As filed with the Securities and Exchange Commission on October 1, 1999
Registration No. 333-63215
811-08997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
Post-Effective Amendment No. 3
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
TRANSAMERICA OCCIDENTAL LIFE SEPARATE ACCOUNT VUL-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)
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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
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It is proposed that this filing will become effective:
_____immediately upon filing pursuant to paragraph (b)
__x___ On October 15, 1999 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.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8b-2 AND THE PROSPECTUS
Item No. of
Form N-8b-2 Caption in Prospectus
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1 ........................... Cover Page
2 ........................... Cover Page
3 ........................... Not Applicable
4 ........................... Distribution
5 ........................... 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
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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/
(i) re PIMCO Variable Insurance Trust 5/
(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/ 3/4/
8. Powers of Attorney 1/ 4/
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/ Incorporated by reference to Pre-Effective Amendment No. 3 of this
Registration Statement (File No. 333-63215) on February 1, 1999.
4/ Incorporated by reference to Post-Effective Amendment No. 2 of this
Registration Statement (File No. 333-63215) on April 30, 1999.
5/ Filed herewith.
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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.
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SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, Transamerica Occidental Life Insurance Company certifies that this
Amendment meets the requirements of Securities Act Rule 485(b) for effectiveness
of this Registration Statement and has caused this Registration Statement to be
signed on its behalf by the undersigned in the City of Los Angeles, State of
California on the 1st day of October, 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 October, 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.
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Signatures Titles Date
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______________________* Director, Chairman, October 1, 1999
Thomas J. Cusack President and Chief Executive Officer
_____________________* Director October 1, 1999
James W. Dederer
______________________* Directorand October 1, 1999
Karen MacDonald and Acting Chief Financial Officer
_____________________* Director October 1, 1999
George A. Foegele
______________________* Director October 1, 1999
David E. Gooding
______________________* Director October 1, 1999
Frank C. Herringer
______________________* Director October 1, 1999
Richard N. Latzer
______________________* Director October 1, 1999
Gary U. Rolle'
_____________________* Director October 1, 1999
Paul E. Rutledge III
______________________* Director October 1, 1999
T. Desmond Sugrue
______________________* Director October 1, 1999
Nooruddin S. Veerjee
______________________* Director October 1, 1999
Robert A. Watson
___________________________________ On October 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.
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47
1
PROSPECTUS FOR
TRANSAMERICA LINEAGESM
VARIABLE LIFE INSURANCE
A Modified Single Payment Variable Life Insurance Contract
Issued By
Transamerica Occidental Life Insurance Company
Offering 19 Sub-Accounts Under Separate Account VUL-2
In Addition to a Fixed Account
Portfolios Associated with Sub-Account Options
Alger American Income & Growth MSDW UF Emerging Markets Equity
Alliance VPF Growth and Income MSDW UF Fixed Income
Alliance VPF Premier Growth MSDW UF High Yield
Dreyfus VIF Capital Appreciation MSDW UF International Magnum
Dreyfus VIF Small Cap OCC Accumulation Trust Managed
Janus Aspen Series Balanced OCC Accumulation Trust Small Cap
Janus Aspen Series Worldwide Growth PIMCO VIT StocksPLUS Growth and Income
MFS VIT Emerging Growth Transamerica VIF Growth
MFS VIT Growth With Income Transamerica VIF Money Market
MFS VIT Research
Please read and retain this prospectus.
It contains information you should know
before investing.
Neither the SEC nor the state securities
commissions have approved this investment
offering or determined that this prospectus is
accurate or complete. Any representation to the
contrary is a criminal offense.
The SEC's web site is http://www.sec.gov
Transamerica's web site is
http://www.transamerica.com
You bear the entire investment risk for all assets you place in the
sub-accounts. Additionally, please analyze any current policies you may own
before investing in this contract. It may not be to your advantage to replace
existing insurance with this contract.
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
contract loan, partial withdrawal or surrender may result in adverse tax
consequences and/or penalties.
October 15, 1999
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TABLE OF CONTENTS
SUMMARY 4
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PERFORMANCE INFORMATION. .................................................................................10
DESCRIPTION OF TRANSAMERICA, THE SEPARATE ACCOUNT
AND THE PORTFOLIOS .......................................................................................15
21E CONTRACT..............................................................................................
Applying for a Contract.............................................................................21
Free Look Period....................................................................................21
Conversion Privilege................................................................................22
Payments............................................................................................22
Allocation of Payments..............................................................................22
Transfer Privilege..................................................................................23
Dollar Cost Averaging...............................................................................23
Automatic Account Rebalancing.......................................................................24
Transfer Privileges Subject to Possible Limits......................................................24
Death Benefit.......................................................................................24
Guaranteed Death Benefit Rider......................................................................24
Death Benefit and Net Death Benefit.................................................................25
Guideline Minimum Sum Insured.......................................................................25
Illustration........................................................................................25
Option to Accelerate Death Benefits (Living Benefits Rider).........................................26
Contract Value......................................................................................26
Computing Contract Value............................................................................27
The Unit............................................................................................27
Net Investment Factor...............................................................................27
Benefit Payment Options.............................................................................28
Optional Insurance Benefits.........................................................................28
Surrender...........................................................................................28
Partial Withdrawal..................................................................................28
29ARGES AND DEDUCTIONS....................................................................................
Monthly Deductions..................................................................................29
Daily Deductions....................................................................................30
Surrender Charge....................................................................................30
Partial Withdrawal Costs - Surrender Charges and Withdrawal Transaction Fees........................31
Transfer Charges....................................................................................31
CONTRACT LOANS............................................................................................31
CONTRACT TERMINATION AND REINSTATEMENT....................................................................33
34HER CONTRACT PROVISIONS.................................................................................
FEDERAL TAX CONSIDERATIONS................................................................................35
The Company and the Separate Account................................................................35
Taxation of the Contracts...........................................................................35
VOTING RIGHTS.............................................................................................37
DIRECTORS AND PRINCIPAL OFFICERS OF TRANSAMERICA
OCCIDENTAL LIFE INSURANCE COMPANY................................................................38
40STRIBUTION..............................................................................................
REPORTS 40
SERVICES 40
LEGAL PROCEEDINGS.........................................................................................40
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.........................................................41
41AR 2000 ISSUE...........................................................................................
FURTHER INFORMATION.......................................................................................42
MORE INFORMATION ABOUT THE FIXED ACCOUNT..................................................................42
INDEPENDENT AUDITORS......................................................................................43
FINANCIAL STATEMENTS......................................................................................43
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APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE.........................................................A-1
APPENDIX B -- OPTIONAL INSURANCE BENEFITS.................................................................B-1
APPENDIX C - BENEFIT PAYMENT OPTIONS......................................................................C-1
APPENDIX D - ILLUSTRATIONS OF DEATH BENEFIT, CONTRACT VALUES
AND ACCUMULATED PAYMENTS.........................................................................D-1
APPENDIX E -- SPECIAL TERMS...............................................................................E-1
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SUMMARY
This summary provides a brief overview of the more significant aspects of the
contract. The prospectus and the contract provide further detail. 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 Occidental Life Insurance Company.
This Transamerica LineageSM contract provides insurance protection for the named
beneficiary. It is part of the Transamerica SeriesSM of variable insurance
products. It is a modified endowment contract for federal income tax purposes,
except in certain circumstances described in Taxation of the Contracts. If you
receive a loan, distribution or other amounts, you will be taxed to the extent
income has accumulated in the contract. Death benefits are generally not subject
to federal income tax. See Taxation of the Contracts on page 35.
You will find definitions of special terms used in this prospectus in Appendix
E.
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 the greater of:
the face amount (the amount of insurance determined by your payment); or
the minimum death benefit provided by the guideline minimum sum insured.
The net death benefit is the death benefit:
less any outstanding loan 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 the guideline minimum sum insured:
less any outstanding loan, and any due and unpaid partial withdrawals,
withdrawal transaction fees and applicable surrender charges.
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 the greater of:
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 us. The net death benefit will be the death benefit reduced by any
outstanding loan through the contract month in which the insured dies. See
Guaranteed Death Benefit Rider on page 24. The rider may not be available in all
jurisdictions.
The beneficiary may receive the net death benefit:
in a lump sum; or
under one of our benefit payment options.
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
nineteen portfolios from nine mutual fund families, and offer a wide range of
investment objectives.
The available sub-accounts are as follows:
Alger American Income & Growth Alliance VPF Growth and Income Alliance VPF
Premier Growth Dreyfus VIF Capital Appreciation Dreyfus VIF Small Cap Janus
Aspen Series Balanced Janus Aspen Series Worldwide Growth MFS VIT Emerging
Growth MFS VIT Growth With Income MFS VIT Research MSDW* UF Emerging
Markets Equity
Morgan Stanley Dean WitterMSDW* UF Fixed Income MSDW* UF High Yield MSDW*
UF International Magnum OCC Accumulation Trust Managed OCC Accumulation
Trust Small Cap PIMCO VIT StocksPLUS Growth and Income Transamerica VIF
Growth Transamerica VIF Money Market
*Morgan Stanley Dean Witter
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:
seventeennineteen sub-accounts; and
the fixed account.
See Free Look Period on page 21.
If your contract provides for a full refund under its right to cancel 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. This
period is usually 10 days, but longer under some circumstances. After this, we
will allocate all amounts to the sub-accounts as you have chosen.
The 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.
What Are the Investment Objectives of the Portfolios?
A summary of investment objectives of the portfolios is set forth below. Before
investing, carefully read 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 & 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 the 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 Emerging Markets Equity Portfolio of the Morgan Stanley Dean Witter
Universal Funds, Inc. seeks long-term capital appreciation by investing
primarily in equity securities of issuers in emerging market countries.
The Fixed Income Portfolio of the WitterMorgan Stanley Dean Witter 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 Witter Morgan Stanley Dean Witter 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 WitterMorgan Stanley Dean Witter
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 or 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 StocksPLUS Growth and Income Portfolio of the PIMCO Variable Insurance Trust
seeks to achieve a total return which exceeds the total return performance of
the S&P 500.
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.
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 payments 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 the 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 the 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 payments 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% annually for the administrative expenses;
a deduction for the cost of insurance, which varies depending on the type
of contract and underwriting class. It is deducted on each monthly
processing date starting with the date of issue and continuing through the
final payment date;
0.40% annually for distribution expenses, deducted only during the first
ten contract years; and
0.20% annually for federal, state and local taxes, deducted only during
the first ten contract years.
The following daily charge is deducted from the separate account:
0.80% annually for the mortality and expense risks.
The following charges and fees apply if you exercise certain contract rights:
we may charge $25 for transfers in excess of 18 in a contract year;
we will charge for surrenders, and for partial withdrawals in excess of the
Free 10%
Withdrawal amount, during the first nine contract years, adjusted for
reinstatements;
we may charge a withdrawal transaction fee for partial withdrawals, equal
to 2% of the amount withdrawn up to a $25 maximum. Currently, no charge is
imposed; and
we may charge up to $25 for each projection of values you request during a
contract year in excess of one projection of values in addition to your
annual statement.
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, other expenses and the total portfolio annual expenses of the
portfolios for 1998. For more information concerning these fees and expenses,
see the prospectuses of the portfolios.
<PAGE>
<TABLE>
<CAPTION>
Portfolio Expenses
(as a percentage of assets after fee waiver and/or expense reimbursement)(1)
Total
Portfolio
Management Other Annual
Portfolio Fees (2) Expenses Expenses
- --------- -------- -------- --------
<S> <C> <C> <C>
Alger American Income & Growth 0.625% 0.075% 0.70%
Alliance VPF Growth and Income 0.625% 0.105% 0.73%
Alliance VPF Premier Growth 0.97% 0.09% 1.06%
Dreyfus VIF Capital Appreciation 0.75% 0.06% 0.81%
Dreyfus VIF Small Cap 0.75% 0.02% 0.77%
Janus Aspen Series Balanced 0.72% 0.02% 0.74%
Janus Aspen Series Worldwide Growth 0.65% 0.07% 0.72%
MFS VIT Emerging Growth 0.75% 0.10% 0.85%
MFS VIT Growth With Income 0.75% 0.13% 0.88%
MFS VIT Research 0.75% 0.11% 0.86%
MSDW UF Emerging Markets Equity 0.00% 1.95% 1.95%
Portfolio Expenses (continued)
Total
Portfolio
Management Other Annual
Portfolio Fees (2) Expenses Expenses
- --------- -------- -------- --------
MSDW UF Fixed Income 0.06% 0.64% 0.70%
MSDW UF High Yield 0.15% 0.65% 0.80%
MSDW UF International Magnum 0.15% 1.00% 1.15%
OCC Accumulation Trust Managed 0.78% 0.04% 0.82%
OCC Accumulation Trust Small Cap 0.80% 0.08% 0.88%
PIMCO VIT StocksPLUS Growth and Income 0.40% 0.25% 0.65%
Transamerica VIF Growth 0.64% 0.21% 0.85%
Transamerica VIF Money Market 0.00% 0.60% 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. We have no reason to doubt the accuracy of that information, but we
have not verified those figures. These figures are for the year ended December
31, 1998. Actual expenses in future years may be higher or lower than these
figures.
Notes to 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 1998. The
expenses shown in the table reflect a portfolio's adviser's waivers of
fees or reimbursement of expenses, if applicable. It is anticipated
that such waivers or reimbursements will continue for 1999. Without
such waivers or reimbursements, the annual expenses for 1998 for
certain portfolios would have been, as a percentage of assets, as
follows:
<TABLE>
<CAPTION>
Management Other Total Portfolio
Portfolio Fees Expenses Annual Expenses
--------- ---- -------- ---------------
<S> <C> <C> <C>
Alliance VPF Premier Growth 1.00% 0.09% 1.09%
Janus Aspen Series Worldwide Growth 0.67% 0.07% 0.74%
MSDW UF Emerging Markets Equity 1.25% 2.20% 3.45%
MSDW UF Fixed Income 0.40% 0.64% 1.04%
MSDW UF High Yield 0.50% 0.65% 1.15%
MSDW UF International Magnum 0.80% 1.00% 1.80%
PIMCO VIT StocksPLUS Growth and Income 0.40% 0.32% 0.72%
Transamerica VIF Growth 0.75% 0.21% 0.96%
Transamerica VIF Money Market 0.35% 2.68% 3.03%
</TABLE>
(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, on page 15 and in the prospectuses for the portfolios.
<PAGE>
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 Amount 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 the 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.
The rider may not be available in all jurisdictions.
Within limits, the contract may be reinstated within three years from the date
of default if it lapses or the outstanding loan is foreclosed.
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.
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 the 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,
mortality and expense risk charges, 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, the S&P 500;
Dow Jones Industrial Average, the DJIA;
Shearson Lehman Aggregate Bond Index;
other unmanaged indices of unmanaged securities widely regarded by
investors as representative of the securities markets;
other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services;
other services, companies, publications, or persons such as Morningstar,
Inc., who rank the investment products on performance or other criteria;
and
the Consumer Price Index.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for insurance and 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 and other 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.
<PAGE>
Table I
Average Annual Total Returns for Periods Ending December 31, 1998,
Since Inception of the Portfolios and Net of Portfolio Expenses,
Sub-Account Charges, All Monthly Deductions for 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 Portfolio
(if Less than 10 Number of
5 Year Years Since Years Since
Average Portfolio Portfolio
Sub-Account Portfolio 1 Year Annual Inception) Inception (if
Investing in the Inception Total Total Average Annual Less than 10
Corresponding Portfolio Date Return Return Total Return Years)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Income & Growth 11/15/88 20.38% 18.49% 12.98% N/A
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Alliance VPF Growth and Income 1/14/91 9.14% 17.91% 13.24% 7.96
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Alliance VPF Premier Growth 6/26/92 35.61% 24.53% 22.41% 6.51
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Capital Appreciation 4/05/93 18.21% 20.28% 18.52% 5.74
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Small Cap 8/31/90 -14.64% 9.62% 34.08% 8.33
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced 9/13/93 22.23% 15.85% 16.37% 5.30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Growth 9/13/93 16.99% 18.05% 20.85% 5.30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MFS VIT Emerging Growth 7/24/95 22.19% N/A 22.57% 3.44
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MFS VIT Growth With Income 10/09/95 10.54% N/A 21.88% 3.23
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MFS VIT Research 7/26/95 11.50% N/A 18.54% 3.43
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MSDW UF Emerging Markets Equity 10/1/96 -35.06% N/A -18.13% 2.25
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MSDW UF Fixed Income 1/02/97 -3.55% N/A 2.60% 1.99
- ---------------------------------------------------------------------------------------------------------------------
Table I (continued)
- ---------------------------------------------------------------------------------------------------------------------
10 Year or Life
of the Portfolio
(if Less than 10 Number of
5 Year Years Since Years Since
Average Portfolio Portfolio
Sub-Account Portfolio 1 Year Annual Inception) Inception (if
Investing in the Inception Total Total Average Annual Less than 10
Corresponding Portfolio Date Return Return Total Return Years)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean WitterMSDW UF High Yield 1/02/97 -6.58% N/A 2.77% 1.99
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean WitterMSDW UF 1/02/97 -2.51% N/A 1.82% 1.99
International Magnum
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Managed(1)
8/01/88 -4.31% 15.90% 16.64% N/A
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Small Cap(2)
8/01/88 -20.10% 5.26% 10.63% N/A
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PIMCO VIT StocksPLUS Growth and Income 1/2/98 N/A N/A 18.08% 0.99
- ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth(3)
2/26/69 31.02% 31.28% 23.59% N/A
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transamerica VIF Money Market 1/02/98 N/A N/A -6.49% 0.99
- --------------------------------------------------------------------------------------------------------------------
</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,
the characteristics and quality of the portfolio in which a sub-account
invests, and the market conditions during the given time period.
Performance information should not be considered as a representation of what may
be achieved in the future.
<PAGE>
Table II
Average Annual Total Returns for Periods Ending December 31, 1998
Since Inception of the Portfolios
Excluding Monthly Deductions 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
Portfolio (if Number of
5 Year Less than 10 Years Since
Average Years Since Portfolio
Sub-Account Portfolio 1 Year Annual Portfolio Inception
Investing in the Inception Total Total Inception) (if Less
Corresponding Portfolio Date Return Return Average Annual than 10
Total Return Years)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Income & Growth 11/15/88 31.34% 20.79% 14.69% N/A
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Alliance VPF Growth and Income 1/14/91 19.93% 20.22% 15.06% 7.96
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Alliance VPF Premier Growth 6/26/92 46.79% 26.83% 24.42% 6.51
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Capital Appreciation 4/05/93 29.13% 22.58% 20.63% 5.74
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dreyfus VIF Small Cap 8/31/90 -4.21% 11.97% 36.12% 8.33
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced 9/13/93 33.22% 18.16% 18.52% 5.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Growth 9/13/93 27.90% 20.35% 23.01% 5.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MFS VIT Emerging Growth 7/24/95 33.18% N/A 25.48% 3.44
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MFS VIT Growth With Income 10/09/95 21.35% N/A 24.92% 3.23
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MFS VIT Research 7/26/95 22.33% N/A 21.50% 3.43
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MSDW UF Emerging Markets Equity 10/1/96 -24.94% N/A -12.95% 2.25
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MSDW UF Fixed Income 1/02/97 7.04% N/A 8.05% 1.99
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean WitterMSDW UF High Yield 1/02/97 3.97% N/A 8.22% 1.99
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean WitterMSDW UF 1/02/97 8.10% N/A 7.28% 1.99
International Magnum
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Managed(1)
8/01/88 6.27% 18.21% 18.40% N/A
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Small Cap(2)
8/01/88 -9.75% 7.67% 12.31% N/A
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PIMCO VIT StocksPLUS Growth and Income 1/2/98 N/A N/A 29.07% 0.99
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transamerica VIF Growth(3)
2/26/69 42.14% 33.61% 25.46% N/A
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transamerica VIF Money Market 1/02/98 N/A N/A 4.11% 0.99
- --------------------------------------------------------------------------------------------------------------------
</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,
the characteristics and quality of the portfolio in which a sub-account
invests, and the market conditions during the given time period.
Performance information should not be considered as a representation of what may
be achieved in the future.
<PAGE>
DESCRIPTION OF TRANSAMERICA,
THE SEPARATE ACCOUNT AND
THE PORTFOLIOS
Transamerica Occidental Life Insurance Company: Transamerica Occidental Life
Insurance Company, or Transamerica, is a stock life insurance company
incorporated under the laws of the State of California on June 30, 1906.
Transamerica is principally engaged in the sale of life insurance and annuity
policies. The home office of Transamerica is 1150 South Olive Street, Los
Angeles, California 90015.
On July 21, 1999, Transamerica Corporation completed its merger with a
subsidiary of AEGON N.V., one of the world's leading international insurance
groups. Transamerica Corporation, a subsidiary of AEGON N.V., indirectly owns
the issuing company, Transamerica Occidental Life Insurance Company.
Insurance Marketplace Standards Association: In recent years, the insurance
industry has recognized the need to develop specific principles and practices to
help maintain the highest standards of marketplace behavior and enhance
credibility with consumers. As a result, the industry established the Insurance
Marketplace Standards Association (IMSA).
As an IMSA member, we agree to follow a set of standards in our advertising,
sales and service for individual life insurance and annuity products. The IMSA
logo, which you will see on our advertising and promotional materials,
demonstrates that we take our commitment to ethical conduct seriously.
The Separate Account: Transamerica Occidental Life Separate Account VUL-2, the
separate account, was established by us as a separate account under the laws of
the State of California, pursuant to resolutions adopted by our Board of
Directors on June 11, 1996. The separate account is registered with the
Securities and Exchange Commission (the SEC or Commission) under the Investment
Company Act of 1940, or 1940 Act, as a unit investment trust. It meets the
definition of a separate account under the federal securities laws. However, the
Commission does not supervise the management of the investment practices or
policies of the separate account.
The assets used to fund the variable part of the 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 nineteen 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:
The Income & Growth Portfolio of The Alger American Fund
The Growth and Income Portfolio and The Premier Growth Portfolio of the
Alliance Variable Products Series Fund, Inc.
The Capital Appreciation Portfolio and The Small Cap Portfolio of the
Dreyfus Variable Investment Fund
The Balanced Portfolio and The Worldwide Growth Portfolio of the Janus
Aspen Series
The Emerging Growth Series, The Growth With Income Series, and The Research
Series of the MFS Variable
Insurance Trust
The Emerging Markets Equity Portfolio, The Fixed Income Portfolio, The
High Yield Portfolio, and The International Magnum Portfolio of the
WitterMorgan Stanley Dean Witter Universal Funds, Inc.
The Managed Portfolio and The Small Cap Portfolio of the OCC Accumulation
Trust
The StocksPLUS Growth and Income Portfolio of the PIMCO Variable Insurance
Trust
The Growth Portfolio and The Money Market Portfolio of the 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 our Variable Life Service
Center.
There is no guarantee that the investment objectives of the portfolios will be
achieved. The 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, that is, before any fee waivers. The portfolios'
prospectuses contain more detailed information on the portfolio's investment
objectives, restrictions, risks, expenses and advisers. The Income & 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
portfolio invests in dividend paying equity securities, such as common or
preferred stocks, preferably those which the Manager believes also offer
opportunities for capital appreciation.
Manager: Fred Alger Management, Inc.
Management Fee: 0.625%.
The Growth and Income Portfolio of the Alliance Variable Products Series Fund,
Inc. seeks reasonable current income and reasonable opportunity for appreciation
through investments primarily in dividend-paying common stocks of good quality.
Whenever the economic outlook is unfavorable for investment in common stock,
investments in other types of securities, such as bonds, convertible bonds,
preferred stock and convertible preferred stocks may be made by the portfolio.
Purchases and sales of portfolio securities are made at such times and in such
amounts as are deemed advisable in light of market, economic and other
conditions.
Adviser: Alliance Capital Management L.P. Management Fee: 0.625%.
The Premier Growth Portfolio of the Alliance Variable Products Series Fund, Inc.
seeks growth of capital by pursuing aggressive investment policies. Since
investments will be made based upon their potential for capital appreciation,
current income will be incidental to the objective of capital growth. The
portfolio will invest predominantly in the equity securities of a limited number
of large, carefully selected, high-quality U.S. companies that, in the judgment
of the adviser, are likely to achieve superior earnings growth. These equity
securities will consist of common stocks, securities convertible into common
stocks and rights and warrants to subscribe for or purchase common stocks. The
portfolio investments in the 25 such companies most highly regarded, at any
point in time by the adviser, will usually constitute approximately 70% of the
portfolio's net assets. The portfolio thus differs from more typical equity
mutual funds by investing most of its assets in a relatively small number of
intensively researched companies. The portfolio will, under normal
circumstances, invest at least 85% of the value of its total assets in the
equity securities of U.S. companies.
Adviser: Alliance Capital Management L.P.
Management Fee: 1.00%.
The Capital Appreciation Portfolio of the Dreyfus Variable Investment Fund is a
diversified portfolio, the primary investment objective of which is to provide
long-term capital growth consistent with the preservation of capital; current
income is a secondary investment objective. During periods which the sub-adviser
determines to be of market strength, the portfolio acts aggressively to increase
shareholder's capital by investing principally in common stocks of domestic and
foreign issuers, common stocks with warrants attached and debt securities of
foreign governments. The portfolio will seek investment opportunities generally
in large capitalization companies, those with market capitalizations exceeding
$500 million, which the sub-adviser believes have the potential to experience
above average and predictable earnings growth.
Adviser: The Dreyfus Corporation.
Sub-Adviser: Fayez Sarofim & Co.
Management Fee: 0.75%.
The Small Cap Portfolio of the Dreyfus Variable Investment Fund seeks to
maximize capital appreciation by investing principally in common stocks of
domestic and foreign issuers. Under normal market conditions, the portfolio will
invest at least 65% of its total assets in companies with market capitalizations
of less than $1.5 billion at the time of purchase. Companies selected for this
portfolio will include those thought to possess new or innovative products or
services which are expected to propel 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 will seek
long-term growth of capital. The series invests, under normal market conditions,
at least 65% of its total assets in common stocks and related securities, such
as preferred stocks, convertible securities and depositary receipts for those
securities of emerging growth companies. These companies are companies that the
series' adviser believes are either early in their life cycle but have the
potential to become major enterprises or are major enterprises whose rates of
earnings growth are expected to accelerate.
Adviser: Massachusetts Financial Services Company.
Management Fee: 0.75%.
The Growth With Income Series of the MFS Variable Insurance Trust will seek
long-term growth of capital and future income while providing more current
dividend income than is normally obtainable from a portfolio of only growth
stocks. The series invests, under normal market conditions, at least 65% of its
total assets in common stock and related securities, such as preferred stocks,
convertible securities and depositary receipts for those securities. While the
fund may invest in companies of any size, the fund generally focuses on
companies with larger market capitalizations that the series' adviser believes
have sustainable growth prospects and attractive valuations based on current and
expected earnings or cash flow.
Adviser: Massachusetts Financial Services Company.
Management Fee: 0.75%.
The Research Series of the MFS Variable Insurance Trust will seek to provide
long-term growth of capital and future income. The series invests, under normal
market conditions, at least 80% of its total assets in common stocks and related
securities, such as preferred stocks, convertible securities and depositary
receipts. The series focuses on companies that the series' adviser believes have
favorable prospects for long-term growth, attractive valuations based on current
and expected earnings or cash flow, dominant or growing market share and
superior management.
Adviser: Massachusetts Financial Services Company.
Management Fee: 0.75%.
The Emerging Markets Equity Portfolio of the Morgan Stanley Dean Witter
Universal Funds, Inc., seeks long-term capital appreciation by investing
primarily in equity securities of issuers in emerging market countries. The
Adviser seeks to maximize returns by investing in growth-oriented equity
securities in emerging markets. The Adviser's investment approach combines
top-down country allocation with bottom-up stock selection. Investment selection
criteria include attractive growth characteristics, reasonable valuations and
managements with a strong shareholder value orientation. The portfolio's assets
are allocated among emerging markets based on relative economic, political and
social fundamentals, stock valuations and investor sentiments.
Adviser: Morgan Stanley Dean Witter Investment Management Inc. Management Fee:
1.25% of the first $500 million plus 1.20% of the next $500 million plus 1.15%
of the assets over $1 billion.
The Fixed Income Portfolio of the Morgan Stanley Dean Witter 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
agency bonds, corporate bonds, mortgage backed securities, foreign bonds and
other fixed income securities and derivatives. The portfolio invests primarily
in investment grade securities, but may also invest a portion of its assets in
high yield securities, also known as junk bonds. The portfolio's average
weighted maturity will ordinarily exceed five 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 Dean Witter 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 high yield securities
of U. S. and foreign issuers (including emerging markets), 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.
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 Dean Witter 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, we refer to these as 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 Dean Witter Investment Management Inc.
Management Fee: 0.80% of the first $500 million plus 0.75% of the next $500
million plus 0.70% of the assets over $1 billion. The Managed Portfolio of the
OCC Accumulation Trust seeks growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on the adviser's assessments of the
relative outlook for such investments. Debt securities are expected to be
predominantly investment grade intermediate to long term U.S. Government and
corporate debt, although the portfolio will also invest in high quality short
term money market and cash equivalent securities and may invest almost all of
its assets in such securities when the adviser deems it advisable in order to
preserve capital. In addition, the portfolio may also purchase foreign
securities provided that they are listed on a domestic or foreign securities
exchange or are represented by American depository receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
Adviser: OpCap Advisors. Management Fee: 0.80% of the first $400 million plus
0.75% of the next $400 million plus 0.70% of the assets over $800 million.
The Small Cap Portfolio of the OCC Accumulation Trust seeks capital appreciation
through investments in a diversified portfolio consisting primarily of equity
securities of companies with market capitalizations of under $1 billion. Under
normal circumstances at least 65% of the portfolio's assets will be invested in
equity securities. The majority of securities purchased by the portfolio will be
traded on the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market, and will also include options, warrants, bonds, notes
and debentures which are convertible into or exchangeable for, or which grant a
right to purchase or sell, such securities. In addition, the portfolio may also
purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American depository receipts
listed on a domestic securities exchange or traded in domestic or foreign
over-the-counter markets.
Adviser: OpCap Advisors. Management Fee: 0.80% of the first $400 million plus
0.75% of the next $400 million plus 0.70% of assets over $800 million.
The StocksPLUS Growth and Income Portfolio of the PIMCO Variable Insurance Trust
seeks to achieve a total return which exceeds the total return performance of
the S&P 500. The Portfolio invests in common stocks, options, futures, options
on futures and swaps. Under normal market conditions, the Portfolio invests
substantially all of its assets in S&P 500 derivatives, backed by a portfolio of
fixed income instruments. The Portfolio uses S&P 500 derivatives in addition to
or in place of S&P 500 stocks to attempt to equal or exceed the performance of
the S&P 500. The Adviser actively manages the fixed income assets held by the
Portfolio, with a view to enhancing the Portfolio's total return investment
performance, subject to an overall portfolio duration which is normally not
expected to exceed one year. The Portfolio may invest up to 10% of its assets in
high yield bonds rated B or higher by Moody's or S&P, or if unrated, determined
by the Adviser to be comparable quality. The Portfolio may also invest up to 20%
of its assets in securities denominated in foreign currencies and may invest
beyond this limit in U.S. dollar denominated securities of foreign issuers.
Adviser: Pacific Investment Management Company.
Management Fee: 0.40%
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 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.
Portfolios Not Publicly Available
The portfolios are open-end management investment companies or portfolios of
series, open-end management companies registered with the SEC under the 1940 Act
that are often referred to as mutual funds. This SEC registration does not
involve SEC supervision of the investments or investment policies of the
portfolios. Shares of the portfolios are not offered to the public but solely to
the insurance company separate accounts and other qualified purchasers as
limited by federal tax laws. These portfolios are not the same as mutual funds
that may have very similar names that are sold directly to the public. The
assets of each portfolio are held separate from the assets of the other
portfolios. Each portfolio operates as a separate investment vehicle. The income
or losses of one portfolio have no effect on the investment performance of
another portfolio. The sub-accounts reinvest dividends and/or capital gains
distributions received from a portfolio in more shares of that portfolio as
retained assets.
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 you 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, 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.
This period usually lasts for 10 days, but is longer in some circumstances. See
THE CONTRACT - Free Look Right to Cancel.
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. 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 payments to the fixed account, unless you instruct us
otherwise.
Payments
The contracts are designed for a large single payment to be paid by you 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. You 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 us. 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 our Variable Life Service Center.
The contract limits the ability to make additional payments. Any additional
payments 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.
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 nineteen 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 our 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 before 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 allowed only if:
there has been at least a ninety 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, or DCA, option, or
the automatic account rebalancing, or AAR, option, by submitting your written
request to our Variable Life Service Center. Transfers under either DCA or AAR
are generally effective on the 15th day of each scheduled month. If your written
request is received by us prior to the 15th of the month, your option may begin
as early as the 15th of the month in which we receive your request. Otherwise,
your option may begin as early as the 15th of the following month. You may
cancel your election of an option by written request at any time with regard to
future transfers. The DCA option and the AAR option may not be in effect 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 or DCA
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 nineteen sub-accounts. The DCA option is designed to
reduce the risk of your purchasing units only when the price of the units is
high, but you should carefully consider your financial ability to continue the
option over a long enough period of time to purchase units when their value is
low as well as when 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.
The first automatic transfer for the elected DCA 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.
Automatic Account Rebalancing or 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 AAR option, the
balances in your selected sub-accounts can be restored to the allocation
percentages you elect on your written request by transferring values among the
sub-accounts. You may not have value in more than nineteen 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 AAR 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;
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 date the insured dies, 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. 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. 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
May not be 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
the guideline minimum sum insured.
Through the final payment date, the net death benefit is:
the death benefit, minus
any outstanding loan 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. 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. The rider
may not be available in all jurisdictions.
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 payments;
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; 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. For
payments received before the end of the free-look period for your contract,
however, different rules may apply.
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. 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 deductions. All riders may not be
available in all jurisdictions, and the names of the riders may vary by
jurisdiction.
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. 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. The surrender value may be paid in a lump sum or
under a benefit payment option then offered by us. We will normally pay the
surrender value within seven days following our receipt of your written request.
We may delay benefit payments under the circumstances described in OTHER
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, or 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 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. 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 or 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, we 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.
The monthly deduction is comprised of the following charges:
Administration Charge: We impose 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 payments. 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, and the insured's sex (Mortality
Table B for unisex contracts and Mortality Table D for second-to-die contracts)
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.
Simplified underwriting applies to all applications which meet all of our
simplified underwriting guidelines. These guidelines include:
the insured (the younger insured for second-to-die applications) is at
least 30 years old but not older than 80 on the date of issue;
the payment made is 100% of the guideline single premium;
the payment is at least $10,000 but not more than the maximum permitted for
the age of the insured; and
information disclosed on the application is consistent with our current
simplified underwriting guidelines.
Any application which does not meet all of our simplified underwriting
guidelines 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 0.50% 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.
We do 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.
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Contract Year Surrender Charge
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1 9%
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2 8%
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3 7%
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4 6%
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5 5%
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6 4%
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7 3%
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8 2%
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9 1%
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10+ 0%
- --------------------------- ----------------------
The surrender charge applies for nine contract years and is assessed as a
percentage of payments made to the contract (adjusted for payments previously
withdrawn). 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 you request
a partial withdrawal in excess of the Free 10% 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.
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 under the DCA or AAR option, 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 CONRACT - 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:
earnings in this contract;
a loan from an exchanged life insurance policy that was carried over to
this contract; or
the available 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:
--------------------- ---------------------
Beginning Unloaned
of Contract Year Gain Available
--------------------- ---------------------
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1 0%
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2 10%
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3 20%
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4 30%
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5 40%
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6 50%
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7 60%
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8 70%
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9 80%
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10 90%
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11+ 100%
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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 and 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.
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.
If the contract is considered a modified endowment contract, or 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.
For a discussion of the federal tax considerations of contract loans, see
FEDERAL TAX CONSIDERATIONS - Contract 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 or not the Guaranteed Death Benefit Rider is 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.
This rider may not be available in all jurisdictions.
Reinstatement
A terminated contract may be reinstated within three years of the date of
default and before:
the final payment date; or;
the maturity date, if the default occurred because the outstanding loan
exceeded the contract value less surrender charges.
In some jurisdictions, a time period other than three years may apply to the
reinstatement provision.
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; plus
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:
any change in underwriting class that you request; and
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.
FEDERAL TAX CONSIDERATIONS
The following is a summary of federal tax considerations for U.S. persons 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. 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 Code Section 7702. 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 Distributions 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 Code Section 7702 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, or 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 or MEC under Code Section
7702A. A MEC is a life insurance contract that either fails the 7-pay test or is
received in exchange for a MEC. In general, a 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 (for example, 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 Code Section 72(e)(10):
loans,
withdrawals, and
other distributions made before the insured's death
under a MEC are includible in gross income on an income-out-first basis. The
amount received is treated as allocable first to the income in the contract and
then to a tax-free recovery of the 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 contract holder by the same insurer or an affiliate during a
calendar year, all such MECs are aggregated for purposes of determining the
amount of a distribution from any such MEC that is includible in gross income.
In addition, any amount includible in gross income from a MEC distribution is
subject to a 10% penalty tax on premature distributions under Code Section
72(v), unless the taxpayer has attained age 59 1/2 or is disabled or the payment
is part of a series of substantially equal periodic payments for a qualifying
lifetime period.
Furthermore, under Code Section 72(e)(4)(A), any loan, pledge, or assignment of
(or any agreement to assign or pledge) any portion of a MEC's cash value is
treated as producing an amount received for purposes of these MEC distribution
rules. It is unclear to what extent this assignment rule applies to a collateral
assignment that does not secure a loan or pledge (for example, in certain
split-dollar arrangements).
Under Code Section 7702A(d), the MEC distribution rules apply not only to all
distributions made during the contract year, and later years in which the
contract fails the 7-pay test, but also to any distributions made in
anticipation of such failure, which is deemed to include any distributions made
during the two years prior to such failure. The Treasury Department has not yet
issued regulations or other guidance indicating what other distributions can be
treated as made in anticipation of such a failure or how, (that is, as of what
date), 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. For contracts that are not MECs, we believe 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 Code Section 264(a)(4), 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 adviser on how
the rules governing the non-deductibility of interest would apply in your
individual situation.
Withholding. If all or part of a distribution from the contract is includible in
gross income, the Code requires us to withhold federal income tax unless the
contract owner elects, in writing, not to have tax withholding apply. The
federal income tax withholding rate is generally 10% of the taxable amount of
the distribution. Withholding applies only if the taxable amount of the
distribution is at least $200. Some states also require withholding for state
income taxes.
If payments are delivered to foreign countries, however, the tax withholding
rate will generally be 10% unless you certify to us that you are not a U.S.
person residing abroad or a "tax avoidance expatriate" as defined Code Section
877. Such certification may result in withholding of federal income taxes at a
different rate.
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.
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
Nicki Bair* Senior Vice President of TOLIC since 1996. Vice President of TOLIC
from 1991 to 1996.
Roy Chong-Kit* Senior Vice President and Actuary of TOLIC since 1997. Vice
President and Actuary of TOLIC from 1995 to 1997. Actuary of TOLIC from 1988 to
1995.
Thomas J. Cusack* Director, Chairman, President and Chief Executive Officer of
TOLIC since 1997. Director, President and Chief Executive Officer of TOLIC since
1995. Senior Vice President of Transamerica Corporation from 1993 to 1995. Vice
President of Corporate Development of General Electric Company from 1989 to
1993.
James W. 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.
David E. Gooding* Director and Executive Vice President of TOLIC since 1992.
Kamran Haghighi* Tax Officer of TOLIC since 1998.
Frank C. Herringer**** Director, President and Chief Executive Officer of
Transamerica Corporation since 1991.
Daniel E. Jund, FLMI* Senior Vice President of TOLIC since 1988.
Richard N. Latzer**** Director, Senior Vice President and Chief Investment
Officer of Transamerica Corporation since 1989. Director, President and Chief
Executive Officer of Transamerica Investment Services, Inc. since 1988.
DIRECTORS AND PRINCIPAL OFFICERS OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY (continued)
Karen MacDonald* Director, Acting Chief Financial Officer of TOLIC since 1995.
Senior Vice President and Corporate Actuary from 1992 to 1995.
Gary U. Rolle* Director, Executive Vice President and Chief Investment Officer
of Transamerica Investment Services, Inc. since 1981.
Larry Roy*** Senior Vice President Sales and Marketing of Transamerica
Corporation since 1994.
Paul E. Rutledge III*** Director and President, Reinsurance Division since 1998.
President, Life Insurance Company of Virginia, 1991-1997.
William N. Scott, CLU, FLMI** Senior Vice President of TOLIC since 1993. Vice
President of TOLIC from 1988 to 1993.
T. Desmond Sugrue* Director and Executive Vice President of TOLIC since 1997.
Senior Vice President of TOLIC from 1996 to 1997. Self-employed - Consulting
from 1994 to 1996. Employed at Bank of America from 1988 to 1993.
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.
Virginia Wilson* Senior Vice President and Controller of TOLIC since 1998.
James Wolfenden* Statement Officer of TOLIC since 1998.
Sally Yamada* Vice President and Treasurer of TOLIC since 1998.
*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.
<PAGE>
DISTRIBUTION
Transamerica Securities Sales Corporation, or 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, or 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 made to the contract. Certain options also include
a commission equal to a percentage of the unloaned contract t
value, or 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. Trail commissions may be up to 0.65%,
on an annual basis, of unloaned contract value.
To the extent permitted by NASD rules, promotional incentives or payments may
also be provided to broker-dealers based on sales volumes, the assumption of
wholesaling functions or other sales-related criteria. Other payments 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.
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.
Upon request, we will also provide you with a projection of values for your
contract. Each contract year, you may request one projection of values report
without charge. For each subsequent report you request in a contract year, we
may charge up to $25. We will send you reports containing financial statements
and other information for the separate account and the portfolios as the 1940
Act requires.
SERVICES
We receive 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. This is referred to as mixed funding. Shares of the
portfolios are also issued to other unaffiliated insurance companies. This is
referred to as shared funding. It is conceivable that in the future such mixed
funding or shared funding may be disadvantageous for variable life insurance
contract owners or variable annuity contract owners. We do not believe that
mixed funding is currently disadvantageous to either variable life insurance
contract owners or variable annuity contract owners.
We will monitor events to identify any material conflicts because of mixed
funding. If we conclude 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.
YEAR 2000 ISSUE
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because dates are encoded using the standard six-place format
that allows entry of only the last two digits of the year. This is commonly
known as the "Year 2000 Problem".
Regarding our systems and software that administer the contracts, we believe
that our own internal systems will be Year 2000 ready. Additionally, we require
third party vendors that supply software or administrative services to us in
connection with the contract administration to certify that such software and/or
services will be Year 2000 ready.
The "Year 2000 Problem" could also adversely impact the portfolios if the
computer systems used by the portfolios' investment advisers and other service
providers do not accurately process date information on or after January 1,
2000. The investment advisers are addressing this issue by testing the computer
systems they use to ensure that those systems will operate properly on or after
January 1, 2000, and are seeking assurances from other service providers they
use that their computer systems will be adapted to address the "Year 2000
Problem" in time to prevent adverse consequences on or after January 1, 2000.
However, especially when taking into account interaction with other systems, it
is difficult to predict with precision that there will be no disruption of
services in connection with the year 2000.
We continue to believe that we will achieve Year 2000 readiness. However, the
size and complexity of our systems and the need for them to interface with other
systems internally and with those of our customers, vendors, partners,
governmental agencies and other outside parties, creates the possibility that
some systems may experience Year 2000 problems. Although we believe we will be
properly prepared for the date change, we are also developing contingency plans
to minimize any potential disruptions to operations, especially from externally
interfaced systems over which we have limited or no control.
This issue could also adversely impact the value of the securities that the
portfolios invest in if the issuing companies' systems do not operate properly
on or after January 1, 2000, and this risk could be heightened for portfolios
that invest internationally. Refer to the prospectuses for the portfolios for
more information.
The above information is subject to the Year 2000 Readiness Disclosure Act. This
act may limit your legal rights in the event of a dispute.
FURTHER INFORMATION
We have filed a registration statement under the Securities Act of 1933 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.
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%.
The minimum interest rate for preferred loans is 5.5%.
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, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
appearing in the prospectus have been audited by Ernst & Young LLP, Independent
Auditors, as set forth in their attached reports. The financial statements
audited by Ernst & Young LLP have been included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial Statements for Transamerica are included in this prospectus, starting
on the next page. There are no financial statements for Separate Account VUL-2
since the separate account had not commenced operations as of December 31, 1998.
The financial statements of Transamerica should be considered as bearing upon
our ability to meet our obligations under the contract. They should not be
considered as bearing on the investment performance of the separate account.
<PAGE>
Audited Consolidated Financial Statements
Transamerica Occidental Life Insurance Company and Subsidiaries
December 31, 1998
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Audited Consolidated Financial Statements
December 31, 1998
Audited Consolidated Financial Statements
Report of Independent Auditors.................................. 1
Consolidated Balance Sheet...................................... 2
Consolidated Statement of Income................................ 3
Consolidated Statement of Shareholder's Equity.................. 4
Consolidated Statement of Cash Flows............................ 5
Notes to Consolidated Financial Statements...................... 6
<PAGE>
-28-
04/21/99 3:12 PM
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transamerica Occidental Life Insurance Company
We have audited the accompanying consolidated balance sheets of Transamerica
Occidental Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Transamerica
Occidental Life Insurance Company and subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
January 22, 1999
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31
1998 1997
--------------------- -------------
(In thousands, except
for share data)
ASSETS
Investments:
<S> <C> <C>
Fixed maturities available for sale $ 28,997,454 $ 29,231,998
Equity securities available for sale 880,141 791,221
Mortgage loans on real estate 789,959 706,939
Policy loans 455,481 451,023
Other long-term investments 121,107 89,426
Short-term investments 1,186,166 324,672
--------------------- ---------------------
32,430,308 31,595,279
Cash 87,125 36,656
Accrued investment income 449,289 481,913
Other receivables 292,694 294,542
Reinsurance recoverable on paid and unpaid losses 1,172,022 920,847
Deferred policy acquisitions costs 2,082,506 2,102,588
Other assets 342,129 299,500
Separate account assets 9,101,014 5,494,703
--------------------- ---------------------
$ 45,957,087 $ 41,226,028
===================== =====================
LIABILITIES AND SHAREHOLDER'S EQUITY
Policy and contract liabilities:
Policyholder contract deposits $ 24,077,627 $ 24,061,811
Reserves for future policy benefits 5,689,577 5,468,611
Policy claims and other 452,534 557,822
--------------------- ---------------------
30,219,738 30,088,244
Income tax liabilities 992,667 814,088
Accounts payable and other liabilities 843,988 482,716
Separate account liabilities 9,101,014 5,494,703
--------------------- ---------------------
41,157,407 36,879,751
Shareholder's equity:
Common stock ($12.50 par value):
Authorized--4,000,000 shares
Issued and outstanding--2,206,933 shares 27,587 27,587
Additional paid-in capital 374,968 422,342
Retained earnings 3,175,020 2,738,151
Foreign currency translation adjustments (49,168) (33,440)
Net unrealized investment gains 1,271,273 1,191,637
--------------------- ---------------------
4,799,680 4,346,277
--------------------- ---------------------
$ 45,957,087 $ 41,226,028
===================== =====================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31
1998 1997 1996
--------------- --------------- ----------
(In thousands)
Revenues:
<S> <C> <C> <C>
Premiums and other considerations $ 1,804,896 $ 1,777,371 $ 1,641,985
Net investment income 2,243,321 2,165,565 2,077,232
Net realized investment gains 277,654 40,263 17,471
--------------- --------------- ---------------
TOTAL REVENUES 4,325,871 3,983,199 3,736,688
Benefits:
Benefits paid or provided 2,782,127 2,727,064 2,558,792
Increase in policy reserves and liabilities 70,221 59,246 57,968
--------------- --------------- ---------------
2,852,348 2,786,310 2,616,760
Expenses:
Amortization of deferred policy acquisition costs 269,261 265,264 235,180
Salaries and salary related expenses 166,832 165,768 158,699
Other expenses 264,198 284,220 224,084
--------------- --------------- ---------------
700,291 715,252 617,963
--------------- --------------- ---------------
TOTAL BENEFITS AND EXPENSES 3,552,639 3,501,562 3,234,723
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 773,232 481,637 501,965
Provision for income taxes 256,363 149,581 164,685
--------------- --------------- ---------------
NET INCOME $ 516,869 $ 332,056 $ 337,280
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Net
Foreign Unrealized
Additional Currency Investment
Common Stock Paid-in Comprehensive Retained Translation Gains
Shares Amount Capital Income Earnings Adjustments (Losses)
(In thousands, except for share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,206,933 $ 27,587 $ 333,578 $ 2,171,412 $ (23,618) $ 938,932
Comprehensive income
Net income $ 337,280 337,280
Other comprehensive income,
net of tax:
Unrealized losses from
investments marked to
fair value (377,804) (377,804)
Reclassification adjustment
for (gains) included in
net income (11,356) (11,356)
Foreign currency
translation adjustment (854) (854)
-------------
Comprehensive loss $ (52,734)
=============
Capital contributions from
parent 2,041
Dividends declared (41,286)
Balance at December 31,
1996 2,206,933 27,587 335,619 2,467,406 (24,472) 549,772
Comprehensive income
Net income $ 332,056 332,056
Other comprehensive income,
net of tax:
Unrealized gains from
investments marked
to fair value 668,036 668,036
Reclassification adjustment
for (gains) included in
net income (26,171) (26,171)
Foreign currency
translation adjustment (8,968) (8,968)
-------------
Comprehensive income $ 964,953
=============
Capital transactions with
parent 86,723
Dividends declared (61,311)
Balance at December 31,
1997 2,206,933 27,587 422,342 2,738,151 (33,440) 1,191,637
Comprehensive income
Net income $ 516,869 516,869
Other comprehensive income,
net of tax:
Unrealized gains (losses)
from investments
marked to fair value (47,374) 260,111 260,111
Reclassification adjustment
for (gains) included in
net income (180,475) (180,475)
Foreign currency
translation adjustment (15,728) (15,728)
------------- -----------
Comprehensive income $ 580,777
=============
Dividends declared (80,000)
Balance at December 31,
1998 2,206,933 $ 27,587 $ 374,968 $ 3,175,020 $ (49,168) $1,271,273
============ ========== =========== ============= ============ =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31
1998 1997 1996
--------------- ---------------- ----------
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 516,869 $ 332,056 $ 337,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in:
Reinsurance recoverable (251,175) (91,194) (73,328)
Accounts receivable 130,229 (15,983) (159,309)
Policy liabilities 989,989 1,102,246 949,108
Other assets, accounts payable and other
liabilities, and income taxes 530,661 (89,954) (32,662)
Policy acquisition costs deferred (512,599) (467,730) (388,003)
Amortization of deferred policy acquisition costs 427,203 256,303 268,770
Net realized gains on investment transactions (435,596) (31,302) (51,061)
Other (73,788) (64,651) (15,758)
---------------- ---------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,321,793 929,791 835,037
INVESTMENT ACTIVITIES
Purchases of fixed and equity securities (6,040,371) (9,825,763) (7,362,635)
Purchases of other investments (244,907) (127,437) (334,895)
Sales of fixed and equity securities 6,317,188 8,193,409 5,064,780
Sales of other investments 128,315 129,671 175,001
Maturities of securities 489,280 559,361 506,941
Net change in short-term investments (861,494) (188,946) 75,774
Other (40,665) (53,478) (21,358)
---------------- ---------------- ---------------
NET CASH USED IN
INVESTING ACTIVITIES (252,654) (1,313,183) (1,896,392)
FINANCING ACTIVITIES
Additions to policyholder contract deposits 9,538,924 6,851,644 6,260,653
Withdrawals from policyholder contract deposits (10,477,594) (6,411,213) (5,173,419)
Capital contributions from parent - 3,800 -
Dividends paid to parent (80,000) (60,000) (40,000)
---------------- ---------------- ----------------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (1,018,670) 384,231 1,047,234
---------------- --------------- ---------------
INCREASE (DECREASE) IN CASH 50,469 839 (14,121)
Cash at beginning of year 36,656 35,817 49,938
--------------- --------------- ---------------
CASH AT END OF YEAR $ 87,125 $ 36,656 $ 35,817
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business: Transamerica Occidental Life Insurance Company ("TOLIC") and its
subsidiaries (collectively, the "Company"), engage in providing life insurance,
pension and annuity products, reinsurance, structured settlements and
investments, which are distributed through a network of independent and
company-affiliated agents and independent brokers. The Company's customers are
primarily in the United States and Canada. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation.
Basis of Presentation: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles which
differ from statutory accounting practices prescribed or permitted by regulatory
authorities.
Reclassification: Certain prior year amounts have been reclassified to conform
with current year presentation.
Use of Estimates: Certain amounts reported in the accompanying consolidated
financial statements are based on management's best estimates and judgment.
Actual results could differ from those estimates.
New Accounting Standards: In 1997, the Financial Accounting Standards Board
issued a new standard on reporting comprehensive income, which establishes
standards for reporting and displaying comprehensive income and its components
in the financial statements. This standard is effective for 1998; 1997 and 1996
have been reclassified to reflect the 1998 presentation. Application of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's consolidated results of operations or
financial position.
In 1998, the Financial Accounting Standards Board issued a new standard on
accounting for derivative instruments and hedging activities. This standard is
effective for all quarters of fiscal years beginning after June 15, 1999
(effective for year 2000 for the Company). Application of the statement is not
expected to have a material impact on TOLIC's combined financial position or
results of operations.
Principles of Consolidation: The consolidated financial statements of the
Company include the accounts of TOLIC and its subsidiaries, all of which operate
primarily in the life insurance industry. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation. All significant intercompany balances
and transactions have been eliminated in consolidation.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments: Investments are reported on the following bases:
Fixed maturities--All debt securities, including redeemable preferred
stocks, are classified as available for sale and carried at fair value.
The Company does not carry any debt securities principally for the
purpose of trading. Prepayments are considered in establishing
amortization periods for premiums and discounts and amortized cost is
further adjusted for other-than-temporary fair value declines. Derivative
instruments are also reported as a component of fixed maturities and are
carried at fair value if designated as hedges of securities available for
sale or at amortized cost if designated as hedges of liabilities. See
Note L - Financial Instruments.
Equity securities available for sale (common and nonredeemable preferred
stocks)--at fair value. The Company does not carry any equity securities
principally for the purpose of trading.
Mortgage loans on real estate--at unpaid balances, adjusted for
amortization of premium or discount, less allowance for possible
impairment.
Policy loans--at unpaid balances.
Other long-term investments--at cost, less allowance for possible
impairment.
Short-term investments--at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined generally on
a specific identification basis. The Company reports realized gains and losses
on investment transactions in the accompanying consolidated statement of income,
net of the amortization of deferred policy acquisition costs when such
amortization results from the realization of gains or losses other than as
originally anticipated on the sale of investments associated with
interest-sensitive products. Changes in fair values of fixed maturities
available for sale and equity securities available for sale are included in net
unrealized investment gains or losses after adjustment of deferred policy
acquisition costs and reserves for future policy benefits, net of deferred
income taxes, as a separate component of shareholder's equity and, accordingly,
have no effect on net income.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Policy Acquisition Costs (DPAC): Certain costs of acquiring new and
renewal insurance contracts, principally commissions, medical examination and
inspection report fees, and certain variable underwriting, issue and field
office expenses, all of which vary with and are primarily related to the
production of such business, have been deferred. DPAC for non-traditional life
and investment-type products are amortized over the life of the related policies
in relation to estimated future gross profits. DPAC for traditional life
insurance products are amortized over the premium-paying period of the related
policies in proportion to premium revenue recognized, using principally the same
assumptions used for computing future policy benefit reserves. DPAC related to
non-traditional and investment type products is adjusted as if unrealized gains
or losses on securities available for sale were realized. Changes in such
adjustments are included in net unrealized investment gains or losses on an
after tax basis as a separate component of shareholder's equity and,
accordingly, have no effect on net income.
Separate Accounts: The Company administers segregated asset accounts for certain
holders of universal life policies, variable annuity contracts, and other
pension deposit contracts. The assets held in these Separate Accounts are
invested primarily in fixed maturities, equity securities, other marketable
securities, and short-term investments. The Separate Account assets are stated
at fair value and are not subject to liabilities arising out of any other
business the Company may conduct. Substantially all investment risks associated
with fair value changes are borne by the contract holders. Accordingly,
investment income and realized gains and losses attributable to Separate
Accounts are not reported in the Company's results of operations.
Policyholder Contract Deposits: Non-traditional life insurance products include
universal life and other interest-sensitive life insurance policies.
Investment-type products include single and flexible premium deferred annuities,
single premium immediate annuities, guaranteed investment contracts, funding
agreements, and other deposit contracts that do not have mortality or morbidity
risk. Policyholder contract deposits on non-traditional life insurance and
investment-type products represent premiums received plus accumulated interest,
less mortality charges on universal life products and other administration
charges as applicable under the contract. Interest credited to these policies
ranged from 2.8% to 13.5% in 1998, 3.0% to 9.7% in 1997 and 2.6% to 9.8% in
1996.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reserves for Future Policy Benefits: Traditional life insurance products
primarily include those contracts with fixed and guaranteed premiums and
benefits and consist principally of whole life and term insurance policies,
limited-payment life insurance policies and certain annuities with life
contingencies. The reserve for future policy benefits for traditional life
insurance products has been provided on a net-level premium method based upon
estimated investment yields, withdrawals, mortality, and other assumptions which
were appropriate at the time the policies were issued. Such estimates are based
upon past experience with a margin for adverse deviation. Interest assumptions
range from 2.25% to 12.0%. Reserves for future policy benefits are evaluated as
if unrealized gains or losses on securities available for sale were realized and
adjusted for any resultant premium deficiencies. Changes in such adjustments are
included in net unrealized investment gains or losses on an after tax basis as a
separate component of shareholder's equity and, accordingly, have no effect on
net income.
Foreign Currency Translation: The effect of changes in exchange rates in
translating the foreign subsidiary's financial statements is accumulated as a
separate component of shareholder's equity, net of applicable income taxes.
Aggregate transaction adjustments included in income were not significant for
1998, 1997 or 1996.
Recognition of Revenue and Costs: Traditional life insurance contract premiums
are recognized as revenue over the premium-paying period, with reserves for
future policy benefits established from such premiums.
Revenues for universal life and investment products consist of policy charges
for the cost of insurance, policy administration charges, amortization of policy
initiation fees, and surrender charges assessed against policyholder account
balances during the period. Expenses related to these products consist of
interest credited to policyholder account balances and benefit claims incurred
in excess of policyholder account balances.
Claim reserves include provisions for reported claims and claims incurred but
not reported.
Reinsurance: Coinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies and the terms of the
reinsurance contracts. Yearly renewable term reinsurance is accounted for the
same as direct business. The revenue as well as the receivables and payables
under certain modified coinsurance arrangements are presented on a net basis to
the extent that such receivables and payables are with the same ceding company.
Premiums ceded and recoverable losses have been reported as a reduction of
premium income and benefits, respectively. The ceded amounts related to policy
liabilities have been reported as an asset.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: TOLIC and its domestic subsidiaries are included in the
consolidated federal income tax returns filed by Transamerica Corporation, which
by the terms of a tax sharing agreement generally requires TOLIC to accrue and
settle income tax obligations in amounts that would result if TOLIC filed
separate tax returns with federal taxing authorities.
Deferred income taxes arise from temporary differences between the bases of
assets and liabilities for financial reporting purposes and income tax purposes,
based on enacted tax rates in effect for the years in which the temporary
differences are expected to reverse.
Fair Values of Financial Instruments: Fair values for debt securities are based
on quoted market prices, where available. For debt securities not actively
traded and private placements, fair values are estimated using values obtained
from independent pricing services. Fair values for derivative instruments,
including off-balance-sheet instruments, are estimated using values obtained
from independent pricing services.
Fair values for equity securities are based on quoted market prices.
Fair values for mortgage loans on real estate and policy loans are estimated
using discounted cash flow calculations, based on interest rates currently being
offered for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for calculation purposes.
The carrying amounts of short-term investments, cash, and accrued investment
income approximate their fair value.
Fair values for liabilities under investment-type contracts are estimated using
discounted cash flow calculations, based on interest rates currently being
offered by similar contracts with maturates consistent with those remaining for
the contracts being valued. The liabilities under investment-type contracts are
included in policyholder contract deposits in the accompanying consolidated
balance sheet.
<PAGE>
NOTE B--INVESTMENTS
The cost and fair value of fixed maturities available for sale and equity
securities are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gain Loss Value
December 31, 1998
U.S. Treasury securities and
obligations of U.S. government
<S> <C> <C> <C> <C>
corporations and agencies $ 297,609 $ 112,717 $ 34 $ 410,292
Obligations of states and political
subdivisions 235,529 23,292 - 258,821
Foreign governments 62,000 7,417 - 69,417
Corporate securities 18,901,026 1,692,527 153,029 20,440,524
Public utilities 3,949,600 426,218 2,255 4,373,563
Mortgage-backed securities 2,988,703 304,073 3,238 3,289,538
Redeemable preferred stocks 148,783 15,519 9,003 155,299
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 26,583,250 $ 2,581,763 $ 167,559 $ 28,997,454
================ ================ ================ ================
Equity securities $ 313,490 $ 578,708 $ 12,057 $ 880,141
================ ================ ================ ================
December 31, 1997
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 273,949 $ 78,390 $ - $ 352,339
Obligations of states and political
subdivisions 219,391 16,765 31 236,125
Foreign governments 81,425 6,996 2 88,419
Corporate securities 18,596,027 1,438,385 57,729 19,976,683
Public utilities 4,017,154 340,580 811 4,356,923
Mortgage-backed securities 3,795,464 342,805 1,977 4,136,292
Redeemable preferred stocks 69,773 24,326 8,882 85,217
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 27,053,183 $ 2,248,247 $ 69,432 $ 29,231,998
================ ================ ================ ================
Equity securities $ 309,637 $ 488,322 $ 6,738 $ 791,221
================ ================ ================ ================
</TABLE>
The cost and fair value of fixed maturities available for sale at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual
<PAGE>
NOTE B--INVESTMENTS (Continued)
<TABLE>
<CAPTION>
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties (in thousands):
Fair
Cost Value
Maturity
<S> <C> <C> <C>
Due in 1999 $ 736,903 $ 776,522
Due in 2000-2003 3,440,803 3,602,491
Due in 2004-2008 5,852,742 6,235,162
Due after 2008 13,415,316 14,938,442
---------------- ----------------
23,445,764 25,552,617
Mortgage-backed securities 2,988,703 3,289,538
Redeemable preferred stock 148,783 155,299
---------------- ----------------
$ 26,583,250 $ 28,997,454
================ ================
</TABLE>
As of December 31, 1997, the Company held a total investment in one issuer,
other than the United States Government or a United States Government agency or
authority, which exceeded 10% of total shareholder's equity as follows (in
thousands):
Name of Issuer Carrying Value
Hill Street Funding LP $ 989,283
The carrying value of those assets that were on deposit with public officials in
compliance with regulatory requirements was $21.4 million and $21.7 million at
December 31, 1998 and 1997, respectively.
<PAGE>
NOTE B--INVESTMENTS (Continued)
<TABLE>
<CAPTION>
Net investment income by major investment category is summarized as follows (in
thousands):
1998 1997 1996
---------------- ---------------- ----------
<S> <C> <C> <C>
Fixed maturities $ 2,138,442 $ 2,096,543 $ 2,005,764
Equity securities 11,153 5,339 5,458
Mortgage loans on real estate 65,350 62,877 58,165
Real estate 9,344 10,886 12,821
Policy loans 27,408 28,080 27,012
Other long-term investments 16,365 511 978
Short-term investments 25,401 12,770 10,616
---------------- ---------------- ----------------
2,293,463 2,217,006 2,120,814
Investment expenses (50,142) (51,441) (43,582)
----------------- ----------------- ----------------
$ 2,243,321 $ 2,165,565 $ 2,077,232
================ ================ ================
Significant components of net realized investment gains (losses) are as follows
(in thousands):
1998 1997 1996
---------------- ---------------- ----------
Net gains (losses) on disposition of investments in:
Fixed maturities $ 74,887 $ (14,482) $ 40,967
Equity securities 402,542 59,834 15,750
Other 5,958 3,459 3,424
---------------- ---------------- ----------------
483,387 48,811 60,141
Provision for impairment (47,791) (17,509) (9,080)
Accelerated amortization of DPAC (157,942) 8,961 (33,590)
----------------- ---------------- ----------------
$ 277,654 $ 40,263 $ 17,471
================ ================ ================
The components of net gains (losses) on disposition of investment in fixed maturities are as follows (in thousands):
1998 1997 1996
Gross gains $ 89,655 $ 82,452 $ 74,817
Gross losses (14,768) (96,934) (33,850)
----------------- ---------------- ----------------
$ 74,887 $ (14,482) $ 40,967
================ ================= ================
</TABLE>
Proceeds from disposition of investment in fixed maturities available for sale
were $5,702.4 million in 1998, $7,896.5 million in 1997 and $4,969.2 million in
1996.
<PAGE>
NOTE B--INVESTMENTS (Continued)
<TABLE>
<CAPTION>
The costs of certain investments have been reduced by the following allowances
for impairment in value (in thousands):
December 31
1998 1997
---------------- -----------
<S> <C> <C>
Fixed maturities $ 70,123 $ 64,168
Mortgage loans on real estate 24,697 24,508
Real estate 665 5,854
Other long-term investments 5,737 5,900
---------------- ----------------
$ 101,222 $ 100,430
================ ================
</TABLE>
<TABLE>
<CAPTION>
The components of net unrealized investment gains in the accompanying
consolidated balance sheet are as follows (in thousands):
December 31
1998 1997
---------------- ----------
Unrealized gains on investment in:
<S> <C> <C>
Fixed maturities $ 2,414,204 $ 2,178,815
Equity securities 566,651 481,584
---------------- ----------------
2,980,855 2,660,399
Fair value adjustments to:
DPAC (633,795) (546,111)
Reserves for future policy benefits (377,000) (281,000)
Reserves for guaranteed index fund (14,255) -
----------------- ----------------
(1,025,050) (827,111)
Related deferred taxes (684,532) (641,651)
----------------- ----------------
$ 1,271,273 $ 1,191,637
================ ================
</TABLE>
<PAGE>
NOTE C--DEFERRED POLICY ACQUISITION COSTS (DPAC)
<TABLE>
<CAPTION>
Significant components of changes in DPAC are as follows (in thousands):
1998 1997 1996
----------------- ---------------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 2,102,588 $ 2,138,203 $ 1,974,211
Amounts deferred:
Commissions 398,578 352,300 290,512
Other 114,021 115,431 97,491
Amortization attributed to:
Net gain on disposition of investments (157,942) 8,961 (33,590)
Operating income (269,261) (265,264) (235,180)
Fair value adjustment (87,684) (239,509) 48,969
Foreign currency translation adjustment (17,794) (7,534) (4,210)
----------------- ----------------- ----------------
Balance at end of year $ 2,082,506 $ 2,102,588 $ 2,138,203
================ ================ ================
</TABLE>
NOTE D--POLICY AND CONTRACT LIABILITIES
<TABLE>
<CAPTION>
Components of policyholder contract deposits are as follows (in thousands):
December 31
1998 1997
---------------- -----------
Liabilities for investment-type products:
Guaranteed investment contracts and
<S> <C> <C>
funding agreements $ 7,444,192 $ 7,766,601
Annuity contracts 11,034,394 11,531,365
Liabilities for non-traditional life insurance
products 5,599,041 4,763,845
--------------- ---------------
$ 24,077,627 $ 24,061,811
=============== ===============
</TABLE>
Obligations under guaranteed investment contracts and funding agreements are
recorded as liabilities at the face value of the agreement, adjusted for draws
paid and interest credited to the account.
<PAGE>
NOTE D-- POLICY AND CONTRACT LIABILITIES (Continued)
Reserves for future policy benefits were evaluated as if the unrealized gains on
securities available for sale had been realized and adjusted for resultant
premium deficiencies by $377 million as of December 31, 1998, $281 million as of
December 31, 1997, and $195 million as of December 31, 1996.
NOTE E--COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
The components of comprehensive income in the statement of shareholder's equity
are shown net of the following tax provision (benefit) (in thousands):
December 31
1998 1997 1996
---------------- ---------------- -----------
<S> <C> <C> <C>
Unrealized investment gains (losses) $ 140,060 $ 359,712 $ (203,433)
Reclassification adjustment for (gains) included in
net income (97,179) (14,092) (6,115)
Foreign currency transaction adjustments (8,469) (4,829) (460)
----------------- ----------------- -----------------
Income tax effect on comprehensive income $ 34,412 $ 340,791 $ (210,008)
================ ================ =================
</TABLE>
NOTE F--INCOME TAXES
<TABLE>
<CAPTION>
Components of income tax liabilities are as follows (in thousands):
December 31
1998 1997
---------------- -----------
<S> <C> <C>
Current tax liabilities $ 64,412 $ 44,510
Deferred tax liabilities 928,255 769,578
---------------- ----------------
$ 992,667 $ 814,088
================ ================
<PAGE>
NOTE F--INCOME TAXES (Continued)
Significant components of deferred tax liabilities (assets) are as follows (in
thousands):
December 31
1998 1997
---------------- -----------
Deferred policy acquisition costs $ 802,953 $ 783,624
Unrealized investment gains 684,532 641,651
---------------- --------------
Total deferred tax liabilities 1,487,485 1,425,275
Life insurance policy liabilities (517,130) (613,874)
Provision for impairment of investments (35,428) (35,151)
Other-net (6,672) (6,672)
---------------- --------------
Total deferred tax assets (559,230) (655,697)
---------------- --------------
$ 928,255 $ 769,578
================ ==============
</TABLE>
<TABLE>
<CAPTION>
The Company offsets all deferred tax assets and liabilities and presents them in
a single amount in the consolidated balance sheet.
Components of provision for income taxes are as follows (in thousands):
1998 1997 1996
----------------- ---------------- -----------
<S> <C> <C> <C>
Current tax expense $ 132,398 $ 122,201 $ 99,692
Deferred tax expense:
Domestic 112,139 14,731 55,261
Foreign 11,826 12,649 9,732
---------------- ---------------- ---------------
$ 256,363 $ 149,581 $ 164,685
================ ================ ===============
<PAGE>
NOTE F--INCOME TAXES (Continued)
The differences between federal income taxes computed at the statutory rate and
the provision for income taxes as reported are as follows (in thousands):
1998 1997 1996
---------------- ---------------- -----------
Income before income taxes:
Income from U.S. operations $ 724,702 $ 430,449 $ 474,160
Income from foreign operations 48,530 51,189 27,805
--------------- --------------- ---------------
773,232 481,638 501,965
Tax rate 35% 35% 35%
---------------- --------------- ---------------
Federal income taxes at statutory rate 270,631 168,573 175,688
Income not subject to tax (1,949) (3,284) (2,262)
Low income housing credits (17,604) (10,156) (8,175)
Other, net 5,285 (5,552) (566)
--------------- --------------- ---------------
$ 256,363 $ 149,581 $ 164,685
=============== =============== ===============
</TABLE>
Income not subject to tax represents permanent differences between financial
statements and tax income and is composed principally of dividends on common
stock for which a dividend received deduction is taken for federal income tax
purposes. Low income housing credits are recognized over the productive life of
acquired assets. In 1998, the Company recognized a $3.3 million tax expense,
included in other differences, related to an unfavorable settlement of prior
year tax matters.
Under the Life Insurance Company Income Tax Act of 1959, a portion of "gain from
operations" was not subject to current income taxation but was accumulated, for
tax purposes, in a memorandum account designated as "policyholders' surplus
account." The balance in this account was frozen at December 31, 1983 pursuant
to the Deficit Reduction Act of 1984. This amount becomes subject to tax when it
exceeds a certain maximum or when cash dividends are paid therefrom. The
policyholders' surplus account balance at December 31, 1998 was $138 million. At
December 31, 1998, $2,305 million was available for payment of dividends without
such tax consequences. No income taxes have been provided on the policyholders'
surplus account since the conditions that would cause such taxes are remote.
Income taxes of $107.3 million, $58.5 million and $149.1 million were paid
principally to the Company's parent in 1998, 1997 and 1996, respectively.
NOTE G--REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. Risks are reinsured with other companies to permit the recovery
of a portion of the direct losses; however, the Company remains liable to the
extent the reinsuring companies do not meet their obligations under these
reinsurance agreements.
<PAGE>
NOTE G--REINSURANCE (Continued)
<TABLE>
<CAPTION>
The components of the Company's life insurance in force and premiums and other
considerations are summarized as follows (in thousands):
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
1998
Life insurance in force,
<S> <C> <C> <C> <C>
at end of year $ 232,996,314 $ 315,629,686 $ 307,192,042 $ 224,558,670
==================== =================== =================== ===================
Premiums and other
considerations $ 1,465,483 $ 1,196,972 $ 1,536,385 $ 1,804,896
==================== =================== =================== ===================
Benefits paid or
provided $ 2,392,139 $ 1,243,706 $ 1,633,694 $ 2,782,127
==================== =================== =================== ===================
1997
Life insurance in force,
at end of year $ 241,379,957 $ 207,533,095 $ 225,685,653 $ 259,532,515
==================== =================== =================== ===================
Premiums and other
considerations $ 1,854,918 $ 1,116,613 $ 1,039,066 $ 1,777,371
==================== =================== =================== ===================
Benefits paid or
provided $ 2,287,025 $ 940,461 $ 1,380,500 $ 2,727,064
==================== =================== =================== ===================
1996
Life insurance in force,
at end of year $ 220,162,932 $ 195,158,214 $ 201,560,322 $ 226,565,040
==================== =================== =================== ===================
Premiums and other
considerations $ 1,702,975 $ 1,033,201 $ 972,211 $ 1,641,985
==================== =================== =================== ===================
Benefits paid or
provided $ 2,292,822 $ 1,344,790 $ 1,610,760 $ 2,558,792
==================== =================== =================== ===================
</TABLE>
<PAGE>
NOTE H--PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Substantially all employees of the Company are covered by noncontributory
defined pension benefit plans sponsored by the Company and the Retirement Plan
for Salaried Employees of Transamerica Corporation and Affiliates. Pension
benefits are based on the employee's compensation during the highest paid 60
consecutive months during the 120 months before retirement. Annual contributions
to the plans generally include a provision for current service costs plus
amortization of prior service costs over periods ranging from 10 to 30 years.
Assets of the plans are invested principally in publicly traded stocks and
bonds.
The Company's total pension benefits recognized for all plans were $9.1 million
in 1998, $5.4 million in 1997 and $3.1 million in 1996, of which $9.1 million in
1998, $6.1 million in 1997 and $3.7 million in 1996, respectively, related to
the plan sponsored by Transamerica Corporation. The plans sponsored by the
Company are not material to the consolidated financial position of the Company.
The Company also participates in various contributory defined benefit programs
sponsored by Transamerica Corporation that provide medical and certain other
benefits to eligible retirees. Postretirement benefit costs charged to income
were not significant in 1998, 1997 and 1996.
NOTE I--RELATED PARTY TRANSACTIONS
The Company has various transactions with Transamerica Corporation and certain
of its other subsidiaries in the normal course of operations. These transactions
include loans and advances, a fixed maturity investment in a special purpose
subsidiary of Transamerica, investments in a money market fund managed by an
affiliated company, rental of space, and other specialized services, including
administration of pension funds. At December 31, 1998, pension funds
administered for these related companies aggregated $1,969.0 million, the
investment in the special purpose subsidiary was $413.9 million and the
investment in an affiliated money market fund, included in short-term
investments, was $29.5 million. In December 1998, the Company reinsured certain
life insurance obligations totaling $59.0 million with a subsidiary of
Transamerica Corporation.
During 1997, equity securities with a fair value of $177.2 million were received
from Transamerica Corporation. $50 million was used as a partial paydown on a
$200 million note due from Transamerica Corporation. The excess of fair value
over cost less the amount applied to the note was recorded as additional paid-in
capital. During 1998, the Company refined its accounting for this transaction
and decreased the cost of the equity securities obtained and charged paid-in
capital in the amount of $47.4 million. The remaining balance on the note, which
is due in 2013 and bears interest at 7% is $150 million.
In addition, during 1997 the Company received a capital contribution of $15
million from Transamerica corporation.
<PAGE>
NOTE J--REGULATORY MATTERS
TOLIC and its insurance subsidiaries are subject to state insurance laws and
regulations, principally those of TOLIC and each subsidiary's state of
incorporation. Such regulations include the risk-based capital requirement and
the restriction on the payment of dividends. Generally, dividends during any
year may not be paid, without prior regulatory approval, in excess of the
greater of 10% of the Company's statutory capital and surplus as of the
preceding year end or the Company's statutory net income from operations for the
preceding year. The insurance department of the domiciliary state recognizes
these amounts as determined in conformity with statutory accounting practices
prescribed or permitted by the insurance department, which vary in some respects
from generally accepted accounting principles. The Company's statutory net
income and statutory capital and surplus which are represented by TOLIC's net
income and capital and surplus are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- ------------
<S> <C> <C> <C>
Statutory net income $ 200,482 $ 96,472 $ 112,296
Statutory capital and surplus, at
end of year 1,844,161 1,556,228 1,249,045
</TABLE>
NOTE K-COMMITMENTS AND CONTINGENCIES
The Company issues synthetic guaranteed investment contracts which guarantee, in
exchange for a fee, the liquidity of pension plans to pay certain qualified
benefits if other sources of plan liquidity are exhausted. Unlike traditional
guaranteed investment contracts, the plan sponsor retains the credit risk in a
synthetic contract while the Company assumes some limited degree of interest
rate risk. To minimize the risk of loss, the Company underwrites these contracts
based on plan sponsor agreement, at the inception of the contract, on investment
guidelines to be followed, including overall portfolio credit and maturity
requirements. Adherence to these investment requirements is monitored regularly
by the Company. At December 31, 1998, commitments to maintain liquidity for
benefit payments on notional amounts of $5.2 billion were outstanding ($3.3
billion at December 31, 1997).
The Company is subject to mandatory assessments by state guaranty funds to cover
losses to policyholders of those insurance companies that are under regulatory
supervision. Certain states allow such assessments to be used to reduce future
premium taxes. The Company estimates and recognizes its obligation for guaranty
fund assessments, net of premium tax deductions, based on the survey data
provided by the National Organization of Life and Health Insurance Guaranty
Associations. At December 31, 1998 and 1997, the estimated exposures and the
resultant accruals recorded were not material to the consolidated financial
position or results of operations of the Company.
<PAGE>
NOTE K-COMMITMENTS AND CONTINGENCIES (Continued)
Substantially all leases of the Company are operating leases principally for the
rental of real estate. Rental expenses for equipment and properties were $31.0
million in 1998, $28.7 million in 1997 and $20.6 million in 1996. The following
is a schedule by years of future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1998 (in thousands):
Year ending December 31:
1999 $ 17,731
2000 14,913
2001 12,452
2002 11,450
2003 11,499
Later years 56,549
$ 124,594
==================
The Company is a defendant in various legal actions arising from its operations.
These include legal actions similar to those faced by many other major life
insurers which allege damages related to sales practices for universal life
policies sold between January 1981 and June 1996. In one such action, the
Company and plaintiffs' counsel entered into a settlement which was approved on
June 26, 1997. The settlement required prompt notification to affected
policyholders. Administrative and policy benefit costs associated with the
settlement of $31 million pre-tax were accrued in 1997 and $12 million of
additional costs were incurred in 1998. Additional costs related to the
settlement, which are not currently determinable, are not expected to be
material and will be incurred over a period of years. In the opinion of the
Company, any ultimate liability which might result from other litigation would
not have a materially adverse effect on the combined financial position of the
Company or the results of its operations.
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
The carrying values and estimated fair values of financial instruments are as
follows (in thousands):
December 31
-----------------------------------------
1998 1997
----------------------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
Financial Assets:
<S> <C> <C> <C> <C>
Fixed maturities available for sale $ 28,997,454 $ 28,997,454 $ 29,231,998 $ 29,231,998
Equity securities available for sale 880,141 880,141 791,221 791,221
Mortgage loans on real estate 789,959 870,173 706,939 774,556
Policy loans 455,481 432,929 451,023 427,924
Short-term investments 1,186,166 1,186,166 324,672 324,672
Cash 87,125 87,125 36,656 36,656
Accrued investment income 449,289 449,289 481,913 481,913
Financial Liabilities:
Liabilities for investment-type contracts:
Single and flexible premium
deferred annuities 6,180,292 5,828,950 6,779,951 6,261,707
Single premium immediate annuities 4,382,389 5,305,667 4,361,311 5,122,562
Guaranteed investment contracts 3,112,929 3,183,266 3,211,834 3,265,384
Funding agreements and other 4,616,150 4,624,033 4,944,870 4,992,906
Off-balance-sheet assets (liabilities):
Interest rate swap agreements designated
as hedges of liabilities in a:
Receivable position - 20,435 - 8,189
Payable position - (3,507) - (5,247)
</TABLE>
The Company enters into various interest rate agreements in the normal course of
business, primarily as a means of managing its interest rate exposure in
connection with asset and liability management.
Interest rate swap agreements generally involve the periodic exchange of fixed
rate interest and floating rate interest payments by applying a specified market
index to the underlying contract or notional amount, without exchanging the
underlying notional amounts. The differential to be paid or received on those
interest rate swap agreements that are designated as hedges of financial assets
is recorded on an accrual basis as a component of net investment income. The
differential to be paid or
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
received on those interest rate swap agreements that are designated as hedges of
financial liabilities is recorded on an accrual basis as a component of benefits
paid or provided. While the Company is not exposed to credit risk with respect
to the notional amounts of the interest rate swap agreements, the Company is
subject to credit risk from potential nonperformance of counterparties
throughout the contract periods. The amounts potentially subject to such credit
risk are much smaller than the notional amounts. The Company controls this
credit risk by entering into transactions with only a selected number of high
quality institutions, establishing credit limits and maintaining collateral when
appropriate.
Interest rate floor and cap agreements generally provide for the receipt of
payments in the event the average interest rates during a settlement period fall
below specified levels under interest rate floor agreements or rise above
specified levels under interest rate cap agreements. A swaption generally
provides for an option to enter into an interest rate swap agreement in the
event of unfavorable interest rate movements. These agreements generally require
upfront premium payments. The costs of swaptions and interest rate floor and cap
agreements are amortized over the contractual periods and resulting amortization
expenses are included in net investment income. Any conditional receipts under
these agreements are recorded on an accrual basis as a component of net
investment income if designated as hedges of financial assets or as a component
of benefits paid or provided if designated as hedges of financial liabilities.
Gains or losses on terminated interest rate agreements are deferred and
amortized over the remaining life of the underlying assets or liabilities being
hedged.
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
The information on derivative instruments is summarized as follows (in
thousands):
Aggregate Weighted
Notional Average
Amount Fixed Rate Fair Value
December 31, 1998
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
<S> <C> <C> <C>
Fixed rate interest $ 577,973 5.37% $ (16,484)
Floating rate interest 325,000 4.75% 22,279
Floating rate interest based on one index and
receives floating rate interest based on
another index 147,562 - 1,096
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest 28,600 5.54% 177
Floating rate interest 2,718,089 5.41% 18,891
Floating rate interest based on one index and
receives floating rate interest based on
another index 262,666 - (2,140)
Interest rate floor agreements 560,500 6.45% 38,380
Swaptions 8,270,000 5.27% 140,482
Others 35,576 .55% 28,536
December 31, 1997
Interest rate swap agreements designated as hedges of securities available
for sale, where TLC pays:
Fixed rate interest $ 419,715 6.81% $ 1,820
Floating rate interest 280,905 6.48% 3,000
Floating rate interest based on one index and
receives floating rate interest based on
another index 337,371 - (320)
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest - - -
Floating rate interest 2,252,089 6.17% 4,507
Floating rate interest based on one index and
receives floating rate interest based on
another index 304,820 - (1,565)
Interest rate floor agreements 560,500 6.46% 25,254
Swaptions 8,326,030 4.50% 103,018
Others 29,117 - 15,314
</TABLE>
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
Generally, notional amounts indicate the volume of transactions and estimated
fair values indicate the amounts subject to credit risk.
<TABLE>
<CAPTION>
Activities with respect to the notional amounts are summarized as follows (in
thousands):
Beginning End
of Year Additions Maturities Terminations of Year
1998:
Interest rate swap agreements
designated as hedges of
<S> <C> <C> <C> <C> <C>
securities available for sale $ 1,037,991 $ 469,126 $ 268,364 $ 188,218 $ 1,050,535
Interest rate swap agreements
designated as hedges of
financial liabilities 2,556,909 3,748,545 207,345 3,088,754 3,009,355
Interest rate floor agreements 560,500 - - - 560,500
Swaptions 8,326,030 - 56,030 - 8,270,000
Others 7,359 - 900 35,576
------------------------------- -------------- ------------ ----------------
29,117
$ 12,510,547 $ 4,225,030 $ 531,739 $ 3,277,872 $ 12,925,966
============== ============== ============== ============ ================
1997:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 847,584 $ 322,165 $ 91,858 $ 39,900 $ 1,037,991
Interest rate swap agreements
designated as hedges of
financial liabilities 1,829,301 2,297,133 1,554,525 15,000 2,556,909
Interest rate floor agreements 560,500 - - - 560,500
Swaptions 8,327,570 - - 1,540 8,326,030
Others 20,572 100,200 - 29,117
------------------------------- -------------- ------------ ----------------
108,745
$ 11,673,700 $ 2,639,870 $ 1,746,583 $ 56,440 $ 12,510,547
============== ============== ============== ============ ================
1996:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 440,173 $ 566,023 $ 143,554 $ 15,058 $ 847,584
Interest rate swap agreements
designated as hedges of
financial liabilities 1,146,678 1,887,348 1,103,525 101,200 1,829,301
Interest rate floor agreements 560,500 - - - 560,500
Interest rate cap agreements 250,000 - 250,000 - -
Swaptions 1,267,140 7,170,000 109,570 - 8,327,570
Others 8,745 - - 108,745
------------------------------- -------------- ------------ ----------------
100,000
$ 3,764,491 $ 9,632,116 $ 1,606,649 $ 116,258 $11,673,700
============== ============== ============== ============ ===========
</TABLE>
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments, derivatives,
fixed maturities and mortgage loans on real estate. The Company places its
temporary cash investments and enters into derivative transactions with high
credit quality financial institutions. Concentrations of credit risk with
respect to investments in fixed maturities and mortgage loans on real estate are
limited due to the large number of such investments and their dispersion across
many different industries and geographic areas. At December 31, 1998, the
Company had no significant concentration of credit risk.
NOTE M--SUBSEQUENT EVENT(Unaudited)
On February 18, 1999, Transamerica Corporation announced that it had signed an
agreement with AEGON N.V. (AEGON) providing for AEGON's acquisition of
Transamerica Corporation for cash and stock worth $9.7 billion. In addition,
AEGON N.V. will assume on a consolidated basis approximately $1.1 billion of
Transamerica Corporation's debt. Transamerica Corporation's corporate and
insurance operations will merge with AEGON USA's operations immediately after
closing, which is expected to occur during the summer of 1999.
NOTE N--YEAR 2000 (Unaudited)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations, causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar business
activities.
Based upon recent assessments, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications and replacements of
existing software and certain hardware, disruptions to business activities
caused by the Year 2000 Issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed on time, the Year 2000 Issue
could have an impact on the operations of the Company.
The Company's plan to address the Year 2000 Issue involves the following four
phases: (1) problem determination, (2) planning and resource acquisition, (3)
remediation, and (4) testing and acceptance. The Company has completed phase one
and phase two. A significant portion of the remediation phase was completed as
of December 31, 1998, and remediation is expected to be substantially complete
by March 1999. As of December 31, 1998, Year 2000 readiness testing was well
underway and is expected to be substantially complete by June 1999.
The Company's Year 2000 project also addresses issues related to non-information
technology, embedded software and equipment, the readiness of key business
partners and updating business continuity plans.
<PAGE>
APPENDIX A
GUIDELINE MINIMUM SUM INSURED TABLE
The guideline minimum sum insured is a percentage of the 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.
<TABLE>
<CAPTION>
Guideline Minimum Sum Insured Table
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>
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
APPENDIX B
OPTIONAL INSURANCE BENEFITS
<PAGE>
3
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. The names of the available riders may vary by
jurisdiction.
Option to Accelerate Death Benefits (Living Benefits Rider - SPVUL)
This rider allows the contract owner to elect to receive part of the net death
benefit under the contract before 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.
Section 1035 Rider
This rider provides preferred loan rates to: (a) any outstanding loan carried
over from an exchanged contract, the proceeds of which are applied to purchase
the contract; and (b) a percentage of the gain under the exchanged contract,
less the outstanding contract loans carried over to the contract, as of the date
of exchange.
Guaranteed Death Benefit Rider (SPVUL)
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) the guideline minimum sum insured as of the date due proof of death is
received by us.
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.
<PAGE>
B-1
APPENDIX A
<PAGE>
APPENDIX C
BENEFIT PAYMENT OPTIONS
The following definitions apply to this description of benefit payment options:
Designated Individual: 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.
Payee: 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.
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 the 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 contract maturity or surrender, the date the written request is received in
our Variable Life Service Center is the benefit payment option starting date.
<PAGE>
C-1
<PAGE>
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
<PAGE>
ILLUSTRATIONS OF
DEATH BENEFIT, CONTRACT VALUES
AND ACCUMULATED PAYMENTS
<PAGE>
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;
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.
<PAGE>
D-1
<PAGE>
Deductions for Charges
The amounts shown for the death proceeds and contract values take into account
the monthly deductions from contract value:
1. the insurance protection charge;
2. the administration charge equivalent to 0.30% on an annual basis;
3. the tax charge equivalent to 0.20% on an annual basis, deducted during the
first ten contract years; and
4. 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 0.87%
of the average daily net assets of the portfolios. The rate of 0.87% 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 and takes into
account expense reimbursement arrangements. The fees and expenses of each
portfolio vary, and, in 1998 ranged from an annual rate of 0.60% to an annual
rate of 1.95% of average daily net assets. Some of these expenses reflect
expense waivers or reimbursements by the portfolios' advisers as discussed in
Note (1) to the Portfolio Expenses table. Without these expense waivers or
reimbursements, if applicable, the expenses for those portfolios would be higher
and the simple average would have been at the annual rate of 1.16% of average
daily net assets. As discussed in Note (1) to the Portfolio Expenses Table, such
waivers or reimbursements are expected to continue for 1999. The fees and
expenses associated with the contract may be more or less than 0.87% in the
aggregate, depending upon how you make allocations of the contract value among
the sub-accounts. For more information on portfolio expenses, see the Portfolio
Expenses Table in this prospectus and the prospectuses for the portfolios.
Net Annual Rates of Investment
Taking into account the separate account mortality and expense risk charge of
0.80%, and the assumed 0.87% 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 -1.67%, 4.33% and 10.33%, respectively.
Upon request, we 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>
<TABLE>
<CAPTION>
D-2
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $220,019
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
ContraAt 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>
1 $78,750 $65,899 $72,649 $220,019 $70,332 $77,082 $220,019 $74,765 $81,515 $220,019
2 $82,688 $64,372 $70,372 $220,019 $73,222 $79,222 $220,019 $82,596 $88,596 $220,019
3 $86,822 $62,916 $68,166 $220,019 $76,172 $81,422 $220,019 $91,043 $96,293 $220,019
4 $91,163 $61,530 $66,030 $220,019 $79,182 $83,682 $220,019 $100,157 $104,657 $220,019
5 $95,721 $60,210 $63,960 $220,019 $82,255 $86,005 $220,019 $109,999 $113,749 $220,019
6 $100,507 $58,955 $61,955 $220,019 $85,393 $88,393 $220,019 $120,630 $123,630 $220,019
7 $105,533 $57,763 $60,013 $220,019 $88,597 $90,847 $220,019 $132,120 $134,370 $220,019
8 $110,809 $56,632 $58,132 $220,019 $91,869 $93,369 $220,019 $144,542 $146,042 $220,019
9 $116,350 $55,560 $56,310 $220,019 $95,211 $95,961 $220,019 $157,979 $158,729 $220,633
10 $122,167 $54,545 $54,545 $220,019 $98,625 $98,625 $220,019 $172,517 $172,517 $236,348
11 $128,275 $53,260 $53,260 $220,019 $102,178 $102,178 $220,019 $189,010 $189,010 $255,164
12 $134,689 $52,005 $52,005 $220,019 $105,858 $105,858 $220,019 $207,080 $207,080 $277,487
13 $141,424 $50,780 $50,780 $220,019 $109,672 $109,672 $220,019 $226,877 $226,877 $301,747
14 $148,495 $49,584 $49,584 $220,019 $113,622 $113,622 $220,019 $248,568 $248,568 $328,109
15 $155,920 $48,415 $48,415 $220,019 $117,715 $117,715 $220,019 $272,331 $272,331 $356,754
16 $163,716 $47,275 $47,275 $220,019 $121,955 $121,955 $220,019 $298,367 $298,367 $387,877
17 $171,901 $46,161 $46,161 $220,019 $126,348 $126,348 $220,019 $326,892 $326,892 $418,421
18 $180,496 $45,073 $45,073 $220,019 $130,899 $130,899 $220,019 $358,143 $358,143 $451,261
19 $189,521 $44,011 $44,011 $220,019 $135,615 $135,615 $220,019 $392,383 $392,383 $486,555
20 $198,997 $42,975 $42,975 $220,019 $140,500 $140,500 $220,019 $429,896 $429,896 $524,473
Age $95,721 $60,210 $63,960 $220,019 $82,255 $86,005 $220,019 $109,999 $113,749 $220,019
60
Age $122,167 $54,545 $54,545 $220,019 $98,625 $98,625 $220,019 $172,517 $172,517 $236,348
65
Age $155,920 $48,415 $48,415 $220,019 $117,715 $117,715 $220,019 $272,331 $272,331 $356,754
70
Age $198,997 $42,975 $42,975 $220,019 $140,500 $140,500 $220,019 $429,896 $429,896 $524,473
75
- ----------------------------------------------------------------------------------------------------------------------------
(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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-3
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount = $220,019
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $65,157 $71,907 $220,019 $69,595 $76,345 $220,019 $74,034 $80,784 $220,019
2 $82,688 $62,743 $68,743 $220,019 $71,624 $77,624 $220,019 $81,039 $87,039 $220,019
3 $86,822 $60,237 $65,487 $220,019 $73,569 $78,819 $220,019 $88,559 $93,809 $220,019
4 $91,163 $57,634 $62,134 $220,019 $75,428 $79,928 $220,019 $96,660 $101,160 $220,019
5 $95,721 $54,890 $58,640 $220,019 $77,166 $80,916 $220,019 $105,390 $109,140 $220,019
6 $100,507 $52,000 $55,000 $220,019 $78,779 $81,779 $220,019 $114,835 $117,835 $220,019
7 $105,533 $48,917 $51,167 $220,019 $80,230 $82,480 $220,019 $125,071 $127,321 $220,019
8 $110,809 $45,611 $47,111 $220,019 $81,496 $82,996 $220,019 $136,202 $137,702 $220,019
9 $116,350 $42,031 $42,781 $220,019 $82,534 $83,284 $220,019 $148,342 $149,092 $220,019
10 $122,167 $38,099 $38,099 $220,019 $83,285 $83,285 $220,019 $161,623 $161,623 $221,423
11 $128,275 $33,261 $33,261 $220,019 $83,497 $83,497 $220,019 $176,388 $176,388 $238,124
12 $134,689 $27,957 $27,957 $220,019 $83,384 $83,384 $220,019 $192,394 $192,394 $257,808
13 $141,424 $22,111 $22,111 $220,019 $82,890 $82,890 $220,019 $209,721 $209,721 $278,929
14 $148,495 $15,642 $15,642 $220,019 $81,952 $81,952 $220,019 $228,461 $228,461 $301,568
15 $155,920 $8,454 $8,454 $220,019 $80,498 $80,498 $220,019 $248,710 $248,710 $325,810
16 $163,716 $389 $389 $220,019 $78,409 $78,409 $220,019 $270,551 $270,551 $351,717
17 $171,901 $0 $0 $0* $75,530 $75,530 $220,019 $294,184 $294,184 $376,555
18 $180,496 $0 $0 $0* $71,697 $71,697 $220,019 $319,754 $319,754 $402,891
19 $189,521 $0 $0 $0* $66,655 $66,655 $220,019 $347,407 $347,407 $430,785
20 $198,997 $0 $0 $0* $60,153 $60,153 $220,019 $377,341 $377,341 $460,356
Age $95,721 $54,890 $58,640 $220,019 $77,166 $80,916 $220,019 $105,390 $109,140 $220,019
60
Age $122,167 $38,099 $38,099 $220,019 $83,285 $83,285 $220,019 $161,623 $161,623 $221,423
65
Age $155,920 $8,454 $8,454 $220,019 $80,498 $80,498 $220,019 $248,710 $248,710 $325,810
70
Age $198,997 $0 $0 $0* $60,153 $60,153 $220,019 $377,341 $377,341 $460,356
75
- ----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 $220,019 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-4
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $586,715
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $175,925 $193,925 $586,715 $187,758 $205,758 $586,715 $199,591 $217,591 $586,715
2 $220,500 $172,035 $188,035 $586,715 $195,682 $211,682 $586,715 $220,730 $236,730 $586,715
3 $231,525 $168,323 $182,323 $586,715 $203,777 $217,777 $586,715 $243,552 $257,552 $586,715
4 $243,101 $164,785 $176,785 $586,715 $212,047 $224,047 $586,715 $268,205 $280,205 $586,715
5 $255,256 $161,415 $171,415 $586,715 $220,497 $230,497 $586,715 $294,851 $304,851 $586,715
6 $268,019 $158,209 $166,209 $586,715 $229,134 $237,134 $586,715 $323,665 $331,665 $586,715
7 $281,420 $155,160 $161,160 $586,715 $237,961 $243,961 $586,715 $354,837 $360,837 $586,715
8 $295,491 $152,265 $156,265 $586,715 $246,985 $250,985 $586,715 $388,575 $392,575 $586,715
9 $310,266 $149,519 $151,519 $586,715 $256,211 $258,211 $586,715 $425,105 $427,105 $593,675
10 $325,779 $146,916 $146,916 $586,715 $265,645 $265,645 $586,715 $464,671 $464,671 $636,600
11 $342,068 $143,599 $143,599 $586,715 $275,489 $275,489 $586,715 $509,605 $509,605 $687,966
12 $359,171 $140,356 $140,356 $586,715 $285,698 $285,698 $586,715 $558,883 $558,883 $748,903
13 $377,130 $137,186 $137,186 $586,715 $296,286 $296,286 $586,715 $612,926 $612,926 $815,192
14 $395,986 $134,088 $134,088 $586,715 $307,266 $307,266 $586,715 $672,196 $672,196 $887,299
15 $415,786 $131,060 $131,060 $586,715 $318,652 $318,652 $586,715 $737,197 $737,197 $965,728
16 $436,575 $128,100 $128,100 $586,715 $330,461 $330,461 $586,715 $808,483 $808,483 $1,051,028
17 $458,404 $125,207 $125,207 $586,715 $342,707 $342,707 $586,715 $886,663 $886,663 $1,134,928
18 $481,324 $122,380 $122,380 $586,715 $355,407 $355,407 $586,715 $972,402 $972,402 $1,225,227
19 $505,390 $119,616 $119,616 $586,715 $368,578 $368,578 $586,715 $1,066,433 $1,066,433 $1,322,377
20 $530,660 $116,915 $116,915 $586,715 $382,237 $382,237 $586,715 $1,169,556 $1,169,556 $1,426,858
Age $255,256 $161,415 $171,415 $586,715 $220,497 $230,497 $586,715 $294,851 $304,851 $586,715
60
Age $325,779 $146,916 $146,916 $586,715 $265,645 $265,645 $586,715 $464,671 $464,671 $636,600
65
Age $415,786 $131,060 $131,060 $586,715 $318,652 $318,652 $586,715 $737,197 $737,197 $965,728
70
Age $530,660 $116,915 $116,915 $586,715 $382,237 $382,237 $586,715 $1,169,556 $1,169,556 $1,426,858
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-5
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $586,715
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $173,751 $191,751 $586,715 $185,586 $203,586 $586,715 $197,424 $215,424 $586,715
2 $220,500 $167,315 $183,315 $586,715 $190,997 $206,997 $586,715 $216,104 $232,104 $586,715
3 $231,525 $160,632 $174,632 $586,715 $196,183 $210,183 $586,715 $236,156 $250,156 $586,715
4 $243,101 $153,690 $165,690 $586,715 $201,141 $213,141 $586,715 $257,759 $269,759 $586,715
5 $255,256 $146,374 $156,374 $586,715 $205,776 $215,776 $586,715 $281,039 $291,039 $586,715
6 $268,019 $138,667 $146,667 $586,715 $210,078 $218,078 $586,715 $306,227 $314,227 $586,715
7 $281,420 $130,445 $136,445 $586,715 $213,947 $219,947 $586,715 $333,524 $339,524 $586,715
8 $295,491 $121,630 $125,630 $586,715 $217,322 $221,322 $586,715 $363,206 $367,206 $586,715
9 $310,266 $112,083 $114,083 $586,715 $220,092 $222,092 $586,715 $395,578 $397,578 $586,715
10 $325,779 $101,597 $101,597 $586,715 $222,093 $222,093 $586,715 $430,994 $430,994 $590,462
11 $342,068 $88,696 $88,696 $586,715 $222,659 $222,659 $586,715 $470,369 $470,369 $634,998
12 $359,171 $74,551 $74,551 $586,715 $222,358 $222,358 $586,715 $513,050 $513,050 $687,488
13 $377,130 $58,964 $58,964 $586,715 $221,041 $221,041 $586,715 $559,256 $559,256 $743,811
14 $395,986 $41,712 $41,712 $586,715 $218,540 $218,540 $586,715 $609,229 $609,229 $804,182
15 $415,786 $22,544 $22,544 $586,715 $214,662 $214,662 $586,715 $663,226 $663,226 $868,826
16 $436,575 $1,038 $1,038 $586,715 $209,091 $209,091 $586,715 $721,471 $721,471 $937,912
17 $458,404 $0 $0 $0* $201,415 $201,415 $586,715 $784,490 $784,490 $1,004,147
18 $481,324 $0 $0 $0* $191,193 $191,193 $586,715 $852,679 $852,679 $1,074,375
19 $505,390 $0 $0 $0* $177,748 $177,748 $586,715 $926,419 $926,419 $1,148,760
20 $530,660 $0 $0 $0* $160,409 $160,409 $586,715 $1,006,244 $1,006,244 $1,227,618
Age $255,256 $146,374 $156,374 $586,715 $205,776 $215,776 $586,715 $281,039 $291,039 $586,715
60
Age $325,779 $101,597 $101,597 $586,715 $222,093 $222,093 $586,715 $430,994 $430,994 $590,462
65
Age $415,786 $22,544 $22,544 $586,715 $214,662 $214,662 $586,715 $663,226 $663,226 $868,826
70
Age $530,660 $0 $0 $0* $160,409 $160,409 $586,715 $1,006,244 $1,006,244 $1,227,618
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 $586,715 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-6
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $343,811
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $66,323 $73,073 $343,811 $70,782 $77,532 $343,811 $75,241 $81,991 $343,811
2 $82,688 $65,162 $71,162 $343,811 $74,117 $80,117 $343,811 $83,603 $89,603 $343,811
3 $86,822 $64,009 $69,259 $343,811 $77,501 $82,751 $343,811 $92,638 $97,888 $343,811
4 $91,163 $62,856 $67,356 $343,811 $80,927 $85,427 $343,811 $102,404 $106,904 $343,811
5 $95,721 $61,692 $65,442 $343,811 $84,389 $88,139 $343,811 $112,965 $116,715 $343,811
6 $100,507 $60,581 $63,581 $343,811 $87,877 $90,877 $343,811 $124,388 $127,388 $343,811
7 $105,533 $59,523 $61,773 $343,811 $91,430 $93,680 $343,811 $136,747 $138,997 $343,811
8 $110,809 $58,517 $60,017 $343,811 $95,071 $96,571 $343,811 $150,122 $151,622 $343,811
9 $116,350 $57,560 $58,310 $343,811 $98,800 $99,550 $343,811 $164,600 $165,350 $343,811
10 $122,167 $56,652 $56,652 $343,811 $102,621 $102,621 $343,811 $180,283 $180,283 $343,811
11 $128,275 $55,428 $55,428 $343,811 $106,531 $106,531 $343,811 $197,914 $197,914 $343,811
12 $134,689 $54,231 $54,231 $343,811 $110,589 $110,589 $343,811 $217,269 $217,269 $343,811
13 $141,424 $53,059 $53,059 $343,811 $114,802 $114,802 $343,811 $238,517 $238,517 $343,811
14 $148,495 $51,913 $51,913 $343,811 $119,176 $119,176 $343,811 $261,844 $261,844 $345,634
15 $155,920 $50,791 $50,791 $343,811 $123,716 $123,716 $343,811 $287,451 $287,451 $376,561
16 $163,716 $49,694 $49,694 $343,811 $128,429 $128,429 $343,811 $315,563 $315,563 $410,232
17 $171,901 $48,620 $48,620 $343,811 $133,321 $133,321 $343,811 $346,424 $346,424 $443,422
18 $180,496 $47,570 $47,570 $343,811 $138,400 $138,400 $343,811 $380,303 $380,303 $479,182
19 $189,521 $46,542 $46,542 $343,811 $143,673 $143,673 $343,811 $417,495 $417,495 $517,694
20 $198,997 $45,537 $45,537 $343,811 $149,146 $149,146 $343,811 $458,325 $458,325 $559,156
Age $95,721 $61,692 $65,442 $343,811 $84,389 $88,139 $343,811 $112,965 $116,715 $343,811
60
Age $122,167 $56,652 $56,652 $343,811 $102,621 $102,621 $343,811 $180,283 $180,283 $343,811
65
Age $155,920 $50,791 $50,791 $343,811 $123,716 $123,716 $343,811 $287,451 $287,451 $376,561
70
Age $198,997 $45,537 $45,537 $343,811 $149,146 $149,146 $343,811 $458,325 $458,325 $559,156
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-7
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User, Age 55
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $343,811
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $66,323 $73,073 $343,811 $70,782 $77,532 $343,811 $75,241 $81,991 $343,811
2 $82,688 $65,162 $71,162 $343,811 $74,117 $80,117 $343,811 $83,603 $89,603 $343,811
3 $86,822 $64,009 $69,259 $343,811 $77,501 $82,751 $343,811 $92,638 $97,888 $343,811
4 $91,163 $62,856 $67,356 $343,811 $80,927 $85,427 $343,811 $102,404 $106,904 $343,811
5 $95,721 $61,691 $65,441 $343,811 $84,389 $88,139 $343,811 $112,965 $116,715 $343,811
6 $100,507 $60,500 $63,500 $343,811 $87,877 $90,877 $343,811 $124,388 $127,388 $343,811
7 $105,533 $59,268 $61,518 $343,811 $91,377 $93,627 $343,811 $136,747 $138,997 $343,811
8 $110,809 $57,969 $59,469 $343,811 $94,870 $96,370 $343,811 $150,122 $151,622 $343,811
9 $116,350 $56,576 $57,326 $343,811 $98,334 $99,084 $343,811 $164,600 $165,350 $343,811
10 $122,167 $55,054 $55,054 $343,811 $101,740 $101,740 $343,811 $180,281 $180,281 $343,811
11 $128,275 $52,938 $52,938 $343,811 $104,941 $104,941 $343,811 $197,716 $197,716 $343,811
12 $134,689 $50,597 $50,597 $343,811 $108,063 $108,063 $343,811 $216,833 $216,833 $343,811
13 $141,424 $47,986 $47,986 $343,811 $111,075 $111,075 $343,811 $237,826 $237,826 $343,811
14 $148,495 $45,055 $45,055 $343,811 $113,938 $113,938 $343,811 $260,925 $260,925 $344,421
15 $155,920 $41,736 $41,736 $343,811 $116,602 $116,602 $343,811 $286,287 $286,287 $375,036
16 $163,716 $37,940 $37,940 $343,811 $118,999 $118,999 $343,811 $313,980 $313,980 $408,174
17 $171,901 $33,543 $33,543 $343,811 $121,037 $121,037 $343,811 $344,219 $344,219 $440,600
18 $180,496 $28,381 $28,381 $343,811 $122,597 $122,597 $343,811 $377,209 $377,209 $475,283
19 $189,521 $22,252 $22,252 $343,811 $123,530 $123,530 $343,811 $413,169 $413,169 $512,330
20 $198,997 $14,920 $14,920 $343,811 $123,666 $123,666 $343,811 $452,345 $452,345 $551,861
Age $95,721 $61,691 $65,441 $343,811 $84,389 $88,139 $343,811 $112,965 $116,715 $343,811
60
Age $122,167 $55,054 $55,054 $343,811 $101,740 $101,740 $343,811 $180,281 $180,281 $343,811
65
Age $155,920 $41,736 $41,736 $343,811 $116,602 $116,602 $343,811 $286,287 $286,287 $375,036
70
Age $198,997 $14,920 $14,920 $343,811 $123,666 $123,666 $343,811 $452,345 $452,345 $551,861
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-8
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $916,829
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $176,860 $194,860 $916,829 $188,752 $206,752 $916,829 $200,643 $218,643 $916,829
2 $220,500 $173,764 $189,764 $916,829 $197,646 $213,646 $916,829 $222,941 $238,941 $916,829
3 $231,525 $170,691 $184,691 $916,829 $206,669 $220,669 $916,829 $247,035 $261,035 $916,829
4 $243,101 $167,620 $179,620 $916,829 $215,806 $227,806 $916,829 $273,078 $285,078 $916,829
5 $255,256 $164,687 $174,687 $916,829 $225,069 $235,069 $916,829 $301,240 $311,240 $916,829
6 $268,019 $161,890 $169,890 $916,829 $234,564 $242,564 $916,829 $331,701 $339,701 $916,829
7 $281,420 $159,225 $165,225 $916,829 $244,298 $250,298 $916,829 $364,693 $370,693 $916,829
8 $295,491 $156,688 $160,688 $916,829 $254,278 $258,278 $916,829 $400,510 $404,510 $916,829
9 $310,266 $154,275 $156,275 $916,829 $264,513 $266,513 $916,829 $439,412 $441,412 $916,829
10 $325,779 $151,984 $151,984 $916,829 $275,010 $275,010 $916,829 $481,680 $481,680 $916,829
11 $342,068 $148,849 $148,849 $916,829 $285,772 $285,772 $916,829 $529,316 $529,316 $916,829
12 $359,171 $145,779 $145,779 $916,829 $296,956 $296,956 $916,829 $581,663 $581,663 $916,829
13 $377,130 $142,772 $142,772 $916,829 $308,577 $308,577 $916,829 $639,187 $639,187 $916,829
14 $395,986 $139,827 $139,827 $916,829 $320,653 $320,653 $916,829 $702,399 $702,399 $927,167
15 $415,786 $136,943 $136,943 $916,829 $333,202 $333,202 $916,829 $771,863 $771,863 $1,011,140
16 $436,575 $134,119 $134,119 $916,829 $346,242 $346,242 $916,829 $848,196 $848,196 $1,102,655
17 $458,404 $131,352 $131,352 $916,829 $359,792 $359,792 $916,829 $932,079 $932,079 $1,193,061
18 $481,324 $128,643 $128,643 $916,829 $373,872 $373,872 $916,829 $1,024,257 $1,024,257 $1,290,564
19 $505,390 $125,990 $125,990 $916,829 $388,503 $388,503 $916,829 $1,125,551 $1,125,551 $1,395,683
20 $530,660 $123,391 $123,391 $916,829 $403,707 $403,707 $916,829 $1,236,863 $1,236,863 $1,508,972
Age $255,256 $164,687 $174,687 $916,829 $225,069 $235,069 $916,829 $301,240 $311,240 $916,829
60
Age $325,779 $151,984 $151,984 $916,829 $275,010 $275,010 $916,829 $481,680 $481,680 $916,829
65
Age $415,786 $136,943 $136,943 $916,829 $333,202 $333,202 $916,829 $771,863 $771,863 $1,011,140
70
Age $530,660 $123,391 $123,391 $916,829 $403,707 $403,707 $916,829 $1,236,863 $1,236,863 $1,508,972
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-9
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 55
Female, Non-Tobacco User Age 55
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $916,829
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $176,860 $194,860 $916,829 $188,752 $206,752 $916,829 $200,643 $218,643 $916,829
2 $220,500 $173,764 $189,764 $916,829 $197,646 $213,646 $916,829 $222,941 $238,941 $916,829
3 $231,525 $170,691 $184,691 $916,829 $206,669 $220,669 $916,829 $247,035 $261,035 $916,829
4 $243,101 $167,616 $179,616 $916,829 $215,806 $227,806 $916,829 $273,078 $285,078 $916,829
5 $255,256 $164,509 $174,509 $916,829 $225,038 $235,038 $916,829 $301,240 $311,240 $916,829
6 $268,019 $161,335 $169,335 $916,829 $234,338 $242,338 $916,829 $331,701 $339,701 $916,829
7 $281,420 $158,047 $164,047 $916,829 $243,671 $249,671 $916,829 $364,659 $370,659 $916,829
8 $295,491 $154,584 $158,584 $916,829 $252,988 $256,988 $916,829 $400,326 $404,326 $916,829
9 $310,266 $150,869 $152,869 $916,829 $262,224 $264,224 $916,829 $438,934 $440,934 $916,829
10 $325,779 $146,812 $146,812 $916,829 $271,308 $271,308 $916,829 $480,749 $480,749 $916,829
11 $342,068 $141,169 $141,169 $916,829 $279,842 $279,842 $916,829 $527,242 $527,242 $916,829
12 $359,171 $134,925 $134,925 $916,829 $288,169 $288,169 $916,829 $578,220 $578,220 $916,829
13 $377,130 $127,962 $127,962 $916,829 $296,201 $296,201 $916,829 $634,203 $634,203 $916,829
14 $395,986 $120,146 $120,146 $916,829 $303,836 $303,836 $916,829 $695,800 $695,800 $918,456
15 $415,786 $111,297 $111,297 $916,829 $310,939 $310,939 $916,829 $763,431 $763,431 $1,000,095
16 $436,575 $101,173 $101,173 $916,829 $317,330 $317,330 $916,829 $837,280 $837,280 $1,088,463
17 $458,404 $89,448 $89,448 $916,829 $322,766 $322,766 $916,829 $917,917 $917,917 $1,174,934
18 $481,324 $75,684 $75,684 $916,829 $326,925 $326,925 $916,829 $1,005,890 $1,005,890 $1,267,422
19 $505,390 $59,340 $59,340 $916,829 $329,413 $329,413 $916,829 $1,101,785 $1,101,785 $1,366,214
20 $530,660 $39,787 $39,787 $916,829 $329,777 $329,777 $916,829 $1,206,253 $1,206,253 $1,471,628
Age $255,256 $164,509 $174,509 $916,829 $225,038 $235,038 $916,829 $301,240 $311,240 $916,829
60
Age $325,779 $146,812 $146,812 $916,829 $271,308 $271,308 $916,829 $480,749 $480,749 $916,829
65
Age $415,786 $111,297 $111,297 $916,829 $310,939 $310,939 $916,829 $763,431 $763,431 $1,000,095
70
Age $530,660 $39,787 $39,787 $916,829 $329,777 $329,777 $916,829 $1,206,253 $1,206,253 $1,471,628
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-10
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $151,898
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $65,899 $72,649 $151,898 $70,332 $77,082 $151,898 $74,765 $81,515 $151,898
2 $82,688 $64,372 $70,372 $151,898 $73,222 $79,222 $151,898 $82,596 $88,596 $151,898
3 $86,822 $62,916 $68,166 $151,898 $76,172 $81,422 $151,898 $91,043 $96,293 $151,898
4 $91,163 $61,530 $66,030 $151,898 $79,182 $83,682 $151,898 $100,157 $104,657 $151,898
5 $95,721 $60,210 $63,960 $151,898 $82,255 $86,005 $151,898 $109,999 $113,749 $151,898
6 $100,507 $58,955 $61,955 $151,898 $85,393 $88,393 $151,898 $120,630 $123,630 $160,719
7 $105,533 $57,763 $60,013 $151,898 $88,597 $90,847 $151,898 $132,120 $134,370 $171,993
8 $110,809 $56,632 $58,132 $151,898 $91,869 $93,369 $151,898 $144,542 $146,042 $184,013
9 $116,350 $55,560 $56,310 $151,898 $95,211 $95,961 $151,898 $157,979 $158,729 $196,823
10 $122,167 $54,545 $54,545 $151,898 $98,625 $98,625 $151,898 $172,517 $172,517 $210,471
11 $128,275 $53,260 $53,260 $151,898 $102,178 $102,178 $151,898 $189,010 $189,010 $226,812
12 $134,689 $52,005 $52,005 $151,898 $105,858 $105,858 $151,898 $207,080 $207,080 $248,496
13 $141,424 $50,780 $50,780 $151,898 $109,672 $109,672 $151,898 $226,877 $226,877 $272,253
14 $148,495 $49,584 $49,584 $151,898 $113,622 $113,622 $151,898 $248,568 $248,568 $298,281
15 $155,920 $48,415 $48,415 $151,898 $117,715 $117,715 $151,898 $272,331 $272,331 $326,798
16 $163,716 $47,275 $47,275 $151,898 $121,955 $121,955 $151,898 $298,367 $298,367 $358,040
17 $171,901 $46,161 $46,161 $151,898 $126,348 $126,348 $152,898 $326,892 $326,892 $392,270
18 $180,496 $45,073 $45,073 $151,898 $130,899 $130,899 $157,079 $358,143 $358,143 $429,772
19 $189,521 $44,011 $44,011 $151,898 $135,615 $135,615 $162,737 $392,383 $392,383 $470,859
20 $198,997 $42,975 $42,975 $151,898 $140,500 $140,500 $168,599 $429,896 $429,896 $515,875
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $95,721 $60,210 $63,960 $151,898 $82,255 $86,005 $151,898 $109,999 $113,749 $151,898
70
Age $122,167 $54,545 $54,545 $151,898 $98,625 $98,625 $151,898 $172,517 $172,517 $210,471
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-11
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $151,898
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $64,595 $71,345 $151,898 $69,045 $75,795 $151,898 $73,496 $80,246 $151,898
2 $82,688 $61,506 $67,506 $151,898 $70,447 $76,447 $151,898 $79,936 $85,936 $151,898
3 $86,822 $58,193 $63,443 $151,898 $71,684 $76,934 $151,898 $86,886 $92,136 $151,898
4 $91,163 $54,613 $59,113 $151,898 $72,729 $77,229 $151,898 $94,429 $98,929 $151,898
5 $95,721 $50,717 $54,467 $151,898 $73,553 $77,303 $151,898 $102,670 $106,420 $151,898
6 $100,507 $46,426 $49,426 $151,898 $74,103 $77,103 $151,898 $111,729 $114,729 $151,898
7 $105,533 $41,635 $43,885 $151,898 $74,311 $76,561 $151,898 $121,692 $123,942 $158,645
8 $110,809 $36,237 $37,737 $151,898 $74,109 $75,609 $151,898 $132,409 $133,909 $168,725
9 $116,350 $30,062 $30,812 $151,898 $73,386 $74,136 $151,898 $143,868 $144,618 $179,327
10 $122,167 $22,952 $22,952 $151,898 $72,040 $72,040 $151,898 $156,139 $156,139 $190,490
11 $128,275 $14,083 $14,083 $151,898 $69,643 $69,643 $151,898 $169,568 $169,568 $203,482
12 $134,689 $3,823 $3,823 $151,898 $66,384 $66,384 $151,898 $183,900 $183,900 $220,680
13 $141,424 $0 $0 $0* $62,069 $62,069 $151,898 $199,151 $199,151 $238,981
14 $148,495 $0 $0 $0* $56,467 $56,467 $151,898 $215,335 $215,335 $258,402
15 $155,920 $0 $0 $0* $49,252 $49,252 $151,898 $232,449 $232,449 $278,939
16 $163,716 $0 $0 $0* $39,943 $39,943 $151,898 $250,453 $250,453 $300,543
17 $171,901 $0 $0 $0* $27,898 $27,898 $151,898 $269,287 $269,287 $323,144
18 $180,496 $0 $0 $0* $12,157 $12,157 $151,898 $288,835 $288,835 $346,602
19 $189,521 $0 $0 $0* $0 $0 $0* $308,969 $308,969 $370,763
20 $198,997 $0 $0 $0* $0 $0 $0* $329,522 $329,522 $395,426
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $95,721 $50,717 $54,467 $151,898 $73,553 $77,303 $151,898 $102,670 $106,420 $151,898
70
Age $122,167 $22,952 $22,952 $151,898 $72,040 $72,040 $151,898 $156,139 $156,139 $190,490
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 $151,898 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-12
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $405,061
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $175,925 $193,925 $405,061 $187,758 $205,758 $405,061 $199,591 $217,591 $405,061
2 $220,500 $172,035 $188,035 $405,061 $195,682 $211,682 $405,061 $220,730 $236,730 $405,061
3 $231,525 $168,323 $182,323 $405,061 $203,777 $217,777 $405,061 $243,552 $257,552 $405,061
4 $243,101 $164,785 $176,785 $405,061 $212,047 $224,047 $405,061 $268,205 $280,205 $405,061
5 $255,256 $161,415 $171,415 $405,061 $220,497 $230,497 $405,061 $294,851 $304,851 $405,061
6 $268,019 $158,209 $166,209 $405,061 $229,134 $237,134 $405,061 $323,665 $331,665 $431,164
7 $281,420 $155,160 $161,160 $405,061 $237,961 $243,961 $405,061 $354,837 $360,837 $461,871
8 $295,491 $152,265 $156,265 $405,061 $246,985 $250,985 $405,061 $388,575 $392,575 $494,644
9 $310,266 $149,519 $151,519 $405,061 $256,211 $258,211 $405,061 $425,105 $427,105 $529,610
10 $325,779 $146,916 $146,916 $405,061 $265,645 $265,645 $405,061 $464,671 $464,671 $566,899
11 $342,068 $143,599 $143,599 $405,061 $275,489 $275,489 $405,061 $509,605 $509,605 $611,525
12 $359,171 $140,356 $140,356 $405,061 $285,698 $285,698 $405,061 $558,883 $558,883 $670,659
13 $377,130 $137,186 $137,186 $405,061 $296,286 $296,286 $405,061 $612,926 $612,926 $735,512
14 $395,986 $134,088 $134,088 $405,061 $307,266 $307,266 $405,061 $672,196 $672,196 $806,635
15 $415,786 $131,060 $131,060 $405,061 $318,652 $318,652 $405,061 $737,197 $737,197 $884,636
16 $436,575 $128,100 $128,100 $405,061 $330,461 $330,461 $405,061 $808,483 $808,483 $970,180
17 $458,404 $125,207 $125,207 $405,061 $342,707 $342,707 $411,249 $886,663 $886,663 $1,063,995
18 $481,324 $122,380 $122,380 $405,061 $355,407 $355,407 $426,489 $972,402 $972,402 $1,166,883
19 $505,390 $119,616 $119,616 $405,061 $368,578 $368,578 $442,294 $1,066,433 $1,066,433 $1,279,719
20 $530,660 $116,915 $116,915 $405,061 $382,237 $382,237 $458,684 $1,169,556 $1,169,556 $1,403,467
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $255,256 $161,415 $171,415 $405,061 $220,497 $230,497 $405,061 $294,851 $304,851 $405,061
70
Age $325,779 $146,916 $146,916 $405,061 $265,645 $265,645 $405,061 $464,671 $464,671 $566,899
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-13
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $405,061
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $172,254 $190,254 $405,061 $184,119 $202,119 $405,061 $195,989 $213,989 $405,061
2 $220,500 $164,015 $180,015 $405,061 $187,860 $203,860 $405,061 $213,162 $229,162 $405,061
3 $231,525 $155,180 $169,180 $405,061 $191,158 $205,158 $405,061 $231,695 $245,695 $405,061
4 $243,101 $145,634 $157,634 $405,061 $193,944 $205,944 $405,061 $251,811 $263,811 $405,061
5 $255,256 $135,245 $145,245 $405,061 $196,140 $206,140 $405,061 $273,788 $283,788 $405,061
6 $268,019 $123,802 $131,802 $405,061 $197,607 $205,607 $405,061 $297,944 $305,944 $405,061
7 $281,420 $111,027 $117,027 $405,061 $198,163 $204,163 $405,061 $324,511 $330,511 $423,054
8 $295,491 $96,632 $100,632 $405,061 $197,624 $201,624 $405,061 $353,090 $357,090 $449,933
9 $310,266 $80,165 $82,165 $405,061 $195,696 $197,696 $405,061 $383,649 $385,649 $478,205
10 $325,779 $61,205 $61,205 $405,061 $192,106 $192,106 $405,061 $416,372 $416,372 $507,974
11 $342,068 $37,555 $37,555 $405,061 $185,716 $185,716 $405,061 $452,182 $452,182 $542,619
12 $359,171 $10,195 $10,195 $405,061 $177,023 $177,023 $405,061 $490,400 $490,400 $588,480
13 $377,130 $0 $0 $0* $165,519 $165,519 $405,061 $531,070 $531,070 $637,284
14 $395,986 $0 $0 $0* $150,580 $150,580 $405,061 $574,228 $574,228 $689,073
15 $415,786 $0 $0 $0* $131,339 $131,339 $405,061 $619,864 $619,864 $743,837
16 $436,575 $0 $0 $0* $106,515 $106,515 $405,061 $667,874 $667,874 $801,449
17 $458,404 $0 $0 $0* $74,396 $74,396 $405,061 $718,099 $718,099 $861,719
18 $481,324 $0 $0 $0* $32,421 $32,421 $405,061 $770,228 $770,228 $924,274
19 $505,390 $0 $0 $0* $0 $0 $0* $823,918 $823,918 $988,702
20 $530,660 $0 $0 $0* $0 $0 $0* $878,726 $878,726 $1,054,471
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $255,256 $135,245 $145,245 $405,061 $196,140 $206,140 $405,061 $273,788 $283,788 $405,061
70
Age $325,779 $61,205 $61,205 $405,061 $192,106 $192,106 $405,061 $416,372 $416,372 $507,974
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 $405,061 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-14
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $215,015
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $66,292 $73,042 $215,015 $70,751 $77,501 $215,015 $75,210 $81,960 $215,015
2 $82,688 $65,029 $71,029 $215,015 $73,985 $79,985 $215,015 $83,472 $89,472 $215,015
3 $86,822 $63,760 $69,010 $215,015 $77,203 $82,453 $215,015 $92,326 $97,576 $215,015
4 $91,163 $62,548 $67,048 $215,015 $80,496 $84,996 $215,015 $101,871 $106,371 $215,015
5 $95,721 $61,391 $65,141 $215,015 $83,869 $87,619 $215,015 $112,209 $115,959 $215,015
6 $100,507 $60,289 $63,289 $215,015 $87,322 $90,322 $215,015 $123,411 $126,411 $215,015
7 $105,533 $59,240 $61,490 $215,015 $90,858 $93,108 $215,015 $135,555 $137,805 $215,015
8 $110,809 $58,241 $59,741 $215,015 $94,481 $95,981 $215,015 $148,726 $150,226 $215,015
9 $116,350 $57,293 $58,043 $215,015 $98,192 $98,942 $215,015 $163,017 $163,767 $215,015
10 $122,167 $56,392 $56,392 $215,015 $101,994 $101,994 $215,015 $178,528 $178,528 $217,804
11 $128,275 $55,174 $55,174 $215,015 $105,880 $105,880 $215,015 $195,987 $195,987 $235,185
12 $134,689 $53,982 $53,982 $215,015 $109,914 $109,914 $215,015 $215,154 $215,154 $258,185
13 $141,424 $52,816 $52,816 $215,015 $114,101 $114,101 $215,015 $236,196 $236,196 $283,435
14 $148,495 $51,675 $51,675 $215,015 $118,448 $118,448 $215,015 $259,295 $259,295 $311,154
15 $155,920 $50,558 $50,558 $215,015 $122,960 $122,960 $215,015 $284,653 $284,653 $341,584
16 $163,716 $49,466 $49,466 $215,015 $127,644 $127,644 $215,015 $312,491 $312,491 $374,989
17 $171,901 $48,397 $48,397 $215,015 $132,507 $132,507 $215,015 $343,052 $343,052 $411,662
18 $180,496 $47,352 $47,352 $215,015 $137,555 $137,555 $215,015 $376,601 $376,601 $451,921
19 $189,521 $46,329 $46,329 $215,015 $142,795 $142,795 $215,015 $413,432 $413,432 $496,118
20 $198,997 $45,328 $45,328 $215,015 $148,235 $148,235 $215,015 $453,864 $453,864 $544,636
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $95,721 $61,391 $65,141 $215,015 $83,869 $87,619 $215,015 $112,209 $115,959 $215,015
70
Age $122,167 $56,392 $56,392 $215,015 $101,994 $101,994 $215,015 $178,528 $178,528 $217,804
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-15
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Simplified Underwriting Criteria
Face Amount: $215,015
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $78,750 $66,292 $73,042 $215,015 $70,751 $77,501 $215,015 $75,210 $81,960 $215,015
2 $82,688 $65,029 $71,029 $215,015 $73,985 $79,985 $215,015 $83,472 $89,472 $215,015
3 $86,822 $63,684 $68,934 $215,015 $77,181 $82,431 $215,015 $92,326 $97,576 $215,015
4 $91,163 $62,229 $66,729 $215,015 $80,316 $84,816 $215,015 $101,823 $106,323 $215,015
5 $95,721 $60,627 $64,377 $215,015 $83,366 $87,116 $215,015 $112,021 $115,771 $215,015
6 $100,507 $58,833 $61,833 $215,015 $86,295 $89,295 $215,015 $122,986 $125,986 $215,015
7 $105,533 $56,787 $59,037 $215,015 $89,060 $91,310 $215,015 $134,798 $137,048 $215,015
8 $110,809 $54,409 $55,909 $215,015 $91,602 $93,102 $215,015 $147,552 $149,052 $215,015
9 $116,350 $51,596 $52,346 $215,015 $93,848 $94,598 $215,015 $161,372 $162,122 $215,015
10 $122,167 $48,228 $48,228 $215,015 $95,715 $95,715 $215,015 $176,425 $176,425 $215,239
11 $128,275 $43,692 $43,692 $215,015 $96,954 $96,954 $215,015 $193,225 $193,225 $231,870
12 $134,689 $38,273 $38,273 $215,015 $97,659 $97,659 $215,015 $211,422 $211,422 $253,706
13 $141,424 $31,787 $31,787 $215,015 $97,716 $97,716 $215,015 $231,068 $231,068 $277,281
14 $148,495 $24,005 $24,005 $215,015 $96,986 $96,986 $215,015 $252,212 $252,212 $302,654
15 $155,920 $14,624 $14,624 $215,015 $95,286 $95,286 $215,015 $274,885 $274,885 $329,862
16 $163,716 $3,229 $3,229 $215,015 $92,360 $92,360 $215,015 $299,087 $299,087 $358,904
17 $171,901 $0 $0 $0* $87,858 $87,858 $215,015 $324,778 $324,778 $389,734
18 $180,496 $0 $0 $0* $81,292 $81,292 $215,015 $351,866 $351,866 $422,239
19 $189,521 $0 $0 $0* $72,001 $72,001 $215,015 $380,207 $380,207 $456,249
20 $198,997 $0 $0 $0* $59,091 $59,091 $215,015 $409,613 $409,613 $491,535
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $95,721 $60,627 $64,377 $215,015 $83,366 $87,116 $215,015 $112,021 $115,771 $215,015
70
Age $122,167 $48,228 $48,228 $215,015 $95,715 $95,715 $215,015 $176,425 $176,425 $215,239
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $75,000 payment 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 $215,015 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-16
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $573,372
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $176,780 $194,780 $573,372 $188,670 $206,670 $573,372 $200,560 $218,560 $573,372
2 $220,500 $173,431 $189,431 $573,372 $197,293 $213,293 $573,372 $222,591 $238,591 $573,372
3 $231,525 $170,229 $184,229 $573,372 $206,093 $220,093 $573,372 $246,357 $260,357 $573,372
4 $243,101 $167,170 $179,170 $573,372 $215,111 $227,111 $573,372 $272,108 $284,108 $573,372
5 $255,256 $164,250 $174,250 $573,372 $224,352 $234,352 $573,372 $300,026 $310,026 $573,372
6 $268,019 $161,465 $169,465 $573,372 $233,823 $241,823 $573,372 $330,309 $338,309 $573,372
7 $281,420 $158,811 $164,811 $573,372 $243,534 $249,534 $573,372 $363,171 $369,171 $573,372
8 $295,491 $156,286 $160,286 $573,372 $253,489 $257,489 $573,372 $398,850 $402,850 $573,372
9 $310,266 $153,884 $155,884 $573,372 $263,699 $265,699 $573,372 $437,600 $439,600 $573,372
10 $325,779 $151,603 $151,603 $573,372 $274,170 $274,170 $573,372 $479,703 $479,703 $585,238
11 $342,068 $148,476 $148,476 $573,372 $284,900 $284,900 $573,372 $527,143 $527,143 $632,572
12 $359,171 $145,414 $145,414 $573,372 $296,049 $296,049 $573,372 $579,275 $579,275 $695,130
13 $377,130 $142,415 $142,415 $573,372 $307,635 $307,635 $573,372 $636,563 $636,563 $763,875
14 $395,986 $139,477 $139,477 $573,372 $319,674 $319,674 $573,372 $699,516 $699,516 $839,419
15 $415,786 $136,600 $136,600 $573,372 $332,185 $332,185 $573,372 $768,695 $768,695 $922,434
16 $436,575 $133,783 $133,783 $573,372 $345,185 $345,185 $573,372 $844,715 $844,715 $1,013,658
17 $458,404 $131,024 $131,024 $573,372 $358,693 $358,693 $573,372 $928,253 $928,253 $1,113,904
18 $481,324 $128,321 $128,321 $573,372 $372,731 $372,731 $573,372 $1,020,053 $1,020,053 $1,224,063
19 $505,390 $125,674 $125,674 $573,372 $387,317 $387,317 $573,372 $1,120,931 $1,120,931 $1,345,117
20 $530,660 $123,082 $123,082 $573,372 $402,475 $402,475 $573,372 $1,231,786 $1,231,786 $1,478,143
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $255,256 $164,250 $174,250 $573,372 $224,352 $234,352 $573,372 $300,026 $310,026 $573,372
70
Age $325,779 $151,603 $151,603 $573,372 $274,170 $274,170 $573,372 $479,703 $479,703 $585,238
75
- -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes a $200,000 payment 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-17
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
VARIABLE LIFE CONTRACT
Male, Non-Tobacco User, Age 65
Female, Non-Tobacco User, Age 65
Standard Underwriting Class
Full Underwriting Criteria
Face Amount: $573,372
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
ContraAt 5% Per Surrender Contract Death Surrender Contract Death Surrender Contract Death
Year Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ---- ----- ----- ------- ----- ----- ------- ----- ----- -------
1 $210,000 $176,780 $194,780 $573,372 $188,670 $206,670 $573,372 $200,560 $218,560 $573,372
2 $220,500 $173,411 $189,411 $573,372 $197,293 $213,293 $573,372 $222,591 $238,591 $573,372
3 $231,525 $169,825 $183,825 $573,372 $205,815 $219,815 $573,372 $246,203 $260,203 $573,372
4 $243,101 $165,943 $177,943 $573,372 $214,177 $226,177 $573,372 $271,529 $283,529 $573,372
5 $255,256 $161,671 $171,671 $573,372 $222,309 $232,309 $573,372 $298,722 $308,722 $573,372
6 $268,019 $156,888 $164,888 $573,372 $230,120 $238,120 $573,372 $327,963 $335,963 $573,372
7 $281,420 $151,433 $157,433 $573,372 $237,493 $243,493 $573,372 $359,461 $365,461 $573,372
8 $295,491 $145,091 $149,091 $573,372 $244,272 $248,272 $573,372 $393,471 $397,471 $573,372
9 $310,266 $137,590 $139,590 $573,372 $250,262 $252,262 $573,372 $430,325 $432,325 $573,372
10 $325,779 $128,608 $128,608 $573,372 $255,241 $255,241 $573,372 $470,468 $470,468 $573,970
11 $342,068 $116,511 $116,511 $573,372 $258,545 $258,545 $573,372 $515,266 $515,266 $618,319
12 $359,171 $102,062 $102,062 $573,372 $260,424 $260,424 $573,372 $563,792 $563,792 $676,550
13 $377,130 $84,766 $84,766 $573,372 $260,576 $260,576 $573,372 $616,181 $616,181 $739,417
14 $395,986 $64,013 $64,013 $573,372 $258,631 $258,631 $573,372 $672,565 $672,565 $807,078
15 $415,786 $38,997 $38,997 $573,372 $254,096 $254,096 $573,372 $733,026 $733,026 $879,632
16 $436,575 $8,612 $8,612 $573,372 $246,295 $246,295 $573,372 $797,565 $797,565 $957,078
17 $458,404 $0 $0 $0* $234,289 $234,289 $573,372 $866,075 $866,075 $1,039,290
18 $481,324 $0 $0 $0* $216,779 $216,779 $573,372 $938,309 $938,309 $1,125,971
19 $505,390 $0 $0 $0* $192,003 $192,003 $573,372 $1,013,886 $1,013,886 $1,216,663
20 $530,660 $0 $0 $0* $157,576 $157,576 $573,372 $1,092,300 $1,092,300 $1,310,760
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
60
Age N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
65
Age $255,256 $161,671 $171,671 $573,372 $222,309 $232,309 $573,372 $298,722 $308,722 $573,372
70
Age $325,779 $128,608 $128,608 $573,372 $255,241 $255,241 $573,372 $470,468 $470,468 $573,970
75
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a $200,000 payment 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 $573,372 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 or return for the
funds. These hypothetical investment rates of return may not be achieved for any
one year or sustained over any period.
D-18
<PAGE>
APPENDIX E -
SPECIAL TERMS
<PAGE>
Age: how old the insured is on his or her last birthday before the date of issue
and, subsequently, the contract anniversary. However, for benefit payment
options, age is based on the age nearest birthday of the designated individual.
Attained Age: the insured's age as of the insured's last birthday at the start
of the contract year. Attained age is used in the calculation of the guideline
minimum sum insured.
Beneficiary: the person or persons you name to receive the net death benefit
when the insured dies.
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 your 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 initial face amount is shown
in your contract.
Final Payment Date: the contract anniversary coinciding with or immediately
following the insured's 100th birthday. For a Second-to-Die contract, the final
payment date is the contract anniversary coinciding with or immediately
following the younger insured's 100th birthday. 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 the guideline minimum sum insured minus
any outstanding loan, except as otherwise provided in a Guaranteed Death Benefit
Rider, if attached to the contract.
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 starting on: (a) the monthly processing date on
which the surrender value is less than the monthly deductions due 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 a life insurance contract under 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.
<PAGE>
E-1
<PAGE>
Insurance Protection Amount: the death benefit less the contract value.
Insured: the person or persons insured under the contract. If more than one
person is insured, 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 its rules and regulations.
Loan Value: the maximum amount you may borrow under the contract.
Maturity Date: the contract anniversary coinciding with or immediately following
the insured's 115th birthday. If two persons are insured, the maturity date is
the contract anniversary coinciding with or immediately following the younger
insured's 115th birthday.
Monthly Insurance Protection Charge: the amount of money we deduct from the
contract value each month to pay for the insurance protection amount.
Monthly Processing Date: the date, shown in your contract, on which monthly
deductions are deducted.
Net Death Benefit: on or before the final payment date:
the death benefit; minus
any outstanding loan, monthly deductions due and unpaid through the
contract month in which the insured dies, as well as any due and 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:
the guideline minimum sum insured; minus
any outstanding loan through the contract month in which the insured dies,
as well as any due and 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 the greater of:
the face amount as of the final payment date, or
the guideline minimum sum insured as of the date we receive due proof of death
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
in the same proportion that, on the date of allocation, the portion of the
contract value in the fixed account and the portion of the contract value in
each sub-account bear to the total contract value net of any outstanding loans.
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 contract value less any outstanding loan and surrender
charges. The surrender value is the amount payable on a full surrender.
Transamerica: Transamerica Occidental Life Insurance Company. We, our, us,
Company and Transamerica refer to Transamerica Occidental Life Insurance Company
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.
<PAGE>
E-2
<PAGE>
Unit: a measure of your interest in a sub-account.
Valuation Date: any day on which the net asset value of the shares of any
portfolio and unit values of any sub-accounts are computed. Valuation dates
currently occur on:
each day the New York Stock Exchange is open for trading; and
other days, such as those other than a day during which no payment,
partial withdrawal or surrender of a 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-account may be materially affected.
Valuation Period: the interval between two consecutive valuation dates.
Variable Life Service Center: our office at 440 Lincoln Street, Worcester,
Massachusetts 01653.
Our mailing address for all written requests and other correspondence is:
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>
E-3
<PAGE>
PARTICIPATION AGREEMENT
Among
TRANSAMERICA OCCIDENTAL LIFE INSURANCE,
PIMCO VARIABLE INSURANCE TRUST,
and
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of July, 1999 by and among
Transamerica Occidental Life Insurance Company (the "Company"), a California
life insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), PIMCO
Variable Insurance Trust (the "Fund"), a Delaware business trust, and PIMCO
Funds Distributors LLC (the "Underwriter"), a Delaware limited liability
company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC") dated February 9, 1998 (PIMCO Variable Insurance
Trust, et al., File No. 812-10822, Investment Company Act. Rel. No. 23022)
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to
the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies, as well as qualified
pension and retirement plans outside of the separate account context (the "Mixed
and Shared Funding Exemptive Order"), and the Fund hereby provides notice to the
Company that appropriate prospectus disclosure regarding potential risks of
mixed and shared funding may be appropriate;
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by an
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, each Account is duly established and maintained as a
segregated asset account, duly established by the Company, to set aside and
invest assets attributable to the aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A 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
the 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. Sale of Fund Shares
The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, 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, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or fractional
Designated Portfolio shares held by the Company on behalf of the Account, such
redemptions to be effected at net asset value in accordance with Section 1.3 of
this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem
Fund shares attributable to Contract owners except in the circumstances
permitted in Section 10.3 of this Agreement, and (ii) the Fund may delay
redemption of Fund shares of any Designated Portfolio to the extent permitted by
the 1940 Act, and any rules, regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund for the
limited purpose of receiving purchase and redemption requests on behalf of
the Account (but not with respect to any Fund shares that may be held in
the general account of the Company) for shares of those Designated
Portfolios made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt of any such request (or
relevant transactional information therefor) on any day the New York Stock
Exchange is open for trading (a "Business Day") by the Company as such
limited agent of the Fund prior to the time that the Fund ordinarily
calculates its net asset value as described from time to time in the Fund
Prospectus (which as of the date of execution of this Agreement is 4:00
p.m. Eastern Time) shall constitute receipt by the Fund on that same
Business Day, provided that the Fund receives notice of such request by
9:00 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on the same
day that it notifies the Fund of a purchase request for such shares.
Payment for Designated Portfolio shares shall be made in federal funds
transmitted to the Fund by wire to be received by the Fund by 4:00 p.m.
Eastern Time on the day the Fund is notified of the purchase request for
Designated Portfolio shares (unless the Fund determines and so advises the
Company that sufficient proceeds are available from redemption of shares of
other Designated Portfolios effected pursuant to redemption requests
tendered by the Company on behalf of the Account). If federal funds are not
received on time, such funds will be invested, and Designated Portfolio
shares purchased thereby will be issued, as soon as practicable and the
Company shall promptly, upon the Fund's request, reimburse the Fund for any
charges, costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the Fund,
or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. Upon
receipt of federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the
Fund.
(c) Payment for Designated Portfolio shares redeemed by the Account or the
Company shall be made in federal funds transmitted by wire to the Company
or any other designated person on the next Business Day after the Fund is
properly notified of the redemption order of such shares (unless redemption
proceeds are to be applied to the purchase of shares of other Designated
Portfolio in accordance with Section 1.3(b) of this Agreement), except that
the Fund reserves the right to redeem Designated Portfolio shares in assets
other than cash and to delay payment of redemption proceeds to the extent
permitted under Section 22(e) of the 1940 Act and any Rules thereunder, and
in accordance with the procedures and policies of the Fund as described in
the then current prospectus. The Fund shall not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds
by the Company, the Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio shares held
or to be held in the Company's general account shall be effected at the
net asset value per share next determined after the Fund's receipt of
such request, provided that, in the case of a purchase request, payment
for Fund shares so requested is received by the Fund in federal funds
prior to close of business for determination of such value, as defined
from time to time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the net asset value per share
for each Designated Portfolio available to the Company by 6:30 p.m. Eastern Time
each Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such Designated Portfolio is calculated, and shall
calculate such net asset value in accordance with the Fund's Prospectus. Neither
the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates
shall be liable for any information provided to the Company pursuant to this
Agreement which information is based on incorrect information supplied by the
Company or any other Participating Insurance Company to the Fund or the
Underwriter.
1.5. The Fund shall furnish notice (by wire or telephone followed by written
confirmation) to the Company as soon as reasonably practicable of any income
dividends or capital gain distributions payable on any Designated Portfolio
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any Designated
Portfolio shares in the form of additional shares of that Designated Portfolio.
The Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company promptly of the number
of Designated Portfolio shares so issued as payment of such dividends and
distributions. The Fund shall provide an annual calendar of dividend and
distribution dates, which may be amended from time to time.
1.6. Issuance and transfer of Fund shares shall be by book entry only. Stock
certificates will not be issued to the Company or the Account. Purchase and
redemption orders for Fund shares shall be recorded in an appropriate ledger for
the Account or the appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.8 hereof) and the cash value of the
Contracts may be invested in other investment companies.
The Company shall not, without prior notice to the Underwriter (unless
otherwise required by applicable law), take any action to operate the Account as
a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Underwriter (unless
otherwise required by applicable law), induce Contract owners to change or
modify the Fund or change the Fund's distributor or investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board of
Trustees of the Fund.
1.8. The Underwriter and the Fund shall sell Fund shares only to Participating
Insurance Companies and their separate accounts and to persons or plans
("Qualified Persons") that represent to the Underwriter and the Fund that they
qualify to purchase shares of the Fund under Section 817(h) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder
without impairing the ability of the Account to consider the portfolio
investments of the Fund as constituting investments of the Account for the
purpose of satisfying the diversification requirements of Section 817(h). The
Underwriter and the Fund shall not sell Fund shares to any insurance company or
separate account unless an agreement substantially complying with Article VI of
this Agreement is in effect to govern such sales, to the extent required. The
Company hereby represents and warrants that it and the Account are Qualified
Persons. The Fund reserves the right to cease offering shares of any Designated
Portfolio in the discretion of the Fund.
ARTICLE II. Representations and Warranties
The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act, or (b) 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 and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall 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, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under California insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register 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, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in accordance with the laws of the various
states only if and to the extent deemed advisable by the Company.
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 applicable state and federal 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 or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act. Prior to financing distribution expenses pursuant
to Rule 12b-1, the Fund will have the Board, a majority of whom are not
interested persons of the Fund, formulate and approve a plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund makes no representations as to whether any aspect of its
operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, but may do so upon request.
2.5. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Delaware and that it does and will comply in all
material respects with the 1940 Act.
2.6. The Underwriter represents and warrants that it is a member in good
standing of the 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 any applicable state and federal securities laws.
2.7. The Fund and the Underwriter represent and warrant that all of their
trustees/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
minimum 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 shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.8. The Company represents and warrants it will maintain a blanket fidelity
bond or similar coverage issued by a reputable bonding company in an amount
appropriate to the Company's obligations under this Agreement.
ARTICLE III. Prospectuses and Proxy Statements; Voting
The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) or, to the extent permitted, the Fund's profiles as the
Company may reasonably request. The Company shall bear the expense of printing
copies of the current prospectus and profiles for the Contracts that will be
distributed to existing Contract owners, and the Company shall bear the expense
of printing copies of the Fund's prospectus and profiles that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus in electronic format at the Fund's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus or
profile printed together in one document (the payment of such printing costs to
be governed by the provisions of Section 5.3 of this Agreement).
3.2. The Fund's prospectus shall state that the current Statement of Additional
Information ("SAI") for the Fund is available, and the Underwriter (or the
Fund), at its expense, shall provide a reasonable number of copies of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3. The Fund shall provide the Company with information regarding the Fund's
expenses, which information may include a table of fees and related narrative
disclosure for use in any prospectus or other descriptive document relating to a
Contract. The Company agrees that it will use such information in the form
provided. The Company shall provide prior written notice of any proposed
modification of such information, which notice will describe in detail the
manner in which the Company proposes to modify the information, and agrees that
it may not modify such information in any way without the prior consent of the
Fund.
3.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders describing only the Designated
Portfolio(s) in Schedule A, and other communications to shareholders in such
quantity as the Company shall reasonably require for distributing to Contract
owners.
3.5. 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 SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company will vote Fund shares held in any
segregated asset account in the same proportion as Fund shares of such portfolio
for which voting instructions have been received from Contract owners, to the
extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Mixed and Shared Funding
Exemptive Order and consistent with any reasonable standards that the Fund may
adopt and provide in writing.
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 that
the Company develops and in which the Fund (or a Designated Portfolio thereof)
or the Adviser or the Underwriter is named. No such material shall be used until
approved by the Fund or its designee, and the Fund will use its best efforts for
it or its designee to review such sales literature or promotional material
within four Business Days after receipt of such material. The Fund or its
designee reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Fund (or a
Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no
such material shall be used if the Fund or its designee so object.
4.2. The Company shall not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund or the Adviser or the
Underwriter in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus or SAI for the Fund shares, as such registration statement and
prospectus or SAI 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 or by the Underwriter,
except with the permission of the Fund or the Underwriter or the designee of
either.
4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to
be furnished, to the Company, each piece of sales literature or other
promotional material that it develops and in which the Company, and/or its
Account, is named. No such material shall be used until approved by the Company,
and the Company will use its best efforts to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Company reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Company and/or
its Account is named, and no such material shall be used if the Company so
objects.
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, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus (which shall include an offering memorandum,
if any, if the Contracts issued by the Company or interests therein are not
registered under the 1933 Act), or SAI for the Contracts, as such registration
statement, prospectus, or SAI may be amended or supplemented from time to time,
or in published reports for the 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, SAIs, 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, promptly after the filing of such document(s)
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 (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
4.7. The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales literature and other
promotional materials" 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, 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,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
The Fund and the 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 the Fund or 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, 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. Currently, no such payments are
contemplated.
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 and distributing
the proxy materials and setting in type and printing 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. For the first 14 months following the effective date of this Agreement, the
Fund shall contribute a maximum of $5,000 in aggregate towards the expenses of
printing and distributing the Fund's prospectus to owners of Contracts issued by
the Company and of distributing the Fund's periodic reports to such Contract
owners, with any additional expenses to be borne by the Company. The Fund and
the Company may agree at a future date to adjust the amount contributed by the
Fund for expenses described under this Section 5.3.
ARTICLE VI. Diversification and Qualification
The Fund will invest its assets in such a manner as to ensure
that the Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Code and the regulations issued thereunder
(or any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio has complied and will continue to comply with Section
817(h) of the Code and Treasury Regulation ss.1.817-5, 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. In
the event of a breach of this Article VI by the Fund, it will take all
reasonable steps (a) to notify the Company of such breach and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 1.817-5.
6.2. The Fund represents that it shall maintain qualification as a Regulated
Investment Company under Subchapter M of the Code (under Subchapter M or any
successor or similar provisions) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
6.3. The Company represents that the Contracts are currently, and at the time of
issuance shall be, treated as life insurance or annuity insurance contracts,
under applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing the Contracts have
ceased to be so treated or that they might not be so treated in the future. To
the extent applicable under federal securities law, the Company agrees that any
prospectus offering a contract that is a "modified endowment contract" as that
term is defined in Section 7702A of the Code (or any successor or similar
provision), shall identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon the sale of shares of the Fund to
variable life insurance separate accounts, and then only to the extent required
under the 1940 Act.
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 and all other persons investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that a material
irreconcilable conflict exists and the implications thereof.
7.2. The Company, with a view only to the interests of Contract owners, will
report any potential or existing conflicts of which it is aware to the Board.
The Company, with a view only to the interests of Contract owners, will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever Contract
owner voting instructions are disregarded. No less than annually, the Company
shall submit to the Board such reports, materials, or data as the Board
reasonably requests so that the Board may carry out its obligations under the
Mixed and Shared Funding Exemptive Order.
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 Board members), 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 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.
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 Account's investment in
the Fund and terminate this Agreement with respect to each 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.
Any such withdrawal and termination must take place within six (6) months after
the Fund gives written notice that this provision is being implemented, and
until the end of that six month period the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it 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 members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
then the Company will withdraw the Account's investment in the Fund 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 by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption Order or any
amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
Indemnification by the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and the trustees/directors and officers of each, and each person, if
any, who controls the Fund or Underwriter within the meaning of Section 15 of
the 1933 Act or who is under common control with the Fund or the Underwriter
(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
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 or liabilities (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue
statements of any material fact contained in the registration statement,
prospectus (which shall include a written description of a Contract that is
not registered under the 1933 Act), or SAI 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, prospectus or SAI 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, SAI, or sales literature of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of the Company or
its agents or persons under the Company's authorization or control, with
respect to the sale or distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI, or
sales literature 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 to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company 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 qualification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the 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 to which an Indemnified Party would otherwise be subject by
reason of 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 its 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 an Indemnified Party, 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 Underwriter
8.2(a). The Underwriter 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
(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 (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 or liabilities (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 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 to the Underwriter or Fund by or on behalf of
the Company for use in the registration statement, prospectus or SAI 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, SAI 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, SAI 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 the Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the
materials under the terms of this Agreement,
including, without limiting the foregoing, a
materially incorrect or untimely calculation or
reporting of the daily net asset value per share or
distribution rate (and including a failure of the
Fund, whether unintentional or in good faith or
otherwise, to comply with the diversification and
other qualification requirements specified in Article
VI of this Agreement); or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) 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 gross
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 the Company 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 an
Indemnified Party, 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 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). The Indemnified Parties will promptly 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.
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 (collectively,
the "Indemnified Parties" 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 be required
to pay or may become subject under any statute or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) or settlements, are related to the operations
of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification and other
qualification requirements specified in Article VI of
this Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, 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 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 or to the Company, the Fund, the Underwriter or
the Account, whichever is applicable.
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 and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of the Account, or the
sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
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 SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, the Mixed and Shared Funding Exemptive Order should no longer
be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. Termination
This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with respect
to some or all Designated Portfolios, 45 days'
advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter in the event any of the
Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of
such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event
that formal administrative proceedings are instituted
against the Company by the NASD, the SEC, the Insurance
Commissioner or like official 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 operation of any Account, or the purchase of the
Fund's shares; provided, however, that the Fund or
Underwriter 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 Company to perform its obligations under this
Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the
Fund or Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body; provided, however, that the Company
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) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Designated Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company
under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified
in Article VI hereof, or if the Company reasonably
believes that such Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the Contracts
fail to meet the qualifications specified in Article
VI hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both
of the Fund or the Underwriter 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
(i) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or the Underwriter 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
(j) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund
and the Underwriter the written notice specified in
Section 1.7(a)(ii) 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(j) shall be effective forty-five
days after the notice specified in Section 1.7(a)(ii)
was given; or
(k) termination by the Company upon any substitution of
the shares of another investment company or series
thereof for shares of a Designated Portfolio of the
Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 45 days
prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the Fund's
Board of Trustees determines that a material
irreconcilable conflict exists as provided in Article
VII.
10.2. Notwithstanding any termination of this Agreement, the Fund and the
Underwriter 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"). The
Underwriter agrees to split the cost of seeking such an order, and the Company
agrees that it shall reasonably cooperate with the Underwriter and seek such an
order upon request. Specifically, the owners of the Existing Contracts may 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 (subject to any such election by the Underwriter). 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. The parties further agree that this Section 10.2
shall not apply to any terminations under Section 10.1(g) of this Agreement.
10.3. 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)
except (i) as necessary to implement Contract owner initiated or approved
transactions, (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"), (iii) upon 45 days prior written notice
to the Fund and Underwriter, as permitted by an order of the SEC pursuant to
Section 26(b) of the 1940 Act, or (iv) as permitted under the terms of the
Contract. Upon request, the Company will promptly furnish to the Fund and the
Underwriter reasonable assurance that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contacts, 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 or the Underwriter
45 days notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties shall survive.
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: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
If to the Company: Transamerica Occidental Life
Insurance Company
1150 South Olive Street
Los Angeles, CA 90015
Attention: Sandy Brown
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
All persons dealing with the Fund must look solely to the
property of the Fund, and in the case of a series company, the respective
Designated Portfolios listed on Schedule A hereto as though each such Designated
Portfolio had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or 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 without the express written consent
of the affected party until such time as such information has come into the
public domain.
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 SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the 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 the Company are being conducted in a manner consistent with the
California insurance laws and 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.
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
filed with any state or federal regulatory body or
otherwise made available to the public, as soon as
practicable and in any event within 90 days after the
end of each fiscal year;
(b) the Company's quarterly statements (statutory), as
soon as practical and in any event within 45 days
after the end of each quarterly period;
(c) as it relates to the Contracts in Schedule A, 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) as it relates to the Contracts in Schedule A, any
registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulatory, as soon as practicable after
the filing thereof; and
(e) as it relates to the Contracts in Schedule A, 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 below.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
By its authorized officer
By:
Title:
Date:
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By:
Title:
Date:
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By:
Title:
Date:
<PAGE>
A - 1
Schedule A
Contract Account Designated Portfolio(s)
1. Tribute VUL-1 PIMCO StocksPLUS Growth and Income
2. Lineage VUL-2 PIMCO StocksPLUS Growth and Income
Date: __________________
