P R O S P E C T U S
MAY 8, 2000
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TRANSAMERICA ELITE(SM)
issued through
Transamerica Occidental Life Separate Account VUL-3
by
Transamerica Occidental Life Insurance Company
ADMINISTRATIVE OFFICE:
570 Carillon Parkway
St. Petersburg, Florida 33716
1-800-322-7164
(727) 299-1800
PLEASE SEND ALL PREMIUM PAYMENTS, LOAN REPAYMENTS, CORRESPONDENCE
AND NOTICES TO THE ADMINISTRATIVE OFFICE ONLY.
HOME OFFICE:
1150 South Olive Street
Los Angeles, California 90015
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AN INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
If you already own a life insurance policy,
it may not be to your advantage to buy
additional insurance or to replace your
policy with the Policy described in this
prospectus.
An investment in this Policy is not a bank
deposit. The Policy is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED Prospectuses for the portfolios of:
OR DISAPPROVED THESE SECURITIES
OR PASSED UPON THE ADEQUACY [ ] WRL Series Fund, Inc.;
OF THIS PROSPECTUS. ANY [ ] Variable Insurance Products Fund (VIP);
REPRESENTATION TO THE CONTRARY [ ] Variable Insurance Products Fund II
IS A CRIMINAL OFFENSE. (VIP II);
[ ] Variable Insurance Products Fund III
(VIP III); and
[ ] Transamerica Variable Insurance Fund,
Inc.
must accompany this prospectus. Certain
portfolios may not be available in all
states. Please read these documents before
investing and save them for future reference.
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TABLE OF CONTENTS
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Glossary ................................................................... 1
Policy Summary ............................................................. 5
Risk Summary ............................................................... 10
Portfolio Annual Expense Table ............................................. 14
Transamerica and the Fixed Account ......................................... 16
Transamerica ........................................................... 16
The Fixed Account ...................................................... 16
The Separate Account and the Portfolios .................................... 17
The Separate Account ................................................... 17
The Portfolios ......................................................... 17
Addition, Deletion, or Substitution of Investments ..................... 21
Your Right to Vote Portfolio Shares .................................... 22
The Policy ................................................................. 23
Purchasing a Policy .................................................... 23
Underwriting Standards ................................................. 23
When Insurance Coverage Takes Effect ................................... 24
Ownership Rights ....................................................... 25
Canceling a Policy ..................................................... 27
Premiums ................................................................... 28
Premium Flexibility .................................................... 28
Planned Periodic Payments .............................................. 28
Minimum No Lapse Premium ............................................... 28
No Lapse Period ........................................................ 29
Premium Limitations .................................................... 29
Making Premium Payments ................................................ 29
Allocating Premiums .................................................... 30
Policy Values .............................................................. 31
Cash Value ............................................................. 31
Net Surrender Value .................................................... 31
Subaccount Value ....................................................... 32
Subaccount Unit Value .................................................. 32
Fixed Account Value .................................................... 33
Transfers .................................................................. 33
General ................................................................ 33
Fixed Account Transfers ................................................ 35
Conversion Rights ...................................................... 35
Dollar Cost Averaging .................................................. 35
Asset Rebalancing Program .............................................. 36
Third Party Asset Allocation Services .................................. 37
Charges and Deductions ..................................................... 38
Premium Charges ........................................................ 38
Monthly Deduction ...................................................... 38
Mortality and Expense Risk Charge ...................................... 40
Surrender Charge ....................................................... 40
This Policy is not available in the State of New York.
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Pro Rata Decrease Charge ................................................ 43
Transfer Charge ......................................................... 43
Change in Premium Allocation Charge ..................................... 43
Cash Withdrawal Charge .................................................. 44
Taxes ................................................................... 44
Portfolio Expenses ...................................................... 44
Death Benefit ............................................................... 44
Death Benefit Proceeds .................................................. 44
Death Benefit ........................................................... 45
Effects of Cash Withdrawals on the Death Benefit ........................ 47
Choosing Death Benefit Options .......................................... 47
Changing the Death Benefit Option ....................................... 47
Decreasing the Specified Amount ......................................... 47
No Increase in the Specified Amount ..................................... 48
Payment Options ......................................................... 48
Surrenders and Cash Withdrawals ............................................. 48
Surrenders .............................................................. 48
Cash Withdrawals ........................................................ 49
Loans ....................................................................... 50
General ................................................................. 50
Interest Rate Charged ................................................... 51
Loan Reserve Interest Rate Credited ..................................... 51
Effect of Policy Loans .................................................. 51
Policy Lapse and Reinstatement .............................................. 52
Lapse ................................................................... 52
No Lapse Period ......................................................... 52
Reinstatement ........................................................... 53
Federal Income Tax Considerations ........................................... 53
Tax Status of the Policy ................................................ 54
Tax Treatment of Policy Benefits ........................................ 54
Special Rules for 403(b) Arrangements ................................... 57
Other Policy Information .................................................... 57
Our Right to Contest the Policy ......................................... 57
Suicide Exclusion ....................................................... 57
Misstatement of Age or Gender ........................................... 58
Modifying the Policy .................................................... 58
Benefits at Maturity .................................................... 58
Payments We Make ........................................................ 59
Settlement Options ...................................................... 59
Reports to Owners ....................................................... 60
Records ................................................................. 60
Policy Termination ...................................................... 61
Supplemental Benefits (Riders) .............................................. 61
Children's Insurance Rider .............................................. 61
Accidental Death Benefit Rider .......................................... 61
Other Insured Rider ..................................................... 61
Disability Waiver Rider ................................................. 62
Disability Waiver and Income Rider ...................................... 62
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Primary Insured Rider ("PIR") and Primary Insured
Rider Plus ("PIR Plus") .............................................. 62
Living Benefit Rider (an Accelerated Death Benefit) ..................... 63
IMSA ........................................................................ 64
Performance Data ............................................................ 64
Rates of Return ......................................................... 64
Hypothetical Illustrations Based on Adjusted Historical Portfolio
Performance .......................................................... 66
Other Performance Data in Advertising Sales Literature .................. 76
Transamerica's Published Ratings ........................................ 77
Additional Information ...................................................... 77
Sale of the Policies .................................................... 77
Legal Matters ........................................................... 78
Legal Proceedings ....................................................... 78
Variations in Policy Provisions ......................................... 78
Experts ................................................................. 78
Financial Statements .................................................... 79
Additional Information about Transamerica ............................... 79
Transamerica's Directors and Officers ................................... 79
Additional Information about the Separate Account ....................... 82
Appendix A -- Illustrations ................................................. 83
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ...... 87
Index to Financial Statements ............................................... 89
Transamerica Occidental Life Insurance Company .......................... 90
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GLOSSARY
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accounts The options to which you can allocate your money. The
accounts include the fixed account and the subaccounts in the
separate account. Our administrative office and mailing
address is P.O. Box 5068, Clearwater,
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administrative Florida 33758-5068. Our street address is 570 Carillon
office Parkway, St. Petersburg, Florida 33716. Our phone number is
1-800-322-7164. ALL PREMIUM PAYMENTS, LOAN REPAYMENTS,
CORRESPONDENCE AND NOTICES SHOULD BE SENT TO THIS ADDRESS.
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attained age The issue age of the insured, plus the number of completed
years since the Policy date.
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beneficiary(ies) The person or persons you select to receive the death benefit
from this Policy. You name the primary beneficiary and
contingent beneficiaries.
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cash value The sum of your Policy's value in the subaccounts and the
fixed account. If there is a Policy loan outstanding, the
cash value includes any amounts held in our fixed account to
secure the Policy loan.
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death benefit The amount we will pay to the beneficiary on the insured's
proceeds death. We will reduce the death benefit proceeds by the
amount of any outstanding loan amount (including any interest
you owe on Policy loan(s)) plus any due and unpaid monthly
deductions.
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fixed account An option to which you may allocate premiums and cash value.
We guarantee that any amounts you allocate to the fixed
account will earn interest at a declared rate. The fixed
account may not be available in all states.
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free-look period The limited period of time during which you may return the
Policy and receive a refund as described in this prospectus.
The length of the free-look period varies by state. The
free-look period is listed in the Policy.
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funds Investment companies which are registered with the U.S.
Securities and Exchange Commission. The Policy allows you to
invest in the portfolios of the funds through our
subaccounts. We reserve the right to add other registered
investment companies to the Policy in the future.
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home office Our home office address is 1150 South Olive Street, Los
Angeles, California 90015. PLEASE DO NOT SEND ANY MONEY,
CORRESPONDENCE OR NOTICES TO THIS ADDRESS. SEND TO THE
ADMINISTRATIVE OFFICE LISTED ABOVE.
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in force While coverage under the Policy is active and the insured's
life remains insured.
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initial premium The amount you must pay before insurance coverage begins
under this Policy. The initial premium is shown on the
schedule page of your Policy.
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insured The person whose life is insured by this Policy.
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issue age The insured's age on his or her birthday nearest to the
Policy date.
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lapse When life insurance coverage ends because you do not have
enough cash value in the Policy to pay the monthly deduction,
the surrender charge and any outstanding loan amount
(including any interest you owe on Policy loans(s)), and you
have not made a sufficient payment by the end of a grace
period.
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loan amount The total amount of all outstanding Policy loans, including
both principal and interest due.
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loan reserve A part of the fixed account to which amounts are transferred
as collateral for Policy loans.
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maturity date The Policy anniversary nearest the insured's 100th birthday
if the insured is living and the Policy is still in force. It
is the date when life insurance coverage under this Policy
ends. You may continue coverage, at your option, under the
Policy's extended maturity date provision.
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minimum The amount shown on your Policy schedule page that we use
no during the no lapse period to determine whether a grace
lapse period will begin. We will adjust the minimum no lapse
premium premium if you change death benefit options, decrease the
specified amount, or add or increase a rider. We make this
determination whenever your net surrender value is not enough
to meet monthly deductions. When we use the term "minimum no
lapse premium" in this prospectus, it has the same meaning as
"minimum monthly guarantee premium" in the Policy.
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Monthiversary This is the day of each month when we determine Policy
charges and deduct them from cash value. It is the same date
each month as the Policy date. If there is no valuation date
that coincides with the Policy date in a calendar month, the
Monthiversary is the next valuation date.
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monthly The monthly Policy charge, plus the monthly cost of
deduction insurance, plus the monthly charge for any riders added to
your Policy, plus, if any, the pro rata decrease charge
incurred as a result of a decrease in your specified amount.
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net surrender The amount we will pay you if you surrender the Policy while
value it is in force. The net surrender value on the date you
surrender is equal to: the cash value, minus any surrender
charge, minus any outstanding loan amount, minus any interest
you owe on Policy loan(s).
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no lapse date The last valuation date of your third Policy year. It is the
date prior to which your Policy will not lapse if certain
conditions are met, even if the net surrender value is not
sufficient to pay the monthly deductions.
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planned periodic A premium payment you make in a level amount at a fixed
premium interval over a specified period of time.
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Policy date The date when our underwriting process is complete, full life
insurance coverage goes into effect and we begin to make the
monthly deductions. The Policy date is shown on the schedule
page of your Policy. It is also the date when, depending on
the laws of the state governing your Policy (usually the
state where you live), we allocate your premium either to the
reallocation account or to the fixed account and the
subaccounts you selected on your application. We measure
Policy months, years, and anniversaries from the Policy date.
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portfolio One of the separate investment portfolios of a fund.
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premiums All payments you make under the Policy other than loan
repayments.
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reallocation The fixed account.
account
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reallocation The date we reallocate all cash value held in the
date reallocation account to the fixed account and subaccounts you
selected on your application. We place your premium in the
reallocation account only if your state requires us to return
the full premium in the event you exercise your free-look
right. In those states the reallocation date is the record
date, plus the number of days in your state's free-look
period, plus five days. In all other states, the reallocation
date is the Policy date.
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record date The date we record your Policy on our books as an in force
Policy.
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separate account The Transamerica Occidental Life Separate Account VUL-3. It
is a separate investment account that is divided into
subaccounts. We established the separate account to receive
and invest premiums under the Policy and other variable life
insurance policies we issue.
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specified amount The minimum death benefit we will pay under the Policy
provided the Policy is in force. It is the amount shown on
the Policy's schedule page, unless you decrease the specified
amount. In addition, we will reduce the specified amount by
the dollar amount of any cash withdrawal if you choose the
Option A (level) death benefit.
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subaccount A subdivision of the separate account that invests
exclusively in shares of one investment portfolio of a fund.
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surrender charge If during the first 15 Policy years you fully surrender the
Policy, we will deduct a surrender charge from the cash
value.
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termination When the insured's life is no longer insured under the
Policy.
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valuation date Each day the New York Stock Exchange is open for trading.
Transamerica is open for business whenever the New York Stock
Exchange is open.
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valuation period The period of time over which we determine the change in the
value of the subaccounts. Each valuation period begins at the
close of normal trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time on each valuation date) and
ends at the close of normal trading of the New York Stock
Exchange on the next valuation date.
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we, us, our Transamerica Occidental Life Insurance Company.
(Transamerica)
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written notice The written notice you must sign and send us to request or
exercise your rights as owner under the Policy. To be
complete, it must: (1) be in a form we accept, (2) contain
the information and documentation that we determine we need
to take the action you request, and (3) be received at our
administrative office.
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you, your The person entitled to exercise all rights as owner under
(owner or the Policy.
policyowner)
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POLICY SUMMARY TRANSAMERICA ELITE(SM)
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This summary provides only a brief overview of the more important features
of the Policy. More detailed information about the Policy appears later in this
prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY.
THE POLICY IN GENERAL
The Transamerica Elite(SM) is an individual flexible premium variable life
insurance policy.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for you. However, purchasing this Policy
involves certain risks. (See Risk Summary p. 10.) You should consider the
Policy in conjunction with other insurance you own. THE POLICY IS NOT SUITABLE
AS A SHORT-TERM SAVINGS VEHICLE.
The minimum specified amount for this Policy when issued is $100,000 for
all issue ages.
A few of the Policy features listed below are not available in all states,
may vary depending upon when your Policy was issued and may not be suitable for
your particular situation. Certain states place restrictions on access to the
fixed account and on other Policy features. Please consult your agent and refer
to your Policy for details.
PREMIUMS
o You select a payment plan but are not required to pay premiums according to
the plan. You can vary the frequency and amount, within limits, and can
skip premium payments.
o Unplanned premiums may be made, within limits.
o Premium payments must be at least $50 if paid monthly and $600 if paid
annually.
o You increase your risk of lapse if you do not regularly pay premiums at
least as large as the current minimum no lapse premium.
o Until the no lapse date (that is, until the end of the third Policy year),
we guarantee that your Policy will not lapse, so long as you have paid
total premiums (MINUS any withdrawals, MINUS any outstanding loans, and
MINUS any pro rata decrease charge) that equal or exceed the sum of the
monthly minimum no lapse premiums in effect each month from the Policy date
up to and including the current month. If you take a withdrawal, a loan, or
if you decrease your specified amount, you may need to pay additional
premiums in order to keep the no lapse guarantee in place.
o The minimum no lapse premium on the Policy date is shown on your Policy
schedule page. We will adjust the minimum no lapse premium will change if
you change death benefit options, decrease the specified amount, or add or
increase a rider.
o Under certain circumstances, extra premiums may be required to prevent the
Policy from lapsing.
o Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may return
the Policy during this period and receive a refund. Depending on the laws
of the state governing your Policy (usually the state where you live), we
will either allocate your premium to
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the accounts you indicated on your application, or we will place your
premium in the reallocation account until the reallocation date as shown
on your Policy schedule page. See Reallocation Account p. 30.
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED
ACCOUNT
o From the initial premium: None
o From additional premiums: None
INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to a total of 12
subaccounts of the Transamerica Occidental Life Separate Account VUL-3, a
separate account. For administrative reasons, we currently limit the number of
subaccounts that you can invest in at any one time to 12 subaccounts. Each
subaccount invests exclusively in one investment portfolio of a fund. THE MONEY
YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE VALUE OF EACH SUBACCOUNT
WILL INCREASE OR DECREASE, DEPENDING ON INVESTMENT PERFORMANCE OF THE
CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
The portfolios available to you are:
WRL SERIES FUND, INC.
<TABLE>
<S> <C>
[ ] WRL VKAM Emerging Growth [ ] WRL Great Companies -- America(SM)
[ ] WRL T. Rowe Price Small Cap [ ] WRL Salomon All Cap
[ ] WRL Goldman Sachs Small Cap [ ] WRL C.A.S.E. Growth
[ ] WRL Pilgrim Baxter Mid Cap Growth [ ] WRL Dreyfus Mid Cap
[ ] WRL Alger Aggressive Growth [ ] WRL NWQ Value Equity
[ ] WRL Third Avenue Value [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL Value Line Aggressive Growth [ ] WRL Dean Asset Allocation
[ ] WRL GE International Equity (formerly, WRL [ ] WRL LKCM Strategic Total Return
GE/Scottish Equitable International Equity) [ ] WRL J.P. Morgan Real Estate Securities
[ ] WRL Janus Global [ ] WRL Federated Growth & Income
[ ] WRL Great Companies -- Technology(SM) [ ] WRL AEGON Balanced
[ ] WRL Janus Growth [ ] WRL AEGON Bond
[ ] WRL Goldman Sachs Growth [ ] WRL J.P. Morgan Money Market
[ ] WRL GE U.S. Equity
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service
Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Transamerica VIF Growth Portfolio
FIXED ACCOUNT. You may also direct the money in your Policy to the fixed
account. Unless otherwise required by state law, we will restrict your
allocations or transfers to the fixed account if the fixed account value
following the allocation or transfer would exceed
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$500,000. Money you place in the fixed account is guaranteed, and will earn
interest at a current interest rate declared from time to time. The annual
interest rate will equal at least 3.0%. The fixed account is NOT available to
residents of New Jersey.
CASH VALUE
o Cash value equals the sum of your Policy's value in the subaccounts and the
fixed account. If there is a loan outstanding, the cash value includes any
amounts held in our fixed account to secure the Policy loan.
o Cash value varies from day to day, depending on the investment experience
of the subaccounts you choose, the interest credited to the fixed account,
the charges deducted and any other Policy transactions (such as additional
premium payments, transfers, withdrawals, and Policy loans).
o Cash value is the starting point for calculating important values under the
Policy, such as net surrender value and the death benefit.
o There is no guaranteed minimum cash value. The Policy may lapse if you do
not have sufficient cash value in the Policy to pay the monthly deductions,
the surrender charge and/or any outstanding loan amount (including interest
you owe on any Policy loan(s)).
o The Policy will not lapse during the first three Policy years (that is,
during the no lapse period) so long as you have paid sufficient minimum no
lapse premiums. See Minimum No Lapse Premium p. 28.
TRANSFERS
o You can transfer cash value among the subaccounts and the fixed account. We
charge a $10 transfer processing fee for each transfer after the first 12
transfers in a Policy year.
o You may make transfers in writing, by telephone or by fax.
o Policy loans reduce the amount of cash value available for transfers.
o Dollar cost averaging and asset rebalancing programs are available.
o You may make one transfer per Policy year from the fixed account, and we
must receive your request to transfer from the fixed account within 30 days
after a Policy anniversary unless you select dollar cost averaging from the
fixed account. The maximum amount you can transfer is the greater of:
-> 25% of your value in the fixed account; or
-> the amount you transferred from the fixed account in the preceding
Policy year.
CHARGES AND DEDUCTIONS
o MONTHLY POLICY CHARGE: We deduct $5.00 from your cash value each month.
o COST OF INSURANCE CHARGES: Deducted monthly from your cash value. Your
charges vary each month with the insured's attained age, the specified
amount, the death benefit option you choose, and the investment results of
the portfolios in which you invest. In most cases, the current cost of
insurance rates will be lower for Policies with a specified amount of
$250,000 or more.
o MORTALITY AND EXPENSE RISK CHARGE: Deducted daily from each subaccount at
an annual rate of 0.90% of your average daily net assets of each
subaccount. We
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guarantee to reduce this amount to 0.60% after the first 15 Policy years.
We intend to reduce this amount to 0.30% in the 16th Policy year but we do
not guarantee that we will do so.
o SURRENDER CHARGE: Deducted when a full surrender occurs during the first 15
Policy years. One portion is an issue charge equal to $5.00 per $1,000 of
initial specified amount. The other portion is calculated by adding total
premiums paid (up to the surrender charge base premium) to any premium paid
above the surrender charge base premium multiplied by percentages that vary
by issue age. THIS CHARGE MAY BE SIGNIFICANT. We reduce the total surrender
charge at the rate of up to 20% per year, beginning in Policy year 11,
until it reaches zero at the end of the 15th Policy year. You may have no
net surrender value if you surrender your Policy in the first few Policy
years. See Charges and Deductions -- Surrender Charge p. 40.
o PRO RATA DECREASE CHARGE: If you decrease the specified amount during the
first 15 Policy years, we will deduct a decrease charge equal to a pro rata
portion of the surrender charge.
o TRANSFER FEE: We deduct $10 for each transfer in excess of 12 per Policy
year.
o RIDER CHARGES: We deduct charges each month for the optional insurance
benefits (riders) you select. Each rider will have its own charge.
o CASH WITHDRAWAL FEE: We deduct a processing fee for cash withdrawals equal
to the lesser of $25 or 2% of the withdrawal.
o PORTFOLIO EXPENSES: The portfolios deduct management fees and expenses from
the amounts you have invested in the portfolios. Some portfolios also
deduct 12b-1 fees from portfolio assets. These fees and expenses currently
range from 0.44% to 1.20% annually, depending on the portfolio. See
Portfolio Annual Expense Table on p. 14. See also the fund prospectuses.
LOANS
o After the first Policy year (as long as your Policy is in force), you may
take a loan against the Policy up to 90% of the cash value, less any
surrender charge and any already outstanding loan amount.
o We may permit a loan prior to the first anniversary for Policies issued
pursuant to 1035 Exchanges.
o The minimum loan amount is generally $500.
o You may request a loan by calling us or by writing or faxing us written
instructions.
o We charge 5.5% interest annually, payable in arrears, on any outstanding
loan amount.
o To secure the loan, we transfer a portion of your cash value to a loan
reserve account. The loan reserve account is part of the fixed account. You
will earn at least 4.0% interest on amounts in the loan reserve account.
o Prior to the 10th Policy year, we currently credit 4.75% interest annually
on all Policy loans.
o After the 10th Policy year, you may borrow at preferred loan rates an
amount equal to the cash value minus total premiums paid (reduced by any
cash withdrawals) and
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minus any outstanding loan amounts (including any interest you owe on
Policy loan(s)). We currently credit interest at a 5.5% preferred loan
rate. THIS RATE IS NOT GUARANTEED.
o Federal income taxes and a penalty tax may apply to loans you take against
the Policy.
o There are risks involved in taking a Policy loan. See Risk Summary p. 10.
DEATH BENEFIT
o You must choose one of two death benefit options. We offer the following:
o Option A is the greater of:
-> the current specified amount, or
-> a specified percentage, multiplied by the Policy's cash value on
the date of the insured's death.
o Option B is the greater of:
-> the current specified amount, plus the Policy's cash value on the
date of the insured's death, or
-> a specified percentage, multiplied by the Policy's cash value on
the date of the insured's death.
o So long as the Policy does not lapse, the minimum death benefit we pay
under any option will be the current specified amount.
o The minimum specified amount for a Policy for all issue ages is
$100,000. We will state the minimum specified amount in your Policy.
You cannot decrease your specified amount below this minimum. If your
specified amount is $250,000 or more, then you may not decrease your
specified amount below $250,000.
o We will reduce the death benefit proceeds by the amount of any
outstanding Policy loan(s) (including any interest owed on Policy
loan(s)), and any due and unpaid charges.
o We will increase the death benefit proceeds by any additional
insurance benefits you add by rider.
o After the third Policy year, you may change the death benefit option
or decrease the specified amount (but not both) once each Policy year.
A decrease in specified amount is limited to 20% of the specified
amount prior to the decrease. The new specified amount cannot be less
than the minimum specified amount as shown in your Policy. A change in
death benefit option also cannot reduce your specified amount below
the minimum specified amount as shown in your Policy.
o Under current tax law, death benefit should be income tax free to the
beneficiary.
o The death benefit is available in a lump sum or a variety of payout
options.
CASH WITHDRAWALS AND SURRENDERS
o You may take one withdrawal of cash value per Policy year after the first
Policy year.
o The amount of the withdrawal must be:
o At least $500; and
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o No more than 10% of the net surrender value. We currently intend to
limit the amount you can withdraw to 25% of the net surrender value
after the 10th Policy year.
o We will deduct a processing fee equal to $25 or 2% of the amount you
withdraw (whichever is less) from the withdrawal, and we will pay you the
balance.
o There is no surrender charge assessed when you take a cash withdrawal.
o A cash withdrawal will reduce the death benefit by at least the amount of
the withdrawal.
o If you choose death benefit Option A, we will reduce the current specified
amount by the dollar amount of the withdrawal. We will not impose a pro
rata decrease charge when the specified amount is decreased as a result of
taking a cash withdrawal.
o Federal income taxes and a penalty tax may apply to cash withdrawals and
surrenders.
o You may fully surrender the Policy at any time before the insured's death
or the maturity date. You will receive the net surrender value (cash value,
MINUS any surrender charge, MINUS any Policy loans outstanding, and MINUS
any interest you owe on Policy loans). The surrender charge will apply
during the first 15 Policy years.
RISK SUMMARY
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INVESTMENT If you invest your cash value in one or more subaccounts, you
RISK will be subject to the risk that investment performance could
be unfavorable and that the cash value of your Policy would
decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND YOUR
POLICY COULD LAPSE. If you select the fixed account, your
cash value in the fixed account is credited with a declared
rate of interest, but you assume a risk that the rate may
decrease, although it will never be lower than a guaranteed
minimum annual effective rate of 3.0%.
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RISK OF LAPSE If your Policy fails to meet certain conditions, we will
notify you that the Policy has entered a 61-day grace period
and will lapse unless you make a sufficient payment during
the grace period.
Your Policy contains a three-year no lapse period. Your
Policy will not lapse during the first three Policy years as
long as you pay sufficient minimum no lapse premiums. If you
do not pay these premiums, you will automatically lose the no
lapse guarantee and you will increase the risk that your
Policy will lapse. In addition, if you take a cash
withdrawal, or take a Policy loan, or if you decrease your
specified amount, you will increase the risk of losing the no
lapse guarantee. We deduct the total amount of your cash
withdrawals, any outstanding loans and any pro rata decrease
charge from your premiums paid when we determine whether your
minimum no lapse premiums are high enough to keep the no
lapse period in effect.
10
<PAGE>
If you change death benefit options, decrease the specified
amount, or add or increase a rider, we will adjust the amount
of the minimum no lapse premium.
You will lessen the risk of Policy lapse during the first
three Policy years if you keep the no lapse period in effect.
Before you take a cash withdrawal, loan, decrease the
specified amount or increase or add a rider, you should
consider carefully the effect it will have on the no lapse
guarantee.
After the no lapse period, your Policy may lapse if loans,
cash withdrawals, monthly deductions and insufficient
investment returns reduce the net surrender value to zero.
The Policy will enter a grace period if on any Monthiversary
the net surrender value (that is, the cash value, minus the
surrender charge, and minus any outstanding loans and
interest owed on the loans) is not enough to pay the monthly
deduction due.
A Policy lapse may have adverse tax consequences. See Federal
Income Tax Considerations p. 53 and Policy Lapse and
Reinstatement p. 52.
You may reinstate this Policy within five years after it has
lapsed (prior to the maturity date), if the insured meets the
insurability requirements and you pay the amount we require.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX RISKS We expect that the Policy will generally be deemed a life
(INCOME TAX insurance contract under federal tax law, so that the death
AND MEC) benefit paid to the beneficiary will not be subject to
federal income tax. However, due to lack of guidance, there
is less certainty in this regard with respect to Policies
issued on a substandard basis. Depending on the total amount
of premiums you pay, the Policy may be treated as a modified
endowment contract ("MEC") under federal tax laws. If a
Policy is treated as a MEC, partial withdrawals, surrenders
and loans will be taxable as ordinary income to the extent
there are earnings in the Policy. In addition, a 10% penalty
tax may be imposed on cash withdrawals, surrenders and loans
taken before you reach age 591/2. If a Policy is not treated
as a MEC, partial surrenders and withdrawals will not be
subject to tax to the extent of your investment in the
Policy. Amounts in excess of your investment in the Policy,
while subject to tax as ordinary income, will not be subject
to a 10% penalty tax. You should consult a qualified tax
advisor for assistance in all tax matters involving your
Policy.
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- --------------------------------------------------------------------------------
LIMITS ON CASH The Policy permits you to take only one cash withdrawal per
WITHDRAWALS Policy year after the first Policy year has been completed.
The amount you may withdraw is limited to 10% of the net
surrender value. We currently intend to limit the amount you
can withdraw to 25% of the net surrender value after the 10th
Policy year.
11
<PAGE>
A cash withdrawal will reduce cash value, so it will increase
the risk that the Policy will lapse. A cash withdrawal may
also increase the risk that the no lapse period will end.
A cash withdrawal will reduce the death benefit. If you
select death benefit Option A, a cash withdrawal will
permanently reduce the specified amount by the amount of the
withdrawal. If death benefit Option B is in effect when you
make a cash withdrawal, the death benefit will be reduced by
the amount the cash value was reduced. In some circumstances,
a cash withdrawal may reduce the death benefit by more than
the dollar amount of the withdrawal.
Federal income taxes and a penalty tax may apply to cash
withdrawals and surrenders.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from the
subaccounts and the fixed account and place that amount in
the loan reserve as collateral. We then credit a fixed
interest rate of not less than 4.0% to the loan collateral.
We currently credit interest at 4.75% annually, but we are
not obligated to do so in the future. As a result, the loan
collateral does not participate in the investment results of
the subaccounts nor does it receive the current interest rate
credited to the fixed account. The longer the loan is
outstanding, the greater the effect is likely to be.
Depending on the investment results of the subaccounts and
the interest rates credited to the fixed account, the effect
could be favorable or unfavorable.
We also charge interest on Policy loans at a rate of 5.5%,
payable in arrears. Interest is added to the amount of the
loan to be repaid.
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds by the amount of the
outstanding loan, plus any interest you owe on Policy loans.
If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding
indebtedness will be taxable as if it were a distribution
from the Policy. See Federal Income Tax Considerations p. 53.
A Policy loan could make it more likely that a Policy would
lapse. A Policy loan will increase the risk that the no lapse
period will end. There is also a risk that if the loan,
insurance charges and unfavorable investment experience
reduce your net surrender value while the no lapse period is
no longer in ef- fect, then the Policy will lapse. Adverse
tax consequences would result.
- --------------------------------------------------------------------------------
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12
<PAGE>
EFFECTS OF THE The surrender charge under this Policy is significant,
SURRENDER especially in the early Policy years. It is likely that you
CHARGE will receive no net surrender value if you surrender your
Policy in the first few Policy years. You should purchase
this Policy only if you have the financial ability to keep it
in force at the initial specified amount for a substantial
period of time.
Even if you do not ask to surrender your Policy, the
surrender charge plays a role in determining whether your
Policy will lapse. Each month we will use the cash value
(reduced by the surrender charge and reduced by outstanding
loans and interest owed) to measure whether your Policy will
remain in force or will enter a grace period.
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- --------------------------------------------------------------------------------
COMPARISON Like fixed benefit life insurance, the Policy offers a death
WITH OTHER benefit and can provide a cash value, loan privileges and a
INSURANCE value on surrender. However, the Policy differs from a fixed
POLICIES benefit policy because it allows you to place your premiums
in investment subaccounts. The amount and duration of life
insurance protection and of the Policy's cash value will vary
with the investment performance of the amounts you place in
the subaccounts. In addition, the cash value and net
surrender value will always vary with the investment results
of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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- --------------------------------------------------------------------------------
ILLUSTRATIONS The illustrations in this prospectus are based on
hypothetical rates of return that are not guaranteed. They
illustrate how the specified amount, Policy charges and
hypothetical rates of return affect death benefit levels,
cash value and net surrender value of the Policy. We may also
illustrate Policy values based on the adjusted historical
performance of the portfolios since the portfolios'
inception, reduced by Policy and subaccount charges. The
hypothetical and adjusted historic portfolio rates
illustrated should not be considered to represent past or
future performance. It is almost certain that actual rates of
return may be higher or lower than those illustrated, so that
the values under your Policy will be different from those in
the illustrations.
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13
<PAGE>
PORTFOLIO ANNUAL EXPENSE TABLE
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This table shows the fees and expenses charged by each portfolio. More detail
concerning each portfolio's fees and expenses is contained in the fund
prospectuses.
ANNUAL PORTFOLIO OPERATING EXPENSES
(As a percentage of average portfolio assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER RULE 12B-1 ANNUAL
PORTFOLIO(1) FEES EXPENSES FEES EXPENSES
<S> <C> C> <C> <C>
WRL SERIES FUND, INC.(2)(3)
WRL VKAM Emerging Growth 0.80% 0.07% N/A 0.87%
WRL T. Rowe Price Small Cap(4) 0.75% 0.25% N/A 1.00%
WRL Goldman Sachs Small Cap(4) 0.90% 0.10% N/A 1.00%
WRL Pilgrim Baxter Mid Cap Growth(4) 0.90% 0.10% N/A 1.00%
WRL Alger Aggressive Growth 0.80% 0.09% N/A 0.89%
WRL Third Avenue Value 0.80% 0.20% N/A 1.00%
WRL Value Line Aggressive Growth(5) 0.80% 0.20% N/A 1.00%
WRL GE International Equity(6) 1.00% 0.20% N/A 1.20%
WRL Janus Global(7) 0.80% 0.12% N/A 0.92%
WRL Great Companies -- Technology(SM)(5) 0.80% 0.20% N/A 1.00%
WRL Janus Growth(8) 0.80% 0.05% N/A 0.85%
WRL Goldman Sachs Growth(4) 0.90% 0.10% N/A 1.00%
WRL GE U.S. Equity 0.80% 0.13% N/A 0.93%
WRL Great Companies -- America(SM)(5) 0.80% 0.20% N/A 1.00%
WRL Salomon All Cap(4) 0.90% 0.10% N/A 1.00%
WRL C.A.S.E. Growth 0.80% 0.20% N/A 1.00%
WRL Dreyfus Mid Cap(4) 0.85% 0.15% N/A 1.00%
WRL NWQ Value Equity 0.80% 0.10% N/A 0.90%
WRL T. Rowe Price Dividend Growth(4) 0.90% 0.10% N/A 1.00%
WRL Dean Asset Allocation 0.80% 0.07% N/A 0.87%
WRL LKCM Strategic Total Return 0.80% 0.06% N/A 0.86%
WRL J.P. Morgan Real Estate Securities 0.80% 0.20% N/A 1.00%
WRL Federated Growth & Income 0.75% 0.14% N/A 0.89%
WRL AEGON Balanced 0.80% 0.09% N/A 0.89%
WRL AEGON Bond 0.45% 0.08% N/A 0.53%
WRL J.P. Morgan Money Market 0.40% 0.04% N/A 0.44%
VARIABLE INSURANCE PRODUCTS FUND
(VIP) (9)
Fidelity VIP Equity-Income Portfolio -- Service Class 2 (10) 0.48% 0.10% 0.25% 0.83%
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II) (9)
Fidelity VIP II Contrafund/registered trademark/ Portfolio Service Class 2 (10) 0.58% 0.12% 0.25% 0.95%
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III) (9)
Fidelity VIP III Growth Opportunities Portfolio Service Class 2 (10) 0.58% 0.13% 0.25% 0.96%
TRANSAMERICA VARIABLE INSURANCE FUND, INC.(11)
Transamerica VIF Growth Portfolio 0.70% 0.15% N/A 0.85%
</TABLE>
(1) The fee table information relating to the portfolios was provided to
Transamerica by each fund and Transamerica has not independently verified
such information.
(2) Effective January 1, 1997, the Board of the WRL Series Fund, Inc. (the
"WRL Fund") authorized the WRL Fund to charge each portfolio of the WRL
Fund an annual 12b-1 fee of up to 0.15% of each portfolio's average daily
net assets. However, the WRL Fund will not deduct the fee from any
portfolio before April 30, 2001. You will receive advance written notice
if a Rule 12b-1 fee is to be deducted. See the WRL Fund prospectus for
more details.
(3) WRL Investment Management, Inc. ("WRL Management"), the investment adviser
of the WRL Fund, has undertaken, until at least April 30, 2001, to pay
expenses on behalf of the portfolios of the WRL Fund, to the extent normal
total
14
<PAGE>
operating expenses of a portfolio exceed a stated percentage of the WRL
portfolio's average daily net assets. The expense limit, the amount
reimbursed by WRL Management during 1999, and the expense ratio without the
reimbursement are listed below for each portfolio:
<TABLE>
<CAPTION>
Expense Reimbursement Expense Ratio
Limit Amount Without Reimbursement
<S> <C> <C> <C>
WRL VKAM Emerging Growth ....................... 1.00% N/A N/A
WRL T. Rowe Price Small Cap .................... 1.00% 63,542 2.46%
WRL Goldman Sachs Small Cap .................... 1.00% 60,555 5.57%
WRL Pilgrim Baxter Mid Cap Growth .............. 1.00% 34,986 1.40%
WRL Alger Aggressive Growth .................... 1.00% N/A N/A
WRL Third Avenue Value ......................... 1.00% 10,734 1.06%
WRL Value Line Aggressive Growth ............... 1.00% N/A N/A
WRL GE International Equity .................... 1.20% 112,088 1.84%
WRL Janus Global ............................... 1.00% N/A N/A
WRL Great Companies -- Technology(SM) .......... 1.00% N/A N/A
WRL Janus Growth ............................... 1.00% N/A N/A
WRL Goldman Sachs Growth ....................... 1.00% 49,677 2.68%
WRL GE U.S. Equity ............................. 1.00% N/A N/A
WRL Great Companies -- America(SM) ............. 1.00% N/A N/A
WRL Salomon All Cap ............................ 1.00% 53,174 2.87%
WRL C.A.S.E. Growth ............................ 1.00% N/A N/A
WRL Dreyfus Mid Cap ............................ 1.00% 34,541 4.89%
WRL NWQ Value Equity ........................... 1.00% N/A N/A
WRL T. Rowe Price Dividend Growth .............. 1.00% 46,989 2.35%
WRL Dean Asset Allocation ...................... 1.00% N/A N/A
WRL LKCM Strategic Total Return ................ 1.00% N/A N/A
WRL J.P. Morgan Real Estate Securities ......... 1.00% 51,924 2.69%
WRL Federated Growth & Income .................. 1.00% N/A N/A
WRL AEGON Balanced ............................. 1.00% N/A N/A
WRL AEGON Bond ................................. 0.70% N/A N/A
WRL J.P. Morgan Money Market ................... 0.70% N/A N/A
</TABLE>
(4) Because these portfolios commenced operations on May 3, 1999, the
percentages set forth as "Other Expenses" and "Total Annual Expenses" are
annualized.
(5) Because these portfolios commenced operations on May 1, 2000, the
percentages set forth as "Other Expenses" and "Total Portfolio Annual
Expenses" are estimates.
(6) The fee table reflects estimated 2000 expenses because the expense limit
for this portfolio will be reduced from 1.50% to 1.20% effective May 1,
2000.
(7) WRL Management currently waives 0.025% of its advisory fee on portfolio
average daily net assets over $2 billion (net fee -- 0.775%.) This waiver
will be terminated on June 25, 2000.
(8) WRL Management currently waives 0.025% of its advisory fee for the first
$3 billion of the portfolio's average daily net assets (net fee --
0.775%); and 0.05% for the portfolio's aerage daily net assets above $3
billion (net fee -- 0.75%). The fee table reflects estimated 2000 expenses
because of the termination of the fee waiver. This waiver will be
terminated on June 25, 2000.
(9) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP),
Variable Insurance Products Fund II (VIP II), and Variable Insurance
Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain
shareholder support services provided by companies selling variable
contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed
against the Fidelity VIP Funds shares held for the Policies will be
remitted to AFSG Securities Corporation ("AFSG"), the principal
underwriter for the Policies.
(10) Service Class 2 expenses are based on estimated expenses for the year
2000.
(11) Transamerica Investment Management, LLC ("Transamerica Investment
Management"), the investment adviser of Transamerica Variable Insurance
Fund, Inc. (the "Transamerica Variable Fund"), waived a portion of its
advisory fee and was paid 0.70% of the portfolio's average daily net
assets. Without such waiver, the total fund expenses would have been
0.90%. This waiver is voluntary and may be terminated at any time without
notice but is expected to continue through the year 2000.
The purpose of the preceding table is to help you understand the various
costs and expenses that you will bear directly and indirectly. The table
reflects charges and expenses of the portfolios of the funds for the fiscal
year ended December 31, 1999 (except as noted in the footnotes). Expenses of
the funds may be higher or lower in the future. For more information on the
charges described in this table, see the fund prospectuses which accompany this
prospectus.
15
<PAGE>
TRANSAMERICA AND THE FIXED ACCOUNT
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TRANSAMERICA
Transamerica Occidental Life Insurance Company ("Transamerica") is the
insurance company issuing the Policy. Transamerica was incorporated under
California law on June 30, 1906. We established the separate account to support
the investment options under this Policy and under other variable life
insurance policies we issue. Our general account supports the fixed account
under the Policy. Transamerica intends to sell this Policy in all states
(except New York), Puerto Rico, Guam and the District of Columbia.
We are entering into an Administrative Services Agreement with our
affiliate, Western Reserve Life Assurance Co. of Ohio ("Western Reserve"), a
life insurance company organized and existing under the laws of the State of
Ohio. Under this agreement, Western Reserve will provide, on our behalf, all
Policy underwriting services, claims processing and other administrative
services, including maintenance of the books and records necessary for the
administration and operation of the Policies.
THE FIXED ACCOUNT
The fixed account is part of Transamerica's general account. We use
general account assets to support our insurance and annuity obligations other
than those funded by separate accounts. Subject to applicable law, Transamerica
has sole discretion over investment of the fixed account's assets. Transamerica
bears the full investment risk for all amounts contributed to the fixed
account. Transamerica guarantees that the amounts allocated to the fixed
account will be credited interest daily at a net effective interest rate of at
least 3.0%. We will determine any interest rate credited in excess of the
guaranteed rate at our sole discretion. We have no specific formula for
determining interest rates.
Money you place in the fixed account will earn interest compounded daily
at a current interest rate in effect at the time of your allocation. Unless
otherwise required by state law, we will restrict your allocations and
transfers to the fixed account if the fixed account value following the
allocation or transfer would exceed $500,000. We may declare current interest
rates from time to time. We may declare more than one interest rate for
different money based upon the date of allocation or transfer to the fixed
account. When we declare a higher current interest rate on amounts allocated to
the fixed account, we guarantee the higher rate on those amounts for at least
one year (the "guarantee period") unless those amounts are transferred to the
loan reserve. At the end of the guarantee period we may declare a new current
interest rate on those amounts and any accrued interest thereon. We will
guarantee this new current interest rate for another guarantee period. We
credit interest greater than 3.0% during any guarantee period at our sole
discretion. You bear the risk that interest we credit will not exceed 3.0%.
We allocate amounts from the fixed account for cash withdrawals, transfers
to the subaccounts, or monthly deduction charges on a last-in, first-out basis
("LIFO") for the purpose of crediting interest.
16
<PAGE>
The fixed account may not be available in all states. This means that
residents of some states may not direct or transfer any premiums or cash value
to the fixed account.
THE FIXED ACCOUNT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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- --------------------------------------------------------------------------------
THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of a fund. You may direct the money in your
Policy to a total of 12 active subaccounts of the separate account. These
subaccounts buy and sell portfolio shares at net asset value without any sales
charge. Any dividends and distributions from a portfolio are reinvested at net
asset value in shares of that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of
the separate account reflect the subaccount's own investment experience and not
the investment experience of our other assets. The separate account's assets
may not be used to pay any of our liabilities other than those arising from the
Policies. If the separate account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The separate account may include other subaccounts that are not available
under the Policies and are not discussed in this prospectus. We may substitute
another subaccount, portfolio or insurance company separate account under the
Policies if, in our judgment, investment in a subaccount or portfolio would no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of owners. No substitution shall take place without notice to
owners and prior approval of the Securities and Exchange Commission ("SEC") and
insurance company regulators, to the extent required by the Investment Company
Act of 1940, as amended (the "1940 Act") and applicable law.
THE PORTFOLIOS
The separate account invests in shares of the portfolios. Each portfolio
is an investment division of a fund, which is an open-end management investment
company registered with the SEC. Such registration does not involve supervision
of the management or investment practices or policies of the portfolios by the
SEC.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio has no
effect on the investment performance of any other portfolio. Pending any prior
approval by a state insurance regulatory authority, certain subaccounts and
corresponding portfolios may not be available to residents of some states.
17
<PAGE>
Each portfolio's investment objective(s) and policies are summarized
below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE(S). Certain portfolios may have investment objectives and policies
similar to other portfolios that are managed by the same investment adviser or
sub-adviser. The investment results of the portfolios, however, may be higher
or lower than those of such other portfolios. We do not guarantee or make any
representation that the investment results of the portfolios will be comparable
to any other portfolio, even those with the same investment adviser or sub-
adviser. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING
A DESCRIPTION OF RISKS, IN THE FUND PROSPECTUSES. YOU SHOULD READ THE FUND
PROSPECTUSES CAREFULLY.
<TABLE>
<CAPTION>
PORTFOLIO ADVISER OR SUB-ADVISER INVESTMENT OBJECTIVE
- --------- ---------------------- --------------------
<S> <C> <C>
WRL VKAM Van Kampen Seeks capital appreciation by
Emerging Asset Management Inc. investing primarily in common stocks
Growth of small and medium-sized
companies.
WRL T. Rowe T. Rowe Price Seeks long-term growth of capital by
Price Small Cap Associates, Inc. investing primarily in common stocks
of small growth companies.
WRL Goldman Goldman Sachs Asset Seeks long-term growth of capital.
Sachs Small Cap Management
WRL Pilgrim Pilgrim Baxter & Associates, Seeks capital appreciation.
Baxter Mid Cap Ltd.
Growth
WRL Alger Fred Alger Seeks long-term capital
Aggressive Growth Management, Inc. appreciation.
WRL Third EQSF Advisers, Inc. Seeks long-term capital
Avenue Value appreciation.
WRL Value Value Line, Inc. Seeks long-term growth of capital.
Line Aggressive
Growth
WRL GE GE Asset Management Seeks long-term growth of capital.
International Incorporated*
Equity
WRL Janus Global Janus Capital Seeks long-term growth of capital in
Corporation a manner consistent with the
preservation of capital.
WRL Great Great Companies, L.L.C. Seeks long-term growth of capital.
Companies --
Technology(SM)
* Effective May 1, 2000, GE Asset Management Incorporated is the sole
sub-adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO ADVISER OR SUB-ADVISER INVESTMENT OBJECTIVE
- --------- ---------------------- --------------------
<S> <C> <C>
WRL Janus Janus Capital Seeks growth of capital.
Growth Corporation
WRL Goldman Goldman Sachs Asset Seeks long-term growth of capital.
Sachs Growth Management
WRL GE U.S. GE Asset Management Seeks long-term growth of capital.
Equity Incorporated
WRL Great Great Companies, L.L.C. Seeks long-term growth of capital.
Companies --
America(SM)
WRL Salomon Salomon Brothers Asset Seeks capital appreciation.
All Cap Management Inc
WRL C.A.S.E. C.A.S.E. Seeks annual growth of capital
Growth Management, Inc. through investment in companies
whose management, financial
resources and fundamentals appear
attractive on a scale measured against
each company's present value.
WRL Dreyfus Mid The Dreyfus Seeks total investment returns
Cap Corporation (including capital appreciation and
income), which consistently
outperform the S&P 400 Mid Cap
Index.
WRL NWQ Value NWQ Investment Manage- Seeks to achieve maximum, consistent
Equity ment Company, Inc. total return with minimum risk to
principal.
WRL T. Rowe T. Rowe Price Seeks to provide an increasing level
Price Dividend Associates, Inc. of dividend income, long-term capital
Growth appreciation, and reasonable current
income, through investments primarily
in dividend paying stocks.
WRL Dean Asset Dean Investment Associates Seeks preservation of capital and
Allocation competitive investment returns.
WRL LKCM Luther King Capital Seeks to provide current income,
Strategic Management long-term growth of income and
Total Return Corporation capital appreciation.
WRL J.P. Morgan J.P. Morgan Investment Seeks long-term total return from
Real Estate Management Inc. investments primarily in equity
Securities securities of real estate companies.
Total return will consist of realized
and unrealized capital gains and
losses plus income.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO ADVISER OR SUB-ADVISER INVESTMENT OBJECTIVE
- --------- ---------------------- --------------------
<S> <C> <C>
WRL Federated Federated Investment Seeks total return by investing in
Growth & Income Counseling securities that have defensive
characteristics.
WRL AEGON AEGON USA Seeks preservation of capital,
Balanced Investment reduced volatility, and superior
Management, Inc. long-term risk-adjusted returns.
WRL AEGON AEGON USA Seeks the highest possible current
Bond Investment income within the confines of the
Management, Inc. primary goal of insuring the
protection of capital.
WRL J.P. Morgan J.P. Morgan Investment Seeks to obtain maximum current
Money Market Management Inc. income consistent with preservation
of principal and maintenance of
liquidity.
Fidelity VIP Fidelity Management & Seeks reasonable income.
Equity-Income Research Company
Portfolio --
Service Class 2
Fidelity VIP II Fidelity Management & Seeks long-term capital appreciation.
Contrafund(RM) Research Company
Portfolio --
Service Class 2
Fidelity VIP III Fidelity Management & Seeks to provide capital growth.
Growth Research Company
Opportunities
Portfolio --
Service Class 2
Transamerica VIF Transamerica Seeks to maximize long-term
Growth Portfolio Investment growth.
Management, LLC
</TABLE>
WRL Management, located at 570 Carillon Parkway, St. Petersburg, Florida
33716, a wholly-owned subsidiary of Western Reserve, an affiliate of
Transamerica, serves as investment adviser to the WRL Fund and manages the WRL
Fund in accordance with policies and guidelines established by the fund's Board
of Directors. For certain portfolios, WRL Management has engaged investment
sub-advisers to provide portfolio management services. WRL Management and each
investment sub-adviser are registered investment advisers under the Investment
Advisers Act of 1940, as amended. See the WRL Fund prospectus for more
information regarding WRL Management and the investment sub-advisers.
Fidelity Management & Research Company ("FMR"), located at 82 Devonshire
Street, Boston, Massachusetts 02109, serves as investment adviser to the
Fidelity VIP Funds and manages the Fidelity VIP Funds in accordance with
policies and guidelines established by
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<PAGE>
each fund's Board of Trustees. For certain portfolios, FMR has engaged
investment sub-advisers to provide portfolio management services. FMR and each
sub-adviser are registered investment advisers under the Investment Advisers
Act of 1940, as amended. See the Fidelity Fund prospectuses for more
information regarding FMR and the investment sub-advisers.
Transamerica Investment Management, located at 1150 South Olive Street,
Los Angeles, California 90015, an affiliate of Western Reserve, serves as
investment adviser to the Transamerica Variable Fund and manages the
Transamerica Variable Fund in accordance with policies and guidelines
established by Transamerica Variable Fund's Board of Directors.
In addition to the separate account, shares of the portfolios are also
sold to other separate accounts that insurance companies, including
Transamerica or its affiliates, establish to support variable annuity contracts
and variable life insurance policies. It is possible that, in the future, it
may become disadvantageous for variable life insurance separate accounts and
variable annuity separate accounts to invest in the portfolios simultaneously.
Neither we nor the funds currently foresee any such disadvantages, either to
variable life insurance policyowners or to variable annuity contract owners.
However, each fund's Board of Directors/Trustees will monitor events in order
to identify any material conflicts between the interests of such variable life
insurance policyowners and variable annuity contract owners, and will determine
what action, if any, it should take. Such action could include the sale of
portfolio shares by one or more of the separate accounts, which could have
adverse consequences. Material conflicts could result from, for example, (1)
changes in state insurance laws, (2) changes in federal income tax laws, or (3)
differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity contract owners.
If a fund's Board of Directors/Trustees were to conclude that separate
funds should be established for variable life insurance and variable annuity
separate accounts, Transamerica will bear the attendant expenses, but variable
life insurance policyowners and variable annuity contract owners would no
longer have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to add to, delete from, or substitute the investments that
are held by any subaccount, or that any subaccount may purchase. We will only
add, delete or substitute shares of another portfolio of a fund (or of another
open-end, registered investment company) if the shares of a portfolio are no
longer available for investment, or if in our judgment further investment in
any portfolio would become inappropriate in view of the purposes of the
separate account. We will not add, delete or substitute any shares attributable
to your interest in a subaccount without notice to you and prior approval of
the SEC, to the extent required by the 1940 Act or other applicable law. We may
also decide to purchase for the separate account securities from other
portfolios.
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We also reserve the right to establish additional subaccounts of the
separate account, each of which would invest in a new portfolio of a fund, or
in shares of another investment company, with specified investment objectives.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing owners on a basis we determine. We may also eliminate one or more
subaccounts for the same reasons as stated above.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management company under the 1940
Act, (2) deregistered under the 1940 Act in the event such registration is no
longer required, (3) managed under the direction of a committee, or (4)
combined with one or more other separate accounts, or subaccounts.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as policyowners
instruct, so long as such action is required by law. See Tax Status of the
Policy p. 54.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to policyowners advising you of the action and the reasons we took such
action.
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THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an
initial premium to us. You may also send the application and initial premium to
us through any licensed life insurance agent who is also a registered
representative of a broker-dealer having a selling agreement with AFSG
Securities Corporation, the principal underwriter for the Policy.
Please submit your applications and premiums to:
Transamerica Occidental Life Insurance Company
P.O. Box 9016
Clearwater, Florida 33758-9016
You select the specified amount for your Policy within the following
limits. Our current minimum specified amount for a Policy for all issue ages is
generally $100,000. We will state the minimum specified amount in your Policy.
You may not decrease your specified amount below this minimum. If your
specified amount is $250,000 or more, then you may not decrease your specified
amount below $250,000. We will generally only issue a Policy to you if you
provide sufficient evidence that the insured meets our insurability standards.
Your application is subject to our underwriting rules, and we may reject any
application for any reason permitted by law. We will not issue a Policy to you
if the insured is over age 85. The insured must be insurable and acceptable to
us under our underwriting rules on the later of:
o the date of your application; or
o the date the insured completes all of the medical tests and
examinations that we require.
UNDERWRITING STANDARDS
This Policy uses mortality tables that distinguish between men and women.
As a result, the Policy pays different benefits to men and women of the same
age. Montana prohibits our use of actuarial tables that distinguish between men
and women to determine premiums and policy benefits for policies issued on the
lives of its residents. Therefore, we will base the premiums and benefits in
Policies that we issue in Montana, to insure residents of that state, on
actuarial tables that do not differentiate on the basis of gender.
Your cost of insurance charge will depend on the insured's gender and
attained age, the Policy duration, specified amount, net amount at risk and
rate class. We currently place insureds into the following standard rate
classes:
o ultimate select, non-tobacco use;
o select, non-tobacco use;
o ultimate standard, tobacco use;
o standard, tobacco use; and
o juvenile (under age 18).
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We also place insureds in various sub-standard rate classes, which involve
a higher mortality risk and higher charges. We generally charge higher rates
for insureds who use tobacco. We charge lower cost of insurance rates for
insureds who are in an "ultimate" class. For Policies with a specified amount
of $250,000 or more, we generally charge a lower rate. An ultimate class is
only available if, because of the specified amount you have chosen, our
underwriting guidelines require you to take a blood test.
WHEN INSURANCE COVERAGE TAKES EFFECT
Insurance coverage under the Policy will take effect only if the
insured(s) is alive and in the same condition of health as described in the
application when the Policy is delivered to the owner, and if the initial
premium required under the Policy as issued is paid.
CONDITIONAL INSURANCE COVERAGE. If you pay the full initial premium listed
in the conditional receipt attached to the application, and we deliver the
conditional receipt to you, the insured will have conditional insurance
coverage under the terms of the conditional receipt. Conditional insurance
coverage is void if the check or draft you gave us to pay the initial premium
is not honored when we first present it for payment.
THE AMOUNT OF o the specified amount applied for; or
CONDITIONAL INSURANCE o $300,000
COVERAGE IS THE LESSER OF: reduced by all amounts payable under all life
insurance applications that the insured has
pending with us.
CONDITIONAL LIFE INSURANCE o the date of your application; or
COVERAGE BEGINS ON THE o the date the insured completes all of the
LATER OF: medical tests and examinations that we
require; or
o the date of issue, if any, requested in the
application.
CONDITIONAL LIFE INSURANCE o the date we determine the insured has
COVERAGE TERMINATES satisfied our underwriting requirements and
AUTOMATICALLY ON THE the insurance applied for takes effect (the
EARLIEST OF: Policy date); or
o 60 days from the date the application was
completed; or
o the date we determine that any person
proposed for insurance in the application is
not insurable according to our rules, limits
and standards for the plan, amount and rate
class shown in the application; or
o the date we modify the plan, amount, riders
and/or the premium rate class shown in the
application, or any supplemental agreements;
or
o the date we mail notice of the ending of
coverage and we refund the first premium to
the applicant at the address shown on the
application.
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SPECIAL LIMITATIONS OF THE o the conditional receipt will be void:
CONDITIONAL RECEIPT: -> if not signed by an authorized agent of
Transamerica; or
-> in the event the application contains any
fraud or material misrepresentation; or
-> if, on the date of the conditional
receipt, a proposed insured is under 15
days of age or over 80 years of age.
o the conditional receipt does not provide
benefits for disability and accidental death
benefits.
o the conditional receipt does not provide
benefits if a proposed insured commits
suicide. In this case, Transamerica's
liability will be limited to return of the
first premium paid with the application.
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the insured meets our underwriting requirements and you have
paid the initial premium, full insurance coverage will begin. This date is the
Policy date. On the Policy date, we will allocate your initial premium, minus
monthly deductions, to the fixed account and the subaccounts you selected on
your application, provided you live in a state that does not require a refund
of full premium during the free-look period. If your state requires us to
return the full premium in the event you exercise your free-look right, we will
place your full premium in the reallocation account until the reallocation
date. While held in the reallocation account, premium(s) will be credited with
interest at the current fixed account rate. See Reallocation Account p. 30.
On any day we credit premiums or transfer cash value to a subaccount, we
will convert the dollar amount of the premium (or transfer) into subaccount
units at the unit value for that subaccount, determined at the end of the day
on which we receive the premium or transaction request at our administrative
office. We will credit amounts to the subaccounts only on a valuation date,
that is, on a date the New York Stock Exchange ("NYSE") is open for trading.
See Policy Values p. 31.
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the insured and no contingent owner is named, then
ownership of the Policy will pass to the owner's estate. The owner may exercise
certain rights described below.
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CHANGING THE o Change the owner by providing written notice to us at our
OWNER administrative office at any time while the insured is
alive and the Policy is in force.
o Change is effective as of the date that the written notice
is signed.
o Changing the owner does not automatically change the
beneficiary.
o Signature of the owner's spouse is required if the owner is
a resident of Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o Changing the owner may have tax consequences. You should
consult a tax advisor before changing the owner.
o We are not liable for payments we made before we received
the written notice at our administrative office.
CHOOSING THE o The owner designates the beneficiary (the person to receive
BENEFICIARY the death benefit when the insured dies) in the
application.
o If the owner designates more than one beneficiary, then
each beneficiary shares equally in any death benefit
proceeds unless the beneficiary designation states
otherwise.
o If the beneficiary dies before the insured, then any
contingent beneficiary becomes the beneficiary.
o If both the beneficiary and contingent beneficiary die
before the insured, then the death benefit will be paid to
the owner or the owner's estate upon the insured's death.
CHANGING THE o The owner changes the beneficiary by providing written
BENEFICIARY notice to us at our administrative office.
o Change is effective as of the date the owner signs the
written notice.
o Signature of the owner's spouse is required if the owner is
a resident of Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o We are not liable for any payments we made before we
received the written notice at our administrative office.
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ASSIGNING THE o The owner may assign Policy rights while the insured is
POLICY alive.
o Signature of the owner's spouse is required if the owner
is a resident of Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o The owner retains any ownership rights that are not
assigned.
o Assignee may not change the owner or the beneficiary, and
may not elect or change an optional method of payment.
Any amount payable to the assignee will be paid in a
lump sum.
o Claims under any assignment are subject to proof of
interest and the extent of the assignment.
o We are not:
-> bound by any assignment unless we receive a written
notice of the assignment;
-> responsible for the validity of any assignment;
-> liable for any payment we made before we received
written notice of the assignment; or
-> bound by any assignment which results in adverse
tax consequences to the owner, insured(s) or
beneficiary(ies).
o Assigning the Policy may have tax consequences. You
should consult a tax advisor before assigning the Policy.
CANCELING A POLICY
You may cancel a Policy for a refund during the "free-look period" by
returning it to our administrative office, to one of our branch offices or to
the agent who sold you the Policy. The free-look period expires 10 days after
you receive the Policy. In some states you may have more than 10 days. If you
decide to cancel the Policy during the free-look period, we will treat the
Policy as if it had never been issued. We will pay the refund within seven days
after we receive the returned Policy at our administrative office. The amount
of the refund will be:
o any monthly deductions or other charges we deducted from amounts you
allocated to the subaccounts and the fixed account; PLUS
o your cash value in the subaccounts and the fixed account on the date
we (or our agent) receive the returned Policy at our administrative
office.
Some states may require us to refund all of the premiums you paid for the
Policy. See Reallocation Account p. 30.
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PREMIUMS
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PREMIUM FLEXIBILITY
You generally have flexibility to determine the frequency and the amount
of the premiums you pay. Unlike conventional insurance policies, you do not
have to pay your premiums according to a rigid and inflexible premium schedule.
Before we issue the Policy to you, we may require you to pay a premium at least
equal to the a minimum no lapse premium set forth in your Policy. Thereafter
(subject to the limitations described below), you may make unscheduled premium
payments at any time and in any amount over $50. Under some circumstances, you
may be required to pay extra premiums to prevent a lapse. Your minimum no lapse
premium may change if you request a change in your Policy. If this happens, we
will notify you of the new minimum no lapse premium. See Minimum No Lapse
Premium below.
PLANNED PERIODIC PAYMENTS
You will determine a planned periodic payment schedule which allows you to
pay level premiums at fixed intervals over a specified period of time. You are
not required to pay premiums according to this schedule. You may change the
amount, frequency, and the time period over which you make your planned
periodic payments. Please be sure to notify your agent/registered
representative of record or us of any address changes so that we are able to
keep your current address on record.
Even if you make your planned periodic payments on schedule, your Policy
may still lapse. The duration of your Policy depends on the Policy's net
surrender value. If the net surrender value is not high enough to pay the
monthly deduction when due (and your no lapse period has expired) then your
Policy will lapse (unless you make the payment we specify during the 61-day
grace period). See Policy Lapse and Reinstatement p. 52.
MINIMUM NO LAPSE PREMIUM
The full initial premium is the only premium you are required to pay under
the Policy. However, you greatly increase your risk of lapse if you do not
regularly pay premiums at least as large as the current minimum no lapse
premium.
Until the no lapse date (that is, until the end of the third Policy year),
we guarantee that your Policy will not lapse, so long as you have paid total
premiums (MINUS any withdrawals, MINUS any outstanding loans and MINUS any pro
rata decrease charge) that equal or exceed the sum of the monthly minimum no
lapse premiums in effect each month from the Policy date, up to and including
the current month. If you take a withdrawal, or take out a loan, or if you
decrease your specified amount, you may need to pay additional premiums in
order to keep the no lapse guarantee in place.
The initial minimum no lapse premium is shown on your Policy's schedule
page, and depends on a number of factors, including the age, gender, and rate
class of the proposed
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insured, and the specified amount requested. We will adjust the minimum no
lapse premium if you change death benefit options, decrease the specified
amount, or add or increase a rider. If the minimum no lapse premium changes, we
will notify you of the change and its effective date.
AFTER THE THIRD POLICY YEAR (THAT IS, AFTER THE NO LAPSE PERIOD), PAYING
THE CURRENT MINIMUM NO LAPSE PREMIUM EACH MONTH WILL NOT NECESSARILY KEEP YOUR
POLICY IN FORCE. You may need to pay additional premiums to keep the Policy in
force.
NO LAPSE PERIOD
Until the no lapse date that is provided in your Policy (that is, until
the end of the third Policy year), your Policy will remain in force and no
grace period will begin, even if your net surrender value is too low to pay the
monthly deduction, so long as the total amount of the premiums you paid (minus
any withdrawals, outstanding loans, and any pro rata decrease charge) is equal
to or exceeds the sum of the monthly minimum no lapse premium in effect each
month from the Policy date up to and including the current month.
See Minimum No Lapse Premium above.
PREMIUM LIMITATIONS
Premium payments must be at least $50 if paid monthly and $600 if paid
annually ($1,000 if by wire). We may return premiums less than $50. We will not
allow you to make any premium payments that would cause the total amount of the
premiums you pay to exceed the current maximum premium limitations which
qualify the Policy as life insurance according to federal tax laws. This
maximum is set forth in your Policy. If you make a payment that would cause
your total premiums to be greater than the maximum premium limitations, we will
return the excess portion of the premium payment. We will not permit you to
make additional premium payments until they are allowed by the maximum premium
limitations. In addition, we reserve the right to refund a premium if the
premium would increase the death benefit by more than the amount of the
premium.
MAKING PREMIUM PAYMENTS
We will consider any payments you make to be premium payments, unless you
clearly mark them as loan repayments. We will accept premium payments by wire
transfer. If you wish to make premium payments by wire transfer, please
instruct your bank to wire federal funds as follows:
All First Bank of Baltimore
ABA #: 052000113
For credit to: Transamerica Occidental Life Insurance
Company
Account #: 895-7317-1
Owner's Name:
Contract Number:
Attention: Life Accounting
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TAX-FREE EXCHANGES ("1035 Exchanges"). We will accept your initial premium
money from one or more contracts insuring the same insured that qualify for
tax-free exchanges under Section 1035 of the Internal Revenue Code. If you
contemplate such an exchange, you should consult a competent tax advisor to
learn the potential tax effects of such a transaction.
ALLOCATING PREMIUMS
You must instruct us on how to allocate your premium among the fixed
account and the subaccounts. You may allocate your premium to a total of 12
active subaccounts at any one time. (The fixed account may not be available to
residents of all states.) You must follow these guidelines:
o allocation percentages must be in whole numbers;
o if you select dollar cost averaging, you must have at least $5,000 in
each subaccount from which we will make transfers and you must
transfer a total of at least $100 monthly;
o if you select asset rebalancing, the cash value of your Policy must be
at least $5,000; and
o unless otherwise required by state law, we will restrict your
allocations to the fixed account if the fixed account value following
the allocation would exceed $500,000.
You may change the allocation instructions for additional premium payments
at any time by writing us or calling us at 1-800-322-7164. The change will be
effective at the end of the valuation date on which we receive the change. Upon
instructions from you, the registered representative/agent of record for your
Policy may also change your allocation instructions for you. We reserve the
right to limit the minimum amount you can allocate to a particular subaccount
to 1.0% of a premium payment. We also reserve the right to charge $25 for each
change in excess of one per Policy year quarter.
Whenever you direct money into a subaccount, we will credit your Policy
with the number of units for that subaccount that can be bought for the dollar
payment. We price each subaccount unit using the unit value determined at the
end of the day after the closing of the regular business session of the NYSE
(usually at 4:00 p.m. Eastern time). We will credit amounts to the subaccounts
only on a valuation date, that is, on a date the NYSE is open for trading. See
Policy Values p. 31. Your cash value will vary with the investment experience
of the subaccounts in which you invest. YOU BEAR THE INVESTMENT RISK FOR
AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS.
You should periodically review how your cash value is allocated among the
subaccounts and the fixed account because market conditions and your overall
financial objectives may change.
REALLOCATION ACCOUNT. If your state requires us to return your initial
premium in the event you exercise your free-look right, we will allocate the
initial premium on the Policy
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date to the reallocation account as shown on your Policy schedule page. While
held in the fixed account, premium(s) will be credited with interest at the
current fixed account rate. The premium will remain in the reallocation account
until the reallocation date. The reallocation date is the record date, plus the
number of days in your state's free-look period, plus five days. Please contact
your agent for details concerning the free-look period for your state.
On the first valuation date on or after the reallocation date, we will
reallocate all cash value from the reallocation account to the fixed account
and the subaccounts you selected on the application. If you requested dollar
cost averaging, on the reallocation date we will reallocate the cash value
either to the fixed account, the WRL J.P. Money Market subaccount or the WRL
AEGON Bond subaccount (depending on which account you selected on your
application).
For states which do not require a full refund of the initial premium, the
reallocation date is the same as the Policy date. On the Policy date, we will
allocate your initial premium, minus monthly deductions, on the Policy date to
the fixed account and the subaccounts in accordance with the instructions you
gave us on your application.
POLICY VALUES
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CASH VALUE o varies from day to day, depending on the investment
experience of the subaccounts you choose, the interest
credited to the fixed account, the charges deducted and any
other Policy transactions (such as additional premium
payments, transfers, withdrawals, and Policy loans).
o serves as the starting point for calculating values under a
Policy.
o equals the sum of all values in each subaccount and the
fixed account.
o is determined on the Policy date and on each valuation
date.
o has no guaranteed minimum amount and may be more or
less than premiums paid.
o includes any amounts held in our fixed account to secure
the Policy loan, if there is a Policy loan outstanding.
NET SURRENDER VALUE
The net surrender value is the amount we pay when you surrender your
Policy. We determine the net surrender value at the end of the valuation period
when we receive your written surrender request at our administrative office.
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NET SURRENDER o the cash value as of such date; MINUS
VALUE ON ANY o any surrender charge as of such date; MINUS
VALUATION DATE o any outstanding Policy loan(s); MINUS
EQUALS: o any interest you owe on any Policy loan(s).
SUBACCOUNT VALUE
Each subaccount's value is the cash value in that subaccount. At the end
of any valuation period, the subaccount's value is equal to the number of units
that the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
THE NUMBER OF o the initial units purchased at unit value on the
UNITS IN ANY reallocation date; PLUS
SUBACCOUNT ON o units purchased with additional premium(s); PLUS
ANY VALUATION o units purchased via transfers from another subaccount or
DATE EQUALS: the fixed account; MINUS
o units redeemed to pay for monthly deductions; MINUS
o units redeemed to pay for cash withdrawals; MINUS
o units redeemed as part of a transfer to another subaccount
or the fixed account; MINUS
o units redeemed to pay any pro rata decrease charge.
Every time you allocate, transfer or withdraw money to or from a
subaccount, we convert that dollar amount into units. We determine the number
of units we credit to, or subtract from, your Policy by dividing the dollar
amount of the allocation, transfer or cash withdrawal by the unit value for
that subaccount next determined at the end of the valuation period, on which
the premium payment, transfer request or cash withdrawal request is received at
the administrative office.
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The unit value of each subaccount was originally
established at $10 per unit. The unit value may increase or decrease from one
valuation period to the next.
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THE UNIT VALUE o the total value of the portfolio shares held in the
OF ANY subaccount, determined by multiplying the number of
SUBACCOUNT AT portfolio shares owned by the subaccount by the
THE END OF A portfolio's net asset value per share determined at
VALUATION the end of the valuation period; MINUS
PERIOD o a deduction for the daily mortality and expense risk
IS CALCULATED AS: charge; MINUS
o the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that
we determine to be properly attributable to the
subaccount; AND THE RESULT DIVIDED BY
o the number of outstanding units in the subaccount.
The portfolio in which any subaccount invests will determine its net asset
value per share once daily, as of the close of the regular business session of
the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each
valuation period.
FIXED ACCOUNT VALUE
On the reallocation date, the fixed account value is equal to the cash
value allocated to the fixed account.
THE FIXED ACCOUNT o the sum of premium(s) allocated to the fixed
VALUE AT THE END OF account; PLUS
ANY VALUATION o any amounts transferred from a subaccount to the
PERIOD IS EQUAL TO: fixed account; PLUS
o total interest credited to the fixed account; MINUS
o amounts charged to pay for monthly deductions; MINUS
o amounts withdrawn from the fixed account; MINUS
o amounts transferred from the fixed account to a
subaccount; MINUS
o amounts withdrawn from the fixed account to pay any
pro rata decrease charge incurred due to a decrease
in specified amount.
The fixed account may not be available to residents of all states.
TRANSFERS
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GENERAL
You or your agent/registered representative of record may make transfers
among a total of 12 active subaccounts or from the subaccounts to the fixed
account. We determine the amount you have available for transfer at the end of
the valuation period when we receive your transfer request at our
administrative office. The following features apply to transfers under the
Policy:
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/checkmark/ You may make an unlimited number of "non-substantive"
transfers in a Policy year among the subaccounts, although we
will limit "substantive" transfers, as discussed below.
/checkmark/ We may, at any time, discontinue transfer privileges, modify
our procedures, or limit the number of tranfers we permit.
/checkmark/ You may make one transfer from the fixed account per Policy
year (unless you choose dollar cost averaging from the fixed
account).
/checkmark/ Unless otherwise required by state law, we will restrict
transfers to the fixed account, if the fixed account value
following the transfer would exceed $500,000.
/checkmark/ You may request transfers in writing (in a form we accept), by
fax or by telephone.
/checkmark/ There is no minimum amount that must be transferred.
/checkmark/ There is no minimum amount that must remain in a subaccount
after a transfer.
/checkmark/ We deduct a $10 charge from the amount transferred for the
13th and each additional transfer in a Policy year.
/checkmark/ We consider all transfers made in any one day to be a single
transfer.
/checkmark/ Transfers resulting from loans, conversion rights,
reallocation of cash value immediately after the reallocation
date, and transfers from the fixed account are NOT treated as
transfers for the purpose of the transfer charge.
/checkmark/ Transfers under dollar cost averaging and asset rebalancing
are treated as transfers for purposes of the transfer charge.
The Policy's transfer privilege is not intended to afford policyowners a
way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from the WRL
J.P. Morgan Money Market, during any 12-month period. We interpret
"substantive" to mean either a dollar amount large enough to have a negative
impact on a portfolio's operations or a series of movements between portfolios.
We will not limit non-substantive transfers.
Your Policy, as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-322-7164 or fax your instructions to
727-299-1648.
Please note the following regarding telephone or fax transfers:
-> We are not liable for any loss, damage, cost or expense from complying
with telephone instructions we reasonably believe to be authentic. You
bear the risk of any such loss.
-> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
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-> If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
-> Such procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to owners, and/or tape recording
telephone instructions received from owners.
-> We may also require written confirmation of your request.
-> If you do not want the ability to make telephone transfers, you should
notify us in writing.
-> Telephone or fax requests must be received at our administrative
office before 4:00 p.m. Eastern time to assure same-day pricing of the
transaction.
-> We will not be responsible for any transmittal problems when you fax
us your request unless you report it to us within five business days
and send us proof of your fax transmittal.
-> WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS IF YOU
FAX YOUR REQUEST TO A NUMBER OTHER THAN 727-299-1648.
-> We may discontinue this option at any time.
We will process any transfer request we receive at our administrative
office before the NYSE closes (usually 4:00 p.m. Eastern time) using the
subaccount unit value determined at the end of that session of the NYSE. If we
receive the transfer request after the NYSE closes, we will process the request
using the subaccount unit value determined at the close of the next regular
business session of the NYSE.
FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the fixed account unless
you select dollar cost averaging from the fixed account. We reserve the right
to require that you make the transfer request in writing. We must receive the
transfer request no later than 30 days after a Policy anniversary. We will make
the transfer at the end of the valuation date on which we receive the written
request. The maximum amount you may transfer is limited to the greater of:
-> 25% of the amount in the fixed account; or
-> the amount you transferred from the fixed account in the immediately
prior Policy year.
The fixed account may not be available to residents of all states. This
means that residents of some states may not direct or transfer any money to the
fixed account.
CONVERSION RIGHTS
If, within 24 months of your Policy date, you transfer all of your
subaccount values to the fixed account, then we will not charge you a transfer
fee, even if applicable. You must make your request in writing.
DOLLAR COST AVERAGING
Dollar cost averaging is an investment strategy designed to reduce the
average purchase price per unit. The strategy spreads the allocation of your
premium into the
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subaccounts over a period of time. This potentially allows you to reduce the
risk of investing most of your premium into the subaccounts at a time when
prices are high. The success of this strategy is not assured and depends on
market trends. You should consider carefully your financial ability to continue
the program over a long enough period of time to purchase units when their
value is low as well as when it is high. We make no guarantee that dollar cost
averaging will result in a profit or protect you against loss.
Under dollar cost averaging, we automatically transfer a set dollar amount
from either the WRL J.P. Morgan Money Market subaccount, the WRL AEGON Bond
subaccount or the fixed account to a subaccount that you choose. We will make
the transfers monthly as of the end of the valuation date starting on the first
Monthiversary after the reallocation date. We will make the first transfer in
the month after we receive your request at our administrative office, provided
that we receive the form by the 25th day of the month.
TO START DOLLAR COST -> you must submit a completed form to us at our
AVERAGING: administrative office requesting dollar cost
averaging;
-> you must have at least $5,000 in the account from
which we will make transfers; and
-> your total transfers each month under dollar cost
averaging must be at least $100.
You may request dollar cost averaging at any time. There is no charge for
dollar cost averaging. However, each transfer under dollar cost averaging
counts towards your 12 free transfers each year.
DOLLAR -> we receive your request to cancel your
COST AVERAGING participation;
WILL TERMINATE IF: -> the value in the accounts from which we make the
transfers is depleted;
-> you elect to participate in the asset rebalancing
program; OR
-> you elect to participate in any asset allocation
service provided by a third party.
We may modify, suspend, or discontinue dollar cost averaging at any time.
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which you may transfer
amounts periodically to maintain a particular percentage allocation among the
subaccounts you have selected. You cannot have more than 12 active subaccounts.
Cash value allocated to each subaccount will grow or decline in value at
different rates. The asset rebalancing program automatically reallocates the
cash value in the subaccounts at the end of each period to match your Policy's
currently effective premium allocation schedule. Cash value in the fixed
account and the dollar cost averaging program is not available for this
program. This program does not guarantee gains. A subaccount may still have
losses.
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You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. You may modify your allocations
quarterly. Once we receive the asset rebalancing request form, we will effect
the initial rebalancing of cash value on the next such anniversary, in
accordance with the Policy's current premium allocation schedule. We will
credit the amounts transferred at the unit value next determined on the dates
the transfers are made. If a day on which rebalancing would ordinarily occur
falls on a day on which the NYSE is closed, rebalancing will occur on the next
day the NYSE is open.
TO START -> you must submit a completed asset rebalancing
ASSET REBALANCING: request form to us at our administrative office
before the maturity date; and
-> you must have a minimum cash value of $5,000 or make
a $5,000 initial premium payment.
There is no charge for the asset rebalancing program. However, each
reallocation we make under the program counts towards your 12 free transfers
each year.
ASSET REBALANCING -> you elect to participate in the dollar cost averaging
WILL CEASE IF: program;
-> we receive your request to discontinue participation;
-> you make ANY transfer to or from any subaccount other
than under a scheduled rebalancing; or
-> you elect to participate in any asset allocation
service provided by a third party.
You may start and stop participation in the asset rebalancing program at
any time; but we restrict your right to re-enter the program to once each
Policy year. If you wish to resume the asset rebalancing program, you must
complete a new request form. We may modify, suspend, or discontinue the asset
rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed Transamerica agents for the sale of Policies. TRANSAMERICA DOES NOT
ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE,
SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY
AGENCY RELATIONSHIP THEY MAY HAVE WITH TRANSAMERICA FOR THE SALE OF POLICIES.
TRANSAMERICA THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS
AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT
ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Transamerica does not
currently charge you any additional fees for providing these support services.
Transamerica reserves the right to discontinue providing administrative and
support services to owners utilizing independent third parties who provide
investment allocation and transfer recommendations.
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CHARGES AND DEDUCTIONS
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This section describes the charges and deductions that we make under the
Policy to compensate for: (1) the services and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
SERVICES AND BENEFITS WE o the death benefit, cash withdrawals and loan
PROVIDE UNDER THE POLICY: benefits;
o investment options, including premium
allocations;
o administration of elective options; and
o the distribution of reports to owners.
COSTS AND EXPENSES o costs associated with processing and
WE INCUR: underwriting applications;
o expenses of issuing and administering the
Policy (including any Policy riders);
o overhead and other expenses for providing
services and benefits, sales commissions and
marketing expenses; and
o other costs of doing business, such as
collecting premiums, maintaining records,
processing claims, effecting transactions, and
paying federal, state and local premium and
other taxes and fees.
RISKS WE ASSUME: o that the charges we may deduct may be
insufficient to meet our actual claims because
insureds die sooner than we estimate; and
o that the costs of providing the services and
benefits under the Policies may exceed the
charges we are allowed to deduct.
PREMIUM CHARGES
We deduct no charges from premiums before allocating the premiums to the
separate account and the fixed account according to your instructions.
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each Monthiversary. We deduct this charge on a pro rata basis from all accounts
(i.e., in the same proportion that the value in each subaccount and the fixed
account bears to the total cash value on the Monthiversary). Because portions
of the monthly deduction (such as cost of insurance) can vary monthly, the
monthly deduction will also vary.
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THE MONTHLY DEDUCTION o the monthly Policy charge; PLUS
IS EQUAL TO: o the monthly cost of insurance charge for the
Policy; PLUS
o the monthly charge for any benefits provided by
riders attached to the Policy; PLUS
o the pro rata decrease charge (see p. 43) incurred
as a result of a decrease in the specified amount.
MONTHLY POLICY CHARGE:
o This charge equals $5.00 each Policy month.
o We will not increase this charge.
o We may waive this charge at issue on additional
policies (not on the original Policy) purchased
naming the same owner and insured.
o This charge compensates us for administrative
expenses such as recordkeeping, processing
death benefit claims and Policy changes, and
overhead costs.
COST OF INSURANCE CHARGE:
o We deduct this charge each month. It varies
each month and is equal to:
-> the death benefit on the Monthiversary;
DIVIDED BY
-> 1.0024663 (this factor reduces the net
amount at risk, for purposes of computing
the cost of insurance, by taking into
account assumed monthly earnings at an
annual rate of 3.0%); MINUS
-> the cash value on the Monthiversary;
MULTIPLIED BY
-> the monthly cost of insurance rate for the
Policy.
OPTIONAL INSURANCE RIDERS:
o The monthly deduction will include charges for
any optional insurance benefits you add to your
Policy by rider (see Supplemental Benefits
(Riders) p. 61).
We base the cost of insurance rates on the insured's attained age, gender,
rate class, specified amount, and the length of time that the Policy has been
in force. For Policies with a specified amount of $250,000 or more, we
generally charge a lower rate. The actual monthly cost of insurance rates are
based on our expectations as to future mortality experience. The rates will
never be greater than the guaranteed amount stated in your Policy. These
guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.)
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Mortality Tables and the insured's attained age, gender and rate class. For
standard rate classes, these guaranteed rates will never be greater than the
rates in the C.S.O. tables. We may also guarantee a rate for a specific period
of time (E.G., one year). For a listing of rate classes, see Underwriting
Standards p. 23.
We may issue certain Policies on a simplified or expedited basis. The cost
of insurance rates for Policies we issue on this basis will be no higher than
the guaranteed rates for select, non-tobacco use or standard, tobacco use
categories. However, these rates may be higher or lower than current rates
charged under otherwise identical Policies that are using standard underwriting
criteria.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from your cash value in each subaccount to
compensate us for certain mortality and expense risks we assume. This charge is
equal to:
o your Policy's cash value in each subaccount MULTIPLIED BY
o the daily pro rata portion of the annual mortality and expense risk
charge rate of 0.90%.
The annual rate is equal to 0.90% of the average daily net assets of each
subaccount. We guarantee to reduce this charge to 0.60% after the first 15
Policy years. We intend to reduce this charge to 0.30% in the 16th Policy year
but we do not guarantee that we will do so, and we reserve the right to
maintain this charge at the 0.60% level after the 15th Policy year.
The mortality risk is that an insured will live for a shorter time than we
project. The expense risk is that the expenses that we incur will exceed the
administrative charge limits we set in the Policy.
If this charge does not cover our actual costs, we absorb the loss.
Conversely, if the charge more than covers actual costs, the excess is added to
our surplus. We expect to profit from this charge. We may use any profits to
cover distribution costs.
SURRENDER CHARGE
If you surrender your Policy completely during the first 15 years, we
deduct a surrender charge from your cash value and pay the remaining cash value
(less any outstanding loan amounts) to you. The payment you receive is called
the net surrender value. The formula we use reduces the surrender charge at
older ages in compliance with state laws.
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CALCULATE THIS CHARGE
CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level
of surrender charge might result in no net surrender value available if you
surrender your Policy in the first few Policy years. This will depend on a
number of factors, but is more likely if:
o you pay premiums equal to or not much higher than the minimum no lapse
guarantee premium shown in your Policy; and/or
o investment performance is too low.
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THE SURRENDER CHARGE IS o the ISSUE CHARGE plus the SURRENDER CHARGE BASE;
EQUAL TO: multiplied by
o the SURRENDER CHARGE FACTOR.
The ISSUE CHARGE is $5.00 MULTIPLIED BY each $1,000 of the initial
specified amount stated in your Policy. This charge helps us recover the
underwriting, processing and start-up expenses that we incur in connection with
the Policy and the separate account.
The SURRENDER CHARGE BASE equals:
o the total premiums paid up to the surrender charge base premium shown
in your Policy; PLUS
o the total premiums paid in excess of the surrender charge base
premium, MULTIPLIED BY the following percentage (which varies by the
insured's issue age):
ISSUE AGE PERCENTAGE
--------- ----------
0-55 8.00%
56-60 6.00%
61-65 4.00%
66-70 3.00%
71-75 2.00%
76-80 1.50%
81-85 1.00%
To determine the SURRENDER CHARGE, we apply the SURRENDER CHARGE FACTOR to
the sum of the ISSUE CHARGE plus the SURRENDER CHARGE BASE. The SURRENDER
CHARGE FACTOR varies with the insured's issue age and the number of years the
Policy has been in force. For male insureds ages 0-65, and for female insureds
ages 0-70, the surrender charge factor is equal to 1.00 during Policy years
1-10. It then decreases by 0.20 each year until the 15th Policy year when it is
zero. For insureds with older issue ages, the factor is less than 1.00 at the
end of the 10th Policy year and decreases to zero at the end of the 15th Policy
year.
SURRENDER CHARGE FACTORS
MALES ISSUE AGES 0 - 65
FEMALES ISSUE AGES 0 - 70
END OF POLICY YEAR* FACTOR
------------------- ------
At Issue 1.00
1-10 1.00
11 .80
12 .60
13 .40
14 .20
15 0
* The factor on any date other than a Policy anniversary will be
determined proportionately using the factor at the end of the Policy
year prior to surrender and the factor at the end of the Policy year
of surrender.
Applying the surrender charge factor to the total of the issue charge and
the surrender charge base for any surrender during the 11th through the 15th
Policy years will often result
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in a reduced surrender charge. If you surrender your Policy after the 15th
Policy year, there are no issue or sales charges due. We always determine the
surrender charge factor from the Policy date to the surrender date, regardless
of whether there were any prior lapses and reinstatements.
o SURRENDER CHARGE EXAMPLE 1: Assume a male insured purchases the Policy at
issue age 35 for $250,000 of specified amount, paying $3,000 per year for
four years ($12,000), and then surrenders the Policy. The surrender charge
base premium is $667.50 (250 units at $2.67). The surrender charge would
then be calculated as follows:
(a) ISSUE CHARGE: (250 x $5.00)
(units per thousand of specified amount x $5.00) = $1,250.00
(b) SURRENDER CHARGE BASE PREMIUM: = $ 667.50
(c) EXCESS OVER SURRENDER CHARGE BASE PREMIUM:
8.0% of premiums paid in excess of surrender charge
base premium ($12,000 - $667.50) x 8.0% = $ 906.60
(d) APPLICABLE SURRENDER CHARGE FACTOR:
(a + b + c) x 1.00
($1,250.00 + $667.50 + $906.60) x 1.00 = $2,824.10
=========
o SURRENDER CHARGE EXAMPLE 2: Assume the same facts as in Example 1,
including continued premium payments of $3,000 per year, EXCEPT the owner
surrenders the Policy on the 14th Policy anniversary. The surrender charge
would then be calculated as follows:
(a) ISSUE CHARGE: (250 x $5.00)
(units per thousand of specified amount x $5.00) = $1,250.00
(b) SURRENDER CHARGE BASE PREMIUM: = $ 667.50
(c) EXCESS OVER SURRENDER CHARGE BASE PREMIUM:
8.0% of premiums paid in excess of surrender charge
base premium ($42,000 - $667.50) x 8.0% = $3,306.60
(d) APPLICABLE SURRENDER CHARGE FACTOR:
(a + b + c) x .20
($1,250.00 + $667.50 + $3,306.60) x .20 = $1,044.82
=========
There will be no surrender charge if the owner waits until the 15th Policy
anniversary to surrender the Policy.
The surrender charge helps us recover distribution expenses that we incur
in connection with the Policy, including agent sales commissions and printing
and advertising costs.
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PRO RATA DECREASE CHARGE
If you decrease the specified amount during the first 15 Policy years, we
will deduct a pro rata decrease charge from the cash value. We will determine
the pro rata decrease charge by:
o calculating the surrender charge that would apply if the Policy was
being surrendered; then MULTIPLY it by
o the ratio of the specified amount decrease you requested to the
initial specified amount of your Policy.
THE PRO RATA DECREASE o the specified amount decrease that you request;
CHARGE IS EQUAL TO: DIVIDED BY
o the full specified amount on the Policy date;
MULTIPLIED BY
o the surrender charge as of the date of the
decrease based on the specified amount on the
Policy date.
We will not deduct the pro rata decrease charge from the cash value when a
specified amount decrease results from:
o a change in the death benefit option; or
o a cash withdrawal (when you select death benefit Option A).
We will determine the pro rata decrease charge from the Policy date to the
date of the decrease using the above formula, regardless of whether your Policy
has lapsed and been reinstated, or you have previously decreased your specified
amount.
If we deduct a pro rata decrease charge due to a decrease in specified
amount, we will reduce proportionately any future surrender charge incurred
during the first 15 Policy years. This means that when we calculate the
surrender charge, we will reduce the charge by an amount equal to the surrender
charge multiplied by the ratio of any prior decreases in the specified amount
to the full initial specified amount. A decrease in specified amount will
generally decrease the insurance protection of the Policy.
TRANSFER CHARGE
We currently allow you to make 12 transfers each year free from charge. We
charge $10 for each additional transfer. For purposes of assessing the transfer
charge, all transfers made in one day, regardless of the number of subaccounts
affected by the transfer, is considered a single transfer. We deduct the
transfer charge from the amount being transferred. Transfers due to loans,
exercise of conversion rights, or from the fixed account do not count as
transfers for the purpose of assessing this charge. Transfers under dollar cost
averaging and asset rebalancing are transfers for purposes of this charge. We
will not increase this charge.
CHANGE IN PREMIUM ALLOCATION CHARGE
We currently do not charge you if you change your premium allocation.
However, in the future we may decide to charge you $25 if you make more than
one change per Policy year quarter. We will notify you if we decide to impose
this charge.
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CASH WITHDRAWAL CHARGE
After the first Policy year, you may take one cash withdrawal each Policy
year. When you make a cash withdrawal, we charge a processing fee of $25 or 2%
of the amount you withdraw, whichever is less. We deduct this amount from the
withdrawal, and we pay you the balance. We will not increase this charge.
TAXES
We currently do not make any deductions for taxes from the separate
account. We may do so in the future if such taxes are imposed by federal or
state agencies.
PORTFOLIO EXPENSES
The portfolios deduct management fees and expenses from the amounts you
have invested in the portfolios. Some portfolios also deduct 12b-1 fees from
portfolio assets. These fees and expenses currently range from 0.44% to 1.20%.
See the Portfolio Annual Expense Table in this prospectus, and the fund
prospectuses.
Our affiliate, AFSG, the principal underwriter for the Policies, will
receive the 12b-1 fees deducted from portfolio assets for providing shareholder
support services to the portfolios. We and our affiliates, including the
principal underwriter for the Policies, may receive compensation from the
investment advisers, administrators, and/or distributors (and an affiliate
thereof) of the portfolios in connection with administrators or other services
and cost savings experienced by the investment advisers, administrators or
distributors. It is anticipated that such compensation will be based on assets
of the particular portfolios attributable to the Policy and may be significant.
Some advisers, administrators, distributors or portfolios may pay us (and our
affiliates) more than others.
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on an individual Policy once we receive satisfactory proof of the insured's
death. We may require return of the Policy. We will pay the death benefit
proceeds to the primary beneficiary(ies), if living, or to a contingent
beneficiary. If each beneficiary dies before the insured and there is no
contingent beneficiary, we will pay the death benefit proceeds to the owner or
the owner's estate. We will pay the death benefit proceeds in a lump sum or
under a payment option. See Payment Options p. 48.
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DEATH BENEFIT o the death benefit (described below); MINUS
PROCEEDS EQUAL: o any past due monthly deductions if the insured dies
during the grace period; PLUS
o any additional insurance in force provided by rider;
MINUS
o any single-sum benefits paid under the living benefit
rider; MINUS
o any outstanding Policy loans; MINUS
o any interest you owe on Policy loan(s).
If all or a part of the death benefit proceeds are paid in one sum, we
will pay interest on this sum as required by applicable state law from the date
we receive due proof of the insured's death to the date we make payment.
We may further adjust the amount of the death benefit proceeds if we
contest the Policy or if you misstate the insured's age or gender. See Our
Right to Contest the Policy p. 57 and Misstatement of Age or Gender p. 58.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the insured dies. You must select one
of the two death benefit options we offer in your application. No matter which
death benefit option you choose, we guarantee that, so long as the Policy does
not lapse, the death benefit will never be less than the specified amount on
the date of the insured's death.
DEATH BENEFIT o the current specified amount; OR
OPTION A EQUALS THE o a specified percentage, called the "limitation
GREATER OF: percentage," MULTIPLIED BY
-> the cash value on the insured's date of death.
Under Option A, your death benefit remains level unless the limitation
percentage multiplied by the cash value is greater than the specified amount;
then the death benefit will vary as the cash value varies.
The limitation percentage is the minimum percentage of cash value we must
pay as the death benefit under federal tax requirements. It is based on the
attained age of the insured at the beginning of each Policy year. The following
table indicates the limitation percentages for different ages:
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ATTAINED AGE LIMITATION PERCENTAGE
------------ ---------------------
40 and under 250%
41 to 45 250% of cash value minus 7% for each age over age 40
46 to 50 215% of cash value minus 6% for each age over age 45
51 to 55 185% of cash value minus 7% for each age over age 50
56 to 60 150% of cash value minus 4% for each age over age 55
61 to 65 130% of cash value minus 2% for each age over age 60
66 to 70 120% of cash value minus 1% for each age over age 65
71 to 75 115% of cash value minus 2% for each age over age 70
76 to 90 105%
91 to 95 105% of cash value minus 1% for each age over age 90
96 and over 100%
If the federal tax code requires us to determine the death benefit by
reference to these limitation percentages, the Policy is described as "in the
corridor." An increase in the cash value will increase our risk, and we will
increase the cost of insurance we deduct from the cash value.
OPTION A ILLUSTRATION. Assume that the insured's attained age is under 40,
there have been no withdrawals or decreases in specified amount, and that there
are no outstanding loans. Under Option A, a Policy with a $500,000 specified
amount will generally pay $500,000 in death benefits. However, because the
death benefit must be equal to or be greater than 250% of cash value, any time
the cash value of the Policy exceeds $200,000, the death benefit will exceed
the $500,000 specified amount. Each additional dollar added to the cash value
above $200,000 will increase the death benefit by $2.50.
Similarly, so long as the cash value exceeds $200,000, each dollar taken
out of the cash value will reduce the death benefit by $2.50. If at any time
the cash value multiplied by the limitation percentage is less than the
specified amount, the death benefit will equal the specified amount of the
Policy reduced by the dollar value of any cash withdrawals.
DEATH BENEFIT o the current specified amount; PLUS
OPTION B EQUALS THE -> the cash value on the insured's date of death; OR
GREATER OF: o the limitation percentage, MULTIPLIED BY
-> the cash value on the insured's date of death.
Under Option B, the death benefit always varies as the cash value varies.
OPTION B ILLUSTRATION. Assume that the insured's attained age is under 40
and that there are no outstanding loans. Under Option B, a Policy with a
specified amount of $500,000 will generally pay a death benefit of $500,000
plus cash value. Thus, a Policy with a cash value of $100,000 will have a death
benefit of $600,000 ($500,000 + $100,000). The death benefit, however, must be
at least 250% of cash value. As a result, if the cash value of the Policy
exceeds $333,333, the death benefit will be greater than the specified amount
plus cash value. Each additional dollar of cash value above $333,333 will
increase the death benefit by $2.50.
Similarly, any time cash value exceeds $333,333, each dollar taken out of
cash value will reduce the death benefit by $2.50. If at any time, cash value
multiplied by the
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limitation percentage is less than the specified amount plus the cash value,
then the death benefit will be the specified amount plus the cash value of the
Policy.
EFFECTS OF CASH WITHDRAWALS ON THE DEATH BENEFIT
If you choose Option A, a cash withdrawal will reduce the specified amount
by an amount equal to the amount of the cash withdrawal. We will not impose a
decrease charge when the specified amount is decreased as a result of taking a
cash withdrawal. Regardless of the death benefit option you choose, a cash
withdrawal will reduce the death benefit by at least the amount of the
withdrawal.
CHOOSING DEATH BENEFIT OPTIONS
You must choose one death benefit option on your application. This is an
important decision. The death benefit option you choose will have an impact on
the dollar value of the death benefit, on your cash value and on the amount of
cost of insurance charges you pay.
You may find Option A more suitable for you if your goal is to increase
your cash value through positive investment experience. You may find Option B
more suitable if your goal is to increase your total death benefit.
CHANGING THE DEATH BENEFIT OPTION
After the third Policy year, you may change your death benefit option once
each Policy year if you have not decreased the specified amount that year.
o You must make your request in writing.
o The effective date of the change will be the Monthiversary on or
following the date when we receive your request for a change at our
administrative office.
o You may not make a change that would decrease the specified amount
below the minimum specified amount stated in your Policy.
o There may be adverse federal tax consequences. You should consult a
tax advisor before changing your Policy's death benefit option.
If you change your death benefit option from Option B to Option A, we will
make the specified amount after the change equal to the specified amount prior
to the change, plus your Policy's cash value on the effective date of the
change. If you change your death benefit option from Option A to Option B, we
will make the specified amount after the change equal to the specified amount
prior to the change, minus the cash value on the effective date of the change.
We will notify you of the new specified amount.
DECREASING THE SPECIFIED AMOUNT
After the Policy has been in force for three years, you may decrease the
specified amount once each Policy year if you did not change your death benefit
option that year. A decrease in the specified amount may affect your cost of
insurance charge and may have adverse federal tax consequences. You should
consult a tax advisor before decreasing your Policy's specified amount.
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CONDITIONS FOR o you must make your request in writing;
DECREASING THE SPECIFIED o you may not change your death benefit option in
AMOUNT: the same Policy year that you decrease your
specified amount;
o you may not decrease your specified amount
lower than the minimum specified amount stated
in your Policy (generally $100,000). However,
if your initial specified amount is $250,000 or
more, you may not reduce the specified amount
below $250,000;
o you may not decrease your specified amount if
it would disqualify your Policy as life
insurance under the Internal Revenue Code;
o we may limit the amount of the decrease to no
more than 20% of the specified amount;
o a decrease in specified amount will take effect
on the first Monthiversary on or after we
receive your written request at our
administrative office; and
o we will assess a pro rata decrease charge
against the cash value if you decrease your
specified amount within the first 15 Policy
years.
NO INCREASE IN THE SPECIFIED AMOUNT
We do not allow increases in the specified amount. If you want additional
insurance, you may purchase a term rider (PIR) or purchase an additional
policy(ies). We may waive the monthly Policy charge at issue on additional
policies naming the same insured and owner.
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. See Settlement
Options p. 59 for information concerning these settlement options.
SURRENDERS AND CASH WITHDRAWALS
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SURRENDERS
You may make a written request to surrender your Policy for its net
surrender value as calculated at the end of the valuation date on which we
receive your request at our administrative office. The insured must be alive,
the Policy must be in force when you make your written request and it must be
before the maturity date. A surrender is effective as of the date when we
receive your written request. Signature of the owner's spouse is required if
the owner is a resident of Arizona, California, Idaho, Nevada, New Mexico,
Washington or Wisconsin. You will incur a surrender charge if you surrender the
Policy during the first 15 Policy years. See Charges and Deductions --
Surrender Charge p. 40. Once you
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surrender your Policy, all coverage and other benefits under it cease and
cannot be reinstated. We will normally pay you the net surrender value (cash
value, minus any surrender charge, minus any Policy loans outstanding and minus
any interest you owe on Policy loans) in a lump sum within seven days or under
a settlement option. A surrender may have tax consequences. See Federal Income
Tax Considerations p. 53.
CASH WITHDRAWALS
After the first Policy year, you may request a cash withdrawal of a
portion of your cash value subject to certain conditions.
CASH o You must make your cash withdrawal request to us in
WITHDRAWAL writing.
CONDITIONS: o Signature of the owner's spouse is required if the owner is
a resident of Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o We only allow one cash withdrawal per Policy year.
o We may limit the amount you can withdraw to at least
$500, and to no more than 10% of the net surrender value.
We currently intend to limit the amount you can withdraw
to 25% of the net surrender value after the 10th Policy
year.
o You may not take a cash withdrawal if it will reduce the
specified amount below the minimum specified amount set
forth in the Policy.
o You may specify the subaccount(s) and the fixed account
from which to make the withdrawal. If you do not specify
an account, we will take the withdrawal from each account
in accordance with your current premium allocation
instructions.
o We generally will pay a cash withdrawal request within
seven days following the valuation date we receive the
request.
o We will deduct a processing fee equal to $25 or 2% of the
amount you withdraw, whichever is less. We deduct this
amount from the withdrawal, and we pay you the balance.
o We do not assess a surrender charge when you take a cash
withdrawal.
o You may not take a cash withdrawal if it would disqualify
your Policy as life insurance under the Internal Revenue
Code.
o A cash withdrawal may have tax consequences. See
Federal Income Tax Considerations p. 53.
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A cash withdrawal will reduce the cash value by the amount of the cash
withdrawal, and will reduce the death benefit by at least the amount of the
cash withdrawal. When death benefit Option A is in effect, a cash withdrawal
will reduce the specified amount by an amount equal to the amount of the cash
withdrawal. We will not impose a pro rata decrease charge when the specified
amount is decreased as a result of taking a cash withdrawal.
LOANS
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GENERAL
After the first Policy year (as long as the Policy is in force) you may
borrow money from us using the Policy as the only security for the loan. We may
permit a loan prior to the first anniversary for Policies issued pursuant to
1035 Exchanges. A loan that is taken from, or secured by, a Policy may have tax
consequences. See Federal Income Tax Considerations p. 53.
POLICY LOANS ARE o we may require you to borrow at least $500;
SUBJECT TO CERTAIN o the maximum amount you may borrow is 90% of the cash
CONDITIONS: value, less any surrender charge and any outstanding
loan amount; and
o signature of the owner's spouse is required if the
owner is a resident of Arizona, California, Idaho,
Nevada, New Mexico, Washington or Wisconsin.
When you take a loan, we will withdraw an amount equal to the requested
loan from each of the subaccounts and the fixed account based on your current
premium allocation instructions (unless you specify otherwise). We will
transfer that amount to the loan reserve. The loan reserve is the portion of
the fixed account used as collateral for a Policy loan.
We normally pay the amount of the loan within seven days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See Payments We Make p. 59.
You may request a loan by telephone by calling us at 1-800-322-7164. If
the loan amount you request exceeds $50,000 or if the address of record has
been changed within the past 10 days, we may reject your request. If you do not
want the ability to request a loan by telephone, you should notify us in
writing. You will be required to provide certain information for identification
purposes when you request a loan by telephone. We may ask you to provide us
with written confirmation of your request. We will not be liable for processing
a loan request if we believe the request is genuine.
You may also fax your loan request to us at 727-299-1667. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
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You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY TO BE PREMIUM PAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS LOAN REPAYMENTS.
At each Policy anniversary, we will compare the amount of the outstanding
loan to the amount in the loan reserve. At such time, if the amount of the
outstanding loan exceeds the amount in the loan reserve, we will withdraw the
difference from the subaccounts and the fixed account and transfer it to the
loan reserve, in the same manner as when a loan is made. If the amount in the
loan reserve exceeds the amount of the outstanding loan, we will withdraw the
difference from the loan reserve and transfer it to the subaccounts and the
fixed account in the same manner as current premiums are allocated. No charge
will be imposed for these transfers, and these transfers are not treated as
transfers in calculating the transfer charge. We reserve the right to require a
transfer to the fixed account if the loans were originally transferred from the
fixed account.
INTEREST RATE CHARGED
We will charge you an annual interest rate on a Policy loan that is equal
to 5.5% and is payable in arrears on each Policy anniversary. Loan interest
that is unpaid when due will be added to the amount of the loan on each Policy
anniversary and will bear interest at the same rate.
LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of at least 4.0%. We may credit a higher rate, but we are
not obligated to do so.
o We currently credit interest at an effective annual rate of 4.75% on
amounts you borrow during the first 10 Policy years.
o After the 10th Policy year, you may borrow at preferred loan rates an
amount equal to the cash value minus total premiums paid (reduced by
any cash withdrawals) and minus any outstanding loan amounts
(including any interest you owe on Policy loan(s)). We currently
credit interest at a 5.5% preferred loan rate. THIS RATE IS NOT
GUARANTEED.
EFFECT OF POLICY LOANS
A Policy loan reduces the death benefit proceeds and net surrender value
by the amount of any outstanding loan plus interest you owe on the loan.
Repaying the loan causes the death benefit proceeds and net surrender value to
increase by the amount of the repayment. As long as a loan is outstanding, we
hold an amount equal to the loan as of the last Policy anniversary plus any
accrued interest net of any loan payments. This amount is not affected by the
separate account's investment performance and may not be credited with the
interest rates accruing on the fixed account. Amounts transferred from the
separate account to the loan reserve will affect the value in the separate
account because we credit such amounts with an interest rate declared by us
rather than a rate of return reflecting the investment results of the separate
account.
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There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding. You should consult a tax advisor before taking out a Policy loan.
See Federal Income Tax Considerations p. 53.
We will notify you (and any assignee of record) if the sum of your loans
plus any interest you owe on the loans is more than the net surrender value. If
you do not submit a sufficient payment within 61 days from the date of the
notice, your Policy may lapse.
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may not necessarily lapse (terminate without value) if you
fail to make a planned periodic payment. However, even if you make all your
planned periodic payments, there is no guarantee that your Policy will not
lapse. This Policy provides a no lapse period. See below. Once your no lapse
period ends, your Policy may lapse if the net surrender value on any
Monthiversary is less than the monthly deductions due on that day. Such lapse
might occur if investment experience is unfavorable or loans and cash
withdrawals cause a decrease in the net surrender value, or you have not paid
sufficient premiums (as described below) to offset the monthly deductions.
If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and any assignee of record. The
notice will specify the minimum payment you must pay and the final date by
which we must receive the payment to prevent a lapse. We generally require that
you make the payment within 61 days after the date of the notice. This 61-day
period is called the GRACE PERIOD. If we do not receive the specified minimum
payment by the end of the grace period, all coverage under the Policy will
terminate without value.
NO LAPSE PERIOD
This Policy provides a no lapse period for the first three Policy years.
As long as you keep the no lapse period in effect, your Policy will not lapse
and no grace period will begin, even if your net surrender value is not enough
to pay your monthly deduction. The no lapse period will not extend beyond the
first three years as stated in your Policy. Each month we determine whether the
no lapse period is still in effect.
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EARLY TERMINATION OF THE o The no lapse period will end immediately if you
NO LAPSE PERIOD do not pay sufficient minimum no lapse
premiums.
o You must pay total premiums (minus withdrawals,
outstanding loans, and any pro rata decrease
charge) that equal at least the sum of the
monthly minimum no lapse premium in effect each
month from the Policy date up to
and including the current month.
You will lessen the risk of Policy lapse if you keep the no lapse period
in effect. Before you take a cash withdrawal, a loan, or decrease the specified
amount, you should consider carefully the effect it will have on the no lapse
period guarantee.
In addition, if you change death benefit options, decrease the specified
amount, or add or increase a rider, we will adjust the minimum no lapse
premium. See Minimum No Lapse Premium p. 28 for a discussion of how the minimum
no lapse premium is calculated and can change.
REINSTATEMENT
We will reinstate a lapsed Policy if within five years after the lapse
(and prior to the maturity date). To reinstate the Policy you must:
o submit a written application for reinstatement;
o provide evidence of insurability satisfactory to us;
o make a minimum premium payment sufficient to provide a premium that is
large enough to cover:
-> three monthly deductions; and
-> any surrender charge calculated from the Policy date to the date
of reinstatement. (Although we do not currently assess the
surrender charge upon reinstatement, we reserve the right to do
so in the future.)
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. Your net surrender value on the
reinstatement date will equal the premiums you pay at reinstatement, MINUS one
monthly deduction and any surrender charge. The reinstatement date for your
Policy will be the Monthiversary on or following the day we approve your
application for reinstatement. We may decline a request for reinstatement.
FEDERAL INCOME TAX CONSIDERATIONS
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The following summarizes some of the basic federal income tax
considerations associated with a Policy and does not purport to be complete or
to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. Please
consult counsel or other qualified tax advisors for more complete information.
We base this discussion on our understanding of the present federal income tax
laws as they are currently interpreted by the Internal Revenue Service (the
"IRS"). Federal income tax laws and the current interpretations by the IRS may
change.
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TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue Code (the "Code") in order to qualify as a life insurance policy for
federal income tax purposes and to receive the tax treatment normally accorded
life insurance policies under federal tax law. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that a
Policy issued on the basis of a standard rate class should generally satisfy
the applicable Code requirements. Because of the absence of pertinent
interpretations of the Code requirements, there is, however, less certainty
about the application of such requirements to a Policy issued on a substandard
basis. If it is subsequently determined that a Policy does not satisfy the
applicable requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements and we reserve the right to restrict Policy
transactions in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their policies due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as flexibility to allocate premiums and cash
values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over separate
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance policy for federal income tax purposes. We intend that the separate
account, through the portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance policy for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludable from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. A tax advisor
should be consulted on these consequences.
Generally, you will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by a Policy (e.g., by
assignment), the tax consequences depend on whether the Policy is classified as
a "Modified Endowment Contract" ("MEC").
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance
policies are classified as MECs and receive less favorable tax treatment than
other life insurance policies.
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The rules are too complex to summarize here, but generally depend on the amount
of premiums paid during the first seven Policy years. Certain changes in the
Policy after it is issued could also cause the Policy to be classified as a
MEC. Due to the Policy's flexibility, each Policy's circumstances will
determine whether the Policy is classified as a MEC. If you do not want your
Policy to be classified as a MEC, you should consult a tax advisor to determine
the circumstances, if any, under which your Policy would or would not be
classified as a MEC.
Upon issue of your Policy, we will notify you as to whether or not your
Policy is classified as a MEC based on the initial premium we receive. If your
Policy is not a MEC at issue, then you will also be notified of the maximum
amount of additional premiums you can pay without causing your Policy to be
classified as a MEC. If a payment would cause your Policy to become a MEC, you
and your agent will be notified. At that time, you will need to notify us if
you want to continue your Policy as a MEC.
DISTRIBUTIONS (OTHER THAN DEATH BENEFITS) FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as MECs are subject to the following tax rules:
o All distributions other than death benefits from a MEC, including
distributions upon surrender and cash withdrawals, will be treated
first as distributions of gain taxable as ordinary income. They will
be treated as tax-free recovery of the owner's investment in the
Policy only after all gain has been distributed. Your investment in
the Policy is generally your total premium payments. When a
distribution is taken from the Policy, your investment in the Policy
is reduced by the amount of the distribution that is tax-free.
o Loans taken from or secured by (e.g., by assignment) such a Policy are
treated as distributions and taxed accordingly.
o A 10% additional federal income tax is imposed on the amount included
in income except where the distribution or loan is made when you have
attained age 591/2 or are disabled, or where the distribution is part
of a series of substantially equal periodic payments for your life (or
life expectancy) or the joint lives (or joint life expectancies) of
you and the beneficiary.
o If a Policy becomes a MEC, distributions that occur during the Policy
year will be taxed as distributions from a MEC. In addition,
distributions from a Policy within two years before it becomes a MEC
will be taxed in this manner. This means that a distribution from a
Policy that is not a MEC at the time when the distribution is made
could later become taxable as a distribution from a MEC.
DISTRIBUTIONS (OTHER THAN DEATH BENEFITS) FROM POLICIES THAT ARE NOT
MODIFIED ENDOWMENT CONTRACTS. Distributions other than death benefits from a
Policy that is not a MEC are generally treated first as a recovery of your
investment in the Policy, and as taxable income after the recovery of all
investment in the Policy. However, certain distributions which must be made in
order to enable the Policy to continue to qualify as a
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life insurance policy for federal income tax purposes if Policy benefits are
reduced during the first 15 Policy years may be treated in whole or in part as
ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not
treated as distributions. Instead, such loans are treated as indebtedness.
However, there is some uncertainty as to the tax treatment of a loan at
preferred loan rates under a Policy that is not a MEC and you should consult a
tax advisor on this point.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10% additional tax.
MULTIPLE POLICIES. All MECs that we issue (or that our affiliates issue)
to the same owner during any calendar year are treated as one MEC for purposes
of determining the amount includable in the owner's income when a taxable
distribution occurs.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally the
sum of the premium payments you made. When a distribution from the Policy
occurs, your investment in the Policy is reduced by the amount of the
distribution that is tax-free.
POLICY LOANS. If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding indebtedness will be
taxed as if it were a distribution.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
BUSINESS USES OF THE POLICY. The Policy may be used in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, retiree
medical benefit plans and others. The tax consequences of such plans and
business uses of the Policy may vary depending on the particular facts and
circumstances of each individual arrangement and business uses of the Policy.
Therefore, if you are contemplating using the Policy in any arrangement the
value of which depends in part on its tax consequences, you should be sure to
consult a tax advisor as to tax attributes of the arrangement. In recent years,
moreover, Congress has adopted new rules relating to life insurance owned by
businesses. Any business contemplating the purchase of a new Policy or a change
in an existing Policy should consult a tax advisor.
LIVING BENEFIT RIDER (AN ACCELERATED DEATH BENEFIT). We believe that the
single-sum payment we make under this rider should be fully excludable from the
gross income of the beneficiary, as long as the beneficiary is an insured under
the Policy. You should, however, consult a tax advisor about the consequences
of adding this rider to your Policy, or requesting a single-sum payment.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always a possibility that the tax treatment of the
Policies could change by legislation or otherwise. You should consult a tax
advisor with respect to legal developments and their effect on the Policy.
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SPECIAL RULES FOR 403(b) ARRANGEMENTS
If this Policy is purchased by public school systems and certain
tax-exempt organizations for their employees, then the federal, state and
estate tax consequences could differ from those stated in this prospectus. A
competent tax advisor should be consulted in connection with such purchase.
Certain restrictions apply. The Policy must be purchased in connection
with a tax-sheltered annuity described in Section 403(b) of the Code. Premiums,
distributions, and other transactions in connection with the Policy must be
administered in coordination with the Section 403(b) annuity.
The amount of life insurance that may be purchased on behalf of a
participant in a 403(b) plan is limited. The current cost of insurance for the
net amount at risk is treated under the Code as a "current fringe benefit" and
must be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported to the participant
annually.
If the plan participant dies while covered by the 403(b) plan and the
Policy proceeds are paid to the participant's beneficiary, then the excess of
the death benefit over the cash value will generally not be taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy.
Policies owned under these types of plans may be subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), which may impose additional
requirements on Policy loans and other Policy provisions. Plan loans must also
satisfy tax requirements in order to be treated as non-taxable. Plan loan
requirements and provisions may differ from the Policy loan provisions stated
in the prospectus. You should consult a qualified advisor regarding ERISA.
OTHER POLICY INFORMATION
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for the
insured in the application or in a supplemental application. Therefore, if you
make any material misrepresentation of a fact in the application (or any
supplemental application), then we may contest the Policy's validity or may
resist a claim under the Policy.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime for two years from the Policy date, or if reinstated, for two years
from the date of reinstatement.
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within two years of
the Policy date (or two years from the reinstatement date, if the Policy lapses
and is reinstated), then
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the Policy will terminate and our liability is limited to an amount equal to
the total premiums paid, less any outstanding loans, and less any cash
withdrawals. We will pay this amount to the beneficiary in one sum.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the insured was stated incorrectly in the
application or any supplemental application, then the death benefit will be
adjusted based on what the cost of insurance charge for the most recent monthly
deduction would have purchased based on the insured's correct age and gender.
MODIFYING THE POLICY
Only our President or Secretary may modify this Policy or waive any of our
rights or requirements under this Policy. Any modification or waiver must be in
writing. No agent may bind us by making any promise not contained in this
Policy.
If we modify the Policy, we will provide you notice and we will make
appropriate endorsements to the Policy.
BENEFITS AT MATURITY
If the insured is living and the Policy is in force, the Policy will
mature on the Policy anniversary nearest the insured's 100th birthday. This is
the maturity date. On the maturity date we will pay you the net surrender value
of your Policy. If requested, we will extend the maturity date if your Policy
is still in force on the maturity date. Any riders in force on the scheduled
maturity date will terminate on that date and will not be extended. Interest on
any outstanding Policy loans will continue to accrue during the period for
which the maturity date is extended. You must submit a written request for the
extension between 90 and 180 days prior to the maturity date and elect one of
the following:
1. If you had previously selected death benefit Option B, we will change
the death benefit to Option A. On each valuation date, we will adjust
the specified amount to equal the cash value, and the limitation
percentage will be 100%. We will not permit you to make additional
premium payments. We will waive all future monthly deductions; or
2. We will automatically extend the maturity date until the next Policy
anniversary. You must submit a written request, between 90 and 180 days
before each subsequent Policy anniversary, stating that you wish to
extend the maturity date for another Policy year. All benefits and
charges will continue as set forth in your Policy. We will adjust the
annual cost of insurance rates using the then current cost of insurance
rates.
If you choose 2 above, you may change your election to 1 above at any
time. However, if you choose 1 above, then you may not change your election to
2 above.
The tax consequences of extending the maturity date beyond the 100th
birthday of the insured are uncertain. You should consult a tax advisor as to
those consequences.
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PAYMENTS WE MAKE
We usually pay the amounts of any surrender, cash withdrawal, death
benefit proceeds, or settlement options within seven business days after we
receive all applicable written notices and/or due proofs of death at our
administrative office. However, we can postpone such payments if:
o the NYSE is closed, other than customary weekend and holiday closing,
or trading on the NYSE is restricted as determined by the SEC; OR
o the SEC permits, by an order, the postponement for the protection of
policyowners; OR
o the SEC determines that an emergency exists that would make the
disposal of securities held in the separate account or the
determination of their value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, cash withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored. We also
reserve the right to defer payment of transfers, cash withdrawals, death
benefit proceeds or surrenders from the fixed account for up to six months.
SETTLEMENT OPTIONS
If you surrender the Policy, you may elect to receive the net surrender
value in either a lump sum or as a series of regular income payments under one
of the three settlement options described below. In either event, life
insurance coverage ends. Also, when the insured dies, the beneficiary may apply
the lump sum death benefit proceeds to one of the same settlement options. If
the regular payment under a settlement option would be less than $20, we will
instead pay the proceeds in one lump sum. We may make other settlement options
available in the future.
Once we begin making payments under a settlement option, you or the
beneficiary will no longer have any value in the subaccounts or the fixed
account. Instead, the only entitlement will be the amount of the regular
payment for the period selected under the terms of the settlement option
chosen. Depending upon the circumstances, the effective date of a settlement
option is the surrender date or the insured's date of death.
Under any settlement option, the dollar amount of each payment will depend
on four things:
o the amount of the surrender or death benefit proceeds on the surrender
date or insured's date of death;
o the interest rate we credit on those amounts (we guarantee a minimum
annual interest rate of 3.0%);
o the mortality tables we use; and
o the specific payment option(s) you choose.
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OPTION 1 - EQUAL o We will pay the proceeds, plus interest, in equal
MONTHLY INSTALLMENTS monthly installments for a fixed period of your
FOR A FIXED PERIOD choice, but not longer than 240 months.
o We will stop making payments once we have made all
the payments for the period selected.
OPTION 2 - EQUAL At your or the beneficiary's direction, we will make
MONTHLY INSTALLMENTS equal monthly installments:
FOR LIFE (LIFE INCOME) o only for the life of the payee, at the end of
which payments will end; or
o for the longer of the payee's life, or for 10
years if the payee dies before the end of the
first 10 years of payments; or
o until the total amount of all payments we have
made equals the proceeds that were applied to
the settlement option.
OPTION 3 - EQUAL o We will make equal monthly payments during the
MONTHLY INSTALLMENTS FOR joint lifetime of two persons, first to a
THE LIFE OF THE PAYEE AND chosen payee, and then to a co-payee, if
THEN TO A DESIGNATED living, upon the death of the payee.
SURVIVOR (JOINT AND o Payments to the co-payee, if living, upon the
SURVIVOR) payee's death will equal either:
-> the full amount made to the payee before
the payee's death; or
-> two-thirds of the amount paid to the payee
before the payee's death. All payments
will cease upon the death of the co-payee.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
<TABLE>
<S> <C> <C> <C>
/checkmark/ the current cash value /checkmark/ any activity since the last report
/checkmark/ the current net surrender value /checkmark/ projected values
/checkmark/ the current death benefit /checkmark/ investment experience of each subaccount
/checkmark/ any outstanding loans /checkmark/ any other information required by law
</TABLE>
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request. We also will
send copies of the annual and semi-annual report to shareholders for each
portfolio in which you are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account.
60
<PAGE>
POLICY TERMINATION
Your Policy will terminate on the earliest of:
o the maturity date; o the end of the grace period; or
o the date the insured dies; o the date the Policy is surrendered.
SUPPLEMENTAL BENEFITS (RIDERS)
- --------------------------------------------------------------------------------
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The following supplemental benefits (riders) are available and may be
added to a Policy. Monthly charges for these riders are deducted from cash
value as part of the monthly deduction. The riders available with the Policy
provide fixed benefits that do not vary with the investment experience of the
separate account. For purposes of the riders, the primary insured is the person
insured under the Policy, and the face amount is the level term insurance
amount we pay at death. These riders may not be available in all states.
CHILDREN'S INSURANCE RIDER
This rider provides a face amount on the primary insured's children. Our
current minimum face amount for this rider for issue ages 0-18 is $5,000. The
maximum face amount is $25,000. At the age of 25 or upon the death of the
primary insured, whichever happens first, this rider may be converted to a new
policy with a maximum face amount of up to five times the face amount of the
rider. We will pay a death benefit once we receive proof that the insured child
died while both the rider and coverage were in force for that child. If the
primary insured dies while the rider is in force, we will terminate the rider
31 days after the death, and we will offer a separate life insurance policy to
each insured child.
ACCIDENTAL DEATH BENEFIT RIDER
Our current minimum face amount for this rider for issue ages 15-59 is
$10,000. The maximum face amount available for this rider is $150,000 (up to
150% of specified amount).
Subject to certain limitations, we will pay a face amount if the primary
insured's death results solely from accidental bodily injury where:
o the death is caused by external, violent, and accidental means;
o the death occurs within 90 days of the accident; and
o the death occurs while the rider is in force.
The rider will terminate on the earliest of:
o the Policy anniversary nearest the primary insured's 70th birthday;
o the date the Policy terminates; or
o the Monthiversary when the rider terminates at your request.
OTHER INSURED RIDER
This rider insures the spouse or life partner and/or dependent children of
the primary insured. We will pay the rider's face amount when we receive proof
of the other insured's
61
<PAGE>
death. On any Monthiversary while the rider is in force, you may replace it
with a new policy on the other insured's life (without evidence of
insurability).
CONDITIONS TO o your request must be in writing;
REPLACE THE o the rider has not reached the anniversary nearest to the
RIDER: other insured's 70th birthday;
o the new policy is any permanent insurance policy that we
currently offer for conversion;
o subject to the minimum face amount required for the new
policy, the amount of the insurance under the new policy
will equal the face amount then in force under the rider
as long as it meets the minimum specified amount
requirements of the original Policy; and
o we will base your premium on the other insured's rate
class under the rider.
DISABILITY WAIVER RIDER
Subject to certain conditions, we will waive the Policy's monthly
deductions while you are disabled. This rider may be purchased if your issue
age is 15-55 years of age. We must receive proof that:
o you are totally disabled;
o the rider was in force when you became disabled;
o you became disabled before the anniversary nearest your 60th birthday;
and
o you are continuously disabled for at least six months.
We will not waive any deduction which becomes due more than one year before we
receive written notice of your claim.
DISABILITY WAIVER AND INCOME RIDER
This rider has the same benefits as the Disability Waiver Rider, but adds
a monthly income benefit for up to 120 months. This rider may be purchased if
your issue age is 15-55 years of age. The minimum income amount for this rider
is $10. The maximum income amount is the lesser of 0.2% of your specified
amount or $300 per month.
PRIMARY INSURED RIDER ("PIR") AND PRIMARY INSURED RIDER PLUS ("PIR PLUS")
Under the PIR and the PIR Plus, we provide term insurance coverage on a
different basis from the coverage in your Policy.
62
<PAGE>
FEATURES OF o the rider increases the Policy's death benefit by the
PIR AND PIR rider's face amount;
PLUS: o the PIR may be purchased from isssue ages 0-85;
o the PIR Plus may be purchased from issue ages 0-85;
o the PIR terminates when the insured turns 95, and the PIR
Plus terminates when the insured turns 90;
o the minimum purchase amount for the PIR and PIR Plus is
$50,000. There is no maximum purchase amount;
o we do not assess any additional surrender charge for PIR
and PIR Plus;
o generally PIR and PIR Plus coverage costs less than the
insurance coverage under the Policy, but has no cash value;
o you may cancel or reduce your rider coverage without
decreasing your Policy's specified amount; and
o you may generally decrease your Policy's specified amount
without reducing your rider coverage.
It may cost you less to reduce your PIR or PIR Plus coverage than to
decrease your Policy's specified amount, because we do not deduct a surrender
charge in connection with your PIR or PIR Plus. It may cost you more to keep a
higher specified amount, because the specified amount may have a cost of
insurance that is higher than the cost of the same amount of coverage under
your PIR or PIR Plus.
You should consult your registered representative to determine if you
would benefit from PIR or PIR Plus. We may discontinue offering PIR or PIR Plus
at any time. We may also modify the terms of these riders for new policies.
LIVING BENEFIT RIDER (AN ACCELERATED DEATH BENEFIT)
This rider allows us to pay all or a portion of the death benefit once we
receive satisfactory proof that the insured is ill and has a life expectancy of
one year or less. A doctor must certify the insured's life expectancy.
We will pay a "single-sum benefit" equal to:
o the death benefit on the date we pay the single-sum benefit;
MULTIPLIED BY
o the election percentage of the death benefit you elect to receive;
DIVIDED BY
o 1 + i ("i" equals the current yield on 90-day Treasury bills or the
Policy loan interest rate, whichever is greater); MINUS
o any indebtedness at the time we pay the single-sum benefit, multiplied
by the election percentage.
The maximum terminal illness death benefit we will pay is equal to:
o the death benefit available under the Policy at the insured's death;
PLUS
63
<PAGE>
o the benefit available under any PIR or PIR Plus in force.
o a single-sum benefit may not be greater than $500,000.
The election percentage is a percentage that you select. It may not be
greater than 100% of your Policy's death benefit under the rider.
We will not pay a benefit under the rider if the insured's terminal
condition results from self-inflicted injuries which occur during the period
specified in your Policy's suicide provision.
The rider terminates at the earliest of:
o the date the Policy terminates;
o the date a settlement option takes effect;
o the date we pay a single-sum benefit; or
o the date you terminate the rider.
We do not charge for this rider. This rider may not be available in all
states, or its terms may vary depending on a state's insurance law
requirements.
IMSA
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- --------------------------------------------------------------------------------
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.
PERFORMANCE DATA
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RATES OF RETURN
This section shows the historical investment experience of the portfolios
based on the portfolios' historical investment experience. This information
does not represent or project future investment performance.
We base the rates of return that we show below on each portfolio's actual
investment performance. We deduct investment management fees and direct fund
expenses. The rates are actual average annual total rates of return for the
periods ended on December 31, 1999.
These rates of return do not reflect any charges that are deducted under
the Policy or from the separate account (such as the annual mortality and
expense risk charge, the monthly deduction, or the surrender charge). IF THESE
CHARGES WERE DEDUCTED, PERFORMANCE WOULD BE LOWER. These rates of return are
not estimates, projections or guarantees of future performance.
64
<PAGE>
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
AVERAGE ANNUAL TOTAL RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION
PORTFOLIO INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR DATE
- --------- --------- -------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
WRL J.P. Morgan Money Market* .................. 5.00% 4.67% 5.11% 5.04% 4.63% 10/02/1986
WRL AEGON Bond ................................. 7.03% 7.33% 7.36% 5.02% (2.94)% 10/02/1986
WRL Janus Global ............................... 27.91% N/A 32.94% 38.24% 71.10% 12/03/1992
WRL Janus Growth ............................... 23.47% 23.62% 39.89% 45.60% 59.67% 10/02/1986
WRL LKCM Strategic Total Return ................ 13.82% N/A 16.50% 14.40% 12.07% 03/01/1993
WRL VKAM Emerging Growth ....................... 32.64% N/A 42.96% 50.69% 105.16% 03/01/1993
WRL Alger Aggressive Growth .................... 30.35% N/A 36.62% 46.16% 69.02% 03/01/1994
WRL AEGON Balanced ............................. 8.53% N/A 11.34% 8.86% 3.03% 03/01/1994
WRL Federated Growth & Income .................. 8.82% N/A 11.41% 7.07% (4.45)% 03/01/1994
WRL Dean Asset Allocation ...................... 10.38% N/A N/A 6.02% (5.64)% 01/03/1995
WRL C.A.S.E. Growth ............................ 18.80% N/A N/A 16.41% 33.84% 05/01/1995
WRL NWQ Value Equity ........................... 10.76% N/A N/A 8.73% 7.95% 05/01/1996
WRL GE International Equity .................... 14.90% N/A N/A N/A 24.95% 01/02/1997
WRL GE U.S. Equity ............................. 22.76% N/A N/A N/A 18.41% 01/02/1997
WRL Third Avenue Value ......................... 3.84% N/A N/A N/A 15.72% 01/02/1998
WRL J.P. Morgan Real Estate Securities ......... (11.31)% N/A N/A N/A (3.77)% 05/01/1998
WRL Goldman Sachs Growth ....................... 17.50% N/A N/A N/A N/A 05/03/1999
WRL Goldman Sachs Small Cap .................... 17.82% N/A N/A N/A N/A 05/03/1999
WRL T. Rowe Price Dividend Growth .............. (7.40)% N/A N/A N/A N/A 05/03/1999
WRL T. Rowe Price Small Cap .................... 38.49% N/A N/A N/A N/A 05/03/1999
WRL Salomon All Cap ............................ 15.57% N/A N/A N/A N/A 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth .............. 78.00% N/A N/A N/A N/A 05/03/1999
WRL Dreyfus Mid Cap ............................ 7.20% N/A N/A N/A N/A 05/03/1999
Transamerica VIF Growth Portfolio** ............ N/A 26.81% 41.50% *** 37.79% 02/26/1969
S&P 500 ........................................ 18.11% 18.20% 28.54% 27.56% 21.04% 10/02/1986
</TABLE>
* Yield more closely reflects the current earnings than its total return.
** This portfolio is the successor to Transamerica's Separate Account Fund C,
a registered management investment company, through a reorganization on
November 1, 1996. Performance prior to this date is Transamerica's
Separate Account Fund C performance.
*** Information not available.
The annualized yield for the WRL J.P. Morgan Money Market portfolio for
the seven days ended December 31, 1999 was 5.15%.
Because the WRL Value Line Aggressive Growth, WRL Great Companies --
America(SM) and WRL Great Companies -- Technology(SM) portfolios and the
Fidelity VIP Equity-Income Portfolio -- Service Class 2, Fidelity VIP II
Contrafund/registered trademark/ Portfolio -- Service Class 2 and Fidelity VIP
III Growth Opportunities Portfolio -- Service Class 2 and had not commenced
operations as of December 31, 1999, the above chart does not reflect rates of
return for these portfolios.
65
<PAGE>
Additional information regarding the investment performance of the
portfolios appears in the fund prospectuses.
HYPOTHETICAL ILLUSTRATIONS BASED ON ADJUSTED HISTORICAL PORTFOLIO PERFORMANCE
This section contains hypothetical illustrations of Policy values based on
the adjusted historical experience of the portfolios. We started selling the
Policies in 2000. The separate account was established by resolution of the
Board of Directors of Transamerica in June 1996 and will commence operations in
May 2000. The portfolios commenced operations before the separate account. The
rates of return below show the adjusted actual investment experience of each
portfolio for the periods shown. The illustrations of cash values and net
surrender values below depict these Policy values as if you had purchased the
Policy on the last valuation date prior to January 1 of the year after the
portfolio began operations and had selected death benefit Option A. The
illustrations are based on the historical investment experience of the
portfolio indicated as of the last valuation date prior to January 1 of the
year after the portfolio began operations. WE ASSUMED THE RATE OF RETURN FOR
EACH PORTFOLIO IN EACH CALENDAR YEAR TO BE UNIFORMLY EARNED THROUGHOUT THE
YEAR; HOWEVER, THE PORTFOLIO'S ACTUAL PERFORMANCE DID AND WILL VARY THROUGHOUT
THE YEAR.
In order to demonstrate how the actual investment experience of the
portfolios could have affected the Option A death benefit, cash value and net
surrender value of the Policy, we provide hypothetical illustrations for a
hypothetical insured. THESE HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE
PERFORMANCE THAT COULD HAVE RESULTED IF THE POLICY HAD BEEN IN EXISTENCE AND
THE HYPOTHETICAL INSURED HAD HELD THE POLICY DURING THE PERIOD ILLUSTRATED.
These illustrations do not represent what may happen in the future.
The amounts we show for death benefits, cash values, and net surrender
values take into account all charges and deductions from the Policy, the
separate account, and the portfolios. For each portfolio, we base one
illustration on the guaranteed cost of insurance rates and one on the current
cost of insurance rates for a hypothetical male insured age 35. The insured's
age, gender and rate class, amount and timing of premium payments, cash
withdrawals, and loans would affect individual Policy benefits.
For each portfolio, the illustrations below assume death benefit Option A
was selected based on annual premiums of $5,500 and a specified amount of
$500,000 for a male age 35, and an ultimate select, non-tobacco use rate class.
66
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
J.P. Morgan Money Market portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1987. This example assumes
that premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL J.P. MORGAN MONEY MARKET
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... 4,858 4,858 690 690
1989 ..................................... 9,999 9,908 5,391 5,300
1990 ..................................... 15,712 15,500 10,664 10,452
1991 ..................................... 21,612 21,238 16,124 15,750
1992 ..................................... 27,339 26,793 21,410 20,865
1993 ..................................... 32,548 31,830 26,180 25,462
1994 ..................................... 37,594 36,691 30,786 29,883
1995 ..................................... 43,076 41,962 35,828 34,714
1996 ..................................... 49,502 48,192 41,813 40,504
1997 ..................................... 55,920 54,426 47,792 46,298
1998 ..................................... 62,590 60,947 55,736 54,092
1999 ..................................... 69,476 67,663 64,072 62,258
2000 ..................................... 76,119 74,119 72,340 70,340
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
67
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
AEGON Bond portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1987. This example assumes that the
premium and cash values were invested under the Policy in the portfolio for the
entire period and that the values were determined on each Policy anniversary
thereafter.
WRL AEGON BOND
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... 4,346 4,346 178 178
1989 ..................................... 9,644 9,552 5,035 4,944
1990 ..................................... 16,287 16,064 11,239 11,016
1991 ..................................... 22,036 21,653 16,547 16,165
1992 ..................................... 31,431 30,815 25,503 24,887
1993 ..................................... 38,094 37,279 31,726 30,911
1994 ..................................... 47,904 46,807 41,096 39,999
1995 ..................................... 48,227 47,041 40,979 39,793
1996 ..................................... 64,163 62,561 56,475 54,873
1997 ..................................... 67,880 66,164 59,751 58,036
1998 ..................................... 77,932 75,990 71,077 69,136
1999 ..................................... 88,869 86,668 83,464 81,263
2000 ..................................... 89,273 87,044 85,494 83,264
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
68
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
Janus Growth portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1987. This example assumes that the
premiums and cash values were invested under the Policy in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL JANUS GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 .................................... 5,176 5,176 1,008 1,008
1989 .................................... 11,637 11,541 7,029 6,933
1990 .................................... 23,923 23,647 18,875 18,599
1991 .................................... 28,240 27,826 22,752 22,338
1992 .................................... 52,271 51,425 46,343 45,496
1993 .................................... 57,670 56,658 51,302 50,290
1994 .................................... 64,095 62,886 57,286 56,077
1995 .................................... 62,252 60,986 55,004 53,738
1996 .................................... 97,389 95,378 89,701 87,690
1997 .................................... 119,030 116,553 110,902 108,424
1998 .................................... 143,739 140,771 136,884 133,917
1999 .................................... 241,766 236,825 236,361 231,420
2000 .................................... 389,723 381,828 385,944 378,048
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
Janus Global portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1993. This example assumes that the
premiums and cash values invested under the Policy were in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL JANUS GLOBAL
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1994 ..................................... 6,392 6,392 2,224 2,224
1995 ..................................... 10,983 10,896 6,375 6,288
1996 ..................................... 19,149 18,918 14,101 13,870
1997 ..................................... 30,221 29,768 24,733 24,280
1998 ..................................... 41,054 40,358 35,126 34,430
1999 ..................................... 58,909 57,835 52,541 51,467
2000 ..................................... 107,949 105,914 101,140 99,106
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
69
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
LKCM Strategic Total Return portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1994. This example assumes
that premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL LKCM STRATEGIC TOTAL RETURN
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 ..................................... 4,603 4,603 434 434
1996 ..................................... 11,542 11,443 6,933 6,835
1997 ..................................... 18,505 18,273 13,457 13,225
1998 ..................................... 28,028 27,590 22,539 22,101
1999 ..................................... 35,481 34,848 29,553 28,920
2000 ..................................... 44,508 43,639 38,139 37,271
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
VKAM Emerging Growth portfolio would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1994. This example assumes that
the premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL VKAM EMERGING GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 ..................................... 4,261 4,261 93 93
1996 ..................................... 13,170 13,062 8,562 8,454
1997 ..................................... 21,065 20,816 16,017 15,768
1998 ..................................... 31,022 30,566 25,534 25,078
1999 ..................................... 48,644 47,848 42,716 41,920
2000 ..................................... 108,745 106,907 102,377 100,538
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
70
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
Alger Aggressive Growth portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL ALGER AGGRESSIVE GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... 6,543 6,543 2,374 2,374
1997 ..................................... 12,306 12,214 7,698 7,606
1998 ..................................... 20,970 20,733 15,922 15,684
1999 ..................................... 37,942 37,417 32,454 31,929
2000 ..................................... 71,603 70,531 65,674 64,603
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
AEGON Balanced portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1995. This example assumes that
premiums and cash values were invested under the Policy in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL AEGON BALANCED
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... 5,624 5,624 1,455 1,455
1997 ..................................... 11,326 11,234 6,718 6,626
1998 ..................................... 18,600 18,373 13,552 13,325
1999 ..................................... 24,645 24,256 19,157 18,768
2000 ..................................... 29,854 29,305 23,926 23,377
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
71
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
Federated Growth & Income portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL FEDERATED GROWTH & INCOME
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... 5,898 5,898 1,730 1,730
1997 ..................................... 11,729 11,636 7,121 7,028
1998 ..................................... 20,325 20,086 15,277 15,038
1999 ..................................... 25,499 25,110 20,010 19,622
2000 ..................................... 28,466 27,951 22,537 22,023
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
Dean Asset Allocation portfolio would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1995. This example assumes that
the premium and cash values were invested under the Policy in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL DEAN ASSET ALLOCATION
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... 5,638 5,638 1,470 1,470
1997 ..................................... 11,736 11,641 7,127 7,033
1998 ..................................... 18,990 18,762 13,942 13,714
1999 ..................................... 25,393 24,999 19,905 19,511
2000 ..................................... 28,007 27,493 22,078 21,564
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
72
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
C.A.S.E. Growth portfolio would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1996. This example assumes that
premiums and cash values were invested under the Policy in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL C.A.S.E. GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 ..................................... 5,508 5,508 1,340 1,340
1998 ..................................... 11,651 11,556 7,043 6,948
1999 ..................................... 16,554 16,346 11,506 11,298
2000 ..................................... 28,240 27,797 22,752 22,309
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
NWQ Value Equity portfolio would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1997. This example assumes that
premiums and cash values were invested under the Policy in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL NWQ VALUE EQUITY
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... 5,887 5,887 1,719 1,719
1999 ..................................... 9,935 9,850 5,327 5,242
2000 ..................................... 15,623 15,416 10,575 10,368
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
73
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
GE International Equity portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1997. This example assumes
that premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL GE INTERNATIONAL EQUITY
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... 5,005 5,005 837 837
1999 ..................................... 10,859 10,766 6,251 6,158
2000 ..................................... 19,297 19,057 14,249 14,008
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
GE U.S. Equity portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that the
premiums and cash values were invested under the Policy in the portfolio for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL GE U.S. EQUITY
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... 5,987 5,987 1,819 1,819
1999 ..................................... 13,058 12,960 8,449 8,352
2000 ..................................... 20,847 20,612 15,799 15,563
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
74
<PAGE>
The following example shows how the adjusted hypothetical net return of the WRL
Third Avenue Value portfolio would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1998. This example assumes that the
premium and cash values were invested under the Policy in the portfolio for the
entire period and that the values were determined on each Policy anniversary
thereafter.
WRL THIRD AVENUE VALUE
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1999 ..................................... 4,287 4,287 119 119
2000 ..................................... 10,321 10,226 5,713 5,618
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the adjusted hypothetical net return of the WRL
J.P. Morgan Real Estate Securities portfolio would have affected benefits for a
Policy dated on the last valuation date prior to January 1, 1999. This example
assumes that the premium and cash values were invested under the Policy in the
portfolio for the entire period and that the values were determined on each
Policy anniversary thereafter.
WRL J.P. MORGAN REAL ESTATE SECURITIES
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
2000 ..................................... 4,440 4,440 272 272
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
75
<PAGE>
The following example shows how the adjusted hypothetical net return of the
Transamerica VIF Growth Portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1989. This example assumes
that premiums and cash values were invested under the Policy in the portfolio
for the entire period and that the values were determined on each Policy
anniversary thereafter.
TRANSAMERICA VIF GROWTH PORTFOLIO*
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Ultimate Select, Non-Tobacco Use Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1990 ...................................... 6,317 6,317 2,149 2,149
1991 ...................................... 9,626 9,544 5,017 4,935
1992 ...................................... 20,063 19,815 15,105 14,767
1993 ...................................... 27,788 27,358 22,300 21,870
1994 ...................................... 39,309 38,622 33,381 32,694
1995 ...................................... 46,626 45,735 40,257 39,367
1996 ...................................... 77,717 76,161 70,909 69,353
1997 ...................................... 103,920 101,765 96,672 94,517
1998 ...................................... 157,620 154,341 149,932 146,653
1999 ...................................... 230,494 225,719 222,366 217,591
2000 ...................................... 321,023 314,460 314,168 307,605
</TABLE>
* This portfolio is the successor to Transamerica's Separate Account Fund C, a
registered management investment company, through a reorganization on
November 1, 1996. Performance prior to this date is Transamerica's Separate
Account Fund C performance.
** For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
Because the WRL Goldman Sachs Small Cap, WRL Goldman Sachs Growth, WRL T.
Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap portfolios did not
commence operations until May 3, 1999, because the Fidelity VIP Equity-Income
Portfolio - Service Class 2, Fidelity VIP II Contrafund/registered trademark/
Portfolio - Service Class 2 and Fidelity VIP III Growth Opportunities Portfolio
- - Service Class 2 did not commence operations until January 12, 2000 and
because the WRL Value Line Aggressive Growth, WRL Great Companies -- America(SM)
and WRL Great Companies -- Technology(SM) portfolios did not commence operations
until May 1, 2000, there are no hypothetical illustrations for these
portfolios.
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
o other variable life issuers in general;
o variable life insurance policies which invest in mutual funds with
similar investment objectives and policies, as reported by Lipper
Analytical Services, Inc. ("Lipper") and Morningstar, Inc.
("Morningstar"); and other services, companies, individuals, or
industry or financial publications (E.G., FORBES,
76
<PAGE>
MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S
PERSONAL FINANCE, and FORTUNE);
-> Lipper and Morningstar rank variable annuity contracts and variable
life policies. Their performance analysis ranks such policies and
contracts on the basis of total return, and assumes reinvestment of
distributions; but it does not show sales charges, redemption fees or
certain expense deductions at the separate account level.
o the Standard & Poor's Index of 500 Common Stocks, or other widely
recognized indices;
-> unmanaged indices may assume the reinvestment of dividends, but
usually do not reflect deductions for the expenses of operating or
managing an investment portfolio; or
o other types of investments, such as:
-> certificates of deposit;
-> savings accounts and U.S. Treasuries;
-> certain interest rate and inflation indices (E.G., the Consumer
Price Index); or
-> indices measuring the performance of a defined group of securities
recognized by investors as representing a particular segment of the
securities markets (E.G., Donoghue Money Market Institutional Average,
Lehman Brothers Corporate Bond Index, or Lehman Brothers Government
Bond Index).
TRANSAMERICA'S PUBLISHED RATINGS
We may publish in advertisements, sales literature, or reports we send to
you the ratings and other information that an independent ratings organization
assigns to us. These organizations include: A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff
& Phelps Credit Rating Co. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not apply to the
separate account, the subaccounts, the funds or their portfolios, or to their
performance.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG, the principal
underwriter of the Policy. AFSG is located at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499. AFSG is registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the National
77
<PAGE>
Association of Securities Dealers, Inc. The sales commission payable to agents
or other registered representatives may vary with the sales agreement, but it
is not expected to be greater than:
o 65% of all premiums you make during the first Policy year, PLUS
o 2% of all premiums you make during Policy years 2 through 10.
We will pay an additional sales commission of up to 0.15% of the Policy's cash
value on the fifth Policy anniversary and each anniversary thereafter where the
cash value (minus amounts attributable to loans) equals at least $10,000.
Certain production, persistency and managerial bonuses may also be paid.
AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Fund
shares held for the Policies as compensation for providing certain shareholder
support services. AFSG will also receive a fee based on the value of shares of
the Fidelity VIP Funds held for the Policies as compensation for providing
certain recordkeeping services.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws. The organization of
Transamerica, its authority to issue the Policy and the validity of the Policy
form have been passed upon by Thomas E. Pierpan, counsel to and Vice President
of Transamerica.
LEGAL PROCEEDINGS
There is no pending material legal proceeding affecting the separate
account. Transamerica is involved in various kinds of routine litigation which,
in management's judgment, are not of material importance to Transamerica's
financial position, AFSG or the separate account.
VARIATIONS IN POLICY PROVISIONS
Certain provisions of the Policy may vary from the descriptions in this
prospectus depending on when and where the Policy was issued, in order to
comply with different state laws. These variations may include restrictions on
use of the fixed account and different interest rates charged and credited on
Policy loans. Please refer to your Policy, since any variations will be
included in your Policy or in riders or endorsements attached to your Policy.
EXPERTS
The consolidated financial statements of Transamerica at December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing in this prospectus. The financial statements audited by
Ernst & Young LLP have been included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
78
<PAGE>
Actuarial matters included in this prospectus have been examined by Alan
Yaeger as stated in the opinion filed as an exhibit to the registration
statement.
FINANCIAL STATEMENTS
Transamerica's consolidated financial statements appear on the following
pages. Transamerica's financial statements should be distinguished from the
separate account's financial statements and you should consider our financial
statements only as bearing upon Transamerica's ability to meet our obligations
under the Policies.
Transamerica's consolidated financial statements as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999,
have been prepared on the basis of statutory accounting principles rather than
generally accepted accounting principles.
ADDITIONAL INFORMATION ABOUT TRANSAMERICA
Transamerica is a stock life insurance company that is wholly-owned by
Transamerica Insurance Corporation of California, which, in turn, is a
subsidiary of Transamerica Corporation, which, in turn, is wholly-owned by
AEGON, N.V. Transamerica's administrative office is located at 570 Carillon
Parkway, St. Petersburg, Florida 33716-1202, and the mailing address is P.O.
Box 5068, Clearwater, Florida 33758-5068. Transamerica's home office is located
at 1150 South Olive Street, Los Angeles, California 90015.
Transamerica was incorporated in 1906 under the laws of California and is
subject to regulation by the Insurance Department of the State of California,
as well as by the insurance departments of all other states and jurisdictions
in which it does business. Transamerica is licensed to sell insurance in all
states (except New York), Puerto Rico, Guam, District of Columbia, American
Samoa, Virgin Islands, Hong Kong and Taiwan. Transamerica submits annual
statements on its operations and finances to insurance officials in all states
and jurisdictions in which it does business. The Policy described in this
prospectus has been filed with, and where required, approved by, insurance
officials in those jurisdictions in which it is sold.
TRANSAMERICA'S DIRECTORS AND OFFICERS
We are governed by a board of directors. The following table sets forth
the name, address and principal occupation during the past five years of each
of our directors.
79
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS TRANSAMERICA DURING PAST 5 YEARS
---------------- ------------ -------------------
<S> <C> <C>
Patrick S. Baird(1) Director Director (1999 - present); Director (1991 -
present), Senior Vice President (1998 -
present) and Chief Operating Officer (1996
- present) of PFL Life Insurance Company;
Executive Vice President (1995 - present),
Chief Operating Officer (1996 - present),
Chief Financial Officer (1992 - 1995); Vice
President and Chief Tax Officer (1984 -
1995) of AEGON USA., Inc.
Brenda K. Clancy(1) Director Director (1999 - present); Senior Vice
President, Corporate (1991 - present);
Treasurer (1996 - present) and Chief
Financial Officer (1996 - present) of PFL
Life Insurance Company.
James W. Dederer, CLU(2) Director, Executive Director, Executive Vice President, General
Vice President, Counsel and Corporate Secretary (1988 -
General Counsel and present).
Corporate Secretary
George A. Foegele(3) Director and Director and Senior Vice President (1998 -
Senior Vice President present); and President and Chief Execu-
tive Officer of Transamerica Life Insurance
Company of Canada (1993 - present).
Douglas C. Kolsrud(1) Director Director (1999 - present); Director (1991 -
present), Senior Vice President and Chief
Investment Officer (1998 - present),
Investment Division of PFL Life Insurance
Company.
Richard N. Latzer(4) Director Director, Senior Vice President and Chief
Investment Officer of Transamerica
Corporation (1989 - present); Director,
President and Chief Executive Officer of
Transamerica Investment Services, Inc.
(1988 - present).
Karen O. MacDonald(2) Director, Senior Vice Director, Senior Vice President and
President and Corporate Actuary (1995 - present).
Corporate Actuary
Gary U. Rolle(2) Director Director, Executive Vice President and
Chief Investment Officer of Transamerica
Investment Services, Inc. (1981 - present).
Paul E. Rutledge III(5) Director Director and President of Reinsurance
Division (1998 - present); and President of
Life Insurance Company of Virginia (1991
- 1997).
Nooruddin S. Veerjee, FSA(2) Director and President President of Insurance Products Division
- Insurance Products (1997 - present); Director and President of
Division Group Pension Division (1993 - present);
and Senior Vice President (1992 - 1993).
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS TRANSAMERICA DURING PAST 5 YEARS
<S> <C> <C>
Craig D. Vermie(1) Director Director (1999 - present); Director (1995 -
present), Vice President (1990 - present)
and General Counsel, Corporate (1996 -
present) of PFL Life Insurance Company.
</TABLE>
The following table gives the name, address and principal occupation during the
past five years of the principal officers of Transamerica (other than officers
listed above as directors).
PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS TRANSAMERICA DURING PAST 5 YEARS
<S> <C> <C>
Nicki Bair(1) Senior Vice President Senior Vice President (1996 - present); Vice
President (1991 - 1996).
Roy Chong-Kit(2) Senior Vice President Senior Vice President and Actuary (1997 -
and Actuary present); Vice President (1995 - 1997); and
Actuary (1988 - 1997).
William R. Gernert(1) Executive Vice President Executive Vice President, Diversified Financial
Products Division (1999 - present); Director,
Chairman and President (1997 - present) of
Commonwealth General Corporation; and
Chief Financial Officer (1992 - 1996) of
Providian Capital Management.
Daniel E. Jund, FLMI(1) Senior Vice President Senior Vice President (1988 - present).
Larry N. Norman(1) Executive Vice President Executive Vice President, Financial Markets
Division (1999 - present); and Director and
Executive Vice President (1998 - present) of
PFL Life Insurance Company.
Ron F. Wagley, CLU(1) Senior Vice President and Senior Vice President and Chief Agency
Chief Agency Officer Officer (1993 - present); Vice President (1989
- 1993).
William R. Wellnitz, FSA(5) Senior Vice President Senior Vice President and Actuary (1996 -
and Actuary present); and Vice President and Reinsurance
Actuary (1988 - 1996).
Sally Yamada(1) Vice President and Vice President and Treasurer (1993 - present).
Treasurer
</TABLE>
81
<PAGE>
Located at:
1 4333 Edgewood Road, N.W., Cedar Rapids, Iowa 52449.
2 1150 South Olive Street, Los Angeles, California 90015.
3 300 Consilium Place, Scarborough, Ontario, Canada M1H3G2.
4 600 Montgomery Street, San Francisco, California 94111.
5 401 North Tryon Street, Charlotte, North Carolina 28202.
Transamerica holds the assets of the separate account physically
segregated and apart from the general account. Transamerica maintains records
of all purchases and sales of portfolio shares by each of the subaccounts.
Transamerica is insured under a broad manuscript fidelity bond program with
coverage limits of $80,000,000. The lead underwriter is Capital CNA.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
Transamerica Occidental Life Separate Account VUL-3, 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 SEC under the 1940 Act as
a unit investment trust. It meets the definition of a separate account under
the federal securities laws. However, the SEC does not supervise the management
of the investment practices or policies of the separate account.
82
<PAGE>
APPENDIX A
ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy
would change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, cash value, and net surrender value under a Policy issued to an
insured of a given age would change over time if the premiums indicated were
paid and the return on the assets in the subaccounts were a uniform gross
annual rate (before any expenses) of 0%, 6% or 12%. The tables illustrate
Policy values that would result based on assumptions that you pay the premiums
indicated, you do not change your specified amount, and you do not take any
cash withdrawals or Policy loans. The values under the Policy will be different
from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated
over and under those averages throughout the years shown.
We based the illustration on page 85 on a Policy for an insured who is a
35 year old male in the ultimate select, non-tobacco use class, annual premiums
of $5,500, a $500,000 specified amount and death benefit Option A. The
illustration on that page also assumes cost of insurance charges based on our
CURRENT cost of insurance rates.
The illustration on page 86 is based on the same factors as those on page
, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table).
The amounts we show for the death benefits, cash values and net surrender
values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each subaccount. This charge is equivalent to an
annual charge of 0.90% of the average net assets of the subaccounts during the
first 15 Policy years. (We guarantee to reduce this charge to 0.60% after the
first 15 Policy years. We intend to reduce this charge to 0.30% in the 16th
Policy year but we do not guarantee that we will do so, and we reserve the
right to maintain this charge at the 0.60% level after the 15th Policy year.
The following illustrations use 0.30% after the 15th Policy year); (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.92% of the portfolios' average daily net assets; and (3) all
applicable cash value charges. The 0.92% average portfolio expense level
assumes an equal allocation of amounts among the 30 subaccounts. We used
annualized actual audited expenses incurred during 1999 as shown on the
Portfolio Annual Expense Table on page 14, for the portfolios to calculate the
average annual expense level.
During 1999, WRL Management undertook to pay normal operating expenses of
certain WRL portfolios that exceeded a certain stated percentage of those
portfolios' average daily net assets. WRL Management has undertaken until at
least April 30, 2001 to pay expenses to the extent normal operating expenses of
certain portfolios of the WRL fund exceed a stated percentage of the
portfolio's average daily net assets. For details on these waivers and
arrangements, see the Portfolio Annual Expense Table on page 14.
83
<PAGE>
In 1999, Transamerica waived a portion of the advisory fee and was paid
0.70% of the portfolio's average daily net assets. Without such waiver, the
total fund expenses during 1999 for this period would have been 0.90%. This
waiver is voluntary and may be terminated at any time but is expected to
continue through the year 2000. See the Transamerica Variable Fund prospectus
for a description of the expense limitation applicable to this portfolio.
Without these waivers and reimbursements, total annual expenses for the
portfolios would have been greater, and the illustrations would have assumed
that the assets in the portfolios were subject to an average annual expense
level of 1.51%.
Taking into account the assumed charges of 1.82%, the gross annual
investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.82%, 4.18% and 10.18% during the first 15 Policy
years and -1.22%, 4.78% and 10.78% thereafter.
THE HYPOTHETICAL RETURNS SHOWN IN THE TABLES ARE PROVIDED ONLY TO
ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR
FUTURE INVESTMENT RATES OF RETURNS. Tax charges that may be attributable to the
separate account are not reflected, because we are not currently making such
charges. In order to produce after tax returns of 0%, 6% or 12% if such charges
are made in the future, the separate account would have to earn a sufficient
amount in excess of 0%, 6% or 12% to cover any tax charges.
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if you invested an amount equal to the premium to earn
interest at 5% per year, compounded annually.
We will furnish, upon request, a comparable illustration reflecting the
proposed insured's age, gender, risk classification and desired Policy
features.
84
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $500,000 Ultimate Select, Non-Tobacco Use Class
Annual Premium $5,500 Death Benefit Option A
Using Current Cost of Insurance Rates
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) YEARS 1-15 4.18% (NET) YEARS 1-15 10.18% (NET) YEARS 1-15
-1.22 (NET) YEARS 16+ 4.78% (NET) YEARS 16+ 10.78% (NET) YEARS 16+
<S> <C> <C> <C> <C>
1 5,775 500,000 500,000 500,000
2 11,839 500,000 500,000 500,000
3 18,206 500,000 500,000 500,000
4 24,891 500,000 500,000 500,000
5 31,911 500,000 500,000 500,000
6 39,281 500,000 500,000 500,000
7 47,020 500,000 500,000 500,000
8 55,146 500,000 500,000 500,000
9 63,678 500,000 500,000 500,000
10 72,637 500,000 500,000 500,000
15 124,616 500,000 500,000 500,000
20 190,956 500,000 500,000 500,000
30 (AGE 65) 383,684 500,000 500,000 1,102,332
40 (AGE 75) 697,619 500,000 505,823 2,749,991
50 (AGE 85) 1,208,985 * 855,420 7,518,670
60 (AGE 95) 2,041,946 * 1,357,112 19,828,299
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15
-1.22% (NET) 4.78% (NET) 10.78% (NET) -1.22% (NET) 4.78% (NET) 10.78% (NET)
YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+
<S> <C> <C> <C> <C> <C> <C>
1 4,583 4,886 5,190 415 718 1,022
2 9,070 9,965 10,897 4,462 5,357 6,289
3 13,453 15,234 17,165 8,405 10,186 12,116
4 17,740 20,709 24,056 12,252 15,221 18,568
5 21,900 26,364 31,603 15,972 20,435 25,675
6 25,930 32,203 39,871 19,562 25,835 33,502
7 29,826 38,229 48,926 23,018 31,420 42,117
8 33,589 44,449 58,853 26,341 37,201 51,605
9 37,156 50,806 69,680 29,467 43,118 61,992
10 40,557 57,338 81,532 32,429 49,209 73,404
15 54,936 92,693 160,312 54,936 92,693 160,312
20 66,883 137,267 295,502 66,883 137,267 295,502
30 (AGE 65) 83,871 265,524 903,551 83,871 265,524 903,551
40 (AGE 75) 73,807 472,732 2,570,085 73,807 472,732 2,570,085
50 (AGE 85) * 814,685 7,160,638 * 814,685 7,160,638
60 (AGE 95) * 1,343,675 19,631,979 * 1,343,675 19,631,979
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the funds. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by Transamerica or the funds that these hypothetical investment rates of return
can be achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by current fund prospectuses.
85
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $500,000 Ultimate Select, Non-Tobacco Use Class
Annual Premium $5,500 Death Benefit Option A
Using Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) YEARS 1-15 4.18% (NET) YEARS 1-15 10.18% (NET) YEARS 1-15
-1.22% (NET) YEARS 16+ 4.78% (NET) YEARS 16+ 10.78% (NET) YEARS 16+
<S> <C> <C> <C> <C>
1 5,775 500,000 500,000 500,000
2 11,839 500,000 500,000 500,000
3 18,206 500,000 500,000 500,000
4 24,891 500,000 500,000 500,000
5 31,911 500,000 500,000 500,000
6 39,281 500,000 500,000 500,000
7 47,020 500,000 500,000 500,000
8 55,146 500,000 500,000 500,000
9 63,678 500,000 500,000 500,000
10 72,637 500,000 500,000 500,000
15 124,616 500,000 500,000 500,000
20 190,956 500,000 500,000 500,000
30 (AGE 65) 383,684 500,000 500,000 1,056,902
40 (AGE 75) 697,619 * 500,000 2,570,181
50 (AGE 85) 1,208,985 * 612,373 6,819,919
60 (AGE 95) 2,041,946 * 940,357 17,034,952
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15
-1.22% (NET) 4.78% (NET) 10.78% (NET) -1.22% (NET) 4.78% (NET) 10.78% (NET)
YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+
<S> <C> <C> <C> <C> <C> <C>
1 4,583 4,886 5,190 415 718 1,022
2 8,983 9,875 10,805 4,374 5,267 6,196
3 13,257 15,027 16,945 8,209 9,978 11,897
4 17,404 20,345 23,664 11,916 14,857 18,176
5 21,419 25,829 31,012 15,490 19,901 25,083
6 25,298 31,483 39,052 18,929 25,115 32,684
7 29,031 37,302 47,845 22,223 30,494 41,037
8 32,623 43,295 57,473 25,375 36,046 50,225
9 36,063 49,458 68,013 28,375 41,770 60,325
10 39,354 55,802 79,565 31,226 47,674 71,437
15 53,263 90,175 156,445 53,263 90,175 156,445
20 63,742 132,501 287,680 63,742 132,501 287,680
30 (AGE 65) 55,512 234,244 866,313 55,512 234,244 866,313
40 (AGE 75) * 361,217 2,402,039 * 361,217 2,402,039
50 (AGE 85) * 583,212 6,495,161 * 583,212 6,495,161
60 (AGE 95) * 931,046 16,866,289 * 931,046 16,866,289
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of factors,
including the investment allocations by an owner and the different investment
rates for the funds. The death benefit, cash value and net surrender value for
a Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by Transamerica or the funds that these hypothetical investment rates of return
can be achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by current fund prospectuses.
86
<PAGE>
APPENDIX B
WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information below graphically depicts the growth of $1.00 invested in
large company stocks, small company stocks, long-term government bonds,
Treasury bills, and hypothetical assets returning the inflation rate over the
period from the end of 1925 to the end of 1999. All results assume reinvestment
of dividends on stocks or coupons on bonds and no taxes. Transaction costs are
not included, except in the small stock index starting in 1982.
Each of the cumulative index values is initialized at $1.00 at year-end
1925. The graph illustrates that large company stocks and small company stocks
have the best performance over the entire 74-year period: investments of $1.00
in these assets would have grown to $2,845.63 and $6,640.79, respectively, by
year-end 1999. This higher growth was earned by investments involving
substantial risk. In contrast, long-term government bonds (with an approximate
20-year maturity), which exposed the holder to much less risk, grew to only
$40.22.
The lowest-risk strategy over the past 74 years (for those with short-term
time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended
to track inflation, the resulting real (inflation-adjusted) returns were near
zero for the entire 1926 - 1999 period.
87
<PAGE>
[GRAPH OMITTED]
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2%
Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1
Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3
Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0
Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2
Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9
Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9
</TABLE>
- ----------------
* Based on the period 1926-1929.
Used with permission. /copyright/2000 Ibbotson Associates, Inc. All rights
reserved. [Certain portions of this work were derived from copyrighted works of
Roger G. Ibbotson and Rex Sinquefield.]
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSAMERICA OCCIDENTAL LIFE SEPARATE ACCOUNT VUL-3:
There are no financial statements for the separate account because the
subaccounts have not commenced operations as of the date of this prospectus.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY:
Report of Independent Auditors dated March 31, 2000
Statutory Basis Balance Sheet at December 31, 1999 and 1998
Statutory Basis Statement of Operations for the years ended December 31, 1999,
1998 and 1997
Statutory Basis Statement of Changes in Capital and Surplus for the years ended
December 31, 1999, 1998 and 1997
Statutory Basis Statement of Cash Flow for the years ended December 31, 1999,
1998 and 1997
Notes to Statutory Basis Financial Statements
Statutory Basis Financial Statement Schedules
TA00001-05/2000
89
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transamerica Occidental Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Transamerica
Occidental Life Insurance Company as of December 31, 1999 and 1998, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flow for each of the three years in the period ended December
31, 1999. Our audits also included the accompanying statutory-basis financial
statement schedules required by Article 7 of Regulation S-X. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the California Department of Insurance, which practices differ from
accounting principles generally accepted in the United States. The variances
between such practices and accounting principles generally accepted in the
United States also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of Transamerica Occidental Life Insurance Company at
December 31, 1999 and 1998, or the results of its operations or its cash flows
for each of the three years in the period December 31, 1999.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Transamerica
Occidental Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flow for each of the three years in the period
ended December 31, 1999, in conformity with accounting practices prescribed or
permitted by the California Department of Insurance. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
March 31, 2000
90
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
BALANCE SHEETS - STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31
1999 1998
------------------------------
ADMITTED ASSETS Cash and invested assets:
Bonds $ 12,820,804 $ 12,135,178
Preferred stocks - unaffiliated 77,231 40,941
Preferred stocks - subsidiaries 58,219 56,860
Common stocks - unaffiliated 1,270,039 773,490
Common stocks - subsidiaries 984,400 965,485
Mortgage loans on real estate 385,590 387,038
Real estate 101,195 102,748
Policy loans 409,534 410,628
Cash and short-term investments 132,454 513,557
Other investments 218,997 194,264
------------------------------
Total cash and invested assets 16,458,463 15,580,189
Federal income tax receivable 160,075 --
Accrued investment income 226,823 210,932
Deferred and uncollected premiums 227,722 (807,951)
Reinsurance receivable 249,225 1,201,639
Other admitted assets 245,696 255,744
Separate account assets 4,229,395 3,443,277
------------------------------
Total admitted assets $ 21,797,399 $ 19,883,830
================= ============
91
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
BALANCE SHEETS - STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
----------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Reserves for future policy benefits $ 9,695,196 $ 9,428,282
Policy and contract claims payable 296,789 156,147
Supplementary contracts without life contingencies 208,349 215,548
Funding agreements 2,228,261 1,927,054
Other policy liabilities 114,442 115,361
Funds held under coinsurance 2,274,229 2,123,810
Asset valuation reserve 578,958 400,616
Interest maintenance reserve 58,721 61,514
Other liabilities 310,404 285,030
Separate account liabilities 4,068,126 3,326,306
----------------------------
Total liabilities 19,833,475 18,039,668
Capital and surplus:
Common Stock ($12.50 par value):
Authorized - 4,000,000 shares
Issued and outstanding - 2,206,933 shares 27,587 27,587
Contributed surplus 509,600 372,538
Unassigned surplus 1,426,737 1,444,037
----------------------------
Total capital and surplus 1,963,924 1,844,162
----------------------------
Total liabilities and capital and surplus $21,797,399 $19,883,830
============================
</TABLE>
SEE ACCOMPANYING NOTES.
92
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations $ 1,368,016 $ 1,608,525 $ 1,715,745
Fund deposits 351,170 363,889 395,162
Considerations for supplementary contracts without life
contingencies 212,513 259,660 240,065
Net investment income 1,125,042 1,078,543 1,028,054
Commissions and expense allowances on reinsurance ceded
469,910 471,943 283,794
Other 550,544 900,281 228,649
----------------------------------------------
4,077,195 4,682,841 3,891,469
Benefits and expenses:
Benefits paid or provided for:
Death benefits 392,276 595,585 432,019
Annuity benefits 582,542 570,424 754,609
Disability benefits 10,199 36,590 139,278
Surrender benefits and other fund withdrawals 694,766 616,224 429,449
Increase (decrease) in reserves 266,814 (447,419) (631,054)
Payments on supplementary contracts 231,717 243,383 235,594
Endowments 2,397 2,504 2,000
Other 112,059 102,093 96,546
----------------------------------------------
2,292,770 1,719,384 1,458,441
Expenses:
Commissions and expense allowances 691,802 728,533 554,979
Reinsurance reserve transfer -- 671,651 792,425
Other operating expenses 857,912 1,300,821 758,855
Net transfers to separate accounts 50,572 200,243 152,998
----------------------------------------------
1,600,286 2,901,248 2,259,257
----------------------------------------------
3,893,056 4,620,632 3,717,698
----------------------------------------------
Gain from operations before dividends to policyholders,
federal income tax expense (benefit) and net realized
capital gains (losses) 184,139 62,209 173,771
Dividends to policyholders 9,294 8,206 9,453
----------------------------------------------
Gain from operations before federal income tax expense
(benefit) and net realized capital gains (losses) 174,845 54,003 164,318
Federal income tax expense (benefit) 30,330 (70,408) 58,514
----------------------------------------------
Gain from operations before net realized capital gains
(losses) 144,515 124,411 105,804
Net realized capital gains (losses) 17,515 76,071 (9,332)
----------------------------------------------
Net income $ 162,030 $ 200,482 $ 96,472
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
93
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Capital and surplus at beginning of year $ 1,844,162 $ 1,556,228 $ 1,249,045
Net income 162,030 200,482 96,472
Increase in net unrealized capital gains 119,420 261,540 246,829
Increase in non-admitted assets and
related items (2,824) (45,392) (41,778)
(Decrease) increase in liability for reinsurance in
unauthorized companies (4,646) (3,137) 1,038
Increase in asset valuation reserve (178,342) (39,153) (66,577)
Increase in surplus in separate account statement
16,637 32,572 29,459
Contributed capital 137,062 3,800 127,194
Prior year adjustments (14,710) (21,276) (47,998)
Dividends paid to parent (79,000) (80,000) (61,311)
Change in benefit reserve valuation basis -- -- (7,782)
Increase (decrease) as a result of
reinsurance (35,865) (21,502) 31,637
-----------------------------------------------
Capital and surplus at end of year $ 1,963,924 $ 1,844,162 $ 1,556,228
===============================================
</TABLE>
SEE ACCOMPANYING NOTES.
94
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations $ 319,552 $ 2,642,142 $ 1,612,975
Fund deposits 351,170 363,889 395,162
Other policy proceeds and considerations 212,546 259,627 240,280
Allowances and reserve adjustments received on
reinsurance ceded 1,861,584 93,368 249,623
Investment income received 1,088,846 1,068,856 996,628
Other income received 141,247 194,037 274,793
Life and accident and health claims paid (266,727) (661,006) (487,861)
Surrender benefits and other fund withdrawals paid
(695,777) (618,854) (442,793)
Annuity and other benefits paid (962,151) (948,840) (1,046,532)
Commissions, other expenses and taxes
paid (1,027,317) (950,827) (777,851)
Dividends paid to policyholders (9,136) (8,102) (10,101)
Federal income taxes received (paid) (146,945) 15,764 (12,411)
Reinsurance reserve transfers and other (618,898) (1,891,421) (1,552,528)
-----------------------------------------------
Net cash provided by (used in) operating activities
247,994 (441,367) (560,616)
INVESTING ACTIVITIES
Proceeds from investments sold, matured
or repaid:
Bonds 2,993,985 3,938,693 3,525,839
Stocks 220,666 488,559 138,284
Mortgage loans 11,248 37,335 34,216
Real estate 3,050 20,300 3,660
Other invested assets 200 3,984 8,580
Miscellaneous proceeds 407 (25,830) 7,140
-----------------------------------------------
Total investment proceeds 3,229,556 4,463,041 3,717,719
Taxes paid on capital gains -- -- (7,481)
-----------------------------------------------
Net proceeds from sales, maturities, or repayments
of investments 3,229,556 4,463,041 3,710,238
95
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW - STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Cost of investments acquired:
Bonds $(3,656,035) $(4,225,623) $(4,103,637)
Stocks (611,404) (331,131) (311,708)
Mortgage loans (9,800) (121,139) (40,000)
Real estate (5,064) (7,030) (2,765)
Other invested assets (35,204) (36,752) (2,031)
Miscellaneous applications (93,194) -- --
-----------------------------------------------
Total cost of investments acquired (4,410,701) (4,721,675) (4,460,141)
Net decrease (increase) in policy loans 1,094 (3,174) (7,996)
-----------------------------------------------
Net cost of investments acquired (4,409,607) (4,724,849) (4,468,137)
-----------------------------------------------
Net cash used in investing activities (1,180,051) (261,808) (757,899)
Financing and miscellaneous activities:
Other cash provided:
Capital and surplus paid-in 137,062 3,800 127,194
Other sources 562,978 1,485,965 1,558,615
-----------------------------------------------
Total other cash provided 700,040 1,489,765 1,685,809
Other cash provided (applied):
Dividends paid to shareholders (79,000) (80,000) (61,311)
Other applications, net (70,086) (347,482) (162,103)
-----------------------------------------------
Total other cash provided (applied) (149,086) (427,482) (223,414)
-----------------------------------------------
Net cash provided by financing and miscellaneous
activities 550,954 1,062,283 1,462,395
-----------------------------------------------
Net (decrease) increase in cash and short-term
investments (381,103) 359,108 143,880
Cash and short-term investments:
Beginning of year 513,557 154,449 10,569
-----------------------------------------------
End of year $ 132,454 $ 513,557 $ 154,449
===============================================
</TABLE>
SEE ACCOMPANYING NOTES.
96
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Transamerica Occidental Life Insurance Company (the Company) is domiciled in
California. The Company is a wholly owned subsidiary of Transamerica Insurance
Corporation of California, which is a wholly owned subsidiary of Transamerica
Corporation. The Company has three wholly owned insurance subsidiaries:
Transamerica Life Insurance and Annuity Company (TALIAC), Transamerica Life
Insurance Company of Canada and Transamerica Life Insurance Company of New York.
TALIAC has one wholly owned insurance subsidiary, Transamerica Assurance
Company. During 1999, Transamerica Corporation was merged with an indirect
wholly owned subsidiary of AEGON N.V., a holding company organized under the
laws of the Netherlands.
NATURE OF BUSINESS
The Company engages in providing life insurance, pension and annuity products,
reinsurance, structured settlements and investment products 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 are distributed in 50 states (reinsurance is the only product distributed in
New York).
BASIS OF PRESENTATION
Certain amounts reported in the accompanying financial statements are based on
management's best estimates and judgment, subject to the minimum requirements
imposed by regulatory authorities. Actual results could differ from those
estimates.
The accompanying financial statements have been prepared in conformity with
statutory accounting practices (SAP) prescribed or permitted by the California
Department of Insurance (the California Department), which vary in some respects
from accounting principles generally accepted in the United States (GAAP). The
more significant variances from GAAP are as follows:
The accounts and operations of the Company's subsidiaries are not
consolidated but are included in investments in common stocks at the
statutory net carrying value. Changes in the subsidiaries' net carrying
values are charged or credited directly to unassigned surplus.
97
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
Bonds, where permitted, are carried at amortized cost, rather than
segregating the portfolio into held-to-maturity (reported at amortized
cost), available-for-sale (reported at fair value) and trading (reported at
fair value) classifications.
The costs of acquiring new and renewal business, such as commissions and
underwriting and policy issue costs, are expensed when incurred rather than
deferred and amortized over the terms of the related policies.
Certain assets recognized under GAAP, principally agents' debit balances
and computer software, are "non-admitted" and excluded from the
accompanying financial statements under SAP and are charged directly to
unassigned surplus.
Reserves for future policy benefits generally are calculated based on
mortality and interest assumptions that are statutorily required rather
than using estimated expected experience or actual account balances. The
policy liabilities are reported net, rather than gross, of ceded amounts.
Revenues for interest-sensitive life policies and investment-type contracts
consist of the entire premium received and benefits represent the benefits
paid and the change in policy reserves. Under GAAP, premiums received in
excess of policy charges are not recognized as revenue and benefits
represent the excess of benefits paid over the policy account value and
interest credited to the account value.
An Interest Maintenance Reserve (IMR) is provided which defers certain
realized capital gains and losses attributable to changes in the general
level of interest rates. Such deferred gains or losses are amortized into
investment income over the remaining period to maturity based on groupings
of individual securities sold in five-year bands.
An Asset Valuation Reserve (AVR) is provided which reclassifies a portion
of surplus to liabilities. The AVR is calculated according to a specified
formula as prescribed by the National Association of Insurance
Commissioners (NAIC) and is intended to stabilize the Company's surplus
against possible fluctuations in the market values of bonds, equity
securities, mortgage loans, real estate, and other invested assets. Changes
in the required AVR balance are charged or credited directly to unassigned
surplus.
98
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
Deferred federal income taxes are not provided for differences between the
financial statement amounts and tax bases of assets and liabilities.
Policyholder dividends are recognized when declared rather than over the
term of the related policies.
A liability for reinsurance balances has been provided for unsecured policy
reserves ceded to reinsurers unauthorized by license to assume such
business. Changes to those amounts are credited or charged directly to
unassigned surplus. Under GAAP, an allowance for amounts deemed
uncollectible would be established through a charge to earnings.
Other significant accounting policies are as follows:
INVESTMENTS
Investments are shown on the following bases:
Bonds - where permitted, at amortized cost; all others are carried at
values prescribed by the Securities Valuation Office of the NAIC (SVO);
premiums and discounts are amortized using the interest method. For
loan-backed bonds, the interest method including anticipated prepayments at
the date of purchase is used. Prepayment assumptions for loan-backed bonds
are estimated using broker dealer survey values and are based on the
current interest rate and economic environment. The retrospective
adjustment method is used to value all securities, except for interest-only
securities which are valued using the prospective method.
Preferred stocks - where permitted at cost, all others are carried at fair
value based on NAIC values.
99
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
Common stocks - at fair value based on NAIC market values, except for
investments in subsidiaries which are at statutory net carrying values.
Mortgage loans on real estate - at the aggregate unpaid balances.
Real estate - at depreciated cost less encumbrances, except for properties
acquired in satisfaction of debt, which are carried at the lower of fair
value or cost, less encumbrances.
Policy loans - at the aggregate unpaid principal balances.
Other investments - primarily at the lower of cost or fair value.
Derivative instruments, included in other investments in the accompanying
balance sheet, are valued in accordance with the NAIC Accounting Practices
and Procedures manual and Purposes and Procedures manual of the SVO. All
derivative instruments are used for hedging purposes and valued on a basis
consistent with the hedged item.
The Company uses interest rate swaps, caps and floors, options and certain other
derivatives as part of its overall interest rate risk management strategy for
certain life insurance and annuity products. As the Company only uses
derivatives for hedging purposes, the Company values all derivative instruments
on a consistent basis as the hedged item. Upon termination, gains and losses on
those instruments are included in the carrying values of the underlying hedged
items and are amortized over the remaining lives of the hedged items as
adjustments to investment income or benefits from the hedged items. Any
unamortized gains or losses are recognized when the underlying hedged items are
sold.
Interest rate swap contracts are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
100
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
Interest rate caps and floors are used to limit the effects of changing interest
rates on yields of variable rate or short-term assets or liabilities. The
initial cost of any such agreements is amortized to net investment income over
the life of the agreement. Periodic payments that are receivable as a result of
the agreements are accrued as an adjustment of interest income or benefits from
the hedged item.
Gains and losses on disposal of investments are recognized on the
specific-identification basis. Changes in the statutory fair values of stocks
and those bonds carried at values prescribed by the SVO, rather than amortized
cost, are reported as unrealized gains or losses directly in unassigned surplus
and, accordingly, have no effect on net income.
Short-term investments include investments with maturities of less than one year
at date of acquisition.
SEPARATE ACCOUNTS
The Company administers segregated asset accounts for pension and other clients.
The assets of the separate accounts are not subject to liabilities arising out
of any business the Company may conduct and are reported at fair value.
Investment risks associated with fair value changes are primarily borne by the
clients. The liabilities of the separate accounts represent reserves established
to meet withdrawal and future benefit payment provisions of the contracts.
POLICY RESERVES AND CONTRACT CLAIMS
Life, annuity, and accident and health benefit reserves are calculated based
upon published tables using such interest rate assumptions and valuation methods
that will provide, in the aggregate, reserves that meet the amounts required by
the California Department. The Company waives deduction of deferred fractional
premiums upon death of the insureds and returns any portion of the final premium
beyond the date of death. Additional reserves are established where the gross
premiums on any insurance in force are less than the net premiums according to
the standard valuation set by the California Department.
101
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY RESERVES AND CONTRACT CLAIMS (CONTINUED)
Contract claim liabilities include provisions for reported claims and claims
incurred but not reported, net of reinsurance ceded.
PREMIUM REVENUES
Premiums from life insurance policies are recognized as revenue when due, and
premiums from annuity contracts are recognized when received. Accident and
health premiums are earned pro rata over the terms of the policies.
OTHER REVENUES
Other revenues consist primarily of profit sharing on reinsurance ceded and
reserve adjustments on ceded modified coinsurance transactions.
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.
Gains associated with reinsurance of inforce blocks of business are included in
surplus rather than gain from operations. Premiums ceded and recoverable losses
have been reported as a reduction of premium income and benefits, respectively.
PRIOR YEAR ADJUSTMENTS
Prior year adjustments charged directly to surplus in 1999 related primarily to
expenses incurred for sales practices litigation of $7 million (after tax) and a
suspense asset adjustment of $7 million (after tax).
Prior year adjustments in 1998 relate primarily to expenses incurred for sales
practices litigation of $8 million (after-tax) and a reserve valuation
adjustment of $13 million (after-tax) on single premium immediate annuities.
Prior year adjustments in 1997 relate primarily to expenses incurred for sales
practices litigation of $15 million (after-tax) and a reserve valuation
adjustment of $30 million (after-tax) on single premium immediate annuities.
102
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications of 1997 and 1998 amounts have been made to conform
with the 1999 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values for bonds are based on market values prescribed by the SVO (NAIC
market values) rather than on actual or estimated market values. For bonds
without available NAIC market values, amortized costs are used as estimated fair
values. As of December 31, 1999 and 1998, the fair value of investments in bonds
includes $5,366 million and $5,215 million, respectively, of bonds that were
valued at amortized cost.
Fair values for preferred and common stocks are based on NAIC market values,
except for investment in subsidiaries which are at statutory net carrying
values.
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.
Fair values for derivative instruments are estimated using values obtained from
independent pricing services.
The carrying amounts of cash and short-term investments and accrued investment
income approximate their fair value.
Fair values for liabilities under investment-type contracts, included in
reserves for future policy benefits and other policy liabilities, are estimated
using discounted cash flow calculations, based on interest rates currently being
offered by similar contracts with maturities consistent with those remaining for
the contracts being valued.
103
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and fair values of financial instruments are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds $ 12,820,804 $ 12,681,458 $ 12,135,178 $ 12,834,818
Preferred stocks 135,450 93,071 97,801 100,909
Common stocks 2,254,439 2,254,439 1,738,975 1,738,975
Mortgage loans on real estate 385,590 363,650 387,038 409,714
Policy loans 409,534 396,956 410,628 388,076
Floors, caps and swaptions 56,964 60,129 57,311 149,447
Cash on hand and on deposit 132,454 132,454 513,557 513,557
Accrued investment income 226,823 226,823 210,932 210,932
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial liabilities (liabilities for
investment-type contracts):
Single and flexible premium
deferred annuities $ 2,074,622 $ 1,881,238 $ 2,112,347 $ 1,927,980
Single premium immediate annuities
4,035,133 4,217,004 3,924,227 4,820,607
Other deposit contracts 2,219,143 2,222,305 1,917,574 1,915,954
Off-balance sheet assets (liabilities):
Exchange derivatives designated
as hedges that are in a:
Receivable position - 30,253 - 88,062
Payable position - (96,206) - (17,025)
</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.
104
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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. Interest rate swap agreements are intended
primarily for asset and liability management. 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 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.
Generally, the Company is subject to basis risk when an interest rate swap
agreement is not funded. As of December 31, 1999, there were no unfunded
interest rate swap agreements.
Interest rate floor 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. These agreements enable
the Company to transfer, modify, or reduce its interest rate risk and generally
require up front premium payments. The costs of interest rate floor agreements
are amortized over the contractual periods and resulting amortization expenses
are included in net investment income. The 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.
105
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The information on derivative instruments is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
AGGREGATE WEIGHTED
NOTIONAL AVERAGE
AMOUNT FIXED RATE FAIR VALUE
------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1999
Interest rate swap agreements designated as
hedges of financial assets, where
the Company pays:
Fixed rate interest $ 296,133 6.46% $ 28,092
Floating rate interest 1,516,308 5.95 (90,055)
Floating rate interest based on one index
and receives floating rate interest on
another index 4,525 6.05 20
Interest rate swap agreements designated as
hedges of financial liabilities, where the
Company pays:
Floating rate interest 710,981 6.40 (4,394)
Floating rate interest based on one index and
receives floating rate interest on another
index 237,500 6.13 (260)
Interest rate floor agreements 400,000 - 3,065
Swaptions 6,500,000 6.64 25,211
Call options 31,999 - 31,853
</TABLE>
106
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
AGGREGATE WEIGHTED
NOTIONAL AVERAGE
AMOUNT FIXED RATE FAIR VALUE
------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Interest rate swap agreements designated as
hedges of financial assets, where
the Company pays:
Fixed rate interest $ 44,950 5.95% $ 280
Fixed rate interest 212,488 5.01 (13,525)
Floating rate interest (1,495,000) 5.40 80,717
Floating rate interest based on one index and
receives floating rate interest on another
index 15,833 5.06 110
Interest rate swap agreements designated as hedges
of financial liabilities, where the Company pays:
Floating rate interest 1,204,456 5.42 3,781
Floating rate interest based on one index and
receives floating rate interest on another
index 37,500 4.84 (339)
Interest rate floor agreements 400,000 - 21,705
Swaptions 6,500,000 5.19 101,754
Call options 30,710 - 25,988
</TABLE>
Generally, notional amounts indicate the volume of transactions and estimated
fair values indicate the amounts subject to credit risk.
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of temporary cash investments, fixed maturities,
derivatives, mortgage loans on real estate and reinsurance receivables. The
Company places its temporary cash investments with high credit quality financial
institutions. Concentration of credit risk with respect to investments in fixed
maturities and mortgage loans on real
107
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
estate is limited due to the large number of such investments and their
dispersion across many different industries and geographic areas. The Company
places reinsurance with only highly rated insurance companies. At December 31,
1999, the Company had no significant concentration of credit risk.
3. INVESTMENTS
The carrying value and fair value of investments in debt securities are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
U.S. Treasury securities and
obligations of U.S. government
corporations
and agencies $ 189,325 $ 11,396 $ 1,968 $ 198,753
Obligations of states and political
subdivisions 106,484 3,673 1,482 108,675
Foreign governments 50,820 353 3,328 47,845
Corporate securities 9,345,228 103,079 230,148 9,218,159
Public utilities 1,718,582 20,020 38,842 1,699,760
Mortgage and other asset- backed
securities 1,410,365 - 2,099 1,408,266
-----------------------------------------------------------------------
$ 12,820,804 $ 138,521 $ 277,867 $ 12,681,458
=======================================================================
</TABLE>
108
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury securities and
obligations of U.S. government
corporations
and agencies $ 148,427 $ 57,226 $ - $ 205,653
Obligations of states and political
subdivisions 123,255 11,752 - 135,007
Foreign governments 39,940 2,115 1,486 40,569
Corporate securities 8,430,358 476,428 22,687 8,884,099
Public utilities 2,206,740 176,863 571 2,383,032
Mortgage and other asset- backed
securities 1,186,458 - - 1,186,458
-----------------------------------------------------------------------
$ 12,135,178 $ 724,384 $ 24,744 $ 12,834,818
=======================================================================
</TABLE>
Included in bonds is a $150 million note due from Transamerica Corporation at
December 31, 1998.
The carrying value and fair value of bonds at December 31, 1999, by contractual
maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------------------------------
<S> <C> <C>
Due in one year or less $ 137,778 $ 138,280
Due after one year through five years 2,021,208 2,019,633
Due after five years through ten years 2,769,210 2,708,056
Due after ten years 6,482,243 6,407,223
Mortgage and other asset-backed securities 1,410,365 1,408,266
------------------------------------
$ 12,820,804 $ 12,681,458
====================================
</TABLE>
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties.
109
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The costs and fair values of preferred stocks and common stocks (unaffiliated
companies) are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Preferred stocks $ 77,231 $ 6,399 $ 41,182 $ 42,448
Common stocks 662,215 640,014 32,190 1,270,039
DECEMBER 31, 1998
Preferred stocks $ 40,941 $ 3,506 $ 18 $ 44,429
Common stocks 299,048 483,421 8,979 773,490
</TABLE>
The components of investment in real estate are as follows (in thousands):
<TABLE>
<CAPTION>
ACCUMULATED CARRYING
COST DEPRECIATION VALUE
------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1999
Properties occupied by the
Company $ 207,709 $ 111,331 $ 96,378
Other 7,450 2,633 4,817
------------------------------------------------------
$ 215,159 $ 113,964 $ 101,195
======================================================
DECEMBER 31, 1998
Properties occupied by the
Company $ 202,933 $ 105,330 $ 97,603
Other 8,514 3,369 5,145
------------------------------------------------------
$ 211,447 $ 108,699 $ 102,748
======================================================
</TABLE>
110
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The maximum and minimum lending rates for mortgage loans during 1999 were 8.48%
and 7.13%, respectively. The maximum percentage of any one loan to the value of
security at the time of the loan, exclusive of any purchase money or insured or
guaranteed mortgages, was 80%. Fire insurance is carried in every case at least
equal to the excess of the loan over the maximum loan which would be permitted
by law on the land without the buildings.
Net investment income (expense) by major category of investments is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Bonds $ 989,340 $ 950,923 $ 934,229
Preferred stocks 5,078 1,312 790
Common stocks 53,192 53,000 43,938
Mortgage loans on real estate 28,314 28,713 25,031
Real estate 28,008 27,288 29,447
Policy loans 27,086 24,780 26,061
Cash and short-term investments 10,526 10,939 4,094
Other investments 16,343 17,198 (533)
-----------------------------------------------------
1,157,887 1,114,153 1,063,057
Investment expense (32,845) (35,610) (35,003)
-----------------------------------------------------
$ 1,125,042 $ 1,078,543 $ 1,028,054
=====================================================
</TABLE>
111
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The realized gains and losses and other information related to investments are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Net gains (losses) on disposition of investments in:
Bonds $ 2,993 $ 16,522 $ (27,875)
Preferred stocks (6,085) (2,405) (579)
Common stocks 41,011 164,984 9,792
Other (90,400) (7,021) (1,308)
-----------------------------------------------------
(52,481) 172,080 (19,970)
Related income (taxes) recovery 71,941 (84,425) (7,480)
Transfer to the IMR (1,945) (11,584) 18,118
-----------------------------------------------------
Net realized capital gains (losses) $ 17,515 $ 76,071 $ (9,332)
=====================================================
</TABLE>
The other loss of $90.4 million in 1999 primarily results from the net pretax
loss incurred on an ineffective equity collar hedge (see Note 12).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Proceeds from disposition of investment in bonds $ 2,993,985 $ 3,938,693 $ 3,525,839
Gross gains on disposition of investment
in bonds 46,135 44,290 24,157
Gross losses on disposition of investment
in bonds (43,142) (27,768) (52,032)
Change in net unrealized gains (losses):
Bonds (5,756) (871) -
Preferred stocks 2,271 (2,741) 518
Common stocks 125,177 257,582 242,773
Real estate - - 3,727
Other (2,272) 7,570 (189)
------------------------------------------------------
$ 119,420 $ 261,540 $ 246,829
======================================================
</TABLE>
112
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Change in net unrealized gains on common stocks in 1999, 1998 and 1997, includes
$(34) million, $156 million and $107 million, respectively, related to the
increase (decrease) in TALIAC's statutory capital and surplus for those years.
4. REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies, including affiliated companies. Risks are reinsured with other
companies to permit the recovery of a portion of the direct losses. These
reinsured risks are treated as though, to the extent of the reinsurance, they
are risks for which the Company is not liable.
Policy liabilities and accruals are reported in the accompanying financial
statements net of reinsurance ceded. The Company remains liable to the extent
the reinsuring companies do not meet their obligations under these reinsurance
treaties.
The following summarizes the effect of reinsurance transactions (in thousands):
<TABLE>
<CAPTION>
CEDED/RETROCEDED TO ASSUMED FROM
-------------------------------------------------------------
DIRECT AFFILIATED UNAFFILIATED AFFILIATED UNAFFILIATED NET
AMOUNT COMPANIES COMPANIES COMPANIES COMPANIES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1999:
Premium revenue $ 1,409,419 $ 112,947 $ 1,965,697 $ 157,197 $ 1,880,044 $ 1,368,016
==============================================================================================
At December 31, 1999:
Life insurance in force $ 547,304,907 $ 4,881,384 $ 365,336,549 $ 17,212,668 $ 465,086 $194,764,728
==============================================================================================
Reserves for future policy
benefits $ 14,241,446 $ 4,124,327 $ 3,056,908 $ 233,126 $ 2,401,859 $ 9,695,196
Policy and contract claims
payable 127,030 40,341 137,047 1,824 345,323 296,789
----------------------------------------------------------------------------------------------
$ 14,368,476 $ 4,164,668 $ 3,193,955 $ 234,950 $ 2,747,182 $ 9,991,985
==============================================================================================
</TABLE>
113
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
4. REINSURANCE (CONTINUED)
<TABLE>
<CAPTION>
CEDED/RETROCEDED TO ASSUMED FROM
--------------------------------------------------------------
DIRECT AFFILIATED UNAFFILIATED AFFILIATED UNAFFILIATED NET
AMOUNT COMPANIES COMPANIES COMPANIES COMPANIES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1998:
Premium revenue $ 1,401,733 $ 298,339 $ 2,193,006 $ 198,460 $ 2,499,677 $ 1,608,525
==============================================================================================
At December 31, 1998:
Life insurance in force $ 190,331,317 $ 950,789 $ 307,374,066 $ 25,093,946 $ 282,821,689 $ 189,922,097
==============================================================================================
Reserves for future policy
benefits $ 14,778,562 $ 4,978,700 $ 2,931,865 $ 136,208 $ 2,424,077 $ 9,428,282
Policy and contract claims
payable 121,330 45,187 316,533 11,018 385,519 156,147
----------------------------------------------------------------------------------------------
$ 14,899,892 $ 5,023,887 $ 3,248,398 $ 147,226 $ 2,809,596 $ 9,584,429
==============================================================================================
Year ended
December 31, 1997:
Premium reserve $ 1,434,511 $ 245,606 $ 1,296,529 $ 75,853 $ 1,747,516 $ 1,715,745
==============================================================================================
At December 31, 1997:
Life insurance in force $ 175,258,666 $ - $ 272,918,826 $ 26,199,512 $ 223,688,654 $ 152,228,006
==============================================================================================
Reserves for future policy
benefits $ 15,117,147 $ 5,457,334 $ 2,731,647 $ 15,306 $ 2,922,166 $ 9,865,638
Policy and contract claims
payable 94,040 42,804 197,351 20,854 357,125 231,864
----------------------------------------------------------------------------------------------
$ 15,211,187 $ 5,500,138 $ 2,928,998 $ 36,160 $ 3,279,291 $ 10,097,502
==============================================================================================
</TABLE>
114
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
4. REINSURANCE (CONTINUED)
<TABLE>
<CAPTION>
CEDED TO ASSUMED
DIRECT OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Benefits paid or provided $ 1,632,298 $ 1,499,809 $ 1,086,642 $ 1,219,131
=======================================================================
Year ended December 31, 1998:
Benefits paid or provided $ 1,576,300 $ 1,147,899 $ 1,020,085 $ 1,448,486
=======================================================================
Year ended December 31, 1997:
Benefits paid or provided $ 1,631,249 $ 955,287 $ 887,538 $ 1,563,500
=======================================================================
</TABLE>
5. INCOME TAXES
The Company's taxable income or loss is included in the consolidated return of
Transamerica Corporation for the period ended July 21, 1999. The method of
allocation between the companies for the period ended July 21, 1999, is subject
to written agreement approved by the Board of Directors. Tax payments are made
to, or refunds received from, Transamerica Corporation in amounts which would
result from filing separate tax returns with federal taxing authorities, except
that tax benefits attributable to operating losses and other carryovers are
recognized currently since utilization of these benefits is assured by
Transamerica Corporation. The provision does not purport to represent a
proportionate share of the consolidated tax.
For the period beginning July 22, 1999, the Company will join in a consolidated
tax return with certain life affiliates: TALIAC, Transamerica Assurance Company
and Transamerica Life Insurance Company of New York. The method of allocation
between the companies for the period beginning July 22, 1999, will be subject to
written agreement to be approved by the Board of Directors. It is anticipated
that this agreement will require that tax payments are made to, or refunds are
received from, TOLIC, in amounts which would results from filing separate tax
returns with federal taxing authorities.
115
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Amounts due from Transamerica Corporation for federal income taxes are $160
million at December 31, 1999. Amounts due to Transamerica Corporation for
federal income taxes were $28.5 million at December 31, 1998, and are included
in accounts payable and other liabilities in the accompanying balance sheet.
Following is a reconciliation of federal income taxes computed at the statutory
rate with the income tax provision, excluding income taxes related to net
realized gains on investment transactions (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $ 61,196 $ 18,901 $ 57,511
Difference between statutory and tax reserves (1,153) (3,463) 10,045
Deferred acquisition costs capitalized,
net of amortization 13,326 4,677 10,652
Reinsurance adjustments (14,442) (7,525) 12,900
Difference in statutory and tax bases
of investments (2,399) (10,990) (4,149)
Adjustment to prior year tax provision 24,640 (13,055) 4,689
Tax credits (16,000) (17,698) (11,127)
Nontaxable affiliate dividends (17,500) (17,500) (14,000)
Other (17,338) (23,755) (8,007)
------------------------------------------------------
Provision (benefit) for income taxes $ 30,330 $ (70,408) $ 58,514
======================================================
</TABLE>
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 would become subject to tax
when it exceeds a certain maximum or when cash dividends are paid therefrom. The
policyholders' surplus account balance at December 31, 1999, was $118 million.
Should the entire amount in the policyholders' surplus account become taxable,
the tax thereon computed at current rates would amount to approximately $41.3
million. No income taxes have been provided on the policyholders' surplus
account since the conditions that would cause such taxes are remote.
116
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
6. INVESTMENTS IN SUBSIDIARIES
The Company's investment in common stocks of its wholly owned subsidiaries with
carrying values, based on the statutory capital and surplus of the subsidiaries,
is summarized as follows (in thousands):
COST CARRYING VALUE
------------------------------------
At December 31, 1999:
TALIAC $ 238,418 $ 797,109
Other 206,041 187,291
------------------------------------
$ 444,459 $ 984,400
====================================
At December 31, 1998:
TALIAC $ 237,448 $ 830,829
Others 179,891 134,656
------------------------------------
$ 417,339 $ 965,485
====================================
The Company received a $50 million dividend in 1999 and 1998 from its wholly
owned subsidiary, TALIAC.
The Company's investment in preferred stocks of subsidiaries is substantially
all represented by an investment in Transamerica Life Insurance Company of
Canada.
Certain financial information with respect to TALIAC, the Company's principal
subsidiary, is as follows (in thousands):
DECEMBER 31
1999 1998
---------------------------------------
Cash and investments $ 14,046,255 $ 13,582,175
Other assets 6,339,057 4,783,063
---------------------------------------
Total assets 20,385,312 18,365,238
Aggregate reserves 9,221,606 8,084,356
Other liabilities 10,366,597 9,450,053
---------------------------------------
Total liabilities 19,588,203 17,534,409
---------------------------------------
Total capital and surplus $ 797,109 $ 830,829
=======================================
117
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
7. DEFERRED AND UNCOLLECTED PREMIUMS
Components of deferred and uncollected premiums are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1999
Life and annuity:
Ordinary first-year business $ 8,630 $ - $ 8,630
Ordinary renewal business 183,107 36,000 147,107
Group life direct business 2,095 - 2,095
------------------------------------------------------
193,832 36,000 157,832
Accident and health 69,890 - 69,890
------------------------------------------------------
$ 263,722 $ 36,000 $ 227,722
======================================================
DECEMBER 31, 1998
Life and annuity:
Ordinary first-year business $ (828,090) $ 14,537 $ (842,627)
Ordinary renewal business 9,900 8,929 971
Group life direct business 5,637 - 5,637
------------------------------------------------------
(812,553) 23,466 (836,019)
Accident and health 28,068 - 28,068
------------------------------------------------------
$ (784,485) $ 23,466 $ (807,951)
======================================================
</TABLE>
The gross deferred and uncollected premiums balance at December 31, 1999, of
$263,722,000 is composed of $431,756,000 direct deferred and uncollected
premiums less reinsurance premiums payable of $168,034,000.
The gross deferred and uncollected premiums balance at December 31, 1998, of
$(784,485,000) is composed of $379,199,000 direct deferred and uncollected
premiums less reinsurance premiums payable of $(1,163,684,000).
118
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
8. ANNUITY RESERVES AND DEPOSIT LIABILITIES
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on a
variety of the Company's products that are not subject to significant mortality
or morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves on
these products, by withdrawal characteristics, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
----------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal - with
adjustment:
With market value adjustment $ 9,134 -% $ 2,955,445 21%
At book value less surrender charge 435,717 3 565,977 4
At market value 7,385,279 53 2,319,944 16
------------------------------------------------------------
7,830,130 56 5,841,366 41
Subject to discretionary withdrawal -
without adjustment 1,748,102 13 1,839,270 13
Not subject to discretionary withdrawal
provision 4,417,004 31 6,710,422 46
------------------------------------------------------------
Total annuity reserves and deposit
liabilities 13,995,236 100% 14,391,058 100%
========== ==========
Less reinsurance (5,820,180) (6,736,704)
------------ -------------
Net annuity reserves and deposit liabilities $ 8,175,056* $ 7,654,354*
============ =============
</TABLE>
* Includes $3,364 million and $2,622 million of annuity reserves and deposit
liabilities reported in the separate account liability at December 31, 1999
and 1998, respectively. Funding agreement liabilities that are a part of the
separate account liabilities are excluded from the above amounts.
Included in other liabilities is $2,228 million and $1,927 million at December
31, 1999 and 1998, respectively, held pursuant to funding agreements. Funding
agreements are obligations that contain no mortality or morbidity risks.
119
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
9. CAPITAL AND SURPLUS
The Company is subject to the requirements of the NAIC approved Risk Based
Capital (RBC) rules and at December 31, 1999 and 1998, the Company met the RBC
requirement.
The amount of dividends which can be paid by the Company without prior approval
of the California Department is subject to restrictions related to statutory
surplus and gains from operations. The Company could pay $184 million in
dividends in 2000 without prior approval.
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Substantially all employees are covered by noncontributory defined benefit plans
sponsored by the Company and the Retirement Plan for Salaried Employees of
Transamerica Corporation and Affiliates in which the Company also participates.
Pension benefits are based on the employee's compensation during the highest
paid 60 consecutive months during the 120 months before retirement. The general
policy is to fund current service costs currently and prior service costs over
periods ranging from 10 to 30 years. Assets of those plans are invested
principally in publicly traded stocks and bonds.
The Company's total pension costs were $0.8 million, $0.6 million and $0 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company also participates in various contributory defined benefit programs
sponsored by Transamerica Corporation that provide medical and certain other
benefits to eligible retirees. The Company accounts for the costs of such
benefit programs under the accrual method and amortizes its transition
obligation for retirees and fully eligible or vested employees over 20 years.
Postretirement benefit costs charged to income was $3 million for each of the
years ended December 31, 1999, 1998 and 1997.
11. ASSETS ON DEPOSIT
At December 31, 1999 and 1998, $4 million and $4 million of the Company's assets
were on deposit with public officials in compliance with regulatory
requirements.
120
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
12. RELATED PARTY TRANSACTIONS
The Company has various transactions with Transamerica Corporation and its
affiliated companies in the normal course of operations. These transactions
include the assumption and cession of reinsurance and the performance of certain
administrative and support services for affiliated companies. Such
reimbursements are recorded as a reduction of operating expenses.
Transactions with Transamerica Corporation and its affiliates also include
transactions related to pension plans, investments in a money market fund
managed by an affiliated company, and rental of computer services. Pension funds
administered by a subsidiary for affiliated companies amounted to $1.8 billion,
$1.6 billion and $1.3 billion at December 31, 1999, 1998 and 1997, respectively.
The investment in an affiliated money market fund was not material.
The Company had amounts due from affiliates of $41 million as of December 31,
1999, and $16 million as of December 31, 1998.
In March 1999, the Company entered into an equity collar (which expired December
17, 1999), with an unrelated party to hedge the price fluctuations of their
unaffiliated equity securities portfolio. In addition, Transamerica Corporation
agreed to protect the Company from any ineffectiveness in the hedge that would
expose the Company to loss net of tax benefit. As a result of the
ineffectiveness of the collar with the unrelated party and the payment that the
Company was required to make upon settlement, Transamerica Corporation made a
payment of $172 million to the Company in December 1999.
121
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
13. LEASES
Rental expense for equipment and properties occupied by the Company was $17
million in 1999, $14 million in 1998, and $19 million in 1997. 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, 1999 (in thousands):
Year ending December 31:
2000 $ 12,203
2001 9,998
2002 7,745
2003 6,728
2004 6,624
Later years 41,701
---------------
$ 84,999
===============
14. LITIGATION
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 plaintiff's 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 $7 million, $8 million and $15 million after-tax have been
incurred in 1999, 1998 and 1997, respectively, and reflected in these statements
as prior period adjustments. Additional costs related to the settlement 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.
15. SEPARATE ACCOUNTS
Separate accounts held by the Company represent primarily funds which are
administered for pension plans. The assets consist primarily of fixed maturities
and equity securities and are carried at estimated fair value. The Company
provides a minimum guaranteed return to policyholders of certain separate
accounts. Certain other separate accounts do not have any minimum guarantees and
the investment risks associated with market value changes are borne entirely by
the policyholder.
122
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
15. SEPARATE ACCOUNTS (CONTINUED)
Information regarding the separate accounts of the Company as of and for the
year ended December 31, 1999, is as follows (in thousands):
<TABLE>
<CAPTION>
SEPARATE ACCOUNTS WITH GUARANTEES
-------------------------------------------------
NONINDEXED NONINDEXED
GUARANTEE GUARANTEE NONGUARANTEED
LESS THAN OR GREATER THAN SEPARATE
INDEXED EQUAL TO 4% 4% ACCOUNTS TOTAL
--------------- ---------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Premiums, deposits and other
considerations $ - $ - $ - $ 254,076 $ 254,076
=============== ================ ================ ================= ==================
Reserves for separate accounts
with assets at:
Fair value $ - $ - $ - $ 3,364,426 $ 3,364,426
Amortized cost - - - - -
Other - - - 703,700 703,700
--------------- ---------------- ---------------- ----------------- ------------------
Total $ - $ - $ - $ 4,068,126 $ 4,068,126
=============== ================ ================ ================= ==================
Reserves for separate accounts
by withdrawal characteristics:
Subject to discretionary
withdrawal (with adjustment):
With market value
adjustment $ - $ - $ - $ - $ -
At book value less
current surrender
charge of 5% or more - - - - -
At market value 3,364,426 3,364,426
At book value without
adjustment and with
current surrender
charges less than 5% - - - - -
--------------- ---------------- ---------------- ----------------- ------------------
Subtotal - - - 3,364,426 3,364,426
Not subject to
discretionary withdrawal - - - - -
Other - - - 703,700 703,700
--------------- ---------------- ---------------- ----------------- ------------------
Total separate account
liabilities $ - $ - $ - $ 4,068,126 $ 4,068,126
=============== ================ ================ ================= ==================
</TABLE>
123
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
15. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts is
presented below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Transfer as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts $ 255,210 $ 352,298 $ 454,749
Transfers from separate accounts 217,729 173,152 240,381
------------------------------------------------------
Net transfers to separate accounts 37,481 179,146 214,368
Reconciling adjustments:
Deposits (withdrawals) from separate
accounts 13,091 21,097 (61,370)
------------------------------------------------------
Transfers as reported in the statements of income $ 50,572 $ 200,243 $ 152,998
======================================================
</TABLE>
16. DIRECT PREMIUM WRITTEN BY MANAGING GENERAL AGENTS/THIRD-PARTY
ADMINISTRATORS
The Company has the following direct premiums written through managing general
agents (in thousands):
<TABLE>
<CAPTION>
TYPES OF DIRECT
EXCLUSIVE BUSINESS AUTHORITY WRITTEN
CONTRACT WRITTEN GRANTED PREMIUMS
----------------------------------------------------------------
<S> <C> <C> <C> <C>
National Benefit Resources No Specific and * $ 38
Aggregate
Excess of Loss
Insurance
R. E. Moulton Insurance Agency, Inc. No Specific and * 6,698
Aggregate
Excess of Loss
Insurance
</TABLE>
124
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
16. DIRECT PREMIUM WRITTEN BY MANAGING GENERAL AGENTS/THIRD-PARTY
ADMINISTRATORS (CONTINUED)
<TABLE>
<CAPTION>
TYPES OF DIRECT
EXCLUSIVE BUSINESS AUTHORITY WRITTEN
CONTRACT WRITTEN GRANTED PREMIUMS
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediary Insurance Services, Inc. No Specific and * 2,969
Aggregate
Excess of Loss
Insurance
Excess Reinsurance Underwriters No Specific and * 12,536
Agency, Inc. Aggregate
Excess of Loss
Insurance
Risk Assessment Strategies No Specific and * 576
Aggregate
Excess of Loss
Insurance
North American Insurance Management Yes Occupational * 1,453
Accident -
Excess of Loss
Insurance
Health Reinsurance Management Partnership No Provider Excess * 25,173
Self Funding Systems No Specific and * 119
Aggregate
Excess of Loss
Insurance
</TABLE>
* Premium collection, underwriting and commission/claim payments authority
granted.
125
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED)
17. NAIC CODIFICATION
In 1998, the NAIC adopted codified statutory accounting principles
(Codification) effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the state of California must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Insurance Department. The state
of California has stated affirmatively that it will adopt Codification effective
January 1, 2001. Management believes that the impact of Codification will not be
material to the Company's statutory-basis financial statements
18. YEAR 2000 (UNAUDITED)
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
126
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
MARKET IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States government and government
agencies and authorities $ 189,325 $ 198,753 $ 189,325
States, municipalities and political
subdivisions 106,484 108,675 106,484
Foreign governments 50,820 47,845 50,820
Public utilities 1,718,582 1,699,760 1,718,582
All other corporate bonds 9,345,228 9,218,159 9,345,228
Mortgage and other asset-backed securities
1,410,365 1,408,266 1,410,365
Redeemable preferred stock 66,841 30,448 66,371
-----------------------------------------------------------
Total fixed maturities 12,887,645 12,711,906 12,887,175
EQUITY SECURITIES
Common stocks:
Affiliated entities 444,459 984,400 984,400
Banks, trust and insurance 36,481 38,892 38,892
Industrial, miscellaneous and all other 625,734 1,231,147 1,231,147
Nonredeemable preferred stock 69,079 62,623 69,079
-----------------------------------------------------------
Total equity securities 1,175,753 2,317,062 2,323,518
Mortgage loans on real estate 385,590 363,650 385,590
Real estate 101,195 50,000 101,195
Policy loans 409,534 396,956 409,534
Other long-term investments 218,997 155,562 218,997
Cash and short-term investments 132,454 132,454 132,454
-----------------------------------------------------------
Total investments $ 15,311,168 $ 16,127,590 $ 16,458,463
===========================================================
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual discounts.
127
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life $ 4,988,602 $ - $ 240,452
Individual health 42,065 28,046 33,481
Group life and health 31,586 2,616 32,963
Annuity 4,602,281 - (10,107)
-----------------------------------------------------------
9,664,534 30,662 296,789
Year ended December 31, 1998
Individual life 4,595,349 - 121,089
Individual health 26,439 41,669 (9,445)
Group life and health 12,953 3,675 47,840
Annuity 4,748,197 - (3,337)
-----------------------------------------------------------
9,382,938 45,344 156,147
Year ended December 31, 1997
Individual life 4,207,937 - 155,424
Individual health 27,254 31,297 2,606
Group life and health 16,964 2,124 51,052
Annuity 5,580,062 - 22,781
-----------------------------------------------------------
$ 9,832,217 $ 33,421 $ 231,863
===========================================================
</TABLE>
128
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION - STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME* SETTELEMNT EXPENSES EXPENSES* WRITTEN
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 891,749 $ 405,705 $ 909,143 $ 703,605 $ 1,178,607
(10,184) 2,770 (33,811) 35,665 80,328
158,775 10,967 134,414 124,689 65,217
327,676 705,600 1,283,024 736,327 85,267
- --------------------------------------------------------------------------------------------------
1,368,016 1,125,042 2,292,770 1,600,286 1,409,419
905,725 400,313 1,242,592 492,976 1,087,850
51,827 4,483 3,265 100,839 63,828
195,431 4,003 160,581 89,231 50,433
455,542 669,744 312,946 2,218,202 199,622
- --------------------------------------------------------------------------------------------------
1,608,525 1,078,543 1,719,384 2,901,248 1,401,733
761,853 370,027 933,474 383,255 1,042,734
23,988 6,216 19,252 49,460 56,861
236,688 5,074 200,224 123,772 111,314
693,216 646,737 305,491 1,702,770 223,602
- --------------------------------------------------------------------------------------------------
$ 1,715,745 $ 1,028,054 $ 1,458,441 $ 2,259,257 $ 1,434,511
==================================================================================================
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions of estimates, and the results would change if
different methods were applied.
129
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
REINSURANCE - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in force $ 547,304,907 $ 370,217,933 $ 17,677,754 $ 194,764,728 9%
Premiums:
Individual life $ 1,178,607 $ 1,220,329 $ 933,471 $ 891,749 105%
Individual health 80,328 97,296 6,784 (10,184) -%
Group life and health 65,217 247,870 341,428 158,775 215%
Annuity 85,267 513,149 755,558 327,676 231%
-----------------------------------------------------------------------------------------
$ 1,409,419 $ 2,078,644 $ 2,037,241 $ 1,368,016 149%
=========================================================================================
Year ended December 31,
1998
Life insurance in force $ 190,331,317 $ 308,297,855 $ 307,915,635 $ 189,922,097 162%
Premiums:
Individual life $ 1,087,850 $ 958,929 $ 776,803 $ 905,725 86%
Individual health 63,828 134,991 122,991 51,827 237%
Group life and health 50,433 268,973 413,971 195,431 212%
Annuity 199,622 1,128,452 1,384,372 455,542 304%
-----------------------------------------------------------------------------------------
$ 1,401,733 $ 2,491,345 $ 2,698,137 $ 1,608,525 168%
=========================================================================================
Year ended December 31,
1997
Life insurance in force $ 175,258,666 $ 272,918,826 $ 249,888,166 $ 152,228,006 164%
Premiums:
Individual life $ 1,042,734 $ 967,543 $ 686,662 $ 761,853 90%
Individual health 56,861 47,651 14,778 23,988 61%
Group life and health 111,314 274,270 399,644 236,688 169%
Annuity 223,602 252,671 722,285 693,216 104%
-----------------------------------------------------------------------------------------
$ 1,434,511 $ 1,542,135 $ 1,823,369 $ 1,715,745 106%
=========================================================================================
</TABLE>
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