $117,391 $117,391 $406,000 $383,705 $383,705 $460,446 $1,173,804$1,173,804$1,408,564
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $255,256 $161,590 $171,590 $406,000 $220,718 $230,718 $406,000 $295,128 $305,128 $406,000
Age 75 $325,779 $147,215 $147,215 $406,000 $266,155 $266,155 $406,000 $465,514 $465,514 $567,927
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $200,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $406,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $210,000 $172,272 $190,272 $406,000 $184,137 $202,137 $406,000 $196,007 $214,007 $406,000
2 $220,500 $164,048 $180,048 $406,000 $187,894 $203,894 $406,000 $213,199 $229,199 $406,000
3 $231,525 $155,223 $169,223 $406,000 $191,209 $205,209 $406,000 $231,755 $245,755 $406,000
4 $243,101 $145,681 $157,681 $406,000 $194,010 $206,010 $406,000 $251,897 $263,897 $406,000
5 $255,256 $135,292 $145,292 $406,000 $196,218 $206,218 $406,000 $273,904 $283,904 $406,000
6 $268,019 $123,843 $131,843 $406,000 $197,695 $205,695 $406,000 $298,095 $306,095 $406,000
7 $281,420 $111,055 $117,055 $406,000 $198,259 $204,259 $406,000 $324,718 $330,718 $423,319
8 $295,491 $96,639 $100,639 $406,000 $197,723 $201,723 $406,000 $353,378 $357,378 $450,297
9 $310,266 $80,142 $82,142 $406,000 $195,793 $197,793 $406,000 $384,031 $386,031 $478,678
10 $325,779 $61,141 $61,141 $406,000 $192,195 $192,195 $406,000 $416,859 $416,859 $508,568
11 $342,068 $37,437 $37,437 $406,000 $185,789 $185,789 $406,000 $452,793 $452,793 $543,352
12 $359,171 $10,008 $10,008 $406,000 $177,071 $177,071 $406,000 $491,152 $491,152 $589,383
13 $377,130 $0 $0 $0* $165,529 $165,529 $406,000 $531,980 $531,980 $638,376
14 $395,986 $0 $0 $0* $150,538 $150,538 $406,000 $575,317 $575,317 $690,380
15 $415,786 $0 $0 $0* $131,225 $131,225 $406,000 $621,152 $621,152 $745,383
16 $436,575 $0 $0 $0* $106,305 $106,305 $406,000 $669,384 $669,384 $803,260
17 $458,404 $0 $0 $0* $74,053 $74,053 $406,000 $719,852 $719,852 $863,823
18 $481,324 $0 $0 $0* $31,900 $31,900 $406,000 $772,248 $772,248 $926,698
19 $505,390 $0 $0 $0* $0 $0 $0* $826,229 $826,229 $991,475
20 $530,660 $0 $0 $0* $0 $0 $0* $881,350 $881,350 $1,057,620
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $255,256 $135,292 $145,292 $406,000 $196,218 $206,218 $406,000 $273,904 $283,904 $406,000
Age 75 $325,779 $61,141 $61,141 $406,000 $192,195 $192,195 $406,000 $416,859 $416,859 $508,568
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $200,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
* If the Guaranteed Death Benefit Rider is in effect on the Contract, the death
benefit will be $406,000 based on the assumptions for this illustration.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $288,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $105,000 $88,409 $97,409 $288,000 $94,354 $103,354 $288,000 $100,300 $109,300 $288,000
2 $110,250 $86,754 $94,754 $288,000 $98,686 $106,686 $288,000 $111,337 $119,337 $288,000
3 $115,763 $85,170 $92,170 $288,000 $103,108 $110,108 $288,000 $123,247 $130,247 $288,000
4 $121,551 $83,658 $89,658 $288,000 $107,641 $113,641 $288,000 $136,155 $142,155 $288,000
5 $127,628 $82,213 $87,213 $288,000 $112,286 $117,286 $288,000 $150,151 $155,151 $288,000
6 $134,010 $80,836 $84,836 $288,000 $117,049 $121,049 $288,000 $165,336 $169,336 $288,000
7 $140,710 $79,523 $82,523 $288,000 $121,932 $124,932 $288,000 $181,817 $184,817 $288,000
8 $147,746 $78,273 $80,273 $288,000 $126,940 $128,940 $288,000 $199,714 $201,714 $288,000
9 $155,133 $77,084 $78,084 $288,000 $132,077 $133,077 $288,000 $219,156 $220,156 $288,000
10 $162,889 $75,956 $75,956 $288,000 $137,346 $137,346 $288,000 $240,283 $240,283 $293,145
11 $171,034 $74,404 $74,404 $288,000 $142,748 $142,748 $288,000 $264,094 $264,094 $316,913
12 $179,586 $72,884 $72,884 $288,000 $148,363 $148,363 $288,000 $290,264 $290,264 $348,317
13 $188,565 $71,396 $71,396 $288,000 $154,199 $154,199 $288,000 $319,027 $319,027 $382,833
14 $197,993 $69,937 $69,937 $288,000 $160,264 $160,264 $288,000 $350,641 $350,641 $420,770
15 $207,893 $68,509 $68,509 $288,000 $166,568 $166,568 $288,000 $385,388 $385,388 $462,465
16 $218,287 $67,109 $67,109 $288,000 $173,120 $173,120 $288,000 $423,578 $423,578 $508,293
17 $229,202 $65,738 $65,738 $288,000 $179,929 $179,929 $288,000 $465,552 $465,552 $558,662
18 $240,662 $64,396 $64,396 $288,000 $187,006 $187,006 $288,000 $511,685 $511,685 $614,022
19 $252,695 $63,080 $63,080 $288,000 $194,362 $194,362 $288,000 $562,390 $562,390 $674,869
20 $265,330 $61,792 $61,792 $288,000 $202,007 $202,007 $288,000 $618,120 $618,120 $741,744
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $127,628 $82,213 $87,213 $288,000 $112,286 $117,286 $288,000 $150,151 $155,151 $288,000
Age 75 $162,889 $75,956 $75,956 $288,000 $137,346 $137,346 $288,000 $240,283 $240,283 $293,145
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $100,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $288,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $105,000 $88,409 $97,409 $288,000 $94,354 $103,354 $288,000 $100,300 $109,300 $288,000
2 $110,250 $86,743 $94,743 $288,000 $98,686 $106,686 $288,000 $111,337 $119,337 $288,000
3 $115,763 $84,965 $91,965 $288,000 $102,967 $109,967 $288,000 $123,168 $130,168 $288,000
4 $121,551 $83,037 $89,037 $288,000 $107,167 $113,167 $288,000 $135,859 $141,859 $288,000
5 $127,628 $80,911 $85,911 $288,000 $111,253 $116,253 $288,000 $149,487 $154,487 $288,000
6 $134,010 $78,527 $82,527 $288,000 $115,177 $119,177 $288,000 $164,142 $168,142 $288,000
7 $140,710 $75,804 $78,804 $288,000 $118,882 $121,882 $288,000 $179,929 $182,929 $288,000
8 $147,746 $72,634 $74,634 $288,000 $122,287 $124,287 $288,000 $196,977 $198,977 $288,000
9 $155,133 $68,879 $69,879 $288,000 $125,296 $126,296 $288,000 $215,451 $216,451 $288,000
10 $162,889 $64,379 $64,379 $288,000 $127,796 $127,796 $288,000 $235,574 $235,574 $288,000
11 $171,034 $58,314 $58,314 $288,000 $129,455 $129,455 $288,000 $258,048 $258,048 $309,657
12 $179,586 $51,066 $51,066 $288,000 $130,396 $130,396 $288,000 $282,401 $282,401 $338,881
13 $188,565 $42,386 $42,386 $288,000 $130,468 $130,468 $288,000 $308,698 $308,698 $370,438
14 $197,993 $31,966 $31,966 $288,000 $129,483 $129,483 $288,000 $337,007 $337,007 $404,408
15 $207,893 $19,401 $19,401 $288,000 $127,193 $127,193 $288,000 $367,369 $367,369 $440,843
16 $218,287 $4,134 $4,134 $288,000 $123,256 $123,256 $288,000 $399,786 $399,786 $479,744
17 $229,202 $0 $0 $0* $117,200 $117,200 $288,000 $434,206 $434,206 $521,047
18 $240,662 $0 $0 $0* $108,369 $108,369 $288,000 $470,506 $470,506 $564,607
19 $252,695 $0 $0 $0* $95,874 $95,874 $288,000 $508,496 $508,496 $610,195
20 $265,330 $0 $0 $0* $78,512 $78,512 $288,000 $547,922 $547,922 $657,506
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $127,628 $80,911 $85,911 $288,000 $111,253 $116,253 $288,000 $149,487 $154,487 $288,000
Age 75 $162,889 $64,379 $64,379 $288,000 $127,796 $127,796 $288,000 $235,574 $235,574 $288,000
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $100,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
* If the Guaranteed Death Benefit Rider is in effect on the Contract, the death
benefit will be $288,000 based on the assumptions for this illustration.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $576,000
<TABLE>
<CAPTION>
BASED ON CURRENT MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $210,000 $176,818 $194,818 $576,000 $188,709 $206,709 $576,000 $200,599 $218,599 $576,000
2 $220,500 $173,507 $189,507 $576,000 $197,371 $213,371 $576,000 $222,674 $238,674 $576,000
3 $231,525 $170,341 $184,341 $576,000 $206,216 $220,216 $576,000 $246,494 $260,494 $576,000
4 $243,101 $167,315 $179,315 $576,000 $215,281 $227,281 $576,000 $272,310 $284,310 $576,000
5 $255,256 $164,426 $174,426 $576,000 $224,573 $234,573 $576,000 $300,302 $310,302 $576,000
6 $268,019 $161,671 $169,671 $576,000 $234,098 $242,098 $576,000 $330,672 $338,672 $576,000
7 $281,420 $159,045 $165,045 $576,000 $243,864 $249,864 $576,000 $363,634 $369,634 $576,000
8 $295,491 $156,546 $160,546 $576,000 $253,880 $257,880 $576,000 $399,428 $403,428 $576,000
9 $310,266 $154,169 $156,169 $576,000 $264,153 $266,153 $576,000 $438,311 $440,311 $576,000
10 $325,779 $151,911 $151,911 $576,000 $274,692 $274,692 $576,000 $480,566 $480,566 $586,290
11 $342,068 $148,808 $148,808 $576,000 $285,496 $285,496 $576,000 $528,187 $528,187 $633,825
12 $359,171 $145,769 $145,769 $576,000 $296,726 $296,726 $576,000 $580,528 $580,528 $696,633
13 $377,130 $142,791 $142,791 $576,000 $308,397 $308,397 $576,000 $638,055 $638,055 $765,666
14 $395,986 $139,874 $139,874 $576,000 $320,528 $320,528 $576,000 $701,282 $701,282 $841,539
15 $415,786 $137,017 $137,017 $576,000 $333,136 $333,136 $576,000 $770,775 $770,775 $924,931
16 $436,575 $134,218 $134,218 $576,000 $346,239 $346,239 $576,000 $847,155 $847,155 $1,016,586
17 $458,404 $131,477 $131,477 $576,000 $359,858 $359,858 $576,000 $931,103 $931,103 $1,117,324
18 $481,324 $128,791 $128,791 $576,000 $374,013 $374,013 $576,000 $1,023,370$1,023,370$1,228,044
19 $505,390 $126,160 $126,160 $576,000 $388,724 $388,724 $576,000 $1,124,781$1,124,781$1,349,737
20 $530,660 $123,583 $123,583 $576,000 $404,014 $404,014 $576,000 $1,236,240$1,236,240$1,483,488
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $255,256 $164,426 $174,426 $576,000 $224,573 $234,573 $576,000 $300,302 $310,302 $576,000
Age 75 $325,779 $151,911 $151,911 $576,000 $274,692 $274,692 $576,000 $480,566 $480,566 $586,290
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $200,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VUL-2
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Undwriting Class
Full Underwriting Criteria
Face Amount: $576,000
<TABLE>
<CAPTION>
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION CHARGES,
MONTHLY DEDUCTIONS, AND PORTFOLIO EXPENSES
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Payments Hypothetical 0% Hypothetical 6% Hypothetical 12%
Made Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Contract At 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract 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 $210,000 $176,818 $194,818 $576,000 $188,709 $206,709 $576,000 $200,599 $218,599 $576,000
2 $220,500 $173,485 $189,485 $576,000 $197,371 $213,371 $576,000 $222,674 $238,674 $576,000
3 $231,525 $169,929 $183,929 $576,000 $205,933 $219,933 $576,000 $246,335 $260,335 $576,000
4 $243,101 $166,074 $178,074 $576,000 $214,335 $226,335 $576,000 $271,717 $283,717 $576,000
5 $255,256 $161,822 $171,822 $576,000 $222,505 $232,505 $576,000 $298,973 $308,973 $576,000
6 $268,019 $157,055 $165,055 $576,000 $230,355 $238,355 $576,000 $328,284 $336,284 $576,000
7 $281,420 $151,608 $157,608 $576,000 $237,763 $243,763 $576,000 $359,859 $365,859 $576,000
8 $295,491 $145,267 $149,267 $576,000 $244,574 $248,574 $576,000 $393,954 $397,954 $576,000
9 $310,266 $137,758 $139,758 $576,000 $250,592 $252,592 $576,000 $430,902 $432,902 $576,000
10 $325,779 $128,757 $128,757 $576,000 $255,591 $255,591 $576,000 $471,148 $471,148 $576,000
11 $342,068 $116,629 $116,629 $576,000 $258,910 $258,910 $576,000 $516,095 $516,095 $619,314
12 $359,171 $102,133 $102,133 $576,000 $260,793 $260,793 $576,000 $564,801 $564,801 $677,761
13 $377,130 $84,771 $84,771 $576,000 $260,936 $260,936 $576,000 $617,396 $617,396 $740,875
14 $395,986 $63,931 $63,931 $576,000 $258,965 $258,965 $576,000 $674,013 $674,013 $808,816
15 $415,786 $38,802 $38,802 $576,000 $254,385 $254,385 $576,000 $734,738 $734,738 $881,685
16 $436,575 $8,268 $8,268 $576,000 $246,512 $246,512 $576,000 $799,572 $799,572 $959,487
17 $458,404 $0 $0 $0* $234,401 $234,401 $576,000 $868,411 $868,411 $1,042,094
18 $481,324 $0 $0 $0* $216,738 $216,738 $576,000 $941,011 $941,011 $1,129,213
19 $505,390 $0 $0 $0* $191,748 $191,748 $576,000 $1,016,990$1,016,990$1,220,388
20 $530,660 $0 $0 $0* $157,025 $157,025 $576,000 $1,095,843$1,095,843$1,315,012
Age 60 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 65 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Age 70 $255,256 $161,822 $171,822 $576,000 $222,505 $232,505 $576,000 $298,973 $308,973 $576,000
Age 75 $325,779 $128,757 $128,757 $576,000 $255,591 $255,591 $576,000 $471,148 $471,148 $576,000
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a single payment of $200,000 is made at the beginning of the first
Contract Year. Values will be different if payments are made
with a different frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
* If the Guaranteed Death Benefit Rider is in effect on the Contract, the death
benefit will be $576,000 based on the assumptions for this illustration.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
PORTFOLIOS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Transamerica Occidental Life Separate Account VUL-2, has duly caused
this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Los Angeles, and the State of California, on this 1st day of
February, 1999.
Transamerica Occidental Life Separate Account VUL-2
(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 1st day of February, 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>
______________________* Director, Chairman, February 1, 1999
Thomas J. Cusack President and Chief Executive Officer
_____________________* Director February 1, 1999
James W. Dederer
_____________________* Director February 1, 1999
George A. Foegele
______________________* Director February 1, 1999
David E. Gooding
<PAGE>
______________________* Director February 1, 1999
Edgar H. Grubb
______________________* Director February 1, 1999
Frank C. Herringer
______________________* Director February 1, 1999
Richard N. Latzer
______________________* Director February 1, 1999
Karen MacDonald
______________________* Director February 1, 1999
Gary U. Rolle'
_____________________* Director February 1, 1999
Paul E. Rutledge III
______________________* Director February 1, 1999
T. Desmond Sugrue
______________________* Director February 1, 1999
Nooruddin S. Veerjee
______________________* Director February 1, 1999
Robert A. Watson
</TABLE>
/s/David M. Goldstein On February 1, 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>
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-2. 1/ 3/
(2) Not Applicable.
(3) (a) Form of Distribution Agreement between Transamerica Securities
Sales Corporation and Transamerica Occidental Life Insurance
Company. 1/ 3/
(b) Form of Sales Agreement between Transamerica Life Companies, Transamerica
Securities Sales Corporation and Broker-Dealers 1/ 3/
(4) Not Applicable.
(5) Forms of Policy and Policy riders. 1/ 2/ 3/
(6) Organizational documents of the Company, as amended. 1/ 3/
(7) Not Applicable.
(8) Form of Participation Agreement between: Transamerica Occidental
Life Insurance Company and:
(a) re The Alger American Fund 1/ 3/
(b) re Alliance Variable Products Series Fund, Inc. 1/ 3/
(c) re Dreyfus Variable Investment Fund 1/ 3/
(d) re Janus Aspen Series 1/ 3/
(e) re MFS Variable Insurance Trust 1/ 3/
(f) re Morgan Stanley Universal Funds, Inc. 1/ 3/
(g) re OCC Accumulation Trust 1/ 3/
(h) re Transamerica Variable Insurance Fund, Inc. 1/ 3/
(9) Administrative Agreements between Transamerica Occidental Life Insurance
Company and First Allmerica Financial Life Insurance
Company 1/ 3/
(10) Form of Application. 1/ 3
(11) Issuance, Transfer and Redemption Procedures Memorandum. 1/ 3/
(12) Financial Data Schedule.
2. Form of Policy and Policy riders are included in Exhibit 1 above.
3. Opinion of Counsel. 1/
4. Not Applicable.
5. Not Applicable.
6. Actuarial Consent 1/
7. Consent of Independent Accountants 2/ 3/
8. Powers of Attorney 1/
1/ Incorporated herein by reference to the initial filing of this
Registration Statement (File No. 333-63215) on September 10, 1998.
2/ Incorporated by reference to Pre-Effective Amendment No. 2 of this
Registration Statement (File No. 333-63215) on January 15, 1999.
3/ Filed herewith.
<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>
Exhibit 1.(1) Certified Resolution of Board of Directors
<PAGE>
Resolution of Board
Exhibit 1(1) Resolution of the Board of Directors of the Company
Establishing the Separate Account
<PAGE>
CERTIFICATE
I, James W. Dederer, Corporate Secretary of Transamerica Occidental Life
Insurance Company, do hereby certify that the attached is a full, true and
correct copy of a resolution - SEPARATE ACCOUNTS - duly passed and adopted at a
regular meeting of the Board of Directors of Transamerica Occidental Life
Insurance Company on the 6th day of December, 1996 at which meeting a quorum of
directors was present. I further certify that said resolution is now in full
force and effect.
WITNESS my hand and seal of Transamerica Occidental Life Insurance
Company this 11th day of August, 1998.
<PAGE>
EXCERPTS FROM THE MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY HELD DECEMBER 6, 1996.
SEPARATE ACCOUNTS
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
WHEREAS, this Corporation adopted a resolution authorizing its proper officers
to enter into, make, perform and carry out contracts pursuant to Section 10506
of the California Insurance Code; and
WHEREAS, this Corporation desires to continue entering into, making, performing
and carrying out contracts pursuant to Section 10506 et seq. of the California
Insurance Code, and specifically at this time to authorize its proper officers
to establish additional separate accounts under Section 10506 et seq. of the
California Insurance Code without further action of approval of this Board of
Directors;
THEREFORE IT IS RESOLVED, that this Corporation reaffirms that through its
proper officers, be and hereby is authorized (1) to enter into, make, perform
and carry out contracts of every sort and kind which may be necessary, suitable
or convenient to the conduct of business pursuant to Section 10506 et seq. of
the California Insurance Code, which permits a life insurance company to
allocate to one more separate accounts, in accordance with the terms of a
written agreement approved by the Insurance Commissioner of California, any
amounts that are paid to the Company under a pension, retirement or
profit-sharing plan, or program for one or more persons and that are to be
applied in payment of proceeds or benefits under the Company's policies,
contracts, or agreements in fixed or variable dollar amounts, or both, and (2)
to do all and everything necessary, suitable or convenient to the conduct of
such business, including any act or thing incidental to, or growing out of, or
connected with the conduct of such business and further including, but not
limited to, the power to establish new separate accounts, both pooled and
non-pooled, without further action or approval by this Board of Directors; and
FURTHER RESOLVED, that 1) the income, if any, and gains and losses, realized and
unrealized, in each separate account shall be credited to or charged against
such separate account without regard to other gains or losses of the Company's
general account or other separate accounts; and 2) no separate account shall be
chargeable with liabilities arising out of any other business of the Company.
<PAGE>
1
DISTRIBUTION AGREEMENT BETWEEN
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND TRANSAMERICA INSURANCE SECURITIES SALES CORPORATION
This Agreement (the "Agreement") made as of this 24th day of August,
1994, by and between TRANSAMERICA INSURANCE SECURITIES SALES CORPORATION (the
"Distributor"), a corporation organized and existing under the laws of the State
of Maryland with its principal place of business in Los Angeles, California, and
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY (the "Company"), an insurance
company organized and existing under the laws of the State of California with
its principal place of business in Los Angeles, California, for itself and on
behalf of certain of its separate accounts.
W I T N E S S E T H
WHEREAS, the Company has established and maintains the class or classes
of variable annuity contracts set forth on Schedule 1 to this Agreement as in
effect at the time this Agreement is executed, and such other classes of
variable annuity contracts and variable life insurance contracts (collectively,
"variable insurance products") that may be added to Schedule 1 from time to time
in accordance with Section 18 of this Agreement, and including any riders to
such contracts and any other contract offered in connection therewith
(collectively the "Contracts") (A "class of Contracts" shall mean those
Contracts issued by the Company on the same policy form or forms and covered by
the same Registration Statement.); and
<PAGE>
8
WHEREAS, the Distributor, a wholly-owned subsidiary of Transamerica
Insurance Corporation of California, is registered as a broker-dealer with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended (the "1934 Act") and is a member of the National Association
of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the parties desire to have the Distributor act as the
principal underwriter for and in connection with the sale of the Contracts to
the public and assume full responsibility for the securities activities of each
"associated person" (as that term is defined in Section 3(a)(18) of the 1934
Act) of the Distributor, including each associated person of the Distributor
engaged in the offer and sale of the Contracts (a "Representative"); and
WHEREAS, the Distributor and the Company acknowledge that the Company
is best suited to provide certain administrative functions in connection with
the Contracts, subject at all times to the control and direction of the
Distributor with respect to the broker-dealer operations;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the Distributor and the Company agree as follows:
1. Definitions
a. Fund -- An investment company serving as the funding medium
for any Contracts, specified in Schedule 2 to this Agreement as in
effect at the time this Agreement is executed, and such other
investment companies that may be added to Schedule 2 from time to time
in accordance with Section 18 of this Agreement.
b. Intermediary Distributors -- A person registered as a
broker-dealer and licensed as a life insurance agent or affiliated with
a person so licensed, and authorized to distribute the Contracts
pursuant to a sales agreement as provided for in Section 2 of this
Agreement (the "Sales Agreement").
c. Separate Account -- Each separate account of the Company
specified on Schedule 3 to this Agreement as in effect at the time this
Agreement is executed, and such other separate accounts of the Company
that may be added to Schedule 3 from time to time in accordance with
Section 18 of this Agreement, each of which will be approved by the
Commissioner of Insurance of the State of California under Section
10506 of the California Insurance Code.
2. Distribution Duties and Responsibilities. The Distributor shall act
as principal underwriter for the Contracts in connection with their sale during
the term of this Agreement in each state or other jurisdiction where they may
legally be sold (the "Territory"). The Distributor is authorized to solicit
applications for the Contracts ("Applications") directly from customers and
prospective customers in the Territory and to select all persons who will be
authorized to engage in solicitation activities with respect to the Contracts.
Such selection activity shall include the recruitment and appointment of third
parties to act as distributors. In turn such third parties may be authorized as
Intermediary Distributors to engage in solicitation activities, including the
solicitation of Applications directly from customers and prospective customers
in the Territory and/or as Intermediary Distributors to recruit other third
parties to act as Intermediary Distributors, in each case as the Company and the
Distributor shall agree to. The Distributor shall enter into separate written
Sales Agreements with each such Intermediary Distributor. Such Sales Agreements
will be substantially in the form attached to this Agreement as Exhibit A, but
may include such additional or alternative terms and conditions that are not
otherwise inconsistent with this Agreement, subject to the Company's review and
prior written consent (which may be given by facsimile), which consent will not
be unreasonably withheld, and which will be deemed to have been given if the
Company has not responded in writing (by facsimile or otherwise) within 10
calendar days. The Distributor will provide the Company with a profile on each
Intermediary Distributor. The Distributor shall use its best efforts to market
the Contracts actively, both directly and through Intermediary Distributors.
The Distributor shall have the power and authority to select and
recommend Representatives of the Distributor, and to authorize an Intermediary
Distributor to select and recommend representatives of such Intermediary
Distributor (the "Intermediary's Representatives"), for appointment as agents of
the Company, and only such Representatives and Intermediary's Representatives
shall become agents of the Company with authority to engage in solicitation
activities with respect to the Contracts. The Distributor shall be solely
responsible for background investigations of its Representatives to determine
their qualifications, good character and moral fitness to sell the Contracts,
and pursuant to the Sales Agreement, each Intermediary Distributor shall be
solely responsible for background investigations of its Intermediary's
Representatives to determine their qualifications, good character and moral
fitness to sell the Contracts. The Company shall appoint in the appropriate
states or jurisdictions such selected and recommended agents, provided that the
Company reserves the right, which right shall not be exercised unreasonably, to
refuse to appoint as agent any Representative or Intermediary's Representative,
or, once appointed, to terminate the same at any time with or without cause. No
other individuals, persons or entities, other than affiliates of the Company,
shall have authority to engage in solicitation activities with respect to the
Contracts, without the express prior written consent of the Distributor.
The Distributor shall at all times be an independent contractor, and
shall be under no obligation to produce any particular amount of sales of the
Contracts. Anything in this Agreement to the contrary notwithstanding, the
Company retains ultimate responsibility for the direction and control of the
services provided under this Agreement, and the ultimate right to control the
sale of the Contracts, including the right to suspend sales in any jurisdiction
or jurisdictions, to appoint and discharge agents of the Company, or to refuse
to sell a Contract to any applicant for purchase of a Contract (an "Applicant")
for any reason whatsoever. The Distributor and the Distributor's Representatives
shall not have the authority, and shall not grant the authority to Intermediary
Distributors or the Intermediary's Representatives, on behalf of the Company: to
make, alter or discharge any Contract or other contract entered into pursuant to
a Contract; to waive any Contract forfeiture provision; to extend the time of
paying any premium on the Contracts; or to receive any monies or premiums
(except for the sole purpose of forwarding such monies or premiums to the
Company). The Distributor shall not possess or exercise any authority on behalf
of the Company other than that expressly conferred upon the Distributor by this
Agreement.
3. Filings, Marketing Materials and Representatives. The Distributor
will assume full responsibility for the securities activities of its
Representatives, and, similarly, each Intermediary Distributor shall assume,
pursuant to the Sales Agreement, full responsibility for the Intermediary's
Representatives' securities activities, including compliance with the NASD Rules
of Fair Practice and any applicable state securities laws and regulations. The
Distributor, either directly or indirectly through the Company as its agent,
shall: (a) make timely filings with the SEC, the NASD, and any other appropriate
securities regulatory authorities of any advertisements, sales literature, or
other materials relating to the Contracts, as required by law or regulation to
be filed; (b) make available to the Company for approval copies of all
agreements and other written plans and documents relating to the sale of the
Contracts, and shall, if necessary, submit such agreements and other plans and
documents to the appropriate securities regulatory authorities for approval
prior to their use; (c) assist its Representatives in their efforts to prepare
themselves to pass any and all applicable NASD and state insurance qualification
examinations; (d) register its Representatives with the NASD and any other
appropriate securities regulatory authorities; and (e) supervise and control
their Representatives in the performance of their selling activities. The
Intermediary Distributors, pursuant to each Sales Agreement, shall have similar
responsibilities with regard to the assistance, registration, supervision and
control of the Intermediary's Representatives. In connection with obtaining the
clearances of the appropriate regulatory authorities, the parties agree to use
their best efforts to obtain such clearances as expeditiously as possible, and
shall not use any sales material, plan, or other agreement in any jurisdiction
unless the appropriate filings have been made and approvals obtained that are
necessary to make their use proper and legal therein.
The Distributor will take reasonable steps to ensure that the
Representatives do not make any recommendations to Applicants for the purchase
of a Contract(s) in the absence of reasonable grounds to believe that the
purchase of such Contracts is suitable for the Applicants. Determinations of
suitability will be based on various types of information including, but not
limited to, information furnished to a Representative by an Applicant after
reasonable inquiry by the Representative concerning the Applicant's insurance
and investment objectives, financial situation, and needs, including the
likelihood that the Applicant will be financially able to make sufficient
premium payments to derive the benefits from the Contracts. Likewise, pursuant
to each Sales Agreement, each Intermediary Distributor shall take reasonable
steps to ensure that the Intermediary's Representatives do not make any
recommendations to any Applicant in the absence of reasonable grounds to believe
that the purchase of such Contracts is suitable for the Applicant, with
determinations of suitability based upon the factors set forth immediately
above.
The Distributor will not encourage a prospective Applicant to surrender
or exchange an insurance contract in order to purchase a Contract, nor will the
Distributor encourage any existing holder of a Contract (a "Contractholder") to
surrender or exchange a Contract in order to purchase another insurance
contract. Likewise, each Intermediary Distributor, pursuant to each Sales
Agreement with the Distributor, shall not encourage a prospective Applicant to
surrender or exchange an insurance contract in order to purchase a Contract, nor
encourage any Contractholder to surrender or exchange a Contract in order to
purchase another insurance contract. The obligations under this paragraph are
subject to applicable NASD Rules of Fair Practice and any other applicable laws,
regulations and regulatory guidelines.
The Distributor and each Intermediary Distributor, pursuant to each
Sales Agreement, each shall take reasonable steps to ensure that their
respective Representatives or Intermediary's Representatives do not use any
advertisement, sales literature, or other promotional material which has not
been specifically approved in advance by the Company; and the Company, as agent
for the Distributor, shall be responsible for filing such items, as necessary,
with the SEC, the NASD, and any other appropriate securities regulatory
authorities, and, where necessary, shall obtain the approvals of such
authorities. No associated person, either of the Distributor or of any
Intermediary Distributor, shall, in connection with the offer and sale of the
Contracts, make any representation or communicate any information regarding the
Contracts or the Company, which is not inconsistent with (i) materials approved
by the Company for distribution to the public, or (ii) a current prospectus
relating to the Contracts, or (iii) the then effective registration statements
under the Securities Act of 1933 (the "1933 Act") for the Contracts.
4. Offer, Sale and Acceptance of Applications. The Company will
undertake to appoint the Representatives and Intermediary's Representatives as
life insurance agents of the Company, and will be responsible for ensuring that
only agents properly qualified under the insurance laws of all relevant
jurisdictions will engage in the offer and sale of the Contracts. Completed
Applications shall be transmitted directly to the Company for acceptance or
rejection by the Company in its sole discretion, in accordance with its
insurance underwriting and selection rules. Initial and subsequent premium
payments under the Contracts shall be made payable to the Company, and when such
payments are received by a Representative or Intermediary's Representative they
shall be held in a fiduciary capacity and forwarded promptly, and in any event
not later than two business days, in full to the Company. All such premium
payments, whether by check, money order or wire, shall be the property of the
Company.
5. Undertakings. The Distributor, in order to discharge its duties
under this Agreement, may designate certain employees of the Company to become
limited or general securities principals of the Distributor, and the Company
will use its best efforts to ensure the cooperation of such employees. These
individuals will perform various functions on behalf of the Distributor,
including, but not limited to, supervision of the securities sales activities of
the Representatives and enforcement of the compliance rules and procedures of
the Distributor. All books and records relating to the Distributor's operations
shall: (a) be maintained and preserved by the Company as agent for the
Distributor, in conformity with the requirements of SEC Rules 17a-3 and 17a-4
under the 1934 Act; (b) be and remain the property of the Distributor; and (c)
be at all times subject to inspection by the SEC and the NASD in accordance with
Section 17(a) of the 1934 Act.
The Distributor will fully cooperate with the Company in executing such
papers and performing such acts as may be reasonably requested by the Company
from time to time for the purpose of: (a) maintaining the registration of the
Contracts under the 1933 Act, and of the Separate Account(s) under the
Investment Company Act of 1940 (the "1940 Act"); and (b) maintaining the
qualification of the Contracts for sale under applicable state laws.
Upon the completion of each transaction relating to the Contracts for
which a confirmation is legally required, the Company shall, acting as agent of
the Distributor, send a written confirmation of such transaction to the
customer.
6. Servicing of the Contracts. The Company shall provide all necessary
insurance operations, including such actuarial, financial, statistical, premium
billing and collection, accounting, data processing, and investment services as
may be required with respect to the Contracts. In addition to these services, or
other services provided hereunder, the Company shall provide such executive,
legal, clerical, and other personnel related services as may be required to
carry out the Company's obligations under this Agreement, including its
obligation to perform certain functions on behalf of the Distributor.
7. Recordkeeping. The Company shall provide recordkeeping and general
office administration services incidental to or necessary for the proper
performance of the services to be performed by the Company and, to the extent
the Distributor does not elect to perform said recordkeeping and administration
functions, the Distributor in accordance with this Agreement. In addition, the
Company shall maintain all book and records relating to the Contracts, which
materials will be available to the Distributor (to the extent that they relate
to the broker-dealer operations) and to the appropriate regulatory authorities
upon request.
All books, accounts, and records of the Company and the Distributor as
may pertain to the Contracts and this Agreement shall be maintained so as to
clearly and accurately disclose the nature and details of all Contract
transactions and all other transactions relating to this Agreement. The Company
shall own and control all records pertinent to its variable insurance products
operations that are maintained by the Distributor under this Agreement, and in
the event this Agreement is terminated for any reason, all such records shall
promptly be returned to the Company without charge, free from any claim or
retention of rights of the Distributor.
8. Confidentiality. The Distributor shall keep confidential any
information obtained pursuant to this Agreement, and shall disclose such
information only if the Company has authorized such disclosure, or if such
disclosure is expressly required by the appropriate federal or state regulatory
authorities.
9. Expenses and Fees. The Company shall pay commissions to the
Distributor on premiums paid under all Contracts sold pursuant to this Agreement
and any Sales Agreements entered into pursuant to Section 2 of this Agreement.
The Company shall, in connection with the sale of the Contracts, pay all
amounts, including sales commissions, owed by the Distributor to the
Representatives or Intermediary Distributors. The Distributor shall be
responsible for all tax reporting information which the Distributor is required
to provide under applicable tax law to its agents, Representatives or employees
with respect to the Contracts.
The Company shall pay, or cause another person to pay, all expenses
related to: (a) registering the Distributor's associated persons with the NASD
and all other appropriate securities regulatory authorities; (b) preparing the
Distributor's associated persons to pass the applicable NASD and state
qualification examinations; (c) preparing and distributing all prospectuses
(including all amendments and supplements thereto), Contracts, notices,
confirmations, periodic reports, proxy solicitation materials, sales literature
and advertising relating to the sale of the Contracts; and (d) ensuring
compliance with all applicable insurance and securities laws and regulations
relating to the registration of the Contracts and the activities of the
Representatives in connection with the offer and sale of the Contracts. Except
as otherwise indicated herein, or by written agreement of the parties, the
Company shall pay, or cause another person to pay, all expenses resulting from
this Agreement.
10. Dual Interests. It is understood that any shareholder, director,
officer, employee, or agent of the Distributor, or of any organization
affiliated with the Distributor, or of any organization which the Distributor
may have an interest, or of any organization which may have an interest in the
Distributor may be a Contractholder; and that the existence of any such dual
interest shall not affect the validity thereof or the validity of any
transaction hereunder except as may be otherwise provided in the articles of
incorporation or by-laws of the Distributor, or by the specific provisions of
applicable law. For the purpose of this Section 10, the term "affiliated person"
shall have the same definition as set forth in the 1940 Act subject, however, to
such exemptions as may be granted pursuant to the 1940 Act.
11. Customer Claims. The Company shall provide all services relating to
claims made under the Contracts, including investigation, adjustment, and
defense of claims, and shall make all payments relating to the Contracts,
including payments representing claims, Contract loans, full and partial
surrenders, and amounts paid under Contract settlement options. The Company
shall retain ultimate authority for adjustments and claim payments, which
payments shall be final and conclusive.
12. Cooperation Regarding Investigations and Proceedings. The
Distributor and the Company agree to fully cooperate with each other in any
insurance regulatory examination, investigation, or proceeding, or in any
judicial proceeding arising in connection with the Contracts distributed under
this Agreement. The Distributor and the Company further agree to fully cooperate
with each other in any securities regulatory examination, investigation, or
proceeding, or in any judicial proceeding with respect to the Company, the
Distributor, their affiliates and agents, or representatives, to the extent that
such examination, investigation, or proceeding is in connection with Contracts
distributed under this Agreement. The Distributor shall, upon request by the
appropriate federal and state regulatory authorities, furnish such authorities
with any information or reports in connection with the Distributor's services
under this Agreement.
13. Sharing of Information. Each party hereto will promptly advise the
other of: (a) any action taken by the SEC, the NASD, or other regulatory
authorities, of which it has knowledge, affecting the registration or
qualification of the Contracts, or the right to offer the Contracts for sale;
and (b) the happening of any event which makes untrue any statement contained in
the registration statements or prospectus, or which requires the making of any
change in the registration statements or prospectus in order to make the
statements therein not misleading.
14. Indemnification.
a. The Company. The Company shall indemnify and hold harmless
the Distributor and each person who controls or is associated with the
Distributor within the meaning of such terms under the federal
securities laws, and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of any action, suit or proceeding or any claim asserted), to
which the Distributor and/or any such person may become subject, under
any statute or regulation, any NASD rule or interpretation, at common
law or otherwise, insofar as such losses, claims, damages or
liabilities
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or
omission or alleged omission to state a materials fact
required to be stated therein or necessary to make the
statements therein not misleading, in light of the
circumstances in which they were made, contained in any (A)
registration statement or in any prospectus; or (B) a blue-sky
application or other document executed by the Company
specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any
jurisdiction; provided that the Company shall not be liable in
any such case to the extent that such loss, claim, damage or
liability arises out of, or is based upon, an untrue statement
or alleged untrue statement or omission or alleged omission:
(A) made in reliance upon information furnished in writing to
the Company by the Distributor specifically for use in the
preparation of any registration statement or any such blue-sky
application or any amendment thereof or supplement thereto; or
(B) contained in any registration statement, or any
post-effective amendment thereto which becomes effective,
filed by a Fund with the SEC relating to shares of such Fund
(the "Shares"), including any financial statements included
in, or any exhibit to, such registration statement or
post-effective amendment, any prospectus of a Fund relating to
the Shares either contained in any such registration statement
or post-effective amendment or filed pursuant to Rule 497(c)
or Rule 497(e) under the 1933 Act, any blue-sky application or
other document executed by a Fund specifically for the purpose
of qualifying any or all of the shares of such Fund for sale
under the securities laws of any jurisdiction or any
promotional, sales or advertising material or written
information relating to the Shares authorized by a Fund; or
(ii) result because of the terms of any Contract or
because of any breach by the Company of any provision of this
Agreement or of any Contract or which proximately result from
any activities of the Company's officers, directors, employees
or agents or their failure to take any action in connection
with the sale, processing or administration of the Contracts.
This indemnification agreement shall be in addition to any
liability that the Company may
otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage
or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking
indemnification.
b. The Distributor. The Distributor shall indemnify and hold
harmless the Company and each person who controls or is associated with
the Company within the meaning of such terms under the federal
securities laws, and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of any action, suit or proceeding or any claim asserted), to
which the Company and/or any such person may become subject, under any
statute or regulation, any NASD rule or interpretation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon:
(i) violations(s) by the Distributor or a
Representative of federal or state securities law(s) or
regulation(s), applicable banking law(s) or regulation(s),
insurance law(s) or regulation(s) or any rule or requirement
of the NASD; or
(ii) any unauthorized use of sales or advertising
material, any oral or written misrepresentations, or any
unlawful sales practices concerning the Contracts, by the
Distributor or a Representative; or
(iii) claims by the Representatives or other agents
or representatives of the Distributor for commissions or other
compensation or remuneration of any type; or
(iv) any action or inaction by a clearing broker
through whom the Distributor purchases any transaction
pursuant to this Agreement; or
(v) any failure on the part of the Distributor or a
Representative to submit premiums or Applications to the
Company, or to submit the correct amount of a premium, on a
timely basis and in accordance with Section 4 of this
Agreement, subject to applicable law; or
(vi) any failure on the part of the Distributor or a
Representative to deliver the Contracts to purchasers thereof
on a timely basis; or
(vii) a breach by the Distributor of any provisions
of this Agreement. This indemnification agreement shall be in
addition to any liability that the Distributor may
otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage
or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking
indemnification.
c. In General. After receipt by a party entitled to
indemnification (the "indemnified party") under this Section 14 of
notice of the commencement of any action, if a claim in respect thereof
is to be made against any person obligated to provide indemnification
under this Section 14 (the "indemnifying party"), such indemnified
party shall notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, provided that
the omission to so notify the indemnifying party shall not relieve the
indemnifying party from any liability under this Section 14, except to
the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged solely as
a result of the failure to give such notice. The indemnifying party,
upon the request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate
in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party shall indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
The indemnification provisions contained in this Section 14
shall remain operative in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or by or on behalf of
any controlling person thereof, (ii) delivery of any Contracts and
premiums therefor, and (iii) any termination of this Agreement. A
successor by law of the Distributor or the Company, as the case may be,
shall be entitled to the benefits of the indemnification provisions
contained in this Section 14.
15. Standard of Care. Neither the Company nor the Distributor shall be
liable to the other for any action taken or omitted by any of their officers,
directors, employees, or agents, in connection with the good faith performance
of their responsibilities under this Agreement, except for willful misconduct,
bad faith, negligence, or reckless disregard of the duties of the parties under
this Agreement.
16. Assignment. The Distributor may not assign or delegate its
responsibilities under this Agreement without the prior written consent of the
Company.
17. Termination. This Agreement shall become effective as of the date
of its execution, shall continue in full force and effect until terminated, and
may be terminated by either party at any time without penalty upon sixty (60)
days written notice to the other party. This Agreement may be terminated upon
ten days notice upon the other party's material breach of any provision of this
Agreement, unless such breach has been cured to the satisfaction of the
non-breaching party within ten days of receipt by the breaching party of notice
of such breach from the non-breaching party. This Agreement may also be
terminated at any time without penalty if, in the sole discretion of the
Company, the Distributor is not performing its duties in a satisfactory manner.
Upon termination of this Agreement all authorizations, rights and
obligations shall cease except for the obligation to settle accounts hereunder,
including commissions on premiums subsequently received for Contracts in effect
at the time of termination or issued pursuant to Applications received by the
Company prior to termination, and the obligations contained in Sections 7, 10,
11, 12, 13, and 14.
18. Amendment. This Agreement and the Schedules hereto may be amended
at any time by a writing executed by both of the parties hereto.
19. Governing Law. This Agreement, and the rights and liabilities of
the parties hereunder, shall be construed in accordance with the internal laws
of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TRANSAMERICA INSURANCE SECURITIES
SALES CORPORATION
By: ____________________________
----------------------------
Name
----------------------------
Title
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
By: _____________________________
-----------------------------
Name
-----------------------------
Title
<PAGE>
(3) (b) Form of Sales Agreement
<PAGE>
-1-
VAR0119
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, CA 90015
Transamerica Life Insurance and Annuity Company
401 North Tryon Street
Charlotte, NC 28202
Transamerica Life Insurance Company of New York
100 Manhattanville Road
Purchase, NY 10577
Transamerica Assurance Company
1150 South Olive Street
Los Angeles, CA 90015
VARIABLE INSURANCE PRODUCTS SALES AGREEMENT
The parties to this agreement are: (i) the Insurance Company which has executed
this agreement on the signature page (referred to as "the Insurance Company");
(ii) the Insurance Company's underwriter, Transamerica Securities Sales
Corporation (referred to as "the Underwriter"), and (iii) the Broker-Dealer
named below (referred to as "you" or "the Broker"). The Insurance Company and
the Underwriter are collectively referred to as "we", "us" or "the Company". If
more than one Insurance Company has executed this agreement, each such execution
shall be deemed to create a new and separate agreement between the Insurance
Company, the Underwriter and the Broker. In that case, the terms of this
agreement shall apply separately with regard to each such agreement and no
Insurance Company shall be liable for the obligations or actions of any other
Insurance Company.
This agreement is effective on the date set forth below.
The terms of this agreement are as follows:
1. APPOINTMENT
You are appointed by the Company for the purpose of soliciting
applications for and servicing variable insurance products
("Contracts") and otherwise transacting the business of this agreement.
You accept such appointment and agree to comply with all applicable
laws and regulations, and to diligently devote yourself to the business
of this appointment in order to sell new Contracts and prevent the
termination of existing Contracts.
1.1 TERRITORY; NON-EXCLUSIVITY
Unless otherwise specified by us, you are authorized to solicit
applications in any jurisdiction in which we are authorized to offer
such Contracts and in which you are licensed and authorized to
represent us. We reserve the right to limit your territory at any
time.
You are not obligated to represent us exclusively, and you do not have
an exclusive right to solicit Contracts for us in any area.
1.2 INDEPENDENT CONTRACTOR
You are an independent contractor. Nothing contained in this agreement
is to be construed to create the relation of employer and employee
between the Company and you. You may exercise your own judgment as to
the time and manner in which you may perform the services required to
be performed by you under this agreement. We may, from time to time,
prescribe rules and regulations concerning the conduct of the business
covered by this agreement which do not interfere with such freedom of
action.
2. SOLICITATION OF APPLICATIONS
We will inform you from time to time which products you are authorized
to sell. Solicitation of Contracts authorized under this agreement will
be performed by you or by solicitors in accordance with the terms set
forth below.
A solicitor is a properly licensed registered representative who is
employed by or associated with you and is appointed by us to solicit
Contracts in your name. You are responsible for assuring that all
solicitors are persons of good character.
You agree not to allow any solicitor to engage in the services
authorized under this agreement, except in accordance with this
Section.
At our option, we may refuse to contract with or appoint any proposed
solicitor and may terminate any agreement with or appointment of a
solicitor. You will be solely responsible for the payment of any
compensation to solicitors, and you agree to hold us harmless from all
claims for commissions or other compensation by any solicitor.
2.1 LICENSING
Neither you nor any solicitor may engage in any activities under this
agreement unless and until you and they are properly licensed and/or
registered, as required, to perform such services in the particular
state or jurisdiction involved in accordance with all applicable laws
and regulations, including, but not limited to, any certification or
continuing education requirements and any applicable rules or other
requirements of the National Association of Securities Dealers
("NASD").
You agree to undertake and pay for all actions necessary to acquire and
maintain any necessary licenses and registrations for yourself and/or
the solicitors. We will take the necessary actions, including the
payment of applicable fees, to appoint you and the solicitors to
represent us in the states in which you and they reside. We will
appoint you and the solicitors to represent us in additional states at
your expense.
2.2 SUPERVISION
You are responsible for the performance of solicitors and your
employees and associated persons. You agree to take all necessary steps
to communicate the Company's rules and regulations to such persons, and
to assure that they comply with such rules and regulations, as well as
all other applicable laws and regulations. You will supervise and train
registered representatives and other associated persons to ensure
compliance with Company policies and applicable laws.
3. RESPONSIBILITIES OF THE BROKER
You will abide by the following in the conduct of your activities under
this agreement:
3.1 COMPANY REGULATIONS
To the extent they do not conflict with the terms of this agreement,
you will conform to the rules and regulations of the Company now or
hereafter in force. Such rules and regulations will constitute a part
of this agreement. This provision shall not be construed to alter the
relationship of the parties as provided in Section 1.2 above.
3.2 LIMITATION OF AUTHORITY
You have no authority to alter, modify, waive or change any of the
terms, rates or conditions of our contracts or policies whether or not
covered by this agreement. You have no authority to obligate us in any
manner whatsoever nor to receive monies due to us, except as otherwise
provided in this agreement or as may be authorized in writing by us.
<PAGE>
3.3 COMPANY RECORDS
All documents, records, software and other data and information, in
whatever form they may be, which pertain to the Company's policyholders
or any other business of the Company, are and will remain the property
of the Company. Any such property in your possession shall be at any
time and all times open to inspection by the Company or its authorized
representative, and upon termination of this agreement you will
promptly turn all such property over to the Company or its authorized
representatives.
You acknowledge that all documents, records, software and other data,
information and supplies referred to in this Section 3.3 are
confidential and proprietary to the Company, and you agree to preserve
the confidentiality and privacy of the Company in all of the same; and
you further agree that you will not, without the Company's prior
written consent, release or disclose any of the same or their contents
to any person, or otherwise use any of the same or their contents in
any manner, except in furtherance of the business of this agreement or
as required by legal process.
Nothing contained in this Section 3.3 is intended to restrict your
right to retain possession of your records and other materials relating
solely to your producers and solicitors.
3.4 ACCOUNTS AND RECORDS
You agree that you will keep customary and accurate accounts of
receipts and disbursements and will, at our request and in accordance
with our instructions, account for all Contracts, receipts, premiums
and other monies or securities received and all property and supplies
received from the Company. We may, at any time, make copies of the
records of such accounts, records and documents, and all such records,
documents, supplies and other property relating to the business
transacted under this agreement will be the property of the Company,
open to inspection at all times by our authorized representatives, and
at the termination of this agreement will be delivered to us upon
demand. We will furnish you a current statement of your commission
account within a reasonable time after receipt of a written request
from you.
3.5 COLLECTION AND REMITTANCE OF COMPANY MONEY
Where authorized by us, you may accept premiums or purchase payments in
accordance with our rules and regulations in force at the time of
payment. We have the right at any time to revoke such authority in
whole or in part and to limit it in any way. ALL MONIES OR OTHER
CONSIDERATIONS RECEIVED BY YOU AS FULL OR PARTIAL PAYMENT OF PREMIUMS
OR FOR ANY OTHER ITEM, WITHOUT EXCEPTION, SHALL BE HELD BY YOU IN TRUST
SEPARATE FROM YOUR OWN OR OTHER FUNDS AND WILL BE IMMEDIATELY DELIVERED
AND PAID TO THE COMPANY. Such remittances must be applied to the
relevant item. You are not authorized to deposit any such monies or
checks in your own account or any trust account, nor to accept any
check made payable to you for any premium or other item.
3.6 ADVERTISING
(I) You agree that you will not place into use, or distribute to
any person, any advertising, sales material or other document
(including, without limitation, illustrations, telephone
scripts and training materials) referring directly or
indirectly to the Company or to any Company Contract, or
cause, authorize or permit any person to do so, without our
prior written consent. You agree that you will not use the
name of the Company on any business card, letterhead or
marquee or in any directory listing, or in any other manner,
or cause, authorize or permit any producer or other person to
do so, without our prior written consent.
(ii) In making offers of the contracts, you agree to deliver the
applicable currently effective prospectuses, as required by
law.
(iii) You agree that you and your solicitors will not misrepresent
the Contracts and will make no oral or written representation
which is inconsistent with the terms of the Contracts,
prospectuses or sales literature or is misleading in any way.
(iv) The Company will use reasonable efforts to provide you with
information and marketing assistance, including providing,
without charge, reasonable quantities of advertising
materials, sales literature, reports and current prospectuses.
(v) The Company will deliver to you, and you agree to use, only
sales literature and advertising material which conforms to
all applicable legal requirements and which has been
authorized by us.
3.7 ERRORS AND OMISSIONS
You are encouraged to maintain errors and omissions insurance covering
your activities under this agreement. If you carry such insurance at
any time, you agree to provide us with copies of the current binders
evidencing the issuance of the errors and omissions, and within ten
business days of each date such insurance is discontinued, suspended,
reduced or terminated for any reason.
3.8 COMPLIANCE WITH ADDITIONAL RULES
You agree to abide by all laws, rules and regulation, including,
without limitation, the rules of the NASD, insurance laws and state and
federal securities and banking laws and including, without limitation,
the maintenance of licenses and books and records required by
applicable laws and regulations.
4. COMPANY RIGHT OF ACTION
We are not obligated to accept any business produced by you or by a
solicitor. We may reject applications for insurance without specifying
the reason therefor, as well as settlements tendered or made
thereunder, or take up and cancel any Contract for any reason and
return the premium thereon or any part thereof.
We, in our sole discretion, may at any time and from time to time do
the following:
(i) modify or amend any Contract form;
(ii) fix or change maximum and minimum limits on the amount for which
any Contract form may be issued;
(iii) modify or alter the conditions or terms under which any
Contract form may be sold or regulate its sale in any way;
(iv) discontinue or withdraw any Contract form from any geographic
area or market segment, without prejudice to continuation of
such form in any other area or market segment;
(v) cease doing business in any area.
5. COMPENSATION
For each Contract sold under this agreement, we will pay you
commissions as set forth in the applicable Commission Rate Schedule.
You may also be eligible for compensation under other programs
established by us from time to time. Payment of commissions and any
other compensation will be subject to the terms and conditions of this
agreement and to our rules and regulations in effect from time to time.
Such rules and regulations may be changed by us at any time without
notice. In any states in which you may not receive commissions pursuant
to state insurance law, we will pay such commissions to the insurance
agency or agencies with which you have associated yourself, as
specified in the applicable Commission Rate Schedule.
The commissions and any other compensation payable by us to you will be
payment in full for all services performed by you. Except as we may
otherwise agree, you are not entitled to reimbursement for any expenses
incurred by you.
5.1 COMMISSIONS
General - The "applicable Commission Rate Schedule" means the
Commission Rate Schedule published by us from time to time for the type
of Contract involved. Commission Rate Schedules are subject to change
without notice. Copies may be obtained at any time.
Repayment of Commissions - If any commission or other compensation to
which you are not entitled under the terms of this agreement is paid to
or retained by you, you will pay the same to the Company upon demand.
You will pay to us upon demand all commissions received by or credited
to you, or premiums collected, or evidence of indebtedness representing
the same, taken on applications on which Contracts are not issued by
us, or on Contracts declined by the applicant, or on Contracts canceled
by us, and all commissions received or credited on premiums or any part
thereof which for any reason we may return. In case of any provision
requiring a refund of commissions or other compensation, we may, at our
election, debit your account for the amount of the refund without
demand or notice, or may demand the refund, or both, but debiting your
account in such manner will not relieve you of your obligation to make
the refund.
Changes in Compensation - We reserve the right to change the rate of
commissions and/or any other compensation payable under this agreement.
Any such change will apply only to Contracts issued or other triggering
events occurring after the effective date of the change.
When Due - Commissions will be paid in accordance with our normal
commission processing schedule. Commissions will be payable only on
premiums paid in cash to and accepted by us on Contracts which were
produced hereunder by you or by solicitors or producers while operating
under your supervision. No premium will be considered paid in cash to
the Company until it has been actually collected and transmitted to us
and recorded on our records. Commissions and other compensation will
accrue only as such premiums otherwise would become due.
Commissions Paid in Advance - If we pay you a commission or other
compensation on a premium which is or becomes due but which has not yet
actually been paid to the Company, and if such premium is not paid in
cash to the Company, you will refund any commission or other
compensation which you have received on such premium.
Conditions - Commissions and any other compensation under this
agreement will be payable to you only if and so long as you are in
existence and are continuously and properly licensed to transact
insurance business for us and we may legally pay such commissions and
other compensation.
Accounting Year - We reserve the right at any time and from time to
time, without notice to you, to change the period comprising our
accounting year or subdivisions thereof.
6. INDEBTEDNESS
6.1 LIEN AND OFFSETS
You grant us a first lien on all commissions and any other compensation
payable to you under this agreement or under any other existing or
future agreement with Transamerica Occidental Life Insurance Company,
Transamerica Life Insurance and Annuity Company, Transamerica Assurance
Company, Transamerica Life Insurance Company of New York, or any other
company which is a subsidiary or affiliate of Transamerica Occidental
Life Insurance Company, Transamerica Corporation or Transamerica
Insurance Corporation of California (referred to individually and
collectively as "Transamerica entity" or "Transamerica entities"), as
security for the payment of any existing or future debit balance or
other indebtedness of yours to us. We may at any time and from time to
time, with or without notice or judicial action, exercise our lien by
offsetting such indebtedness against any commissions and other
compensation otherwise due to you. These liens shall not be
extinguished by the termination of this agreement or any other
agreement.
All debit balances and other indebtedness of yours to us will be
debited to your account, but debiting your account will not relieve you
of your obligation to repay the indebtedness. You may not offset
against any such indebtedness any compensation accrued or to accrue
under this agreement or under any other agreement with us.
We will be under no obligation to pay any commissions or other
compensation to you, your executors, administrators or assigns, under
this agreement or under any other existing or future agreement with us
now or hereafter existing as long as your account with any Transamerica
entity has a debit balance.
Any debit balance of your account shall be payable to us upon demand
and shall bear interest, payable monthly, at the rate declared by us
from time to time. Any future change in interest rate may, at our
option, be applied to the then remaining balance of any debit balance
theretofore created as well as to debit balances thereafter created.
6.2 MULTI-COMPANY ASSIGNMENT OF COMMISSIONS
In order to effectuate the rights of offset set forth in Section 6.1,
you hereby assign to each of the Transamerica entities, their
successors and assigns, all of your right, title and interest in and to
any and all commissions or other compensation now due and payable, or
which becomes due in the future, under the terms of any and all agency
contracts between you and any Transamerica entity. Each Transamerica
entity shall receive and retain such commissions or other compensation
only to the extent necessary to secure repayment of any of your present
or future indebtedness to such Transamerica entity.
You authorize us to make payment of all sums due to you under this
agreement to any Transamerica entity which may be entitled to such
payment under this Section 6.
7. DISPUTES AND LITIGATION
Each party agrees to cooperate fully with each other in the resolution
of all matters arising out of the business of this agreement. Any
disputes between you and us will be settled through binding
arbitration.
7.1 COMPLAINTS AND CLAIMS
You agree to notify us promptly of any complaint, claim or dispute
involving an applicant, Contract or contractholder.
You will not litigate any dispute with an applicant or policyholder, on
any matter relating to the business of this agreement, without our
prior written consent.
We may settle any claim against us or you arising out of the business
of this agreement. If you disagree with our settlement, you may seek
arbitration pursuant to Section 7.2.
7.2 DISPUTE RESOLUTION
The parties agree that this agreement involves "commerce" within the
meaning of the Federal Arbitration Act, and that any dispute between
the parties arising out of or related to this agreement will be
resolved by binding arbitration in accordance with this Section and the
procedural and discovery rules of the Federal Arbitration Act. The
arbitration will take place in Los Angeles, California, unless we
mutually agree to another location. The arbitration will be determined
by one neutral arbitrator as agreed upon by the Company and you. If the
parties fail to appoint an arbitrator on a timely basis or are unable
to agree on the choice of an arbitrator on a timely basis, the
arbitrator will be appointed by the office of the Judicial Arbitration
and Mediation Service in the city where the arbitration takes place, or
by another mutually agreeable arbitration service. The arbitrator's
decision will be binding on the parties and the decision will be final
with no right of appeal. The award of the arbitrator may be entered as
a final judgment in any court which has jurisdiction thereof. The cost
of arbitration, including the fees of the arbitrator, will be borne by
the party or parties as the arbitrator decides.
EACH PARTY HERETO HEREBY WAIVES THE RIGHT TO A TRIAL BY EITHER A JURY
OR A COURT, INCLUDING BUT NOT LIMITED TO A TRIAL OF ANY ISSUE
CONCERNING THE VALIDITY OF THIS SECTION 7.2 OR ANY PORTION THEREOF, AND
THE RIGHT OF APPEAL FROM THE ARBITRATOR'S AWARD. EACH PARTY HERETO
WAIVES ANY CLAIM TO RECOVER PUNITIVE DAMAGES AND NON-COMPENSATORY
DAMAGES AGAINST THE OTHER PARTY.
8. TERMINATION
Any party may terminate this agreement with or without cause by giving
written notice to the other parties, specifying the effective date of
termination.
9. MISCELLANEOUS PROVISIONS
Certain provisions of this agreement are emphasized for the convenience
of the reader. Nevertheless, all provisions apply equally.
9.1 PREVIOUS AGREEMENTS
Any and all prior agreements between the parties hereto authorizing the
solicitation of SEC registered products, are hereby terminated and are
superseded by this agreement.
9.2 AMENDMENTS
Neither party will not be bound by any promise, agreement,
understanding or representation heretofore or hereafter made unless the
same is made by an instrument in writing, signed by one of its
officers, which expresses by its terms an intention to modify this
agreement.
9.3 FORBEARANCE
Forbearance or neglect on the part of either party to insist upon
compliance with the terms of this agreement or the rules and
regulations of the Company shall not be construed as or constitute a
waiver thereof.
9.4 AGREEMENT NON-ASSIGNABLE
You may not assign this agreement or any of the rights, authorities and
benefits provided hereunder without our prior written consent. We agree
not to withhold our consent unreasonably. Any attempted assignment as
collateral security or assignment for the benefit of creditors will be
subject to our rules and policies then in effect.
9.5 SEVERABILITY
This is a severable agreement. If any provision of this agreement would
require a party to take action prohibited by applicable federal or
state law or prohibit a party from taking action required by applicable
federal or state law, then it is the intention of the parties hereto
that such provision shall be enforced to the extent permitted under the
law, and, in any event, that all other provisions of this agreement
shall remain valid and duly enforceable as if the provision at issue
had never been a part of this agreement.
9.6 INDEPENDENT AGREEMENT
The compensation provided by this agreement is separate from any
compensation or consideration provided under any other agreement you
may have with us or with one of our affiliates. Except as set forth in
our applicable rules and regulations, your activities under this
agreement will not be taken into account for purposes of any
compensation or benefits under any such agreement.
9.7 APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the
state of domicile of the contracting Insurance Company without giving
effect to principles of conflict of laws. For Transamerica Occidental
Life Insurance Company that state is California; for Transamerica Life
Insurance and Annuity Company that state is North Carolina; for
Transamerica Life Insurance Company of New York that state is New York;
and for Transamerica Assurance Company that state is Missouri.
9.8 TRADEMARKS
The provision of Contracts and prospectuses and sales literature for
the Contracts and underlying funding vehicles to the Broker shall not
provide the Broker with any license to use any tradenames, trademarks,
service marks or logos or proprietary information of the Company or any
underlying funding vehicle or any affiliates thereof, except to the
extent necessary for Broker to distribute the Contracts in accordance
with the terms of this agreement.
9.9 CONFIDENTIALITY
Each party shall keep confidential any confidential information it may
acquire as a result of this Agreement.
9.10 SURVIVAL
The following provisions will survive the termination of this
agreement: Sections 3, 5, 6, 7, 9.4, 9.5, 9.6, 9.7.
10. CORPORATIONS; PARTNERSHIPS
The additional provisions set forth below apply to this agreement.
10.1 OFFICIAL ACTIONS
You may designate one or more individuals to deal with us on your
behalf. Such designation must be made by your board of directors if you
are a corporation or by any general partner if you are a partnership.
In the absence of a designation, we may (but are not obligated to) deal
with your president or any vice president (if you are a corporation) or
any general partner (if you are a partnership).
10.2 CHANGES
You agree to inform us of any changes in your legal structure, and of
any changes in your officers or partners. You also agree to inform us
of any transfer of your stock or partnership interests. Upon receipt of
such information, we may elect to terminate this agreement upon five
days' written notice to you.
10.3 STATUS
We may, from time to time, require you to provide us with evidence of
your continued existence and good standing.
11. REPRESENTATIONS AND WARRANTIES; COMPLIANCE
You represent, warrant and covenants that:
(i) You are, and will remain during the term of this Agreement, a
properly licensed and registered broker-dealer under
applicable state and federal securities law and a member in
good standing of the NASD.
(ii) You will solicit applications for Contracts only through
properly licensed insurance agents ("Insurance Agent"), duly
appointed by the appropriate Insurance Company. For purposes
of this Agreement, all acts and omissions of any Insurance
Agent within the scope of this Agreement shall be deemed to be
acts or omissions of Broker.
(iii) You are in compliance, and will remain in compliance, with all
applicable laws, rules and regulations, including, without
limitation, those of the NASD and state and federal
securities, banking and insurance laws.
(iv) You have taken and will continue to take the actions
appropriate to supervise your representatives and other
associated persons to ensure compliance with all applicable
laws and regulations.
(v) You will comply, and will cause each Insurance Agent to
comply, with any applicable Company policies and procedures,
including, without limitation, those regarding replacements of
Contracts, as amended from time to time.
(vi) You will not solicit or sell any Contracts in connection with
any "market timing" or "asset allocation" program or service,
and if the Company determines in its sole discretion that you
are soliciting or have solicited Contracts subject to any such
program, the Company may take such action it deems necessary
to halt such solicitations or sales, and in addition to any
indemnification provided in Section 12 of this Agreement and
any other liability that you may have, you will be liable to
the Company and each underlying funding vehicle affected by
any such program, for any damages or losses, actual or
consequential, sustained by them as a result of such program.
12. INDEMNIFICATION
12.1 Broker shall indemnify and hold harmless the Company, and each
employee, director, officer and shareholder of the Company, against any
losses, claims, damages or liabilities, including but not limited to
reasonable attorney fees and court costs, to which the Company or any
employee, officer, director or shareholder may be subject, which arise
out of or are based on any violation of the terms of this Agreement,
any Company policies or procedures or any applicable law by Broker, its
representatives, the Insurance Agent, its agents and any employee,
officer, director, shareholder, principal, partner and affiliate of the
Broker or Insurance Agent. In the event the Company suffers a loss
resulting from Broker or Insurance Agent activities, Broker hereby
assigns any proceeds received under its fidelity bond to the Company to
the extent of such losses. If there is any deficiency amount, whether
due to a deductible or otherwise, Broker-Dealer shall promptly pay the
Company such amount on demand and Broker-Dealer shall indemnify and
hold harmless the Company from any such deficiency and from the costs
of collection thereof (including reasonable attorney fees).
12.2 The Company shall indemnify and hold harmless Broker and each employee,
officer, director or shareholder of Broker, against any losses, claims,
damages or liabilities, including but not limited to reasonable
attorney fees and court costs, to which Broker or any employee,
officer, director or shareholder becomes subject which arises out of or
is based on any violation of the terms of this Agreement or any
applicable law by the Company and any employee or officer.
This Agreement is effective as of ___________________, 199___.
<TABLE>
<CAPTION>
<S> <C>
Transamerica Occidental Life Insurance Company Transamerica Life Insurance Company of New York
1150 South Olive Street 100 Manhattanville Road
Los Angeles, CA 90015 Purchase, NY 10577
Signature: Signature:
Name: John Dohmen Name: Alan T. Cunningham
Title: Vice President Title: President
Transamerica Life Insurance and Annuity Company Transamerica Securities Sales Corporation
401 North Tryon Street 1150 South Olive Street
Charlotte, NC 28202 Los Angeles, CA 90015
Signature: Signature:
Name: Matt R. Coben Name: Barbara A. Kelley
Title: Vice President Title: President
BROKER:
Address:
City, State, Zip:
Phone:
Signature:
Name:
Title:
</TABLE>
Contract form number
TLC Logo
PLEASE READ THIS CONTRACT CAREFULLY
This modified single payment variable universal life insurance Contract is a
legal contract between you ("the owner") and Transamerica Occidental Life
Insurance Company ("we" and "the Company"). If you pay the required payments, we
will pay your beneficiary the net death benefit when the person you are insuring
("the insured") dies prior to the Maturity Date or, if the insured is alive on
the Maturity Date, we will pay the surrender value to the owner on the Maturity
Date. If the Contract is issued with two insureds, the net death benefit is
payable at the death of the survivor of the insureds. No benefit will be paid as
a result of the death of the first of the insureds to die.
THE NET DEATH BENEFIT AND CONTRACT VALUE, WHEN BASED ON THE INVESTMENT
PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE AND ARE NOT
GUARANTEED AS TO A FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VARIABLE ACCOUNT AND
"WHAT YOU SHOULD KNOW ABOUT THE DEATH BENEFIT" SECTIONS FOR ADDITIONAL
INFORMATION. WE AGREE TO PAY THE BENEFITS OF THIS CONTRACT IN ACCORDANCE WITH
ITS TERMS.
RIGHT TO CANCEL We want you to be satisfied with the Contract you have
purchased, and we urge you to examine it closely. If for any reason you are not
satisfied, you may return the Contract to us or an authorized representative
within 10 days after receipt of the Contract. If you return the Contract, it
will be void from the date of issue, and you will receive a refund equal to the
total of: 1. the difference between any payments made, including fees or any
other charges, and the amounts allocated to the Variable Account; 2. the value
of the amounts in the Variable Account on the date the returned Contract is
received at our Variable Life Service Center; and 3. any fees or other charges
imposed on amounts in the Variable Account.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Home Office: 1150 South Olive, Los Angeles, California 90015 Variable Life
Service Center: 440 Lincoln Street, P.O. Box 3800, Worcester, Massachusetts
01653
This is a legal contract between Transamerica Occidental Life Insurance Company
and the owner. It is issued in consideration of the payment shown on the
specification pages.
MODIFIED SINGLE PAYMENT VARIABLE UNIVERSAL LIFE INSURANCE CONTRACT
NON-PARTICIPATING
Executive Vice President, General Counsel and Corporate Secretary
President and CEO
<PAGE>
Table of Contents
Specification Pages 3
Definitions 6
General Terms 10
Information about you and the beneficiary 12
What you should know about:
The payments 13
Your Contract Value 15
The Variable Account 17
The Fixed Account 20
Transfers 22
Borrowing from your Contract 23
Surrenders and partial withdrawals 24
The death benefit 26
The benefit payment options 28
<PAGE>
Specification
Contract Number: [specimen]
<TABLE>
<CAPTION>
============================================================================================
<S> <C> <C> <C>
[First] Insured: [John Doe] [First] Insured's Sex: [Male]
[First] Insured's Age: [55] [First] Insured's Underwriting Class: [Non-smoker]
- --------------------------------------------------------------------------------------------
[Second Insured:] [Second Insured's Sex:]
[Second Insured's Age:] [Second Insured's Underwriting Class:]
--------------------------------------------------------------------------------------------
Date of Issue: [01/01/1999] Contract Plan: Modified Single Payment Variable
Universal Life Insurance Contract
Face Amount: [$318,554] Monthly Processing Date:
[1st of each month]
Owner(s): [John Doe] Rider(s): [Guaranteed Death Benefit
Living Benefits]
Beneficiary at Issue: [Mary Doe] Rider[s] Date of Issue: [01/01/99]
--------------------------------------------------------------------------------------------
</TABLE>
Payment: [$50,000]
Maximum Payment: The greater of [$50,000] or [$x,xxx] times the current
Contract year.
Guideline Single Payment: [$x]
Guideline Level Payment: [$x]
Guaranteed Death Benefit Payment:
[$x]
Final Payment Date: [01/01/1999]
Maturity Date: [01/01/2059]
Initial Payment Allocation:
Variable Sub-Accounts
[30% Transamerica VIF Growth Portfolio
20% Alliance VPF Premier Growth
20% Dreyfus VIF Capital Appreciation
20% OCC Accumulation Trust Managed
5% Janus Aspen Worldwide Growth
Fixed Account
[5%] Initial Interest Rate: [4%]
Advisers:
Transamerica Occidental Life Insurance Company
Alliance Capital Management L.P.
The Dreyfus Corporation
OpCap Advisors
Janus Capital Corporation]
<PAGE>
<TABLE>
<CAPTION>
Specification
[First] Insured: [John Doe] Contract Number: [specimen]
[Second Insured:]
==================================================================================================================
<S> <C>
Minimum Additional Payment: [$10,000]
Minimum Fixed Account Interest Rates: [4% for value not subject to Outstanding Loan]
[4% for value securing Outstanding Loan - not Preferred Loan]
[5 1/2% for value securing Outstanding Loan - Preferred Loan]
Outstanding Loan Interest Rate: [6%]
Maximum Loan Amount: [90% of the result of the Contract Value less the surrender charge]
Minimum Loan Amount: [$1,000]
Minimum Balance After Withdrawal: [$10,000]
Free Withdrawal Amount: [10% of Contract Value]
</TABLE>
<TABLE>
<CAPTION>
Fees and Deductions: Current Guaranteed
<S> <C> <C> <C> <C>
Administration Charge: [0.30%] Annually (1) [0.30%] Annually (1)
Distribution Fee (Contract Years [1-10]): [0.40%] Annually (1) [0.40%] Annually (1)
Tax Charge (Contract Years [1-10]): [0.20%] Annually (1) [0.20%] Annually (1)
Insurance Protection Charge: [0.50%] Annually (1) See Page 5
Mortality & Expense Risk Charge: [0.80%] Annually (2) [0.80%] Annually (2)
Withdrawal Transaction Fee: [No fee assessed.] [2% of amount withdrawn, not to
exceed $25]
</TABLE>
(1) This charge is deducted monthly from the Contract Value on a pro rata
basis. The monthly charge is equal to one-twelfth of this factor
times the Contract Value.
(2) This charge is deducted daily from each sub-account of the Variable Account.
Surrender Charge Table*
------------------------- -------------------------------
Contract Year Surrender Charge
------------------------- -------------------------------
------------------------- -------------------------------
[1 9%
------------------------- -------------------------------
------------------------- -------------------------------
2 8%
------------------------- -------------------------------
------------------------- -------------------------------
3 7%
------------------------- -------------------------------
------------------------- -------------------------------
4 6%
------------------------- -------------------------------
------------------------- -------------------------------
5 5%
------------------------- -------------------------------
------------------------- -------------------------------
6 4%
------------------------- -------------------------------
------------------------- -------------------------------
7 3%
------------------------- -------------------------------
------------------------- -------------------------------
8 2%
------------------------- -------------------------------
------------------------- -------------------------------
9 1%
------------------------- -------------------------------
------------------------- -------------------------------
10+ 0%]
------------------------- -------------------------------
The surrender charge is determined by multiplying (a) the portion of the
Contract Value withdrawn which is attributed to payments that will be reduced
for a withdrawal in excess of the free withdrawal amount by (b) the percentage
for the applicable year. * If your Contract is reinstated, the surrender charge
on the date of reinstatement will be the surrender charge that was in effect on
the date of default. Subsequent surrender charges will be adjusted accordingly.
If you have questions regarding this Contract or need assistance about your
coverage, please call our Variable Life Service Center. The phone number is
[1-(800)-782-8315].
<PAGE>
<TABLE>
<CAPTION>
Specification
[First] Insured: [John Doe] Contract Number: [specimen]
[Second Insured:]
Guaranteed Maximum Monthly Insurance Protection Rate Table
[Age] Insurance Protection Rate [Age] Insurance Protection Rate
[Age Younger Insured] ($) Per $1,000 [Age Younger Insured] ($) Per $1,000
<S> <C> <C> <C> <C>
[55 0.68 85 14.17
56 0.75 86 15.56
57 0.83 87 17.00
58 0.91 88 18.48
59 1.01 89 20.04
60 1.11 90 21.69
61 1.23 91 23.48
62 1.36 92 25.50
63 1.51 93 27.96
64 1.69 94 31.38
65 1.87 95 36.79
66 2.07 96 46.58
67 2.29 97 67.04
68 2.53 98 83.33
69 2.79 99 83.33]
70 3.09
71 3.44
72 3.83
73 4.29
74 4.79
75 5.33
76 5.90
77 6.51
78 7.15
79 7.84
80 8.62
81 9.49
82 10.50
83 11.62
84 12.86
</TABLE>
Note: [Single life, Male, Age 55, Non-smoker] Based on 1980 CSO Age Last
Birthday (ALB) Table.
<PAGE>
Definitions
These definitions shall control wherever the terms they define are used in this
Contract unless the context clearly indicates to the contrary.
Age means how old the insured is on his or her last birthday measured on the
date of issue and each contract anniversary, thereafter. However, for benefit
payment options, age is based on age nearest birthday of the designated
individual.
Application is the form you complete to apply for this Contract. It contains
your payment amount, payment allocation and other information that enable us to
prepare this Contract. If a medical questionnaire or other forms are required,
they become a part of the application. It is signed by you and the insured and
becomes a part of this Contract.
Assignee is a person to whom you transfer ownership or other rights under this
Contract.
Attained age is the insured's age as of the insured's last birthday at the start
of a contract year. Attained age is used in the calculation of the guideline
minimum sum insured.
Beneficiary is the person or persons you name to receive the net death benefit
when the Insured dies.
Code is the Internal Revenue Code of 1986, as amended, and rules and regulations
issued thereunder.
Collateral assignee is a person to whom you transfer some of this Contract's
ownership rights as collateral.
Company means Transamerica Occidental Life Insurance Company, also referred to
as we, our, and us. Our telephone number is [1-800-782-8315].
Contract anniversary is the same month and day as the date of issue in each
calendar year following the date of issue.
Contract change means any change in the underwriting class or the addition or
deletion of a rider.
Contract month is the period from the date of issue to the same day one month
later, and each one month period thereafter.
Contract owner is the person who may exercise all rights under the Contract,
with the consent of any irrevocable beneficiary or collateral assignee. "You"
and "your" refer to the contract owner in this Contract.
Contract Value is the sum of your values in the Variable Account and the Fixed
Account.
Contract year is the period from the date of issue through the day before the
first contract anniversary and, thereafter, the period of time beginning on the
contract anniversary and ending immediately before the next contract
anniversary.
Date of default is (a) the first day of the grace period, or (b) the date on
which the outstanding loan exceeds the Contract Value less surrender charges.
Date of issue is the date coverage under this policy becomes effective and is
stated on the specification pages. Contract months, years and anniversaries are
measured from this date.
Designated individual is a person specified by the payee upon whose life
expectancy a benefit payment option amount is based and upon whose life
continued payments depend. If the payee is the contract owner, the designated
individual may be the insured, or if applicable, another living individual. If
the payee is the beneficiary, the designated individual may be the beneficiary
or another living individual.
Earnings means the amount by which the Contract Value exceeds the sum of the
payments made less any payments that were previously considered withdrawn. For
contract loan purposes, Earnings are calculated on each monthly processing date.
Evidence of insurability is the information, including medical information, that
we use to decide whether to issue the requested coverage, to determine the
underwriting class for the person insured, or to determine whether the Contract
may be reinstated.
Face amount is the amount of insurance you elect to buy in the application and
which we agree to issue. The face amount is shown in the specification pages of
the Contract. The death benefit is based on the face amount; see the "What You
Should Know About The Death Benefit" section.
Final payment date is the contract anniversary coinciding with or immediately
following the insured's 100th birthday. If there are two insureds, the final
payment date is the contract anniversary coinciding with or immediately
following the younger insured's 100th birthday. This date is shown on the
specification pages. No payments are permitted by you after this date. No
monthly deduction (including insurance protection charges) will be deducted from
the Contract Value after this date. Generally, the net death benefit after this
date will equal 101% of the Contract Value minus any outstanding loan, except as
otherwise provided in a Guaranteed Death Benefit Rider if attached to this
Contract.
Fixed Account is the part of the Company's General Account to which all or a
portion of a payment or transfer may be allocated.
General Account is the assets of the Company that are not allocated to a
Separate Account.
Guideline Minimum Sum Insured is an amount which is not less than the minimum
death benefit required to qualify the Contract as "life insurance" under the
Code. The guideline minimum sum insured is the product of
the Contract Value times
a percentage based on the insured's attained age.
Guideline premium is a limit imposed by the Code on payments you make to the
Contract. The guideline premium for the Contract is shown on the specification
pages as the Maximum Payment. The guideline premium includes the guideline
single premium which is also used to determine the face amount under the
Contract.
Insurance protection amount is the death benefit minus the Contract Value.
Insured is the person or persons covered as indicated on the specification
pages. If more than one insured is named, all provisions of this Contract that
are based on the death of the insured will be based on the death of the survivor
of the persons named.
Loan value is the maximum amount you may borrow under the Contract.
Maturity Date is the contract anniversary coinciding with or immediately
following the insured's 115th birthday. If there are two insureds, the maturity
date is the contract anniversary coinciding with or immediately following the
younger insured's 115th birthday.
Monthly deduction is the amount of money that we deduct from the Contract Value
each contract month to pay for the Administration Charge, Monthly Insurance
Protection Charge, Distribution Fee, Tax Charge, and any Rider Charge shown on
the specification pages.
Monthly insurance protection charge is the amount of money that we deduct from
the Contract Value each contract month to pay for the insurance protection
amount.
Monthly processing date is the day of each month on which a monthly deduction is
made. This date is shown on the specification pages. If the Company is not open
on this date, the processing date for that contract month will be the next
business day.
Net death benefit is the amount payable as a result of the death of the insured
calculated as explained in the net death benefit provision.
Outstanding loan means all unpaid contract loans plus interest due or accrued on
such loans.
Payee is the person with the right to elect an available benefit payment option
and to receive the payments under a benefit payment option. The contract owner
is the payee under the benefit payment option if the option is elected as a
method of receiving surrender or maturity proceeds. The beneficiary is the payee
under a benefit payment option elected as a method of receiving net death
benefits.
Payment means the initial money you provide in consideration for the issuance of
this Contract and any additional amount you pay into the Contract.
Portfolio is a separate investment series of a registered investment company for
investment by a sub-account.
Pro rata refers to an allocation among the sub-accounts and the Fixed Account. A
pro rata allocation will be in the same proportion that the portion of the
Contract Value in each sub-account and the portion of the Contract Value in the
Fixed Account have to the total Contract Value net of any outstanding loans.
Preferred Loan is the portion of any outstanding loan secured by Earnings.
Preferred Loan Rate is the Minimum Fixed Account Interest Rate for the value
securing Outstanding Loan Preferred Loan, as shown in the specification pages.
Rider is a document attached to this Contract that adds an optional benefit. An
additional charge may be required for a rider.
Second-to-die describes a contract issued as a joint survivorship
("Second-to-Die") Contract. Life insurance coverage is provided for two
insureds, with death benefits payable at the death of the survivor.
Separate account is a segregated account established by the Company. The assets
are not commingled with the Company's general assets and are not subject to
claims of the Company's creditors.
Specification pages contain information specific to your Contract and are
located after the Table of Contents.
Sub-accounts are subdivisions of the Variable Account investing exclusively in
the shares of one or more portfolios.
Surrender value is the amount payable on a full surrender. It is the Contract
Value less any outstanding loan and surrender charges.
Transamerica is Transamerica Occidental Life Insurance Company. "We", "our",
"us" and "Company" refer to Transamerica in this Contract.
Underwriting class means the insurance risk classification that we assign to the
insured based on the information in the application and any other evidence of
insurability we obtain. The underwriting class affects the monthly insurance
protection charge.
Unit is a measure of your interest in a sub-account.
Valuation date is each day that the New York Stock Exchange (NYSE) is open for
business and any other day that there is enough trading in the Variable
Account's underlying portfolio securities to materially affect the value of the
Variable Account.
Valuation period is the period between the close of business on successive
valuation dates.
Variable Account is the Company's separate account, consisting of sub-accounts
that invest in the underlying portfolios.
Variable Life Service Center is the Company's office at 440 Lincoln Street, P.O.
Box 3800, Worcester, Massachusetts 01653.
Written request is a signed request you make in written form that is
satisfactory to us and filed at our Variable Life Service Center.
You or your means the owner of this Contract as shown in the application or in
the latest change filed with us.
<PAGE>
General Terms
Entire Contract We have issued this Contract in
consideration of the application and your Contract
payment. A copy of the application is attached and
is part of this Contract. This Contract, with a
copy of the application, and any attached riders,
is the entire Contract between you and us. The
entire Contract also includes:
a copy of any application to change to a
better underwriting class, any new
specification pages, and any supplemental
pages issued.
All statements made by or for the insured will be
considered representations and not warranties. We
will not use any statements made by or for the
insured to deny a claim unless the statement is in
the application and the application is attached to
this Contract when it is issued or delivered. Our
representatives are not permitted to change this
Contract or extend the time for making payments.
Only our President or a Vice President together
with our Secretary may change the provisions of
this Contract, and then only in writing.
Right To Contest The A contest is any action taken by us to cancel your
insurance or deny a claim based on Contract Is Limited untrue or incomplete
answers in your application. Except for fraud or nonpayment of
payments, this Contract will be incontestable after
it has been in force during the lifetime of the
insured for two years from the date of issue. This
provision does not apply to any riders providing
benefits specifically for disability or death by
accident.
If the underwriting class is changed at your
request, we cannot contest the change after it has
been in force for two years from its effective date
and the insured is alive.
Non-Participating No insurance dividends will be paid on this Contract.
Adjustment Of Interest We determine the Fixed Account interest rates used to
calculate the Contract Value, Rates subject to the guarantees on the
specification pages.
Suicide Exclusion If the insured dies by suicide, while
sane or insane, within two years from the date of
issue, we will be liable only for the total amount
of payments made to us less any outstanding loans
and amounts withdrawn.
Notice Of First To Die If more than one insured is named
on the specification pages, upon the death of the
insured who dies first, the owner agrees to mail
proof of death to the Variable Life Service Center,
within 90 days of the date of death, or as soon
thereafter as is reasonably possible.
<PAGE>
Misstatement Of Age Or Sex On the date of death of the insured,
the death benefit will be reduced or increased if
the age or sex is misstated. The adjustment will be
based upon the ratio of the Maximum Payment for
this Contract shown on the first specification page
to the amount the Maximum Payment would have been
if the Contract had been issued at the correct age
or sex.
No adjustment will be made if:
The insured dies after the final payment date
and the Guaranteed Death Benefit Rider is not
in effect on the Contract; or
The underwriting class is unisex and there
has been a misstatement only of sex.
Protection Of Benefits To the extent allowed by law, the
benefits provided by this Contract cannot be
reached by the beneficiary's creditors. No
beneficiary may assign, transfer, anticipate, or
encumber the Contract Value or benefit unless you
give the beneficiary this right.
Periodic Report We will mail a report to you at your last known address at least
once a year. This report will provide the following information: o values in
each sub-account and in the Fixed Account; o the surrender value; payments made
by you and charges deducted by us since the last report; o any outstanding loan
and any other information required by law; and o the death benefit.
<PAGE>
Information about you and the beneficiary
Owner The insured is the owner of this Contract unless
another person (which could be a trust,
corporation, partnership, etc.) is named as the
owner in the application. The owner may change the
ownership of this Contract without the consent of
any beneficiary except that an irrevocable
beneficiary must agree to the change in writing.
Assignment You may only change the ownership of this Contract by sending us a
written request. An absolute assignment will transfer ownership of the
Contract from you to another person called the assignee. You may also
assign this Contract as collateral to a collateral assignee. The
limitations on your ownership rights while a collateral assignment is in
effect are specified in the assignment. An assignment will take place only
when the written request is recorded at our Variable Life Service Center.
When recorded, it will take effect on the date it was signed by you. Any
rights created by the assignment will be subject to any payments made or
actions taken by us before the change is recorded. We are not responsible
for assuring that any assignment or any assignee's or collateral assignee's
interest is valid.
Beneficiary You name the beneficiary to receive the net death
benefit. The beneficiary's interest may be affected
by any assignment you make. If you assign this
Contract as collateral, all or a portion of the net
death benefit will be paid to the collateral
assignee; any money left over from the amount due
the assignee will go to those otherwise entitled.
Your choice of beneficiary may be revocable or
irrevocable. You may change a revocable beneficiary
at any time by written request, but an irrevocable
beneficiary must agree to any change in writing.
You will also need an irrevocable beneficiary's
permission to exercise other rights and options
granted by this Contract. Unless you have asked
otherwise, the beneficiary will be revocable.
Any change of the beneficiary must be made while
the insured is living. This change will take place
on the date the request is signed, even if the
insured is not living on the day we receive it at
the Variable Life Service Center. Any rights
created by the change will be subject to any
payments made, or actions taken, before we receive
the written request. If a beneficiary dies before
the insured, his or her interest in this Contract
will pass to any surviving beneficiaries in
proportion to their shares in the net death
benefit, unless you have requested otherwise. If
all beneficiaries die before the insured, the net
death benefit will pass to you or your estate.
Common Disaster Option The common disaster option may be elected and changed
after Contract issue by a written request. If the common disaster option is
in effect on the date of the insured's death, the beneficiary must be alive
for a certain number of days following the insured's date of death in order
to be entitled to receive a benefit. Otherwise, we will pay the net death
benefit as though the beneficiary died before the insured. The number of
days that the beneficiary must live after the insured's death is selected
by you when you elect the common disaster option but may not exceed 30
days. Unless you elect otherwise by written request, the common disaster
option under the Contract will provide for a 10-day period.
<PAGE>
What you should know about the payments
Payments This Contract will not be in force until the payment shown on the
specification pages is paid to us. Additional payments may be made to us at
any time through the final payment date, but before the date of death of
the insured, subject to the minimum additional payment amount and the
maximum payment amount, shown on the specification pages. A payment
required to keep the Contract in force will not be subject to the minimum
additional payment or maximum payment limitations. Payments must be sent to
our Variable Life Service Center.
If you request it in writing, we will send you a
signed receipt after a payment. The payment amount
which must be paid to keep the Contract in force is
described in the Grace Period provision.
We may require evidence of insurability
satisfactory to us before accepting an additional
payment, if the additional payment would increase
the net death benefit.
Maximum Payment Limits We may limit the amount you pay us.
This limit will not be less than the Guideline
Premium. The sum of all payments made from the date
of issue, minus any partial withdrawals, may not be
more than the greater of: o The guideline single
payment, or o The sum of the guideline level
payments on the date of payment.
The guideline payment limits are shown on the
specification pages. These payment limitations will
not apply if they prevent you from paying us enough
to keep the Contract in force.
Guideline payment limits are determined according
to rules in the Code and will be adjusted as
changes are made to the Code.
If the payments made exceed the amount allowable
for this Contract to continue to qualify as a life
insurance Contract under Code Section 7702 and the
regulations thereunder, as applicable to this
Contract from time to time, we will remove excess
payments made from the Contract, with interest.
Such an excess amount could occur, for example, as
a result of a partial withdrawal or other change in
the benefits or terms of the Contract, since such
actions may reduce the guideline payment limits
allowable for the Contract. The portion of any
payment that cannot be accepted will be applied
first against any outstanding contract loans. We
will refund to you any excess amount (including
interest) not later than 60 days after the end of
that contract year.
The amount refundable will not exceed the surrender
value of the Contract. If the entire surrender
value is refunded, we will treat the transaction as
a full surrender of your Contract.
<PAGE>
GracePeriod This Contract will terminate 62 days after a monthly processing
date on which the surrender value is less than the monthly deduction due.
The 62-day period is a grace period. At least 61 days before the end of the
grace period, we will mail the Owner and any assignee written notice of the
amount of payment that will be required to continue this Contract in force.
The required payment will be no greater than the amount required to pay the
guaranteed monthly deductions for three months as of the day the grace
period began. If the amount shown in the notice remains unpaid at the end
of the grace period the Contract will lapse on such date. The Contract
terminates on the date of lapse. The death benefit during the grace period
will be reduced by any overdue charges.
Reinstatement If this Contract has lapsed or has been foreclosed
for failure to pay loan interest and has not been
surrendered, it may be restored (called "reinstated"
in this Contract) within three years after the date
of default. We will reinstate the Contract on the
monthly processing date following the day we receive
all of the following items:
o a written application for reinstatement;
o evidence of insurability satisfactory to us;
o a payment sufficient to cover the cost of all
Contract charges that were due and unpaid during
the grace period;
o a payment large enough to keep the Contract in
force for three months; and o payment or
reinstatement of any loans against the Contract that
existed at the end
of the grace period.
Your reinstatement payment will be allocated to the
Fixed Account until we approve your application. At
that time, we will transfer the reinstatement
payment, plus accrued interest, as you directed in
your last payment allocation request.
The Contract Value on the reinstatement date is: the payment to reinstate the
Contract, including the interest earned from the date we received your payment,
plus an amount equal to the Contract Value less any outstanding loan on the
default date; less the monthly deduction due on the reinstatement date.
The surrender charge on the reinstatement date is the
charge that was in effect on the date of default.
<PAGE>
What you should know about your Contract Value
Allocation of New Payments You may allocate the payments to: any of the
sub-accounts which are available at the time the payment is made; and/or, the
Fixed Account.
The Company reserves the right to limit the number
of sub-accounts which are available at one time,
but in no event will this be less than [twenty].
All percentage allocations must be in whole
numbers, with the total allocation to all selected
accounts equaling 100%. Allocations of less than 5%
to a sub-account or to the Fixed Account may only
be made with our consent.
Allocation Of Initial If you make a payment with your application or at any time
before the Contract is Payments approved by us, we may put that payment into the
Fixed Account on the date we receive
it at our Variable Life Service Center. Not later
than two days after the date this Contract is
approved by us, the value you elected to allocate
to the Variable Account will be transferred from
the Fixed Account to either the sub-accounts you
have elected or to the Money Market sub-account. In
any event, we will transfer any Variable Account
values from the Money Market sub-account to the
sub-accounts you have selected not later than the
expiration of the period during which you may
exercise your right to examine this Contract and
request a refund of your payments.
Monthly Deduction Beginning on the date this Contract is
issued and on every monthly processing date through
the final payment date, we will deduct the
following monthly charges pro rata from the
Contract Values:
o Administration Charge;
o Distribution Fee;
o Tax Charge; and
o Insurance Protection Charge.
The amounts of the monthly deduction and their
duration periods, if any, are shown on the
specification pages. No additional monthly
deductions will be assessed following the end of
the duration period, if the period ends prior to
the final payment date. Charges allocated to the
Fixed Account will be deducted on a last-in,
first-out basis. This means that we use the most
recent payments to pay the fees and charges.
Administration Charge The Administration Charge compensates us for
the cost of providing administrative services
attributed to this Contract.
Distribution Fee The Distribution Fee compensates us for distribution expenses.
Tax Charge This charge compensates us for a portion of certain federal, state
and local taxes we must pay.
<PAGE>
Insurance Protection Charge The Insurance Protection Charge
compensates us for the cost of providing a death
benefit in excess of the Contract Value. This
charge will not exceed the guaranteed maximum
insurance protection charge. The guaranteed maximum
insurance protection charge for any contract month
is equal to (a) times (b), where: (a) is the rate
shown in the Guaranteed Maximum Monthly Insurance
Protection Rate
Table shown on the specification pages, and
(b) is the insurance protection amount divided by
$1,000.
The insurance protection rates actually charged
will never be higher than the guaranteed rates. We
may change the insurance protection rates from time
to time. Any change in the rates for monthly
insurance protection charges will apply to all
contracts in the same underwriting class, will be
prospective, and will be based on our expectations
as to future cost factors. Such cost factors may
include, but are not limited to: mortality,
expenses, interest, and persistency. We will review
the actual insurance protection rates for this
Contract whenever we change these rates for new
contracts. In any event, rates will be reviewed no
more often than once each year, but not less than
once in a five-year period.
<PAGE>
What you should know about the Variable Account
Variable Account The value of your Contract will vary if it is funded through
investments in the sub-accounts of the Variable Account. This account is
separate from our Fixed Account. We have exclusive and absolute ownership and
control of all assets, including those in the Variable Account. However, the
portion of assets in the Variable Account equal to the reserves and liabilities
of the contracts that are supported by this account will not be charged with
liabilities that arise out of any other business we conduct.
This Variable Account, which we established to
support variable life insurance contracts, is
registered with the Securities and Exchange
Commission (SEC) as a unit investment trust under
the Investment Company Act of 1940. The laws of the
State of California also govern it.
This Variable Account has several sub-accounts.
Each sub-account invests its assets in a separate
series of a registered investment company (called a
"portfolio"). We reserve the right, when the law
allows, to change the name of the Variable Account
or any of its sub-accounts. You will find a list in
your application of these sub-accounts in which you
may invest.
Variable Account Value Not later than two days after the date this Contract is
approved for issue by us, the portion of the Contract Value you elected to
allocate to the Variable Account may be transferred from the Fixed Account to
either the sub-accounts you have selected or to the Money Market sub-account. We
will transfer the Variable Account values from the Money Market sub-account to
the sub-accounts you have selected not later than the expiration of the period
during which you may exercise your right to examine this Contract and request a
refund of your payments. Payments made thereafter which are allocated to the
sub-accounts will purchase additional units of the sub-accounts.
The number of units purchased in each sub-account
is equal to the portion of the payment allocated to
the sub-account, divided by the value of the
applicable unit as of the valuation date on which
the payment is received at our Variable Life
Service Center or the value on the date of transfer
to the sub-account from another sub-account or the
Fixed Account. If we receive your payment on a date
which is not a valuation date, we will use the
value of the applicable unit on the first valuation
date following the date we receive your payment to
determine the number of units that the payment will
purchase.
The number of units will remained fixed unless:
(1) changed by a subsequent split of unit value, or
(2) reduced because of a transfer, transfer charge,
contract loan, partial withdrawal, withdrawal
transaction fee, monthly deduction, surrender or
surrender charge allocated to the sub-account.
<PAGE>
Any transaction described in (2) will result in the
cancellation of a number of units which are equal
in value to the amount of the transaction. On each
valuation date we will value the assets of each
sub-account in which there has been activity. The
value in a sub-account at any time is equal to the
number of units this Contract then has in that
sub-account multiplied by the sub-account's unit
value. The value of a unit for any sub-account for
any valuation period is determined by multiplying
that sub-account's unit value for the immediately
preceding valuation period by the net investment
factor for the valuation period for which the unit
value is being calculated. The unit value will
reflect the investment advisory fee and other
expenses incurred by the registered investment
companies.
Net Investment Factor This measures the investment
performance of a sub-account during the valuation
period that has just ended. The net investment
factor is the result of (a) plus (b), divided by
(c), minus (d) where: (a) is the net asset value
per share of a portfolio share held in the
sub-account
determined at the end of the current valuation period;
(b) is the per share amount of any dividend or
capital gain distributions made by the
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; and
(d) is a charge for mortality and expense risks in
the valuation period.
The current mortality and expense risk charge is
shown on the specification pages. This charge may
be increased or decreased, but will never exceed
the maximum mortality and expense risk charge shown
on the specification pages. Expense and mortality
results may not adversely affect this maximum
charge. Since the net investment factor may be more
or less than one, the unit value may increase or
decrease. You bear the investment risk. We reserve
the right, subject to any required regulatory
approvals, to change the method we use to determine
the net investment factor.
<PAGE>
Addition, Deletion Or We may not change the investment policy of the Variable
Account without the approval Substitution Of Investments of the Insurance
Commissioner of California. This approval process is on file with the
Commissioner of your state. We reserve the right,
subject to applicable law, to add, delete, or
substitute the shares of a portfolio that are held
by the Variable Account or that the Variable
Account may purchase. We also reserve the right to
eliminate the shares of any portfolio if they are
no longer available for investment, or if we
believe investing more in any portfolio is no
longer appropriate for the purposes of the Variable
Account.
We will notify you before we substitute any portion
of your interest in the Variable Account. This will
not, however, prevent the Variable Account from
buying other shares of underlying securities for
other series or classes of contracts or policies,
or from permitting a conversion between series or
classes of contracts or policies when requested by
the owners of such contracts or policies. We
reserve the right to establish other sub-accounts,
and to make them available to any class or series
of contracts and policies as we think appropriate.
Each new sub-account would invest in a new
investment company or in shares of another open-end
investment company. We also reserve the right to
eliminate or combine existing sub-accounts of the
Variable Account and to transfer the assets between
sub-accounts, when allowed by law. If we make any
substitutions or changes that we believe are
necessary or appropriate, we may make changes in
this Contract by written notice to reflect the
substitution or change. If we think it is in the
best interests of our contract owners, we may
operate the Variable Account as a management
company under the Investment Company Act of 1940,
or we may de-register it under that Act if
registration is no longer required. We may also
combine it with other separate accounts.
Federal Taxes If we must pay taxes on the Variable Account,
we will charge you for those taxes. Although the
Variable Account is currently not taxable, we
reserve the right to charge for taxes if it becomes
subject to taxation.
Splitting Of Units We reserve the right to split the value of a unit, to either
increase or decrease the number of units. Any splitting of units will have no
material effect on contract benefits.
<PAGE>
What you should know about the Fixed Account
Fixed Account The Fixed Account is a part of our General
Account. The General Account consists of all assets
owned by us, other than those in the Variable
Account and other separate accounts. Except as
limited by law, we have sole control over the
investment of these General Account assets. You do
not share directly in the investment experience of
the General Account, but are allowed to allocate
and transfer funds into the Fixed Account.
Fixed Account Interest The interest rates credited to values in the Fixed
Account are set by us, but will Rates never be less than the Minimum Fixed
Account Interest Rates shown in the specification pages. We may establish
higher interest rates. The initial interest rates and the renewal interest
rates may be different. Interest rates will be determined as follows:
Payments allocated to the Fixed Account will be credited at the initial
interest rate in effect on the day we receive your payment at our Variable
Life Service Center, and the initial interest rate is guaranteed until the
next contract anniversary unless you borrow from that value. Funds
transferred from a sub-account of the Variable Account to the Fixed Account
will be credited with interest at the initial interest rate in effect on
the valuation date of the transfer, and the initial interest rate is
guaranteed until the next contract anniversary unless you borrow from that
value. Values in the Fixed Account on a contract anniversary will be
credited with interest at the renewal interest rate in effect on that
contract anniversary for one year so long as those values remain in the
Fixed Account and are not borrowed. The interest rate we use for that
portion of the Contract Value that equals the outstanding loan will be no
less than the applicable Minimum Fixed Account Interest Rate shown on the
specification pages. One of the rates shown is the Preferred Loan Rate,
which applies only to loans qualifying as preferred loans.
<PAGE>
Fixed Account Value On each monthly processing date, the
value of the portion of your Contract Value in the
Fixed Account is equal to: o the value of such
portion on the preceding monthly processing date
increased by
one month's interest; plus
o payments received since the last monthly
processing date that are allocated to the
Fixed Account plus the interest accrued from
the date the payments are received by us; plus
o any portion of your Contract Value transferred
to the Fixed Account from any sub-accounts
since the preceding monthly processing date,
increased by interest accrued on such amount
from the transfer date to the monthly
processing date; minus
o any portion of your Contract Value transferred
from the Fixed Account to a sub-account since
the preceding monthly processing date and
interest accrued on such amount from the
transfer date to the monthly processing date;
minus
o any portion of your Contract Value transferred
from the Fixed Account to a sub-account since
the preceding monthly processing date and
interest accrued on such amount from the
transfer date to the monthly processing date;
minus
o your partial withdrawals from the Fixed
Account, any withdrawal transaction fees and
surrender charges assessed since the last
monthly processing date, interest accrued on
these withdrawals, fees and charges from the
withdrawal date to the monthly processing
date; minus
o the portion of the monthly deductions
allocated to the portion of your Contract
Value in the Fixed Account.
During any contract month the portion of your
Contract Value in the Fixed Account will be
calculated on a consistent basis.
Basis Of Value Of The We base the minimum surrender value in the Fixed
Account on the minimum Fixed Account Fixed Account interest rates and
mortality table shown on the specification pages. The actual Fixed Account
value is based on interest and insurance protection rates that we set. We
have filed a detailed description of the way we determine this value with
the State Insurance Department. All values equal or exceed the minimums
required by law in the state in which this Contract is delivered.
<PAGE>
What You Should Know About Transfers
While the Contract is in force, you may transfer
amounts between the Fixed Account and the
sub-accounts or among sub-accounts on request. You
may transfer, without charge, all of the portion of
Contract Value in the Variable Account to the Fixed
Account once during the first 24 months after the
Contract is issued which will automatically convert
it to a fixed-only product. If you do so, future
payments will be allocated to the Fixed Account
unless you specify otherwise. All other transfers
are subject to the following rules and will be
permitted with our approval. We will determine the
minimum and maximum amounts that may be transferred
according to the rules that are in effect at the
time of the transfer. We also reserve the right to
limit the number of transfers that can be made in
each contract year and set other reasonable rules
controlling transfers.
If a transfer would reduce the value in a
sub-account to less than the current minimum
balance required for such sub-accounts, we reserve
the right to include the remaining value in the
amount transferred. You will not be charged for the
first 18 transfers in a contract year, but a
transfer charge of up to $25 may be assessed on
each additional transfer. Any transfer charge will
be deducted from the amount that is transferred.
There is no charge for a transfer that results from
a contract loan or repayment of a loan.
<PAGE>
What you should know about borrowing from your Contract
To borrow from this Contract, the only collateral
you will need is the Contract itself.
Amount You May Borrow The maximum loan amount is 90% of
the result of the Contract Value less the surrender
charges. You may borrow an amount subject to the
minimum shown on the specification pages, up to the
maximum loan amount minus any outstanding loan. If
you do not specify from which accounts you want to
borrow, we will allocate the loan pro rata. In
order to secure the outstanding loan, we will
transfer the value in each sub-account equal to the
contract loan allocated to each sub-account to the
Fixed Account.
Loan Interest You will be required to pay interest on your loan at an
annual rate indicated on the specification pages. Interest accrues daily
and is payable at the end of each contract year or, if earlier, as of the
date the loan is repaid or defaulted or the contract is surrendered. Any
interest that is not paid on time will be added to the loan principal and
bear interest at the same rate. If this makes the principal higher than the
value in the Fixed Account, we will offset this shortfall by transferring
funds from the portion of your Contract Value allocated to the sub-accounts
to the portion in the Fixed Account. We will allocate the transferred
amount from the sub-accounts in the same proportion that the value in each
sub-account has to the total value in all of them.
Repaying The Outstanding You may repay the outstanding loan at any time before
this Contract lapses and before Loan the maturity date. When you repay it, we
will transfer the portion of your Contract
Value that is securing the loan in the Fixed
Account portion of your Contract Value to the
various sub-accounts and increase the value in
them. You may tell us how to allocate repayments.
Otherwise, we may allocate them according to the
most recent payment allocation choices you have
made. Loan repayments made to the Variable Account
portion of your Contract Value cannot be higher
than the amounts you transferred to secure the
outstanding loan.
Foreclosure If at any time the amount of the outstanding loan
is higher than the Contract Value minus the
surrender charge, the Contract will terminate.
We will mail a notice of this termination to your
last known address and that of any assignee. If the
excess outstanding loan is not paid within 62 days
after this notice is mailed, the outstanding loan
will be foreclosed and the Contract will terminate
with no value. You may reinstate this Contract in
accordance with the Reinstatement provision.
<PAGE>
What you should know about surrenders and partial withdrawals
Surrender You may cancel this Contract and receive its
surrender value as long as the insured is living on
the date we receive your written request at our
Variable Life Service Center. The Contract will be
canceled on that day. You may choose to receive the
surrender value in a lump sum or under a benefit
option.
Surrender Value The surrender value equals the Contract Value
minus any outstanding loan and surrender charge.
You will find the surrender charges on the
specification pages.
Partial Withdrawals You may withdraw part of the surrender
value on written request. Each withdrawal must be
at least $1,000. The withdrawal transaction fee in
effect on the date of issue is shown on the
specification pages. The withdrawal transaction fee
is subject to change, but will never exceed the
guaranteed fee shown on the specification pages.
We will not permit a partial withdrawal if it
reduces the Contract Value to less than the minimum
balance after withdrawal amount shown on the
specification pages.
The face amount will be reduced proportionately
based on the ratio of the amount of the partial
withdrawal and charges to the Contract Value on the
date of withdrawal. The Contract Value will be
reduced by the amount of the partial withdrawal,
the withdrawal transaction fee and any applicable
surrender charges.
If you do not allocate a partial withdrawal, its
fee and its charges between the portion of your
Contract Value in the Fixed Account and the portion
in each sub-account, we will automatically allocate
them pro rata.
Free Withdrawal Amount The free withdrawal amount will
not be subject to the surrender charge. The free
withdrawal amount for a Contract year equals (a)
minus (b), where: (a) is the free withdrawal amount
shown on the specification pages, and (b) is the
total of prior free withdrawal amounts withdrawn in
the same Contract year.
Allocations of Withdrawals The free withdrawal amount is deducted from the
portion of the Contract Value attributed to earnings until it is exhausted,
and then from the portion of the Contract Value attributed to payments.
Withdrawals in excess of the free withdrawal amount, including the
withdrawal transaction fees and the surrender charges, if any, are deducted
first from the payments portion. The payments portion of the Contract Value
is reduced in the reverse order of receipt of such payments. Surrender
charges applicable to withdrawals in excess of the free withdrawal amount
are described on the specification pages.
<PAGE>
Postponement Of Payment We may postpone any transfer from the
Variable Account, or payment of any amount payable
on:
surrender,
partial withdrawal,
transfer,
contract loan, or
death of the insured.
The postponement will continue during any period when: o trading on the New
York Stock Exchange is restricted as determined by the Securities and
Exchange Commission, or the New York Stock Exchange is closed for days
other than weekends and holidays, or o the Securities and Exchange
Commission by order has permitted such suspension, or o the Securities and
Exchange Commission has determined that such an emergency exists that
disposal of portfolio securities or valuation of assets is not reasonably
practical.
We also may postpone any transfer from the Fixed
Account or payment of any portion of the amount
payable on a surrender, partial withdrawal or
contract loan from the Fixed Account for not more
than six months from the day we receive your
written request. If we postpone those payments for
30 days or more, the amount postponed will earn
interest during that period of not less than 3% per
year or such higher rate as required by law.
<PAGE>
What you should know about the death benefit
Net Death Benefit If the insured dies before the maturity date and before
the Contract is terminated, we will pay the net death benefit. The net
death benefit is equal to the death benefit reduced by certain amounts, as
described below. The death benefit is determined as of the date we receive
due proof of the insured's death at our Variable Life Service Center. Due
proof of death is a valid death certificate or other evidence satisfactory
to us.
The amount of the net death benefit depends upon:
(1) whether the date the insured dies is after, or
on or before, the final payment date; and, if after
the final payment date, (2) whether the Guaranteed
Death Benefit Rider is in effect at the time of the
insured's death.
If the insured dies on or before the final payment date then the death
benefit is the greater of the face amount or the guideline minimum sum
insured. The net death benefit is determined by deducting from the death
benefit: any outstanding loan and any monthly deductions due and unpaid
through the contract month in which the insured dies, as well as any
partial withdrawals, withdrawal transaction fees, and applicable surrender
charges.
If the insured dies after the final payment date,
except as provided under a Guaranteed Death Benefit
Rider if attached to this Contract, the death
benefit is 101% of the Contract Value. The net
death benefit is the death benefit minus:
any outstanding loan through the contract
month in which the insured dies, and any
unpaid partial withdrawals, withdrawal
transaction fees and applicable
surrender charges.
If the net death benefit is paid in a lump sum,
interest will be earned at our declared interest
rate for sums held on deposit, but not less than
2.5% per year, beginning on the date we receive
notice of death at our Variable Life Service
Center. We will pay a higher interest rate if
required by state law. We will credit interest from
an earlier date (for example, from the date of the
insured's death) if required by state law.
<PAGE>
<TABLE>
<CAPTION>
Guideline Minimum Sum Insured Table
Attained Age Percentage Attained Age Percentage
40 or less 265% 66 134%
<S> <C> <C> <C> <C>
41 258% 67 133%
42 251% 68 132%
43 244% 69 131%
44 237% 70 130%
45 230% 71 128%
46 224% 72 126%
47 218% 73 124%
48 212% 74 122%
49 206% 75-85 120%
50 200% 86 118%
51 193% 87 116%
52 186% 88 114%
53 179% 89 112%
54 172% 90 110%
55 165% 91 108%
56 161% 92 106%
57 157% 93 105%
58 153% 94 105%
59 149% 95 105%
60 145% 96 104%
61 143% 97 103%
62 141% 98 102%
63 139% 99 101%
64 137% 100-115 101%
65 135%
</TABLE>
Required Minimum Amount of This Contract is intended to qualify under Code
Section 7702 as a life insurance Death Benefit contract for federal tax
purposes. The provisions of this Contract (including any
rider or endorsement) shall be interpreted to
ensure such tax qualification, regardless of any
language to the contrary.
At no time will the amount of the death benefit
under the Contract ever be less than the amount
needed to ensure such tax qualification. To the
extent that the death benefit is increased,
appropriate adjustments will be made in any
monthly insurance protection charges or
supplemental benefits as of that time,
retroactively or otherwise, that are consistent
with such an increase. Such adjustments may be
made by right of setoff against any death benefits
payable.
The guideline minimum sum insured is calculated by
multiplying the Contract Value by the percentage
shown in the preceding table. The death benefit
under this Contract will not be less than the
guideline minimum sum insured. The guideline
minimum sum insured varies by attained age. The
amounts shown in the table are determined to
provide a death benefit at least as great as those
required under the Code to qualify the Contract as
life insurance, and will be adjusted according to
any changes in the Code applicable to this
Contract.
<PAGE>
What you should know about the benefit payment options
Benefit Payment Options When the insured dies, we will pay the net death
benefit in a lump sum unless you or the beneficiary choose a benefit
payment option. You may choose a benefit payment option while the insured
is living. The beneficiary may choose a benefit option after the insured
has died. The beneficiary's right to choose will be subject to any benefit
payment option restrictions in effect at the insured's death. You may also
choose one of these options as a method of receiving the surrender or
maturity proceeds, if any are available under this Contract. When we
receive a satisfactory written request, we will pay the benefit according
to one of these options.
Option A: Installment for We will pay equal installments for a guaranteed
period of from one to thirty years. a Guaranteed Period Each installment
will consist of part benefit and part interest. We will pay the
installments monthly, quarterly, semi-annually or annually, as requested.
See Table A on next page.
Option B: Installments We will pay equal monthly installments as long as the
designated individual is living, for Life with a but we will not make payments
for less than the guaranteed period the payee chooses. Guaranteed Period (Table
The guaranteed period may be either 10 years or 20 years. We will pay the
installments B) monthly. See Table B on next page.
Option C: Benefit We will hold the benefit on deposit. It will earn
interest at the annual interest rate Deposited with Interest we are paying
as of the date of death, surrender or maturity. We will not pay less than 2
1/2% annual interest. We will pay the earned interest monthly, quarterly,
semi-annually or annually, as requested. The payee may withdraw part or all
of the benefit and earned interest at any time.
Option D: Installments of We will pay installments of a selected amount until we
have paid the entire benefit and a Selected Amount accumulated interest.
Option E: Annuity We will use the benefit as a single
payment to buy an annuity. The annuity may be
payable based on the life of one or two designated
individuals. It may be payable for life with or
without a guaranteed period, as requested. The
annuity payment will not be less than what our
current annuity contracts are then paying.
<PAGE>
General The payee may arrange any other method of benefit
as long as we agree to it. There must be at least
$10,000 available for any option and the amount of
each installment must be at least $100. If the
benefit amount is not enough to meet these
requirements, we will pay the benefit in a lump
sum.
Installments which vary by age of the designated
individual will be determined based on the age
nearest birthday of the designated individual on
the date of death, maturity, or surrender. If the
net death benefit is payable, the benefit payment
option starting date is the date of death of the
insured. For purposes of policy maturity or
surrender, the date the written request is
received in the Variable Life Service Center is
the benefit payment option starting date.
The first installment due under any option will be
for the period beginning as of the date of death,
maturity or surrender. Any unpaid balance we hold
under Options A, B or D will earn interest at the
rate we are paying at the time of settlement. We
will not pay less than 3% annual interest. Any
benefit we hold will be combined with our general
assets.
If the payee does not live to receive all
guaranteed payments under Options A, B, D or E or
any amount deposited under Option C, plus any
accumulated interest, we will pay the remaining
benefit as scheduled to the payee's estate. The
payee may name and change a successor payee for
any amount we would otherwise pay the payee's
estate.
<PAGE>
<TABLE>
<CAPTION>
Table A: Installments for Each $1,000 Payable under Option A
Multiply the Monthly Installment by 11.83895 for annual, by 5.96322 for semi-annual, or by 2.99263 for quarterly
Installments
- ------------------ ---------------- ----------------- ---------------- ----------------- -----------------
Guaranteed Monthly Guaranteed Monthly Guaranteed Monthly
Period (Years) Installment Period (Years) Installment Period (Years) Installment
- ------------------ ---------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1 $84.47 11 $8.86 21 $5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.48
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- ------------------ ---------------- ----------------- ---------------- ----------------- -----------------
</TABLE>
Table B: Monthly Installment for Each $1,000 Payable under Option B
- ---------------------------------- -----------------------------------------
Designated Individual Designated Individual
- ---------------------------------- -----------------------------------------
- ------------- -------------------- ------------------ ----------------------
Male Female Male Female
- ------------- -------------------- ------------------ ----------------------
- ---------------------------------- -----------------------------------------
Guaranteed Period (Yr.) Guaranteed Period (Yr.)
-----------------------------------------
<TABLE>
<CAPTION>
- ----------- --------- --------- ---------- --------- ---------
Age 10 Yr. 20 Yr. 10 Yr. 20 Yr. Age 10 Yr. 20 Yr. 10 Yr. 20 Yr.
- ----------- --------- --------- ---------- --------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11 $ 2.90 $ 2.89 2.83 2.83 51 $ 4.44 $ 4.26 $ 4.10 4.02
12 2.91 2.91 2.84 2.84 52 4.53 4.32 4.17 4.08
13 2.93 2.92 2.86 2.85 53 4.62 4.39 4.25 4.14
14 2.94 2.94 2.87 2.87 54 4.71 4.46 4.33 4.21
15 2.96 2.96 2.88 2.88 55 4.81 4.52 4.42 4.28
16 2.98 2.97 2.90 2.90 56 4.92 4.59 4.51 4.35
17 3.00 2.99 2.91 2.91 57 5.03 4.66 4.61 4.42
18 3.01 3.01 2.93 2.93 58 5.15 4.73 4.71 4.50
19 3.03 3.03 2.95 2.94 59 5.27 4.80 4.82 4.57
20 3.05 3.05 2.96 2.96 60 5.40 4.87 4.94 4.65
21 3.08 3.07 2.98 2.98 61 5.53 4.94 5.06 4.72
22 3.10 3.09 3.00 2.99 62 5.68 5.00 5.19 4.80
23 3.12 3.11 3.02 3.01 63 5.83 5.07 5.33 4.88
24 3.14 3.14 3.04 3.03 64 5.98 5.13 5.47 4.95
25 3.17 3.16 3.06 3.05 65 6.15 5.18 5.63 5.02
26 3.20 3.19 3.08 3.07 66 6.32 5.24 5.79 5.09
27 3.22 3.21 3.10 3.10 67 6.50 5.28 5.96 5.15
28 3.25 3.24 3.12 3.12 68 6.68 5.33 6.14 5.21
29 3.28 3.27 3.15 3.14 69 6.88 5.36 6.33 5.27
30 3.31 3.30 3.17 3.17 70 7.07 5.40 6.53 5.32
31 3.34 3.33 3.20 3.19 71 7.27 5.42 6.73 5.36
32 3.38 3.36 3.23 3.22 72 7.48 5.45 6.94 5.40
33 3.41 3.39 3.26 3.25 73 7.68 5.46 7.16 5.43
34 3.45 3.43 3.29 3.28 74 7.88 5.48 7.38 5.45
35 3.49 3.46 3.32 3.31 75 8.08 5.49 7.60 5.47
36 3.53 3.50 3.35 3.34 76 8.27 5.50 7.82 5.48
37 3.57 3.54 3.39 3.37 77 8.46 5.50 8.04 5.49
38 3.62 3.58 3.42 3.41 78 8.63 5.51 8.25 5.50
39 3.67 3.62 3.46 3.44 79 8.79 5.51 8.45 5.51
40 3.72 3.67 3.50 3.48 80 8.94 5.51 8.64 5.51
41 3.77 3.71 3.54 3.52 81 9.07 5.51 8.82 5.51
42 3.82 3.76 3.59 3.56 82 9.18 5.51 8.97 5.51
43 3.88 3.81 3.63 3.60 83 9.28 5.51 9.11 5.51
44 3.94 3.86 3.68 3.65 84 9.36 5.51 9.23 5.51
45 4.00 3.91 3.73 3.69 85+ 9.42 5.51 9.32 5.51
--------- ----------- ----------- ----------- ----------
46 4.07 3.97 3.78 3.74 Ages younger than 11 are the same as shown for age 11,
47 4.14 4.02 3.84 3.79 and ages older than 85 are the same as shown for age
85.
48 4.21 4.08 3.90 3.85
49 4.28 4.14 3.96 3.90
50 4.36 4.20 4.03 3.96
- ----------- --------- --------- ---------- ---------
</TABLE>
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
OPTION TO ACCELERATE DEATH BENEFITS (LIVING BENEFITS RIDER - SPVUL)
This rider is a part of the Contract to which it is attached. The insured under
this rider is the insured under the Contract. This rider does not apply to any
benefits provided by other riders. In case of conflict between the Contract and
this rider, the rider provisions will control.
Benefit While this rider is in force, you may elect to receive a
portion of the net death benefit called the "Living Benefit,"
prior to the insured's death, subject to the definitions,
conditions and limitations in this rider. This option may only
be exercised once.
Definitions "Option Amount" means that portion of the death benefit which
you elect to apply under this rider. The Option Amount must be
at least $25,000 and may not exceed the lesser of:
o one-half of the death benefit on the date the option is
elected; or o the amount that would reduce the face
amount to our minimum issue limit for this
Contract; or
o $250,000.
"Option Percentage" is the Option Amount divided by the death benefit.
"Living Benefit" is the Option Amount which has been reduced
for interest and other factors. It is the lump sum benefit
under this rider, and it is the amount used to determine the
monthly benefit. The Living Benefit will not be less than the
surrender value of the Contract multiplied by the Option
Percentage. The following factors will be used to calculate
the Living Benefit:
o age;
o sex, unless the Contract is issued on a unisex basis; o
life expectancy; o Contract Value; o outstanding loan;
o rate of interest currently being credited to the
Fixed Account, including those values which are
subject to outstanding loan;
o face amount; o current monthly deductions; and o an
expense charge of $150.
An amount equal to the outstanding loan multiplied by the
Option Percentage will be deducted from the Living Benefit.
The remaining outstanding loan will continue in force.
The assumptions we use to calculate the Living Benefit may
change from time to time. The factors used to compute the
Living Benefit will be set and changed only prospectively;
that is, based on changes in future expectations. We will not
change these factors to recoup any prior losses or distribute
past gains under the rider.
"Proof of claim" includes:
a request signed by the insured to disclose all facts
concerning the insured's health; records of the
attending physician, including a prognosis of the
insured's condition; and if we request, a medical
examination of the insured at our expense conducted by a
physician
we choose.
Form xxxx-98
<PAGE>
Conditions Upon written request you may elect to receive
payment under the accelerated death benefit option
subject to the following conditions:
o the Contract is in force;
o a written consent has been given by any
collateral assignee, irrevocable beneficiary
and the insured if you are not the insured; and
o the insured qualifies for the option you elect.
Exercising the Option If you provide proof of claim
satisfactory to us that the insured's life
expectancy is 12 months or less, you may elect to
receive equal monthly payments for 12 months. For
each $1,000 of Living Benefit, each payment will be
at least $85.21. This assumes an annual interest
rate of 5%.
If the insured dies before all the payments have
been made, we will pay in one sum the present value
of the remaining payments due under this rider
calculated at the interest rate we use to determine
those payments as part of the net death benefit. If
you do not wish to receive monthly payments, you may
elect to receive the Living Benefit in a lump sum.
Effect On Contract The death benefit of the Contract will
be decreased by the Option Amount. Such decrease
will be effective on the monthly processing date
following the date of your written request. New
specification pages will be issued. These pages will
include the following information:
o the effective date of the decrease; and o the
amount of the decrease and the reduced face
amount.
The Contract Value will be reduced in the same
proportion as the reduction in the death benefit.
There will be no surrender charge on the reduction
in Contract Value. The allocation of the Contract
Value between earnings and payments will remain the
same.
Exclusion No benefit will be paid under this rider if a claim
results, directly or indirectly, from a suicide
attempt or a self-inflicted injury (while sane or
insane) for any period during which a suicide
exclusion is applicable.
Termination This rider will terminate on the first to occur of:
the date the Living Benefit is paid, or
the termination or maturity of the Contract
while the insured is alive; or at any time on
your written request.
Form xxxx-98
<PAGE>
General The Contract specification pages will show the date of issue of
this rider. The Living Benefit will be made available to you on a voluntary
basis only. Accordingly: (a) If you would be required by law to exercise
this option to satisfy the claim of creditors, whether in bankruptcy or
otherwise, you are not eligible for this benefit. (b) If you would be
required by a government agency to exercise this option in order to apply
for, obtain, or retain a government benefit or entitlement, you are not
eligible for this benefit.
Except as otherwise provided, all conditions and
provisions of the Contract apply to this rider.
Tax Qualification This rider is intended to provide a qualified accelerated
death benefit that is excluded from gross income for federal income tax
purposes. To that end, the provisions of this rider and the Contract are to
be interpreted to ensure or maintain such tax qualification,
notwithstanding any other provisions to the contrary. Whether any tax
liability may be incurred when benefits are paid under this rider could
depend on whether the Contract Owner is also the insured and on how the
Internal Revenue Service interprets applicable provisions of the Code. As
with any tax matter, the contract owner and any other recipient of this
benefit should each consult his or her own tax advisor to evaluate any tax
impact of this benefit.
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the Contract to which this
rider is attached, unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
And Corporate Secretary
Form xxxx-98
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SECTION 1035 RIDER
This rider is a part of the Contract to which it is attached. The insured under
this rider is the insured under the Contract. In case of conflict between the
Contract and this rider, the rider provisions will control.
The Contract is issued in consideration of your assignment to us of a life
insurance policy (called the "Exchanged Policy") on the life of the insured. The
"Exchanged Policy" is identified in your application for this Contract. As used
in this endorsement, "gain" means the amount by which the cash value of the
Exchanged Policy (including any unpaid policy loan) exceeds your investment in
the Exchanged Policy as reported to us by the company which issued the Exchanged
Policy. We assume no responsibility for the calculation of your investment in
the Exchanged Policy.
The Fixed Account Interest Rates provisions are amended by the addition of the
following:
The Preferred Loan Rate will also be credited to the following amounts:
(1) That portion of the outstanding loan which is carried over from the
Exchanged Policy; and (2) A percentage of the gain under the Exchanged
Policy less the policy loan carried over to this Contract
as of the date of exchange.
<TABLE>
<CAPTION>
---------------------------------------- ----------------------------------------
Beginning of Contract Year Exchanged Policy's Unloaned Gain
Available For Preferred Loan Rate
---------------------------------------- ----------------------------------------
<S> <C> <C>
1 0%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
2 10%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
3 20%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
4 30%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
5 40%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
6 50%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
7 60%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
8 70%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
9 80%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
10 90%
---------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------
11+ 100%
---------------------------------------- ----------------------------------------
</TABLE>
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the Contract to which this
rider is attached, unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
And Corporate Secretary
Form xxxxx-98
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Guaranteed Death Benefit Rider (SPVUL)
This rider is a part of the Contract to which it is attached. The insured under
this rider is the insured under the Contract. In case of conflict between the
Contract and this rider, the rider provisions will control.
Required Payment This rider will take effect upon receipt by
the Company of the Guaranteed Death Benefit Payment
shown on the specification pages.
Guaranteed Death Benefit The Contract will not lapse while this
rider is in force. The monthly deductions will be
made from the Contract Value, if any, through the
final payment date (but not after the end of any
duration period shown on the specification pages if
such duration period ends prior to the final payment
date).
Net Death Benefit While this rider is in force, the net
death benefit provisions of the Contract are amended
by the addition of the following:
If this rider is in effect on the final payment
date, a death benefit will be provided thereafter
unless the rider is terminated. The net death
benefit under the rider will be the face amount as
of the final payment date or 101% of the Contract
Value as of the date due poof of death is received
by the Company, whichever is greater, reduced by the
outstanding loan through the Contract month in which
the insured dies. The monthly deductions will not be
deducted after the final payment date.
Termination This rider will terminate and may not be reinstated on the
first to occur of the following: o Foreclosure of the outstanding loan; or
o A request for a partial withdrawal or loan is made after the final
payment date; or o Upon your written request.
It is possible that the Contract Value will not be sufficient to keep the
Contract in force on the first monthly processing date following the date the
rider is terminated. The net amount payable to keep the Contract in force will
never exceed the surrender charge plus the amount required to pay three monthly
deductions.
Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California and effective on the date of issue of the Contract to which this
rider is attached, unless a different date is shown here.
Executive Vice President, General Counsel President and CEO
And Corporate Secretary
Form xxxxx-98
<PAGE>
(6) Organizational documents
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
William A. Simpson and James W. Dederer hereby certify that:
1. They are the President and the Secretary, respectively, of Transamerica
Occidental Life Insurance Company, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
FIRST
The name of this corporation is TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY.
SECOND
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code. The business of the
corporation is to be an insurer.
THIRD
This corporation is authorized to issue only one class of stock; and
the total number of shares this corporation is authorized to issue is
FOUR MILLION (4,000,000) shares with a par value of $12.50 per share.
FOURTH
This corporation elects to be governed by all of the provisions of the
General Corporation Law effective January 1, 1977 not otherwise
applicable to it under Chapter 23 thereof.
FIFTH
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California.
<PAGE>
SIXTH
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through
by-law provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code,
subject only to the limits on excess indemnification set forth in
Section 204 of the California Corporations Code. The corporation is
further authorized to provide insurance for agents as set forth in
Section 317 of the California Corporations Code, provided that, in
cases where the corporation owns all or a portion of the shares of the
company issuing the insurance policy, the company and/or the policy
must meet one of the two sets of conditions set forth in section 317,
as amended.
3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders of said
corporation in accordance with section 902 of the Corporations Code.
The total number of outstanding shares entitled to vote, with respect
to the foregoing amendment was 2,206,933 shares; and the number of
shares voting in favor of the foregoing amendment equaled or exceeded
the vote required, such required vote being more than 50% of the
outstanding shares entitled to vote.
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing certificate are true of their own knowledge.
Executed at Los Angeles, California, on January 11, 1988.
TRANSAMERICA OCCIDENTAL
LIFE INSURANCE COMPANY
By: William A. Simpson
President
By: James W. Dederer
Secretary
<PAGE>
RESTATED BYLAWS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
ARTICLE I
SHAREHOLDERS
The annual meeting of the shareholders of Transamerica Occidental Life
Insurance Company shall be held on the fourth Wednesday in February of each
year, if not a legal holiday, in which case the annual meeting shall be held on
the next business day following, at 10:00 a.m., for the purpose of electing
directors and for the transaction of such other business as may be brought
before the meeting.
ARTICLE II
BOARD OF DIRECTORS
The number of directors of this corporation shall be at least ten (10)
and not more than nineteen (19). The exact number of directors shall be fixed,
within the limits specified, by a resolution adopted by the Board of Directors
or by the shareholders.
ARTICLE III
CHIEF EXECUTIVE OFFICER
The board of directors shall from time to time designate one of the
officers of the corporation to be chief executive officer.
ARTICLE IV
GENERAL
Except as is expressly set forth herein, this corporation shall be
governed by the applicable statutes of the California General Corporation Law as
though said statutes had been fully set forth herein.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
Section 1. Right to Indemnification.
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.]
Section 2. Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as such) in
defending a Proceeding shall be paid by the corporation in advance of the final
disposition of such Proceeding, provided, however, that if required by
California General Corporation Law, as amended, such Expenses shall be advanced
only upon delivery to the corporation of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
this Article or otherwise. Expenses incurred by other Agents of the corporation
(or by the directors or officers not acting in their capacity as such, including
service with respect to employee benefit plans) may be advanced upon the receipt
of a similar undertaking, if required by law, and upon such other terms and
conditions as the Board of Directors deems appropriate. Any obligation to
reimburse the corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
Section 3. Right of Claimant to Bring Suit.
If a claim under Section 1 or 2 of this Article is not paid in full by the
corporation within 30 days after a written claim has been received by the
corporation the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant has
not met the standards of conduct that make it permissible under the California
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the California General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
Section 4. Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive of any
other rights that such person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Articles, agreement, or vote of
the stockholders or disinterested directors is inconsistent with these bylaws,
the provision, agreement, or vote shall take precedence.
Section 5. Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and any
Agent against any Expense asserted against or incurred by such person, whether
or not the corporation would have the power to indemnify the Agent against such
Expense under applicable law or the provisions of this Article [provided that,
in cases where the corporation owns all or a portion of the shares of the
company issuing the insurance policy, the company and/or the policy must meet
one of the two sets of conditions set forth in Section 317 of the California
General Corporation Law, as amended].
Section 6. Survival of Rights.
The rights provided by this Article shall continue as to a person who has case
to be an Agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Section 7. Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this Article
(a) for any amounts paid in settlement of any action or claim effected without
the corporation's written consent, which consent shall not be unreasonably
withheld; or (b) for any judicial award, if the corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
Section 8. Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any Agent existing at the time of such
amendment, repeal, or modification.
Section 9. Subrogation.
In the event of payment under this Article, the corporation shall be subrogated
to the extent of such payment to all of the rights of recovery of the Agent, who
shall execute all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents necessary to
enable the corporation effectively to bring suit to enforce such rights.
Section 10. No Duplication of Payments
The corporation shall not be liable under this Article to make any payment in
connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
<PAGE>
(8) Form of Participation Agreements
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this _____ day of ______________ , 1997, by and
among The Alger American Fund (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, Fred Alger Management,
Inc., an investment adviser organized under the laws of the state of New York (
the "Adviser"), Transamerica Life Insurance Company of New York, a life
insurance company organized as a corporation under the laws of the State of New
York, (the "Company"), on its own behalf and on behalf of each segregated asset
account of the Company set forth in Schedule A, as may be amended from time to
time (the "Accounts"), and Fred Alger and Company, Incorporated, a Delaware
corporation, the Trust's distributor (the "Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income & Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company may contract with an Administrator to perform
certain services with regard to the Contracts and, therefore, certain
obligations ans services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company,
WHEREAS, the Company desires to use shares of the Portfolios
indicated on Schedule A as investment
vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company or its administrator shall
be the Trust's agent for the receipt from each account of purchase
orders and requests for redemption pursuant to the Contracts relating
to each Portfolio, provided that the Company or its administrator
notifies the Trust of such purchase orders and requests for redemption
by 9:30 a.m. Eastern time on the next following Business Day, as
defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next
computed after receipt of a purchase order by the Trust (or its
agent), as established in accordance
with the provisions of the then current prospectus of the
Trust describing Portfolio purchase
procedures. The Company or its administrator will transmit order
from time to time to the Trust for
the purchase and redemption of shares of the Portfolios. The Trustees
of the Trust (the "Trustees") may
refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if,
in the sole discretion of the Trustees acting in good faith and in
light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in th
best interests of the shareholders
of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or its
agent) receives the purchase order. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Trust for
this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the
Company on behalf of an Account, at the net asset value next computed
after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance
with the provisions of the then
current prospectus of the Trust describing Portfolio redemption
procedures. The Trust shall make
payment for such shares in the manner established from time to
time by the Trust. Proceeds of
redemption with respect to a Portfolio will be paid to the Company
for an Account in federal funds
transmitted by wire to the Company by order of the Trust with the
reasonable expectation of receipt by
the Company by 2:00 p.m. Eastern time on the next Business Day
after the receipt by the Trust (or its
agent) of the request for redemption. Such payment may be delayed if,
for example, the Portfolio's cash
position so requires or if extraordinary market conditions exist,
but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act. The
Trust reserves the right to suspend
the right of redemption, consistent with Section 22(e) of the 1940 Act
and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.
1.7. The Trust shall furnish, two days before the ex-dividend date, notice
to the Company that an income dividend or capital gain distribution
will be paid on the shares of any Portfolio of the Trust. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and
distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or
its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available to the
Company by 6:30 p.m. Eastern time each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as may
be permitted by Section 817(h) of the Code, the regulations hereunder,
or judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.3. The Trust shall provide such documentation (including a final copy of
the prospectus(es) of the Portfolios indicated on Schedule A as set in
type or in camera-ready copy) and other assistance as is reasonably
necessary in order for the Company to print together in one document
the current prospectus for the Contracts issued by the Company and the
current prospectus for the Trust. The Trust shall bear the expense of
printing copies of its current prospectus that will be distributed to
existing Contract owners, and the Company shall bear the expense of
printing copies of the Trust's prospectus that are used in connection
with offering the Contracts issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of
its proxy material, periodic reports
to shareholders and other communications to shareholders in
such quantity as the Company shall
reasonably require for purposes of distributing to Contract
owners. The Trust, at the Company's
expense, shall provide the Company with copies of its periodic
reports to shareholders and other
communications to shareholders in such quantity as the Company
shall reasonably request for use in
connection with offering the Contracts issued by the Company.
If requested by the Company in lieu
thereof, the Trust shall provide such documentation (including
a final copy of the Trust's proxy
materials, periodic reports to shareholders and other communications
to shareholders, as set in type or
in camera-ready copy) and other assistance as reasonably
necessary in order for the Company to print
such shareholder communications for distribution to Contract owners.
2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature or other materials relating
to the Accounts or Contracts without the prior written consent of the
Distributor. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the
Trust or its designee a copy of each
Contract prospectus and/or statement of additional information
describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or
request for no-action letter in which the
Trust or the Distributor is named contemporaneously with the
filing of such document with the
Commission. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee
each piece of sales literature or other promotional material in
which the Trust or the Distributor is
named, at least five Business Days prior to its use. No such material
shall be used if the Trust or its
designee reasonably objects to such use within three Business Days
after receipt of such material.
2.8. The Company shall not give any information or make any
representations or statements on behalf of the
Trust or concerning the Trust or the Distributor in connection with
the sale of the Contracts other than
information or representations contained in and accurately derived
from the registration statement or
prospectus for the Trust shares (as such registration statement
and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports of
the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material
approved by the Trust or its designee,
except as required by legal process or regulatory authorities or
with the prior written permission of
the Trust, the Distributor or their respective designees. The
Trust and the Distributor agree to
respond to any request for approval on a prompt and timely basis.
The Company shall adopt and implement
procedures reasonably designed to ensure that "broker only"
materials including information therein
about the Trust or the Distributor are not distributed to existing or
prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and
the Distributor, in such form as the Company may reasonably require, as
the Company shall reasonably request in connection with the preparation
of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give,
any information or make any representations or statements on
behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or
representations contained in and
accurately derived from the registration statement or prospectus for
the Contracts (as such registration
statement and prospectus may be amended or supplemented from time to
time), or in materials approved by
the Company for distribution including sales literature or other
promotional materials, except as
required by legal process or regulatory authorities or with the
prior written permission of the
Company. The Company agrees to respond to any request for approval of
a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets
the 1940 Act to require pass-through
voting privileges for Contract owners, the Company will provide
pass-through voting privileges to
Contract owners whose cash values are invested, through the
registered Accounts, in shares of one or
more Portfolios of the Trust. The Trust shall require all
Participating Insurance Companies to
calculate voting privileges in the same manner and the Company
shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established
by the Trust. With respect to each
registered Account, the Company will vote shares of each Portfolio
of the Trust held by a registered
Account and for which no timely voting instructions from Contract
owners are received in the same
proportion as those shares for which voting instructions are
received. The Company and its agents will
in no way recommend or oppose or interfere with the solicitation of
proxies for Portfolio shares held to
fund the Contacts without the prior written consent of the Trust,
which consent may be withheld in the
Trust's sole discretion. The Company reserves the right, to the
extent permitted by law, to vote shares
held in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust, the
Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of New
York and that it has legally and validly established each Account as a
segregated asset account under such law as of the date set forth in
Schedule A, and that _________________________________, the principal
underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member in good standing of
the National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration
is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal
and state laws, and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify
its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust and Adviser represent and warrant that the investments of
each Portfolio complies and will comply with the diversification
requirements for variable annuity, endowment or life insurance
contracts set forth in Section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"), and the rules and regulations
thereunder, including without limitation Treasury Regulation 1.817-5,
and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply
and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance within the grace period afforded by
Regulation 1.817-5.
3.7. The Trust and Adviser represent and warrant that each Portfolio is
currently qualified as a "regulated investment company" under
Subchapter M of the Code, that such qualification will be maintained
and the Trust or the Adviser will notify the Company immediately upon
having a reasonable basis for believing it has ceased to so qualify or
might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of
Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made available for
investment to other Participating Insurance Companies. In such event, the
Trustees wil monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. A material irreconcilable conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that a material irreconcilable conflict exists and of the implications thereof.
4.2. The Company agrees to report promptly any potential or existing conflicts
of which it is aware to the Trustees. The Company will assist the Trustees in
carrying out their responsibilities under the Shared Funding Exemptive Order by
providing the Trustees with all information reasonably necessary for and
requested by the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that the Trust has determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority of
the disinterested Trustees shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Trust be required to establish a new funding medium for any Contract. The
Company shall not be required to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the material irreconcilable
conflict. In the event that the Trustees determine that any proposed action does
not adequately remedy any material irreconcilable conflict, then the Company
will withdraw the Account's investment in the Trust and terminate this Agreement
within six (6 months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared
Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Adviser, --------------------------------- Distributor, the Trust
and each of its Trustees, officers, employee and agents and each person, if any,
who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company, which consent shall not
be unreasonably withheld) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses are related to the sale or acquisition of the Contracts or Trust shares
and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement o prospectus for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the Company
on behalf of the Contracts or Accounts (or any amendment or supplement
to any of the foregoing) (collectively, "Company Documents" for the
purposes of this Article V), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Company
by or on behalf of the Trust for use in Company Documents or otherwise
for use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section
5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company or
administrator to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company or
administrator in this Agreement or arise out of or result from
any other material breach of this Agreement by the Company or
administrator; or
(f) arise out of or result from the provision by the Company or
administrator to the Trust of insufficient or incorrect
information regarding the purchase or sale of shares of any
Portfolio, or the failure of the Company or administrator to
provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor, Adviser and Trust each
jointly and severally agree ------------------------------------ to indemnify
and hold harmless the Company and each of its directors, officers, employees,
and agents and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for the
purposes of this Section 5.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Distributor, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and: (a) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any amendment or
supplement thereto) (collectively, "Trust Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Adviser,
Distributor or the Trust by or on behalf of the Company for use in Trust
Documents or otherwise for use in connection with the sale of the Contracts or
Trust shares and; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived form Company Documents) or wrongful conduct
of the Adviser, Distributor or persons under their control,
with respect to the sale or acquisition of the Contracts or
Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement
or omission was made in reliance upon and accurately derived
from written information furnished to the Company by or on
behalf of the Trust, Adviser or Distributor; or
(d) arise out of or result from any failure by the Adviser,
Distributor or the Trust to provide the services or furnish
the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser,
Distributor or the Trust in this Agreement ( including a
failure, whether unintentional or in good faith or otherwise,
to comply with the diversification and subchapter M
requirements specified in Article III ) or arise out of or
result from any other material breach of this Agreement by the
Adviser Distributor or the Trust; or
(f) arise out of or result from the materially incorrect or materially
untimely calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate.
5.3. None of the Company, the Adviser, the Trust or the Distributor shall be
liable under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any Losses incurred or assessed against an
Indemnified Party that arise from such Indemnified Party's willful
misfeasance, bad faith or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
5.4. None of the Company, the Adviser, Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified party unless such Indemnified
Party shall have notified the other party in writing within a reasonable time
after the summons, or other first written notification, giving information of
the nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense, in the
defense of such action. The indemnifying party also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the indemnifying party to the Indemnified Party of
an election to assume such defense, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days advance written notice
to the other parties, unless a shorter time is agreed to by
the parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if
the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority
of the Trustees of the Trust, or a majority of its
disinterested Trustees, that a material irreconcilable
conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD,
the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to the
sale of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails
to meet the diversification requirements specified in Section
3.6 hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company,
and upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of
the Portfolio are not registered, issued or sold in accordance
with applicable state and/or federal law, or such law
precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the
Company; or
(h) at the option of the Company, if the Portfolio fails to
qualify as a Regulated Investment Company under Subchapter M
of the Code; or
(i) at the option of the Distributor if it shall determine in its
sole judgment exercised in good faith, that the Company and/or
its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the
terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Articles I,II,III,IV, and VII and
shall survive the termination of this Agreement as long as shares of
the Trust are held on behalf of Contract owners in accordance with
Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust, its Adviser, or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Transamerica Life Insurance Company of New York
Corporate Secretary
100 Manhattanville Rd.
Purchase, NY 10577
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders. Copies of any such orders shall be promptly forwarded by
the Trust to the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent or
holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
<PAGE>
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto, and
shall not disclose such confidential information without the written
consent of the affected party unless such information has become
publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger and Company, Incorporated
By:________________________________
Name:
Title:
The Alger American Fund
By:_________________________________
Name:
Title:
Transamerica Life Insurance Company of New York
By:___________________________________
Name:
Title:
SCHEDULE A
The Alger American Fund:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American Income & Growth Portfolio
<PAGE>
33
S:\DEPT550\DREW\AGREEMEN\PART-AGR.TR2
PARTICIPATION AGREEMENT
AMONG
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY,
TRANSAMERICA SECURITIES SALES CORPORATION,
ALLIANCE CAPITAL MANAGEMENT LP
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
DECEMBER 15, 1997
<PAGE>
6
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 15th day of December
1997 ("Agreement"), by and among Transamerica Life Insurance and Annuity
Company, a North Carolina life insurance company ("Insurer") (on behalf of
itself and its "Separate Account," defined below); Transamerica Securites Sales
Corporation, a Maryland corporation ("Contracts Distributor"), the principal
underwriter with respect to the Contracts referred to below; Alliance Capital
Management L.P., a Delaware limited partnership ("Adviser"), the investment
adviser of the Fund referred to below; and Alliance Fund Distributors, Inc., a
Delaware, corporation ("Distributor"), the Fund's principal underwriter
(collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that shares of the Fund's Premier Growth and
Growth and Income (the "Portfolios"; reference herein to the "Fund" includes
reference to each Portfolio to the extent the context requires) be made
available by Distributor to serve as underlying investment media for those
combination fixed and variable annuity contracts of Insurer that are the subject
of Insurer's Form N-4 registration statement filed with the Securities and
Exchange Commission (the "SEC"), File No. 333-9745 (the "Contracts"), to be
offered through Contracts Distributor and other registered broker-dealer firms
as agreed to by Insurer and Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts
received by Insurer to separate series (the "Divisions"; reference herein to the
"Separate Account" includes reference to each Division to the extent the context
requires) of the Separate Account for investment in the shares of corresponding
Portfolios of the Fund that are made available through the Separate Account to
act as underlying investment media,
WHEREAS the Insurer may contract with an administrator (the
"Administrator") to perform certain services with respect to the Contracts and,
therefore, certain obligations of the Adviser may be directed to such
Administrator, if the Insurer so directs the Adviser;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make shares of the Portfolios
available to Insurer for this purpose at net asset value and with no sales
charges, all subject to the following provisions:
Section 1. Additional Portfolios
The Fund has and may, from time to time, add additional Portfolios,
which will become subject to this Agreement, if, upon the written consent of
each of the Parties hereto, they are made available as investment media for the
Contracts.
Section 2. Processing Transactions
2.1 Timely Pricing and Orders.
The Adviser or its designated agent will provide closing net asset
value, dividend and capital gain information for each Portfolio to Insurer or
its Administrator, as directed by Insurer, at the close of trading on each day
(a "Business Day") on which the New York Stock Exchange is open for regular
trading. The Fund or its designated agent will use its best efforts to provide
this information by 6:00 p.m., Eastern time. Insurer will use these data to
calculate unit values, which in turn will be used to process transactions that
receive that same Business Day's Separate Account Division's unit values. Such
Separate Account processing will be done the same evening, and corresponding
orders with respect to Fund shares will be placed the morning of the following
Business Day. Insurer will use its best efforts to place such orders with the
Fund by 10:00 a.m., Eastern time.
If the Adviser provides material incorrect share net asset value
information, the Adviser shall make an adjustment to the number of shares
purchased or redeemed for the Separate Account to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Insurer.
2.2 Timely Payments.
Insurer or its Administrator will transmit orders for purchases and
redemptions of Fund shares to Distributor, and will wire payment for net
purchases to a custodial account designated by the Fund on the day the order for
Fund shares is placed, to the extent practicable. Payment for net redemptions
will be wired by the Fund to an account designated by Insurer on the same day as
the order is placed, to the extent practicable, and in any event be made within
six calendar days after the date the order is placed in order to enable Insurer
to pay redemption proceeds within the time specified in Section 22(e) of the
Investment Company Act of 1940, as amended (the "1940 Act").
<PAGE>
2.3 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. For the purposes of this section, Insurer and its Administrator shall be
deemed to be the agent of the Fund for receipt of such orders from holders or
applicants of contracts, and receipt by Insurer shall constitute receipt by the
Fund. All other purchases and redemptions of Portfolio shares by Insurer, will
be effected at the net asset values next computed after receipt by Distributor
of the order therefor, and such orders will be irrevocable. Insurer hereby
elects to reinvest all dividends and capital gains distributions in additional
shares of the corresponding Portfolio at the record-date net asset values until
Insurer otherwise notifies the Fund in writing, it being agreed by the Parties
that the record date and the payment date with respect to any dividend or
distribution will be the same Business Day. The Adviser shall give Insurer or
its Administrator, as directed by Insurer, two Business Days' notice of any
distributions.
<PAGE>
Section 3. Costs and Expenses
3.1 General.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 Registration.
The Fund will bear the cost of its registering as a management
investment company under the 1940 Act and registering its shares under the
Securities Act of 1933, as amended (the "1933 Act"), and keeping such
registrations current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
respecting the Fund and its shares and payment of all applicable registration or
filing fees with respect to any of the foregoing. Insurer will bear the cost of
registering the Separate Account as a unit investment trust under the 1940 Act
and registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without limitation,
the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
respecting the Separate Account and its units of interest and payment of all
applicable registration or filing fees with respect to any of the foregoing.
3.3 Other (Non-Sales-Related) Expenses.
The Fund will bear the costs of preparing, filing with the SEC and
setting for printing the Fund's prospectus, statement of additional information
and any amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer each
will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If requested by Insurer,
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
3.4 Other Sales-Related Expenses.
Expenses of distributing the Portfolio's shares and the Contracts will
be paid by Contracts Distributor and other parties, as they shall determine by
separate agreement.
3.5 Parties to Cooperate.
The Adviser, Insurer, Contracts Distributor, and Distributor each
agrees to cooperate with the others, as applicable, in arranging to print, mail
and/or deliver combined or coordinated prospectuses or other materials of the
Fund and Separate Account.
<PAGE>
Section 4. Legal Compliance
4.1 Tax Laws.
(a) The Adviser represents and warrants that each Portfolio will elect
to qualify as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall maintain such
qualification, and the Adviser or Distributor will notify Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the
Contracts will be treated as life insurance or annuity contracts under sections
7702 or 72 of the Code and that it will make every effort to maintain such
treatment. Insurer will notify the Fund and Distributor immediately upon having
a reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(c) The Adviser represents and warants that it will maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future, and they will immediately
take all steps to adequately diversify the Portfolio to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
(d) Insurer represents that it believes, in good faith, that the
Separate Account is a "segregated asset account" and that interests in the
Separate Account are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms under Section
817(h) of the Code and the regulations thereunder. Insurer will make every
effort to continue to meet such definitional requirements, and it will notify
the Fund and Distributor immediately upon having a reasonable basis for
believing that such requirements have ceased to be met or that they might not be
met in the future.
(e) The Adviser will manage the Fund as a RIC in compliance with
Subchapter M of the Code and with Section 817(h) of the Code and regulations
thereunder. The Fund has adopted and will maintain procedures for ensuring that
the Fund is managed in compliance with Subchapter M and Section 817(h) and
regulations thereunder.
(f) Should the Distributor or Adviser become aware of a failure of
Fund, or any of its Portfolios, to be in compliance with Subchapter M of the
Code or Section 817(h) of the Code and regulations thereunder, they represent
and agree that they will immediately notify Insurer of such in writing.
4.2 Insurance and Certain Other Laws.
(a) The Adviser will use its best efforts to cause the Fund to comply
with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by Insurer. If it cannot comply, it will so
notify Insurer in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of California and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under North Carolina Law, and
(iii) the Contracts comply in all material respects with all other applicable
federal and state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that
Contracts Distributor is a business corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland and has
full corporate power, authority and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full corporate power, authority and legal
right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Maryland and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(f) Adviser represents and warrants that it is a limited partnership,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 Securities Laws.
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with [State] law, (ii) the Separate Account is
and will remain registered under the 1940 Act to the extent required by the 1940
Act, (iii) the Separate Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, (iv) the
Separate Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will, at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund
shares sold pursuant to this Agreement will be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(c) The Fund will register and qualify its shares for sale in
accordance with the laws of any state or other jurisdiction only if and to the
extent reasonably deemed advisable by the Fund, Insurer or any other life
insurance company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants
that it is registered as a broker-dealer with the SEC under the Securities
Exchange Act of 1934, as amended, and is a member in good standing of the
National Association of Securities Dealers Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer. Distributor and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund
of (i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
<PAGE>
4.5 Insurer to Provide Documents.
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 Fund to Provide Documents.
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
Section 5. Mixed and Shared Funding
5.1 General.
The Fund has obtained an order exempting it from certain provisions of
the 1940 Act and rules thereunder so that the Fund is available for investment
by certain other entities, including, without limitation, separate accounts
funding variable life insurance policies and separate accounts of insurance
companies unaffiliated with Insurer ("Mixed and Shared Funding Order"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section 5.
5.2 Disinterested Directors.
The Fund agrees that its Board of Directors shall at all times consist
of directors a majority of whom (the "Disinterested Directors") are not
interested persons of Adviser or Distributor within the meaning of Section
2(a)(I 9) of the 1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Fund agrees that its Board of Directors will monitor for the
existence of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Insurer agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity contract and
variable life insurance contract participants or by participants of different
life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to disregard the
voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected participants and, as appropriate, segregating the assets of any
particular group (e.g., annuity contract owners or participants, life insurance
contract owners or all contract owners and participants of one or more life
insurance companies utilizing the Fund) that votes in favor of such segregation,
or offering to the affected contract owners or participants the option of making
such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940
Act or a new separate account that is operated as a Management
Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Insurer conflicts with the
majority of other state regulators, then Insurer will withdraw the Separate
Account's investment in the Fund within six months after the Fund's Board of
Directors informs Insurer that it has determined that such decision has created
a material irreconcilable conflict, and until such withdrawal Distributor and
Fund shall continue to accept and implement orders by Insurer for the purchase
and redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to Insurer.
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
If, at any time during which the Fund is serving an investment medium
for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to mixed and shared funding, the Parties agree that they will comply
with the terms and conditions thereof and that the terms of this Section 5 shall
be deemed modified if and only to the extent required in order also to comply
with the terms and conditions of such exemptive relief that is afforded by any
of said rules that are applicable.
Section 6. Termination
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of Insurer or Distributor upon at least six
months advance written notice to the
other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance
written notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this Contract is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Trust shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's obligations
under this Agreement or related to the sale of the Contracts, the operation of
the Separate Account, or the purchase of the Fund shares, if, in each case, the
Fund reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Portfolio to be terminated; or
(d) at the option of Insurer upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding the Fund's, Adviser's
or Distributor's obligations under this Agreement or related to the operation or
management of the Fund or the purchase of Fund shares, if, in each case, Insurer
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Insurer, Contracts Distributor or the Division
corresponding to the Portfolio to be terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's
shares are not registered and, in all material respects, issued and sold in
accordance with any applicable state and federal law or (ii) such law precludes
the use of such shares as an underlying investment medium of the Contracts
issued or to be issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any
change in a Fund's investment adviser or investment practices will materially
increase the risks incurred by Insurer.
6.2 Funds to Remain Available.
Except (i) as necessary to implement Participant-initiated
transactions, (ii) as required by state insurance laws or regulations, (iii) as
required pursuant to Section 5 of this Agreement, or (iv) with respect to any
Portfolio as to which this Agreement has terminated, Insurer shall not (x)
redeem Fund shares attributable to the Contracts, or (y) prevent Participants
from allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 90 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
6.3 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of
this Agreement.
6.4 Continuance of Agreement for Certain Purposes.
Notwithstanding any termination of this Agreement, the Distributor
shall continue to make available shares of the Portfolios pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (the "Existing Contracts"), except as
otherwise provided under Section 5 of this Agreement. Specifically, and without
limitation, the Distributor shall facilitate the sale and purchase of shares of
the Portfolios as necessary in order to process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
Section 7. Parties to Cooperate Respecting Termination
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
Section 8. Assignment
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
Section 9. Notices
Notices and communications required or permitted by Section 2 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
Transamerica Life Insurance and Annuity
Company
Corporate Secretary
1150 South Olive Street
Los Angeles, California 90015
Transamerica Securities Sales Corporation
Transamerica Center
1150 South Olive Street
Los Angeles, California 90015
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
<PAGE>
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
Section 10. Voting Procedures
Subject to the cost allocation procedures set forth in Section 3
hereof, Insurer will distribute all proxy material furnished by the Fund to
Participants and will vote Fund shares in accordance with instructions received
from Participants. Insurer will vote Fund shares that are (a) not attributable
to Participants or (b) attributable to Participants, but for which no
instructions have been received, in the same proportion as Fund shares for which
said instructions have been received from Participants. Insurer agrees that it
will disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 10.
Section 11. Foreign Tax Credits
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
Section 12. Indemnification
12.1 Of Fund, Distributor and Adviser by Insurer.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, Insurer agrees to indemnify and hold harmless the Fund, Distributor and
Adviser, each of their directors and officers, and each person, if any, who
controls the Fund, Distributor or Adviser within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 12. 1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Insurer) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions are related to the sale, acquisition, or holding
of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate Account's
1933 Act registration statement, the Separate Account Prospectus, the
Contracts or, to the extent prepared by Insurer or Contracts Distributor,
sales literature or advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to Insurer or Contracts Distributor by or on behalf
of the Fund, Distributor or Adviser for use in the Separate Account's 1933
Act registration statement, the Separate Account Prospectus, the Contracts,
or sales literature or advertising (or any amendment or supplement to any
of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in the
Fund's 1933 Act registration statement, Fund Prospectus, sales literature
or advertising of the Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of Insurer or
Contracts Distributor) or the negligent, illegal or fraudulent conduct of
Insurer or Contracts Distributor or persons under their control (including,
without limitation, their employee and "Associated Persons," as that term
is defined in paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or advertising of
the Fund, or any amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund, Adviser or Distributor
by or on behalf of Insurer or Contracts Distributor for use in the Fund's
1933 Act registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by Insurer or Contracts
Distributor to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement.
(b) Insurer shall not be liable under this Section 12.1 with respect to
any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 12.1 with respect to
any action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 12. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from Insurer to such Indemnified Party of
Insurer's election to assume the defense thereof, the Indemnified Party will
cooperate fully with Insurer and shall bear the fees and expenses of any
additional counsel retained by it, and Insurer will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
12.2 Indemnification of Insurer and Contracts Distributor by
Adviser and Distributor.
(a) Except to the extent provided in Sections 12.2(d) and 12.2(e),
below, Adviser and Distributor
agree to indemnify and hold harmless Insurer and Contracts Distributor, each of
their directors and officers, and each person, if any, who controls Insurer or
Contracts Distributor within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Adviser) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions are
related to the sale, acquisition, or holding of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or advertising of
the Fund or, to the extent not prepared by Insurer or Contracts
Distributor, sales literature or advertising for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission o the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to Distributor, Adviser or the Fund by or on
behalf of Insurer or Contracts Distributor for use in the Fund's 1933 Act
registration statement, Fund Prospectus, or in sales literature or
advertising (or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in the
Separate Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not supplied for use
therein by or on behalf of Distributor, Adviser, or the Fund) or the
negligent, illegal or fraudulent conduct of the Fund, Distributor, Adviser
or persons under their control (including, without limitation, their
employees and Associated Persons), in connection with the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate Account's
1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or omission
was made in reliance upon and in conformity with information furnished to
Insurer or Contracts Distributor by or on behalf of the Fund, Distributor
or Adviser for use in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to any of the
foregoing;
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement;
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or
Distributor in this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and Sub-Chapter M qualification
requirements specified in Section 4 of this Agreement) or
arise out of or result form any other material breach of this
Agreement by the Adviser or Distributor; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate.
(b) Except to the extent provided in Sections 12.2(d) and 12.2(e)
hereof, Adviser agrees to indemnify and hold harmless the Indemnified Parties
from and against any and all losses, claims, damages, liabilities (including
amounts paid in settlement thereof with, except as set forth in Section 12.2(c)
below, the written consent of Adviser) or actions in respect thereof (including,
to the extent reasonable, legal and other expenses) to which the Indemnified
Parties may become subject directly or indirectly under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
actions directly or indirectly result from or arise out of the failure of any
Portfolio to operate as a regulated investment company in compliance with (i)
Subchapter M of the Code and regulations thereunder and (ii) Section 817(h) of
the Code and regulations thereunder (except to the extent that such failure is
caused by Insurer), including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Contract owners or
Participants asserting liability against Insurer or Contracts Distributor
pursuant to the Contracts, the costs of any ruling and closing agreement or
other settlement with the Internal Revenue Service, and the cost of any
substitution by Insurer of shares of another investment company or portfolio for
those of any adversely affected Portfolio as a funding medium for the Separate
Account that Insurer deems necessary or appropriate as a result of the
noncompliance.
(c) The written consent of Adviser referred to in Section 12.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 12.2 with respect to
any losses, claims; damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 12.2 with respect to
any action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 12.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Adviser to such
Indemnified Party of Adviser's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Adviser and shall bear the fees and
expenses of any additional counsel retained by it, and Adviser will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
<PAGE>
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Section 12.1(c) or 12.2(e) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
Section 13. Applicable Law
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
Section 15. Severability
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Restrictions on Sales of Fund Shares
Insurer agrees that the Fund will be permitted (subject to the other terms of
this
Agreement) to make its shares available to separate accounts of other
life insurance companies.
Section 18. Headings
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
TRANSAMERICA LIFE INSURANCE
AND ANNUITY COMPANY
By:
Name:
Title:
TRANSAMERICA SECURITIES SALES
CORPORATION
By:
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management Corporation,
its General Partner
By:
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Title:
S:\DEPT550\DREW\AGREEMEN\PART-AGR.TR2
<PAGE>
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the day of _________, 1998, between
Transamerica Occidental Life Insurance Company a life insurance company
organized under the laws of the State of California ("Insurance Company"), and
DREYFUS VARIABLE INVESTMENT FUND("Fund").
----
ARTICLE I 1.
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may be,
of a Fund, which has the responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying investment
medium. Individuals who participate under a group Contract are "Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract with a
Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates, including
Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life insurance
contracts to the public and that has entered into an agreement with one or more
of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended from time
to time by agreement of the parties hereto, the shares of which are available to
serve as the underlying investment medium for the aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of additional
information of a Fund, as most recently filed with the Commission.
1.12 "Separate Account" shall mean Separate Account VA-7, a separate account
established by Insurance Company in accordance with the laws of the State of
California.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value per
share. Such Program may include the Lion System. In situations where the Lion
System or any other Software Program used by a Fund is not available, such
information may be provided by telephone. The Lion System shall be provided to
Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general account(s)
of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it has
legally and validly established the Separate Account pursuant to the California
Insurance Code for the purpose of offering to the public certain individual and
group variable annuity and life insurance contracts; (c) it has registered the
Separate Account as a unit investment trust under the Act to serve as the
segregated investment account for the
Contracts; and (d) the Separate Account is eligible to invest in shares
of each Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company separate
accounts supporting variable annuity contracts or variable life insurance
contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of 1933, as
amended ("1933 Act"); (b) the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws; and (c) the
sale of the Contracts shall comply in all material respects with state insurance
law requirements. Insurance Company agrees to notify each Participating Fund
promptly of any investment
restrictions imposed by state insurance law and applicable to the
Participating Fund.
2.3 Insurance Company represents and warrants that the income, gains and losses,
whether or not realized, from assets allocated to the Separate Account
are, in accordance with the applicable Contracts, to be credited to or charged
against such Separate Account without regard to other income, gains or losses
from assets allocated to any other accounts of Insurance Company. Insurance
Company represents and warrants that the assets of the Separate Account are
and will be kept separate from Insurance
Company's General Account and any other separate accounts Insurance
Company may have, and will not be charged with liabilities from any business
that Insurance Company may conduct or the liabilities of any companies
affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the Commission
under the Act as an open-end, management investment company and possesses, and
shall maintain, all legal and regulatory licenses, approvals, consents and/or
exemptions required for the Participating Fund to operate and offer its shares
as an underlying investment medium for Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance
policies or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain such
treatment and that it will notify each Participating Fund and Dreyfus
immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in
the future. Insurance Company agrees that any prospectus offering a
Contract that is a "modified endowment contract," as that term is defined in
Section 7702A of the Code, will identify such Contract as a modified endowment
contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and invested
in a manner that complies with the requirements of Section 817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares available to
other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its directors,
trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Participating
Fund in an amount not less than that required by Rule 17g-1 under the Act. The
aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating Fund
are and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Participating Fund. The aforesaid Bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights conferred by
virtue of this Agreement.
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase at
the then applicable net asset value per share by Insurance Company and the
Separate Account on each Business Day pursuant to rules of the Commission.
Notwithstanding the foregoing, each Participating Fund may refuse to sell its
shares to any person, or suspend or terminate the offering of its shares, if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of its
Board, acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary and in the best interests of
the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will be
sold only to (a) Participating Companies and their separate accounts or
(b) "qualified pension or retirement plans" as determined under Section 817(h)
(4) of the Code. Except as otherwise set forth in this Section 3.3, no shares of
any Participating Fund will be sold to the general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis to
Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any material
errors in the calculation of net asset value, dividend and capital gain
information shall be reported immediately upon discovery to Insurance Company.
Non-material errors will be corrected in the next Business Day's net asset
value per share.
3.5 At the end of each Business Day, Insurance Company will use the information
described in Sections 3.2 and 3.4 to calculate the unit values of the Separate
Account for the day. Using this unit value, Insurance Company will process the
day's Separate Account transactions received by it by the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m. Eastern time) to
determine the net dollar amount of each Participating Fund's shares that will be
purchased or redeemed at
that day's closing net asset value per share. The net purchase or
redemption orders will be transmitted to each Participating Fund by Insurance
Company by 11:00 a.m. Eastern time on the Business Day next following
Insurance Company's receipt of that information. Subject to Sections 3.6 and
3.8, all purchase and redemption orders for Insurance Company's General Accounts
shall be effected at the net asset value per share of each
Participating Fund next calculated after receipt of the order by the
Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the
conditions specified in Section 3.8, as applicable, are satisfied. A
redemption or purchase request that does not satisfy the conditions
specified above and in Section 3.8, as applicable, will be effected at
the net asset value per share computed on the Business Day immediately
preceding the next following Business Day upon which such conditions
have been satisfied in accordance with the requirements of this Section
and Section 3.8. Insurance Company represents and warrants that all
orders submitted by the Insurance Company for execution on the
effective trade date shall represent purchase or redemption orders
received from Contractholders prior to the close of trading on the New
York Stock Exchange on the effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or redemption
orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the
Business Day the Participating Fund receives the notice of the order
pursuant to Section 3.5. Each applicable Participating Fund will
execute such orders at the applicable net asset value per share
determined as of the close of trading on the effective trade date if
the Participating Fund receives payment in Federal Funds by 12:00
midnight Eastern time on the Business Day the Participating Fund
receives the notice of the order pursuant to Section 3.5. If payment in
Federal Funds for any purchase is not received or is received by a
Participating Fund after 12:00 noon Eastern time on such Business Day,
Insurance Company shall promptly, upon each applicable Participating
Fund's request, reimburse the respective Participating Fund for any
charges, costs, fees, interest or other expenses incurred by the
Participating Fund in connection with any advances to, or borrowings or
overdrafts by, the Participating Fund, or any similar expenses incurred
by the Participating Fund, as a result of portfolio transactions
effected by the Participating Fund based upon such purchase request. If
Insurance Company's order requests the redemption of any Participating
Fund's shares valued at or greater than $1 million dollars, the
Participating Fund will wire such amount to Insurance Company within
seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order made
by Insurance Company. Transfer of Participating Fund shares will
be by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a Participating Fund
in an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the appropriate
number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business Day,
on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain, if
any, per share. All dividends and capital gains shall be automatically
reinvested in additional shares of the applicable Participating Fund at the
net asset value per share on the ex-dividend date. Each Participating Fund
shall, on the day after the ex-dividend date or, if not
a Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the fifteenth
(15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of the
Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund customarily
provides to its shareholders) in quantities as Insurance Company may reasonably
request for distribution to each Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Participating Fund or its shares, contemporaneously
with the filing of such document with the Commission or other regulatory
authorities.
4.4 Insurance Company will provide to each Participating Fund at least one copy
of all registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or the Separate Account, contemporaneously with the
filing of such document with the Commission.
<PAGE>
ARTICLE V 5.
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees, administrative
expenses and legal and regulatory costs, will be made in the determination of
the Participating Fund's daily net asset value per share so as
to accumulate to an annual charge at the rate set forth in the Participating
Fund's Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and
extraordinary expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any expenses
of any Participating Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Participating Fund
materials, including the cost of printing a Participating Fund's Prospectus, or
marketing materials for prospective Insurance Company Contractholders and
Participants as Dreyfus and Insurance Company shall agree from time to time.
b. Distribution expenses of any Participating Fund materials or
marketing materials for prospective Insurance Company Contractholders and
Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and Participants.
Except as provided herein, all other expenses of each Participating
Fund shall not be borne by Insurance Company.
ARTICLE VI
6. EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment
Fund and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order
dated February 5, 1998 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to The Dreyfus Socially
Responsible Growth Fund, Inc. and Dreyfus Investment Portfolios, and,
in particular, has reviewed the conditions to the relief set forth in
each related Notice. As set forth therein, if Dreyfus Variable
Investment Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus
Socially Responsible Growth Fund, Inc. or Dreyfus Investment Portfolios
is a Participating Fund, Insurance Company agrees, as applicable, to
report any potential or existing conflicts promptly to the respective
Board of Dreyfus Variable Investment Fund, Dreyfus Life and Annuity
Index Fund, Inc., The Dreyfus Socially Responsible Growth Fund, Inc.
and/or Dreyfus Investment Portfolios, and, in particular, whenever
contract voting instructions are disregarded, and recognizes that it
will be responsible for assisting each applicable Board in carrying out
its responsibilities under such application. Insurance Company agrees
to carry out such responsibilities with a view to the interests of
existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict exists with regard to
Contractholder investments in a Participating Fund, the Board shall
give prompt notice to all Participating Companies and any other Participating
Fund. If the Board determines that Insurance Company is responsible for causing
or creating said conflict, Insurance Company shall at its sole cost and
expense, and to the extent reasonably practicable (as
determined by a majority of the Disinterested Board Members), take such
action as is necessary to remedy or eliminate the irreconcilable material
conflict. Such necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another Participating Fund (if
applicable) or a different investment medium, or
submitting the question of whether such segregation should be implemented to
a vote of all affected Contractholders; and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision by
Insurance Company to disregard Contractholder voting instructions and said
decision represents a minority position or would preclude a majority vote by all
Contractholders having an interest in a Participating Fund, Insurance Company
may be required, at the Board's election, to withdraw the investments of the
Separate Account in that Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict, but in no event will any Participating
Fund be required to bear the expense of establishing a new funding medium for
any Contract. Insurance Company shall not be required by this Article to
establish a new funding medium for any Contract if an offer to
do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result of any
act or failure to act by Insurance Company pursuant to this Article VI, shall
relieve Insurance Company of its obligations under, or otherwise affect the
operation of, Article V.
ARTICLE VII 7.
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at no
cost to Insurance Company, of the Participating Fund's proxy material, reports
to shareholders and other communications to shareholders in such quantity as
Insurance Company shall reasonably require for distributing to Contractholders
or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares for which
instructions have been received.
Insurance Company agrees at all times to vote its General Account
shares in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be responsible for assuring that voting
the Participating Fund shares for the Separate Account is conducted in a manner
consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce or
encourage Contractholders to (a) change or supplement the Participating Fund's
current investment adviser or (b) change, modify, substitute, add to or delete
from the current investment media for the Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of Contracts.
No representation is made as to the number or amount of Contracts that are to be
sold by Insurance Company. Insurance Company shall make reasonable efforts to
market the Contracts and shall comply with all applicable federal and state laws
in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund, its
investment adviser or the administrator is named, at least fifteen Business Days
prior to its use. No such material shall be used unless the Participating Fund
or its designee approves such material. Such approval (if given) must be in
writing and shall be presumed not given if
not received within ten Business Days after receipt of such material.
Each applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any representations
or statements on behalf of a Participating Fund or concerning a Participating
Fund in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or Prospectus of, as may
be amended or supplemented from time to time, or in reports or proxy statements
for, the applicable Participating Fund, or in sales
literature or other promotional material approved by
the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales literature
or other promotional material in which Insurance Company or the Separate Account
is named, at least fifteen Business Days prior to its use. No such material
shall be used unless Insurance Company approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not received within
ten Business Days after receipt
of such material. Insurance Company shall use all reasonable efforts
to respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any representations on
behalf of Insurance Company or concerning Insurance Company, the Separate
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as may
be amended or supplemented from time to time, or in published reports for the
Separate Account that are in the public domain or
approved by Insurance Company for distribution to Contractholders or
Participants, or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and
any other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each Participating
Fund, Dreyfus, each respective Participating Fund's investment adviser and
sub-investment adviser (if applicable), each respective Participating Fund's
distributor, and their respective affiliates, and each of their directors,
trustees, officers, employees, agents and each person, if any, who controls or
is associated with any of the foregoing entities or persons within the meaning
of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of Section 9.1), against any and all
losses, claims, damages or liabilities joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted) for which the Indemnified Parties may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect to thereof) (i) aris
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in information furnished by Insurance
Company for use in the registration statement or Prospectus or sales literature
or advertisements of the respective Participating Fund or with respect to the
Separate Account or Contracts, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements
therein not misleading; (ii) arise out of or as a result of conduct,
statements or representations (other than statements or representations
contained in the Prospectus and sales literature or advertisements of the
respective Participating Fund) of Insurance Company or its agents, with respect
to the sale and distribution of Contracts for which the respective
Participating Fund's shares are an underlying investment; (iii) arise out of the
wrongful conduct of Insurance Company or persons under its
control with respect to the sale or distribution of the Contracts or
the respective Participating Fund's shares; (iv) arise out of Insurance
Company's incorrect calculation and/or untimely reporting of net purchase or
redemption orders; or (v) arise out of any breach by Insurance Company of a
material term of this Agreement or as a result of any failure by Insurance
Company to provide the services and furnish the materials or to make any
payments provided for in this Agreement. Insurance Company
will reimburse any Indemnified Party in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that with respect to clauses (i) and (ii) above Insurance Company will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission or alleged omission made in such registration statement, prospectus,
sales literature, or advertisement in conformity
with written information furnished to Insurance Company by the
respective Participating Fund specifically for use therein. This indemnity
agreement will be in addition to any liability which Insurance Company may
otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees,
agents and each person, if any, who controls Insurance Company within
the meaning of the 1933 Act against any losses, claims, damages or
liabilities to which Insurance Company or any such director, officer,
employee, agent or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (1) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or Prospectus or
sales literature or advertisements of the respective Participating
Fund; (2) arise out of or are based upon the omission to state in the
registration statement or Prospectus or sales literature or
advertisements of the respective Participating Fund any material fact
required to be stated therein or necessary to make the statements
therein not misleading; or (3) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales
literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company by the respective Participating Fund; and the
respective Participating Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the respective Participating Fund will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such registration statement,
Prospectus, sales literature or advertisements in conformity with
written information furnished to the respective Participating Fund by
Insurance Company specifically for use therein. This indemnity
agreement will be in addition to any liability which the respective
Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to
pay due to the respective Participating Fund's (1) incorrect
calculation of the daily net asset value, dividend rate or capital gain
distribution rate; (2) incorrect reporting of the daily net asset
value, dividend rate or capital gain distribution rate; and (3)
untimely reporting of the net asset value, dividend rate or capital
gain distribution rate; provided that the respective Participating Fund
shall have no obligation to indemnify and hold harmless Insurance
Company if the incorrect calculation or incorrect or untimely reporting
was the result of incorrect information furnished by Insurance Company
or information furnished untimely by Insurance Company or otherwise as
a result of or relating to a breach of this Agreement by Insurance
Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice to such effect to the indemnified
party and is performing its obligations under this Article, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund harmless
against any tax liability incurred by the Participating Fund under Section 851
of the Code arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days' notice,
unless a shorter time is agreed to by the respective Participating
Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet the
requirements of the Contracts as determined by Insurance Company. Prompt notice
of election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of notice unless the
Participating Fund makes available a sufficient number of shares to meet the
requirements of the Contracts within said ten-
day period;
c. As to a Participating Fund, at the option of Insurance Company, upon
the institution of formal proceedings against that Participating Fund by the
Commission, National Association of Securities Dealers or any other regulatory
body, the expected or anticipated ruling, judgment or outcome of which would, in
Insurance Company's reasonable judgment, materially impair that Participating
Fund's ability to meet and perform the Participating Fund's obligations and
duties hereunder. Prompt notice
of election to terminate shall be furnished by Insurance
Company with said termination to be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating
Fund, upon the institution of formal proceedings against
Insurance Company by the Commission, National Association of Securities Dealers
or any other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in the Participating Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and perform Insurance
Company's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by such Participating
Fund with said termination to be effective upon receipt of notice;
e. As to a Participating Fund, at the option of that
Participating Fund, if the Participating Fund shall determine,
in its sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operation of that
Participating Fund or Dreyfus, such Participating Fund shall
notify Insurance Company in writing of such determination and
its intent to terminate this Agreement, and after considering
the actions taken by Insurance Company and any other changes
in circumstances since the giving of such notice, such
determination of the Participating Fund shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination;
f. As to a Participating Fund, upon termination of the Investment
Advisory Agreement between that Participating Fund and Dreyfus or its successors
unless Insurance Company specifically approves the selection of a new
Participating Fund investment adviser. Such Participating Fund shall promptly
furnish notice of such termination to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's
shares are not registered, issued or sold in accordance with applicabl
federal law, or such law precludes the use of such shares as the underlying
investment medium of Contracts issued or to be issued by Insurance Company.
Termination shall be effective immediately as to that Participating Fund only
upon such occurrence without notice;
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this Subsection (h) shall be
effective upon notice by such Participating Fund to Insurance Company of such
termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if such Participating Fund reasonably believes that the Contracts
may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal and/or
state law; or
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this Agreement.
Any termination of this Agreement shall not affect the operation of Article IX
of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided
below, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and
Dreyfus so elect to make additional Participating Fund shares
available, the owners of the Existing Contracts or Insurance Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in that Participating Fund, redeem investments
in that Participating Fund and/or invest in that Participating Fund
upon the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, such Participating Fund and Dreyfus, as promptly
as is practicable under the circumstances, shall notify Insurance
Company whether Dreyfus and that Participating Fund will continue to
make that Participating Fund's shares available after such termination.
If such Participating Fund shares continue to be made available after
such termination, the provisions of this Agreement shall remain in
effect and thereafter either of that Participating Fund or Insurance
Company may terminate the Agreement as to that Participating Fund, as
so continued pursuant to this Section 10.3, upon prior written notice
to the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Participating Fund, need
not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not be
deemed a termination as to any other Participating Fund unless Insurance
Company or such other Participating Fund, as the case may be, terminates this
Agreement as to such other Participating Fund in accordance with this Article X.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be made
by agreement in writing between Insurance Company and each
respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following addresses:
Insurance Company: Transamerica Life Insurance
and Annuity Company
401 North Tryon Street, Suite 700
Charlotte, NC 28202
Participating Funds: Dreyfus Variable Investment Fund
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Lawrence B. Stoller, Esq.
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII
12.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund.
The obligations of this Agreement shall only be binding upon the assets and
property of the Fund and shall not be binding upon any director, trustee,
officer or shareholder of the Fund individually. It is agreed that the
obligations of the Funds are several and not joint, that no Fund shall be liable
for any amount owing by another Fund and that the Funds
have executed one instrument for convenience only.
ARTICLE XIV 13.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of California, without giving effect to principles of conflict
of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
Transamerica Life Insurance
And Annuity Company
By:
Its:
Attest:_____________________
DREYFUS VARIABLE INVESTMENT FUND
By:
Its:
Attest:_____________________
<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
<PAGE>
<PAGE>
N:\BMH\JAS\TRANSAME\PARTAGT.TLI
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this ____ day of __________, 199_, between JANUS
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION (the "Adviser"), a
Colorado Corporation and the investment adviser to the Trust, and TRANSAMERICA
LIFE INSURANCE AND ANNUITY COMPANY, a life insurance company organized under the
laws of the State of North Carolina (the "Company"), on its own behalf and on
behalf of each segregated asset account of the Company set forth on Schedule A,
as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and
Exchange Commission granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless
registration is not required under applicable law) certain variable life
insurance policies and/or variable annuity contracts under the 1933 Act (the
"Contracts"); and
<PAGE>
WHEREAS, the Company has registered or will register (unless
registration is not required under applicable law) each Account as a unit
investment trust under the 1940 Act; and
<PAGE>
-16-
N:\BMH\JAS\TRANSAME\PARTAGT.TLI
WHEREAS, the Adviser is registered with the Securities and Exchange
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended;
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle of the
Accounts;
WHEREAS, the Company may contract with an Administrator to perform
certain administrative services with regard to the Contracts and Account(s) and,
therefore, certain obligations of the Trust and/or Adviser shall be directed to
the Administrator, as directed by the Company.
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1 The Trust and the Adviser shall make shares of the Trust's
Portfolios available to the Accounts at the net asset value next computed after
receipt of such purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust.
Shares of a particular Portfolio of the Trust shall be ordered in such
quantities and at such times as determined by the Company or its Administrator
to be necessary to meet the requirements of the Contracts. The Trustees of the
Trust (the "Trustees") may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company or its Administrator on behalf of an
Account at the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 11:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading unless the Trust is not
required to calculate its net asset value on such a day pursuant to the rules of
the Securities and Exchange Commission ("SEC").
1.4 Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid for no later than 12:00 noon New York time on the
same Business Day that the Trust receives notice of the order. The Trust shall
use its best efforts to make payment for redemption orders transmitted to the
Trust in accordance with Section 1.3 by 3:00 p.m. New York time on the same
Business Day that the Trust receives notice of the order, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act.
Payments shall be made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company or its
Administrator, as specified by the Company, of any income dividends or capital
gain distributions payable on the Trust's shares prior to the payment of such
dividends. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company or its
Administrator, as specified by the Company, of the number of shares so issued as
payment of such dividends and distributions prior to the payment of such
dividends.
1.7 The Trust shall make the net asset value per share for each
Portfolio available to the Company or its Administrator, as specified by the
Company, on a daily basis every Business Day as soon as reasonably practical
after the net asset value per share is calculated and shall use its best efforts
to make such net asset value per share available by 6 p.m. New York time.
1.8 The Trust and the Adviser agree that the Trust's shares will be
sold only to Participating Insurance Companies and their separate accounts and
to certain qualified pension and retirement plans to the extent permitted by the
Exemptive Order. No shares of any Portfolio will be sold directly to the general
public. The Company agrees that Trust shares will be used only for the purposes
of funding the Contracts and Accounts listed in Schedule A, as amended from time
to time.
<PAGE>
1.9 The Trust and the Adviser agree that all Participating Insurance
Companies shall have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding to those contained in Section 2.8
and Article IV of this Agreement.
1.10 If the Trust provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Trust shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II
Obligations of the Parties
2.1 The Trust and the Adviser shall prepare and be responsible for
filing with the Securities and Exchange Commission and any state regulators
requiring such filing all shareholder reports, notices, proxy materials (or
similar materials such as voting instruction solicitation materials),
prospectuses, statements of additional information, and fund profiles (upon the
adoption of Rule 498 under the 1933 Act) of the Trust. The Trust shall bear the
costs of registration and qualification of its shares, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the current
prospectus, annual report, semi-annual report, fund profiles and other
shareholder communications, including any amendments or supplements to any of
the foregoing, for the Trust's Portfolios in which the Accounts invest, as the
Company shall reasonably request; or (b) provide the Company with a camera ready
copy of such documents in a form suitable for printing. The Trust shall provide
the Company with a copy of its statement of additional information in a form
suitable for duplication by the Company. The Trust (at its expense) shall
provide the Company with copies of any Trust-sponsored proxy materials in such
quantity as the Company shall reasonably require for distribution to Contract
owners.
2.3 The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
shall bear the costs of distributing proxy materials (or similar materials such
as voting solicitation instructions) to Contract owners. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4 The Company agrees and acknowledges that the Adviser is the sole
owner of the name and mark "Janus" and that all use of any designation comprised
in whole or part of Janus (a "Janus Mark") under this Agreement shall inure to
the benefit of the Adviser. Except as provided in Section 2.5, the Company shall
not use any Janus Mark on its own behalf or on behalf of the Accounts or
Contracts in any registration statement, advertisement, sales literature or
other materials relating to the Accounts or Contracts without the prior written
consent of the Adviser. Upon termination of this Agreement for any reason, the
Company shall cease all use of any Janus Mark(s) as soon as reasonably
practicable except with respect to shares of the Trust that continue to be made
available to Contract owners in accordance with Section 6.2.
2.5 The Company shall furnish, or cause to be furnished, to the Trust
or its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or the Adviser is named prior to the filing of
such document with the Securities and Exchange Commission. The Company shall
furnish, or shall cause to be furnished, to the Trust or its designee, each
piece of sales literature or other promotional material in which the Trust or
the Adviser is named, at least fifteen Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
the Adviser in connection with the sale of the Contracts other than information
or representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee.
2.7 The Trust and the Adviser shall not give any information or make
any representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state
insurance laws that restrict the Portfolios' investments or otherwise affect the
operation of the Trust and shall notify the Trust of any changes in such laws.
ARTICLE III
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of North
Carolina and that it has legally and validly established each Account as a
segregated asset account under such law.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests
in the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued in compliance in all material respects with all applicable federal and
state laws and the Company represents and warrants that it will make every
effort to see that the Contracts are sold in compliance in all material respects
with all applicable federal and state laws and that the sale of the Contracts
shall comply in all material respects with state insurance suitability
requirements.
3.4 The Trust and the Adviser represent and warrant that the Trust is
duly organized and validly existing under the laws of the State of Delaware.
<PAGE>
3.5 The Trust and the Adviser represent and warrant that the Trust
shares offered and sold pursuant to this Agreement will be registered under the
1933 Act and the Trust shall be registered under the 1940 Act prior to any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.6 The Trust and the Adviser represent and warrant that the
investments of each Portfolio will comply with the diversification requirements
set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder, that the Trust and Adviser will notify
the Company immediately upon having a reasonable basis for believing that the
Trust or any Portfolio has ceased to meet such diversification requirements and
will immediately take steps to adequately diversify the Trust and/or Portfolio
to achieve compliance within the grace period afforded by Treas. Reg. Section
1.817-5.
3.7 the Trust and the Adviser represent and warrant that the Trust and
each Portfolio is currently qualified as a regulated investment company under
Subchapter M of the Code, that they will maintain that qualification and that
they will notify the Company immediately upon having a reasonable basis for
believing that the Trust has ceased to qualify or may not qualify in the future.
ARTICLE IV
Potential Conflicts
4.1 The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
ARTICLE V
Indemnification
5.1 Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust, the Adviser, and each of their Trustees, Directors,
officers, employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively, "Company Documents"
for the purposes of this Article V), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company.
5.2 Indemnification By the Trust and the Adviser. The Trust and the
Adviser agree to indemnify and hold harmless the Company and each of its
directors, officers, employees and agents and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust or the Adviser) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses:
<PAGE>
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any amendment or
supplement thereto), (collectively, "Trust Documents" for the purposes
of this Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Trust by or on behalf
of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Trust or
Adviser or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Trust or the Adviser;
or
(d) arise out of or result from any failure by the Trust or
the Adviser to provide the services or furnish the materials required
under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the Adviser in this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification or Sub-Chapter M
requirements of Article III of this Agreement) or arise out of or
result from any other material breach of this Agreement by the Trust or
the Adviser.
(f) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value per
share or dividend or capital gain distribution rate.
5.3 Neither the Company nor the Trust or the Adviser shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against an Indemnified Party that
arise from such Indemnified Party's willful misfeasance, bad faith or negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4 Neither the Company nor the Trust or the Adviser shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the other party in writing within a reasonable time
after the summons, or other first written notification, giving information of
the nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI
Termination
6.1 This Agreement may be terminated
(a) by any party for any reason by ninety (90) days' advance
written notice delivered to the other parties.
(b) at the option of the Company to the extent that the
Portfolios are not reasonably available to meet the requirements of the
Contracts or are not "appropriate funding vehicles" for the Contracts,
as reasonably determined by the Company. Without limiting the
generality of the foregoing, the Portfolios would not be "appropriate
funding vehicles" if, for example, such Portfolios did not meet the
diversification or other requirements referred to in Article III
hereof; or if the Company would be permitted to disregard Contract
owner voting instructions pursuant to Rule 6e-2 or 6e-3(T) under the
1940 Act. Prompt notice of the election to terminate for such cause and
an explanation of such cause shall be furnished to the Trust by the
Company; or
(c) at the option of the Trust or the Adviser upon institution
of formal proceedings against the Company by the NASD, the SEC, or any
insurance department or other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts,
the operation of the Accounts, or the purchase of the shares of the
Portfolios; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body
regarding the Trust's or the Adviser's duties under this Agreement or
related to the sale of the shares of the Portfolios; or
(e) at the option of the Company, the Trust or the Adviser
upon receipt of any necessary regulatory approvals and/or the vote of
the Contract owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment company for
the corresponding Portfolio shares in accordance with the terms of the
Contracts for which those Portfolio shares had been selected to serve
as the underlying investment media. The Company will give thirty (30)
days' prior written notice to the Trust of the date of any proposed
vote or other action taken to replace the Portfolio shares; or
(f) termination by either the Trust or the Adviser by written
notice to the Company, if either one or both of the Trust or the
Adviser respectively, shall determine, in their sole judgment exercised
in good faith, that the Company has suffered a material adverse change
in its business, operations, financial condition, or prospects since
the date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Trust
and the Adviser, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or the Adviser has suffered a
material adverse change in this business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
6.2 Notwithstanding any termination of this Agreement, the Trust and
the Adviser shall, at the option of the Company, continue to make available
additional shares of the Trust (or any Portfolio) pursuant to the terms and
conditions of this Agreement for all Contracts in
<PAGE>
effect on the effective date of termination of this Agreement, provided
that the Company continues to pay the costs set forth in Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Adviser:
Janus Capital Corporation
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, California 90015
Attention: Corporate Secretary
<PAGE>
ARTICLE VIII
Miscellaneous
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of North
Carolina.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
JANUS ASPEN SERIES
By:
Name:
Title:
JANUS CAPITAL CORPORATION
By:
Name:
Title:
TRANSAMERICA LIFE INSURANCE AND
ANNUITY COMPANY
By:
Name:
Title:
<PAGE>
-17-
N:\BMH\JAS\TRANSAME\PARTAGT.TLI
Schedule A
Separate Accounts and Associated Contracts
Contracts Funded
Name of Separate Account By Separate Account
Separate Account VA-6 TCG-311-197
-------------
TCG-313-197
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of ____ 1997, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), Transamerica Occidental Life Insurance Company, a California
corporation (the "Company") on its own behalf and on behalf of each of the
segregated asset accounts of the Company set forth in Schedule A hereto, as may
be amended from time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL
SERVICES COMPANY, a Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD");
WHEREAS, the company, the underwriter for the individual variable
annuity and the variable life policies, is registered as a broker-dealer with
the SEC under the 1934 Act and is a member in good standing of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the Accounts
order (based on orders placed by Policy holders on that Business Day, as defined
below) and which are available for purchase by such Accounts, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the order for the Shares. For purposes of this
Section 1.1, the Company shall be the designee of the Trust for receipt of such
orders from Policy owners and receipt by such designee shall constitute receipt
by the Trust; provided that the Trust receives notice of such orders by 9:30
a.m. New York time on the next following Business Day. "Business Day" shall mean
any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for
trading and on which the Trust calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for purchase at
the applicable net asset value per share by the Company and the Accounts on
those days on which the Trust calculates its net asset value pursuant to rules
of the SEC and the Trust shall calculate such net asset value on each day which
the NYSE is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the Trust (the "Board") may refuse to sell any Shares to the Company
and the Accounts, or suspend or terminate the offering of the Shares if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary in the
best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to insurance
companies which have entered into participation agreements with the Trust and
MFS (the "Participating Insurance Companies") and their separate accounts,
qualified pension and retirement plans and MFS or its affiliates. The Trust and
MFS will not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same as Articles III
and VII of this Agreement is in effect to govern such sales. The Company will
not resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any full or
fractional Shares held by the Accounts (based on orders placed by Policy owners
on that Business Day), executing such requests on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the request
for redemption. For purposes of this Section 1.4, the Company shall be the
designee of the Trust for receipt of requests for redemption from Policy owners
and receipt by such designee shall constitute receipt by the Trust; provided
that the Trust receives notice of such request for redemption by 9:30 a.m. New
York time on the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company shall be
placed separately for each Portfolio and shall not be netted with respect to any
Portfolio. However, with respect to payment of the purchase price by the Company
and of redemption proceeds by the Trust, the Company and the Trust shall net
purchase and redemption orders with respect to each Portfolio and shall transmit
one net payment for all of the Portfolios in accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the Shares by 2:00
p.m. New York time on the next Business Day after an order to purchase the
Shares is made in accordance with the provisions of Section 1.1. hereof. In the
event of net redemptions, the Trust shall pay the redemption proceeds by 2:00
p.m. New York time on the next Business Day after an order to redeem the shares
is made in accordance with the provisions of Section 1.4. hereof. All such
payments shall be in federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the Accounts
or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone followed by
written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive all
such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares of that Portfolio. The Trust shall notify the Company of the
number of Shares so issued as payment of such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share for
each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:30
p.m. New York time. In the event that the Trust is unable to meet the 6:30 p.m.
time stated herein, it shall provide additional time for the Company to place
orders for the purchase and redemption of Shares. Such additional time shall be
equal to the additional time which the Trust takes to make the net asset value
available to the Company. If the Trust provides materially incorrect share net
asset value information, the Trust shall make an adjustment to the number of
shares purchased or redeemed for the Accounts to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to registration
thereunder, and that the Policies will be issued, sold, and distributed in
compliance in all material respects with all applicable state and federal laws,
including without limitation the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the 1940 Act. The Company further represents
and warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
as a segregated asset account under applicable law and has registered or, prior
to any issuance or sale of the Policies, will register the Accounts as unit
investment trusts in accordance with the provisions of the 1940 Act (unless
exempt therefrom) to serve as segregated investment accounts for the Policies,
and that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the 1933
Act for the Policies and the registration statements under the 1940 Act for the
Accounts from time to time as required in order to effect the continuous
offering of the Policies or as may otherwise be required by applicable law. The
Company shall register and qualify the Policies for sales in accordance with the
securities laws of the various states only if and to the extent deemed necessary
by the Company.
2.2. The Company represents and warrants that the Policies are currently and at
the time of issuance will be treated as life insurance, endowment or annuity
contract under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), that it will maintain such treatment and that it will
notify the Trust or MFS immediately upon having a reasonable basis for believing
that the Policies have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that Transamerica Securities Sales
Corporation, the underwriter for the individual variable annuity and the
variable life policies, is a member in good standing of the NASD and is a
registered broker-dealer with the SEC. The Company represents and warrants that
the Company and American National will sell and distribute such policies in
accordance in all material respects with all applicable state and federal
securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Trust is and shall remain registered under the 1940 Act. The Trust shall amend
the registration statement for its Shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Shares. The Trust shall register and qualify the Shares for sale in accordance
with the laws of the various states only if and to the extent deemed necessary
by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
distribute the Shares in accordance in all material respects with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly existing
under the laws of The Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act and any applicable regulations
thereunder.
2.7. MFS represents and warrants that it is and shall remain duly registered
under all applicable federal securities laws and that it shall perform its
obligations for the Trust in compliance in all material respects with any
applicable federal securities laws and with the securities laws of The
Commonwealth of Massachusetts. MFS represents and warrants that it is not
subject to state securities laws other than the securities laws of The
Commonwealth of Massachusetts and that it is exempt from registration as an
investment adviser under the securities laws of The Commonwealth of
Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the Board
such reports, material or data as the Board may reasonably request so that it
may carry out fully the obligations imposed upon it by the conditions contained
in the exemptive application pursuant to which the SEC has granted exemptive
relief to permit mixed and shared funding (the "Mixed and Shared Funding
Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the Company,
free of charge, with as many copies of the current prospectus (describing only
the Portfolios listed in Schedule A hereto) for the Shares as the Company may
reasonably request for distribution to existing Policy owners whose Policies are
funded by such Shares. The Trust or its designee shall provide the Company, at
the Company's expense, with as many copies of the current prospectus for the
Shares as the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested by the Company in lieu thereof, the Trust
or its designee shall provide such documentation (including a "camera ready"
copy of the new prospectus as set in type or, at the request of the Company, as
a diskette in the form sent to the financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once each year (or more
frequently if the prospectus for the Shares is supplemented or amended) to have
the prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to the
number of pages of the Policy and Shares' prospectuses, taking account of other
relevant factors affecting the expense of printing, such as covers, columns,
graphs and charts; the Trust or its designee to bear the cost of printing the
Shares' prospectus portion of such document for distribution to owners of
existing Policies funded by the Shares and the Company to bear the expenses of
printing the portion of such document relating to the Accounts; provided,
however, that the Company shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Policies not funded by the Shares. In the event that the Company
requests that the Trust or its designee provides the Trust's prospectus in a
"camera ready" or diskette format, the Trust shall be responsible for providing
the prospectus in the format in which it or MFS is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g., typesetting expenses), and the Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of additional
information for the Shares is available from the Trust or its designee. The
Trust or its designee, at its expense, shall print and provide such statement of
additional information to the Company (or a master of such statement suitable
for duplication by the Company) for distribution to any owner of a Policy funded
by the Shares. The Trust or its designee, at the Company's expense, shall print
and provide such statement to the Company (or a master of such statement
suitable for duplication by the Company) for distribution to a prospective
purchaser who requests such statement or to an owner of a Policy not funded by
the Shares.
3.3. The Trust or its designee shall provide the Company free of charge copies,
if and to the extent applicable to the Shares, of the Trust's proxy materials,
reports to Shareholders and other communications to Shareholders in such
quantity as the Company shall reasonably require for distribution to Policy
owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or of
Article V below, the Company shall pay the expense of printing or providing
documents to the extent such cost is considered a distribution expense.
Distribution expenses would include by way of illustration, but are not limited
to, the printing of the Shares' prospectus or prospectuses for distribution to
prospective purchasers or to owners of existing Policies not funded by such
Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to include
in the prospectus pursuant to which a Policy is offered disclosure regarding the
potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from Policy owners;
and
(c) vote the Shares for which no instructions have been received in the same
proportion as the Shares of such Portfolio for which instructions have been
received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contract owners. The Company
will in no way recommend action in connection with or oppose or interfere with
the solicitation of proxies for the Shares held for such Policy owners. The
Company reserves the right to vote shares held in any segregated asset account
in its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
holding Shares calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will notify the Company of
any changes of interpretations or amendments to the Mixed and Shared Funding
Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Trust or
its designee, each piece of sales literature or other promotional material in
which the Trust, MFS, any other investment adviser to the Trust, or any
affiliate of MFS are named, at least three (3) Business Days prior to its use.
No such material shall be used if the Trust, MFS, or their respective designees
reasonably objects to such use within three (3) Business Days after receipt of
such material.
4.2. The Company shall not give any information or make any representations or
statement on behalf of the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS or concerning the Trust or any other such entity
in connection with the sale of the Policies other than the information or
representations contained in the registration statement, prospectus or statement
of additional information for the Shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust, MFS
or their respective designees, except with the permission of the Trust, MFS or
their respective designees. The Trust, MFS or their respective designees each
agrees to respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure that
information concerning the Trust, MFS or any of their affiliates which is
intended for use only by brokers or agents selling the Policies (i.e.,
information that is not intended for distribution to Policy owners or
prospective Policy owners) is so used, and neither the Trust, MFS nor any of
their affiliates shall be liable for any losses, damages or expenses relating to
the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be furnished, to
the Company or its designee, each piece of sales literature or other promotional
material in which the Company and/or the Accounts is named, at least three (3)
Business Days prior to its use. No such material shall be used if the Company or
its designee reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter shall not
give, any information or make any representations on behalf of the Company or
concerning the Company, the Accounts, or the Policies in connection with the
sale of the Policies other than the information or representations contained in
a registration statement, prospectus, or statement of additional information for
the Policies, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company. The Company or its designee agrees to respond to any request for
approval on a prompt and timely basis. The parties hereto agree that this
Section 4.4. is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or the
Trust, as appropriate) will each provide to the other at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Policies, or to the Trust or
its Shares, prior to or contemporaneously with the filing of such document with
the SEC or other regulatory authorities. The Company and the Trust shall also
each promptly inform the other of the results of any examination by the SEC (or
other regulatory authorities) that relates to the Policies, the Trust or its
Shares, and the party that was the subject of the examination shall provide the
other party with a copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of any
material change in the Trust's registration statement, particularly any change
resulting in change to the registration statement or prospectus or statement of
additional information for any Account. The Trust and MFS will cooperate with
the Company so as to enable the Company to solicit proxies from Policy owners or
to make changes to its
prospectus, statement of additional information or registration statement, in an
orderly manner. The Trust and MFS will make reasonable efforts to attempt to
have changes affecting Policy prospectuses become effective simultaneously with
the annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
and sales literature (such as brochures, circulars, reprints or excerpts or any
other advertisement, sales literature, or published articles), distributed or
made generally available to customers or the public, educational or training
materials or communications distributed or made generally available to some or
all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company under this
Agreement, and the Company shall pay no fee or other compensation to the Trust,
except that if the Trust or any Portfolio adopts and implements a plan pursuant
to Rule 12b-1 under the 1940 Act to finance distribution and Shareholder
servicing expenses, then, subject to obtaining any required exemptive orders or
regulatory approvals, the Trust may make payments to the Company or to the
underwriter for the Policies if and in amounts agreed to by the Trust in
writing. Each party, however, shall, in accordance with the allocation of
expenses specified in Articles III and V hereof, reimburse other parties for
expenses initially paid by one party but allocated to another party. In
addition, nothing herein shall prevent the parties hereto from otherwise
agreeing to perform, and arranging for appropriate compensation for, other
services relating to the Trust and/or to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filing of the Trust's registration
statement, and payment of filing fees and registration fees; preparation and
filing of the Trust's proxy materials and reports to Shareholders; setting in
type and printing its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to Shareholders (to
the extent provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares; all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's prospectuses
and proxy materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses of
marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares' prospectus
or prospectuses in connection with new sales of the Policies and of distributing
the Trust's Shareholder reports to Policy owners. The Company shall bear all
expenses associated with the registration, qualification, and filing of the
Policies under applicable federal securities and state insurance laws; the cost
of preparing, printing and distributing the Policy prospectus and statement of
additional information; and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by state
insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the Trust
will meet the diversification requirements of Section 817 (h) (1) of the Code
and Treas. Reg. 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures, notices, and
other published announcements of the Internal Revenue Service interpreting these
sections), as if those
requirements applied directly to each such Portfolio.
6.2. The Trust and MFS represent that each Portfolio will elect to be qualified
as a Regulated Investment Company under Subchapter M of the Code and that they
will maintain such qualification (under Subchapter M or any successor or similar
provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life insurance policy owners
of the Company and/or affiliated companies ("contract owners") investing in the
Trust. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board,
or a majority of the disinterested trustees of the Board. The Board will give
prompt notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the Board in
carrying out its responsibilities under the conditions set forth in the Trust's
exemptive application pursuant to which the SEC has granted the Mixed and Shared
Funding Exemptive Order by providing the Board, as it may reasonably request,
with all information necessary for the Board to consider any issues raised and
agrees that it will be responsible for promptly reporting any potential or
existing conflicts of which it is aware to the Board including, but not limited
to, an obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded. The Company also agrees that, if a material
irreconcilable conflict arises, it will at its own cost remedy such conflict up
to and including (a) withdrawing the assets allocable to some or all of the
Accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Portfolio and reinvesting such assets in a
different investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in favor of
such segregation, or offering to any of the affected contract owners the option
of segregating the assets attributable to their contracts or policies, and (b)
establishing a new registered management investment company and segregating the
assets underlying the Policies, unless a majority of Policy owners materially
adversely affected by the conflict have voted to decline the offer to establish
a new registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
the Company will withdraw from investment in the Trust each of the Accounts
designated by the disinterested trustees and terminate this Agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required to remedy any such material irreconcilable
conflict as determined by a majority of the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent
such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which any Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Policies or contained
in the Policies or sales literature or other promotional material for the
Policies (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reasonable reliance upon and in conformity
with information furnished to the Company or its designee by or on behalf of the
Trust or MFS for use in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies or sales literature
or other promotional material (or any amendment or supplement) or otherwise for
use in connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust not supplied by the Company or its designee,
or persons under its control and on which the Company has reasonably relied) or
wrongful conduct of the Company or persons under its control, with respect to
the sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature of
the Trust, or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result from
any other material breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the services and
furnish the materials under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act, and any agents or employees of
the foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reasonable reliance upon and in conformity with information furnished to the
Trust, MFS, the Underwriter or their respective designees by or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Trust or in sales literature or other promotional
material for the Trust (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material for the Policies not supplied by the Trust, MFS, the
Underwriter or any of their respective designees or persons under their
respective control and on which any such entity has reasonably relied) or
wrongful conduct of the Trust or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature of
the Accounts or relating to the Policies, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any representation and/or
warranty made by the Trust in this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement) or arise out of or
result from any other material breach of this Agreement by the Trust; or
(e) arise out of or result from the materially incorrect or untimely calculation
or reporting of the daily net asset value per share or dividend or capital gain
distribution rate; or
(f) arise as a result of any failure by the Trust to provide the services and
furnish the materials under the terms of the Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including without
limitation, the Company, or any Participating Insurance Company or any Policy
holder, with respect to any losses, claims, damages, liabilities or expenses
that arise out of or result from (i) a breach of any representation, warranty,
and/or covenant made by the Company hereunder or by any Participating Insurance
Company under an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by the Company or any Participating
Insurance Company to maintain its segregated asset account (which invests in any
Portfolio) as a legally and validly established segregated asset account under
applicable state law and as a duly registered unit investment trust under the
provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by
the Company or any Participating Insurance Company to maintain its variable
annuity and/or variable life insurance contracts (with respect to which any
Portfolio serves as an underlying funding vehicle) as life insurance, endowment
or annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the indemnification
provisions contained in this Agreement with respect to any losses, claims,
damages, liabilities or expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance, willful
misconduct, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section 8.5. of
notice of commencement of any action, such Indemnified Party will, if a claim in
respect thereof is to be made against the indemnifying party under this section,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any Indemnified Party otherwise than under this section. In case any
such action is brought against any Indemnified Party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying party shall not be liable to such
Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its respective
officers, directors, trustees, employees or 1933 Act control persons in
connection with the Agreement, the issuance or sale of the Policies, the
operation of the Accounts, or the sale or acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any other
regulatory body regarding such party's duties under this Agreement or related to
the sale of the Policies, the operation of the Accounts, or the purchase of the
Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or one, some,
or all Portfolios:
(a) at the option of any party upon six (6) months' advance written notice to
the other parties; or
(b) at the option of the Company to the extent that the Shares of Portfolios are
not reasonably available to meet the requirements of the Policies or are not
"appropriate funding vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles" if, for example, such
Shares did not meet the diversification or other requirements referred to in
Article VI hereof; or if the Company would be permitted to disregard Policy
owner voting instructions pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act.
Prompt notice of the election to terminate for such cause and an explanation of
such cause shall be furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal proceedings
against the Company by the NASD, the SEC, or any insurance department or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of formal proceedings against
the Trust by the NASD, the SEC, or any state securities or insurance department
or any other regulatory body regarding the Trust's or MFS' duties under this
Agreement or related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of any necessary
regulatory approvals and/or the vote of the Policy owners having an interest in
the Accounts (or any subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected to serve as the
underlying investment media. The Company will give thirty (30) days' prior
written notice to the Trust of the Date of any proposed vote or other action
taken to replace the Shares; or
(f) termination by either the Trust or MFS by written notice to the Company, if
either one or both of the Trust or MFS respectively, shall determine, in their
sole judgment exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Trust and MFS, if the
Company shall determine, in its sole judgment exercised in good faith, that the
Trust or MFS has suffered a material adverse change in this business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another party's material
breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written consent of
the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and, if
applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for cause
or for no cause.
11.4. Except as necessary to implement Policy owner initiated transactions, or
as required by state insurance laws or regulations, the Company shall not redeem
the Shares attributable to the Policies (as opposed to the Shares attributable
to the Company's assets held in the Accounts), and the Company shall not prevent
Policy owners from allocating payments to a Portfolio that was otherwise
available under the Policies, until thirty (30) days after the Company shall
have notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (the "Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the owners of the
Existing Policies shall be permitted to transfer or reallocate investment under
the Policies, redeem investments in any Portfolio and/or invest in the Trust
upon the making of additional purchase payments under the Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile to the other party at the address
of such party set forth below or at such other address as such party may from
time to time specify in writing to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
Facsimile No.:
Attn:
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Policies and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement or
as otherwise required by applicable law or regulation, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more counterparts,
each of which taken together shall constitute one and the same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in connection with
inquiries by appropriate governmental authorities (including without limitation
the SEC, the NASD, and state insurance regulators) relating to this Agreement or
the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the Secretary
of State of The Commonwealth of Massachusetts. The Company acknowledges that the
obligations of or arising out of this instrument are not binding upon any of the
Trust's trustees, officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. The Company further acknowledges that the
assets and liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon the
assets or property of the Portfolio on whose behalf the Trust has executed this
instrument. The Company also agrees that the obligations of each Portfolio
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the Company agrees not to proceed against any Portfolio
for the obligations of another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
By its authorized officer,
By: _______________________________
Title: ____________________________
MFS VARIABLE INSURANCE TRUST, on behalf of the Portfolios
By its authorized officer and not individually,
By: _______________________________
Title: ____________________________
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: _______________________________
Title: ____________________________
As of ____________________
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
Name of Separate
Account
Portfolios
Applicable to Policies
Separate Account VA-7
MFS Emerging Growth
<PAGE>
THIS AGREEMENT, made and entered into as of the 15th day of
December , 1997 by and among TRANSAMERICA LIFE INSURANCE AND ANNUITY
COMPANY (hereinafter the "Company"), a California corporation, on its
own behalf and on behalf of each separate account of the Company set
forth on Schedule A hereto as may be amended from time to time (each
such account hereinafter referred to as the "Account"), and MORGAN
STANLEY UNIVERSAL FUNDS, INC. (hereinafter the "Fund"), a Maryland
corporation, and MORGAN STANLEY ASSET MANAGEMENT INC. and MILLER
ANDERSON & SHERRERD, LLP (hereinafter collectively the "Advisers" and
individually the "Adviser"), a Delaware corporation and a Pennsylvania
limited liability partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Contracts enter into
participation agreements with the Fund and the Advisers (the "Participating
Insurance Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto (each such series hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
in the Portfolios, set forth in Schedule B attached to this Agreement, to fund
certain of the aforesaid Variable Insurance Products and the Underwriter is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Purchase of Fund Shares
1.1. The Fund agrees to make available for purchase by the Company
shares of the Fund and shall execute orders placed for each Account on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of such order. For purposes of this Section 1.1, the Company or its
administrator shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Eastern time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading.
1.2. The Fund, so long as this Agreement is in effect, agrees to make
its shares available indefinitely for purchase at the applicable net asset value
per share by the Company and its Accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission and the Fund shall use reasonable efforts to calculate such net asset
value on each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Directors of the Fund (hereinafter
the "Board") may refuse to permit the Fund to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, V,VI, VII and Section 2.5 of Article II of
this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company or its administrator shall be the designee of the Fund
for receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Variable Insurance
Products issued by the Company, under which amounts may be invested in the Fund
(hereinafter the "Contracts"), are listed on Schedule A attached hereto and
incorporated herein by reference, as such Schedule A may be amended from time to
time by mutual written agreement of all of the parties hereto. The Company will
give the Fund and the Adviser 45 days written notice of its intention to make
available in the future, as a funding vehicle under the Contracts, any other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company or its administrator of any
income, dividends or capital gain distributions payable on the Fund's shares.
The Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company or its administrator, as directed by the Company,
of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company or its administrator, as directed by the
Company, on a daily basis as soon as reasonably practical after the net asset
value per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
its best efforts to make such net asset value per share available by 7:00 p.m.
Eastern time.
1.11. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company or its administrator
shall be entitled to an adjustment with respect to the Fund shares purchased or
redeemed to reflect the correct net asset value per share. The determination of
the materiality of any net asset value pricing error shall be based on the SEC's
recommended guidelines regarding such errors. The correction of any such errors
shall be made at the Company level and shall be made pursuant to the SEC's
recommended guidelines. Any material error in the calculation or reporting of
net asset value per share, dividend or capital gain information shall be
reported promptly upon discovery to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act and that the Contracts will be issued in
compliance in all material respects with all applicable federal and state laws.
The Company represents and warrants that it will make every effort to ensure
that the Contracts are sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the Contracts comply in
all material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under North Carolina Law and has registered or, prior to any
issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3 The Fund and each Adviser represents with respect to the Portfolios
for which it acts as investment adviser, that the Portfolios to which this
agreement applies are currently qualified as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), that the Portfolios will maintain such qualification (under Subchapter
M or any successor or similar provision) and that they will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under Sections 7702, 7702A or 72,
their amendments and successors thereto, of the Code and that it will maintain
such treatment and that it will notify the Fund immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.5.. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy
Statements; Voting
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus (relating to the Portfolios) and
statement of additional information as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies the Fund shall
provide camera-ready film or computer diskettes containing the Fund's prospectus
(relating to the Portfolios) and statement of additional information, and such
other assistance as is reasonably necessary in order for the Company once each
year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus (relating to the Portfolios) printed
together in one document, and to have the statement of additional information
for the Fund and the statement of additional information for the Contracts
printed together in one document. Alternatively, the Company may print the
Fund's prospectus and/or its statement of additional information in combination
with other fund companies' prospectuses and statements of additional
information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses and statements of additional information
shall be the expense of the Company. For prospectuses and statements of
additional information provided by the Company to its existing owners of
Contracts who currently own shares of one or more of the Fund's Portfolios, in
order to update disclosure as required by the 1933 Act and/or the 1940 Act, the
cost of printing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus, the Fund will reimburse the Company in an amount equal to
the product of x and y where x is the number of such prospectuses distributed to
owners of the Contracts who currently own shares of one or more of the Fund's
Portfolios, and y is the Fund's per unit cost of typesetting and printing the
Fund's prospectus. The same procedures shall be followed with respect to the
Fund's statement of additional information. The Company agrees to provide the
Fund or its designee with such information as may be reasonably requested by the
Fund to assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those actually
distributed to existing owners of the Contracts.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract
owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions
have been received in the same proportion as
Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.8. The Fund shall use reasonable efforts to provide Fund
prospectuses, reports to shareholders, proxy materials and other Fund
communications (or camera-ready equivalents) to the Company sufficiently in
advance of the Company's mailing dates to enable the Company to complete, at
reasonable cost, the printing, assembling and/or distribution of the
communications in accordance with applicable laws and regulations.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within ten Business Days after receipt
of such material. The Fund and the Adviser(s) shall use their best efforts to
review any such material within five Business Days of receipt from the Company.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s)
is named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material. The Company shall use its best
efforts to review any such material within five Business Days of receipt from
the Fund or the Fund's designee.
4.4. The Fund and the Advisers shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, which are relevant
to the Company or the Contracts.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6.1. The Advisers and the Fund each represent and warrant that they
will at all times invest money from the Contracts in such a manner as to ensure
that the Contracts will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will at all times comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5, and Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify immediately the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
<PAGE>
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and officers, and each Adviser and each director and
officer of each Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use
in the registration statement or prospectus for the Contracts
or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii)arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control
and other than statements or representations authorized by the
Fund or an Adviser) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify
the Company of the commencement of any litigation or
proceedings against them in connection with the issuance or
sale of the Fund shares or the Contracts or the operation of
the Fund.
8.2. Indemnification by the Advisers
8.2(a). Each Adviser agrees, with respect to each
Portfolio that it manages, to indemnify and hold harmless the
Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes
of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement
with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of shares
of the Portfolio that it manages or the Contracts and:
(i) arise out of or are based upon
any untrue statement or alleged untrue
statement of any material fact contained in
the registration statement or prospectus or
sales literature of the Fund (or any
amendment or supplement to any of the
foregoing), or arise out of or are based
upon the omission or the alleged omission to
state therein a material fact required to be
stated therein or necessary to make the
statements therein not misleading, provided
that this agreement to indemnify shall not
apply as to any Indemnified Party if such
statement or omission or such alleged
statement or omission was made in reliance
upon and in conformity with information
furnished to the Fund by or on behalf of the
Company for use in the registration
statement or prospectus for the Fund or in
sales literature (or any amendment or
supplement) or otherwise for use in
connection with the sale of the Contracts or
Portfolio shares; or
(ii) arise out of or as a result of
statements or representations (other than
statements or representations contained in
the registration statement, prospectus or
sales literature for the Contracts not
supplied by the Fund or persons under its
control and other than statements or
representations authorized by the Company)
or unlawful conduct of the Fund, Adviser(s)
or Underwriter or persons under their
control, with respect to the sale or
distribution of the Contracts or Portfolio
shares; or
(iii) arise out of or as a result of
any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales
literature covering the Contracts, or any
amendment thereof or supplement thereto, or
the omission or alleged omission to state
therein a material fact required to be
stated therein or necessary to make the
statement or statements therein not
misleading, if such statement or omission
was made in reliance upon information
furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any
failure by the Fund to provide the services
and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any
material breach of any representation and/or
warranty made by the Adviser in this
Agreement or arise out of or result from any
other material breach of this Agreement by
the Adviser (including a failure, whether
unintentional or in good faith or otherwise,
to comply with the diversification
requirements of Article IV or the Subchapter
M qualification of Section 2.3 of this
Agreement); as limited by and in accordance
with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.2(c). An Adviser shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Adviser in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated
agent), but failure to notify the Adviser of any such claim
shall not relieve the Adviser from any liability which it may
have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The
Adviser also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action.
After notice from the Adviser to such party of the Adviser's
election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such
party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in
connection with the defense thereof other than reasonable
costs of investigation.
8.2(d). The Company agrees promptly to notify the
Adviser of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection
with the issuance or sale of the Contracts or the operation of
each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold
harmless the Company, and each of its directors and officers
and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.3) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the
Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or
any member thereof, are related to the operations of the Fund
and:
(i) arise as a result of
any failure by the Fund to provide the
services and furnish the materials under the
terms of this Agreement; or
(ii) arise out of or result
from any material breach of any
representation and/or warranty made by the
Fund in this Agreement or arise out of or
result from any other material breach of
this Agreement by the Fund (including a
failure, whether unintentional or in good
faith or otherwise, to comply with the
diversifictation requirements of Article IV
or the Subchapter M qualification of Section
2.3 of this Agreement);
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall
not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified
Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice
from the Fund to such party of the Fund's election to assume
the defense thereof, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the
Fund of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in
connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
<PAGE>
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the
laws of the State of New York.
9.2. This Agreement shall be subject to the
provisions of the 1933, 1934 and 1940 Acts, and the rules and
regulations and rulings thereunder, including such exemptions
from those statutes, rules and regulations as the Securities
and Exchange Commission may grant (including, but not limited
to, the Shared Funding Exemptive Order) and the terms hereof
shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by
ninety (90) days advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio based
upon the Company's determination that shares of such Portfolio
is not reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio in the
event any of the Portfolio's shares are not registered, issued
or sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to
the Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio falls to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund by written notice
to the Company if the Fund shall determine, in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity, or
(g) termination by the Company by written notice to
the Fund and the Adviser, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Adviser has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Adviser by written
notice to the Company, if the Company gives the Fund and the
Adviser the written notice specified in Section 1.6 hereof and
at the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five 45 days after
the notice specified in Section 1.6 was given.
10.2. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company,
continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for
all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing,
Contracts"). Specifically, without limitation, the owners of
the Existing Contracts shall be permitted to direct
reallocation of investments in the Fund, redemption of
investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of
such Article VII terminations shall be governed by Article VII
of this Agreement.
10.3. The Company shall not redeem Fund shares
attributable to the Contracts (as distinct from Fund shares
attributable to the Company's assets held in the Account)
except (i) as necessary to implement Contract Owner initiated
or approved transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal
precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an
order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Fund the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the
Fund) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the
Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund 90
days prior written notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address
of such party set forth below or at such other address as such
party may from time to time specify in writing to the other
party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Secretary
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, California 90015
Attention: Corporate Secretary
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any
claims against the Fund as neither the Board, officers, agents
or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process
and regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other
confidential information until such time as it may come into
the public domain without the express written consent of the
affected party.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.
12.4. This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together
shall constitute one and the same instrument.
12.5. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be
affected thereby.
12.6. Each party hereto shall cooperate with each
other party and all appropriate governmental authorities
(including without limitation the Securities and Exchange
Commission, the National Association of Securities Dealers and
state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the
generality of the foregoing, each party hereto further agrees
to furnish the California Insurance Commissioner with any
information or reports in connection with services provided
under this Agreement which such Commissioner may request in
order to ascertain whether the insurance operations of the
Company are being conducted in a manner consistent with the
California Insurance Regulations and any other applicable law
or regulations.
12.7. The rights, remedies and obligations contained
in this Agreement are cumulative and are in addition to any
and all rights, remedies and obligations at law or in equity,
which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and
obligations hereunder may not be assigned by any party without
the prior written consent of all parties hereto; provided,
however, that an Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company
under common control with the Adviser, if such assignee is
duly licensed and registered to perform the obligations of the
Adviser under this Agreement.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following
reports:
(a) the Company's annual statement (prepared
under statutory accounting principles) and annual
report (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of each
fiscal year;
(b) the Company's quarterly statements
(statutory) (and GAAP, if any), as soon as practical
and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy
statement, notice or report of the Company sent to
stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without
exhibits) and financial reports of the Company filed
with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after
the filing thereof;
(e) any other report submitted to the
Company by independent accountants in connection with
any annual, interim or special audit made by them of
the books of the Company, as soon as practical after
the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed in its name and on its
behalf by its duly authorized representative and its seal to
be hereunder affixed hereto as of the date specified above.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
By: ______________________________
Name:
Title:
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: ______________________________
Name:
Title:
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
Name:
Title:
MILLER ANDERSON & SHERRERD, LLP
By: ______________________________
Name:
Title:
<PAGE>
PartTrans.doc
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account Form Number and Name of Contract Funded by Separate
-------------------
Account
Sep Acct VA-6
Variable Annuity - Products A, B and C
(A) Policy Form No. TCG - 311-197
(B) Policy Form No. - Not yet assigned
(C) Policy Form No. TCG - 313-197
A-1
<PAGE>
SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY
UNIVERSAL FUNDS, INC.
Fixed Income Portfolio
High Yield Portfolio
International Magnum Portfolio
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to
call in the number of Customers to the Fund , as soon as possible, but
no later than two weeks after the Record Date.
. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
C-1
. name (legal name as found on account registration)
. address
. fund or account number
. coding to state number of units
. individual Card number for use in tracking and verification of
votes (already on Cards as
printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
. During this time, the Fund will develop, produce and pay for the Notice
of Proxy and the Proxy Statement (one document). Printed and folded
notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by
the Company). Contents of envelope sent to Customers by the Company
will include:
. Voting Instruction Card(s)
. One proxy notice and statement (one document)
. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that
requests Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by the
Fund.)
. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
C-2
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance
company's internal procedure and has not been required by the Fund in
the past.
. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, if the account registration is under "John A.
Smith, Trustee," then that is the
exact legal name to be printed on the Card and is the signature needed
on the Card.
. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important
that the Fund receives the tabulations stated in terms of a percentage
and the number of shares.) The
Fund must review and approve tabulation format.
. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 a.m. Eastern time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
C-3
. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
C-4
<PAGE>
PARTICIPATION AGREEMENT
Among
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
and
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
DATED AS OF
DECEMBER 15, 1997
PartTran.doc
<PAGE>
<PAGE>
10
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
And
OpCap Advisors
THIS AGREEMENT, made and entered into this 18th day of
December, 1997, by and among Transamerica Occidental Life Insurance Company, a
California Corporation (hereinafter the "Company"), on its own behalf and on
behalf of each separate account of the Company named in Schedule 1 to this
Agreement, as may be amended from time to time (each account referred to as the
"Account"), OCC ACCUMULATION TRUST, an open-end diversified management
investment company organized under the laws of the State of Massachusetts
(hereinafter the "Fund"), OpCap Advisors (hereinafter the "Adviser") and OCC
DISTRIBUTORS, a Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end
diversified, management investment company and was established for the purpose
of serving as the investment vehicle for separate accounts established for
variable life insurance contracts and variable annuity contracts to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, beneficial interests in the Fund are divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated February 22, 1995 (File No. 812-9290), granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief from the provisions of Sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity separate accounts and variable life insurance
separate accounts of both affiliated and unaffiliated Participating Insurance
Companies and qualified pension and retirement plans (hereinafter the "Mixed and
Shared Funding Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain
variable annuity or life insurance contracts (the "Contracts") under the 1933
Act; and
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company under the insurance laws of the State of North Carolina, to set
aside and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act;
and
WHEREAS, the Underwriter is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934, as amended (hereinafter the
"1934 Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios named
in Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as the Account
at net asset value;
WHEREAS, the Company may contract with an Administrator to
perform certain services with regard to the Contracts and, therefore, certain
obligations and services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those
shares of the Fund which the Company or its Administrator orders on behalf of
the Account, executing such orders on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its agent of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company or its
Administrator shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Eastern Time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading.
1.2. The Company shall pay for Fund shares on the next
Business Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by Participating
Insurance Companies and their separate accounts each Business Day; provided,
however, that the Board of Trustees of the Fund (hereinafter the "Directors")
may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Directors, acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the
Fund shall be sold only to Participating Insurance Companies and their separate
accounts, qualified pension and retirement plans or such other persons as are
permitted under applicable provisions of the Internal Revenue Code of 1986, as
amended, (the "Internal Revenue Code"), and regulations promulgated thereunder,
the sale to which will not impair the tax treatment currently afforded the
contracts. No shares of any Portfolio shall be sold to the general public.
1.5. The Fund and the Underwriter shall not sell Fund shares
to any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VI and VII of this
Agreement are in effect to govern such sales. The Fund shall make available upon
written request from the Company (i) a list of all other Participating Insurance
Companies and (ii) a copy of the Participation Agreement executed by any other
Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt and acceptance by the Fund or its agent of the request for
redemption. For purposes of this Section 1.6, the Company or its Administrator
shall be the designee of the Fund for receipt of requests for redemption from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment shall be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company except that the Fund reserves the right
to delay payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the 1940 Act.
Neither the Fund nor the Underwriter shall bear any responsibility whatsoever
for the proper disbursement or crediting of redemption proceeds to Contract
owners; the Company alone shall be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock certificates will not be issued to the Company or any
Account. Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice to Company or its
Administrator by Company, two days prior to the distribution of any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Portfolio shares in the form of additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such dividends and distributions in cash. The Fund shall notify the Company
of the number of shares so issued as payment of such dividends and distributions
the day of distribution when it reports the Portfolio's NAV pursuant to Section
1.10.
1.10. The Fund shall report the net asset value per share for
each Portfolio to the Company or its Administrator, as directed by Company, on a
daily basis as soon as reasonably practical after the net asset value per share
is calculated and shall use its best efforts to make such net asset value per
share available by 5:30 p.m., Eastern Time, each business day. If the Fund
provides materially incorrect share net asset value information, the Fund shall
make an adjustment to the number of shares purchased or redeemed for the
Accounts to reflect the correct net asset value per share. Any material error in
the calculation or reporting of net asset value per share, dividend or capital
gains information shall be reported promptly upon discovery to the Company.
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts
are or will be registered under the 1933 Act and that the Contracts will be
issued and sold in compliance with all applicable federal and state laws. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account as a segregated asset account under applicable
state law and has registered each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as segregated investment
accounts for the Contracts, and that it will maintain such registration for so
long as any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for sale
in accordance with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently
and at the time of issuance will be treated as life insurance or annuity
contracts under Sections 7702 or 72 of the Internal Revenue Code and that it
will maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.3. The Fund and Adviser represent and warrant that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and shall remain registered under the 1940 Act for as long as the Fund
shares are sold. The Fund shall amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund and Adviser represent and warrant that the Fund
and each of the Portfolios is currently qualified as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code, and that they will
maintain such qualification (under Subchapter M or any successor or similar
provision) (or correct any failure during the applicable grace period) and that
they will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.5. The Fund represents that its investment objectives,
policies and restrictions comply with applicable state investment laws as they
may apply to the Fund. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws and regulations of any
state. The Company alone shall be responsible for informing the Fund of any
insurance restrictions imposed by state insurance laws which are applicable to
the Fund. To the extent feasible and consistent with market conditions, the Fund
will adjust its investments to comply with the aforementioned state insurance
laws upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments
to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is a
member in good standing of the National Association of Securities Dealers, Inc.,
("NASD") and is registered as a broker-dealer with the SEC. The Underwriter
further represents that it will sell and distribute the Fund shares in
accordance with all applicable federal and state securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of Massachusetts and that it does and will
comply with applicable provisions of the 1940 Act.
2.9. The Underwriter and the Adviser represent and warrant
that Adviser is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund, Adviser and Underwriter represent and warrant
that all of their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, in an amount not less than $5 million. The aforesaid includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and agrees to notify the
Fund and the Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the
Company's expense, with as many copies of the current prospectuses for the
Portfolios listed on Schedule 2 as the Company may reasonably request for use
with prospective contractowners and applicants. The Underwriter shall print and
distribute, at the Fund's or Underwriter's expense, as many copies of said
prospectuses as necessary for distribution to existing contractowners or
participants. If requested by the Company in lieu thereof, the Fund shall
provide such documentation including a final copy of a current prospectus set in
type at the Fund's expense and other assistance as is reasonably necessary in
order for the Company at least annually (or more frequently if the said
prospectuses are amended more frequently) to have the new prospectus for the
Contracts and the Portfolios' new prospectuses printed together in one document.
In such case the Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with
copies of proxy material, if any, reports to shareholders and other
communications to shareholders with regard to the Portfolios listed in Schedule
2 in such quantity as the Company shall reasonably require and shall bear the
costs of distributing them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contract
owners or participants;
(ii) vote the Fund shares held in the Account in
accordance with instructions received from
contractowners or participants; and
(iii) vote Fund shares held in the Account for
which no timely instructions have been
received, in the same proportion as Fund
shares of such Portfolio for which
instructions have been received from the
Company's contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or the Underwriter, each piece of sales literature or
other promotional material in which the Fund or the Fund's adviser or the
Underwriter is named, at least five business days prior to its use. No such
material shall be used if the Fund or the Underwriter reasonably objects in
writing to such use within fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any
information or make any representations on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to
contractowners or participants, or in sales literature or other promotional
material approved by the Company, except with the permission of the Company. The
Company agrees to respond to any request for approval on a prompt and timely
basis.
4.5. The Fund will provide to the Company at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then, subject to obtaining any required exemptive orders
or other regulatory approvals, the Underwriter may make payments to the Company
or to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required by any
federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
5.3 Adviser will quarterly reimburse the Company certain of
the administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Contract owners of shares
of the Portfolios of the Fund, equal to 0.15% per annum of the average daily net
assets of the Fund attributable to variable life or variable annuity contracts
offered by the Company or its affiliates up to $300 million and 0.20% per annum
of the average daily net assets of the Fund attributable to such contracts in
excess of $300 million but less than $600 million and 0.25% per annum of the
average daily net assets of the Fund attributable to such contracts in excess of
$600 million. In no event shall such fee be paid by the Fund, its shareholders
or by the contract holders.
ARTICLE VI. Diversification
6.1. The Fund and the Adviser represent and warrant that the
Fund will at all times invest money from the Contracts in such a manner as to
ensure that the Contracts will be treated as variable contracts under the
Internal Revenue Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will comply with Section 817(h) of the
Internal Revenue Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Treasury Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist the Fund Board
in carrying out its responsibilities under the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are disregarded. The Fund Board shall
record in its minutes or other appropriate records, all reports received by it
and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected contractowners and, as appropriate, segregating the assets
of any appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of contractowner voting instructions, and the
Company's judgment represents a minority position or would preclude a majority
vote, the Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement with respect to
such Account. Any such withdrawal and termination must take place within 60 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 60 day period the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state insurance
regulators, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement with respect to such Account. Any such withdrawal
and termination must take place within 60 days after the Fund gives written
notice to the Company that this provision is being implemented. Until the end of
such 60 day period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the disinterested members of the Fund Board shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict, but in no event will the Fund or Quest Advisors be required
to establish a new funding medium for the Contracts. The Company shall not be
required by Section 7.3 to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of contractowners
materially adversely affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund
Board such reports, materials or data as the Fund Board may reasonably request
so that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Mixed and Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the Mixed
and Shared Funding Exemptive Order, (a) the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted,
to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are contained
in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the
Fund, the Adviser, the Underwriter, and each of the Fund's or the Underwriter's
directors, officers, employees or agents and each person, if any, who controls
or is associated with the Fund or the Underwriter within the meaning of such
terms under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or contained
in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made;
provided that this agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged statemen or omission was
made in reliance upon and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the registration statement,
prospectus or statement of additional information for the Contracts or in the
Contracts or sales literature or other promotional material for the Contracts
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the
Company (other than statements or
representations contained in the Fund
registration statement, Fund prospectus,
Fund statement of additional information or
sales literature or other promotional
material of the Fund not supplied by the
Company or persons under its control) or
wrongful conduct of the Company or persons
under its control, with respect to the sale
or distribution of the Contracts or Fund
shares; or
(iii)
arise out of any untrue statement or alleged untrue statement of a material
fact contained in the Fund registration statement, Fund prospectus, statement of
additional information or sales literature or other promotional material of the
Fund or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund by or
on behalf of the Company or persons under its control; or
(iv) arise as a result of any failure by the
Company to provide the services and furnish
the materials or to make any payments under
the terms of this Agreement; or
(v) arise out of any material breach of any
representation and/or warranty made by the
Company in this Agreement or arise out of or
result from any other material breach by the
Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such
loss, claim, damage, liability or litigation is due to the willful misfeasance,
bad faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification By the Underwriter
(a) The Underwriter and Adviser, on their own behalf and on
behalf of the Fund, joint and severally agree to indemnify and hold harmless the
Company and each of its directors, officers, employees or agents and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws (collectively, the
"indemnified parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter or Adviser) or litigation (including
reasonable legal and other expenses) to which the indemnified parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement, prospectus or
statement of additional information for the Fund or sales literature or other
promotional material of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this agreement to indemnify
shall not apply as to any indemnified party if such statement or omission or
such alleged statement or omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund by or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature or other promotional
material of the Fund (or any amendment or supplement thereto) or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(ii)
arise out of or as a result of statements or representations (other than
statements or representations contained in the Contracts or in the Contract or
Fund registration statement, the Contract or Fund prospectus, statement of
additional information, or sales literature or other promotional material for
the Contracts or of the Fund not supplied by the Underwriter or the Fund or
persons under the control of the Underwriter or the Fund respectively) or
wrongful conduct of the Underwriter or the Fund or persons under the control of
the Underwriter or the Fund respectively, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact
contained in a registration statement,
prospectus, statement of additional
information or sales literature or other
promotional material covering the Contracts
(or any amendment thereof or supplement
thereto), or the omission or alleged
omission to state therein a material fact
required to be stated therein or necessary
to make the statement or statements therein
not misleading in light of the circumstances
in which they were made, if such statement
or omission was made in reliance upon and in
conformity with information furnished to the
Company by or on behalf of the Underwriter
or the Fund or persons under the control of
the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund
to provide the services and furnish the
materials under the terms of this Agreement
(including a failure, whether unintentional
or in good faith or otherwise, to comply
with the diversification requirements and
procedures related thereto specified in
Article VI or the Sub-Chapter M
qualification specified in Section 2.4 of
this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty
made by the Underwriter or the Fund in this
Agreement or arise out of or result from any
other material breach of this Agreement by
the Underwriter or the Fund; or
(vi) arise out of or result from the materially
incorrect or untimely calculation or
reporting of the daily net asset value per
share or dividend or capital gain
distribution rate;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such
loss, claim, damage, liability or litigation is due to the willful misfeasance,
bad faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the
Underwriter of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Contracts or the operation of the
Account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this
Article VIII ("indemnifying party" for the purpose of this Section 8.3) shall
not be liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under this
Article VIII ("indemnified party" for the purpose of this Section 8.3) unless
such indemnified party shall have notified the indemnifying party in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. Contribution
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
parties to this Agreement in connection with the offering of Fund shares to the
Account and the acquisition, holding or sale of Fund shares by the Account, or
if such allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advanc
written notice to the other
parties unless otherwise agreed in a separate written agreement among the
parties; or
(b) at the option of the Company if shares of the
Portfolios delineated in Schedule
2 are not reasonably available to meet the requirements of the Contracts as
determined by the Company; or
(c) at the option of the Fund upon institution of
formal proceedings against the
Company by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the Contracts, the operation
of the Account, or the purchase of the Fund shares, which would have a material
adverse effect on the Company's ability to perform its obligations under this
Agreement; or
(d) at the option of the Company upon institution of
formal proceedings against the
Fund or the Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, which would have a material
adverse effect on the Fund's or the Underwriter's ability to perform its
obligations under this Agreement; or
(e) at the option of the Company or the Fund upon
receipt of any necessary regulatory
approvals and/or the vote of the contractowners having an interest in the
Account (or any subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund in accordance with
the terms of the Contracts for which those Portfolio shares had been selected to
serve as the underlying investment media. The Company will give 30 days prior
written notice to the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the
Fund Board, or a majority of the disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests of (i) all
contractowners of variable insurance products of all separate accounts or (ii)
the interests of the Participating Insurance Companies investing in the Fund as
delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases
to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, or under any
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails
to meet the diversification
requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement,
upon another party's material
breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company
determines in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations or financial condition since
the date of this Agreement or is the subject of material adverse publicity which
is likely to have a material adverse impact upon the business and operations of
the Company; or
(k) at the option of the Fund or Underwriter, if the
Fund or Underwriter respectively,
shall determine in its sole judgment exercised in good faith, that the Company
has suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Fund or Underwriter; or
(l) at the option of the Fund in the event any of the
Contracts are not issued or sold
in accordance with applicable federal and/or state law. Termination shall be
effective immediately upon such occurrence without notice.
10.2. Notice Requirement
(a) In the event that any termination of this
Agreement is based upon the provisions
of Article VII, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions.
(b) In the event that any termination of this
Agreement is based upon the provisions
of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating the Agreement to the non-terminating parties, with said termination
to be effective upon receipt of such notice by the non-terminating parties.
(c) In the event that any termination of this
Agreement is based upon the provisions
of Sections 10.1(j) or 10.1(k), prior written notice of the election to
terminate this Agreement for cause shall be furnished by the party terminating
this Agreement to the non-terminating parties. Such prior written notice shall
be given by the party terminating this Agreement to the non-terminating parties
at least 30 days before the effective date of termination.
10.3. It is understood and agreed that the right to terminate
this Agreement pursuant to Section 10.1(a) may be exercised for any reason or
for no reason.
10.4. Effect of Termination
(a) Notwithstanding any termination of this
Agreement pursuant to Section 10.1 of
this Agreement, and subject to Section 1.3 of this Agreement, the Company may
require the Fund and the Underwriter to, continue to make available additional
shares of the Fund for so long after the termination of this Agreement as the
Company desires pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.4 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
(b) If shares of the Fund continue to be made
available after termination of this
Agreement pursuant to this Section 10.4, the provisions of this Agreement shall
remain in effect except for Section 10.1(a) and thereafter the Fund, the
Underwriter, or the Company may terminate the Agreement, as so continued
pursuant to this Section 10.4, upon written notice to the other party, such
notice to be for a period that is reasonable under the circumstances but, if
given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated
or approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
90 days after the Company shall have notified the Fund or Underwriter of its
intention to do so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand, evidenced
by written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
[Name]
[Title]
[Co. Name]
[Address]
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party
hereto shall treat as confidential all information reasonably identified as such
in writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit each other and
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of
this Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as applicable,
by such party and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
12.9. The parties to this Agreement may amend the schedules to
this Agreement from time to time to reflect changes in or relating to the
Contracts, the Accounts or the Portfolios of the Fund.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
Company:
TRANSAMERICA LIFE INSURANCE AND
ANNUITY COMPANY
SEAL By: ______________________________
Fund:
OCC ACCUMULATION TRUST
SEAL By: ______________________________
Underwriter:
OCC DISTRIBUTORS
By: ______________________________
Adviser:
OpCap Advisors
By:_______________________________
<PAGE>
Schedule 1
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Occidental Life Insurance Company
and
OCC Distributors
The following separate accounts of Transamerica Life Insurance and
Annuity Company are permitted in accordance with the provisions of this
Agreement to invest in Portfolios of the Fund shown in Schedule 2:
Separate Account VUL-1
[Date]
<PAGE>
Schedule 2
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Occidental Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
[Date]
Oppenheimer Capital Managed
Oppenheimer Capital Value Equity
<PAGE>
PARTICIPATION AGREEMENT
Among
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
TRANSAMERICA SECURITIES SALES CORPORATION
and
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this ____ day of _________,
1996 by and among TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY hereinafter
"Transamerica"), a California life insurance company, on its own behalf and on
behalf of its SEPARATE ACCOUNT C (the "Account"); TRANSAMERICA VARIABLE
INSURANCE FUND, INC., a corporation organized under the laws of Maryland
(hereinafter the "Fund"); and TRANSAMERICA SECURITIES SALES CORPORATION,
(hereinafter the "Underwriter"), a _________ corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and/or
variable annuity contracts (collectively, the "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"), as well as qualified pension and retirement plans; and
<PAGE>
WHEREAS, the beneficial interests in the Fund are divided into several
series of shares, each designated a "Portfolio" and representing interests in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (hereinafter the "SEC"), dated __________ (File No.
812-_____), granting Participating Insurance Companies and variable annuity and
variable life insurance separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T) (b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
life insurance companies that may or may not be affiliated with one another
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Underwriter is duly registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, Transamerica has registered certain variable annuity contracts
supported wholly or partially by the Account (the "Contracts") under the 1933
Act and said Contracts are listed in Schedule A hereto, as it may be amended
from time to time by mutual written agreement; and
- 2 -
<PAGE>
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of
Transamerica on ________________, to set aside and invest assets attributable to
the Contracts; and
WHEREAS, Transamerica has registered the Account as a unit investment
trust under
the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Transamerica intends to purchase shares in the Portfolios listed in
Schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios"), on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises,
Transamerica, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to Transamerica those shares of the
Designated Portfolios which Transamerica orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, Transamerica shall be the designee of the Fund for receipt of such
orders and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by ____ a.m. _________ time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value.
- 3 -
<PAGE>
1.2. The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by
Transamerica on those days on which the Fund calculates its net asset values,
and the Fund shall calculate such net asset value on each day which the New York
Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of
Directors of the Fund (hereinafter the "Board") may refuse to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Designated
Portfolios will be sold only to Participating Insurance Companies and their
separate accounts and qualified pension and retirement plans. No shares of any
Designated Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell shares of the
Designated Portfolios to any other insurance company, separate account or
qualified pension and retirement plan unless an agreement containing provisions
substantially the same as Sections 2.1, 3.6, 3.7, 3.8, and Article VII of this
Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on Transamerica's request, any
full or fractional shares of the Fund held by Transamerica, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption or
- 4 -
<PAGE>
postpone the date of payment or satisfaction upon redemption consistent with
Section 22(e) of the 1940 Act. For purposes of this Section 1.5, Transamerica
shall be the designee of the Fund for receipt of requests for redemption and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such request for redemption by _________ a.m.
___________ time on the next following Business Day.
1.6. The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies and qualified pension and retirement plans (subject to
Section 1.4 and Article VI hereof) and the cash value of the Contracts may be
invested in other investment companies.
1.7. Transamerica shall pay for Fund shares by _______ a.m.
______________ time on the next Business Day after an order to purchase Fund
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire and/or by a credit for any shares
redeemed the same day as the purchase. Upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of Transamerica
and shall become the responsibility of the Fund.
1.8. The Fund shall pay and transmit the proceeds of redemptions of
Fund shares by _____ a.m. ____________ time on the next Business Day after a
redemption order is received, subject to Section 1.5 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.9. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Transamerica or the Account.
Shares ordered
from the Fund
- 5 -
<PAGE>
will be recorded in an appropriate title for the Account or the appropriate
subaccount of the
Account.
1.10. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to Transamerica of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares.
Transamerica hereby elects to receive all such income dividends and capital gain
distributions in additional shares of that Portfolio. Transamerica reserves the
right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify Transamerica by the
end of the next following Business Day of the number of shares so issued as
payment of such dividends and distributions.
1.11. The Fund shall make the net asset value per share for each
Designated Portfolio available to Transamerica on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by _____
p.m. ________ time. If the Fund provides incorrect per share net asset value
information, Transamerica shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value per share.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported immediately upon
discovery to Transamerica. Any error of a lesser amount shall be corrected in
the next Business Day's net asset value per share.
In the event adjustments are required to correct any error in the
computation of a Designated Portfolio's net asset value per share, or dividend
or capital gain distribution, the Underwriter (or the Underwriter or the Fund)
shall notify Transamerica as soon as possible
- 6 -
<PAGE>
after discovering the need for such adjustments. Notification can be made
orally, but must be confirmed in writing. If an adjustment is necessary to
correct an error which caused Contract owners to receive less than the amount to
which they are entitled, the Fund shall make all necessary adjustments to the
number of shares owned by the Account and distribute to the Account the amount
of the underpayment. In no event shall Transamerica be liable to the Fund or the
Underwriter for any such adjustments or overpayment amounts.
ARTICLE II. Representations and Warranties
2.1. Transamerica represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. Transamerica further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Section 10506 of the
California Insurance Law and has registered the Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Designated Portfolio shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
California and all applicable federal and state securities laws including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act
- 7 -
<PAGE>
from time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states if and to the extent required by applicable
law.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act or impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund represents and warrant that the investment advisory or
management fees paid to the adviser by the Fund are legitimate and not
excessive. To the extent that the Fund decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Board, a majority of whom
are not interested persons of the Fund, formulate and approve any plan pursuant
to Rule 12b- 1 under the 1940 Act to finance distribution expenses.
2.4. The Fund represents and warrants that the investment policies and
fees and expenses of the Designated Portfolios are and shall at all times remain
in compliance with the insurance and other applicable laws of the State of
California and any other applicable state to the extent required to perform this
Agreement. The Fund further represents and warrants that Designated Portfolio
shares will be sold in compliance with the insurance laws of the State of
California and all applicable state securities laws or exemptions therefrom.
Without limiting the generality of the foregoing, the Fund represents and
warrants that it is and shall at all times remain in compliance with the
policies and restrictions enumerated in Schedule C hereto, as amended by
Transamerica from time to time, provided that such amendments shall either be
(a) agreed to by the Fund and Transamerica, or (b) necessary to comply with
applicable laws of the State of California.
- 8 -
<PAGE>
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
2.6. The Fund represents and warrant that all of their directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Fund are, and shall continue to
be at all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.7. The Fund will provide Transamerica with as much advance notice as
is reasonably practicable of any material change affecting the Designated
Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with
Transamerica in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts. The Fund agrees to share equitably in expenses incurred by
Transamerica as a result of actions taken by the Fund, as set forth in the
allocation of expenses contained in Schedule D.
- 9 -
<PAGE>
2.8. Transamerica represents, assuming that the Fund complies with
Article VI of this Agreement, that the Contracts are currently treated as
annuity contracts under applicable provisions of the Internal Revenue Code of
1986, as amended, and that it will make every effort to maintain such treatment
and that it will notify the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.9. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify Transamerica immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1(a). At least annually, the Fund, at its expense, shall provide
Transamerica or its designee with as many copies of the Fund's current
prospectuses for the Designated Portfolios as Transamerica may reasonably
request for marketing purposes (including distribution to Contract owners with
respect to new sales of a Contract). If requested by Transamerica in lieu
thereof, the Fund shall provide such documentation (including a final "camera
ready" copy of the new prospectuses for the Designated Portfolios as set in type
at the Fund's expense or, at the request of Transamerica, as a diskette or such
other form as is required by the financial printer) and other assistance as is
reasonably necessary in order for Transamerica once each year (or more
frequently if the prospectus for the Designated Portfolio is amended)
- 10 -
<PAGE>
to have the prospectus for the Contract and the Fund's prospectus for the
Designated Portfolios printed together in one document (the cost of such
printing to be born by the Fund and Transamerica in proportion to the size of
the prospectuses for the Fund and the Contracts).
3.1(b). The Fund agrees that the prospectuses for the Designated
Portfolios will describe only the Designated Portfolios and will not name or
describe any other portfolios or series that may be in the Fund, and that the
Fund will bear the cost of preparing and producing the prospectuses for the
Designated Portfolios that are so custom tailored for use in connection with the
Contracts.
3.2. If applicable state or Federal laws or regulations require that
the Statement of Additional Information ("SAI") for the Fund be distributed to
all purchasers of the Contract, then the Fund shall provide Transamerica with
the Fund's SAI or documentation thereof for the Designated Portfolios in such
quantities and/or with expenses to be borne in accordance with paragraph 3.1(a)
hereof.
3.3. The Fund, at its expense, shall provide Transamerica with as many
copies of the SAI for the Designated Portfolios as may reasonably be requested.
The Fund, at its expense, shall also provide such SAI free of charge to any
owner of a Contract or prospective owner who requests such SAI.
3.4. The Fund, at its expense, shall provide Transamerica with copies
of its prospectus, SAI, proxy material, reports to shareholders and other
communications to shareholders for the Designated Portfolios in such quantity as
Transamerica shall reasonably require for distributing to Contract owners. If
the Contract and Fund prospectuses are printed
- 11 -
<PAGE>
together in one document, the Fund shall bear the portion of such printing
expense as is attributable to the Fund's prospectus. If applicable SEC rules
require that any of the foregoing Fund prospectuses, Fund SAIs, proxy materials,
Fund reports to shareholders or other communications to shareholders be filed
with the SEC, then the Fund or its designee shall prepare and file with the SEC
such prospectus, SAI, proxy materials, reports to shareholders, or other
communications to shareholders in such format as required by such applicable
rules and shall notify Transamerica of such filing.
3.5. It is understood and agreed that, except with respect to
information regarding Transamerica provided in writing by Transamerica,
Transamerica shall not be responsible for the content of the prospectus or SAI
for the Designated Portfolios. It is also understood and agreed that, except
with respect to information regarding the Fund and provided in writing by the
Fund, the Fund shall not be responsible for the content of the prospectus or SAI
for the Contracts.
3.6. If and to the extent required by law Transamerica shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance
with instructions
received from Contract owners: and
(iii) vote Designated Portfolio shares for which no
instruction have been received in the same proportion
as Designated Portfolio shares for which instructions
have been received from Contract owners, so long as
and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting
privileges for variable contract owners. Transamerica
reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the
extent permitted by law.
- 12 -
<PAGE>
3.7. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts holding shares of a Designated
Portfolio calculates voting privileges in the manner required by the Shared
Funding Exemptive Order. The Fund agrees to promptly notify Transamerica of any
amendments or changes of interpretations of the Shared Funding Exemptive Order.
3.8. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. Transamerica shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature and other promotional
material that Transamerica develops or uses and in which the Fund (or a
Portfolio thereof), its investment adviser or one of its sub-advisers or the
Underwriter for the Fund shares is named in connection with the Contracts, at
least 10 (ten) Business Days prior to its use. No such material shall be used if
the Fund or its designee objects to such use within 10 (ten) Business Days after
receipt of such material.
- 13 -
<PAGE>
4.2. Transamerica shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts inconsistent with the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund shall furnish, or shall cause to be furnished, to
Transamerica, each piece of sales literature and other promotional material in
which Transamerica and/or the Account is named at least 10 (ten) Business Days
prior to its use. No such material shall be used if Transamerica objects to such
use within 10 (ten) Business Days after receipt of such material.
Notwithstanding the fact that Transamerica or its designee may not initially
object to a piece of sales literature or other promotional material,
Transamerica reserves the right to object at a later date to the continued use
of any such sales literature or promotional material in which Transamerica is
named, and no such material shall be used thereafter if Transamerica or its
designee so objects.
4.4. The Fund shall not give any information or make any
representations on behalf of Transamerica or concerning Transamerica, the
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Account, or in sales literature or other
promotional
- 14 -
<PAGE>
material approved by Transamerica or its designee, except with the permission of
Transamerica.
4.5. The Fund will provide to Transamerica at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, all supplements thereto, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Designated Portfolios, contemporaneously with the filing of such
document(s) with the SEC, NASD or other regulatory authorities.
4.6. Transamerica will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, all supplements thereto, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC, NASD, or other regulatory authority.
4.7. For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, telephone directories (other than routine
listings), electronic or other public media), sales literature (i.e., any
written or electronic communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, performance reports or summaries, form letters, telemarketing
scripts, seminar texts, reprints or excerpts of any other
- 15 -
<PAGE>
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, supplements thereto, shareholder reports,
and proxy materials.
4.8. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to Transamerica
under this Agreement, except that if the Fund or any Designated Portfolio adopts
and implements a plan pursuant to Rule 12b-1 of the 1940 Act to finance
distribution and shareholder servicing expenses, then the Underwriter may make
payments to Transamerica or to the distributor for the Contracts if and in
amounts agreed to by the Underwriter in writing and such payments will be made
out of existing fees otherwise payable to the Underwriter, past profits of the
Underwriter or other resources available to the Underwriter. No such payments
shall be made directly by the Fund. Nothing herein shall prevent the parties
hereto from otherwise agreeing to perform, and arrange for appropriate
compensation for, other services relating to the Fund and/or the Account.
Transamerica shall pay no fee or other compensation to the Fund under this
Agreement, although the parties hereto will bear certain expenses in accordance
with Schedule D, Articles III, V, and other provisions of this Agreement.
- 16 -
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, as further provided in Schedule E. The Fund
shall see to it that all shares of the Designated Portfolios are registered and
authorized for issuance in accordance with applicable federal law and, if and to
the extent required, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, supplements thereto, proxy materials and
reports, setting the prospectus in type, printing prospectuses for distribution
to Contract owners, setting in type, printing and filing the proxy materials and
reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, all taxes on the issuance or transfer of
the Fund's shares, and the costs of distributing the Fund's prospectuses and
proxy materials to such Contract owners and any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act.
5.3. Transamerica shall bear the expenses of routine annual
distribution of the Fund's prospectus to owners of Contracts issued by
Transamerica and of distributing the Fund's proxy materials and reports to such
Contract owners; this shall not include distribution of the Fund's prospectus
with respect to new sales of a Contract. Transamerica shall bear all expenses
associated with the registration, qualification, and filing of the Contracts
under applicable federal securities and state insurance laws; the cost of
preparing, printing, and distributing the Contract prospectus and SAI; and the
cost of preparing, printing and
- 17 -
<PAGE>
distributing annual individual account statement to Contract owners as required
by state insurance laws.
5.4. The Fund acknowledges that a principal feature of the Contracts is
the Contract owner's ability to choose from a number of unaffiliated mutual
funds (and portfolios or series thereof), including the Designated Portfolios
("Unaffiliated Funds"), and to transfer the Con- tract's cash value between
funds and portfolios. The Fund and Underwriter agree to cooperate with
Transamerica in facilitating the operation of the Account and the Contracts as
intended, including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
ARTICLE VI. Diversification and Qualification
6.1. The Fund and Underwriter represent and warrant that the Fund will
at all times sell its shares and invest its assets in such a manner as to ensure
that the Contracts will be treated as annuity contracts under the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund and
Underwriter represent and warrant that the Fund and each Designated Portfolio
thereof will at all times comply with Section 817(h) of the Code and Treasury
Regulation ss. 1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications or successor provisions to such Section or Regulations. The
Fund and the Underwriter agree that shares of the Designated Portfolios will be
sold only to Participating Insurance Companies and their separate accounts and
qualified pension and retirement plans.
- 18 -
<PAGE>
6.2. No shares of any series or portfolio of the Fund will be sold to
the general public.
6.3. The Fund and Underwriter represent and warrant that the Fund and
each Designated Portfolio is currently qualified as a Regulated Investment
Company under Subchapter M of the Code, and that it will maintain such
qualification (under Subchapter M or any successor or similar provisions) as
long as this Agreement is in effect.
6.4. The Fund or Underwriter will notify Transamerica immediately upon
having a reasonable basis for believing that the Fund or any Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification or Subchapter
M qualification requirements or might not so comply in the future.
6.5. The Fund and Underwriter acknowledge that full compliance with the
requirements referred to in Sections 6.1, 6.2, and 6.3 hereof is absolutely
essential because any failure to meet those requirements would result in the
Contracts not being treated as annuity contracts for federal income tax
purposes, which would have adverse tax consequences for Contract owners and
could also adversely affect Transamerica's corporate tax liability. The Fund and
Underwriter also acknowledge that it is solely within their power and control to
meet those requirements. Accordingly, without in any way limiting the effect of
Section 8.3 hereof and without in any way limiting or restricting any other
remedies available to Transamerica, the Underwriter will pay all costs
associated with or arising out of any failure, or any anticipated or reasonably
foreseeable failure, of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with correcting
or responding to any such failure; such costs may include, but are not limited
to,
- 19 -
<PAGE>
the costs involved in creating, organizing, and registering a new investment
company as a funding medium for the Contracts and/or the costs of obtaining
whatever regulatory authorizations are required to substitute shares of another
investment company for those of the failed Portfolio (including but not limited
to an order pursuant to Section 26(b) of the 1940 Act); such costs are to
include, but are not limited to, fees and expenses of legal counsel and other
advisors to Transamerica and any federal income taxes or tax penalties (or "toll
charges" or exactments or amounts paid in settlement) incurred by Transamerica
in connection with any such failure or anticipated or reasonably foreseeable
failure.
6.6. The Fund shall provide Transamerica or its designee with reports
certifying compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements, at times provided for and substantially
in the form attached hereto as Schedule E; provided, however, that providing
such reports does not relieve the Fund or Underwriter of their responsibility
for such compliance or of their liability for any non-compliance.
6.7. The Fund and the Underwriter represent and warrant that the Fund
will comply with the investment limitations under applicable state law for
investment companies funding separate accounts.
ARTICLE VII. Potential Conflicts and Compliance With
Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in
- 20 -
<PAGE>
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform Transamerica if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. Transamerica will report any potential or existing conflicts of
which it is aware to the Board. Transamerica will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by
Transamerica to inform the Board whenever contract owner voting instructions are
disregarded. Such responsibilities shall be carried out by Transamerica with a
view only to the interests of its Contract Owners.
7.3. If it is determined by a majority of the Board, or a majority of
its directors who are not interested persons of the Fund, its adviser or any
sub-adviser to any of the Portfolios (the "Independent Directors"), that a
material irreconcilable conflict exists, Transamerica and other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to
- 21 -
<PAGE>
and including: (1) withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another Portfolio
of the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change; and
(2) establishing a new registered management investment company or managed
separate account. Transamerica shall not be required by this Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict.
7.4. If a material irreconcilable conflict arises because of a decision
by Transamerica to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
Transamerica may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision is
being implemented, and until the end of that six month period the Underwriter
and the Fund shall continue to
- 22 -
<PAGE>
accept and implement orders by Transamerica for the purchase (and redemption
of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Transamerica conflicts with
the majority of other state regulators, then Transamerica will withdraw the
Account's investment in the Fund and terminate this Agreement within six months
after the Board informs Transamerica in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and the Fund shall continue to accept and implement
orders by Transamerica for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules
- 23 -
<PAGE>
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable: and (b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and
7.5 of this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By Transamerica
8.1(a). Transamerica agrees to indemnify and hold harmless the
Fund and its officers and each member of its Board (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of Transamerica) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and: (i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus or SAI for the Contracts or contained in the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to in-
--------
demnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to Transamerica by or on behalf
of the Underwriter or Fund for use in the registration statement or prospectus
for the Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
- 24 -
<PAGE>
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of the Fund not supplied by Transamerica
or persons under its control) or wrongful conduct of
Transamerica or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to the Fund by or on behalf of
Transamerica; or
(iv) arise as a result of any failure by Transamerica to
provide the services
and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Transamerica in
this Agreement or arise out of or result from any other
material breach of this Agreement by Transamerica,
as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1
(c) hereof.
8.1(b). Transamerica shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject if caused by such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1(c). Transamerica shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Transamerica in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served
- 25 -
<PAGE>
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify
Transamerica of any such claim shall not relieve Transamerica from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Transamerica shall be
entitled to participate, at its own expense, in the defense of such action.
Transamerica also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from Transamerica to
such party of Transamerica's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Transamerica will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify
Transamerica of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Fund Shares or the Contracts or
the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harm-less
Transamerica and each of its directors and officers and each person, if any, who
controls Transamerica within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
- 26 -
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or SAI or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
- --------
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Underwriter or Fund by or on behalf of Transamerica for use in
the Registration Statement or prospectus for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii)
arise out of any untrue statement or alleged untrue statement of a material
fact contained in a registration statement, prospectus or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished in writing to Transamerica by or on behalf of the Underwriter or
Fund; or
(iv) arise as a result of any failure by the Fund or
Underwriter to provide the services and furnish the
materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
- 27 -
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or
Underwriter in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Fund or Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Underwriter specified in Article VI
hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance or such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to Transamerica or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party
- 28 -
<PAGE>
named in the action. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). Transamerica agrees promptly to notify the Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
- 29 -
<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with
respect to some or all Portfolios, upon one (1) year advance
written notice delivered to the other parties; provided,
however, that such notice shall not be given earlier than one
year following the date of this Agreement; or (b) at the
option of Transamerica by written notice to the other parties
with respect to any Portfolio based upon Transamerica's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or (c) at
the option of Transamerica by written notice to the other
parties with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/ or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
Transamerica; or (d) at the option of the Fund in the event
that formal administrative proceedings are instituted against
Transamerica by the National Association of Securities
Dealers, Inc. ("NASD"), the Securities and Exchange
Commission, the Insurance Commissioner or like official of any
state or any other regulatory body regarding Transamerica's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that the Fund determines
in its sole judgment
- 30 -
<PAGE>
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of Transamerica to perform its obligations under this
Agreement; or (e) at the option of Transamerica in the event
that formal administrative proceedings are instituted against
the Fund or Underwriter by the NASD, the Securities and
Exchange Commission, or any state securities or insurance
department or any other regulatory body, provided, however,
that Transamerica determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have
a material adverse effect upon the ability of the Fund or
Underwriter to perform its obligations under this Agreement;
or (f) at the option of Transamerica by written notice to the
Fund and the Underwriter with respect to any Portfolio if
Transamerica reasonably believes that the Portfolio may fail
to meet the Section 817(h) diversification requirements or
Subchapter M qualifications specified in Article VI hereof; or
(g) at the option of either the Fund or the Underwriter, if
(i) the Fund or Underwriter, respectively, shall determine, in
their sole judgement reasonably exercised in good faith, that
Transamerica has suffered a material adverse change in its
business or financial condition or is the subject of material
adverse publicity and that material adverse change or
publicity will have a material adverse impact on
Transamerica's ability to perform its obligations under this
Agreement, (ii) the Fund or Underwriter notifies Transamerica
of that determination and its intent to terminate this
Agreement, and (iii) after
- 31 -
<PAGE>
considering the actions taken by Transamerica and any other
changes in circumstances since the giving of such a notice,
the determination of the Fund or Underwriter shall continue on
the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination;
or (h) at the option of Transamerica, if (i) Transamerica
shall determine, in its sole judgement reasonably exercised in
good faith, that either the Fund or the Underwriter have
suffered a material adverse change in their business or
financial condition or is the subject of material adverse
publicity and that material adverse change or publicity will
have a material adverse impact on the Fund's or Underwriter's
ability to perform its obligations under this Agreement, (ii)
Transamerica notifies the Fund or Underwriter, as appropriate,
of that determination and its intent to terminate this
Agreement, and (iii) after considering the actions taken by
the Fund or Underwriter and any other changes in circumstances
since the giving of such a notice, the determination of
Transamerica shall continue on the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall
be the effective date of termination; or (i) at the option of
any party to this Agreement, upon another party's material
breach of any provision of this Agreement; or (j) upon
assignment of this Agreement, unless made with the written
consent of the parties hereto; or (k) at the option of
Transamerica or the Fund by written notice to the other party
upon a determination by the Fund's Board that a material
irreconcilable
- 32 -
<PAGE>
conflict exists among the interests of (i) all contract owners
of all separate accounts investing in the Fund or (ii) the
interests of the Participating Insurance Companies; or (l) at
the option of Transamerica by written notice to the Fund or
the Underwriter upon the sale, acquisition or change of
control of the Underwriter.
10.2. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination.
10.3. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of Transamerica,
continue to make available additional shares of the Fund for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts") pursuant to the terms and conditions of
this Agreement. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.3 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.4. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing
- 33 -
<PAGE>
Contracts, all provisions of this Agreement shall also survive and not be
affected by any termination of this Agreement.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail or by overnight mail sent through a nationally-recognized
delivery service to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Transamerica Variable Insurance Fund, Inc.
Transamerica Center
1150 South Olive Street
Los Angeles, CA 90015
Attention: General Counsel
If to Transamerica:
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Transamerica Center
401 North Tryon Street
Charlotte, North Carolina 28202
Attention: President, Living Benefits Division
If to the Underwriter:
Transamerica Securities Sales Corporation, Inc.
Transamerica Center
1150 South Olive Street
Los Angeles, CA 90015
- 34 -
<PAGE>
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party reasonably considers to be proprietary.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry
- 35 -
<PAGE>
relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of Transamerica are being conducted in a manner consistent with the
California Variable Annuity Regulations and any other applicable law or
regulations.
12.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.7. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.8. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
- 36 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY
By its authorized officer
SEAL By:
Title:
Date:
TRANSAMERICA VARIABLE INSURANCE FUND, INC.:
By its authorized officer,
SEAL By:
Title:
Date:
TRANSAMERICA SECURITIES SALES CORPORATION:
By its authorized officer,
SEAL By:
Title:
Date:
- 37 -
<PAGE>
SCHEDULE A
Contracts Form Numbers
<PAGE>
SCHEDULE B
Designated Portfolios
<PAGE>
SCHEDULE C
Certain Investment Policies and Restrictions
Imposed by the
California Department of Insurance
Pursuant to Section 2.4 hereof, the Fund represents and warrants that
it is and shall all times remain in compliance with the following investment
policies and restrictions. THESE ARE IN ADDITION TO other related obligations of
the Fund, including the general obligation to comply with all applicable laws
and regulation, including but not limited to California insurance laws and
regulations, the Investment Company Act of 1940, and other applicable insurance
and securities laws.
[Note: The following are derived from a questionnaire used by the California
Department of
Insurance as part of an insurance company's application for qualification to
transact a variable
annuity business. The parenthetical references below are to question numbers
in that
questionnaire.]
The Fund represents and warrants that:
1. All repurchase agreements will be transacted only with entities meeting
specific credit and solvency standards administered and verified by the
Underwriter (46(a)).
2. All repurchase transactions will be executed pursuant to a comprehensive
master repurchase agreement setting forth the terms and conditions of the
transaction, and having the incidents of a valid promissory note in favor of the
Fund (46(b)).
3. A valid, binding security interest in favor of the Fund or portfolio thereof
will be created and perfected in all collateral securing such repurchase
agreements (46(c)).
4. All such repurchase agreements will be secured at all times by collateral
consisting of liquid assets having a market value of not less than 102% of the
cash or assets transferred to the other party (46(d)).
5. All securities lending activities will be entered into only with entities
meeting specific credit and solvency standards administered and verified by the
Underwriter (47).
6. All investments in instruments or certificates of any sort issued by the U.S.
Office of a bank or other savings institution domiciled in a foreign nation, or
a foreign branch of a U.S. savings institution, will be instruments or
certificates payable in the United States and in U.S. dollars (48).
<PAGE>
7. All investments of the Fund which possess a readily-available market value
will be valued either at their market value on the date of valuation, or at
amortized cost if it approximates market value within the limits and constraints
imposed by the U.S. Securities and Exchange Commission (49).
8. All investments of the Fund which lack a readily-available market will be
valued according to specific, objective methods or procedures set forth in
writing (50).
9. The investment manager of each portfolio or series of the Fund possesses
substantial expertise and experience as an investment manager or advisor of a
portfolio consisting of asset and investments of the same type as he or she will
manage in regard to the portfolio or series. (If experience is less than three
years, please provide resume of investment manager; note that in this case, the
Company must provide notarized certifications that it has fully investigated and
is satisfied with the qualifications, background, and expertise of the
investment manager.) (52).
10. At no time during the past ten years have the managers of any portfolio or
series resigned to avoid dismissal or been dismissed or requested to resign from
any position involving investment duties, on account of violation of any law,
rule or ethical standard relating to insurance, annuities, or securities (53).
11. The investment advisory agreements concerning the Fund's operations provide
in substance that notwithstanding any other provisions of the agreement, it is
understood and agreed that the Fund shall retain the ultimate responsibility for
and control of all investments made pursuant to the agreement, and reserve the
right to direct, approve or disapprove any action taken on its behalf by the
investment advisor (54).
12. Every custodian holding securities or other assets of the Fund is an
institution permitted to serve in such capacity by the Investment Company Act of
1940 and/or reviewed and approved for such purpose by the U.S. Securities and
Exchange Commission (55).
13. The Fund refuses to employ in any material connection with the handling of
assets of
the Fund, any person who:
(a) In the last 10 years has been convicted of any felony or misdemeanor arising
out of conduct involving embezzlement, fraudulent conversion, or
misappropriation of funds or securities, or involving violations of Title 18,
United States Code ss.ss.1341, 1342, or 1343 (58(a)).
(b) Within the last 10 years has been found by any-state regulatory authority to
have violated, or has acknowledged violation of, any provision of any state
insurance law involving fraud, deceit or knowing misrepresentation (59(b)).
(c) Within the last 10 years has been found by any federal or state regulatory
authorities to have violated, or have acknowledged violation of, any provisions
of federal or state securities laws involving fraud, deceit, or knowing
misrepresentation (58(c)).
<PAGE>
14. The Fund will make inquiries and attempt to determine that no persons,
firms, or employees of firms which supply consulting, investment,
administrative, custodial or other services affecting the administration of the
Company's variable annuity business (including such services for the Fund), have
been subject to the sanctions described in the preceding representation (59).
15. The Fund will seek to prevent its officers and Board members, and officers,
directors and portfolio managers of the investment advisor, from receiving,
directly or indirectly, any commission, or any other compensation with respect
to the purchase or sale of assets of the Fund (61).
16. No officer, director, trustee, or member of any governing board or body of
the Fund will receive directly or indirectly any commissions or any other
compensation contingent upon the writing, issuance, sale, procurement of
application for, or renewal, of any variable annuity contract (62).
17. All service agreements affecting the administration of the Fund allow the
Fund to terminate such contracts without payment of any penalty, forfeiture,
compulsory buyout amount, or performance of any other obligation which could
deter termination (65).
18. All service agreements affecting the administration of the Fund afford the
Fund a right to cancel the contract and discharge the servicing entity or person
in the event such entity or person fails to perform in a satisfactory manner
(66).
19. All service agreements affecting the administration of the Fund provide that
the Fund shall own and control all the pertinent records pertaining to its
operations (67).
20. All service agreements affecting the administration of the Fund provide that
the Fund shall have the right to inspect, audit and copy all records pertaining
to performance of services under the agreement (68).
<PAGE>
SCHEDULE D
Expenses
==============================================================
RESPONSIBLE
ITEM FUNCTION PARTY
- ----------------------------------------------------------------------------
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
- ---------------------------------------------------------------------------
MARKETING
1. Prospect Printing
us
Supply copies of prospectus described in Parts 3.1
and 3.3 in numbers equal to Transamerica's
reasonable request.
If requested by Transamerica in lieu thereof
such documentation and other assistance as
is reasonably necessary for Transamerica to
have the prospectus for the Contracts and
the prospectus for the Fund printed together
in one document.
2. Initial
Sales Distribution
Printing
Distribution
- --------------------------------------------------------------
EXISTING OWNERS
1. Annual Printing
Updates Distribution
Printing & Distribution
(a) If required by Fund or Adviser or Distributor
2. Interim (b) If required by Transamerica
Updates (c) If required by other participating insurance
company (PIC)
- -----------------------------------------------------------------------------
PROXY MATERIALS Printing and Distribution
OF THE FUND (a) If required by law
(b) If required by Transamerica
(c) If required by other participating insurance
company
(d) If required by Fund or Adviser or Distributor
<PAGE>
PrintingDER
Distribution
- ---------------------------------------------------------------------------
OTHER Printing & Distribution
COMMUNICATIONS (a) If required by law
WITH (b) If required by Transamerica
SHAREHOLDERS OF (c) If required by other participating insurance
THE FUND company
(d) If required by Fund or Adviser or Distributor
- ----------------------------------------------------------------------------
OPERATIONS OF All operations and related expenses, including the
FUND cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's
prospectus and registration statement, proxy
materials and reports, the preparation of
all statements and notices required by any
federal or state law and all taxes on the
issuance or transfer of the Fund's shares,
and all costs of management of the business
affairs of the Fund
<PAGE>
SCHEDULE E
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the requirement of Section 817(h) and Subchapter M under the
Internal Revenue Code (the "Code") and the regulations thereunder, the Fund
shall provide within twenty (20) Business Days of the close of the calendar
quarter a report [in a form to be attached] regarding the status under such
sections of the Code of the Designated Portfolios, and if necessary,
identification of any remedial action to be taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of
compliance with the requirements of Subchapter M of the Code, referred to
hereinafter as "RIC status," the Fund will provide the reports on the following
basis: (i) the last quarter's quarterly reports can be supplied within the
20-day period, and (ii) the year-end report [in a form to be attached] will be
provided 45 days after the end of the calendar year, but prior thereto, the Fund
will provide the additional interim and supplemental reports, described below.
The additional reports are as follows:
1. A report in the usual reporting format and content,
as of November 30, of each future fiscal year. The
report will be provided under cover of a letter from
the Underwriter stating that the Fund is in full
compliance with the requirements of Section 817(h)
and Subchapter M of the Code. Assuming such
satisfactory report, the Fund will not provide any
additional interim reports. The report will be
delivered by facsimile by the twentieth day of
December.
2.In the alternative, if a problem, as defined below, is identified in the
November report or its accompanying transmittal letter, additional interim
reports, on a weekly basis, starting on the 15th of December and through the
30th of December, also will be supplied ("additional interim reports"). The
additional interim reports will not follow the format of the regular reports,
but will specifically address the problem identified in the November 30 report.
If any interim report, thereafter, memorialize the cure of the problem,
subsequent additional reports will not be required.
With regard to delivery of the additional reports, they
will be transmitted by facsimile on the next Business Day,
subject to the following schedule of special dates: if the
15th of December is a Saturday, the required report date
will be accelerated to the 14th of December; if the 15th
of December is a Sunday, the report will be transmitted on
the 16th of December.
3. A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
<PAGE>
(a) Less than ninety-five percent of gross income is derived from sources
of income specified in Section 851(b)(2);
(b) Twenty-five percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Fifty-five percent or less of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) Twenty percent or more of the value of total
assets is invested in the securities of one
issuer, as that requirement is set forth in
Section 851(b)(4)(B).
<PAGE>
(9) Form of Administrative Agreement
<PAGE>
PRODUCT DEVELOPMENT
AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT, effective this 1st day of November, 1997, by and between First
Allmerica Financial Life Insurance Company ("Allmerica Financial"), a life
insurance company organized and existing under the laws of the Commonwealth of
Massachusetts, with a principal place of business at 440 Lincoln Street,
Worcester, Massachusetts 01653 and Transamerica Occidental Life Insurance
Company ("Transamerica"), a life insurance company organized and existing under
the laws of the State of California, with a principal place of business at 1150
South Olive Street, Los Angeles, California 90015.
WHEREAS, Allmerica Financial, directly and through its affiliate, Allmerica
Financial Life Insurance and Annuity Company ("AFLIAC"), has developed and is
marketing various variable universal life insurance policy forms; and
WHEREAS, through such development and marketing efforts Allmerica Financial has
acquired significant expertise in developing, designing and servicing flexible
premium variable universal life insurance products; and
WHEREAS, through such development and marketing efforts Allmerica Financial has
also acquired significant expertise in obtaining necessary state regulatory
approvals for the sale of variable universal life insurance policies; and
WHEREAS, Transamerica and Allmerica Financial have agreed that Allmerica
Financial shall provide assistance to Transamerica in developing and bringing to
market a flexible premium variable universal life insurance policy (the
"Policy", collectively the "Policies") and certain related forms, as described
herein; and
WHEREAS, Transamerica and Allmerica Financial have also agreed that Allmerica
Financial shall contract with Transamerica to provide, on behalf of
Transamerica, Policy underwriting, claims, and Policy and other administrative
services;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
PRODUCT DEVELOPMENT
<PAGE>
- 35 -
1.01 Development of Policy Forms. Prior to the effective date of this
Agreement, Transamerica and Allmerica Financial jointly drafted the
standard Policy, Policy applications and Policy riders, which are
referred to herein collectively as the "Policy Forms". Such Policy
Forms are based on the AFLIAC Policy Forms listed on Schedule 1.01
hereto. Transamerica agrees that it approved the final drafts of the
standard Policy Forms prior to the effective date of this Agreement.
When required, Allmerica Financial shall appropriately modify the
standard Policy Forms for each jurisdiction in which the Policy Forms
will be offered for sale. Such modifications shall represent Allmerica
Financial's best judgment as to what changes to the Policy Forms will
be necessary in order to secure insurance department approval. Because
the Policy Forms include numerous changes requested by Transamerica
which differ from the original AFLIAC Policy Forms which are listed on
Schedule 1.01 hereto, it is understood and agreed by Transamerica that
Allmerica Financial makes no representation that the Policy Forms will
be approved for sale by any particular jurisdiction.
1.02 Policy Form Filings and Submission Dates. All insurance department
filings will be made by Allmerica Financial on behalf of Transamerica.
It is the intent of the parties that the Policy Forms will be filed
with all states of the U.S. except New York and also with the District
of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands and that
Transamerica will be responsible for all insurance department filing
fees, although such fees will be advanced by Allmerica Financial.
Transamerica agrees to reimburse Allmerica Financial for the amount of
any advanced filing fees within 30 days of receipt of a written request
for reimbursement. Transamerica understands and agrees that late
payments of such reimbursements shall be assessed a late payment charge
at the rate of 12% per annum.
Transamerica acknowledges that prior to the effective date of this
Agreement Allmerica delivered and Transamerica received and approved
the following:
(i) The Policy Forms in final print, the Actuarial
Memorandum and all related documents for filing with
the California Insurance Department,
(ii) Sample annual and quarterly statements and
illustration formats, and
(iii) The basic submission letter.
The parties shall comply with the following time frames and delivery
dates:
(a) Not later than the effective date of this Agreement,
Transamerica shall provide Allmerica Financial with the
following:
(i) Final product specifications for the Policy Forms.
The final product specifications are listed on
Schedule 1.02 hereto. The final product
specifications highlight the specifications which
vary from the corresponding AFLIAC Policy Forms,
(ii) A draft policy prospectus, and
(iii) Any other information deemed necessary by Allmerica
Financial for the filing of the Policy Forms which is
not to be prepared by Allmerica Financial.
(b) If Transamerica furnishes the materials described in
paragraph (a) to Allmerica Financial not
later than November 1, 1997, Allmerica Financial agrees
(i) to submit the Policy Forms to all
jurisdictions that do not require California's prior
approval prior to December 1, 1997 and
(ii) to submit the Policy Forms to all jurisdictions
requiring California approval within 10
business days from the date Allmerica Financial
receives notification of California's
approval. To expedite the Policy Form submission
process, Transamerica agrees to grant a
limited Power of Attorney to appropriate Allmerica
Financial personnel to enable them to sign
letters and other correspondence on behalf of Transamerica.
Notwithstanding the above, if Transamerica fails to deliver
the materials described in paragraph (a) by the agreed upon
delivery date or fails to obtain any necessary approvals by
California of the separate account or accounts offered as
funding choices under the Policy, Allmerica Financial cannot
guarantee insurance department submission by the agreed upon
deadlines. However, in the event of any such delay, Allmerica
Financial does agree to make such submissions within 30 days
following receipt of all necessary approvals and other
materials.
1.03 Development and Filing of Policy Prospectus and Registration Statement;
Separate Account State Regulatory Approvals. The parties understand and
agree that the Policy Prospectus and `40 Act Registration Statement
development, printing and filing with the SEC will be the
responsibility of Transamerica, which will also be responsible for all
SEC filing fees. Further, the parties understand and agree that
Transamerica is responsible for obtaining any necessary California
Insurance Department or other state regulatory approvals of the
separate account or accounts that will be offered as funding choices
under the Policy.
1.04 State Submission Follow-Up Assistance. After filing the insurance
department Policy Form submissions contemplated by this Agreement,
Allmerica Financial shall provide all necessary follow-up to insurance
department correspondence in a prompt manner in order to secure
insurance department approvals on behalf of Transamerica. However,
Allmerica Financial makes no representation that Policy Form approvals
will be obtained from all jurisdictions. Allmerica Financial
understands and agrees that Transamerica must approve all material
changes to Policy Forms requested or required by insurance departments.
Allmerica Financial agrees to provide Transamerica weekly written
status reports of the approval status of each state filing.
1.05 Product Development Compensation. For the services described in
Sections 1.01 through 1.04 of this Agreement, Transamerica agrees to
pay Allmerica Financial $840,000 for assistance in developing and
bringing to market the Policy Forms. The $840,000 fee shall be paid to
Allmerica Financial, as follows:
(i) $100,000 shall be paid to Allmerica Financial within five (5)
business days following the date of execution of this
Agreement;
(ii) $100,000 shall be paid to Allmerica Financial within ten (10)
business days after the date of final approval by Transamerica
of the Policy Forms;
(iii) $100,000 shall be paid to Allmerica Financial within ten (10)
business days of notice to Transamerica of Policy approval in
twenty (20) states; and
(iv) the remainder, $540,000, shall be paid by Transamerica in
monthly installments. Each monthly
installment shall be equal to $1.50 multiplied by the
number of Policies in force during the
month, including any Policies surrendered during the month
Such monthly installments shall
only be paid until Allmerica Financial has been paid its
remaining product development fee.
Except as provided below, if this Agreement is terminated for
any reason, including termination
by Transamerica for cause in accordance with Section
11.03 or 11.05, prior to Allmerica
Financial having been paid its total product development
fee of $840,000, Transamerica agrees
to pay the balance in one sum within 30 days following the
date of termination.
Notwithstanding the foregoing, Transamerica reserves the right to
withhold amounts payable to Allmerica Financial pursuant to clause (iv)
above without the payment of any late payment charge if, in good faith,
Transamerica concludes that Allmerica Financial has materially breached
its product development duties and responsibilities, as set forth in
Sections 1.01 through 1.04 hereof. Additionally, Transamerica reserves
the right, to the extent permitted by law, to offset amounts payable to
Allmerica Financial pursuant to clause (iv) above against any damages
payable to Transamerica as a result of a material breach of the
Agreement by Allmerica Financial resulting in Transamerica's
terminating the Agreement for cause pursuant to Section 11.03 or 11.05
hereof.
Transamerica shall not withhold or offset any amounts otherwise payable
to Allmerica Financial under this Section 1.05 unless and until (i)
Transamerica provides Allmerica Financial with written notice
describing in detail the basis for the withholding or offset, such
notice to be provided before the payment is due; (ii) the parties use
their best efforts to resolve any dispute that formed the basis for the
withholding or offset; (iii) in the event the dispute is not resolved
within 90 days, Transamerica immediately pays all amounts due under
this Section 1.05, regardless of the dispute, into an escrow account,
where such amounts shall remain until the dispute is resolved; and (iv)
the dispute is then submitted to binding arbitration, as provided in
Section 12.18 hereof.
Transamerica understands and agrees that, except as provided above,
late payments shall be assessed a late payment charge at the rate of
12% per annum.
1.06 Ownership of Policy Forms. Allmerica Financial hereby transfers all of
its right, title and interest in the Policy Forms, including the
actuarial basis for the Policy Forms, it has developed on behalf of
Transamerica, to Transamerica.
Allmerica Financial warrants that it is the sole developer of the
Policy Forms and, except to the extent that the Policy Forms utilize
Transamerica's logo or Policy provisions or other material provided by
Transamerica, Allmerica Financial warrants that neither the Policy
Forms nor any of their elements will violate or infringe upon any
patent, copyright, trade secret or other property right of any other
person. This warranty shall survive termination of this Agreement.
1.07 New Products, Product Enhancements, etc. At any time and from time to
time while this Agreement remains in force, Transamerica may request
that Allmerica Financial enhance, modify or otherwise change the Policy
Forms ("Product Changes") or develop new variable life insurance
products ("New Products"), including New Products to be developed for
sale in New York State. After receipt of any such request Allmerica
Financial agrees to negotiate in good faith with Transamerica the terms
and conditions (including compensation and delivery time frames) under
which Allmerica Financial shall develop and, if so requested, file with
the various insurance departments the requested Product Changes or New
Products.
Allmerica Financial agrees to promptly review any Product Change or New
Product request and to respond to such request in writing within 30
days of its receipt of the request. In negotiating with Transamerica
the terms and conditions under which Allmerica Financial will comply
with any such request, Allmerica Financial agrees to assign the same
priority to such request, if it concludes that it is able to
accommodate the request, as would be assigned in the event of a similar
Product Change or New Product request related to its own variable life
insurance business.
ARTICLE 2
SERVICES
2.01 In General. During the term of this Agreement, Allmerica Financial
shall provide Transamerica the Policy underwriting, issue, servicing,
claims, computer system and other Policy administrative services
described in detail in Schedule 2.01A, Section 2.02 and in Article 3
(collectively, the "Policy Services") in support of the Policies, the
specifications for which are listed on Schedule 1.02 hereto, subject to
the terms and conditions set forth in this Agreement. The performance
of Policy Services shall occur in three (3) phases described as
follows, in accordance with the schedule of events set forth in
Schedule 2.01B hereto. Throughout each such phase, the parties agree to
discharge their respective obligations as further specified herein. The
phases shall consist of:
(a) The Implementation Phase. This phase will consist of the
recruitment and hiring by Allmerica
--------------------------
Financial of any additional personnel deemed necessary by
Allmerica Financial to perform its
Policy Services obligations hereunder, personnel training
and the installation (including any
necessary modifications) by Allmerica Financial of the
Computer System (as defined in Section
3.01(a)) necessary for Allmerica Financial to perform Policy
Services, Computer System testing,
business workflow testing, financial control and
compliance testing and Allmerica
Financial/Transamerica systems interface testing and
implementation and delivery of the
Computer System, as described in Articles 3 and 8.
Allmerica Financial covenants and agrees that it will use its
best efforts to hire sufficient personnel and devote adequate
resources to meet the planned timetables set forth in this
Agreement.
(b) The Operational Phase. This phase will consist of
Allmerica's performance of Policy Services
-----------------------
utilizing the accepted Computer System, all Policy
Services to be accomplished in accordance
with the Service Standards listed on Schedule 2.01C
hereto. Whenever the parties have not
agreed to a Service Standard for a particular Policy
Service, Allmerica Financial agrees that
the Service shall be performed utilizing the same service
standard as is then applicable to its
own variable life insurance business, but in no event
shall such standard be less than
standards consistent with prudent administrative
practices in the life insurance industry
generally and with any applicable legal and regulatory
requirements.
If at any time Allmerica Financial's performance of a Policy
Service does not meet the applicable Service Standard listed
on Schedule 2.01C or described in the preceding paragraph,
Allmerica Financial shall use its best efforts to take
necessary curative actions to bring its performance into
compliance within thirty (30) days of Transamerica giving
Allmerica Financial written notice of its non-compliance.
Provided, however, that if the non-compliance occurs as a
result of an unanticipated event, such as an unanticipated
increase in new Policy sales above the projections set forth
below or an unanticipated level of Policy Service activity,
the parties understand and agree that even with Allmerica's
best efforts, it may not be possible to cure the problem
within such thirty (30) day period.
Projected New Policy Sales Year
$12.5 million 11/1/97 - 10/31/98
$22.0 million 11/1/98 - 10/31/99
$27.5 million 11/1/99 - 10/31/00
$35.0 million 11/1/00 - 10/31/01
(c) The Conversion Phase. Upon termination of this Agreement for any reason
(including a default --------------------- by either party), Allmerica Financial
and Transamerica shall promptly retur all Property (as defined in Section
3.01(d)) held by the other party, including, but not limited to, data, records,
files, materials and supplies and computer software. A cooperative conversion
work plan and program will be developed by Allmerica Financial and Transamerica
to accomplish the transfer of records and other Property. Each party will work
in good faith to effect the conversion and minimize the cost of business
interruption resulting from the conversion. If and to the extent requested by
Transamerica, during the Conversion Phase Allmerica Financial agrees to continue
to provide Policy Services in accordance with the Service Standards listed on
Schedule 2.01C hereto. If Policy Services are being provided during the
Conversion Phase, Transamerica's rights under the Agreement to receive such
Services and Allmerica Financial's obligations under the Agreement to provide
such Services shall continue and remain in effect on the same basis and to the
same extent as such rights and obligations existed under the Agreement prior to
its termination, including Sections 4.02, 5.02, 5.03, 5.04, 6.02, 6.05, 6.06,
6.08, 6.10, 12.08 and 12.14. If Allmerica Financial continues to provide Policy
Services during the Conversion Phase, Transamerica understands and agrees that
it will continue to compensate Allmerica Financial for such Services as provided
in Section 2.04 hereto, even if the Agreement is being terminated by
Transamerica for cause in accordance with Sections 11.03 or 11.05 hereof.
Notwithstanding Transamerica's rights under Section 2.04 to withhold or offset
amounts payable for Policy Services, Transamerica agrees not to withhold or
offset compensation or reimbursements payable for Policy Services provided by
Allmerica during the Conversion Phase.
All expenses incurred in connection with the return of
Property as a result of termination of this Agreement shall be
borne by the party requesting the termination; provided,
however, that if this Agreement is terminated by a party for
cause, then, except for each party's personnel costs and
expenses, which costs shall be borne by the party incurring
such costs and expenses, any costs or expenses incurred in
connection with any such return of Property shall be borne by
the defaulting party.
Upon completion of the Conversion Phase, each party shall
certify to the other that all records and other Property has
been returned to its owner.
2.02 Policy Underwriting. All Policy underwriting services shall be
performed by Allmerica Financial on behalf of Transamerica. Policies
shall be underwritten based upon Transamerica's underwriting criteria,
requirements and standards ("Underwriting Standards"). Transamerica's
Underwriting Standards relating to the Policies must be satisfactory to
Allmerica Financial, and cannot be changed without Allmerica
Financial's written consent, which consent shall not be unreasonably
withheld. Copies of Transamerica's underwriting manuals and other
relevant materials necessary for Allmerica Financial to perform its
Policy underwriting obligations hereunder shall be furnished to
Allmerica Financial at Transamerica's expense. Transamerica
underwriting personnel (to be specified by Transamerica) shall be made
available at Transamerica's expense to answer any questions that might
arise from Allmerica Financial's underwriters relating to
Transamerica's Underwriting Standards. Vendors used for medical
underwriting services must be acceptable to both parties. The costs of
medical underwriting shall be paid initially by Allmerica Financial.
One hundred percent of such costs shall be reimbursed by Transamerica.
Medical underwriting cost reimbursements shall be paid to Allmerica
Financial as provided in Section 2.04.
In addition to the foregoing, in the case of a proposed underwriting
declination, which declination is not clearly a medical decline
described in Transamerica's underwriting manual, Allmerica Financial
shall communicate the proposed declination to appropriate Transamerica
personnel who must agree with and approve the proposed declination
before the underwriting decision is finalized. Allmerica Financial will
communicate appropriate details of any proposed declination in
accordance with notification procedures to be jointly developed by the
parties. If no response is received within five (5) days of the
transmission, Allmerica Financial shall have the right to proceed on
the basis that Transamerica is in agreement with the decision to
decline the risk.
2.03 Policy Claims. All Policy claims processing services shall be performed
by Allmerica Financial on behalf of Transamerica. All Policy claims
shall be investigated, processed and paid in accordance with
Transamerica's claims processing rules and requirements. Copies of
Transamerica's claims manuals and other relevant materials necessary
for Allmerica Financial to perform its Policy claims investigation,
processing and payment obligations hereunder shall be furnished to
Allmerica Financial at Transamerica's expense. Transamerica claims
personnel (to be specified by Transamerica) shall be made available at
Transamerica's expense to answer any questions that might arise from
Allmerica Financial's claims personnel relating to the investigation,
processing or payment of Policy claims.
In addition to the foregoing, in the case of a decision by Allmerica
Financial that a Policy claim should be denied, Allmerica Financial
shall communicate its proposed action to appropriate Transamerica
personnel who must agree with and approve the proposed claim denial
before the claims decision is finalized. Allmerica Financial will
communicate appropriate details of any proposed Policy claim denial in
accordance with notification procedures to be jointly developed by the
parties. If no response is received within five (5) days of the
transmission, Allmerica Financial shall have the right to proceed on
the basis that Transamerica is in agreement with the decision to deny
the claim.
2.04 Compensation and Reimbursement for Policy Services. For the Policy
Services described in this Agreement, while this Agreement remains in
force Transamerica agrees to pay Allmerica the following amounts:
(a) Reimbursement of 100% of Policy medical underwriting costs,
as described in Section 2.02.
(b) A single one time per Policy issued charge of $166.67.
(c) A monthly policy charge for each policy in force during a
calendar month, including any Policies surrendered during the
month. The total monthly policy charge shall be $4.50.
Provided, however, that commencing with the third calendar
month following the month the first Policy is issued, the
minimum amount payable to Allmerica Financial under this
Subsection (c) shall be $10,000 per calendar month.
Compensation and reimbursements described in this Section 2.04 shall be
payable to Allmerica Financial on such basis and at such time or times
as shall be mutually agreeable to the parties. Provided, however, that
in no event shall compensation and reimbursements payable for a
calendar month be paid later than ten business days from the date of
receipt by Transamerica of Allmerica Financial's bill for the month.
Transamerica understands and agrees that, except as provided below,
late payments shall be assessed a late payment charge at the rate of
12% per annum.
Notwithstanding the foregoing, Transamerica reserves the right to
withhold amounts payable to Allmerica Financial pursuant to this
Section 2.04 without the payment of any late payment charge if, in good
faith, Transamerica disputes Allmerica Financial's right to receive
payment. Additionally, Transamerica reserves the right, to the extent
permitted by law, to offset amounts payable to Allmerica Financial
pursuant to this Section 2.04 against any damages payable to
Transamerica as a result of a material breach of the Agreement by
Allmerica Financial resulting in Transamerica's terminating the
Agreement for cause pursuant to Section 11.03 or 11.05 hereof.
Transamerica shall not withhold or offset any amounts otherwise payable
to Allmerica Financial pursuant to this Section 2.04 unless and until
(i) Transamerica provides Allmerica Financial with written notice
describing in detail the basis for the withholding or offset, such
notice to be provided before the payment is due; (ii) the parties use
their best efforts to resolve any dispute that formed the basis for the
withholding or offset; (iii) in the event the dispute is not resolved
within 90 days, Transamerica immediately pays all amounts then due
under this Section 2.04, regardless of the dispute, into an escrow
account, where such amounts shall remain until the dispute is resolved;
and (iv) the dispute is then submitted to binding arbitration, as
provided in Section 12.18 hereof.
ARTICLE 3
COMPUTER SYSTEM AND PROPRIETARY RIGHTS
3.01 Definitions. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Administrative Computer System" or "Computer System" shall
refer to all computer systems and related materials used by
Allmerica Financial to administer the Policies, including
Allmerica Financial proprietary software and third party
licensed software comprised of computer programs and
supporting documentation, including, but not limited to,
source code, object code input and output formats, program
listings, narrative descriptions and operating instructions
and shall include the tangible media upon which the computer
programs and supporting documentation are recorded as well as
the deliverable forms and documents.
Allmerica Financial's proprietary software and third party
licensed software used to administer the Policies shall be
listed in Schedule 3.01A attached hereto. Such Schedule shall
be updated from time to time to reflect the addition or
deletion of software used in the administration of the
Policies.
The Computer System shall support, administer and process
Transamerica's business and product requirements as outlined
in Schedules 2.01A and 2.01C.
(b) "Functional Outline Documents" shall mean the detailed
description of the functions and features being added to the
Computer System and those necessary changes to be made to the
Computer System, all in support of Transamerica and which are
included in this Agreement in Schedule 3.01B.
(c) "Specifications" shall mean Functional Outline Documents,
Policy Specifications, Policyholder Documents, Variable Life
Prospectus and Policy Forms, Schedules and Reports, as
described in Schedules 1.02, 2.01C and 3.01B.
(d) "Property" shall mean all property of either party including,
but not limited to, data records, materials, supplies,
computer software, customer records, premium information,
underwriting files, customer lists, sales data, policyholder
and insured data, data on agents, agencies and distribution
systems.
3.02 Computer System. The Computer System will be and remain the Property of
Allmerica Financial and Transamerica shall have no rights or interest
in the Computer System except as provided in this Agreement.
Modifications to the Computer System developed for Transamerica that
are mutually agreed to be proprietary to Transamerica shall not be
sold, licensed, transferred, assigned or otherwise distributed without
the express written consent of Transamerica.
(a) The Computer System currently uses the LIFE-COMM III Computer
System, licensed to Allmerica Financial by CSC Continuum Inc.,
("Continuum"), as successo to Informatics, Inc., pursuant to a
License Agreement ("Licensed Software") dated October 15, 1976,
as amended, and Allmerica Financial warrants that it has the
right to use the Licensed Software to provide the Policy Services
described in this Agreement. Transamerica understands and agrees
that, at Allmerica Financial's option, the Licensed Software or
any replacement software may be replaced at any time and from
time to time, at Allmerica Financial's expense, with other
suitable software of Allmerica Financial's choice. Allmerica
Financial agrees that neither the Licensed Software nor any
replacement software shall be replaced without at least six
months' written notice to Transamerica of the pending
replacement.
In the event that Allmerica Financial decides to replace such
licensed software, Allmerica Financial agrees to test the
replacement software prior to its installation to be certain
that it will properly perform the Policy Services contemplated
by this Agreement. The testing standards and the testing
process for any such replacement software must be approved by
Transamerica.
(b) In order for Allmerica Financial to utilize the Licensed
Software to provide the Policy Services contemplated by this
Agreement, Transamerica agrees to execute a Non-Disclosure and
Non-Use Agreement with Continuum and First Allmerica, in the
form set forth in Schedule 3.02.
Allmerica Financial agrees to use its best efforts to convince
Continuum to enter into an agreement with Transamerica. Such
agreement shall provide, in substance, that should this
Agreement terminate for any reason prior to an agreed upon
date, then Continuum shall, at Transamerica's option, issue to
Transamerica, or to a Transamerica affiliate specified by
Transamerica, a license agreement to use the version of the
LIFE-COMM III Computer System then currently used to service
Transamerica's business. Any such agreement shall provide that
the fee for any such license shall not exceed the current
market price for the product. Allmerica Financial further
agrees that it shall not replace the LIFE-COMM III Computer
System with another computer system unless and until the
product vendor enters into a separate agreement with
Transamerica similar to the agreement with Continuum
contemplated by this provision.
In addition, (i) if Transamerica terminates this Agreement for
cause, as described in Section 11.03, or as a result of
Allmerica Financial's insolvency, as described in Section
11.05, or (ii) if Allmerica Financial chooses not to renew or
to terminate this Agreement (other than for cause), then, in
the case of any such event, Allmerica Financial further agrees
to grant Transamerica, at no cost to Transamerica, a license
with respect to all of the modifications and enhancements
Allmerica Financial has made to the LIFE-COMM III Computer
System, or any replacement thereof, which are necessary to
allow Transamerica to continue to provide the Policy Services
contemplated by this Agreement.
Notwithstanding the above, Transamerica understands and agrees
that in no event shall Allmerica Financial provide to
Transamerica during the term of this Agreement or any
extension thereto, access to Continuum proprietary software
source codes, technical design documentation, detailed
business or technical practices or techniques, Continuum
confidential correspondence or documentation.
Allmerica Financial agrees to identify and inventory all
confidential information of Continuum provided to Transamerica
under the terms of this Agreement and shall secure written
acknowledgment from an authorized Transamerica representative
of receipt of such property.
Allmerica Financial warrants that the Computer System is the
Property of Allmerica Financial and utilizes software
developed by or licensed to Allmerica Financial. Allmerica
Financial further warrants that the use of the Computer System
to provide the Policy Services contemplated by this Agreement
will not infringe upon or violate any patent, copyright, trade
secret or other proprietary right of any third party. These
warranties shall survive termination of this Agreement.
ARTICLE 4
CONFIDENTIALITY AND AUDIT RIGHTS
4.01 Confidentiality. Except as otherwise provided in this Agreement, all
information communicated by Transamerica to Allmerica Financial and by
Allmerica Financial to Transamerica shall be and is received in
confidence and shall be used only for purposes of this Agreement. No
such information shall be disclosed by Allmerica Financial, by
Transamerica or by their respective agents or employees without the
prior written consent of the non-disclosing party, except as may be
necessary by reason of legal, accounting, or regulatory requirements
beyond the reasonable control of the disclosing party. The provisions
of this Section 4.01 shall survive termination or expiration of this
Agreement for any reason.
Allmerica Financial and Transamerica each agree not to disclose to any
person, firm or corporation or to utilize or reproduce for their own
use any proprietary or confidential information concerning the business
or data of the other party which it may have acquired pursuant to or in
the course of the performance of its obligations under this Agreement.
Proprietary information shall include, but not be limited to, data,
marketing information and materials, sales data, customer lists,
financial plans, investment strategies, policyholder and insured data,
data on agents, agencies and distribution systems. The foregoing
notwithstanding, the following shall not be considered proprietary
information for purposes of this provision: (i) information publicly
available or generally known within the life insurance industry; (ii)
information obtained from other sources, to the knowledge of Allmerica
Financial or Transamerica, as the case may be, not under a duty of
confidentiality to Transamerica or Allmerica Financial with respect to
such information; and (iii) information that is developed or created
independently by either party without breach of this Agreement.
In addition to the foregoing, Allmerica Financial agrees that during
the term of this Agreement and thereafter it shall not, directly or
indirectly, or through any third party utilize confidential information
obtained pursuant to this Agreement to recruit or attempt to recruit
any Transamerica insurance agents, brokers, general agents or other
producers.
In addition to the foregoing, Transamerica agrees that during the term
of this Agreement and thereafter it shall not, directly or indirectly,
or through any third party utilize confidential information obtained
pursuant to this Agreement to recruit or attempt to recruit any
Allmerica Financial or AFLIAC insurance agents, brokers, general agents
or other producers.
4.02 Audit Rights. Allmerica Financial shall provide reasonable access
during normal business hours to any location from which Allmerica
Financial conducts its business and provides Policy Services to
Transamerica pursuant to this Agreement to auditors designated in
writing by Transamerica for the purposes of performing audits for
Transamerica. Transamerica shall give reasonable advance written notice
of an audit and include in that notice the matters which it will audit.
Allmerica Financial shall provide the auditors any assistance they may
reasonably require. Such auditors shall have the right during normal
business hours to audit any business record, activity, procedure or
operation of Allmerica Financial that is reasonably related to the
provision the Policy Services provided under this Agreement, including
the right to interview any Allmerica Financial personnel involved in
providing or supporting such Policy Services.
If Transamerica determines, following an audit, that errors have been
made in Allmerica Financial's records, procedures or operations,
Allmerica Financial will make prompt correction and forward evidence of
such corrections to Transamerica. Allmerica Financial will use its best
efforts to make all such corrections within thirty (30) business days.
ARTICLE 5
RECORDS AND DATA MAINTENANCE
5.01 Maintenance of Allmerica Financial Records. Allmerica Financial records
relating to Policies and the Policy Services provided under this
Agreement will be maintained at Allmerica Financial's principal
administrative office and at other storage facilities used for
maintenance of records relating to Allmerica Financial's variable life
insurance business. Such records shall be maintained: (i) in the case
of records relating to a particular Policy, while the Policy remains in
force and for a period of seven (7) years following termination of the
Policy and (ii) for all other such records, for the duration of this
Agreement and, for any records not transferred to Transamerica after
termination of this Agreement, for a period of seven (7) years
following such termination.
Notwithstanding the foregoing, voice recording tapes shall only be
maintained for one (1) year from the date of the call.
All such Allmerica Financial records will be maintained in accordance
with prudent standards of recordkeeping as required by state insurance
laws and regulations and the Investment Company Act of 1940, as well as
other federal and state securities laws and regulations.
5.02 Records and Data Management. Allmerica Financial shall:
(i) maintain all Policy paper-based files provided to Allmerica
Financial on behalf of Transamerica, including, but not
limited to, Policy applications, transaction documents and
authorizations, correspondence, beneficiary designations and
all other relevant Policy servicing documents;
(ii) maintain voice recording tapes for all telephone based service
requests. These tapes shall be maintained in a safe and secure
location;
(iii) maintain Policy machine sensible records, including values,
options, status and payments;
(iv) store Transamerica Computer System data under Allmerica
Financial's retention schedule, as mutually agreed upon, on
magnetic tapes and disc packs when in the possession or
custody of Allmerica Financial in accordance with the
confidentiality and security safeguards specified in this
Agreement. In the event a longer retention schedule is desired
by Transamerica, Allmerica Financial shall comply with such
requirements, and Transamerica shall reimburse Allmerica
Financial at an agreed upon rate for any additional costs
reasonably incurred by Allmerica Financial;
(v) maintain all records and files relating to Policies and Policy
Services as the Property of Transamerica and promptly return
such Property to Transamerica upon termination of this
Agreement, as provided in Subsection 2.01(c) hereof;
(vi) maintain all such records and files in an accessible and
useable form; and
(vii) not destroy any such records and files without the approval of
Transamerica and only after 30 days' written notice to
Transamerica of the proposed destruction.
5.03 Transamerica's Records. Transamerica's files, records, and documents
and the data contained therein shall be and remain Transamerica's
Property and shall be returned to Transamerica promptly upon request or
the expiration or termination of this Agreement or, with respect to any
particular data files and data, on the earlier date the data files and
data are no longer required by Allmerica Financial to provide services
to Transamerica pursuant to this Agreement. Transamerica's data is
confidential and proprietary and shall not be utilized by Allmerica
Financial for any purpose other than that of providing services to
Transamerica and shall not be disclosed, sold, assigned, leased or
otherwise disposed of or commercially exploited by or on behalf of
Allmerica Financial or its affiliates or their employees or agents
without the prior written consent of Transamerica.
At any time and from time to time, Transamerica may request Allmerica
Financial for copies of Transamerica's files, records and documents
then in the possession of Allmerica Financial. Unless prohibited by its
license agreement with Continuum or any other agreement with a software
vendor, Allmerica Financial shall promptly comply with any such request
for copies. Transamerica understands and agrees that any costs or
expenses, including personnel costs, incurred by Allmerica Financial in
complying with any such requests for copies shall be reimbursed by
Transamerica. Any such reimbursement shall be paid by Transamerica
within 30 business days of its receipt of a written request for
reimbursement.
5.04 Safeguarding Transamerica Data and Records. In order to properly
safeguard Transamerica data and records in its possession, Allmerica
Financial will establish and maintain full and complete safeguards no
less rigorous than those in effect at Allmerica Financial to protect
its own confidential data and records against destruction, loss,
alteration or unauthorized access.
ARTICLE 6
ALLMERICA FINANCIAL'S OBLIGATIONS
6.01 Implementation Duties and Responsibilities. Commencing on the Effective
Date, Allmerica Financial shall, in accordance with the time schedules
set forth in Article 1 and in Schedule 2.01B: (a) Develop the Policy
Forms and perform its additional duties and responsibilities as set
forth in
Article 1.
(b) Jointly develop with Transamerica the detail requirements and
specifications for each of the Functional Outline Documents to
be included in Schedule 3.01B. These documents will be the
detailed business specifications for all product and service
modifications. Allmerica Financial and Transamerica expect to
complete this task within six (6) weeks from the date the
Agreement is executed by both parties.
(c) Jointly develop with Transamerica the Computer System
interfaces to Transamerica's Home Office and Kansas City
Operational Center. The Allmerica Financial time frames for
completion of such interfaces will be negotiated by the
parties. Transamerica understands and agrees that, to the
extent compatible, Allmerica Financial intends to utilize file
formats currently in use in developing such interfaces.
(d) Modify and implement the Administrative Computer System as
necessary to support the Policy and Policy Services covered by
this Agreement. The time frames for Computer System
modification and implementation will be negotiated by the
parties.
(e) Develop illustration software and illustration formats to be
used with the Policy Forms, as more fully described in Section
6.04.
6.02 Computer System Operation. Upon the successful completion of acceptance
testing and the implementation of the Computer System, Allmerica
Financial shall provide Transamerica the following Computer System
services:
(a) Operate the Computer System and process Transamerica business
and data in accordance with Schedules 2.01A, 2.01B and 3.01B
to achieve the Service Standards called for in Schedule 2.01C.
In the event that the Service Standards in Schedule 2.01C are
not achieved, Allmerica Financial shall institute corrective
action, as described in Section 2.01(b), in order for such
standards to be achieved.
(b) Provide all necessary man-hours to install new releases of the
Computer System and maintain the Computer System in accordance
with the specifications and Functional Outline Documents set
forth in Schedules 2.01A, 2.01B and 3.01B by making routine
corrections and by accomplishing ordinary day-to-day changes
to the computer programs in the Computer System.
(c) Store Transamerica data, as provided in clause (iv) of Section 5.02
hereof.
(d) Use its best efforts to ensure that the Computer System is Year
2000 ready.
6.03 Computer System Maintenance, Changes and Enhancements. Allmerica
Financial agrees to maintain the Computer System in accordance with the
specifications and Functional Outline Documents set forth in this
Agreement at no additional cost to Transamerica. At any time and from
time to time while this Agreement remains in force Transamerica may
request that Allmerica Financial modify, enhance or otherwise make
changes to the Computer System ("System Changes") other than changes
required as part of Allmerica Financial's responsibility to perform
normal Computer System maintenance. After receipt of any such request,
Allmerica Financial agrees to negotiate in good faith with Transamerica
the terms and conditions (including compensation and delivery time
frames) under which Allmerica Financial shall develop and implement any
such requested Systems Change.
Allmerica Financial agrees to promptly review any Systems Change
request and to respond to such request in writing within 30 days of its
receipt of the request. In negotiating with Transamerica the terms and
conditions under which Allmerica Financial will comply with any such
request, Allmerica Financial agrees to assign the same priority to such
request, if it concludes that it is able to accommodate the request, as
would be assigned in the event of a similar Systems Change request
related to its own variable life insurance products.
6.04 Policy Illustrations. Allmerica Financial agrees to develop
illustration software to be used with the Policy Forms. Transamerica
understands and agrees that such software shall be substantially
similar to the illustration software currently used by Allmerica
Financial in its variable life insurance business. Allmerica Financial
agrees to finalize such illustration software within a mutually
agreeable time frame after the date the final specifications for the
Policy Forms are agreed to by the parties.
In addition to the foregoing, Allmerica Financial agrees to modify its
illustration software whenever modifications are necessary to comply
with any regulatory and/or statutory changes applicable to
illustrations used in connection with the sale and servicing of the
Policy Forms.
Allmerica Financial represents and warrants that illustrations produced
by such illustration software shall comply with all applicable state
and federal regulatory and statutory requirements. This warranty shall
survive termination of this Agreement.
6.05 Acknowledgment and Additional Responsibilities of Allmerica Financial.
Allmerica Financial shall have no authority, nor shall it represent
itself as having such authority, other than as specifically set forth
in this Agreement. Without limiting the generality of the foregoing
sentence, Allmerica Financial specifically agrees that it will not do
any of the following without the prior written consent of Transamerica:
(a) Litigation. Institute or prosecute any legal proceedings in
connection with any matter pertaining to the Policy Services
provided pursuant to this Agreement or Transamerica's business
or accept service of process on behalf of Transamerica.
(b) Alterations. Waive, amend, modify, alter, terminate or change
any term, provision or condition stated in any Policy Form or
discharge any contract in the name of Transamerica, except as
otherwise specifically provided in this Agreement.
(c) Advice to Policyholders/Prospective Policyholders. Offer tax,
legal, or investment advice to any Policyholder or prospective
Policyholder of Transamerica under any circumstances, with
respect to a Policy or the Policy Services provided pursuant
to this Agreement.
6.06 Cooperation. Allmerica Financial agrees to cooperate at all times with
Transamerica to ensure that the Policy Services provided pursuant to
this Agreement are provided properly to any Policyholder or prospective
Policyholder of Transamerica. Allmerica Financial shall use its best
efforts to comply with any and all written directives from Transamerica
for the correction of deficiencies or problems associated with
Allmerica Financial's performance of Policy Services or its obligations
hereunder (each, a "Correction Letter"). Such deficiencies or problems
shall include, without limitation, (i) Allmerica Financial's failure to
provide Policy Services in a timely manner, or (ii) Allmerica
Financial's failure to provide Policy Services in accordance with the
Service Standards specified in Schedule 2.01C. Allmerica Financial
shall use its best efforts to comply with a Correction Letter within
thirty (30) days of its receipt of the Letter (or such longer period as
shall be specified in the Correction Letter, in situations where it is
not reasonably possible to comply within such thirty (30) day period).
6.07 Notification of Service Deficiencies. Allmerica Financial shall
promptly notify Transamerica, in writing, of (i) any material
weaknesses relating to the provision of Policy Services under the
Agreement and (ii) any comment of a material nature made pursuant to a
regulatory examination relating to the provision of such Policy
Services. Written notification shall be provided within seven (7) days
of when Allmerica becomes aware, through written notification, of the
material weakness or regulatory comment. If Allmerica has not corrected
the material weakness or material problem that caused the regulatory
comment to the satisfaction of Transamerica within a time frame set
reasonably by Transamerica in writing and agreed to by Allmerica
Financial, Transamerica may then immediately terminate this Agreement
without prejudice to any of Transamerica's rights or remedies against
Allmerica Financial pursuant to Section 11.03 of this Agreement.
6.08 Administrative Services Provided. Allmerica Financial shall perform the
administrative services specified in Schedules 2.01A, 2.01B and 3.01B
within the time frames and Service Standards specified in Schedule
2.01C.
6.09 Records and Data Maintenance. Allmerica Financial shall provide the
records and data maintenance, management and other services described
in Article 5.
6.10 Personnel. Allmerica Financial shall use its best efforts to ensure
that adequate personnel are assigned to perform the services required
under this Agreement, to include a Project/Account Manager and the
staffing levels needed in order to achieve the Service Standards
specified in Schedule 2.01C.
Except for third party vendors used to service Allmerica Financial's
variable life insurance business, Transamerica's business will be
serviced only by employees of Allmerica Financial.
Before Allmerica Financial communicates any confidential information
described in Section 4.01 and relating to Transamerica to a vendor, the
vendor must execute a confidentiality agreement acceptable to
Transamerica.
ARTICLE 7
TRANSAMERICA'S OBLIGATIONS
7.01 Transamerica's Duties and Responsibilities. Transamerica shall:
(a) Assist Allmerica Financial in the development of the Policy
Forms and perform its additional duties and responsibilities
set forth in Article 1.
(b) Jointly develop with Allmerica Financial an implementation
plan and schedule as set forth in Schedule 2.01B.
(c) Provide designated Transamerica personnel dedicated to work
with Allmerica Financial personnel in the performance of this
Agreement and all other reasonable and necessary cooperation
and support.
(d) Develop business specifications and jointly develop with
Allmerica Financial the Functional Outline Documents.
(e) Provide all the requirements for the operation of the
Administrative Computer System at Transamerica's facilities
necessary for Computer System interfaces and output.
(f) Provide necessary input data for the operation of the Computer
System.
(g) Jointly develop with Allmerica Financial the interface
specifications for the Computer System and Transamerica
systems.
(h) Assist Allmerica Financial in the development of the
illustration software and formats described in Section 6.04.
(i) Make all necessary payments due under the terms of this Agreement.
ARTICLE 8
ACCEPTANCE TESTING
8.01 Contents. Allmerica Financial and Transamerica shall conduct tests of
the Computer System. The standard to be used to determine the
successful completion for all tests shall be the Computer System's
performance of the functions and features described in the Functional
Outline Documents set forth in Schedule 3.01B and the specifications
set forth in Schedules 1.02 and 2.01A. The testing standards and the
testing process must be approved by Transamerica, whose approval shall
not be unreasonably withheld.
8.02 Usability Testing. Allmerica Financial and Transamerica shall conduct
a joint usability test as follows:
(a) The test will be performed utilizing Allmerica Financial's existing
test environment.
(b) A test sample of Policies and business transactions shall be
determined and processed by Allmerica Financial and will be
made available to Transamerica for review.
(c) Allmerica Financial and Transamerica will jointly review the
test results to determine completeness, accuracy and
performance.
(d) Transamerica will process all Allmerica Financial generated
system interface files to determine successful use by internal
Transamerica systems.
(e) Allmerica Financial and Transamerica will evaluate overall
business and system processing flow for capability to meet
operational performance standards.
(f) Allmerica Financial and Transamerica will make all necessary
revisions to business and technical systems identified in the
usability test.
(g) In order to satisfy usability testing, the Computer System
must process all sample Policies and related transactions to
such standards as would be acceptable to Allmerica Financial
in the processing of AFLIAC's variable life insurance
business. Transamerica and Allmerica Financial must mutually
agree that usability testing has been successfully
accomplished. Transamerica and Allmerica Financial must also
mutually agree that usability testing has been performed with
true representation of Transamerica sales force illustration
and investment scenarios.
(h) In the event the usability testing has not been successfully
completed within six months from the Effective Date of this
Agreement, unless the parties agree to an extension,
Transamerica and Allmerica Financial shall proceed in
accordance with the provisions of Subsection 2.01(c) of this
Agreement.
ARTICLE 9
ADDITIONAL REPRESENTATIONS AND WARRANTIES
9.01 Corporate Authority, etc. Allmerica Financial represents and warrants:
(a) That it is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Massachusetts.
(b) That Allmerica Financial has the power and authority under the
laws of the Commonwealth of Massachusetts and under its
charter and by-laws to enter into and perform the Product
Development and Policy Services contemplated in this
Agreement.
(c) That all requisite corporate and other acts or proceedings
required to be taken to authorize the execution, delivery and
performance of this Agreement have been taken.
(d) That in performing the Policy Services contemplated in this
Agreement it will be in compliance with all applicable state
and federal laws and regulations and will use its best efforts
to perform the Policy Services in compliance with
Transamerica's policies and procedures that are designed to
achieve IMSA (Insurance Marketplace Standards Association)
certification.
(e) That it has and will use its best efforts to continue to have
and maintain the necessary facilities to perform Policy
Services in accordance with the provisions of this Agreement.
9.02 Survivability. The warranties provided for in this Article 9
shall survive termination of this
-------------
Agreement.
ARTICLE 10
INDEMNITIES AND LIABILITY
10.01 Cross Indemnity. Each party shall indemnify, defend and hold harmless
the other, and the other's subsidiaries, parent and affiliates, from
and against any and all claims, actions, damages, liabilities, costs
and expenses (including reasonable attorneys' fees and expenses),
arising out of the death or bodily injury of any agent, employee,
customer, business invitee or business visitor of the indemnitor
occurring on premises under the control of the indemnitor or its parent
or one of its subsidiaries or affiliates.
10.02 Allmerica Financial Limitation of Liability; Indemnification by
Transamerica. Allmerica Financial, its subsidiaries, parent, affiliates
and its or their officers, directors, employees and agents
(collectively "Allmerica Indemnitees") shall not be responsible for,
and Transamerica shall indemnify and hold harmless Allmerica
Indemnitees from and against any and all claims, demands, losses,
damages, charges, costs, expenses (including reasonable attorneys' fees
and expenses), judgments, awards and settlements, including any
punitive, consequential, special or indirect damages (herein "Losses")
arising out of or attributable to:
(a) All actions of Allmerica Indemnitees related to Policy
underwriting or the investigation, processing, denial or
payment of Policy claims, including death claims, provided
that:
(i) in the case of an underwriting matter, Allmerica
Financial properly utilized Transamerica's
Underwriting Standards (as described in Section 2.02)
in underwriting, rating or declining an applicant for
insurance and, in the event of the declination of a
proposed insured, which declination is not clearly a
medical decline described in Transamerica's
underwriting manual, that the matter was communicated
to authorized Transamerica personnel who agreed with
and approved the declination; and
(ii) in the case of a Policy claim, Allmerica Financial
followed Transamerica's claims investigation and
processing rules and requirements and, in the event
of the denial of a claim, that the matter was
communicated to authorized Transamerica personnel who
agreed with and approved the denial.
Allmerica Financial will communicate appropriate details of
any required communication described in (a) (i) and (ii) above
in accordance with notification procedures to be jointly
developed by the parties. If no response is received within
five (5) days from the day of the transmission, Allmerica
Financial shall have the right to proceed on the basis that
Transamerica is in agreement with the decision to decline the
risk or deny the payment of the claim and will proceed with
appropriate action.
(b) A claim against an Allmerica Indemnitee by any third party, to
the extent it arises out of or results from any act or
omission of Transamerica, its employees, agents, brokers or
representatives relating to the sale or servicing of any
Policy.
(c) A claim against an Allmerica Indemnitee by any third party, to
the extent it arises out of or results from the reasonable
reliance of an Allmerica Indemnitee on information, records or
documents furnished to it by or on behalf of Transamerica.
(d) A claim against an Allmerica Indemnitee by any third party, to
the extent it arises out of or results from the reasonable
reliance on, or the carrying out of by an Allmerica Indemnitee
of, any instructions of authorized personnel of Transamerica.
10.03 Transamerica Limitation of Liability; Indemnification by Allmerica
Financial. Transamerica, its subsidiaries, affiliates and its or their
officers, directors, employees and agents (collectively "Transamerica
Indemnitees") shall not be responsible for, and Allmerica Financial
shall indemnify and hold harmless Transamerica Indemnitees from and
against any and all Losses arising out of or attributable to:
(a) A breach or negligent failure of Allmerica Financial to
perform any of Allmerica Financial's representations,
warranties, covenants or obligations set forth in this
Agreement.
(b) A claim against a Transamerica Indemnitee by any third party,
to the extent it arises out of or results from the reasonable
reliance of a Transamerica Indemnitee on information, records
or documents furnished to it by or on behalf of Allmerica
Financial.
(c) A claim against a Transamerica Indemnitee by any third party,
to the extent it arises out of or results from the reasonable
reliance on, or the carrying out of by a Transamerica
Indemnitee of, any instructions of authorized personnel of
Allmerica Financial.
In addition to the foregoing, Allmerica Financial shall indemnify and
hold harmless Transamerica Indemnitees from and against any tax,
interest or penalties imposed by the IRS or any state or local taxing
authority on Transamerica, as well as any liability Transamerica may
incur to Policyholders caused by or related to Allmerica Financial's
failure to properly test and apply the life insurance testing rules
under IRC Sections 7702 and 7702A or its failure to perform its tax
withholding and information reporting duties and responsibilities under
this Agreement, including, but not limited to, failures to: (i) deposit
the correct amount of income tax withholding on time; (ii) issue timely
information returns; (iii) issue correct information returns; (iv)
correctly process tax-related transactions related to nonresident
aliens; and (v) correctly process tax-related transactions related to
death claims.
10.04 Notice and Opportunity to Defend. Promptly after receipt by any party
hereto of notice of the assertion of any claim for a Loss with respect
to which such party hereto expects to make a request for
indemnification hereunder, such party shall give the party which may
become obligated to provide indemnification hereunder (the
"Indemnifying Party") written notice describing such claim in
reasonable detail. The Indemnifying Party shall have the right, at its
option and at its own expense and by its own counsel, to participate in
the defense of any such claim, provided that the Indemnifying Party
shall have agreed in writing to indemnify the party seeking
indemnification hereunder (the "Indemnified Party"). Notwithstanding
the foregoing, the Indemnifying Party shall not have the right to
control or to represent the Indemnified Party in the defense of any
claim.
10.05 Processing Liability. Notwithstanding the provisions of Sections 10.02
and 10.03, in the event of any liability incurred by Allmerica
Financial or Transamerica as a result of Policy processing errors made
by Allmerica Financial, Allmerica Financial shall be liable for the
first ten thousand dollars incurred during each twelve (12) month
period from the commencement of the Operational Phase ("Liability
Period") for the term of this Agreement. For liability arising from
Allmerica Financial processing errors incurred in a Liability Period in
excess of ten thousand dollars, Allmerica Financial shall be liable for
40% of such amount and Transamerica shall be liable for 60% of such
amount. Provided, however, that Transamerica shall not be liable with
respect to any Liability Period for any such amount in excess of .35%
of Policy premiums (including first year target and excess premiums and
renewal premiums) paid during the Liability Period. Allmerica Financial
agrees that it shall be responsible for the dollar amount of processing
errors incurred during a Liability Period in excess of such .35% cap.
If such cap is not determined until after the end of a Liability
Period, both parties agree to a true-up by Allmerica Financial (or to a
reimbursement by Transamerica, if appropriate) within 30 days following
the date the cap is both calculated and agreed to by both parties. For
purposes of calculating processing errors, both parties understand and
agree that liabilities shall only mean and include amounts payable or
creditable to Policyholders and their beneficiaries and shall not
include internal costs incurred by either party to correct such errors.
For purposes of this Agreement, the term "processing errors" shall mean
and include:
(i) errors or delays relating to the processing of Policy premium
payments;
(ii) errors or delays relating to the processing of Policy fund
transfer requests;
(iii) errors or delays relating to Policy Services involving Policy
dollar cost averaging or automatic account rebalancing;
(iv) errors or delays related to the processing of Policy changes
(e.g., processing of title changes, beneficiary changes or
insurance increases or decreases);
(v) errors or delays related to the processing of Policy
surrenders, exchanges or withdrawals;
(vi) errors or delays related to the processing of Policy loans; and
(vii) other errors or delays related to the Policy Administration
functions described in Part B of Schedule 2.01C.
Notwithstanding the foregoing, processing errors shall not include
systemic Computer System errors, errors related to Policy underwriting,
Policy claims processing or errors related to Allmerica Financial's
Code Section 7702 and 7702A policy testing and tax withholding and
information reporting duties and responsibilities, as described in the
last paragraph of Section 10.03 hereof.
10.06 Acknowledgment. Allmerica Financial and Transamerica expressly
acknowledge that the limitations contained in this Article 10 represent
the express agreement of the parties with respect to allocation of
risks between the parties, including the level of risk to be associated
with the provision of the Policy Services described herein as related
to the amount of the payments to be made to Allmerica Financial for
such Services, and each party fully understands and accepts such
limitations.
10.07 Survivability. The indemnifications provided for in this Article 10
shall survive termination of this
-------------
Agreement for any reason.
ARTICLE 11
TERM AND TERMINATION
11.01 Term.
(a) The Product Development obligations of the parties and the Policy Services
Implementation Phase shall commence upon the Effective Date of this Agreement.
The Implementation Phase shall expire upon successful completion of all
acceptance testing of the Computer System under Article 8. The Operational Phase
shall commence upon certification by Allmerica Financial that it is ready to
commence production processing of Transamerica data, and shall expire
forty-eight (48) full calendar months from the date of receipt of said
certification from Allmerica Financial, unless terminated earlier or extended in
accordance with the provisions of this Agreement.
(b) A failure to commence the Operational Phase on or before the date which is
six months from the date the Functional Outline Documents have been finalized
and agreed to by the parties shall result in a sixty (60) day cure period during
which Transamerica and Allmerica Financial shall take all necessary steps to
complete the work to commence the Operational Phase. If the Operational Phase is
not commenced by the end of the 60-day cure period, then, at its option, either
party shall have the right to terminate the Agreement. In such event, neither
Allmerica Financial nor Transamerica shall have any further responsibility under
this Agreement except for Transamerica's responsibility to pay the balance of
the Compensation due Allmerica Financial for its Product Development services,
as specified in Section 1.05.
11.02 Extension. This Agreement shall continue in force after the initial
48-month termination date specified in Subsection 11.01(a) unless
either party elects to terminate the Agreement on said initial
termination date by notifying the other party in writing of its
intention to do so. Such notice must be given at least twelve months
prior to said initial termination date unless both parties agree to
accept a later date of notification. If this Agreement is continued
beyond said initial termination date, Transamerica and Allmerica
Financial shall each have the right to cancel this Agreement on any
date thereafter upon twelve months' written notice to the other party.
11.03 Termination for Cause. Except as otherwise provided in this Agreement,
in the event either party defaults in the performance of any of that
party's material duties or obligations under this Agreement, which
default shall not be substantially cured within thirty (30) days after
written notice is given to the defaulting party specifying the default
or, with respect to those defaults which cannot reasonably be cured
within thirty (30) days, should the defaulting party fail to proceed
within sixty (60) days to commence curing the default and thereafter to
proceed with all due diligence to substantially cure the default, the
party not in default may terminate this Agreement for cause by giving
written notice to the defaulting party.
For purposes of this Agreement, material breach shall include, but not
be limited to, the following events: (i) fraud, material
misrepresentation, conversion or unlawful withholding of funds by
either party; (ii) the disqualification by either party to do business
under any applicable state or federal law where its ability to do
business is materially impaired; (iii) any breach of confidentiality by
either party or the use of confidential information by either party in
a competitive manner; and (iv) any failure by Allmerica Financial to
maintain fidelity bond coverage in an amount of at least $10,000,000.
Circumstances described in clauses (i) and (iii) shall not be subject
to the cure provisions described in the preceding paragraph.
In addition to the foregoing, (i) if Allmerica Financial breaches its
agreement with Continuum (or any replacement software vendor), such
that Allmerica Financial's license to use the then current Computer
System is revoked, and (ii) if at the time of such license revocation
the LIFE-COMM III Computer System (or the software of any replacement
vendor whose agreement with Allmerica Financial has been breached by
Allmerica Financial), is being utilized to perform the Policy Services
contemplated by this Agreement, then in such event, Transamerica may
terminate this Agreement for cause.
In the event this Agreement is terminated for cause, the party
materially breaching the Agreement shall be liable for all damages
incurred by the aggrieved party as a result of the breach. In the event
either party terminates the Agreement for cause, Transamerica agrees to
pay Allmerica Financial the balance of any compensation for Product
Development required to be paid to Allmerica Financial under Section
1.05 and to pay compensation for Policy Services rendered, required to
be paid to Allmerica Financial under Sections 2.04. In the event that
either party terminates this Agreement for cause, Allmerica Financial
and Transamerica shall jointly develop and implement a cooperative
conversion workplan under Subsection 2.01(c) of this Agreement.
Notwithstanding the foregoing, if Transamerica terminates this
Agreement for cause, subject to the requirements set forth in Sections
1.05 and 2.04, Transamerica shall have the right to offset amounts
otherwise payable to Allmerica Financial against any damages incurred
by Transamerica as a result of Allmerica Financial's breach of this
Agreement.
11.04 Termination for Nonpayment. In the event Transamerica defaults in the
payment of any amount due Allmerica Financial under this Agreement and
does not cure the default within thirty (30) days after written notice
of the default or unless such payment shall be in dispute, Allmerica
Financial may terminate this Agreement for cause by giving thirty (30)
days written notice to Transamerica.
11.05 Termination for Insolvency. In the event either party becomes or is
declared insolvent or bankrupt, is the subject of any proceedings
relating to its liquidation, insolvency or for the appointment of a
receiver or similar officer for it, makes an assignment for the benefit
of all or substantially all of its creditors, or enters into an
agreement for the continuation, extension, or readjustment of all or
substantially all of its obligations, the other party may immediately
terminate this Agreement for cause.
ARTICLE 12
MISCELLANEOUS
12.01 Binding Nature and Assignment. This Agreement shall be binding on the
parties and their respective successors and assigns. Neither party may
assign this Agreement without the prior written consent of the other,
which shall not be unreasonably withheld.
12.02 Notices. Any notice or other instrument authorized or required by this
Agreement shall be deemed given upon receipt and shall be effective
only if it is in writing and delivered personally, by facsimile
transmission with telephone confirmation, by registered or certified
return receipt mail, postage prepaid, or by nationally recognized
overnight courier service addressed as set forth below or to such other
person or address as each party may from time to time designate by
notice to the other party.
In the case of Allmerica Financial:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Mammen G. Verghis
Vice President
In the case of Transamerica:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, California 90015
Attention: General Counsel
and with copy to:
Transamerica Occidental Life Insurance Company
1150 South Olive Street
Los Angeles, California 90015
Attention: Mark Madden
A party may from time to time change its address or designees for
notification purposes by giving the other party prior notice in the
manner specified above of the new address or the new designee and the
subsequent date upon which the change shall be effective.
12.03 Amendment. This Agreement may be amended or modified only by a written
agreement executed by both parties, as evidenced in writings signed by
a Vice President of Allmerica Financial and Transamerica.
12.04 Counterparts. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
12.05 Certain Construction Rules; Governing Law. All Schedules attached
hereto and referred to herein, are hereby incorporated in and made a
part of this Agreement as if set forth herein. Any matter disclosed on
any Schedule referred to herein shall be deemed also to have been
disclosed on any other applicable Schedule referred to herein. All
Section titles or captions contained in this Agreement or in any
Schedule are for convenience only, shall not be deemed a part of this
Agreement and shall not affect the meaning or interpretation of this
Agreement. Any reference to a "Section" or "Schedule" shall be deemed
to refer to a Section of this Agreement or Schedule attached to this
Agreement. The recitals set forth on the first page of this Agreement
are incorporated into and made a part of this Agreement. Unless the
context clearly indicates, words used in the singular include the
plural, and words in the plural include the singular.
This Agreement is to be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts and without regard to the
conflicts of laws principles thereof.
12.06 Relationship of Parties. Transamerica understands and agrees that
Allmerica Financial in furnishing services to Transamerica is acting
only as an independent contractor. Unless otherwise provided in this
Agreement, Allmerica Financial has the sole right and obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed all work to be performed by Allmerica Financial pursuant to
this Agreement.
12.07 Approvals and Similar Actions. Where agreement, approval, acceptance,
consent or similar action is required by any provision of this
Agreement, such action shall not be unreasonably delayed or withheld.
12.08 Force Majeure. Each party shall be excused from performance for any
period and to the extent that the party is prevented from performing
any services, in whole or in part, as a result of delays caused by an
act of God, war, civil disturbance, court order, labor dispute, or
other cause beyond that party's reasonable control, including failures
or fluctuations in electrical power, heat, light, air conditioning or
telecommunications equipment and such nonperformance shall not be a
default or a ground for termination. Notwithstanding the above,
Allmerica Financial agrees that it will establish and maintain
reasonable recovery steps, including technical disaster recovery
facilities, uninterruptable power supplies for computer equipment and
communications and that as a result thereof Allmerica Financial will
use its best efforts to ensure that the Computer System shall be
operational within forty-eight (48) hours of a performance failure.
12.09 Severability. The provisions of this Agreement are severable and the
invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision
hereof. In addition, in the event that any provision of this Agreement
(or portion thereof) is determined by a court of competent jurisdiction
to be unenforceable as drafted by virtue of the scope, duration, extent
or character of any obligation contained therein, it is the mutual
agreement of the parties that such provision (or portion thereof)
shall, to the extent equitable, be construed in a manner designed to
effectuate the purposes of such provision to the maximum extent
enforceable under applicable law.
12.10 Construction and Representation by Counsel. The parties hereto
represent that in the negotiation and drafting of this Agreement they
have been represented by and relied upon the advice of counsel of their
choice. The parties affirm that their counsel have had a substantial
role in the drafting and negotiation of this Agreement and, therefore,
the rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any Schedule attached hereto.
12.11 Media Releases. Transamerica and Allmerica Financial shall consult with
each other as to the form, substance and timing of any press release or
other public disclosure of matters related to this Agreement or any of
the transactions contemplated hereby, and no such press release or
other public disclosure shall be made without the consent of the other
party, which shall not be unreasonably withheld or delayed; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other
party.
12.12 Reinsurance Agreement. The parties understand and agree that certain
policy expenses and mortality risks assumed under the Policies serviced
under this Agreement will be 40% reinsured by Allmerica Financial
pursuant to the terms of a separate Reinsurance Agreement to be
negotiated between the parties.
12.13 Agreement Relating to Additional Services. The parties understand and
agree that certain investment accounting, separate account and treasury
services to be provided by Allmerica Financial will be set forth in a
separate agreement to be negotiated by the parties.
12.14 Waiver. No delay or omission by either party to exercise any right or
power shall impair such right or power or be construed as a waiver. A
waiver by either of the parties of any of the covenants to be performed
by the other or any breach shall not be construed to be a waiver of any
succeeding breach or of any other covenant.
12.15 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. There
are no representations, understandings or agreements which are not
fully expressed in this Agreement. No change, waiver, or discharge
shall be valid unless in writing and signed by an authorized
representative of the party against whom such change, waiver or
discharge is sought to be enforced.
12.16 Hiring of Employees. During the term of this Agreement and for one (1)
year thereafter, Transamerica and Allmerica Financial and any of their
affiliates shall not, directly or indirectly, solicit for employment
any person employed or working on the services provided hereunder
within the preceding twelve (12) months by the other party or any
affiliate of the other party without the prior written consent of the
other party, which shall not be unreasonably withheld; provided,
however, that (i) in the event either party uses the services of a
professional recruiter and provides such recruiter solely with generic
job duties and job descriptions (without making any reference to the
other party or the other party's affiliates) and such recruiter
contacts a qualified candidate who happens to be an employee of the
other party and that candidate initiates contact through the recruiter
with that party, then that party may employ that employee, or (ii) in
the event an employee of the other party responds to a general
advertisement placed by a party, then that party may employ that
employee.
12.17 Taxes. Any taxes or similar assessments charged against Allmerica
Financial or charged in connection with the services provided under
this Agreement shall be the responsibility of Allmerica Financial,
whether such tax or assessment is imposed by the Federal government, a
state, a municipality or an administrative organization thereof.
12.18 Arbitration. All disputes and differences between the parties with
respect to this Agreement will be decided by arbitration, regardless of
the insolvency of either party, unless the conservator, receiver,
liquidator, or statutory successor is specifically exempted from an
arbitration proceeding by applicable state law. Either party may
initiate arbitration by providing written notification to the other
party. Such written notice shall set forth a brief statement of the
issue(s), the failure of the parties to reach agreement, and the date
of the demand for arbitration.
An arbitration panel shall be chosen consisting of three arbitrators.
The arbitrators must be impartial and must be or must have been
officers of life insurance companies other than the parties or their
affiliates. Each party shall select an arbitrator within thirty days
from the date of the demand. If either party shall refuse or fail to
appoint an arbitrator within the time allowed, the party that has
appointed an arbitrator may notify the other party that, if it has not
appointed its arbitrator within the following ten days, the arbitrator
will appoint an arbitrator on its behalf. The two arbitrators shall
select a third arbitrator within thirty days of the appointment of the
second arbitrator. If the two arbitrators fail to agree on the
selection of the third arbitrator within the time allowed, either party
may ask ARIASo US to appoint the third arbitrator. However, if ARIASo
US is unable to appoint an arbitrator who is impartial and who is or
was an officer of a life insurance company other than the parties or
their affiliates, then either party may ask a court to appoint the
third arbitrator pursuant to the Uniform Arbitration Act or any similar
statute empowering the court to appoint an arbitrator.
The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely a legal obligation, and shall consider
practical business and equitable principles as well as industry custom
and practice. The panel is released from judicial formalities and shall
not be bound by strict rules of procedure and evidence.
The arbitration panel shall determine all arbitration schedules and
procedural rules. Organizational and other meetings shall be held in
Worcester, Massachusetts, unless the panel shall select another
location. The panel shall decide all matters by majority vote.
Decisions of the arbitration panel shall be final and binding on both
parties. The panel may, at its discretion, award costs and expenses it
deems appropriate, including but not limited to attorneys' fees and
interest. Judgment may be entered upon the final decision of the panel
in any court of competent jurisdiction. The panel may not award
exemplary or punitive damages. Unless the panel decides otherwise, each
party will be separately responsible for paying all fees and expenses
charged by its respective counsel, accountants, actuaries, and other
representatives in connection with the arbitration, and the parties
shall bear equally the fees and expenses of the arbitrators and any
ancillary expenses associated with a hearing (e.g., any rental fee for
use of the hearing room, etc.).
12.19 Legal Proceedings and Complaints. If Allmerica Financial receives:
(a) notice of the commencement of any legal proceeding involving
any of Transamerica's customers; or
(b) a communication from any insurance department, other
administrative agency or any other person identifying a
complaint by any Transamerica customer or calling a hearing
involving any Transamerica practice; or
(c) written or oral complaints from customers of Transamerica; or
(d) a demand or request by any court, government agency or
regulatory body to examine any of the books and records of
Transamerica relating to Policies or Policy Services;
Allmerica Financial will use its best efforts to notify Transamerica
within one (1) business day. Allmerica Financial will send copies of
any necessary documentation to Transamerica within two (2) business
days.
Allmerica Financial and Transamerica will jointly develop a complaint
handling process.
Allmerica Financial will maintain a file containing any correspondence
relating to complaints received from Transamerica customers or service
providers for a period of seven (7) years from receipt of the complaint
letter.
12.20 Trademarks and Tradenames. Allmerica Financial will not use
Transamerica's name, trademarks, logo, or the name of any affiliate of
Transamerica in any way or manner not specifically authorized in
writing by Transamerica.
Transamerica will not use Allmerica Financial's name, trademarks, logo
or the name of any affiliate of Allmerica Financial in any way or
manner not specifically authorized in writing by Allmerica Financial.
On August 17, 1997, Transamerica provided Allmerica Financial with
electronic formats of its trademark, pyramid logo and digitized
officers' signatures for use on Policy Forms. Those properties combined
with those Transamerica marks listed on Schedule 12.20 make up the
Transamerica marks and names ("Marks and Names") licensed herein. Any
marketing name or service mark adopted by the parties to identify the
Policy contemplated in this Agreement shall be owned by Transamerica
and considered one of the Marks and Names.
As Transamerica is an owner-authorized user of those Marks and Names,
Transamerica desires to exercise control over the use of said Marks and
Names. Transamerica desires to license the Marks and Names for use by
Allmerica Financial in the underwriting, claims servicing, Policy
servicing and administrative services outlined in this Agreement.
Accordingly the parties agree as follows:
(a) License of Marks and Names. Transamerica hereby grants a
nonexclusive license unto Allmerica Financial to use the Marks
and Names solely in connection with the Services provided
under this Agreement.
(b) Manner of Use. Allmerica Financial shall not use the Marks and
Names in any manner or format which differs from the
electronic versions provided by Transamerica to Allmerica
Financial on August 17, 1997 or as shown in Schedule 12.20. If
Allmerica Financial deems a change in format for its limited
use is necessary, a request for such change must be submitted
in writing to Transamerica for its approval. Said request must
include the version as originally supplied by Transamerica and
the requested change, as well as the reason such a change is
requested. Transamerica's approval of a requested change shall
not be unreasonably withheld.
(c) Quality Control. Allmerica Financial's usage of the Marks and
Names shall be under the quality control of Transamerica as
provided herein and shall comply with Transamerica's
standards. As provided in Section 4.02, Transamerica may
conduct reasonable audits of Allmerica's usage of the Marks
and Names in relation to the Services provided under this
Agreement to ensure compliance with the terms set forth in
this Section.
(d) Indemnification. Transamerica shall protect, indemnify, defend
and hold harmless Allmerica Financial from any and all
liability, damages, costs or expenses, including reasonable
attorneys' fees incurred in connection with any claim or
action arising from Allmerica Financial's use of the Marks and
Names, limited to causes of action sounding in state or
federal trademark infringement and/or state or federal
trademark dilution. This indemnification shall survive
termination of this Agreement.
(e) Termination. The License to use the Marks and Names shall
terminate in accordance with the provisions of Article 11. Any
use of the Marks and Names that does not comply with the terms
as set forth in this Section will be considered a default in
the performance of Allmerica's material duties and or
obligations. Upon termination under Article 11, Allmerica
shall cease and desist use of the Marks and Names, except for
limited use in administering and servicing of Policies issued
prior to the date of termination.
12.21 Advertisement. Allmerica Financial shall not advertise the existence of
this Agreement or announce its existence to other insurance companies
or broker-dealers without the express written consent of Transamerica.
Notwithstanding the foregoing, Transamerica agrees that Allmerica
Financial may disclose the existence of this Agreement to insurance
companies or other organizations that are prospective purchasers of
services similar to the product development and administrative services
to be provided under this Agreement.
12.22 Continuation. Sections 1.05, 1.06, 2.01(c), 2.03, 3.02, 4.01, 5.01,
6.04, 12.15, 12.16, 12.17, 12.18, 12.19, 12.20, and Articles 9 and 10
shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to take
effect on the effective date specified above.
Transamerica Occidental Life
Insurance Company
By: ______________________________
Name: ______________________________
Title: ______________________________
Date: ______________________________
First Allmerica Financial Life
Insurance Company
1025
By: _______________________________
Name: _______________________________
Title: _______________________________ <PAGE>
Date: _______________________________
Schedule 1.01 To Product
Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
AFLIAC POLICY FORMS
The Transamerica Policy, Policy Application and related Policy forms
contemplated by the Agreement will be substantially the same as the following
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC") forms:
Name of AFLIAC Form AFLIAC Form Numbers
1. Flexible Premium Variable Life 1027-95
Insurance Policy*
2. Policy Application Forms AS-156, AS-158-95,
AS-159, 1AM-90
3. Children's Insurance Rider 1068-95
4. Guaranteed Insurability Rider 1087-95
5. Waiver of Payment Rider 1086-94
6. Living Benefits Rider 1089.13-95
7. Guaranteed Death Benefit Rider 1099-97
* The Preferred Loan Option in Form 1027-95 will be deleted and the Preferred
Loan Option described in END 260-96 will be substituted.
<PAGE>
Schedule 1.02 To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
POLICY FORM SPECIFICATIONS
See Attachment
<PAGE>
Schedule 3.01B To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
FUNCTIONAL OUTLINE DOCUMENTS
PRODUCT DIFFERENCES
- Mortality Rates
Mortality rates are extended to age 115
For Montana, male rates will be used instead of unisex rates
- Target Rates on some base cases
Target rates for this product are shown in Attachment 1
- Surrender charges
The surrender charges to be used for this product are shown in
Attachment 2
- Maturity at age 115
Maturity date is the policy anniversary nearest age 115
- Any processes or procedures that differ significantly from
Allmerica's usual and customary procedures will be documented via
memo
[Policy Underwriting, Claims Processing and Escheat procedures
differ significantly - a Memorandum of Understanding needs to be
developed with regard to each such process and procedure].
DOCUMENTS AND REPORTS
- Revisions to reflect Transamerica company name, address,
names and phone numbers in place of
Allmerica information
ELECTRONIC INTERFACES
Allmerica to Transamerica
- Alpha (daily) - Attachment 3
- Reinsurance (monthly) - Attachment 4
- Accounting (daily) - Attachment 5
- Compensation (daily) - Attachment 6
- Sales Reporting (daily) - Attachment 7
Transamerica to Allmerica
- Agency and Agent Data (initial file at conversion and then daily
- Attachment 8
<PAGE>
Schedule 3.02 To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company, effective November 1, 1997.
CONTINUUM NON-DISCLOSURE AND NON-USE AGREEMENT
CSC Continuum Inc. ("Continuum"), First Allmerica Financial Life Insurance
Company ("Customer"), and Transamerica
Occidental Life Insurance Company ("Company"), agree as follows:
1. RECITALS
Customer is a licensee of all or part of the following computer
software product: LIFE-COMM III (collectively, the "Software Product").
The Software Product (including the program code, specifications,
logic, and design), all related documentation, and any information
about the Software Product (the "Confidential Information") are
confidential trade secrets of Continuum. Customer has also been granted
limited rights to process the data and files of Company using the
Software Product at Customer's site (the "Services"), which will
require that Company have restricted access to certain of the
Confidential Information in order to use the software product input and
output capabilities.
2. CONSENT
Continuum consents to the disclosure by Customer to Company of only
such Confidential Information as is reasonably necessary for Customer
to perform the Services. However, such disclosure to Customer shall in
no event include the disclosure of or access to any code or
documentation of the Software Products.
3. CONFIDENTIAL RELATIONSHIP
Customer and Company acknowledge that the Confidential Information
contains valuable trade secrets of Continuum. Any disclosures of
Confidential Information to Company shall be made in the strictest
confidence. Company shall take all appropriate action, whether by
instruction, agreement or otherwise, to ensure the protection,
confidentiality and security of any Confidential Information in its
possession.
4. NON-DISCLOSURE
Company may disclose the Confidential Information to its own employees
and to employees of Customer as reasonably necessary for Customer to
provide the Services. Company and its employees shall not otherwise
disclose or permit access to any Confidential Information to anyone
other than such employees of Company and Customer. Before disclosing
any Confidential Information to its employees, Company shall instruct
its employees to comply with the terms of this Agreement.
5. NON-USE
Company shall not use any Confidential Information for any purpose
other than for receiving the benefit of the Services.
6. COPIES
Company shall not copy or record any Confidential Information. Company
shall not remove any materials containing Confidential Information from
Customer's premises. Within ten (10) days after the completion of the
Services, Company shall destroy or deliver to Customer all copies or
records of Confidential Information in Company's possession.
7. CONTINUING OBLIGATIONS
Company's obligations under this Agreement shall survive termination of
this Agreement and shall continue as long as any Confidential
Information disclosed to Company remains confidential. Confidential
Information does not include any information which (a) is known to
Company prior to disclosure to Company by Continuum or Customer; (b)
becomes publicly known in the data processing industry through no
wrongful act of Company; or (c) is approved by release by written
authorization of Continuum. The existence of a copyright notice will
not cause, or be construed as causing, any part of the Software Product
to be a published copyrighted work or to be in the public domain.
8. INDEMNITY
Company agrees that it is fully responsible for the actions of its
employees with respect to the Confidential Information, whether or not
such employee was acting within the scope of his or her employment.
Customer and Company agree to indemnify Continuum for any damages,
costs, or expenses (including court costs and reasonable attorneys'
fees) suffered by Continuum as a result of any breach of this Agreement
by Company.
9. INJUNCTION
Customer and Company agree that, in the event of a breach or threatened
breach of this Agreement, Continuum will have no adequate remedy at law
and shall be entitled to a temporary restraining order and/or a
preliminary injunction without bond, and thereafter to a permanent
injunction.
10. TERM
Continuum's consent granted by this Agreement shall terminate
immediately upon the expiration or termination of the agreement for
processing services between Customer and Company. Company shall have no
access to Confidential Information after such date.
- 2 -
At the termination of the Product Development and Administrative
Services Agreement between First Allmerica Financial Life Insurance and
Annuity Company and Transamerica Occidental Life Insurance Company
effective November 1, 1997, but no later than the expiry of the
48-month initial term of the Agreement, CSC Continuum Inc. would be
willing to: (1) grant to Transamerica Occidental Life Insurance Company
a license for the base release of the version of the software product
LIFE-COMM III used by First Allmerica Financial Life Insurance Company
to service the Company's business at CSC Continuum's then current price
and then current terms, (2) grant to Transamerica Occidental Life
Insurance Company a license for them to use First Allmerica Financial
Life Insurance Company modifications to such base release for no
additional license fee and on the same terms as those for the base
release, but without any indemnity for infringement of intellectual
property by such modifications, and (3) consent to First Allmerica
Financial Life Insurance Company delivery of such base release and
modifications to Transamerica Occidental Life Insurance Company
following execution of foregoing licenses.
Upon execution by all of the parties, this Agreement shall be effective as of
the date of Continuum's signature below.
Transamerica Occidental Life Insurance Company
By: _____________________________________
(Signature)
Name: _____________________________________
(Printed)
Title: _____________________________________
Date: _____________________________________
CSC Continuum Inc.
By: _____________________________________
(Signature)
Name: _____________________________________
(Printed)
Title: _____________________________________
Date: _____________________________________
First Allmerica Financial Life Insurance Company
By: _____________________________________
(Signature)
Name: _____________________________________
(Printed)
Title: _____________________________________
Date: _____________________________________
- 3 -
<PAGE>
Schedule 2.01A To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
<TABLE>
<CAPTION>
INVENTORY OF SERVICES AND FUNCTIONS
REGISTERED REPRESENTATIVE LICENSING/SELLING FUNCTIONS (INCLUDING
<S> <C>
PRODUCT ILLUSTRATIONS).......................................................................................Transamerica
PRODUCT MARKETING ILLUSTRATION SUPPORT FUNCTIONS...............................................................Transamerica
800-LINE TECHNICAL SUPPORT FOR ILLUSTRATIONS AND ASSET
ALLOCATION SOFTWARE..................................................................................Allmerica Financial
RECEIPT OF INITIAL APPLICATION FOR BUSINESS AND INITIAL PREMIUM.........................................Allmerica Financial
BUSINESS SUITABILITY...........................................................................................Transamerica
UNDERWRITING REVIEW/APPROVAL............................................................................Allmerica Financial
PROCESS INCOMPLETES/DECLINES............................................................................Allmerica Financial
POLICY ISSUE............................................................................................Allmerica Financial
POLICY PRINTING.........................................................................................Allmerica Financial
POLICY MAILING..........................................................................................Allmerica Financial
(POLICY LEVEL) FUND ALLOCATION..........................................................................Allmerica Financial
INITIAL PREMIUM COLLECTION..............................................................................Allmerica Financial
FREE LOOK REFUNDS/NOT TAKENS............................................................................Allmerica Financial
COMMISSION PROCESSING/PAYMENT..................................................................................Transamerica
BILLING (ANNUAL, SEMI-ANNUAL, QUARTERLY)................................................................Allmerica Financial
COLLECTIONS.............................................................................................Allmerica Financial
LOCK BOX MANAGEMENT.....................................................................................Allmerica Financial
MONTHLY AUTOMATIC PREMIUM...............................................................................Allmerica Financial
FUND TRANSFER/REALLOCATIONS.............................................................................Allmerica Financial
800-LINE TELEPHONE CUSTOMER SERVICES....................................................................Allmerica Financial
INVENTORY OF SERVICES AND FUNCTIONS (Continued)
POLICY HISTORY REQUESTS.................................................................................Allmerica Financial
BENEFICIARY AND OWNER CHANGES...........................................................................Allmerica Financial
CUSTOMER CONFIRMATIONS (FINANCIAL TRANSACTIONS).........................................................Allmerica Financial
POLICY CHANGES..........................................................................................Allmerica Financial
ADDRESS CHANGES.........................................................................................Allmerica Financial
LOANS/PARTIAL WITHDRAWALS...............................................................................Allmerica Financial
1035 EXCHANGES..........................................................................................Allmerica Financial
SURRENDERS..............................................................................................Allmerica Financial
CONSERVATION...................................................................................................Transamerica
WRITTEN CORRESPONDENCE
PRE SALE (i.e., BEFORE APPLICATION SIGNED)............................................................Transamerica
POST SALE......................................................................................Allmerica Financial
DEATH AND OTHER POLICY CLAIMS
NOTIFICATION...................................................................................Allmerica Financial
SYSTEM PROCESSING..............................................................................Allmerica Financial
INVESTIGATION/REVIEW...........................................................................Allmerica Financial
SETTLEMENT OPTIONS.............................................................................................Transamerica
ANNUAL STATEMENTS.......................................................................................Allmerica Financial
INSURANCE ACCOUNTING (e.g., POLICY GAAP AND STATUTORY ACCOUNTING)..............................................Transamerica
TAX WITHHOLDING AND INFORMATION REPORTING...............................................................Allmerica Financial
</TABLE>
<PAGE>
Schedule 2.01B To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company ("Allmerica Financial")
and Transamerica Occidental Life Insurance Company ("Transamerica"), effective
November 1, 1997.
POLICY SERVICES - PROJECT SCHEDULE OF EVENTS
DEVELOPMENT OF DETAILED BUSINESS SPECIFICATIONS........September 15, 1997
LIFE-COMM, ALLMERICA FINANCIAL AND TRANSAMERICA
INTERFACE SYSTEMS PROGRAMMING AND SYSTEM TESTING.........October 3, 1997
BUSINESS ACCEPTANCE AND MODEL OFFICE TESTING.............December 5, 1997
IMPLEMENTATION OF OPERATIONAL PHASE......................December 8, 1997
<PAGE>
Schedule 2.01C To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company, effective November 1, 1997.
SERVICE STANDARDS
<TABLE>
<CAPTION>
Service Standard
A. Underwriting
<S> <C>
Initial Underwriting Review........................................................................3 Business Days
Pending Underwriting Review........................................................................3 Business Days
Follow-Up..........................................................................................3 Business Days
Final Action.......................................................................................2 Business Days
B. Policy Administration
Premium Payments Applied....................................................98% Applied Within 1 Business Day
Fund Transfers/Reallocations Processed................................................98% Processed Within 1 Business Day
New Business*..............................................................98% Issued Within 2 Business Days
1035 Exchanges*.............................................................98% Mailed Within 3 Business Days
Loans/Partial Withdrawals.....................................................98% Processed Within 2 Business Days
Policy Changes (i.e. increases, decreases
reinstatements)*............................................................98% Processed Within 5 Business Days
Policy Surrenders.............................................................98% Processed Within 5 Business Days
Address Changes...............................................................95% Processed Within 5 Business Days
Beneficiary and Owner Changes.................................................95% Processed Within 5 Business Days
C. Customer Service
Average Speed to Answer.................................................................................20 Seconds
Abandonment Rate................................................................................................3%
Return Calls.........................................................................Within 3 Hours or as Promised
Correspondence............................................Letter to Inquirer within 5 Business Days or as Promised
Complaint Handling...............................................Acknowledge within 1 Business Day, Final Response
to be sent within a mutually acceptable time frame
intended to meet all state regulatory requirements
D. Death and Other Policy Claims......................................Policy claims will be processed within mutually
acceptable time frames intended to meet
all state regulatory requirements
</TABLE>
* Measured from date of Policy underwriting approval
<PAGE>
Schedule 12.20 To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company, effective November 1, 1997.
Transamerica Marks and Names
Transamerica
Transamerica Occidental
Transamerica Occidental Life
The Pyramid Logo
<PAGE>
Schedule 3.01A To Product Development and Administrative Services Agreement
between First Allmerica Financial Life Insurance Company and Transamerica
Occidental Life Insurance Company ("Transamerica"), effective November 1, 1997.
1. LIFE-COMM III - Licensed by CSC Continuum, Inc.
2. Variable Product Administration System - Licensed by Douglas G. Draeseke
3. Triton Valuation System - Licensed by Price Waterhouse
4. R2 Reinsurance System - Licensed by The Actuarial Network
5. Life Underwriting System - Licensed by Lincoln National
6. Illustration - Allmerica Financial**
7. Asset Allocator - Allmerica Financial**
**Software that Allmerica Financial is developing specifically for Transamerica.
Transamerica understands and agrees that the source codes for this software
are proprietary to Allmerica Financial and will not be given to
Transamerica under any circumstances.
<PAGE>
LIST OF SCHEDULES
TO
PRODUCT DEVELOPMENT
AND ADMINISTRATIVE SERVICES AGREEMENT
Schedule 1.01 AFLIAC Policy Forms
Schedule 1.02 Policy Form Specifications
Schedule 2.01A Inventory of Services and Functions
Schedule 2.01B Policy Services - Project Schedule of Events
Schedule 2.01C Service Standards
Schedule 3.01A Computer System Software
Schedule 3.01B Functional Outline Documents
Schedule 3.02 Continuum Non-Disclosure and Non-Use Agreement
Schedule 12.20 Transamerica Marks and Names
<PAGE>
(10) Form of Application
<PAGE>
TA logo Home office: Administrative office:
Transamerica Occidental Variable Life Service Center
Life Insurance Company P.O. Box 8990
1150 South Olive Boston, MA 02266-8990
Los Angeles, CA 90015
Transamerica (product name)
Application for Modified
Single Premium Variable
Universal Life Insurance
Policy
Form number filename: NPag1V3.doc version as of: Monday Aug 31
Page number
Transamerica (Product Name) SPVUL
1 Owner Information if other than proposed insured.
Name (first, middle and last)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------
- --------------------------------------------------------------------
City, State and Zip code
- --------------------------------------------------------------------
Social Security/ Tax ID Number Date of Birth (month/day/year)
/ /
- --------------------------------------------------------------------
Relationship to Proposed Insured
- --------------------------------------------------------------------
1a. Joint Owner Information if applicable
Name (first, middle and last)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------
- --------------------------------------------------------------------
City, State and Zip code
- --------------------------------------------------------------------
Social Security Number Date of Birth (month/day/year)
/ /
- --------------------------------------------------------------------
Relationship to Proposed Insured
- --------------------------------------------------------------------
2 Proposed Insured Information
Name (first, middle and last)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------
- --------------------------------------------------------------------
City, State and Zip code
- --------------------------------------------------------------------
Years at above address Date of Birth (month/day/year)
/ /
- --------------------------------------------------------------------
State of Birth Social Security Number
- --------------------------------------------------------------------
Sex (check one) Driver's License (State and
|_| Female |_| Male Number)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Daytime Telephone Number Best Time
to Call
( )
- -----.
|_| a.m. |_| p.m.
- --------------------------------------------------------------------
2b. Proposed Second Insured Information if applicable Name (first, middle and
last)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------
- --------------------------------------------------------------------
City, State and Zip code
- --------------------------------------------------------------------
Years at above address Date of Birth (month/day/year)
/ /
- --------------------------------------------------------------------
State of Birth Social Security Number
- --------------------------------------------------------------------
Sex (check one) Driver's License (State and
|_| Female |_| Male Number)
- --------------------------------------------------------------------
Daytime Telephone Number Best Time
to Call
( )
- -----
|_| a.m. |_| p.m.
- --------------------------------------------------------------------
Relationship to Proposed Insured
- --------------------------------------------------------------------
3 Beneficiary Information
Name of Primary Beneficiary Relationship to Proposed
Insured
- --------------------------------------------------------------------
Street Address, City, State and Zip Social Security/ Tax ID
code Number
- --------------------------------------------------------------------
Name of Contingent Beneficiary Relationship to Proposed
Insured
- --------------------------------------------------------------------
Street Address, City, State and Zip Social Security/ Tax ID
code Number
- --------------------------------------------------------------------
4Investment Tool Selection (Optional)
You may elect either the Automatic Account Rebalancing (AAR) option or the
Dollar Cost Averaging (DCA) option.
4a. |_| I elect AAR
You may have value in up to 20 sub-accounts. The minimum allocation per
sub-account is 5%, and the total must equal 100%. The Fixed Account is not
included in transfers under the AAR option. Indicate allocations in Section 5b
under AAR.
Select the frequency of AAR transfers (choose one):
|_| Quarterly |_| Semi-annually |_| Annually
4b. |_| I elect DCA
For each sub-account option to which funds should be transferred, indicate the
dollar amount per transfer. You may not transfer to the "source account" or to
the Fixed Account under the DCA option.
Indicate allocations in Section 5b, under DCA. Select your DCA "source account"
(choose one):
|_| Money Market |_| Fixed Account Select the frequency of
DCA transfers (choose one):
|_| Monthly |_| Quarterly |_| Semi-annually
Amount per transfer from the "source account": $___________.
(Minimum amount $100.)
5 Allocations Whole numbers only.
5a. Payments You may allocate payments to as many as 20 sub-accounts, plus the
Fixed Account. The minimum allocation for each elected allocation is 5% and the
total must equal 100%. Indicate the allocation in Section 5b under Payment.
5bInvestment Option Percentage (%)
($)
Payment AAR DCA
AIM V.I. Capital Appreciation _______ ______ ______
AIM V.I. Growth & Income _______ ______ ______
AIM V.I. International Equity _______ ______ ______
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 Int'l Magnum _______ ______ ______
OCC Accumulation Trust Managed _______ ______ ______
OCC Accumulation Trust Small _______ ______ ______
Cap _______ ______ ______
Transamerica VIF Aggressive _______ ______ ______
Growth _______ ______ ______
Transamerica VIF Balanced _______ ______ ______
Transamerica VIF Growth _______ ______ ______
Transamerica VIF Money Market _______ XXXXX XXXXX
----- -----
Transamerica VIF Small Company _______ _______ _______
Transamerica VIF Value _______ ______ ______
Fixed Account _______ ______ ______
_____________________________ 100% 100%
=============================
Total
<PAGE>
File name P2V2.DOC Created on: Monday Aug 31
6 Telephone Access
I (we) will automatically be able to transfer sub-account and/or Fixed Account
values and change the allocation of future investments by telephone or fax
unless I (we) check the box below. |_| I (we) do not accept the Telephone Access
privilege.
(Please review additional information in the Acknowledgements and
Signatures section).
7 Insurance
7a. Life insurance coverage requested $___________.
7b. Additional insurance benefits requested:
|_| Living Benefits Rider
|-| --------------------------------
7c. This application is for a standard class of risk unless
noted otherwise here: ________________________.
8 Payment Complete as applicable.
8a. Direct Payment
Enclosed is a check for the initial payment of $____________. I (we)
received a conditional receipt.
Please make check payable to:
Transamerica Occidental Life Insurance Company. Do not leave
payee blank or make payable to the representative.
8b. IRC 1035 Exchange
The initial payment will be transferred from another life insurance policy
pursuant to an IRC 1035 Exchange. The Transfer of Assets form(s) for IRC
Section 1035 Exchange is attached.
|_| Yes |_| No My existing policy has a loan and I want
to carry over that loan to this
contract.
If yes, my loan carry over amount is $__________. Approximate amount of
exchange is $__________.
(Transfer payment plus loan carry over, if applicable.)
---------------------------------
Name of transferring company.
-------------------------------------
Name of transferring company.
8c. Other Transfer Payment
My initial payment will be transferred from another Financial institution
(not an IRC 1035 Exchange).
----------------- ---------------
Name of transferring company. Approx. transfer
amount ($)
--------------------- -------------------
Name of transferring company. Approx. transfer
amount ($)
|_| Transfer of Assets form(s) is attached.
|_| Transfer of Assets form(s) has been sent to the
transferring company.
9 Replacement of Other Contracts
May insurance, including annuities, in any company be replaced
if the proposed policy is issued? If yes, list company name(s)
and policy number(s):
Proposed Insured
- ---------------------------------------
Proposed Second Insured
- ---------------------------------------
In sections 10-16 the Proposed Insured is the "Insured" and the Proposed Second
Insured is the "Second Insured".)
10 Insured and Second Insured Information 10a-10d 10a. Please provide your
employer's name, your occupation
and your general responsibilities:
Insured ______________________________
------------------------------------
Second Insured _________________________
------------------------------------
10b. Nicotine Usage
Have you used a nicotine product during the past 24 months?
Insured Second Insured
Cigarettes |_| Yes |_| No |_| Yes |_| No
Cigars |_| Yes |_| No |_| Yes |_| No
Pipes |_| Yes |_| No |_| Yes |_| No
Chewing tobacco |_| Yes |_| No |_| Yes |_| No
Other ____________ |_| Yes |_| No |_| Yes |_| No
Specify date last used: _________ _________
10c. Financial Information
Insured Second Insured
Annual earned income $ ________ $ _________
Annual unearned income $ ________ $ _________
Approximate net worth $ ________ $ _________
10d. Height/Weight Information
Insured Second Insured
Height _________ __________
Weight _________ __________
11 Simplified Underwriting - Health History During the past 10 years, have you
had, or been treated for:
Insured Second Insured
a. heart, liver or lung
disease or disorder |_| Yes |_| No |_| Yes |_| No
b. kidney disease
or disorder |_| Yes |_| No |_| Yes |_| No
c. high blood pressure
or stroke |_| Yes |_| No |_| Yes |_| No
d. diabetes or cancer |_| Yes |_| No |_| Yes |_| No
e. nervous or
psychological disorders |_| Yes |_| No |_| Yes |_| No
f. alcohol or drug abuse |_| Yes |_| No |_| Yes |_| No
12 Simplified Underwriting - Immune Disorders During the past 10 years, have you
had a diagnosis of or treatment by a member of the medical profession for:
Insured Second Insured
a. an immune system
disorder |_| Yes |_| No |_| Yes |_| No
b. acquired immune
deficiency syndrome
(AIDS) |_| Yes |_| No |_| Yes |_| No
c. AIDS related complex
(ARC) |_| Yes |_| No |_| Yes |_| No
d. a sexually transmitted
disease. |_| Yes |_| No |_| Yes |_| No
Complete this page if: a) either the Insured or the Second Insured has
answered "yes" to any response in Section 11 or 12; or b)
the payment made is outside the simplified underwriting limits.
13 Primary Physician Information
If under care of more than one physician, indicate the other
physician's information in Section 17.
Insured
I have been diagnosed for:_____________________
- ----------------------------------------
I am currently being treated for: _______________
- ------------------------------------
Primary physician ____________________________ Health care provider
___________________________ Street address _______________________________ City,
state and zip code ________________________ Telephone (_____)_______________
Date of last visit _________________(MM/DD/YYYY)
Second Insured
I have been diagnosed for: __________________
- ------------------------------------
I am currently being treated for: _______________
- ------------------------------------
Primary physician ____________________________ Health care provider
___________________________ Street address _______________________________ City,
state and zip code ________________________ Telephone (_____)_______________
Date of last visit _________________(MM/DD/YYYY)
14 Avocation/Sports Information
During the past two years, have you participated in or, in the future, do you
intend to participate in:
Insured Second Insured
a. Aeronautics
(including
hang-gliding,
skydiving, ballooning, |_| Yes |_| No |_| Yes |_| No
etc.)?
b. Powered racing or competitive vehicles (including motorcycles, automobiles
and motor
boats, etc.)? |_| Yes |_| No |_| Yes |_| No
c. Recreational vehicles
over open terrain, trails, sand, snow or ice (including snowmobiles and
dirt bikes, etc.)?
|_| Yes |_| No |_| Yes |_| No
d. Skin or scuba diving, mountain climbing, competitive skiing?
|_| Yes |_| No |_| Yes |_| No
If yes to any above, complete Avocation/Sports Questionnaire.
15 Aviation Information
Insured Second Insured
a. During the past two years, have you flown as a trainee, pilot or crew
member?
|_| Yes |_| No |_| Yes |_| No
b. Do you intend to fly
in one of these
capacities in the
future? |_| Yes |_| No |_| Yes |_| No
If yes to any above, complete Aviation Questionnaire.
16 Driving History
Insured Second Insured
a. During the past ten years, have you had a motor vehicle license suspended
or revoked?
|_| Yes |_| No |_| Yes |_| No
b. During the past ten years, have you been convicted of driving while
intoxicated?
|_| Yes |_| No |_| Yes |_| No
c. During the past ten years, have you had more than one moving violation?
|_| Yes |_| No |_| Yes |_| No
17 Remarks Section
Complete section 17, if under care of more than one
Insured
====================================
====================================
====================================
====================================
- ------------------------------------
Second Insured
====================================
====================================
====================================
====================================
- ------------------------------------
<PAGE>
Filename: ACKNOWLE.DOC version as of: Monday Aug 31
Acknowledgements and Signatures
I (or "We", as applicable) acknowledge receipt of current Prospectuses
describing the Transamerica Occidental Life Insurance Company ("Company")
contract I (we) am (are) applying
for, and the underlying portfolios.
I (we) understand that any death benefits in excess of the face amount and any
contract value of the modified single payment variable universal life insurance
contract applied for may increase or decrease to reflect the investment
experience of the sub-accounts of the variable account. The contract value
allocated to the Fixed Account will accumulate interest at a rate set by the
Company that will not be less than the minimum guaranteed rate of 4% annually.
The contract value may decrease to the point where the contract will lapse and
provide no further death benefit without additional contract payments.
It is agreed that:
a) the application consists of this application form, and the medical
questionnaire, if any; b) The representations are true and complete to the best
of my (our) knowledge and belief; c) Except as provided in the conditional
receipt if issued with the same number as this application, no liability exists
and the insurance applied for will not take effect until the contract is
delivered and the premium is paid during the lifetime of the proposed insured(s)
and then only if the proposed insured(s) has (have) not consulted or been
treated by any physician or practitioner of any healing art nor had any tests
listed in the application since its completion; but if the payment is paid prior
to delivery of the Contract and a conditional receipt is delivered by the
registered representative, insurance will be effective subject to the terms of
the conditional receipt; and d) No registered representative or broker is
authorized to amend, alter, or modify the terms of this agreement.
Unless I (we) did not accept the Telephone Access privilege in Section 6 above,
I understand that the Company is authorized to honor telephone requests by me
(us) or individuals authorized by me (us), to transfer account values among
sub-accounts and the Fixed Account, and to change the allocation of future
payments. I (We) also understand that withdrawal of funds from my (our) contract
cannot be transacted by telephone or fax instructions.
I (We) understand that omissions or misstatements in the application could cause
an otherwise valid claim to be denied under any contract issued from the
application.
I (We) understand that the amount of insurance issued, if approved, will be the
amount determined by applying my (our) payment as 100% of the Guideline Single
Premium, unless I (we) requested a higher amount of insurance and the requested
amount is within the Company's underwriting guidelines.
I (We) understand that if an investigative consumer report is ordered in
connection with this application, I (we) may elect to be interviewed in
connection with the preparation of the report and, upon request, I (we) will be
provided with a copy of the report.
I (We) elect to be interviewed if an investigative consumer report is prepared.
Yes No
Signatures
- ----------------------------------------
Signature of Proposed
Insured
Date
- ----------------------------------------------
Signature of Proposed Second Insured (or name of minor
child) Date
- ----------------------------------------
Signed at
City
State
- ----------------------------------------------
Signature of Proposed Owner (if
applicable) Date
- ---------------------------------------------
Signature of Proposed Second Owner (if
applicable) Date
- ----------------------------------------
Signed at
City
State
If the owner is a corporation, an authorized officer, other than
the proposed insured(s), must sign as contract owner. Please
provide corporate title and the full name of the corporation:
Corporate Title _______________________________________
Corporation Name _____________________________________
For Financial Adviser Use Only
Does the Contract applied for replace an existing annuity or
life insurance contract? |_| Yes |_| No
If yes, attach replacement forms as required.
As Registered Representative, I certify witnessing the
signature of the applicant and that the information in this
application has been accurately recorded to the best of my
knowledge and belief. Based on the information furnished by
the proposed owner(s) or proposed insured(s) in this application, I certify that
I have reasonable grounds for believing the purchase of the Contract applied for
is suitable for the owner(s). I further certify that the prospectuses were
delivered and that no written sales materials other than those furnished by the
Company were used.
- -----------------------------------------------------
Signature of Registered
Representative
Date
- -----------------------------------------------------
Print Name of Registered Representative
Reg Rep # Share %
(-----)-----------------(-----)------------------------
Telephone Fax
- -----------------------------------------------------
TR Code (Indicate A, B, C or D, as applicable)
- -----------------------------------------------------
Signature of Registered
Representative
Date
- -----------------------------------------------------
Print Name of Registered Representative Reg
Rep # Share %
- -----------------------------------------------------
Signature of Registered Representative Date
- -----------------------------------------------------
Print Name of Registered Representative Reg
Rep # Share %
- -----------------------------------------------------
Name of Broker/Dealer Branch #
- -----------------------------------------------------
Branch Office Street Address City, State and Zip
Code
<PAGE>
(11) Procedures Memorandum
<PAGE>
Description of Issuance, Transfer and Redemption Procedures for Contracts
Offered by the Transamerica Occidental Life Separate Account VUL-2 of
Transamerica Occidental Life Insurance Company.
Pursuant to Rule 6e-3(T)(b)(12)(ii) under the Investment Company Act of 1940 The
Transamerica Occidental Life Separate Account VUL-2 of Transamerica Occidental
Life Insurance Company ("Separate Account") of Transamerica Occidental Life
Insurance Company ("Company") is registered under the Investment Company Act of
1940 ('1940 Act') as a unit investment trust. Within the Separate Account are
twenty-four sub-accounts. Procedures apply equally to each sub-account and for
purposes of this description are defined in terms of the Separate Account,
except where a discussion of both the Separate Account and the individual
sub-accounts is necessary. Each sub-account invests, respectively, in shares of
a corresponding portfolio of the Separate Account. The investment experience of
a sub-account of the Separate Account depends on the market performance of its
corresponding portfolio. Although modified single payment variable life
insurance Contracts funded through the Separate Account may also provide for
fixed benefits supported by the Company's General Account, this description
assumes that payments are allocated exclusively to the Separate Account and that
all transactions involve only the sub-accounts of the Separate Account, except
as otherwise explicitly stated herein.
I. "PUBLIC OFFERING PRICE": PURCHASE AND RELATED TRANSACTIONS --
SECTION 22(d) AND RULE 22C-l
This section outlines Contract provisions and administrative procedures which
might be deemed to constitute, either directly or indirectly, a "purchase"
transaction. Because of the insurance nature of the Contracts, the procedures
involved necessarily differ in certain significant respects from the purchase
procedures for mutual funds and annuity plans. The chief differences revolve
around the structure of the cost of insurance charges and the insurance
underwriting process. Certain Contract provisions, such as reinstatement and
loan repayment, do not result in the issuance of a Contract but require certain
payments by the Contract Owner and involve a transfer of assets supporting
Contract reserve into the Separate Account.
a. INSURANCE CHARGES AND UNDERWRITING STANDARDS
The Contracts are designed as modified single payment variable life insurance
polices. The total of all payments paid can never exceed the then current
maximum payments determined by Internal Revenue Service rules. If at any time a
payment is paid which would result in total payments exceeding the current
maximum payment limitations, the Company will return the amount in excess of
such maximums to the Contract Owner. If the Guaranteed Death Benefit Rider is
not in effect on the Contract, the Contract will remain in force so long as the
Contract Value less surrender charges and less any outstanding debt is
sufficient to pay certain monthly charges imposed in connection with the
Contract. Cost of insurance charges for the Contracts will not be the same for
all Contract Owners. The insurance principle of pooling and distribution of
mortality risks is based upon the assumption that each Contract Owner pays a
cost of insurance charge commensurate with the Insured's mortality risk, which
is actuarially determined based upon factors such as age and health. In the
context of life insurance, a uniform mortality charge (the "cost of insurance
charge") for all Insureds would discriminate unfairly in favor of those Insureds
representing greater mortality risks to the disadvantage of those representing
lesser risks. Accordingly, there will be a different "price" for each actuarial
category of Contract Owners because different cost of insurance rates will
apply. Accordingly, while not all Contract Owners will be subject to the same
cost of insurance rate, there will be a single "rate" for all Insureds in a
given actuarial category. The Contracts will be offered and sold pursuant to the
Company's underwriting standards and in accordance with state insurance laws.
Such laws prohibit unfair discrimination among Insureds, but recognize that
payments must be based upon factors such as age, health and occupation. Tables
showing the maximum cost of insurance charges will be delivered as part of the
Contract.
b. APPLICATION AND INITIAL PAYMENT PROCESSING
Payments are payable only to the Company, and may be mailed to the Variable Life
Service Center or, for the initial payment at the time of application or
delivery of the Contract, paid through an authorized agent of the Company. All
payments are credited to the Separate Account or the Fixed Account (a part of
our General Account) as of date of receipt at the Variable Life Service Center.
The Contract requires a single payment of at least $10,000 on or before the date
of issue. The initial payment is used to determine the face amount of the
Contract, by treating the initial payment as equal to 100% of the guideline
single premium, except as provided below. The Contract Owner also indicates the
desired face amount of insurance coverage on the application. If we approve the
application and the face amount specified exceeds 100% of the guideline single
premium for the amount of the payment, the application will be amended and a
Contract with a higher face amount will be issued. If we approve the application
and the face amount specified is less than 80% of the guideline single premium
for the amount of the payment, the application will be amended and a Contract
with a lower face amount will be issued.
Additional payments of at least $10,000 may be made as long as the total
payments do not exceed the maximum payment specified in the Contract. The total
of all payments can never exceed the then-current maximum payment limitation
determined by Internal Revenue Service rules. Where total payments would exceed
the current maximum payment limits, the Company will only accept that part of a
payment which will make total payments equal the maximum. The Company will
return any part of a payment that is greater than that amount. However, the
Company will accept a payment needed to prevent Contract lapse during a contract
year. We may require evidence of insurability prior to accepting any additional
payments which would increase the death benefit.
Upon receipt of a completed application from a prospective Contract Owner, the
Company will follow certain insurance underwriting procedures designed to
determine whether the proposed Insured is insurable. This process may involve
such verification procedures as medical examinations and may require that
further information be provided by the proposed Contract Owner before a
determination can be made. A Contract cannot be issued until this underwriting
procedure has been completed.
If at the time of application a prospective Contract Owner makes a payment of at
least $10,000 and which is also at least 80% of the guideline single premium
required for the amount of insurance requested, the Company will provide fixed
conditional insurance in the amount of insurance applied for, up to a maximum of
$250,000, subject to all the conditions of the conditional receipt, including
that the Insured is insurable according to our underwriting rules. If the
application is approved, the Contract will be issued as of the date of the
underwriting approval. If the prospective Contract Owner does not wish to make
any payment until the Contract is issued, upon delivery of the Contract the
Company will require payment of sufficient payment to place the insurance
in-force.
Pending completion of insurance underwriting and Contract issuance procedures,
the initial payment will be held in the Fixed Account. If the application is
approved and the Contract is issued and accepted, the initial payment held in
the Fixed Account will be credited with interest not later than the date of
receipt of the payment at the Company's Variable Life Service Center. Not later
than two days after underwriting approval of the Contract, the amounts held in
the Fixed Account will be allocated to the sub-accounts according to Contract
Owner's instructions. However, if the contract is issued in a "full refund"
state, the sub-account investments will initially be allocated to the Money
Market sub-account and thereafter transferred according to the Contract Owner's
instructions at the end of four calendar days plus the free look period
(generally 10 days, but longer in some circumstances). Amounts remaining in the
Fixed Account will continue to be credited interest from date of receipt of the
payment at the Variable Life Service Center. If a Contract is not issued, the
payments will be returned to the Contract Owner without interest.
These processing procedures are designed to provide insurance, starting with the
date of the application, to the proposed Contract Owner in connection with
payment of the initial payment and will not dilute any benefit payable to any
existing Contract Owner. Although a Contract cannot be issued until the
underwriting process has been completed, the proposed Contract Owner will
receive immediate insurance coverage, subject to all the conditions of the
conditional receipt, if the proposed Contract Owner has paid an initial payment
and the Insured proves to be insurable. If the initial payment is not paid with
the application, the insurance coverage under the Contract will not begin until
the Contract is delivered to the Contract Owner while the Insured is alive and
the initial payment is paid to the Company. The Company will require that the
Contract be delivered within a specific delivery period to protect itself
against anti-selection by the prospective Contract Owner resulting from a
deterioration of the health of the proposed Insured.
c. PAYMENT ALLOCATIONS
The Contract Owner may allocate payments among the Fixed Account and among up to
twenty of the sub-accounts of the Separate Account. The amount allocated to each
sub-account and to the Fixed Account may not be less than 5% of the total
payment without our consent and may only be allocated in whole percentages. Each
sub-account of the Separate Account invests its assets in shares of a
corresponding portfolio. Purchases and redemptions of such shares are made at
net asset value, with no deduction for sales load.
Payments allocated to a sub-account, transfers to that sub-account, and reserve
adjustment transfers, if any, will be netted as of each valuation date against
amounts withdrawn from the sub-account in connection with Contract surrenders,
partial withdrawals, transfers, and death benefits, as well as the asset charge
and amounts paid to the Company in lieu of taxes, if any. A net purchase or sale
of portfolio shares will be made for a sub-account at net asset value. All
income, dividends and realized capital gain distributions of a portfolio will be
reinvested in shares of the respective portfolio at net asset value. Valuation
dates currently occur on each day on which the New York Stock Exchange is open
for trading, and on such other days where there is a sufficient degree of
trading in a portfolio's securities such that the current net asset value of the
sub-accounts may be materially affected.
The Contract Owner may change the allocation of payments without charge at any
time by providing written notice to the Variable Life Service Center. The change
will be effective as of the date of receipt of the notice at the Variable Life
Service Center. The Contract Owner may transfer amounts among all of the
sub-accounts and the Fixed Account, subject to certain restrictions. At no time,
however, may the Contract Owner have value in more than 20 sub-accounts, plus
the Fixed Account.
d. REPAYMENT OF LOAN
The Contract Owner may borrow money secured by Contract Value. The total amount
the Contract Owner may borrow is the loan value. The loan value is 90% of the
Contract Value minus any surrender charges. The minimum loan is $1,000. The
maximum loan is the loan value minus any outstanding loans. The Company will
usually pay the loan within seven days after the Company receives a written
request for the loan.
The Company will allocate the loan among the sub-accounts and the Fixed Account
according to the Contract Owner's instructions. If the Contract Owner does not
make an allocation, the Company will make a pro-rata allocation among the
sub-accounts and Fixed Account. The Company will transfer Contract Value in each
sub-account, equal to the Contract loan amount, to the Fixed Account. The
Company will not count this transfer as a transfer subject to the transfer
charge, described below. Contract Value equal to the outstanding loan amount
will earn monthly interest in the Fixed Account at an annual rate of at least
4.0%.
Contract loans will permanently affect the Contract 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 Contract Value in the
Fixed Account that secures the loan. A loan made under the Contract may be
repaid with an amount equal to the original loan plus loan interest.
When a loan is made, the Company will transfer from each sub-account of the
Separate Account to the Fixed Account an amount of that sub-account's Contract
Value equal to the loan amount allocated to the sub-account. Since the Company
will credit such assets with interest at a rate which is below the interest rate
charged on the loan, the difference will be retained by the Company to cover
certain expenses and contingencies.
Upon repayment of debt, the Company will reduce the Contract Value in the Fixed
Account attributable to the loan and transfer assets supporting corresponding
reserves to the sub-accounts according to the Contract Owner's instruction or,
if no instructions are provided, according to the payment allocation percentages
then in effect. Loan repayments allocated to the Separate Account cannot exceed
Contract value previously transferred from the Separate Account to secure the
debt.
e. PREFERRED LOAN OPTION - Any portion of the outstanding loan that represents
earnings in the Contract, a loan from an exchanged life insurance policy that
was as carried over to the Contract, or the gain in the exchanged life insurance
policy that was carried over to the Contract may be treated as a preferred loan.
The available percentage of the gain carried over from an exchanged policy less
any policy loan carried over which will be eligible for preferred loan treatment
is as follows:
- --------------------- ------------------ ------------------ -----------------
Beginning of Unloaned Gain Beginning of Unloaned Gain
Contract Year Available Contract Year Available
- --------------------- ------------------ ------------------ -----------------
- --------------------- ------------------ ------------------ -----------------
1 0% 7 60%
- --------------------- ------------------ ------------------ -----------------
- --------------------- ------------------ ------------------ -----------------
2 10% 8 70%
- --------------------- ------------------ ------------------ -----------------
- --------------------- ------------------ ------------------ -----------------
3 20% 9 80%
- --------------------- ------------------ ------------------ -----------------
- --------------------- ------------------ ------------------ -----------------
4 30% 10 90%
- --------------------- ------------------ ------------------ -----------------
- --------------------- ------------------ ------------------ -----------------
5 40% 11+ 100%
- --------------------- ------------------ ------------------ -----------------
- --------------------- ------------------ ------------------ -----------------
6 50%
- --------------------- ------------------ ------------------ -----------------
The guaranteed annual interest rate credited to the Contract Value securing a
preferred loan will be at least 5.5%.
Interest on all loans under the Contract - whether the loan is treated as a
preferred loan or not --accrues daily at the annual rate of 6.0%.Interest is due
and payable in arrears at the end of each Contract year or for as short a period
as the loan may exist. Interest not paid when due will be added to the
outstanding loan by transferring Contract Value equal to the interest due to the
Fixed Account. The interest due will bear interest at the same rate.
f. TERMINATION AND REINSTATEMENT
If on a monthly processing date (first day of a Contract month) the surrender
value is insufficient to cover the monthly deductions due, or if Contract debt
exceeds the Contract value less surrender charges, the Company will notify the
Contract Owner and any assignee of record. The Contract Owner will then have a
grace period of 62 days, measured from the date the notice is mailed, to make
sufficient payments to prevent termination. Failure to make a sufficient payment
within the grace period will result in termination of the Contract without any
Contract Value. The death benefit payable during the grace period will be
reduced by any overdue charges. If the Insured dies during the grace period, the
net death benefit will still be payable, but any monthly deductions due and
unpaid through the Contract month in which the Insured dies will be deducted
from the death benefit.
If the Contract has not been surrendered and the Insured is alive, the
terminated Contract may be reinstated within three years (or such later date as
required by state law) after the date of default and before the final payment
date (or, before the maturity date if the outstanding loan exceeded the Contract
Value less the surrender charges). The Contract may be reinstated by submitting
the following to the Company: (1) a written application for reinstatement; (2)
evidence of insurability satisfactory to the Company; and (3) a payment that is
large enough (a) to cover the cost of all contract charges that were due and
unpaid during the grace period, (b) to keep the contract in force for three
months, and (c) to reinstate any loan against the Contract that existed at the
end of the grace period. The Contract value on the date of reinstatement is: (1)
the payment paid to reinstate the Contract increased by interest from the date
the payment was received at the Company's Variable Life Service Center; plus (2)
an amount equal to the Contract value less debt on the date of default minus the
monthly deduction due on the date of reinstatement. The surrender charge on the
date of reinstatement is the surrender charge which was in effect on the date of
default.
g. CORRECTION OF MISSTATEMENT OF AGE
If the Insured's age or sex is not correctly stated in the Contract application,
the Company will adjust benefits under the Contract to reflect the correct age
and sex. The adjustment will be based upon the ratio of the maximum payment for
the Contract to the maximum payment for the Contract issued for the correct age
or sex. The Company will not reduce the Death Benefit to less than the guideline
minimum sum Insured. For a unisex Contract, there is no adjusted benefit solely
for misstatement of sex. If the Insured dies after the final payment date, there
will be no adjustment for misstatement of age or sex.
h. CONTESTABILITY
Except for fraud (unless such defense is not permitted under state law) or
non-payment of premiums, a Contract may not be contested after it has been in
force during the lifetime of the Insured for two years from the date of issue. A
contest is any action taken by us to cancel insurance or deny a claim based on
untrue or incomplete answers in the application for the Contract. If the
underwriting class is changed at the Contract Owner's request and we approve the
requested change, we cannot contest the change after it has been in force for
two years from its effective date and the Insured is alive. A reinstatement may
not be contested after two years from the effective date of the reinstatement
and the Insured is alive.
i. REDUCTION IN COST OF INSURANCE RATE CLASSIFICATION
By practice, the Company will reduce the insurance protection charge rate
classification for an outstanding Contract if new evidence of insurability
demonstrates that the Insured qualifies for a lower classification. After the
reduced rating is determined, the Contract Owner will pay a lower monthly cost
of insurance charge each month compared to the charge that would have been paid
under the prior classification.
II. "REDEMPTION PROCEDURE": SURRENDER AND RELATED TRANSACTIONS
The Contracts provide for the payment of monies to a Contract Owner or
beneficiary upon presentation of a Contract. Generally except for the payments
of death proceeds, the imposition of cost of insurance and administrative
charges, and the possible effect of a contingent surrender charge, the payee
will receive a pro rata or proportionate share of the Separate Account's assets,
within the meaning of the 1940 Act, in any transaction involving "redemption
procedures". The amount received by the payee will depend upon the particular
benefit for which the Contract is presented, including, for example, the
surrender value or net death benefit. There are also certain Contract provisions
(e.g., partial withdrawals or the loan privilege) under which the Contract will
not be presented to the Company but which will affect the Contract Owner's
benefits and may involve a transfer of the assets supporting the Contract
reserve out of the Separate Account. Any combined transactions on the same day
which counteract the effect of each other will be allowed. The Company will
assume the Contract Owner is aware of the possible conflicting nature of the
transactions and desires their combined result. If a transaction is requested
which the Company will not allow (e.g., a request for a decrease in face amount)
the Company will reject the whole transaction and not just the portion which
causes the disallowance. The Contract Owner will be informed of the rejection
and will have an opportunity to give new instructions.
a. FREE LOOK PRIVILEGE - The Contract provides for a free look period under the
Right to Cancel provision. The Contract Owner has the right to examine and
cancel the Contract by returning it to the Company or one of its representatives
on or before the tenth day (or such later date as may be required by state law)
after the Contract owner receives the Contract. If the Contract provides for a
full refund under its "Right to Cancel" provision (as may be required by state
law), the refund will be the entire payment. If the Contract does not provide
for a full refund (as provided by state law), the Contract Owner will receive
(1) amounts allocated to the Fixed Account; plus (2) the portion of Contract
Value in the sub-accounts; plus (3) all fees, charges and taxes which have been
imposed.
b. CONVERSION PRIVILEGE - During the first 24 Contract months after the date of
issue, subject to certain restrictions, the Contract Owner may convert the
Contract to a modified single payment fixed Contract by transferring all
Contract Value in the sub-accounts to the Fixed Account and by simultaneously
changing the allocation of future payments to the Fixed Account.
c. CHARGES AND DEDUCTIONS -- The following charges will apply to the Contract
under the circumstances described. Some of these charges apply throughout the
Contract's duration.
MONTHLY DEDUCTIONS - On the monthly processing date, the Company will deduct an
amount to cover charges and expenses incurred in connection with the Contract.
This monthly deduction will be deducted by subtracting values from the Fixed
Account accumulation and/or canceling units from each applicable sub-account on
a pro rata basis. As a result, the number of units cancelled in a sub-account
will be in the ratio of the portion of Contract Value in that sub-account to the
total Contract Value net of any outstanding loan. The amount of the monthly
deduction will vary from month to month. If the Contract Value is not sufficient
to cover the monthly deduction which is due, the Contract may lapse if the
Guaranteed Death Benefit Rider is not in effect on the Contract. No monthly
deductions will be taken after the final payment date or, in the case of the
Distribution Fee and the Tax Charge, after the end of ten Contract years. The
monthly deduction is comprised of the following charges:
- - Administration Charge: The Company imposes a monthly charge at an annual rate
of 0.30% of the Contract Value. This charge is to partially reimburse us for
administrative expenses incurred in the administration of the Contract. It is
not expected to be a source of profit.
- - Monthly Insurance Protection Charge: Immediately after the Contract is issued,
the death benefit will be greater than the payment. While the Contract is in
force, the death benefit will generally be greater than the Contract Value. To
help enable the Company to pay this excess of the death benefit over the
Contract Value, a monthly cost of insurance charge is deducted. This charge
varies depending on the type of Contract and the underwriting class. In no event
will the current deduction for the cost of insurance exceed the guaranteed
maximum insurance protection rates set forth in the Contract. These guaranteed
rates are based on the Commissioners 1980 Standard Ordinary Mortality Tables
(Age Last Birthday), Tobacco User or Non-Tobacco User (male rates are used for
unisex Contracts and Mortality Table D for second-to-die Contracts) and the
Insured's sex and age. The Tables used for this purpose set forth different
mortality estimates for males and females and for tobacco users and non-tobacco
users. Rates also vary depending on whether the Contract was issued based on
simplified underwriting criteria or, instead, was issued based on full
underwriting. Any change in the insurance protection rates will apply to all
Insureds of the same age, sex and underwriting class whose Contracts have been
in force for the same period. The underwriting class of an Insured will affect
the insurance protection rate. The Company currently places Insureds into
standard underwriting classes and non-standard underwriting classes. The
underwriting classes are also divided into two categories: tobacco user and
non-tobacco user. The Company will place Insureds under the age of 18 at the
date of issue in a standard or non-standard underwriting class. The Company will
then classify the Insured as a non-tobacco user when the Insured reaches the age
of 18.
- - Distribution Fee: During the first ten Contract years, the Company makes a
monthly deduction to compensate us for a portion of the sales expenses incurred
by us with respect to the Contracts. This charge is equal to 0.40% of the
Contract Value.
- - Tax Charge: During the first ten Contract years, the Company makes a monthly
deduction equal to 0.20% on an annual basis to partially compensate the Company
for state and local premium taxes, and federal income tax treatment of Deferred
Acquisition Costs. The effective state premium tax for the Company typically
ranges between 2.35% and 3.5% of payments received by us. Currently, rates from
between 0% and 3.5% in the various states and the District of Columbia. The
Company does not intend to profit from the payment tax portion of this charge.
DAILY DEDUCTIONS - The Company assesses each sub-account with a charge for
mortality and expense risks. Portfolio expenses are also reflected in the
Separate Account.
- - Mortality and Expense Risk Charge: The Company imposes a daily charge
equivalent to an annual rate of 0.80% of the average daily net asset value of
each sub-account.
- - Fund 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. No charges are currently made against the sub-accounts
for federal or state income taxes. Should income taxes be imposed, the Company
may make deductions from the sub-accounts to pay the taxes.
SURRENDER CHARGE - The Contract's contingent surrender charge is a deferred
sales charge and an unrecovered payment tax charge. The deferred sales charge
partially compensates us for distribution expenses, including commissions to our
representatives, advertising and the printing of prospectuses and sales
literature. The unrecovered payment tax charge is designed to help reimburse us
for the unrecovered federal and state taxes the Company has paid.
- -------------- ------------- ----------- -------------
Contract Surrender Contract Surrender
Year* Charge Year* Charge
- -------------- ------------- ----------- -------------
- -------------- ------------- ----------- -------------
1 9.0% 6 4.0%
- -------------- ------------- ----------- -------------
- -------------- ------------- ----------- -------------
2 8.0% 7 3.0%
- -------------- ------------- ----------- -------------
- -------------- ------------- ----------- -------------
3 7.0% 8 2.0%
- -------------- ------------- ----------- -------------
- -------------- ------------- ----------- -------------
4 6.0% 9 1.0%
- -------------- ------------- ----------- -------------
- -------------- ------------- ----------- -------------
5 5.0% 10+ 0.0%
- -------------- ------------- ----------- -------------
* If a Contract is terminated and is later reinstated, the surrender charge on
the effective date of reinstatement is the surrender charge which was in effect
on the date of default. Subsequent surrender charges and contract years are
adjusted accordingly.
PARTIAL WITHDRAWAL COSTS - A contingent surrender charge may apply to any
partial withdrawal taken during the time that a surrender charge applies to the
Contract (the first nine Contract years, adjusted accordingly for any
reinstatements). However, in any Contract year, the Contract Owner may withdraw,
without a surrender charge, up to 10% of the Contract Value minus the total of
any prior free withdrawals in the same Contract year ("Free 10% Withdrawal.")
The right to make the Free 10% Withdrawal is not cumulative from Contract year
to Contract year. For example, if only 8% of Contract Value were withdrawn in
the second Contract year, the amount which could be withdrawn in future Contract
years would not be increased by the amount the Contract Owner did not withdraw
in the second Contract year.
Currently, there is no withdrawal transaction fee assessed for a partial
withdrawal taken. We reserve the right to impose a withdrawal transaction fee
equal to 2% of the amount withdrawn, not to exceed $25, on any partial
withdrawal taken. The fee is designed to offset the expense of processing the
partial withdrawal.
TRANSFER CHARGES - The first 18 transfers in a Contract year are free. After
that, the Company may deduct a transfer charge not to exceed $25 from amounts
transferred in that Contract year. If the Contract Owner applies for automatic
transfers, the first automatic transfer for the selected option counts as one
transfer. Each future automatic transfer for the selected 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 Contract Value is free and does not count as
one of the 18 free transfers in a Contract year:
- - A transfer from the Fixed Account to the Money Market sub-account during the
"free look" period on a Contract which provides for a full refund of payment in
the event the "free look" privilege is exercised; - A transfer from the Money
Market sub-account at the end of the "free look" period on a Contract which
provides for a full refund of payment in the event the "free look" privilege is
exercised; - A conversion within the first 24 months from date of issue; - A
transfer to the Fixed Account to secure a loan; A transfer from the Fixed
Account as a result of a loan repayment; and - A transfer due to a material
change in the investment policy of a portfolio.
d. DEATH BENEFIT
The death benefit through the final payment date is the greater of the face
amount or guideline minimum sum Insured. After the final payment date, the death
benefit is 101% of the Contract Value if the Guaranteed Death Benefit Rider is
not in effect. If the Guaranteed Death Benefit Rider is in effect, however, the
death benefit after the final payment date is the greater of (1) the face amount
as of the final payment date or (2) 101% of the Contract Value. The Company will
pay a net death benefit to the beneficiary within seven days after receipt at
its Variable Life Service Center of the Contract, due proof of death of the
Insured, and all other requirements necessary to make payment. For Second-to-Die
Contracts, the net death benefit is payable on the death of the last surviving
Insured; there is no net death benefit payable on the death of the first Insured
to die.
The Company will normally pay the net death benefit within seven days of
receiving due proof of the Insured's death, but the Company may delay payment of
net death benefits. The beneficiary may receive the net death benefit in a lump
sum or under a benefit payment option, unless the benefit payment option has
been restricted by the Contract Owner. Before the final payment date, the net
death benefit is the death benefit minus any outstanding loan, rider charges and
monthly deductions due and unpaid through the Contract month in which the
Insured dies, as well as any partial withdrawals, applicable surrender charges,
and withdrawal transaction fees. After the final payment date, if the Guaranteed
Death Benefit Rider is effective on the Contract, the net death benefit is the
death benefit minus any outstanding loan through the month in which the Insured
dies. If the Guaranteed Death Benefit Rider is not in effect on the Contract,
then the net death benefit after the final payment date is the death benefit
minus any outstanding loan through the month in which the Insured dies, as well
as any partial withdrawals, applicable surrender charges, and withdrawal
transaction fees. In most states, the Company will compute the net death benefit
on the date it receives due proof of the Insured's death.
The Company will make payment of the death proceeds out of its general account,
and will transfer assets from the Separate Account to the general account in an
amount equal to the reserve in the Separate Account attributable to the
Contract. The excess, if any, of the death proceeds over the amount transferred
will be paid out of the general account reserve maintained for that purpose.
GUARANTEED DEATH BENEFIT RIDER - If at the time of issue the Contract Owner has
paid a premium payment equal to 100% of the guideline single premium, a
Guaranteed Death Benefit Rider will be added to the Contract at no additional
charge. The Guaranteed Death Benefit Rider provides that (1) through the final
payment date, the Contract will not lapse; and (2) after the final payment date,
a guaranteed death benefit will be provided thereafter unless the Rider is
subsequently terminated. The death benefit and the net death benefit provided
under the Guaranteed Death Benefit Rider are described above under "DEATH
BENEFIT."
The Guaranteed Death Benefit Rider will terminate (and may not be reinstated) on
the first to occur of the following: - Foreclosure of the outstanding loan, if
any; or - A request for a partial withdrawal or loan after the final payment
date; or - Upon your written request.
GUIDELINE MINIMUM SUM INSURED - The guideline minimum sum insured is a
percentage of the Contract Value. The guideline minimum sum insured is computed
based on federal tax regulations to ensure that the Contract qualifies as a life
insurance contract and that the insurance proceeds generally will be excluded
from the gross income of the beneficiary.
<TABLE>
<CAPTION>
GUIDELINE MINIMUM SUM INSURED
Attained Age Percentage Attained Age Percentage
<S> <C> <C> <C> <C>
40 or less 265% 64 137%
41 258% 65 135%
42 251% 66 134%
43 244% 67 133%
44 237% 68 132%
45 230% 69 131%
46 224% 70 130%
47 218% 71 128%
48 212% 72 126%
49 206% 73 124%
50 200% 74 122%
51 193% 75-85 120%
52 186% 86 118%
53 179% 87 116%
54 172% 88 114%
55 165% 89 112%
56 161% 90 110%
57 157% 91 108%
58 153% 92 106%
59 149% 93 -95 105%
60 145% 96 104%
61 143% 97 103%
62 141% 98 102%
63 139% 99-115 101%
</TABLE>
e. TRANSFERS AMONG SUB-ACCOUNTS
The Contracts permit payments to be allocated either to the Fixed Account or to
the sub-accounts of the Separate Account. Each sub-account invests exclusively
in a corresponding investment portfolio. The Fixed Account is part of the
Company's general account. At any time, the Contract Owner may have value in up
to twenty sub-accounts, plus the Fixed Account. The first 18 transfers each
Contract year are free.
Subject to the consent of the Company, the Contract Owner may transfer amounts
among the sub-accounts and between the sub-accounts and the Fixed Account,
subject to certain restrictions. The Contract Owner may apply for automatic
transfers under the Dollar Cost Averaging (DCA) option from a "source account"
- -- either the Money Market sub-account or the Fixed Account -- to one or more of
the other sub-accounts. DCA transfers may not be made to the Fixed Account. DCA
transfers may not be made to the "source account." Therefore, if the Money
Market sub-account is the "source account", no transfers may be made under the
option to the Money Market sub-account. DCA transfers may be made at intervals
of one, three, or six months. The amount transferred from the "source account"
must be at least $100 per transfer, and all transfer amounts must be in whole
dollars. If the "source account" is reduced to $0 (zero), the automatic transfer
will cease. The Contract Owner must then reapply for any future automatic
transfers.
The Contract Owner may also apply for the Automatic Account Rebalancing (AAR)
option, in order to reallocate Contract Value among the sub-accounts at
intervals of three, six, or twelve months. The Fixed Account is not included in
the AAR option. The DCA and the AAR options may not be in effect at the same
time.
The first 18 transfers in a Contract year are free. Thereafter, the Company may
deduct a transfer charge not to exceed $25 from amounts transferred in that
Contract year. The first automatic transfer for each elected option counts as
one transfer toward the 18 free transfers allowed in each Contract year. Each
subsequent automatic transfer under the elected option is free and does not
reduce the remaining number of transfers that are free in a Contract year. Any
transfers made for a conversion privilege, Contract loan or material change in
investment policy will not count toward the 18 free transfers, nor will
transfers to and from the Money Market sub-account made during and at the end of
the "free look period" if the Contract provides for a full refund if the "free
look privilege" is exercised.
The transfer privilege is subject to the Company's consent. The Company reserves
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; and
- - Maximum amounts that may be transferred from the Fixed Account.
f. SURRENDER FOR CASH VALUES
The surrender value of the Contract is equal to the Contract Value less any
outstanding loan and less any surrender charges. The Company will generally pay
the surrender value from the sub-accounts within seven days after receipt, at
its Variable Life Service Center, of the Contract and a signed request for
surrender (amounts payable from Fixed Account allocations may be postponed for
no more than 6 months). Computations with respect to the investment experience
of each sub-account will be made at the close of trading of the New York Stock
Exchange on each day in which the degree of trading in the corresponding
portfolio might materially affect the net return of the sub-account and on which
the Company is open. This will enable the Company to pay a net cash value on
surrender based on the next computed value after the surrender request is
received. For valuation purposes, the surrender is effective on the date the
Company receives the request at its Variable Life Service Center (although
insurance coverage ends the day the request is mailed). The Contract Value equal
to the value of all accumulations in the sub-accounts may increase or decrease
from day to day depending on the investment experience of the Separate Account.
Calculation of the Contract Value for any given day will reflect the actual
payments, expenses charged and deductions taken.
g. DEFAULT AND OPTIONS ON LAPSE
If the Guaranteed Death Benefit Rider is in effect on a Contract, the Contract
will not lapse. If the Guaranteed Death Benefit Rider is not in effect on a
Contract, the duration of insurance coverage depends upon the Contract Value
being sufficient to cover the monthly deductions plus loan interest accrued. If
the surrender value at the beginning of a Contract month is less than the
deductions for that month, a grace period of 62 days will begin. Whether the
Guaranteed Death Benefit Rider is in effect on a Contract or is not, however, a
grace period of 62 days will also begin if the outstanding loan ever exceeds the
Contract Value minus the surrender charges. Written notice will be sent to the
Contract Owner and any assignee on the Company's records stating that such a
grace period has begun and giving the amount of payment necessary to prevent
termination. If sufficient payment is not received during the grace period, the
Contract will terminate without value. Notice of such termination will be sent
to the owner and any assignee. If the Insured should die during the grace
period, an amount sufficient to cover the overdue monthly deductions and other
charges will be deducted from the death benefit.
<PAGE>
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
(213) 977-3200
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 23, 1998 with respect to the
consolidated financial statements of Transamerica Occidental Life Insurance
Company in Pre-Effective Amendment No. 3 under the Securities Act of 1933 to the
Registration Statement (Form S-6 No. 333-63215) and related Prospectus of
Transamerica Occidental Life Separate Account VUL-2.
/s/ Ernst & Young LLP
Ernst & Young LLP
Los Angeles, California
January 29, 1999
<PAGE>
