<PAGE>
PROFILE OF THE
DREYFUS/TRANSAMERICA
TRIPLE ADVANTAGE(R)
VARIABLE AND FIXED ANNUITY
Issued by
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
February 7, 2000
This profile is a summary of some of the more important points that you should
know and consider before purchasing a contract. The contract is more fully
described in the full prospectus which accompanies this profile. Please read
the prospectus carefully.
1. The Annuity Contract. The Dreyfus/Transamerica Triple Advantage is a
contract between you and Transamerica Occidental Life Insurance Company with
both "variable" and "guaranteed" investment options. In the contract, you can
invest in your choice of 23 sub-accounts corresponding to 23 funds
("portfolios") in the variable account or in the guaranteed periods of the
fixed account from us. You could gain or lose money you invest in the
portfolios, but you could also earn more than investing in the fixed account
options. We guarantee the safety of money invested in the fixed account
options. The fixed account and some of the portfolios may not be available in
all states.
The contract is a deferred annuity, which means it has two phases: the
accumulation phase and the annuity phase. During the accumulation phase you
can make additional purchase payments to the contract, transfer your money
among the investment options, and withdraw some or all of your investment.
During this phase, earnings accumulate on a tax-deferred basis for
individuals, but if you withdraw money, some or all of it may be taxable. Tax
deferral is not available for corporations and some trusts.
During the annuity phase we will make periodic payments to you. The dollar
amount of the payments may depend on the amount of money invested and earned
during the accumulation phase (and other factors, such as age and sex).
2. The Annuity Payments. You can generally decide when to end the accumulation
phase and begin receiving annuity payments from us. You can choose fixed
annuity payments, where the dollar amount of each payment generally stays the
same, or variable payments that go up or down in dollar amount based on the
investment performance of the portfolios you select. You can choose among
payments for the lifetime of an individual, or payments for the longer of one
lifetime or a guaranteed period of 10, 15, or 20 years, or payments for one
lifetime and the lifetime of another individual.
3. Purchasing a Contract. Generally, you must invest at least $5,000 to
purchase a contract, and then you can make more investments of at least $500
each ($100 each if made under the automatic payment plan and deducted from
your bank account). You may cancel your contract during the free look period
explained in item 10 of this profile.
The Triple Advantage variable annuity is designed for long-term tax-deferred
accumulation of assets, generally for retirement or other long-term goals.
Individuals in high tax brackets get the most benefit from the tax deferral
feature. You should not make an investment in the contract for short-term
purposes or if you cannot take the risk of losing some of your investment.
There are various additional fees and charges associated with variable
annuities. You should consider whether the features and benefits unique to
variable annuities, such as the opportunity for lifetime payments, a
guaranteed death benefit, and the guaranteed level of certain charges are
appropriate for your needs. Although variable
1
<PAGE>
annuities also provide tax-deferral, however, the tax deferral features of
variable annuities are unnecessary when purchased to fund a qualified plan.
4. Investment Options -- VARIABLE ACCOUNT: You can invest in any of the sub-
accounts corresponding to the following 23 Portfolios:
Money Market Capital Appreciation International Core Value
Special Value Stock Index Value MidCap Stock
Zero Coupon 2000 Socially Responsible Disciplined Stock Founders Growth
Quality Bond Growth Small Company Founders Passport
Small Cap Growth and Income Stock Founders
European Equity International Equity Balanced International
Technology Growth Limited Term High Equity
Income
Transamerica
Growth
These Portfolios are described in their own prospectuses. You can earn or lose
money in any of these Portfolios. All Portfolios may not be available in all
states.
FIXED ACCOUNT: In most states, you can also invest in a fixed account option,
where we guarantee the principal invested plus at least 3% annual interest.
5. Expenses. The contract provides many benefits and features that you do not
get with a regular mutual fund. It costs us money to provide these benefits,
so there are charges in connection with the contract. If you withdraw your
money within seven years of investing it, there may be a withdrawal charge of
up to 6% of the amount invested. Once each contract year we deduct an account
fee of no more than $30 (there is no fee if your account value is over
$50,000). Insurance and administrative charges of 1.40% per year are charged
against your average daily value in the variable account and a $10 fee for
transfers over 18 in one year. If you elect the guaranteed minimum income
benefit rider, then there is an annual fee during the accumulation phase of
0.30% of the minimum annuitization value. If you annuitize under the rider and
choose the guaranteed minimum payment option, then there is a guaranteed
minimum payment fee at an annual rate of 1.25% of the daily net asset value in
the separate account. Advisory fees are also deducted by the portfolios'
managers, and the portfolios pay other expenses which, in total, vary from 0.
26% to 4.67% per year of the amounts in the portfolios. Finally, there might
be premium taxes ranging from 0 to 3.5% of your investment and/or on amounts
you use to purchase annuity benefits (depending on your state's law).
The following chart shows these charges (except for the optional Guaranteed
Minimum Income Benefit Rider fee, transfer fees and premium taxes). The $30
annual account fee is not included in the first column because the fee is
waived for account values over $50,000 and the approximate average account
value is over $50,000. The third column is the sum of the first two. The
examples in the last two columns show the total amounts you would be charged,
in dollars, if you invested $1,000, the investment grew 5% each year, and you
withdrew your entire investment after one year or ten years. Year one includes
the withdrawal charge and year ten does not.
EXAMPLES:
<TABLE>
<CAPTION>
Annual Annual Total Total Expenses Total Expenses
Portfolio/ Insurance Portfolio Annual at end of at end of
Sub-Account Charges Charges Charges One Year Ten Years
- ----------- --------- --------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Money Market 1.40% 0.56% 1.96% $71 $229
Special Value 1.40% 0.83% 2.23% $74 $256
Zero Coupon 2000 1.40% 0.59% 1.99% $71 $232
Quality Bond 1.40% 0.73% 2.13% $73 $246
Small Cap 1.40% 0.77% 2.17% $73 $250
Capital Appreciation 1.40% 0.81% 2.21% $73 $254
Stock Index 1.40% 0.26% 1.66% $68 $197
Socially Responsible 1.40% 0.80% 2.20% $73 $253
Growth and Income 1.40% 0.78% 2.18% $73 $251
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Annual Annual Total Total Expenses Total Expenses
Portfolio/ Insurance Portfolio Annual at end of at end of
Sub-Account Charges Charges Charges One Year Ten Years
- ----------- --------- --------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C>
International Equity 1.40% 0.99% 2.39% $ 75 $273
International Value 1.40% 1.29% 2.69% $ 78 $302
Disciplined Stock 1.40% 0.88% 2.28% $ 74 $262
Small Company 1.40% 0.98% 2.38% $ 75 $272
Balanced 1.40% 0.87% 2.27% $ 74 $261
Limited Term High Income 1.40% 1.09% 2.49% $ 76 $283
Transamerica Growth 1.40% 0.96% 2.36% $ 75 $270
CoreValue 1.40% 2.10% 3.50% $ 86 $377
MidCap Stock 1.40% 1.89% 3.29% $ 84 $359
Founders Growth 1.40% 2.20% 3.60% $ 87 $386
Founders Passport 1.40% 2.67% 4.07% $ 92 $426
European Equity 1.40% 1.25% 2.65% $ 78 $298
Technology Growth 1.40% 1.00% 2.40% $ 75 $274
Founders International
Equity 1.40% 4.67% 6.07% $111 $575
</TABLE>
Expense information regarding the portfolios has been provided by the funds.
We have no reason to doubt the accuracy of the information, but have not
verified those figures. In preparing the table above, we have relied on the
figures provided by the funds. These figures are for the year ended December
31, 1998, except that the figures for the European Equity and Technology
Growth Portfolios are estimates for the 1999 fiscal year. Actual expenses in
future years may be higher or lower than the figures given above.
6. Federal Income Taxes. Individuals generally are not taxed on increases in
the contract value until a distribution occurs (e.g., a withdrawal or annuity
payment) or is deemed to occur (e.g., a pledge, loan, or assignment of the
contract). If you withdraw money, earnings come out first and are taxed.
Generally, some portion (sometimes all) of any distribution or deemed
distribution is taxable as ordinary income. In some cases, income taxes will
be withheld from distributions. If you are under age 59 1/2 when you withdraw
money, an additional 10% federal tax penalty may apply on the withdrawn
earnings. Certain owners that are not individuals may be currently taxed on
increases in the contract, whether distributed or not.
7. Access to Your Money. You can generally take money out at any time during
the accumulation phase. A withdrawal charge of up to 6% of a purchase payment
may be assessed by us, but no withdrawal charge will be assessed on money that
has been in the contract for seven years. In certain cases, the withdrawal
charge may be waived if you are in a hospital or nursing home for a long
period or, in some states, if you are diagnosed with a terminal illness. After
the first contract year, you may withdraw the greater of accumulated earnings
or 15% of purchase payments received at least one but less than seven years
ago. Additionally, at any time you can withdraw accumulated earnings on your
purchase payments not previously withdrawn without a withdrawal charge.
You may have to pay income taxes on amounts you withdraw and there may also be
a 10% tax penalty if you make withdrawals before you are 59 1/2 years old.
If you withdraw money from the fixed account option prematurely, you will
generally forfeit some of the interest that you earned, but you will always
receive the principal you invested plus 3% interest.
8. Past Investment Performance. The value of the money you allocate to the
sub-account(s) will go up or down, depending on the investment performance of
the portfolios you pick. The following chart shows the past investment
performance on a year by year basis for each sub-account. These figures have
already been reduced by the insurance charges, the account fee, the fund
manager's fee and all the expenses of the mutual fund
3
<PAGE>
portfolio, but these figures do not include the withdrawal charge, which would
reduce performance if it applied. Remember, past performance is no guarantee
of future performance or earnings.
CALENDAR YEAR
<TABLE>
<CAPTION>
Portfolio/
Sub-Account 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ----------- ------ ------ ------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market(/1/) 3.59% 3.66% 3.53% 4.21% 3.00% 1.86% 2.71% 4.54% N/A
Special Value(/1/) 14.02% 21.36% (5.67%) (0.48%) (3.48%) 26.74% (0.41%) 8.99% N/A
Zero Coupon 2000(/1/) 5.71% 5.45% 1.10% 16.35% (5.41%) 13.52% 7.29% 17.14% 6.28%
Quality Bond(/1/) 3.96% 7.83% 1.63% 18.91% (6.17%) 13.66% 10.45% 12.47% N/A
Small Cap(/1/) (4.86%) 15.06% 15.06% 28.84% 4.95% 65.77% 68.98% 156.07% N/A
Capital
Appreciation(/2/) 28.34% 26.21% 22.71% 32.82% 1.45% N/A N/A N/A N/A
Stock Index(/1/) 26.37% 31.05% 19.80% 35.92% (0.60%) 7.75% 5.55% 27.98% (6.52%)
Socially
Responsible(/3/) 27.52% 26.59% 19.00% 33.67% (0.08%) N/A N/A N/A N/A
Growth and Income(/4/) 10.19% 14.53% 18.63% 59.58% N/A N/A N/A N/A N/A
International
Equity(/4/) 2.97% 8.02% 9.82% 6.62% N/A N/A N/A N/A N/A
International Value(/5/) 7.16% 7.13% N/A N/A N/A N/A N/A N/A N/A
Disciplined Stock(/5/) 24.90% 29.62% N/A N/A N/A N/A N/A N/A N/A
Small Company Stock(/5/) (7.35%) 20.01% N/A N/A N/A N/A N/A N/A N/A
Balanced(/6/) 20.57% N/A N/A N/A N/A N/A N/A N/A N/A
Limited Term High
Income(/6/) (1.17%) N/A N/A N/A N/A N/A N/A N/A N/A
Transamerica Growth(/7/) N/A N/A N/A N/A N/A N/A N/A N/A N/A
Core Value(/7/) N/A N/A N/A N/A N/A N/A N/A N/A N/A
MidCap Stock(/7/) N/A N/A N/A N/A N/A N/A N/A N/A N/A
Founders Passport(/8/) N/A N/A N/A N/A N/A N/A N/A N/A N/A
Founders Growth(/8/) N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Sub-Account (4) Sub-Account (7) Sub-Account
Inception 1-4-93 Inception 12-15-94 Inception 5-1-98
(2) Sub-Account (5) Sub-Account (8) Sub-Account
Inception 4-5-93 Inception 5-1-96 Inception 5-1-99
(3) Sub-Account (6) Sub-Account
Inception 10-7-93 Inception 5-1-97
Data is for full years only. The Transamerica Growth, Core Value and MidCap
Stock sub-accounts were not in operation for all of 1998, and the Technology
Growth, European Equity, Founders Growth, Founders Passport and Founders
International Equity sub-accounts began operations in 1999, therefore no
performance is reported for these sub-accounts.
9. Death Benefit. If you or the annuitant die during the accumulation phase,
the beneficiary is guaranteed by us to receive a death benefit of at least the
amount you invested (less any amounts you have already withdrawn), even if
your investment has lost money because of the investment performance of the
portfolios you picked.
The death benefit will be the greatest of: (1) the account value; (2) an
annual step-up death benefit, which is the highest account value on the date
you purchase your policy or any anniversary prior to the date you, your joint
owner, or the annuitant reaches age 86 (adjusted for additional investments
and any adjusted partial withdrawals since that anniversary less premium taxes
applicable to those withdrawals); or (3) your investments, less adjusted
partial withdrawals and any premium taxes applicable to those withdrawals,
compounded at 5% annual effective interest (the 5% interest stops on the
contract anniversary prior to the date that you, your joint owner, or the
annuitant reaches age 86, or when it has doubled the amount of your
investment, whichever is earlier or, at the death of any owner or annuitant).
4
<PAGE>
10. Other Information. The contract offers other features you might be
interested in. These features may not be available in all states and may not
be suitable for your particular situation. Some of these features include:
FREE LOOK. After you get your contract, you have ten days to look it over and
decide if it is really right for you (this period may be longer in certain
states). If you decide not to keep the contract, you can cancel it during this
period, and you will get back your account value (without any withdrawal
charges). Certain laws may require that if you cancel during this period, you
are entitled to get back the greater of your full investment or the account
value.
TELEPHONE TRANSFERS. You can generally arrange to transfer money between the
investments in your contract by telephone.
DOLLAR COST AVERAGING. You can instruct us to automatically transfer amounts
from the purchase payments you allocated to the Money Market, Limited Term
High Income or Quality Bond sub-accounts, or possibly from another sub-account
or a guarantee period of the fixed account, to any of the other sub-accounts
each month. Dollar Cost Averaging is intended to give you a lower average cost
per share or unit than a single, one time investment, but it does not assure a
profit or protect against loss and is intended to continue for some time.
AUTOMATIC ASSET REBALANCING. The performance of each sub-account may cause the
allocation of value among the sub-accounts to change. You may instruct us to
periodically automatically rebalance the amounts in the sub-accounts by
reallocating amounts among them.
SYSTEMATIC WITHDRAWAL OPTION. You can arrange to have us send you money
automatically each month out of your contract during the accumulation phase.
There are limits on the amounts, but the withdrawal charge will not apply (the
payments may be taxable and subject to the penalty tax if you are under age 59
1/2).
AUTOMATIC PAYOUT OPTION. If you have certain qualified contracts (for example:
a non-Roth IRA), you can arrange to have the minimum distributions required by
the IRS to be automatically paid to you.
GUARANTEED MINIMUM INCOME BENEFIT RIDER. If you elect this optional rider, you
will be guaranteed a minimum annuitization value and the option of electing
guaranteed minimum annuity payments (if you annuitize with the minimum
annuitization value and the payment options in the rider).
11. INQUIRIES. You can get more information and have your questions answered
by writing or calling:
Transamerica Annuity Service Center
P.O. Box 31848
Charlotte, North Carolina 28231-1848
800-258-4260
5
<PAGE>
PROSPECTUS FOR THE
Dreyfus/Transamerica Triple Advantage(R) Variable Annuity
A Flexible Purchase Payment Deferred Variable Annuity
Issued By
Transamerica Occidental Life Insurance Company
Offering 23 Sub-Accounts within the Variable Account
Designated as Separate Account VA-2L
In Addition to:
A Fixed Account
. This prospectus contains
information you should know
before investing. Variable Account Options
. Please keep this prospectus for Money Market
future reference. Special Value
Zero Coupon 2000
. You can obtain more information Quality Bond
about the contract by Small Cap
requesting a copy of the Capital Appreciation
Statement of Additional Growth and Income
Information or SAI dated International Equity
February 7, 2000. The SAI is International Value
available free by writing to Disciplined Stock
Transamerica Occidental Life Small Company Stock
Insurance Company, Annuity Balanced
Service Center, P.O. Box 31848, Limited Term High Income
Charlotte, NC 28231-1848 or by Core Value
calling 800-258-4260. MidCap Stock
Founders Growth
The current SAI has been filed Founders Passport
with the Securities and Dreyfus Stock Index Fund
Exchange Commission and is The Dreyfus Socially Responsible Growth
incorporated by reference into Fund, Inc.
this prospectus. The table of European Equity
contents of the SAI is included Technology Growth
on page 56 of this prospectus. Founders International Equity
Growth Portfolio of Transamerica Variable
. The SEC's web site is Insurance Fund, Inc.
http://www.sec.gov
. Transamerica's web site is
http://www.transamerica.com
Neither the SEC nor any state securities commission has approved this
investment offering or determined that this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
February 7, 2000
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
SUMMARY................................................................... 4
PERFORMANCE DATA.......................................................... 13
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT... 16
Transamerica Occidental Life Insurance Company........................... 16
Published Ratings........................................................ 16
Insurance Marketplace Standards Association.............................. 16
The Variable Account..................................................... 16
THE FUNDS................................................................. 17
Service Providers to The Funds........................................... 17
Variable Account Objectives.............................................. 22
Portfolios Not Publically Available...................................... 22
Resolution of Possible Conflicts......................................... 22
Sources of Additional Information........................................ 22
Addition, Deletion or Substitution....................................... 22
The Establishment of New Sub-Accounts.................................... 23
THE FIXED ACCOUNT......................................................... 23
The Interest Rate of the Fixed Account................................... 23
Guarantee Periods........................................................ 24
Interest Adjustment...................................................... 24
Expiration of Guarantee Period........................................... 24
THE GUARANTEED MINIMUM INCOME BENEFIT..................................... 25
Minimum Annuitization Value.............................................. 25
Minimum Annuitization Value Upgrade...................................... 26
Conditions of Exercise of the GMIB....................................... 26
Guaranteed Minimum Payment Option........................................ 26
GMIB Rider Fee........................................................... 26
Guaranteed Minimum Payment Fee........................................... 26
Termination of the GMIB Rider............................................ 27
THE CONTRACT.............................................................. 27
CONTRACT APPLICATION AND PURCHASE PAYMENTS................................ 27
Purchase Payments........................................................ 27
Ten Day Cancellation Option.............................................. 28
Choosing One or More Investment Options.................................. 28
Investment Option Limit.................................................. 28
ACCOUNT VALUE............................................................. 29
How Your Variable Accumulation Units Are Created......................... 29
How Variable Accumulation Unit Values Are Calculated..................... 29
Transferring Amoung Sub-Accounts......................................... 30
TRANSFERS................................................................. 30
Before the Annuity Date.................................................. 30
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Telephone Transfers....................................................... 30
Possible Restrictions..................................................... 31
Dollar Cost Averaging..................................................... 31
Special Dollar Cost Averaging Option...................................... 31
Automatic Asset Rebalancing............................................... 32
After the Annuity Date.................................................... 32
CASH WITHDRAWALS........................................................... 32
Withdrawals............................................................... 32
Fees and Taxes Relating to Withdrawals or Surrenders...................... 33
Additional Withdrawal and Surrender Provisions............................ 33
Systematic Withdrawal Option.............................................. 34
Egilibality and Rules of the Systematic Withdrawal Option................. 34
Automatic Payout Option................................................... 34
DEATH BENEFIT.............................................................. 34
Guaranteed Minimum Death Benefit.......................................... 35
Adjusted Partial Withdrawals.............................................. 35
Payment of Death Benefit.................................................. 35
Designation of Beneficiaries.............................................. 36
Death of Annuitant Before the Annuity Date................................ 36
Death of Owner Before the Annuity Date.................................... 36
Death of Annuitant or Owner After the Annuity Date........................ 36
CHARGES AND DEDUCTIONS..................................................... 36
Contingent Deferred Sales Load/Surrender Charge........................... 37
Administrative Charges.................................................... 38
Mortality and Expense Risk Charge......................................... 39
Premium Taxes............................................................. 39
Transfer Fee.............................................................. 39
Systematic Withdrawal Option.............................................. 40
Automatic Asset Rebalancing Option........................................ 40
Taxes..................................................................... 40
Portfolio Expenses........................................................ 40
Guaranteed Minimum Income Benefit Rider................................... 40
Interest Adjustment....................................................... 40
Sales in Special Situations............................................... 40
DISTRIBUTION OF THE CONTRACT............................................... 41
ANNUITY PAYMENTS........................................................... 41
Annuity Date.............................................................. 41
Annuity Payment........................................................... 42
Election of Annuity Forms and Payment Options............................. 42
Annuity Payment Options................................................... 42
Fixed Annuity Payment Option.............................................. 42
Variable Annuity Payment Option........................................... 43
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued) Page
<S> <C>
Annuity Forms............................................................ 43
Alternate Fixed Annuity Rates ........................................... 44
Qualified Contracts...................................................... 44
Automatic Payout Option ................................................. 45
Restrictions under Section 403(b) Programs............................... 46
FEDERAL TAX MATTERS....................................................... 46
Introduction............................................................. 46
Purchase Payments........................................................ 46
Taxation of Annuities In General ........................................ 47
Withdrawals.............................................................. 47
Annuity Payments......................................................... 47
Withholding.............................................................. 48
Penalty Tax.............................................................. 48
Taxation of Death Benefit Proceeds ...................................... 48
Required Distributions upon Owner's Death ............................... 48
Transfers, Assignments, or Exchanges of the Contract..................... 49
Multiple Policies........................................................ 49
Qualified Contracts...................................................... 50
In General............................................................... 50
Qualified Pension and Profit Sharing Plans............................... 50
Individual Retirement Annuities, Simplified Employee Plans and Roth
IRAs.................................................................... 50
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Tax Sheltered Annuities................................................... 51
Restrictions Under Qualified Policies..................................... 52
Possible Changes in Taxation.............................................. 52
Other Tax Consequences.................................................... 52
LEGAL PROCEEDINGS.......................................................... 52
LEGAL MATTERS.............................................................. 52
ACCOUNTANTS AND FINANCIAL STATEMENTS....................................... 52
VOTING RIGHTS.............................................................. 52
AVAILABLE INFORMATION...................................................... 53
STATEMENT OF ADDITIONAL INFORMATION--Table of Contents..................... 54
APPENDIX A................................................................. 55
Example of Variable Accumulation Unit Value Calculations.................. 55
Example of Variable Annuity Unit Value Calculations....................... 55
Example of Variable Annuity Payment Calculations.......................... 55
APPENDIX B................................................................. 56
Condensed Financial Information........................................... 56
APPENDIX C................................................................. 61
Definitions............................................................... 61
APPENDIX D................................................................. 64
Disclosure Statement for Individual Retirement Annuities.................. 64
</TABLE>
3
<PAGE>
SUMMARY
You will find a list of definitions of the terms used in this prospectus in
Appendix B.
The Contract
We designed the flexible premium deferred variable annuity, the contract
described in this prospectus, to aid individuals in long-term financial
planning for retirement or other purposes. You may use the contract:
. with non-qualified plans;
. as an individual retirement annuity that qualifies for special tax
treatment under Code Section 408 and whose initial purchase payment is a
rollover or transfer from a qualified retirement plan receiving special tax
treatment under Code Sections 401(a), 403(b) and 408, a rollover IRA; or
. as an individual retirement annuity that qualifies for special tax
treatment under Code Section 408A and whose initial purchase payment is a
rollover, transfer or conversion from other individual retirement plans
issued under Sections 408 or 408A of the Code, a rollover Roth IRA.
Additionally, with Transamerica's prior approval, you may use the contract:
. as an IRA or Roth IRA whose initial purchase payment is limited to the
contribution limitations of the Code with respect to contributory IRAs or
contributory Roth IRAs under Code Sections 408 or 408A;
. as an annuity under Code Section 403(b); and
. with various types of qualified pension and profit-sharing plans under Code
Section 401(a).
Variable Account Fee Table
The purpose of the following table is to help you understand the various costs
and expenses that you, as the owner will bear directly and indirectly. The
table reflects expenses of the variable account as well as of the portfolios.
The table assumes that the entire account value is in the variable account and
that the contract is owned during the accumulation period. Different fees may
apply after the annuity date including the guaranteed minimum payment option
fee applicable after annuitization under the payment options in the Guaranteed
Minimum Income Benefit Rider. The information set forth should be considered
together with the narrative provided under the heading Charges and Deductions
in prospectus, and with the funds' prospectuses. In addition to the expenses
listed below, premium taxes may be applicable.
- -------------------------------------------------------------------------------
Contract Transaction Expenses(/1/)
Sales Charge Imposed on Purchase Payments 0
Maximum Contingent Deferred Sales Load(/2/) 6%
Range of Contingent Deferred Sales Load Over Time
<TABLE>
<CAPTION>
Contract Years Contingent Deferred Sales
Since Load (as a % of purchase
Premiums Receipt payments surrendered)
<S> <C>
Less than 2 years 6%
2 years but less
than 4 years 5%
4 years but less
than 6 years 4%
6 years but less
than 7 years 2%
7 or more 0%
</TABLE>
4
<PAGE>
Other Contract Expenses
<TABLE>
<S> <C>
Transfer Fee(/3/) -- currently 0
(first 18 per year are free;
maximum charge thereafter $10 per
transfer.)
Systematic Withdrawal Fee 0
Contract Fee(/4/) -- currently $30
(maximum charge $60)
Guaranteed Minimum Income Benefit
Rider Fee (optional)(/5/) --
currently 0.30% (of the minimum
(maximum charge 0.50%) annuitization value)
</TABLE>
Variable Account Annual Expenses(/1/)
<TABLE>
<S> <C>
Mortality and Expense Risk Charges 1.25%
Administrative Expense Charge(/6/) --
currently 0.15%
(maximum charge 0.25%)
Other Fees and Expenses of the
Variable Account 0.00%
Total Variable Account Annual Expenses 1.40%
</TABLE>
Portfolio Annual Expenses
(as a percentage of assets after fee waiver and/or expense reimbursement)(/7/)
<TABLE>
<CAPTION>
Management Other Total Portfolio
Portfolios Fee Expenses Annual Expense
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Money Market 0.50% 0.06% 0.56%
- -----------------------------------------------------------------------
Special Value 0.75% 0.08% 0.83%
- -----------------------------------------------------------------------
Zero Coupon 2000 0.45% 0.14% 0.59%
- -----------------------------------------------------------------------
Quality Bond 0.65% 0.08% 0.73%
- -----------------------------------------------------------------------
Small Cap 0.75% 0.02% 0.77%
- -----------------------------------------------------------------------
Capital Appreciation 0.75% 0.06% 0.81%
- -----------------------------------------------------------------------
Stock Index Fund 0.25% 0.01% 0.26%
- -----------------------------------------------------------------------
Socially Responsible Growth Fund 0.75% 0.05% 0.80%
- -----------------------------------------------------------------------
Growth and Income 0.75% 0.03% 0.78%
- -----------------------------------------------------------------------
International Equity 0.75% 0.24% 0.99%
- -----------------------------------------------------------------------
International Value 1.00% 0.29% 1.29%
- -----------------------------------------------------------------------
Disciplined Stock 0.75% 0.13% 0.88%
- -----------------------------------------------------------------------
Small Company Stock 0.75% 0.23% 0.98%
- -----------------------------------------------------------------------
Balanced 0.75% 0.12% 0.87%
- -----------------------------------------------------------------------
Limited Term High Income 0.65% 0.44% 1.09%
- -----------------------------------------------------------------------
Transamerica Growth 0.64% 0.21% 0.85%
- -----------------------------------------------------------------------
Core Value 0.75% 0.25% 1.00%
- -----------------------------------------------------------------------
MidCap Stock 0.75% 0.25% 1.00%
- -----------------------------------------------------------------------
Founders Growth 0.75% 0.25% 1.00%
- -----------------------------------------------------------------------
Founders Passport 1.00% 0.50% 1.50%
- -----------------------------------------------------------------------
European Equity 1.00% 0.25% 1.25%
- -----------------------------------------------------------------------
Technology Growth 0.75% 0.25% 1.00%
- -----------------------------------------------------------------------
Founders International Equity 1.00% 0.50% 1.50%
</TABLE>
Expense information regarding the portfolios has been provided by the funds.
We have no reason to doubt the accuracy of the information, but have not
verified those figures. In preparing the table above and the examples that
follow, we have relied on the figures provided by the funds. These figures are
for the year ended December 31, 1998. Actual expenses in future years may be
higher or lower than the figures given above.
5
<PAGE>
Notes to Fee Table:
1. The contract transaction expenses apply to each contract, regardless of how
the contract value is allocated between the variable account and the fixed
account. The variable account annual expenses do not apply to the fixed
account.
2. You may withdraw a portion of the purchase payments each year after the
first contract year without any contingent deferred sales load, or CDSL.
After we have held a premium for seven contract years, you may withdraw the
remaining premium payments without any contingent deferred sales load. You
may always withdraw accumulated earnings without a CDSL.
3. We reserve the right to charge a transfer fee equal to the lesser of $10 or
2% of the amount transferred for each transfer in excess of 18 in a
contract year. We may also charge a fee of up to $25 per year if you elect
the systematic withdrawal option.
4. The current annual certificate fee per contract year is the lesser of $30
or 2% of the contract value. We may change the fee annually, but it will
not exceed the lesser of $60, or 2% of the contract value.
5. The annual fee for the optional Guaranteed Minimum Income Benefit Rider is
currently 0.30% of the minimum annuitization value on each rider
anniversary and is deducted on the rider anniversary. A proportional amount
of this rider fee is also deducted upon a complete withdrawal. We may
change the rate of this fee in the future at our discretion, but the rate
will never be greater than 0.50% per year. If you annuitize under the
Guaranteed Minimum Income Benefit Rider and select the guaranteed minimum
payment option at the time of annuitization, a guaranteed minimum payment
option fee will be charged. This fee is reflected in the amount of the
variable payments payable under this option. The guaranteed minimum payment
option fee is currently 1.25% of the daily net asset value in the variable
investment options. We may at our discretion change the rate in the future,
but the rate will never be greater than 2.25%. Once the Guaranteed Minimum
Income Benefit Rider is added to your policy, neither the rider fee nor the
guaranteed minimum payment option fee that is in effect at that time will
change during the life of that Guaranteed Minimum Income Benefit Rider.
6. The current annual administrative expense charge is 0.15%. We may increase
it to 0.25%.
7. From time to time, each portfolio's investment adviser, in its sole
discretion, may waive all or part of its fees and/or voluntarily assume
certain portfolio expenses. The expenses shown in the above portfolio
annual expenses table reflect the portfolio's adviser's waiver of fees or
reimbursement of expenses, if applicable, for calendar year 1998. Without
such waivers or reimbursements, the management fee, other expenses and
total portfolio annual expenses for 1998 would have been, as a percentage
of assets, 0.75%, 0.21% and 0.96% for Transamerica Growth Fund; 0.75%,
1.35% and 2.10% for Core Value; 0.75%, 1.14% and 1.89% for MidCap Stock;
0.75%, 1.45% and 2.20% for Founders Growth; 1.00%, 1.67% and 2.67% for
Founders Passport and 1.00%, 3.67% and 4.67% for Founders International
Equity Portfolios. The figures in the table for the European Equity and
Technology Growth Portfolios are estimates for the 1999 fiscal year.
6
<PAGE>
Examples*
The following tables show the total expenses an owner would incur in various
situations. These examples assume an average account value of $50,000 and,
therefore, no deduction has been made to reflect the $30 account fee. The
examples assume that the entire account value is allocated to the variable
account.
These examples all assume that no transfer fees, systematic withdrawal fee or
premium tax have been assessed. Premium taxes may be applicable. See Premium
Taxes.
These examples show expenses without reflecting fee waivers and reimbursements
for 1998.
These examples do not reflect the fee for the optional Guaranteed Minimum
Income Benefit Rider.
Example 1
If you surrender the certificate at the end of the applicable time period, you
would pay the following expenses on a $1,000 initial premium assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
Variable Sub-Accounts 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market.................................... $ 71 $104 $140 $229
Special Value................................... $ 74 $112 $153 $256
Zero Coupon 2000................................ $ 71 $105 $141 $232
Quality Bond.................................... $ 73 $109 $148 $246
Small Capital................................... $ 73 $110 $150 $250
Capital Appreciation............................ $ 73 $112 $152 $254
Stock Index..................................... $ 68 $ 95 $124 $197
Socially Responsible Growth..................... $ 73 $111 $152 $253
Growth and Income............................... $ 73 $111 $151 $251
International Equity............................ $ 75 $117 $162 $273
International Value............................. $ 78 $126 $176 $302
Disciplined Stock............................... $ 74 $114 $156 $262
Small Company Stock............................. $ 75 $117 $161 $272
Balanced Fund................................... $ 74 $113 $156 $261
Limited Term High Income........................ $ 76 $120 $167 $283
Transamerica Growth Fund........................ $ 75 $116 $160 $270
Core Value...................................... $ 86 $150 $216 $377
MidCap Stock.................................... $ 84 $144 $206 $359
Founders Growth................................. $ 87 $153 $220 $386
Founders Passport............................... $ 92 $166 $242 $426
European Equity................................. $ 78 $125 $175 $298
Technology Growth............................... $ 75 $117 $162 $274
Founders International Equity................... $111 $222 $329 $575
</TABLE>
7
<PAGE>
Example 2
If you do not surrender and you do not annuitize the certificate, you would
pay the following expenses on a $1,000 initial premium assuming a 5% annual
return on assets:
<TABLE>
<CAPTION>
Variable Sub-Accounts 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market.................................... $20 $ 62 $106 $229
Special Value................................... $23 $ 70 $119 $256
Zero Coupon 2000................................ $20 $ 62 $107 $232
Quality Bond.................................... $22 $ 67 $114 $246
Small Capital................................... $22 $ 68 $116 $250
Capital Appreciation............................ $22 $ 69 $118 $254
Stock Index..................................... $17 $ 52 $ 90 $197
Socially Responsible Growth..................... $22 $ 69 $118 $253
Growth and Income............................... $22 $ 68 $117 $251
International Equity............................ $24 $ 75 $128 $273
International Value............................. $27 $ 84 $142 $302
Disciplined Stock............................... $23 $ 71 $122 $262
Small Company Stock............................. $24 $ 74 $127 $272
Balanced Fund................................... $23 $ 71 $122 $261
Limited Term High Income........................ $25 $ 78 $133 $283
Transamerica Growth Fund........................ $24 $ 74 $126 $270
Core Value...................................... $35 $107 $182 $377
MidCap Stock.................................... $33 $101 $172 $359
Founders Growth................................. $36 $110 $186 $386
Founders Passport............................... $41 $124 $208 $426
European Equity................................. $27 $ 82 $141 $298
Technology Growth............................... $24 $ 75 $128 $274
Founders International Equity................... $60 $179 $295 $575
</TABLE>
Example 3
If you elect to annuitize at the end of the applicable period under an annuity
form with life contingencies,** you would pay the following expenses on a
$1,000 initial premium assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
Variable Sub-Accounts 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market.................................... $ 71 $ 62 $106 $229
Special Value................................... $ 74 $ 70 $119 $256
Zero Coupon 2000................................ $ 71 $ 62 $107 $232
Quality Bond.................................... $ 73 $ 67 $114 $246
Small Capital................................... $ 73 $ 68 $116 $250
Capital Appreciation............................ $ 73 $ 69 $118 $254
Stock Index..................................... $ 68 $ 52 $ 90 $197
Socially Responsible. Growth.................... $ 73 $ 69 $118 $253
Growth and Income............................... $ 73 $ 68 $117 $251
International Equity............................ $ 75 $ 75 $128 $273
International Value............................. $ 78 $ 84 $142 $302
Disciplined Stock............................... $ 74 $ 71 $122 $262
Small Company Stock............................. $ 75 $ 74 $127 $272
Balanced Fund................................... $ 74 $ 71 $122 $261
Limited Term High Income........................ $ 76 $ 78 $133 $283
Transamerica Growth Fund........................ $ 75 $ 74 $126 $270
Core Value...................................... $ 86 $107 $182 $377
MidCap Stock.................................... $ 84 $101 $172 $359
Founders Growth................................. $ 87 $110 $186 $386
Founders Passport............................... $ 92 $124 $208 $426
European Equity................................. $ 78 $ 82 $141 $298
Technology Growth............................... $ 75 $ 75 $128 $274
Founders International Equity................... $111 $179 $295 $575
</TABLE>
* In preparing the examples above, we have relied on the data provided by the
funds. We have no reason to doubt the accuracy of that information. However,
we have not verified those figures.
** For annuitization under a form that does not include life contingencies, a
contingent deferred sales load may apply.
8
<PAGE>
You should not consider these examples to represent past or future expenses.
Actual expenses paid may be greater or less than those shown, subject to the
guarantees in the certificate. The assumed 5% annual return is only
hypothetical. It is not a representation of past or future returns. Actual
returns could be greater or less than this assumed rate.
- -------------------------------------------------------------------------------
Condensed Financial Information
You will find condensed financial information on each sub-account in Appendix
C. You will find the full financial statements and reports of independent
auditors for the variable account in the Statement of Additional Information.
The Issuer
The contract is issued by Transamerica Occidental Life Insurance Company,
Transamerica, a stock life insurance company incorporate under the Laws of
California on June 30, 1906. Transamerica is a wholly-owned subsidiary of
Transamerica Insurance Corporation of California, which in turn is a direct
subsidiary of Transamerica Corporation. Our principal office is at 1150 South
Olive Street, Los Angeles, California 90015, telephone 213-742-2111.
On July 21, 1999, Transamerica Corporation merged with AEGON N.V., one of the
world's leading international insurance groups.
We will issue the contract as a certificate under a group annuity contract in
some states and as an individual annuity contract in other states. This
contract is not available in all states.
This prospectus does not offer the sub-accounts or the fixed account in any
jurisdiction where they are not allowed to be sold. We do not authorize any
dealer, salesperson or other person to give information or make
representations not contained in this prospectus. You should not rely on any
information or representation that is not in this prospectus.
Account Value
We will establish and maintain an account for each individual annuity contract
and for each certificate issued under a group contract. You, as owner, will
receive either an individual annuity contract, or a certificate evidencing
your coverage under a group annuity contract.
Before the annuity date, the account value will depend on the investment
experience of each sub-account of the variable account you select. This does
not apply to the fixed account. All payments and values provided under the
contract when based on the investment experience of the variable account are
variable and are not guaranteed as to dollar amount. Therefore, before the
annuity date you, as the owner, bear the entire investment risk for amounts
you allocate to the variable account.
There is no guaranteed or minimum cash surrender value, so the proceeds of a
surrender could be less than the total purchase payments.
Initial Purchase Payment
The initial purchase payment for each contract must generally be at least
$5,000. We will waive this minimum if the contract is sold as a qualified
contract to certain retirement plans. Generally, each additional purchase
payment must be at least $500. We will waive this minimum if you select an
automatic payment plan. In no event, however, may the total of all purchase
payments under a contract exceed $1,000,000 without our prior approval. The
minimum net purchase payment that you may allocate to a sub-account with no
current allocations is $500. The minimum amount that you can allocate to a new
guarantee period is $1,000. See Contract Application and Purchase Payments.
The Variable Account
The variable account is a separate account, designated as Separate Account VA-
2L, divided into sub-accounts. Assets of each sub-account are invested in a
specified mutual fund portfolio. Each sub-account uses its assets to purchase,
at their net asset value, shares of a specific series or portfolio of the
following funds:
. Dreyfus Variable Investment Fund;
. Dreyfus Investment Portfolios;
. Growth Portfolio of Transamerica Variable Insurance Fund, Inc.;
. Dreyfus Stock Index Fund; or
. The Dreyfus Socially Responsible Growth Fund, Inc.
9
<PAGE>
The Sub-Accounts
The following 23 sub-accounts are currently available for investment in the
variable account:
. Money Market
. Special Value
. Zero Coupon 2000
. Quality Bond
. Small Cap
. Capital Appreciation
. Stock Index
. Socially Responsible Growth
. Growth and Income
. International Equity
. International Value
. Disciplined Stock
. Small Company Stock
. Balanced
. Limited Term High Income
. Transamerica Growth
. Core Value
. MidCap Stock
. Founders Growth
. Founders Passport
. European Equity
. Technology Growth
. Founders International Equity
Each portfolio has distinct investment objectives and policies. These are
described in the accompanying prospectuses for the funds. The funds pay their
investment adviser and administrators certain fees charged against the assets
of each portfolio. The account value, if any, and the amount of any variable
annuity payments will vary to reflect the investment performance of all of the
sub-accounts you select and the deduction of the charges. See Charges and
Deductions.
Each portfolio has distinct investment objectives and policies, which are
described in the accompanying prospectuses for the funds. See Charges and
Deductions. For more information about the funds see The Funds and the
accompanying funds' prospectuses.
The Fixed Account
Each amount you initially allocate or transfer to the fixed account will
establish a new guarantee period. Each guarantee period will have its own
guaranteed interest rate with its own expiration date. The minimum interest
rate will be 3% per year. You must allocate at least $1,000 to a new guarantee
period. If you withdraw or transfer amounts from a guarantee period before its
expiration date, you will generally be subject to an interest adjustment. This
will reduce the interest credited to the amount withdrawn to 3%, which is the
minimum annual rate.
Investment Option Limit
Currently, you may not elect more than a total of eighteen investment options
over the life of the contract. Investment options include each sub-account of
the variable account and each guaranteed period of the fixed account.
Transfers Before the Annuity Date
Before the annuity date, you may make transfers among the sub-accounts and the
guarantee periods of the fixed account. A "transfer" is the reallocation of
amounts between the guaranteed periods of the fixed account and the sub-
accounts, among the guarantee periods of the fixed account, and among sub-
accounts.
We charge a fee equal to the lesser of $10 or 2% of the transfer amount for
each transfer in excess of 18 per contract year. Transfers under certain
programs, such as Dollar Cost Averaging, will not count towards the 18 free
transfers per contract year. If you transfer amounts from a guarantee period
before its expiration date, it will generally be subject to an interest
adjustment. This will reduce the interest credited to 3%, the minimum annual
rate.
Withdrawals
You may withdraw all or part of the cash surrender value on or before the
annuity date. However, amounts you withdraw may be subject to a contingent
10
<PAGE>
deferred sales load, depending on how long the withdrawn purchase payments
have been held under the contract. Amounts you withdraw may be subject to a
premium tax or similar tax, depending upon the state in which the you live.
Withdrawals may further be subject to any federal, state or local income tax,
and a penalty tax. Withdrawals from qualified contracts may be subject to
severe restrictions. Except for IRAs and Roth IRAs, qualified contracts are
sold only with our prior approval. We will generally deduct the annual account
fee on a full surrender of a contract. We will allow only one, and in some
states no, partial withdrawal while the systematic withdrawal option is in
effect. If you transfer amounts from a guarantee period before its expiration
date, it will generally be subject to an interest adjustment. This will reduce
the interest credited to 3%, the minimum annual rate. See Cash Withdrawals.
The Contingent Deferred Sales Load/ Surrender Charge
We do not deduct a sales charge from purchase payments, although we may deduct
premium taxes.
However, if any part of the account value is withdrawn, we may assess a
contingent deferred sales load/surrender charge of up to 6% of purchase
payments withdrawn to cover certain expenses relating to the sale of the
contracts, including commissions to registered representatives and other
promotional expenses. We guarantee that the total contingent deferred sales
load will never exceed 6% of the purchase payments.
After we have held a purchase payment for seven contract years, you, as the
owner, may withdraw the remaining purchase payment without a contingent
deferred sales load/surrender charge. You may make withdrawals each contract
year before the annuity date up to the allowed amount described below without
incurring a contingent deferred sales load.
The allowed amount is equal to:
. during the first certificate year, the accumulated earnings not previously
withdrawn;
. after you have held your certificate for at least one full certificate
year, and only for the first withdrawal in a certificate year, the sum of:
1. 100% of purchase payments not previously withdrawn and received at least
seven contract years before the date of withdrawal; plus,
2. the greater of:
a) the accumulated earnings not previously withdrawn; or,
b) 15% of purchase payments received at least one but less than seven
complete contract years before the date of withdrawal not reduced to
take into account any withdrawals deemed to be made from such
purchase payments.
. after the first contract year and after the first withdrawal in a contract
year, the sum of:
1. 100% of purchase payments not previously withdrawn and received at least
seven complete contract years before the date of withdrawal; plus,
2. accumulated earnings not previously withdrawn.
Withdrawals will always be made first from accumulated earnings, and then from
purchase payments on a first-in, first-out basis. So, accumulated earnings
could be withdrawn as part of the first withdrawal in a contract year and,
therefore, not be available for withdrawals made later that contract year. The
accumulated earnings, if any, in your account value are always available as
the allowed amount. You cannot withdraw any purchase payment deposited by
check until that check clears.
We will waive the contingent deferred sales load/surrender charge on a
withdrawal if the owner is confined to a hospital or nursing care facility for
45 days (30 days in Pennsylvania) out of a continuous 60 day period, and if
other conditions are met. We will also waive the contingent deferred sales
load in some states if the owner is diagnosed with a terminal illness after
the first contract year. The illness must reasonably be expected to result in
death within twelve months. See Contingent Deferred Sales Load/Surrender
Charge and Cash Withdrawals.
Other Charges and Deductions
We deduct a daily charge referred to as the Mortality and Expense Risk Charge.
This charge is equal to a percentage of the value of the net assets in the
variable account for the mortality and expense risks assumed. The effective
annual rate of this charge is
11
<PAGE>
1.25% of the value of the net assets in the variable account attributable to
your contract. See Mortality and Expense Risk Charge. We guarantee that this
mortality and expense risk charge will not be increased.
We also deduct a daily charge referred to as the Administrative Expense Charge
equal to a percentage of the value of the net assets in the variable account
corresponding to an effective annual rate of 0.15% to help cover some of the
costs of administering the contract and the variable account. This charge may
change, but it is guaranteed not to exceed a maximum effective annual rate of
0.25%. See Administrative Charges.
There is also an administrative charge each year for contract maintenance,
referred to as the Account Fee. This fee is currently $30, or 2% of the
account value, if less. It will not be assessed for contract years in which
the account value exceeds $50,000 on the last business day of the contract
year or as of the date the contract is surrendered. We will deduct the account
fee at the end of the contract year or when you surrender the contract, if
earlier. We may change the account fee for any contract year. But we guarantee
it will not exceed the lesser of $60 or 2% of the account value.
After the annuity date this fee is referred to as the annuity fee. The annuity
fee is $30 and will not change.
Currently we impose no fee for the systematic withdrawal option. But we
reserve the right to charge for this option in the future.
A fee or $10 or 2% of the transfer amount, whichever is less, is imposed for
each transfer in excess of eighteen during a contract year. See Transfer Fee.
If you elect the Guaranteed Minimum Income Benefit Rider, there is an annual
fee during the accumulation phase (before the annuity date) of 0.30% of the
minimum annuitization value. If you annuitize under the rider and elect the
guaranteed minimum payment option, there is a guaranteed minimum payment fee
at an effective annual rate of 1.25% of the daily net asset value in the
separate account.
Charges for state premium taxes, including retaliatory premium taxes, will be
imposed in some states. Depending on the applicability of such state taxes, we
could deduct the charges from premiums, from amounts withdrawn, and/or from
the annuity purchase amount upon annuitization. See Premium Taxes.
In addition, if you withdraw or transfer amounts out of a guarantee period of
the fixed account before its expiration date, it will generally be subject to
an interest adjustment. This will reduce the interest earned on that amount to
3%, the minimum annual rate.
Annuity Payments
We will make annuity payments either on a fixed basis or a variable basis, or
a combination of a fixed and variable basis, as you select. You have
flexibility in choosing the annuity date. In no event may the annuity date be
later than the first day of the month immediately preceding the month of your
85th birthday or the first day of the month coinciding with or next following
the tenth contract anniversary, whichever occurs last. This extension of the
annuity date to the tenth contract anniversary may not be available in all
states. The annuity date cannot be earlier than the first day of the month
coinciding with or immediately following the third contract anniversary,
except for qualified contracts. We will begin annuity payments on the first
day of the calendar month following the annuity date. You have a choice of
four annuity forms:
(1) Life Annuity;
(2) Life and Contingent Annuity;
(3) Life Annuity with Period Certain; and
(4) Joint and Survivor Annuity.
Payments on Death Before the Annuity Date
The death benefit will be equal to the greater of:
1. the account value;
2. the Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit is the greater of:
1) the largest account value on any contract anniversary prior to any owner's
or annuitant's 86th birthday, adjusted for any subsequent purchase payments
and adjusted withdrawals; or
12
<PAGE>
2) the sum of purchase payments less adjusted withdrawals plus interest at a
5% annual effective rate up to:
a) the contract anniversary prior to any owner's or annuitant's 86th
birthday; or
b) when this sum has grown to two times the amount of the payments less
adjusted withdrawals; or
c) the death of any owner or annuitant.
We will generally pay the death benefit within seven days of receipt of the
required proof of death of the owner or the annuitant. We must have sufficient
information about the beneficiary to make the payment. We must receive the
beneficiary's election of the method of settlement. If we receive no election
of the settlement method, we will pay the death benefit no later than one year
from the date of death. We do not charge a contingent deferred sales load or
interest adjustment. The beneficiary may elect to receive the death benefit as
either a lump sum or as an annuity.
Federal Income Tax Consequences
An owner who is a natural person, meaning an individual, rather than a
corporation or trust, generally should not be taxed on increases in the
account value until a distribution under the contract occurs. A withdrawal or
annuity payment, for example, would qualify as a distribution, thereby
triggering a taxable event. A deemed distribution would also trigger a taxable
event. Deemed distributions occur when owners pledge, loan, or assign a
contract as collateral.
Generally, a portion, up to 100%, of any distribution or deemed distribution
is taxable as ordinary income. The taxable portion of distributions is
generally subject to income tax withholding unless the recipient elects
otherwise. Mandatory withholding may apply for certain qualified contracts. In
addition, a federal penalty tax may apply to certain distributions or deemed
distributions.
Right to Cancel
You have the right to examine the contract for a limited period, known as a
free look period. You can cancel the contract by delivering or mailing a
written notice of cancellation, or sending a telegram to our service center.
You must do this before midnight of the tenth day (or longer if required by
state law) after you receive the contract. If you give us notice and return
the contract by mail, notice will be effective on the date we receive the
notice. The amount of the refund may depend on the state of issuance. In most
cases, we will refund the account value as of the date we receive the written
notice and the contract. In some states, you may receive more (or less) than
the account value. You should consult your registered representative for the
applicable provision. See Purchase Payments and Account Value.
You may request more information by writing:
Transamerica Annuity Service Center
P.O. Box 31848
Charlotte, North Carolina
28231-1848
or
Call 1-800-258-4260
with any questions concerning your contract.
You should provide the contract number and the owner's and annuitant's names
when requesting information regarding a specific contract.
NOTE: The foregoing summary is qualified in its entirety by the detailed
information in the remainder of this prospectus and in the prospectuses for
the funds. They should be referred to for more detailed information.
For qualified contracts, limits or restrictions may be imposed on purchase
payments, withdrawals, distributions, benefits or other contract provisions
due to:
. the requirements of a particular retirement plan;
. an endorsement to the contract; or
. limitations or penalties imposed by the Code or the Employee Retirement
Income Security Act of 1974, as amended.
This prospectus does not describe such limitations or restrictions.
PERFORMANCE DATA
Advertising of Yields
From time to time, we may advertise yields and average annual total returns
for the sub-accounts of
13
<PAGE>
the variable account. In addition, we may advertise the effective yield of the
Money Market Sub-Account.
These figures will be based on historical information and are not intended to
indicate future performance.
Yield Calculations
The yield of the Money Market Sub-Account refers to the annualized income
generated by an investment in that sub-account over a specified seven-day
period.
The yield is calculated by assuming:
. the income generated for that seven-day period is generated each seven-day
period over a 52-week period; and
. it is shown as a percentage of the investment.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in that sub-account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of a sub-account, other than that of the Money Market Sub-Account,
refers to the annualized income generated by an investment in the sub-account
over a specified thirty-day period. The yield is calculated by assuming that
the income generated by the investment during that thirty-day period is
generated each thirty-day period over a twelve-month period and is shown as a
percentage of the investment.
The yield calculations do not reflect the effect of any contingent deferred
sales load or premium taxes that may apply to a particular contract. When the
contingent deferred sales load is applied to a particular contract, the yield
of that contract will be reduced. For additional information about how yields
and total returns are calculated, please refer to the Statement of Additional
Information.
Total Returns
Average annual total returns for each sub-account are based on performance
data compiled since the sub-account commenced operations. Performance results
are also measured over 1, 5 and 10 year time periods. When average annual
total returns for these periods are available, you will be provided with this
information. Each return will represent the average annual compounded rates of
return that would equate an initial investment of $1,000 to the redemption
value of that investment. This will include the deduction of any applicable
contingent deferred sales load, but exclude the deduction of any premium
taxes. These returns will represent the periods for which total return
quotations are provided up to the last day of the period.
Performance Information
Performance information for any sub-account reflects only the performance of a
hypothetical contract under which account value is allocated to a sub-account
during a particular time period on which the calculations are based. It should
be considered in light of:
. the investment objectives;
. investment contracts;
. characteristics of the portfolios in which the sub-account invests; and
. the market conditions during the given time period.
You should not consider it as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
returns, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including:
1. the ranking of any sub-account derived from rankings of variable annuity
separate accounts or their investment products tracked by:
. Lipper Analytical Services, Inc.,
. VARDS,
. IBC/Donoghue's Money Fund Report,
. Financial Planning Magazine,
. Money Magazine,
. Bank Rate Monitor,
. Standard and Poor's Indices, and
. The Dow Jones Industrial Average.
14
<PAGE>
It may also include other rating services, companies, publications, or other
persons who rank separate accounts or other investment products on overall
performance or other criteria; and
2. the effect of tax deferred compounding on sub-account investment returns,
or returns in general, which may be illustrated by graphs, charts, or
otherwise.
These may include a comparison, at various points in time, of the return from
an investment, or returns in general, on a tax-deferred basis, assuming one or
more tax rates, with the return on a currently taxable basis. We may also use
other ranking services and indices.
In our advertisements and sales literature, we may use charts and graphs to
discuss and illustrate:
. the implications of longer life expectancy for retirement planning;
. the tax and other consequences of long-term investments;
. the effects of the lifetime payout option;
. the operation of certain special investment features in the policy -- such
as the dollar cost averaging option;
. the effects of certain investment strategies, such as allocating purchase
payments between the fixed account and an equity sub-account; and
. the Social Security system and its projected payout levels and retirement
plans generally.
We may, from time to time, disclose average annual total returns and
cumulative total returns for the sub-accounts in non-standard formats. We will
assume that no contingent deferred sales load is applicable to these returns.
Whenever we show non-standard performance, we will also show standardized
performance. You will find additional information about the calculation of
performance data in the Statement of Additional Information.
We may also advertise performance figures for the sub-accounts based on their
performance before the time the variable account started.
15
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY AND THE
VARIABLE ACCOUNT
Transamerica Occidental Life Insurance Company
Transamerica Occidental Life Insurance Company, Transamerica, is a stock life
insurance company incorporated under the laws of the State of California on
June 30, 1906. It is mainly engaged in the sale of life insurance and annuity
contracts. The address for Transamerica Occidental Life Insurance Company is
1150 South Olive Street, Los Angeles, California 90015.
Transamerica Occidental Life Insurance Company is indirectly owned by
Transamerica Corporation. On July 21, 1999, Transamerica Corporation merged
with AEGON N.V., one of the world's leading international insurance groups.
Published Ratings
Transamerica may from time to time publish in advertisements, sales literature
and reports to owners, the ratings and other information assigned to it by one
or more independent rating organizations such as A.M. Best Company, Standard &
Poor's, Moody's and Duff & Phelps. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of Transamerica. These
ratings should not be considered as bearing on the safety or investment
performance of assets held in the variable account. Each year the A.M. Best
Company reviews the financial status of thousands of insurers. Once it has
completed its analysis of each insurer's financial strength, A.M. Best assigns
the insurer a Best Rating.
These ratings reflect their current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms
of the life/health insurance industry. In addition, other rating companies,
such as by Standard & Poor's Insurance Ratings Services, Moody's or Duff &
Phelps assess our claims-paying ability. They also may be referred to in
advertisements or sales literature or in reports to owners. These ratings are
opinions of an operating insurance company's financial capacity to meet the
obligations of its insurance and annuity contracts in accordance with their
terms, including its obligations under the fixed account provisions of this
contract. Such ratings do not reflect the investment performance of the
variable account or the degree of risk associated with an investment in the
variable account.
Insurance Marketplace Standards Association
In recent years, the insurance industry has recognized the need to develop
specific principles and practices to help maintain the highest standards of
marketplace behavior and enhance credibility with consumers. As a result, the
industry established the Insurance Marketplace Standards Association (IMSA).
As an IMSA member, we agree to follow a set of standards in our advertising,
sales and service for individual life insurance and annuity products. The IMSA
logo, which you will see on our advertising and promotional materials,
demonstrates that we take our commitment to ethical conduct seriously.
The Variable Account
On May 22, 1992, Transamerica's Board of Directors passed resolutions to
establish the Separate Account VA-2L of Transamerica, also referred to as the
Variable Account, under the laws of the State of California. The variable
account is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 as a unit investment trust. It meets the
definition of a separate account under the federal securities laws. However,
the Commission does not supervise the management or the investment practices
or contracts of the variable account.
The assets of the variable account are owned by Transamerica but they are held
separately from the other assets of Transamerica. Section 10506 of the
California Insurance Law provides that the assets of a separate account are
not chargeable with liabilities incurred in any other business operation of
the insurance company, except to the extent that assets in the separate
account exceed the reserves and other liabilities of the separate account.
Income, gains and losses incurred on the assets in the variable account,
whether or not realized, are credited to or charged against the variable
account without regard to other income, gains or losses of Transamerica.
Therefore, the investment performance of the variable account is entirely
independent of the investment performance of Transamerica's general account
assets or any other separate account maintained by Transamerica.
16
<PAGE>
The variable account has 23 sub-accounts, each of which invests solely in a
specific corresponding portfolio. Changes to the sub-accounts may be made at
the discretion of Transamerica.
THE FUNDS
The variable account invests exclusively in the:
. Portfolios of Dreyfus Variable Investment Fund
. Dreyfus Stock Index Fund
. The Dreyfus Socially Responsible Growth Fund, Inc.
. Portfolios of Dreyfus Investment Portfolios
. The Growth Portfolio of Transamerica Variable Insurance Fund, Inc.
Dreyfus Variable Investment Fund was organized as an unincorporated business
trust under Massachusetts law pursuant to an Agreement and Declaration of
Trust dated October 29, 1986. It commenced operations on August 31, 1990, and
is registered with the Commission as an open-end management investment company
under the 1940 Act. Currently, thirteen series, or portfolios, of the Variable
Fund are available for the contracts. Each portfolio has separate investment
objectives and policies. As a result, each portfolio operates as a separate
investment portfolio and the investment performance of one portfolio has no
effect on the investment performance of any other portfolio.
The Dreyfus Stock Index Fund was incorporated under Maryland law on January
24, 1989, and commenced operations on September 29, 1989. It is registered
with the Commission as an open-end, non-diversified, management investment
company.
The Dreyfus Socially Responsible Growth Fund, Inc. was incorporated under
Maryland law on July 20, 1992, and commenced operations on October 7, 1993. It
is registered with the Commission as an open-end, diversified, management
investment company.
Dreyfus Investment Portfolios was organized as an unincorporated business
trust under Massachusetts law pursuant to an Agreement and Declaration of
Trust dated May 14, 1993. It is registered with the Commission as an open-end
management company under the 1940 Act and commenced operations May 1, 1998.
Currently, four portfolios of Dreyfus Investment Portfolios are available for
the contract.
Transamerica Variable Insurance Fund, Inc., was incorporated under Maryland
law on June 23, 1995. It commenced operations on November 1, 1996. It is
registered with the SEC as a management investment company. One of its
portfolios is the Growth Portfolio.
The Commission does not supervise the management or the investment practices
and policies of any of the portfolios. The assets of the portfolios are each
separate from the assets of the other portfolios.
Service Providers to The Funds
. The Dreyfus Corporation provides investment advisory and administrative
services to the Dreyfus Variable Investment Fund, the Dreyfus Investment
Portfolios and the Socially Responsible Fund.
. Mellon Equity Associates provides index fund management services to the
Stock Index Fund, with The Dreyfus Corporation serving as the manager, in
accordance with applicable agreements with the fund.
. Fayez Sarofim & Co. provides sub-investment advisory services for the
Capital Appreciation Portfolio of the Variable Fund.
. NCM Capital Management Group, Inc., provides sub-investment advisory
services for the Socially Responsible Fund.
. Founders Asset Management LLC provides sub-investment advisory services for
the Founders Growth, Founders Passport and Founders International Equity
Portfolios of the Dreyfus Investment Portfolios.
. Transamerica provides investment advisory services to Transamerica VIF,
with Transamerica Investment Services, Inc. providing sub-investment
advisory services.
. Newton Capital Management Limited provides sub-investment advisory services
for the European Equity Portfolio of the Dreyfus Investment Portfolios.
Transamerica receives fees from The Dreyfus Corporation and its affiliates for
providing certain administrative and or other services.
17
<PAGE>
The portfolios are described below. Please see the Variable Fund, the Stock
Index Fund, the Socially Responsible Fund, Dreyfus Investment Portfolios and
Transamerica VIF prospectuses for more information.
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide a high level
of current income while preserving invested capital and maintaining liquidity.
It seeks to achieve this objective by investing in short-term money market
instruments. The investment advisory fee is payable monthly at the annual rate
of 0.50 of 1% of the value of the portfolio's average daily net assets. An
investment in this portfolio is not insured or guaranteed by the FDIC or any
other government agency. Although this portfolio seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in this portfolio.
Special Value Portfolio
The Special Value Portfolio's investment objective is to maximize total return
on your investment capital. Total return consists of capital appreciation and
current income. It seeks to achieve its objective by following a "contrary
value" strategy, investing in a wide range of equity and debt securities and
money market instruments. An investment advisory fee is payable monthly at the
annual rate of 0.75 of 1% of the value of the portfolio's average daily net
assets.
Zero Coupon 2000 Portfolio
The Zero Coupon 2000 Portfolio's investment objective is to provide as high an
investment return as is consistent with preserving capital. It seeks to
achieve its objective by investing primarily in:
. debt obligations of the U.S. Treasury that have been stripped of their
unmatured interest coupons;
. interest coupons that have been stripped from debt obligations issued by
the U.S. Treasury;
. receipts and certificates for stripped debt obligations and stripped
coupons, including U.S. Government trust certificates.
Collectively, we refer to these as Stripped Treasury Securities. The portfolio
also may purchase certain other types of stripped government or corporate
securities. The portfolio's assets will consist primarily of portfolio
securities which will mature on or about December 31, 2000. The investment
advisory fee is payable monthly at the annual rate of 0.45 of 1% of the value
of the portfolio's average daily net assets.
Quality Bond Portfolio
The Quality Bond Portfolio's investment objective is to provide the maximum
amount of current income while preserving capital and maintaining liquidity.
It seeks to achieve its objective by investing mainly in: debt obligations of
corporations, the U.S. Government, its agencies and instrumentalities, and
major U.S. banking institutions. The investment advisory fee is payable
monthly at the annual rate of 0.65 of 1% of the value of the portfolio's
average daily net assets.
Small Cap Portfolio
The Small Cap Portfolio's investment objective is to maximize capital
appreciation. It seeks to achieve its objective by investing mainly in common
stocks of domestic and foreign issuers. Under normal market conditions, the
portfolio will invest at least 65% of its total assets in companies with
market capitalizations of less than $1.5 billion at the time of purchase. The
Dreyfus Corporation will invest in companies it believes to be characterized
by new or innovative products, services or processes which should enhance
prospects for growth in future earnings. The investment advisory fee is
payable monthly at the annual rate of 0.75 of 1% of the value of the
portfolio's average daily net assets.
Capital Appreciation Portfolio
The Capital Appreciation Portfolio's primary investment objective is to
provide long-term capital growth while preserving capital. Current income is a
secondary goal. It seeks to achieve its goals by investing in common stocks of
domestic and foreign issuers. An investment advisory fee is payable monthly to
The Dreyfus Corporation and a sub-investment advisory fee is payable monthly
to Fayez Sarofim & Co. at the total annual rate of 0.75 of 1% of the value of
the portfolio's average daily net assets.
Growth and Income Portfolio
The Growth and Income Portfolio's investment objective is to provide long-term
capital growth, current income and growth of income, consistent with
reasonable investment risk. This portfolio
18
<PAGE>
invests primarily in equity and debt securities and money market instruments
of domestic and foreign issuers. The proportion of the portfolio's assets
invested in each type of security will vary from time to time in accordance
with the Dreyfus Corporation's assessment of economic conditions and
investment opportunities. An investment advisory fee is payable monthly at the
annual rate of 0.75 of 1% of the value of the portfolio's average daily net
assets.
International Equity Portfolio
The International Equity Portfolio's investment objective is to maximize
capital growth. This portfolio's invests primarily in the equity securities of
foreign issuers located throughout the world. An investment advisory fee is
payable monthly at an annual rate of 0.75 of 1% of the value of the
portfolio's average daily net assets.
International Value Portfolio
The International Value Portfolio's investment objective is long-term capital
growth. This portfolio invests primarily in equity securities of foreign
issuers which are characterized as value companies according to criteria
established by the portfolio's investment adviser. An investment advisory fee
is payable monthly at the annual rate of 1.00% of the value of the portfolio's
average daily net assets.
Disciplined Stock Portfolio
The Disciplined Stock Portfolio's investment objective is to provide
investment results that are greater than the total return performance of
publicly traded common stocks as a group, as represented by the Standard &
Poor's 500 Composite Stock Price Index. This portfolio will use quantitative
statistical modeling techniques to build a portfolio similar to the S & P 500
in its sector weightings and risk characteristics. An investment advisory fee
is payable monthly at the annual rate of 0.75 of 1% of the value of the
Portfolio's average daily net assets.
Small Company Stock Portfolio
The Small Company Stock Portfolio's investment objective is to provide
investment results that are greater than the total return performance of
publicly traded common stocks as a group, as represented by the Russell 2500
Index. This portfolio invests primarily in a portfolio of equity securities of
small to medium sized domestic companies. While investing in these companies,
the portfolio will attempt to maintain volatility and diversification similar
to that of the Russell 2500 Index. An investment advisory fee is payable
monthly at the annual rate of 0.75 of 1% of the value of the portfolio's
average daily net assets.
Balanced Portfolio
The Balanced Portfolio's investment objective is to provide investment results
that are greater than the total return performance of common stocks and bonds
as a group, as represented by a hybrid index. 60% of the index is composed of
the common stocks in the S & P 500 Composite Stock Price Index. 40% of the
index is composed of the bonds in the Lehman Brothers Intermediate Government/
Corporate Bond Index. This portfolio invests primarily in common stocks and
bonds in proportions selected by The Dreyfus Corporation based on their
expected returns and risks. An investment advisory fee is payable monthly at
the annual rate of 0.75 of 1% of the value of the portfolio's average daily
net assets.
Limited Term High Income Portfolio
The Limited Term High Income Portfolio's investment objective is to maximize
total return, consisting of capital appreciation and current income. This
portfolio seeks to achieve its objective by investing up to all of its assets
in a portfolio of lower rated fixed-income securities, commonly known as junk
bonds. Investments of this type are subject to a greater risk of loss of
principal and non-payment of interest. Under normal market conditions, these
bonds will have an effective average duration of three and one-half years or
less. Investors should carefully assess the risks associated with an
investment in the portfolio. Those risks are described in the portfolio's
prospectus. An investment advisory fee is payable monthly at the annual rate
of 0.65 of 1% of the value of the portfolio's average daily net assets.
Stock Index Fund
The Stock Index Fund's investment objective is to provide investment results
that correspond to the price and yield performance of publicly traded common
stocks as a group, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is not sponsored by or affiliated with Standard & Poor's
Corporation in any way. A management fee is payable monthly to The Dreyfus
19
<PAGE>
Corporation at the annual rate of 0.24 of 1% of the value of the Fund's
average daily net assets. Dreyfus pays Mellon Equity Associates to provide the
day-to-day management of the Fund's investments.
Socially Responsible Fund
The Socially Responsible Fund's primary goal is to provide capital growth.
Current income is a secondary goal. It seeks to achieve these objectives by
investing principally in common stocks, or securities convertible into common
stock. Stocks selected for this fund will be issued by companies which, in the
opinion of the fund's management, not only meet traditional investment
standards, but also show evidence that they conduct their business in a manner
that contributes to the enhancement of the quality of life in America. A
management fee is payable monthly to The Dreyfus Corporation at the annual
rate of 0.75 of 1% of the value of the Socially Responsible Fund's average
daily net assets. Dreyfus pays NCM Capital Management Group, Inc. as sub-
adviser to provide day-to-day management of the Fund's investments.
Core Value Portfolio
The Core Value Portfolio's primary investment objective is to provide long-
term growth of capital. Current income is a secondary investment objective.
The portfolio invests primarily in equity securities, such as common stocks,
preferred stock and securities convertible into common stocks. All of these
would be issued by "value" companies according to criteria established by The
Dreyfus Corporation. A management fee is payable monthly at the annual rate of
0.75 of 1% of the portfolio's average daily net assets.
MidCap Stock Portfolio
The MidCap Stock Portfolio's investment objective is to provide investment
results that are greater than the total return performance of publicly-traded
common stocks as a group, as represented by the Standard & Poor's MidCap 400
Index. The portfolio invests primarily in equity securities of medium-sized
domestic issurers, while attempting to maintain volatility and diversification
similar to that of the S & P Mid Cap 400 Index. The portfolio is not an index
fund and its investments are not limited to securities of issuers included in
the S&P Mid Cap 400 Index. A management fee is payable monthly at the annual
rate of 0.75 of 1% of the portfolio's average daily net assets.
Founders Growth
The Founders Growth Portfolio's investment objective is to provide long-term
growth of capital. It invests primarily in equity securities of well-
established, high quality "growth" companies, as determined by the Portfolio's
sub-investment adviser. These companies tend to have strong performance
records, solid market positions and reasonable financial strength, and have
continuous operating records of three years or more. An investment advisory
fee is payable monthly to The Dreyfus Corporation at an annual rate of 0.75%
of the value of the portfolio's average daily net assets. Dreyfus pays
Founders Asset Management LLC to provide the day-to-day management of the
Portfolio's investments.
Founders Passport Portfolio
The Founders Passport Portfolio's investment objective is to provide capital
appreciation. It invests primarily in equity securities of foreign issuers
with market capitalizations or annual revenues of $1 billion or less and which
are characterized as "growth" companies, as determined by the Portfolio's sub-
investment adviser. It ordinarily invests in foreign issuers from at least
three foreign countries with established or emerging economies. The portfolio
may invest in securities of larger foreign issuers or in U.S. issuers if
management believes these securities offer attractive opportunities for
capital appreciation. An investment advisory fee is payable monthly to The
Dreyfus Corporation at an annual rate of 1.00% of the value of the portfolio's
average daily net assets. Dreyfus pays Founders Asset Management LLC to
provide the day-to-day management of the Portfolio's investments.
European Equity Portfolio
The European Equity Portfolio seeks long-term capital growth. It generally
invests at least 80% of its total assets in stocks included within the
universe of the 300 largest European companies. It may invest up to 10% of its
total assets in the stocks of non-European companies. The Portfolio's stock
investments may include common stocks, preferred stocks and convertible
securities. In choosing stocks, the Portfolio Manager identifies and
forecasts: key trends in economic variables, such as gross domestic product,
inflation and interest rates; investment themes, such as the impact of new
technologies and the globalization of industries and brands; relative
20
<PAGE>
values of equity securities, bonds and cash; and long-term trends in currency
movements. Within markets and sectors determined to be relatively attractive,
the Portfolio Manager seeks what she believes to be attractively priced
companies that possess a sustainable competitive advantage in their market or
sector. The investment advisory fee is payable monthly at the annual rate of
1.00% of the value of the Portfolio's average daily net assets. The Dreyfus
Corporation pays Newton Capital Management Limited to provide the day-to-day
management of the Portfolio's investments.
Technology Growth Portfolio
The Technology Growth Portfolio seeks capital appreciation. To pursue this
goal, it invests primarily in the stocks of growth companies of any size that
The Dreyfus Corporation believes to be leading producers or beneficiaries of
technological innovation. Up to 25% of the Portfolio's assets may be invested
in foreign securities. In choosing stocks, the Portfolio looks for sectors in
technology that are expected to outperform on a relative scale. Although the
Portfolio looks for companies with the potential for strong earnings growth
rates, some of its investments may currently be experiencing losses. It may
also invest in small-, mid- and large-cap securities in all available trading
markets, including initial public offerings and the aftermarket. The
investment advisory fee is payable monthly at the annual rate of 0.75% of the
value of the Portfolio's average daily net assets.
Founders International Equity Portfolio
The Founders International Equity Portfolio seeks long-term growth of capital.
To pursue this goal, it invests primarily in the stocks of foreign issuers
which are characterized as "growth" companies. The Portfolio Manager will seek
investment opportunities for the Portfolio, generally, in companies which he
believes have fundamental strengths that indicate the potential for growth in
earnings per share. The Portfolio Manager focuses on individual stock
selection (a "bottom-up" approach) rather than on forecasting stock market
trends (a "top-down" approach). The Portfolio will invest primarily in foreign
issuers from at least three foreign countries with established or emerging
economies, but will not invest more than 50% of its assets in issuers in any
one foreign country. The Portfolio's stock investments may include common
stocks, preferred stocks and convertible securities. An investment advisory
fee is payable monthly to The Dreyfus Corporation at an annual rate of 1.00%
of the value of the Portfolio's average daily net assets. The Dreyfus
Corporation pays Founders Asset Management LLC to provide the day-to-day
management of the Portfolio's investments.
Growth Portfolio of the Transamerica Variable Insurance Fund, Inc. seeks long-
term capital growth. Common stock (listed and unlisted) is the basic form of
investment. The Growth Portfolio invests primarily in common stocks of growth
companies that are considered by the manager to be premier companies. In the
manager's view, characteristics of premier companies include one or more of
the following:
. dominant market share;
. leading brand recognition;
. proprietary products or technology;
. low-cost production capability; and/or
. excellent management with shareholder orientation.
The manager of the portfolio believes in long-term investing and places great
emphasis on each company's ability to sustain the above competitive
advantages. Unless market conditions indicate otherwise, the manager also
tries to keep the portfolio fully invested in equity-type securities. It also
does not try to invest or divest based on stock market movements. When, in the
judgment of the manager, and market conditions warrant, the portfolio may, for
temporary defensive purposes, hold part or all of its assets in cash, debt or
money market instruments. The portfolio may invest up to 10% of its assets in
debt securities having a call on common stocks that are rated below investment
grade.
A management fee of 0.75 of 1% of the average daily net assets is payable
monthly to Transamerica Occidental Life Insurance Company, as adviser. The
adviser pays Transamerica Investment Services, Inc. as sub-adviser, a monthly
fee at the annual rate of 0.30 of 1% of the first $50 million, 0.25 of 1% of
the next $150 million and 0.20 of 1% of the assets in excess of $200 million.
21
<PAGE>
Variable Account Objectives
Meeting objectives depends on various factors, including, but not limited to,
how well the portfolio managers anticipate changing economic and market
conditions. You should be aware of the following risks:
. There is no assurance that any of these portfolios will achieve their
stated objectives.
. An investment in the contract is not insured or guaranteed by the FDIC or
any other government agency.
. Investing in the contract involves certain investment risks, including
possible loss of principal.
Portfolios Not Publicly Available
The portfolios are open-end management investment companies, or portfolios or
series of, open-end management companies registered with the SEC under the
1940 Act, that are often referred to as mutual funds. This SEC registration
does not involve SEC supervision of the investments or investment policies of
the portfolios. Shares of the portfolios are not offered to the public but
solely to the insurance company separate accounts and other qualified
purchasers as limited by federal tax laws. These portfolios are not the same
as mutual funds that may have very similar names that are sold directly to the
public, and the performance of such publicly available funds, which have
different portfolios and expenses, should not be considered as an indication
of the performance of the portfolios. The assets of each portfolio are held
separate from the assets of the other portfolios. Each portfolio operates as a
separate investment vehicle. The income or losses of one portfolio have no
effect on the investment performance of another portfolio. The sub-accounts
reinvest dividends and/or capital gains distributions received from a
portfolio in more shares of that portfolio as retained assets.
Resolution of Possible Conflicts
Since variable insurance products from other companies as well as Transamerica
can invest in all of the portfolios, there is a possibility that a material
conflict may arise between the interests of the variable account and other
companies. If conflict occurs, the affected insurance companies will take the
needed steps to resolve the matter. This may include stopping their separate
account from investing in the portfolios.
Sources of Additional Information
You will find additional information in the current prospectuses for the
portfolios, which accompany this prospectus, including:
. the investment objectives;
. the investment policies;
. the investment advisory services;
. the administrative services; and
. charges
You should read the portfolios' prospectuses carefully before you make any
decision concerning the allocation of purchase payments to, or transfers
among, the sub-accounts.
Addition, Deletion or Substitution
Transamerica does not control the portfolios. We therefore cannot guarantee
that any of the sub-accounts of the variable account or any of the portfolios
will always be available to investors for allocation of purchase payments or
transfers. We retain the right to make changes in the variable account and in
its investments.
We reserve the right to:
. eliminate the shares of any portfolio held by a sub-account; or
. substitute shares of another portfolio or of another investment company for
the shares of any portfolio.
If the shares of a portfolio are no longer available for investment or if, in
our judgement, a portfolio is not fulfilling its intended purpose within the
variable account, we reserve the right to remove it. To the extent required by
the 1940 Act, we will inform shareholders in advance of any substitutions. We
will also seek the Commission's advance approval before making substitutions.
These potentially necessary substitutions should not be construed in any way
as preventing or limiting the variable account from
22
<PAGE>
purchasing other securities for other series or classes of variable annuity
contracts, or from effecting an exchange between series or classes of variable
contracts on the basis of requests made by owners.
The Establishment of New Sub-Accounts
At our discretion, based on marketing, tax, investment or other conditions, we
can elect to establish new sub-accounts. We will make these new sub-accounts
available to our existing contract owners on a basis which we will determine
at that time. Each additional sub-account will purchase shares in a portfolio
or in another mutual fund or investment vehicle. We may also eliminate one or
more sub-accounts if, in our sole discretion, marketing, tax, investment or
other conditions so warrant. In the event any sub-account is eliminated, we
will notify owners and request a re-allocation of the amounts invested in the
eliminated sub-account.
In the event of any substitution or change, we may change the contracts in a
way that appropriately reflects substitutions or changes. Furthermore, if we
believe it to be in the best interests of persons having voting rights under
the contracts, the variable account may be operated as a management company
under the 1940 Act or any other form permitted by law. It may also be
deregistered under this act in the event such registration is no longer
required, or may be combined with one or more other separate accounts.
THE FIXED ACCOUNT
This prospectus is generally intended to serve owners as a disclosure document
only for the contract and the variable account. For complete details regarding
the fixed account, see the contract itself. The fixed account is not available
in all states.
Purchase payments allocated to and amounts transferred to the fixed account
become part of Transamerica's general account, which supports insurance and
annuity obligations. Because of exemptive and exclusionary provisions,
interests in the general account have not been registered under the Securities
Act of 1933, hereafter referred to simply as the 1933 Act. Nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are generally subject to
the provisions of the 1933 Act or the 1940 Act. Therefore the Securities and
Exchange Commission has not reviewed the disclosures in this prospectus which
relate to the fixed account.
The guarantee periods of the fixed account are part of Transamerica's general
account. The general account consists of all the general assets of
Transamerica, other than those in the variable account, or assets in any other
segregated asset account. Instead of the owner bearing the investment risk as
with the variable account, we bear the full investment risk for all values in
the fixed account. We have the sole right to determine how we will invest the
assets of our general account while adhering to applicable laws.
The Interest Rate of the Fixed Account
As owner, you bear the risk that, after the initial guarantee period, we will
not credit interest in excess of 3% per year to amounts you allocate to the
fixed account.
The allocation or transfer of funds to the fixed account does not entitle you
to share in the overall investment returns of Transamerica's general account.
Instead, we guarantee that the funds you allocate or transfer to the fixed
account will accrue a specified annual rate of interest for a specific
duration. The rate of interest we credit will always be at least 3% per year.
Consequently, if you allocate all net purchase payments only to the fixed
account and make no transfers or withdrawals, the minimum amount of the
account value will be determinable and guaranteed.
We will establish a new guarantee period of a duration you select from those
we are offering on net purchase payments you allocate to the fixed account.
Every guarantee period we offer will have a duration of at least one year. The
minimum amount you may allocate or transfer to a guarantee period is $1,000.
We will credit net purchase payments you allocate to the fixed account on the
date we receive the payment at our service center. We will establish a new
guarantee period as of the effective date of the transfer for any amount you
transfer from another guarantee period, or from a sub-account of the variable
account to the fixed account.
We may delay payment of any withdrawal from the fixed account for up to six
months after we receive the request. If we delay payment for more than 30
days, we will pay interest on the withdrawal amount up to the date of payment.
23
<PAGE>
Guarantee Periods
Each guarantee period will have its own guaranteed interest rate and
expiration date. The guaranteed interest rate applicable to a guarantee period
will depend on the date it is established and the duration you choose. The
guarantee period you choose may not extend beyond the annuity date.
We reserve the right to change the maximum number of guarantee periods that
may be in effect at any one time.
We will establish effective annual rates of interest for each guarantee
period. The effective annual rate of interest we establish for a guarantee
period will remain in effect for the duration of the guarantee period. We will
credit interest to a guarantee period based on its daily balance at a daily
rate which is equivalent to the guaranteed interest rate applicable to that
guarantee period for amounts held during the entire guarantee period. Amounts
withdrawn or transferred from a guarantee period before its expiration date
will be subject to an interest adjustment as described below. In no event will
the effective annual rate of interest applicable to a guarantee period be less
than 3% per year.
Interest Adjustment
Except in certain circumstances, an interest adjustment will be made to any
amount withdrawn or transferred from a guarantee period before its expiration
date. Any such amount withdrawn or transferred from a guarantee period will be
credited with interest at a rate of only 3% per year from the date the
guarantee period was established to the date of payment or transfer,
regardless of the guaranteed interest rate. This means that any interest in
excess of 3% will be forfeited on the amount withdrawn or transferred.
Exceptions to the interest adjustment include:
1. amounts withdrawn within 30 days before the expiration date of the
guarantee period;
2. amounts withdrawn from a guarantee period serving as the source account,
if available, for dollar cost averaging transfers; and
3. amounts paid as part of a death benefit.
A contingent deferred sales load may apply to withdrawals made at the end of a
guarantee period even if there is no interest adjustment made.
Expiration of Guarantee Period
At least 45 days, but not more than 60 days, before the expiration date of a
guarantee period, we will notify you of the options available when a guarantee
period expires. You may elect one of the following options:
1. transfer the guarantee amount of that guarantee period to a new guarantee
period from among those being offered by us. The new guarantee period will
be established on the later of:
a) the date you select; or
b) the date the notice, in a form and manner acceptable to us, is received
at our service center, but in no event later than the day immediately
following the expiration date of the previous guarantee period; or
2. transfer the guarantee amount of that guarantee period to one or more sub-
accounts of the variable account.
We must receive your notice electing one of these options at our service
center by the expiration date of the guarantee period. If such election has
not been received by us at our service center, the guarantee amount of that
guarantee period will remain in the fixed account. A new guarantee period of
the same duration as the expiring guarantee period, if offered, will
automatically be established by us with a new guaranteed interest rate. The
new guarantee period will start on the day following the expiration date of
the previous guarantee period.
If we are not currently offering guarantee periods having the same duration as
the expiring guarantee period, the new guarantee period will be the next
longer duration. If we are not offering guarantee periods longer than the
duration of the expiring guarantee period, the new guarantee period will be
the next shorter duration.
If the guarantee amount of an expiring guarantee period is less than $1,000,
we reserve the right to transfer such amount to the Money Market Sub-Account
of the variable account.
If you make a transfer from a guarantee period within the 30-day period ending
on its expiration date, it will not be counted for the purpose of determining
the eighteen free transfers per contract year. This transfer will not be
subject to any interest adjustment.
24
<PAGE>
THE GUARANTEED MINIMUM INCOME BENEFIT (GMIB) RIDER
The Guaranteed Minimum Income Benefit (GMIB) Rider assures you of a minimum
level of income in the future by guaranteeing a minimum annuitization value
(discussed below) after 7 rider years. If you want to purchase this optional
rider, you must do so within 30 days after the contract date or within 30 days
after an contract anniversary. Once elected, the GMIB Rider can not be
terminated.
The GMIB Rider guarantees:
1) the amount you will have to apply to a GMIB payment option, and
2) if you elect the guaranteed minimum payment option, that the amounts of
those payments will be guaranteed once you begin to receive them.
By electing this benefit, you can participate in the gains of the underlying
variable investment options you select while knowing that you are guaranteed a
minimum level of income in the future, regardless of the performance of the
underlying variable investment options.
Minimum Annuitization Value
The minimum annuitization value on the rider date is equal to the account
value. Afterwards, the minimum annuitization value is equal to the greater of
the following:
1) the largest account value on the rider date or on any rider anniversary
prior to the earlier of any owner's or annuitant's 86th birthday, adjusted
for any subsequent purchase payments (less the sum of all subsequent
withdrawals adjusted as below and any premium taxes); or
2) the minimum annuitization value on the rider date plus the sum of all
purchase payments received after the rider date, less withdrawals
(adjusted as below) and premium taxes, plus interest thereon equal to the
annual effective interest rate specified on page one of the rider up to:
a) the rider anniversary prior to the earlier of any owner's or
annuitant's 86th birthday; or
b) the date the sum of all purchase payments, (less the sum of all
adjusted withdrawals and premium taxes), together with credited
interest, has grown to two times the amount of all purchase payments
(less all adjusted withdrawals and premium taxes) as a result of such
interest accumulation, if earlier.
If you choose to annuitize under the GMIB Rider, the minimum annuitization
value may be adjusted on the date you annuitize. This adjustment will take
place only if the account value is greater than the minimum annuitization
value on the date you annuitize. If the account value is greater, the minimum
annuitization value will be increased to be equal to the account value. We
will not decrease the minimum annuitization value if the account value is
smaller than the minimum annuitization value on the date you annuitize.
The annual effective interest rate is currently 5% per year; we may, at our
discretion, change the rate in the future, but the rate will never be less
than 3% per year, and once the rider is added to your contract, the annual
rate will not vary during the life of that rider. Withdrawals may reduce the
minimum annuitization value on a basis greater than dollar-for-dollar. See the
Statement of Additional Information for more information.
The minimum annuitization value may only be used to annuitize using the GMIB
payment options provided by the GMIB Rider and may not be used with any of the
annuity payment options listed in the Annuity Payment section. The GMIB
payment options are:
. Life Income -- An election may be made for "No Period Certain" or "10 Years
Certain." In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor -- An election may be made for "No Period Certain"
or "10 Years Certain." Payments will be made as long as either the
annuitant or joint annuitant is living. In the event of the death of both
the annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
The minimum annuitization value is used to calculate the GMIB payment and does
not establish or
25
<PAGE>
guarantee an account value or guarantee performance of any investment option.
Other benefits and fees under the rider (the rider fee, the guaranteed payment
fee, and the waiting period before the GMIB can be exercised, as well as the
annual growth rate) are also guaranteed not to change after the rider is
added. However, all of these benefit specifications may change if you elect to
upgrade the minimum annuitization value.
Minimum Annuitization Value Upgrade
You can upgrade your minimum annuitization value to the account value within
30 days after any rider anniversary before your 88th birthday (earlier if
required by state law). For your convenience, we will put the last date to
upgrade on page one of the rider.
If you upgrade, the current rider will terminate and a new one will be issued
with its own specified guaranteed benefits and fees. Please note that the
benefits and fees under the new rider may differ from your benefits and fees
prior to upgrading.
Conditions of Exercise of the GMIB
You can only annuitize using the GMIB within 30 days after the seventh or
later rider anniversary after the GMIB is elected or, in the case of an
upgrade of the minimum annuitization value, the seventh or later rider
anniversary following the upgrade; we may, at our discretion, change the
waiting period before the GMIB can be exercised in the future. You cannot,
however, annuitize using the GMIB after the rider anniversary after your 94th
birthday (earlier if required by state law). For you convenience, we will put
the first and last date to annuitize using the GMIB on page one of the rider.
Note Carefully -- If you annuitize at any time other than indicated above, you
cannot use the GMIB.
Guaranteed Minimum Payment Option
If you elect the guaranteed minimum payment option, annuity payments under the
GMIB are guaranteed to never be less than the initial payment. See the
Statement of Additional Information for information concerning the calculation
of the initial payment. Under this option, the payments will also be
"stabilized" or held constant during each year after annuitization.
Under the guaranteed minimum payment option, each annuity payment will be the
greater of the stabilized payment or the payment calculated without regard to
the stabilized payments. During the first year after annuitizing using the
GMIB, each stabilized payment will equal the initial payment. On each
anniversary of annuitization thereafter, the stabilized payment will increase
or decrease depending on the performance of the investment options you
selected, and then be held constant at that amount for that year. The
stabilized payment on each annuitization anniversary will equal the greater of
the initial payment or the payment supportable by the annuity units in the
selected investment options.
If you elect not to receive guaranteed minimum payments, your payments:
. are not guaranteed and may be less than the initial payment;
. will vary according to the investment performance of the investment options
you select; and
. will not be stabilized.
See the Statement of Additional Information for additional information
concerning stabilized payments.
GMIB Rider Fee
A rider fee, currently 0.30% of the minimum annuitization value on the each
rider anniversary, is charged annually on the rider anniversary prior to
annuitization. We will also charge this fee proportionally if you take a
complete withdrawal. We may change the rider fee percentage in the future, but
it will never be greater than 0.50%. The rider fee is deducted from each
variable sub-account in proportion to the amount of account value in each sub-
account.
Guaranteed Minimum Payment Fee
If you elect the guaranteed minimum payment option, a guaranteed minimum
payment fee, currently equal to an effective annual rate of 1.25% of the daily
net asset value in the variable investment options, is reflected in the amount
of the variable payments you receive if you annuitize under the GMIB rider. We
may change the guaranteed minimum payment fee in the future, but it will never
be greater than 2.25%. The guaranteed minimum payment fee is included on page
one of the rider.
26
<PAGE>
Termination of the GMIB Rider
The GMIB Rider is irrevocable. You have the option not to use the benefit of
the rider but you will not receive a refund of any fees you have paid. The
GMIB Rider will terminate upon the earliest of the following:
. annuitization (you can get guaranteed minimum payments if you so elect if
you annuitize using the GMIB),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your contract, and
. 30 days after the last date to annuitize under the rider as specified on
the first page of your rider.
The GMIB Rider does not establish or guarantee account value or guarantee
performance of any investment option. Because this benefit is based on
conservative actuarial factors, the level of lifetime income that it
guarantees may be less than the level that would be provided by application of
the account value at otherwise applicable annuity factors. Therefore, the GMIB
Rider should be regarded as a safety net.
(The GMIB Rider may not be available in all states as of the date of this
prospectus.)
THE CONTRACT
The contract is a flexible purchase payment multi-funded individual deferred
annuity contract. The rights and benefits under the contract, or in the
certificate and group contract, are described below and in the contract. We
reserve the right to modify the individual contract, and the group contract
and its certificates, so that it conforms to any federal or state statute,
rule or regulation. Such modifications will give contract owners the benefits
of these changes. We are responsible for the obligations stated in the
contract.
The contracts may be used for IRAs and Roth IRAs that qualify for special
federal income tax treatment. With our prior approval, the contracts may also
be available as Section 403(b) annuities and for use in Section 401(a)
qualified pension and profit sharing plans established by corporate employers.
Generally, qualified contracts contain restrictive provisions limiting the
timing and amount of payments and distributions from the qualified contract.
The owner designates the annuitant. The annuitant can be the same person as
the owner and must be the same person in the case of certain qualified
contracts.
Annuity payments will be made to the annuitant after the annuity date unless,
in the case of a non-qualified contract, the owner changes the payee after the
annuity date.
For each contract, a different account will be established and values,
benefits and charges will be calculated separately. The various administrative
rules described below will apply separately to each contract, unless otherwise
noted.
CONTRACT APPLICATION AND
PURCHASE PAYMENTS
Purchase Payments
Please send all of your purchase payment payments to our service center. We
will send you a confirmation letter to acknowledge the acceptance of each
purchase payment.
The initial purchase payment for each contract must generally be at least
$5,000. We may, at our discretion, accept lower initial purchase payments for
certain qualified contracts.
We will ordinarily issue the contract and derive the net purchase payment from
the initial purchase payment within two days of receipt of a properly
completed application and the purchase payment. At this time, the contract is
accepted and funded with your purchase payment. A net purchase payment is
defined as a purchase payment minus any applicable premium taxes. These taxes
may include retaliatory premium taxes, which may be imposed in the future in
any state in which you live. Acceptance of the application is subject to it
being received in good order. We reserve the right to reject any application
or purchase payment. Contracts normally will not be issued if an owner or
annuitant is more than 90 years old, although we, in our discretion, may waive
this restriction in certain cases.
If the initial purchase payment allocated to the variable sub-account(s)
cannot be credited within two days of receipt because the information is
incomplete,
27
<PAGE>
or for any other reason, we will contact you. We will explain the reason for
the delay and will refund the initial purchase payment within five business
days. If you consent to our retaining the initial purchase payment, we will
credit it to the variable sub-account of your choice as soon as the
requirements are fulfilled.
Ten Day Cancellation Option
Each contract provides for a free look period of 10 days (or longer if
required by state law) after receipt of the contract during which you may
cancel the contract. To cancel, the contract must be returned to us with a
written notice of cancellation. In most states, including for some ages of
owners in some states, and in all states for IRAs, we will refund the greater
of the purchase payments or account value of the date the written notice and
the contract are received by us. In some states you may receive a refund of
more (or less) than the account value. You should consult your registered
representative or investment adviser (or see your contract) for the applicable
provision.
Additional purchase payments may be paid into the contract at any time before
the annuity date, as long as the annuitant or contingent annuitant is living.
Additional purchase payments must be at least $500, or at least $100 if paid
to an automatic payment plan. Using an automatic payment plan, the additional
purchase payments are automatically deducted from a bank account. In addition,
minimum allocation amounts apply. Additional net purchase payments are
credited to the contract as of the date the payment is received. Currently,
additional purchase payments after the initial purchase payment may not be
made to Section 401(a) and Section 403(b) annuity contracts.
Total purchase payments for any contract may not exceed $1,000,000 without our
prior approval. In no event may the sum of all purchase payments for a
contract during any taxable year exceed the limits imposed by any applicable
federal or state laws, rules, or regulations.
Choosing One or More Investment Options
You specify how purchase payments will be allocated under the contract. You
may allocate the net purchase payments between and among one or more of the
sub-accounts of the variable account and the guarantee periods of the fixed
account. Portions must be whole number percentages and any allocation
percentage for a sub-account must be at least 10%. In addition, the initial
allocation to any inactive sub-account must be at least $500. The initial
allocation to a new guarantee period must be at least $1,000. You may choose
to allocate nothing to a particular sub-account or guarantee period.
Each net purchase payment will be subject to the allocation percentages in
effect at the time of receipt of such purchase payment. You may change the
allocation percentages for new purchase payments among the sub-accounts and
the guarantee period may be at any time by submitting a request for such
change, in a form acceptable to us, to our service center. Any changes to the
allocation percentages are subject to the limitations above. Any change will
take effect with the first purchase payment received with or after receipt by
our service center of the request for such change and will continue in effect
until subsequently changed.
If an allocation of an additional net purchase payment is directed to an
inactive sub-account, then the amount allocated must be at least $500. If an
allocation of an additional net purchase payment is directed to a new
guaranteed period of the fixed account, then the amount allocated must be at
least $1000.
Investment Option Limit
Currently, you may not allocate purchase payment dollars to more than eighteen
investment options over the life of the contract. Investment options include
sub-accounts of the variable account and guarantee periods of the fixed
account. Each sub-account and each duration of a guarantee period of the fixed
account that ever received a transfer or purchase payment allocation count as
one towards this total of eighteen limit. We may waive this limit in the
future.
For example, if you make an allocation to the Money Market Sub-Account and
later transfer all amounts out of this Money Market Sub-Account, it would
still count as one for the purposes of the limitation even if it held no
value. If you transfer from a sub-account to another sub-account and later
back to the first, the count towards the limitation would be two, not three.
If you select a guarantee period and renew for the same term, the count will
be one. If you renew to a guarantee period with a different term, the count
will be two.
28
<PAGE>
ACCOUNT VALUE
Before the annuity date, the account value is the sum of:
. the fixed accumulated value; plus
. the variable accumulated value.
The fixed accumulated value is the total dollar amount of all guarantee
amounts held under the fixed account for the contract before the annuity date.
The fixed accumulated value is determined without any interest adjustment. The
variable accumulated value is the total dollar amount of all variable
accumulation units under each sub-account of the variable account held for the
contract before the annuity date. The variable accumulated value before the
annuity date is equal to:
a) net purchase payments allocated to the sub-accounts; plus or minus
b) any increase or decrease in the value of the assets of the sub-accounts due
to investment results; less
c) the daily mortality and expense risk charge; less
d) the daily administrative expense charge; less
e) any reductions for the annual account fee; plus or minus
f) amounts transferred from or to the fixed account; less
g) any applicable transfer fees and systematic withdrawal option fees; and
less
h) any withdrawals from the sub-accounts less any premium tax applicable to
those withdrawals.
A valuation period is the period between successive valuation days. It begins
at the close of the New York Stock Exchange, generally 4:00 p.m. ET, on each
valuation day. It ends at the close of the New York Stock Exchange on the next
succeeding valuation day. A valuation day is each day that the New York Stock
Exchange is open for regular business. The value of the variable account
assets is determined at the end of each valuation day. To determine the value
of an asset on a day that is not a valuation day, the value of that asset as
of the end of the next valuation day will be used. Days that are not
considered to be valuation days are those during which the New York Stock
Exchange is closed for regular business.
The variable accumulated value is expected to change from valuation period to
valuation period. The changes reflect how the investment performed of all of
the selected portfolios, and also reflect the deductions for charges.
How Your Variable Accumulation Units Are Created
When you pay purchase payments into your contract, those payments are used to
purchase variable accumulation units in the sub-accounts in which you have
chosen to invest. At the end of each valuation period during which we received
purchase payments, you will be credited with variable accumulation units. The
number of units you receive is determined by dividing:
. the portion of each net purchase payment allocated to the sub-accounts, by
. the variable accumulation unit value, at the end of the valuation period.
When you pay your first purchase payment, which is defined as the initial net
purchase payment, variable accumulation units for that payment are credited to
the account value. The variable accumulation units credited to your contract
as the result of your initial net purchase payment are credited to your
contract's value within two valuation days of:
1. the date upon which our service center receives an acceptable and properly
completed application; or
2. the date upon which our service center receives the initial purchase
payment.
The variable accumulation units credited to your contract as the result of
subsequent purchase payments will be credited to your contract's value at the
end of the valuation period during which we received your payment.
How Variable Accumulation Unit Values Are Calculated
The value of a variable accumulation unit for each sub-account for a valuation
period is established at the end of each valuation period. It is calculated by
multiplying the value of that unit at the end of the prior valuation period by
the sub-account's net investment factor for the valuation period. The value of
a variable accumulation unit may go up or down.
29
<PAGE>
The net investment factor is used to determine the value of accumulation and
annuity unit values for the end of a valuation period. The applicable formula
can be found in the Statement of Additional Information.
Transferring Among Sub-Accounts
When you transfer purchase payment dollars among the sub-accounts, those
transfers will result in the purchase and/or cancellation of variable
accumulation units. The value of these units will equal the total dollar
amount you are transferring to or from a sub-account. These transactions are
valued at the end of the valuation day on which you performed your
transaction.
TRANSFERS
Before the Annuity Date
Before the annuity date, you may transfer any portion of the account value
among the sub-accounts and the guarantee periods then offered by us. You can
make transfers by giving a written request to our service center subject to
the following conditions:
. the minimum amount that may be transferred is $500; and
. the minimum transfer to an inactive sub-account is $500; and
. the minimum transfer required to establish a new guarantee period is
$1,000.
Transfers are also subject to terms and conditions that may be imposed by the
portfolios.
Your transfer request must specify:
. the sub-account or guarantee period from which the transfer is to be made;
. the amounts you wish to transfer, subject to the minimum transfer amount;
and
. the sub-account or guarantee period you wish to receive the transfer.
We impose a transfer fee equal to the lesser of $10 or 2% of the amount of the
transfer for each transfer over 18 in a contract year. We also reserve the
right to:
. waive the transfer fee;
. vary the number of transfers without charge, but not fewer than 12; or
. not count transfers under certain options or services.
The transfer will generally be effective on the date your request is received
at our service center. If the transfer is made from a guarantee period before
its expiration date, it will be subject to an interest adjustment.
If a transfer from a guarantee period is made within the 30-day period ending
on its expiration date, we will not count it for purposes of the 18 allowable
transfers. It will also not be subject to any interest adjustment.
If a transfer reduces the value in a sub-account to less than $500, then we
reserve the right to transfer the remaining amount along with the amount you
requested to be transferred according to your transfer instructions. Under
current law, there will not be any tax liability to you as the owner if you
make a transfer.
Telephone Transfers
We will allow telephone transfers if you have provided proper authorization
for such transfers in a form and manner acceptable to us. We will provide you
with limitations and rules for these transfers. We reserve the right to
suspend telephone transfer privileges at any time, for some or all contracts,
for any reason. Withdrawals are not permitted by telephone.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If we follow such procedures we will not be liable
for any losses due to unauthorized or fraudulent instructions. However, we may
be liable for such losses if we do not follow those reasonable procedures. The
procedures we will follow for telephone transfers may include:
a) requiring some form of personal identification before acting on
instructions received by telephone;
b) providing written confirmation of the transaction; and/or
c) tape recording the instructions given by telephone.
30
<PAGE>
Possible Restrictions
We reserve the right without prior notice, to modify, restrict, suspend or
eliminate the transfer privileges, including telephone transfers, at any time
and for any reason. For example, restrictions may be necessary to protect
owners from adverse impacts on portfolio management of large and/or numerous
transfers by market timers or others. We have determined that the movement of
significant sub-account values from one sub-account to another may prevent the
portfolio impacted by these transfers from taking advantage of investment
opportunities. This occurs because the portfolio must maintain a significant
cash position in order to handle redemptions.
Such large and sudden movement of assets in any one portfolio may also cause a
substantial increase in portfolio transaction costs. These costs must be
indirectly borne by owners. Therefore, we reserve the right to require that
all transfer requests be made by you, the owner and not by a third party
holding a power of attorney. We also require that each transfer request be
made by a separate communication to us. We also reserve the right to request
that each transfer request be submitted in writing and be manually signed by
the owner or owners; facsimile transfer requests may not be allowed.
Dollar Cost Averaging
Before the annuity date, you, as the owner, may request that a designated
amount of money be automatically transferred from one, and only one, of the
sub-accounts which invests in:
. the Money Market Portfolio;
. the Quality Bond Portfolio;
. the Limited Term High Income Portfolio.
Or you can have it transferred from the fixed account. This money may be
transferred to any of the sub-accounts on a monthly basis by submitting a
request to our service center. The request must be in a form and manner
acceptable to us. You may be able to transfer amounts from the source accounts
in addition to the Money Market, Quality Bond and Limited Term High Income
Sub-Accounts, and can include the shortest guarantee period. Call our service
center for the availability of source accounts options. Your transfers will
begin the month following, but no sooner than one week following, receipt of
such request, provided that dollar cost averaging transfers will not begin
until 30 days after the contract date.
Transfers will continue for the duration you selected unless terminated:
1. by you;
2. automatically by us because there are insufficient funds in the source
account, or
3. for other reasons as set forth in the contract.
You may request that monthly transfers be continued. You can accomplish this
by giving notice to our service center in a form and manner acceptable to us
within 30 days before the last monthly transfer. If no request to continue the
monthly transfers is made by you, this option will terminate automatically
with the last transfer.
In order to be eligible for dollar cost averaging, the owner must meet the
following conditions:
1. the value of the source account must be at least $5,000;
2. the minimum amount that you may transfer out of the source account is $250
per month; and
3. the minimum amount transferred into any other sub-account is the greater of
$250 or 10% of the amount being transferred.
Please note that dollar cost averaging transfers can not be made from a source
account from which you are receiving systematic withdrawals or automatic
payouts.
You will not be charged for the dollar cost averaging service. Transfers that
result from dollar cost averaging practices will not count toward 18 transfers
allowed to the sub-accounts and/or general account options without charge. We
will make no interest adjustments on dollar cost averaging transfers from the
fixed account if we allow it as a source account.
Special Dollar Cost Averaging Option
(May not be available in all states. See contract for availability of the
fixed account options.)
When you make a purchase payment to the contract, you may elect to allocate
the entire purchase payment to either the six or twelve month special Dollar
Cost Averaging account of the fixed account. The purchase payment will be
credited with interest at a guaranteed
31
<PAGE>
fixed rate. Amounts will then be transferred from the special Dollar Cost
Averaging account to the variable sub-accounts pro rata on a monthly basis for
six or twelve months (depending on the option you select) in the allocations
you specified when you applied for the contract. The four transfers per year
limit does not apply to the special Dollar Cost Averaging option. Amounts from
the sub-accounts and/or fixed account options may not be transferred into the
special Dollar Cost Averaging accounts. In addition, if you request a transfer
(other than a Dollar Cost Averaging transfer) or a withdrawal from a special
Dollar Cost Averaging account, any amounts remaining in the special account
will be transferred to the variable sub-accounts according to your original
allocation instructions. The special Dollar Cost Averaging option will end and
cannot be reelected. The special Dollar Cost Averaging Option cannot be in
effect at the same time the regular Dollar Cost Averaging is in effect.
Automatic Asset Rebalancing
When you allocate purchase payments to certain portfolios in certain
percentages, you define how you want your investments to perform. Changing
market conditions affect each portfolio's performance, and can throw your
allocations out of balance. You may instruct us to automatically rebalance the
amounts by reallocating them among the variable sub-accounts, at the time and
in the percentages that you specify. You must specify automatic asset
rebalancing in your instructions to us. As the owner, you may elect to have
the rebalancing done on an annual, semi-annual or quarterly basis. You may
also elect to have amounts allocated among the sub-accounts using whole
percentages, with a minimum of 10% allocated to each sub-account.
You may elect to establish, change or terminate the automatic asset
rebalancing by submitting a request to our service center in a form and manner
acceptable to us. Automatic asset rebalancing will not count towards the limit
of 18 free transfers in a contract year. There is currently no charge for the
automatic asset rebalancing. However, we reserve the right to charge a nominal
amount for this feature. We also reserve the right to discontinue offering
automatic asset rebalancing any time for any reason.
After the Annuity Date
If you elect a variable annuity payout option, you may make transfers among
sub-accounts after the annuity date by submitting a request in a form
acceptable to us to our service center. Your request will be subject to the
following provisions:
1. transfers after the annuity date may be made no more than four times during
any annuity year; and
2. the minimum amount transferred from one sub-account to another is the
amount supporting a current $75 monthly payment.
Your transfers among sub-accounts during the annuity period will be processed
based on the formula outlined in the Statement of Additional Information.
CASH WITHDRAWALS
Withdrawals
You may withdraw all or part of the cash surrender value for a contract at any
time during the life of the annuitant and before the annuity date. You can do
this by giving a written request to our service center. Your request will be
subject to the rules below. Federal or state laws, rules or regulations may
also apply. You cannot make withdrawals after the annuity date.
The amount payable to you if the contract is surrendered on or before the
annuity date is the cash surrender value. The cash surrender value is equal to
the account value, minus any account fee, minus any interest adjustment, minus
any applicable contingent deferred sales load and minus any applicable premium
taxes. If the account value exceeds $50,000 on the date the contract is
surrendered, and where permitted by law, we will waive the account fee.
A full surrender of your contract will result in a cash withdrawal payment
equal to the contract's cash surrender value at the end of the valuation
period during which your request is received along with all of your completed
forms.
Only one partial withdrawal will be allowed while the systematic withdrawal
option is in effect. Partial withdrawals must be at least $500.
In the case of a partial withdrawal, you may instruct our service center as to
the amounts to be withdrawn from each sub-account or fixed account. If you do
not specify from where the withdrawal is to be made, the withdrawal will be
taken pro rata from all sub-
32
<PAGE>
accounts with current values. If the requested withdrawal reduces the value of
the sub-account from which the withdrawal was made to less than $500, we
reserve the right to transfer the remaining value of that sub-account pro
rata. If no such sub-accounts exist, such transfer will be made to the Money
Market Sub-Account. You will be notified in writing of any such transfer.
A partial withdrawal will not be processed if it would reduce the account
value to less than $2,000. In that case, you will be notified that you will
have 10 days from the date notice is mailed to:
a. withdraw a lesser amount, subject to the $500 minimum, leaving an account
value of at least $2,000; or
b. surrender the contract for its cash surrender value.
Amounts payable will be determined as of the end of the valuation period
during which the subsequent instructions are received. If, after the
expiration of the 10-day period, no written election is received from you,
your withdrawal request will be considered null and void, and no withdrawal
will be processed.
Fees and Taxes Relating to Withdrawals or Surrenders
The account fee, unless waived, will be deducted from a full surrender before
the application of any contingent deferred sales load. Your withdrawals may be
taxable transactions. The Code requires us to withhold federal income tax from
withdrawals. However, as an owner, you generally will be entitled to elect, in
writing, not to have tax withholding apply.
This is true except for distributions from certain qualified contracts that
may be subject to mandatory 20% withholding. Withholding applies to the
portion of the withdrawal which is includible in income and subject to federal
income tax. The federal income tax withholding rate for partial withdrawals
and full surrenders is currently 10%, or 20% for certain qualified contracts,
of the taxable amount of the withdrawal. Withholding applies only if the
taxable amount of the withdrawal is at least $200. Some states also require
withholding for state income taxes. Moreover, the Code provides that a 10%
penalty tax may be imposed on the taxable portions of distributions for
certain early withdrawals.
Withdrawals, including surrender requests, generally will be processed as of
the end of the valuation period during which the request, including all
completed forms, is received. Payment of any cash withdrawal or lump sum death
benefit due from the variable account will occur within seven days from the
date on which your request is received, except that we may postpone such
payment if:
1. the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. an emergency exists as defined by the Commission, or the Commission
requires that trading be restricted; or
3. the Commission permits a delay for the protection of owners.
The withdrawal request will be effective when all appropriate forms are
received. Payments of any amounts derived from purchase payments paid by check
may be delayed until the check has cleared your bank. When a withdrawal is
made from a guarantee period before its expiration date, the amount withdrawn
will generally be subject to an interest adjustment. The payment of a
withdrawal from the fixed account may be delayed for up to six months. If
delayed for more than 30 days, interest will be paid on the withdrawal amount
up to the date of payment.
You, as the owner, assume the investment risk for amounts allocated to the
variable account. Certain withdrawals are subject to a contingent deferred
sales load. The total amount paid upon surrender of the contract, taking into
account any prior withdrawals, may be more or less than the total purchase
payments paid.
Additional Withdrawal and Surrender Provisions
After a withdrawal of the total cash surrender value, or at any time that the
account value is zero, all of your rights as the owner will terminate.
Except IRA's and Roth IRAs, qualified contracts offered by the prospectus are
only offered with our prior approval. They will be issued in connection with
retirement plans which meet the requirements of the Code. You should refer to
the terms of the particular retirement plans for any additional
33
<PAGE>
limitations or restrictions on your cash withdrawals, as these limitations or
restrictions may supercede those of the contract issued by us.
You may elect, under the systematic withdrawal option or automatic payout
option (but not both), to withdraw certain amounts on a periodic basis from
the sub-accounts before the annuity date.
Systematic Withdrawal Option
Before to the annuity date, you may elect to have withdrawals automatically
made from one or more sub-account(s) on a monthly basis. You can do this by
giving written notice to our service center. Other distribution modes may be
allowed. The withdrawals will begin the month following, but no sooner than
one week following, receipt of your written notice. Please note, however,
payments will not begin sooner than the later of:
a. 30 days after the contract date; or
b. the end of the free look period, allowing for 5 days for delivery of the
contract by mail.
Upon written notice to you, we may change the day of the month on which
withdrawals are made under this option. Withdrawals will be from the sub-
account, or sub-accounts, and in the percentage allocations specified by you.
If no specifications are made, withdrawals will be pro rata from all sub-
accounts the fixed account with value. Systematic withdrawals can not be made
from a sub-account from which dollar cost averaging transfers are being made.
Eligibility and Rules of the Systematic Withdrawal Option
To be eligible for the systematic withdrawal option:
. the account value must be at least $12,000 at the time you elect to use
this option;
. the minimum monthly amount that can be withdrawn is $100; and
. the maximum monthly amount that can be withdrawn on an annual basis is
equal to the sum, as of the date of the first withdrawal, of:
a. 10% of purchase payments that are less than seven contract years old;
and
b. 10% of remaining purchase payments that are at least seven contract
years old.
Systematic withdrawals are not subject to the contingent deferred sales load
but can be reduced by any applicable premium tax. Systematic withdrawals may
be taxable, subject to withholding, and subject to the 10% penalty tax.
Systematic withdrawals will continue unless you terminate them or they are
automatically terminated by us as described in the contract. If this option is
terminated it may not be used again until the next contract anniversary. In
some states, no partial withdrawal may be made while the systematic withdrawal
option is in effect. Any partial withdrawal will automatically terminate the
systematic withdrawal option. Any portion of such partial withdrawal which
exceeds the allowed amount for withdrawals will be subject to a contingent
deferred sales load. In other states, only one partial withdrawal can be made
while the systematic withdrawal option is in effect. Making more than one
partial withdrawal while this option is in effect will automatically terminate
the systematic withdrawal option. Amounts that exceed the allowed amount for
withdrawals will be subject to a contingent deferred sales load.
We reserve the right to impose an annual fee of an amount not to exceed $25
per contract year for administrative expenses associated with processing the
systematic withdrawals. This fee, which is currently waived, will be deducted
from each systematic withdrawal in equal installments during a contract year.
The systematic withdrawal option is not available with the fixed account.
Consult your tax adviser and, if applicable, the particular retirement plan,
before requesting withdrawals from a qualified contract. There may be severe
restrictions on withdrawals from qualified contracts.
Automatic Payout Option, or APO
Before the annuity date, you may elect the automatic payout option, referred
to as the APO, to satisfy minimum distribution requirements under the Code for
certain qualified contracts.
Death Benefit
If an owner or annuitant dies before the annuity date, a death benefit is
payable. The death benefit will be equal to the greatest of:
34
<PAGE>
1) the account value on the date we receive the required information (see
below);
2) the Guaranteed Minimum Death Benefit, plus an additional Purchase Payments
received, less any partial withdrawals and any applicable premium taxes
from the date of death to the date of payment of death proceeds.
Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit is equal to the greater of:
1) the largest account value on the contract date or on any contract
anniversary prior to the earlier of the date of death or any owner's or
annuitant's 86th birthday, adjusted for any subsequent purchase payments
paid by the owner (less the sum of all subsequent adjusted partial
withdrawals and any premium taxes applicable to those withdrawals); or
2) the sum of all purchase payments, less adjusted partial withdrawals and any
premium taxes applicable to those withdrawals, plus interest thereon equal
to a 5% annual effective rate, credited on a daily basis up to:
a) the contract anniversary prior to the earlier of any owner's or
annuitant's 86th birthday;
b) the date the sum of all purchase payments, (less the sum of all adjusted
partial withdrawals and any premium taxes), together with credited
interest, has grown to two times the amount of all purchase payments
(less all adjusted partial withdrawals and any premium taxes) as a
result of such interest accumulation, if earlier; or
c) the date of death of any owner or annuitant.
For contracts purchased by any owner or with an annuitant age 85 or older, the
death benefit available will be the sum of all purchase payments, less
adjusted partial withdrawals and any premium taxes applicable to these
withdrawals.
The death benefit will be determined as of the valuation period during which
the later of:
a) proof of death of the owner or annuitant is received by our service center;
or
b) written notice of the method of settlement elected by the beneficiary is
received at our service center.
If no settlement method is elected, the death benefit will be calculated and
paid as of a date no later than one year after the date of death. No
contingent deferred sales load will apply. Until the death benefit is paid,
the account value allocated to the variable account will remain in the sub-
accounts as previously specified by the owner, or in the sub-accounts as
reallocated according to instructions received by us from all beneficiaries.
Therefore, the account value will fluctuate with investment performance of the
applicable sub-accounts. As a result, the amount of the death benefit will
depend on the account value at the time the death benefit is paid. There is no
extra charge for the death benefit, and it applies automatically, i.e., no
election by the owner is necessary.
(The GMDB may not be available in all states as of the date of this
prospectus.)
Adjusted Partial Withdrawals
When you request a partial withdrawal, your guaranteed minimum death benefit
may be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total purchase payments. We have included a detailed
explanation of this adjustment in the Statement of Additional Information.
Payment of Death Benefit
The death benefit is generally payable upon receipt of proof of death of the
annuitant or owner. Where the owner is not an individual, the death benefit is
generally payable upon receipt of proof of death of the annuitant. Once our
service center receives this proof and the beneficiary's choice of a method of
settlement, the death benefit generally will be paid within seven days, or as
soon thereafter as we have sufficient information to make the payment. The
death benefit may be paid in a lump sum cash benefit. Or, subject to any
limitations under any state or federal law, rule, or regulation, it may be
paid under one of the annuity forms, unless a settlement agreement effective
under the contract prevents this choice. If no settlement method is elected
within one year of the date of death, the death benefit will be
35
<PAGE>
paid in a lump sum. The payment of the death benefit may be subject to certain
distribution requirements under the federal income tax laws.
Designation of Beneficiaries
You, as the owner, may select one or more beneficiaries and name them in a
form and manner acceptable to us. If you select more than one beneficiary,
unless you indicate otherwise, they will each share equally in any death
benefits payable in the event of the annuitant's death before the annuity date
if there is no contingent annuitant, or the owner's death if there is no joint
owner, and the owner is an individual other than the annuitant. Different
beneficiaries may be named with respect to the annuitant's death and the
owner's death. Respectively, these individuals are referred to as the
annuitant's beneficiary and the owner's beneficiary. Before the annuitant's
death, you may change the beneficiary by notice to our service center in a
form and manner acceptable to us. You may also make the designation of
beneficiary irrevocable by sending notice to and obtaining approval from our
service center. Irrevocable beneficiaries may only be changed with the written
consent of the designated irrevocable beneficiaries, except to the extent
required by law.
The interest of any beneficiary who dies before the owner or annuitant will
terminate at the death of the beneficiary. The interest of any beneficiary who
dies at the time of, or within 30 days after, the death of the owner or
annuitant will also terminate if no benefits have been paid, unless the
contract has been endorsed to provide otherwise. The benefits will then be
paid as though the beneficiary had died before the owner or annuitant. If the
interests of all designated beneficiaries have terminated, any benefits
payable will be paid to the owner's estate.
We may rely on an affidavit by any responsible person in determining the
identity or non-existence of any beneficiary not identified by name.
Death of Annuitant Before the Annuity Date
If the annuitant dies before the annuity date and the annuitant is not the
owner and there is no contingent annuitant, a death benefit under the contract
relating to that annuitant will be paid to the annuitant's beneficiary. If
there is a contingent annuitant, then upon the death of the annuitant the
contingent annuitant will become the annuitant and no death benefit will be
paid at that time.
Death of Owner Before the Annuity Date
If an owner dies before the annuity date, a death benefit will be paid to that
owner's beneficiary. If the contract has joint owners, the surviving joint
owner will be the owner's beneficiary. If the owner's beneficiary is the
deceased owner's spouse, then the spouse may elect to treat the contract as
his or her own or receive payment of the death benefit. If the spouse elects
to continue the contract, an amount equal to the excess, if any, of the Death
Benefit over the account value will then be added to the account value. This
amount will be added only once, at the time of such election. Furthermore, all
future contingent deferred sales loads will be waived. The payment of the
death benefit may be subject to certain distribution requirements under the
federal income tax laws.
Death of Annuitant or Owner After the Annuity Date
If the annuitant or an owner dies after the annuity starts, the remaining
undistributed portion, if any, of the contract will be distributed at least as
rapidly as under the method of distribution being used as of the date of such
death. Under some annuity forms, there will be no death benefit. If the owner
is not the annuitant, upon an owner's death, any remaining ownership rights
will pass to the owner's beneficiary.
CHARGES AND DEDUCTIONS
No deductions are made from purchase payments except for any applicable
premium taxes. Therefore, the full amount, less any premium taxes, of the
purchase payments are invested in one or more of the sub-accounts of the
variable account or the fixed account.
As more fully described below, charges under the contract are assessed in
three ways:
1. as deductions for the contract or annuity fees, any transfer fees,
systematic withdrawal option or asset rebalancing fees, (if any), any
interest adjustment (for withdrawals from the fixed account) and, if
applicable, for premium taxes;
2. as charges against the assets of the variable account for the assumption of
mortality and expense risks and administrative expenses; and
36
<PAGE>
3. as contingent deferred sales loads.
In addition, certain deductions are made from the assets of the funds for
investment management fees and expenses. These fees and expenses are described
in the funds' prospectuses and their statements of additional information.
Contingent Deferred Sales Load/
Surrender Charge
No deduction for sales charges is made from your purchase payments, although
premium taxes may be deducted. However, a contingent deferred sales load, or
surrender charge, of up to 6% of purchase payments paid may be imposed on
certain withdrawals or surrenders from the acount value to partially cover
certain expenses incurred by us relating to the sale of the contracts,
including commissions paid to salespersons, the costs of preparation of sales
literature and other promotional costs and acquisition expenses.
The contingent deferred sales load/surrender charge percentage varies
according to the number of contract years between the contract year in which a
net purchase payment was credited to the contract and the contract year in
which the withdrawal is made. The amount of this charge is determined by
multiplying the amount withdrawn subject to the contingent deferred sales load
by the contingent deferred sales load percentage according to the following
table.
<TABLE>
<CAPTION>
Number of Contract Years Contingent
Years Since Receipt of Deferred
Each Purchase Payment Sales Load
<S> <C>
Less than one year 6%
1 year but less than 2 years 6%
2 years but less than 3 years 5%
3 years but less than 4 years 5%
4 years but less than 5 years 4%
5 years but less than 6 years 4%
6 years but less than 7 years 2%
7 or more years 0%
</TABLE>
In no event will the total contingent deferred sales load/surrender charge
assessed against the contract exceed 6% of the aggregate purchase payments
paid to a contract.
Certain amounts may be withdrawn free of any contingent deferred sales load.
You may make withdrawals up to the allowed amount without incurring a
contingent deferred sales load/surrender charge each contract year before the
annuity date. During the first contract year, the allowed amount is equal to
accumulated earnings not previously withdrawn.
For the first withdrawal, and only the first withdrawal in a contract year
after the first contract year, the available allowed amount you may withdraw
is equal to the sum of:
1. 100% of purchase payments not previously withdrawn and received at least
seven contract years before the date of withdrawal; plus
2. the greater of:
a. accumulated earnings not previously withdrawn; or
b. 15% of purchase payments received at least one but less than seven
complete contract years before the date of withdrawal not reduced to
take into account any withdrawals deemed to be made from such purchase
payments.
After the first withdrawal in a contract year after the first contract year,
the available allowed amount is equal to the sum of:
1. 100% of purchase payments not previously withdrawn and received at least
seven contract years before the date of withdrawal; plus
2. accumulated earnings not previously withdrawn.
Withdrawals will always be made first from your accumulated earnings, and then
from your premiums on a first-in first-out basis. This is done so that
accumulated earnings may be depleted with the first withdrawal and the 15% of
premiums discussed above is not used in the calculation of the allowed amount.
If an allowed amount is not withdrawn during a certificate year, it does not
carry over to the next certificate year. However, accumulated earnings, if
any, in your certificate value are always available as the allowed amount. No
withdrawals are allowed from premiums made by a check which has not cleared.
Some contract owners may hold contracts issued before 1995 which, when
originally issued, provided for an allowed amount which was equal to the sum
of:
1. all purchase payments, not previously withdrawn and held more than seven
contract years; plus
37
<PAGE>
2. 10% of purchase payments held between one and seven contract years not
reduced by any withdrawals made by the owner from such purchase payments.
Under these contracts, withdrawals were made first from purchase payments on a
first-in, first-out basis, then from earnings. The allowed amount that applies
to these owners will be determined by whichever formula provides them with the
larger amount available, for full surrenders only, without a contingent
deferred sales load.
No contingent deferred sales load will be charged on the allowed amount if a
contract is surrendered and you were eligible to withdraw the amount without
charge but had not made such a withdrawal during the contract year. In
addition, no contingent deferred sales load is charged:
1. upon annuitization after the first three contract years to an option
involving life contingencies;
2. upon payment of the death benefit;
3. upon transfers of account value among the sub-accounts and the guarantee
periods;
4. under the systematic withdrawal option; or,
5. in some circumstances, under the automatic payout option.
Any applicable contingent deferred sales load will be deducted from the amount
requested for both partial withdrawals and full surrenders. The contingent
deferred sales load and any premium tax applicable to a withdrawal from the
fixed account will be deducted from the amount withdrawn after the interest
adjustment, if any, is applied and before payment is made to you.
The contingent deferred sales load arising from a withdrawal or surrender of
the contract will be waived if you receive extended medical care in a licensed
hospital or nursing care facility for at least 45 days (30 days for contracts
issued in Pennsylvania) during any continuous 60 day period beginning on or
after the first contract anniversary and the request for the withdrawal or
surrender, together with proof of such extended care, is received at our
service center during the term of such care or within 90 days after the last
day upon which you received such extended care. This waiver of the contingent
deferred sales load may not be available in all states and does not apply if
you are receiving extended medical care in a licensed hospital or nursing care
facility at the time you applied for the contract or at the contract date.
Additionally, in some states, the contingent deferred sales load arising from
a withdrawal or surrender of the contract will be waived if you are diagnosed,
after the first contract year, with a terminal illness reasonably expected to
result in death within twelve months. Proof of the terminal illness must be
received by our service center at the time the withdrawal or surrender request
is received.
Administrative Charges
At the end of each contract year before the annuity date, we deduct an annual
account fee as partial compensation for expenses relating to the issue and
maintenance of the contract and the variable account. The annual account fee
is equal to the lesser of $30 or 2% of the account value. No account fee will
be deducted for a contract year if your account value exceeds $50,000 on the
last business day of the contract year or as of the date the contract is
surrendered. The account fee may be changed upon 30 days advance written
notice to you. In no event may this fee exceed the lesser of $60 or 2% of the
account value.
Such increases in the account fee will apply only to future deductions after
the effective date of the change. If you surrender your contract on other than
the end of a contract year, we will deduct the account fee in full at the time
of the surrender. The account fee will be deducted on a pro rata basis from
each sub-account in which the contract is invested at the time of such
deduction or from the fixed account if there are insufficient funds in the
sub-accounts. If the entire amount is in the fixed account, then the annual
account fee will be deducted on a pro rata basis from all guarantee periods.
After the annuity date, we deduct an annual annuity fee of $30 in equal
amounts from each variable annuity payment made during the year. If monthly
payments, the amount paid per month will be $2.50. This fee will not be
changed. No annuity fee will be deducted from fixed annuity payments.
We also deduct the administrative expense charge from the variable account at
the end of each valuation period both before and after the annuity date at an
effective current annual rate of 0.15% of assets held in each sub-account.
This deduction is for
38
<PAGE>
administrative expenses attributable to the contracts and the variable account
which exceed the revenues received from the account fee, any transfer fee, and
any fee imposed for systematic withdrawals.
We have the ability to increase or decrease this charge, but the charge is
guaranteed not to exceed 0.25%. We will provide 30 days written notice of any
change in fees. The administrative charges do not bear any relationship to the
actual administrative costs of a particular contract. The administrative
expense charge is reflected in the variable accumulation or variable annuity
unit values for each sub-account.
Mortality and Expense Risk Charge
We impose a charge called the mortality and expense risk charge to compensate
it for bearing certain mortality and expense risks under the contracts. For
assuming these risks, we make a daily charge equal to 0.003403% corresponding
to an effective annual rate of 1.25% of the value of the net assets in the
variable account. This charge is imposed before the annuity date and if an
annuity purchase amount is applied to a variable payment option, also after
the annuity date. We guarantee that this charge of 1.25% will never increase.
The mortality and expense risk charge is reflected in the variable
accumulation or variable annuity unit values for each sub-account.
Variable accumulated values and variable annuity payments are not affected by
changes in actual mortality experience incurred by us. The mortality risks
assumed by us arise from our contractual obligations to make annuity payments
and to pay death benefits before the annuity date. The annuity payments are
determined in accordance with the annuity tables and other provisions
contained in the contract. Thus, as owner, you are assured that neither the
annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the annuity payments under the contract.
We also bear substantial risk in connection with the death benefit before the
annuity date, since it will pay a death benefit that may be greater than the
account value. In this way, we bear the risk of unfavorable experience in the
sub-accounts. The expense risk assumed by us is the risk that our actual
expenses in administering the contract and the variable account will exceed
the amount recovered through the administrative expense charge, account fees,
transfer fees and any fees imposed for systematic withdrawals.
If the mortality and expense risk charge is insufficient to cover actual costs
and risks assumed, the loss will fall on us. Conversely, if this charge is
more than sufficient, any excess will be profit to us. Currently, we expect a
profit from this charge.
We anticipate that the contingent deferred sales load will not generate
sufficient funds to pay the cost of distributing the contracts. To the extent
that the contingent deferred sales load is insufficient to cover the actual
cost of contract distribution, the deficiency will be met from our general
corporate assets which may include amounts, if any, derived from the mortality
and expense risk charge.
Premium Taxes
We may be required to pay premium or retaliatory taxes currently ranging from
0% to 3.5% in connection with purchase payments or values under the contracts.
Depending upon applicable state law, we may deduct the premium taxes which are
payable with respect to a particular contract from the purchase payments, from
amounts withdrawn, or from amounts applied on the annuity date. In some
states, charges for both direct premium taxes and retaliatory premium taxes
may be imposed at the same or different times with respect to the same
purchase payment, depending upon applicable state law.
In certain limited circumstances, a broker-dealer or other entity distributing
the contracts may elect to pay to us an amount equal to the premium taxes that
would otherwise be attributable to that entity's customers. In such cases, we
will not impose a premium tax charge on those contracts.
Transfer Fee
We charge a fee equal to the lesser of $10 or 2% of the amount of transfer for
each transfer in excess of 18 in a contract year. We reserve the right to:
a) waive the transfer fee;
b) vary the number of transfers without charge, but not fewer than 12; or
39
<PAGE>
c) not count transfers under certain options or services for purposes of the
allowed number without charge.
Currently, we do not charge a fee for automatic asset rebalancing. However, we
reserve the right to impose a nominal fee.
Systematic Withdrawal Option
We reserve the right to impose an annual fee of an amount not to exceed $25
for administrative expenses associated with processing systematic withdrawals.
This fee, which is currently waived, will be deducted in equal installments
from each systematic withdrawal you take during a contract year.
Automatic Asset Rebalancing Option
We currently do not charge for automatic asset rebalancing, but we reserve the
right to impose a nominal fee for this feature in the future.
Taxes
Under present laws, we will incur state or local taxes, in addition to the
premium taxes described above, in several states. No charges are currently
made for taxes other than state premium taxes. However, we reserve the right
to deduct charges in the future for federal, state and local taxes or the
economic burden resulting from the application of any tax laws that we
determine to be attributable to the contracts.
Portfolio Expenses
The value of the assets in the variable account reflects the value of
portfolio shares and therefore the fees and expenses paid by each portfolio.
You can find a complete description of the fees, expenses, and deductions from
the portfolios in the portfolios' prospectuses.
Guaranteed Minimum Income Benefit Rider
If you elect the optional Guaranteed Minimum Income Benefit Rider, there is an
annual rider fee during the accumulation phase (before the annuity date) of
0.30% of the minimum annuitization value. This fee is deducted on each rider
anniversary from each variable sub-account in proportion to the amount of
account value in each sub-account. A proportional amount of this rider fee
will also be decuted upon a complete withdrawal. We may change the rate in the
future at our discretion, but the rate will never be greater than 0.50% per
year.
If you annuitize under the Guaranteed Minimum Income Benefit Rider and select
the guaranteed minimum payment option at the time of annuitization a
guaranteed minimum payment option fee will be charged. This fee is reflected
in the amount of the variable payments payable under this option. The
guaranteed minimum payment option fee is currently 1.25% of the daily net
asset value in the variable investment options. We may at our discretion
change the rate in the future, but the rate will never be greater than 2.25%
per year.
Once the Guaranteed Minimum Income Benefit Rider is added to your policy,
neither the rider fee nor the guaranteed minimum payment option fee that is in
effect at that time will change during the life of that Guaranteed Minimum
Income Benefit Rider.
Interest Adjustment
For a description of the interest adjustment applicable to early withdrawals
and transfers from the guarantee periods of the fixed account, see The Fixed
Account.
Sales in Special Situations
We may sell the contracts in special situations that are expected to involve
reduced expenses for us. These instances may include:
1. sales in certain group arrangements, such as employee savings plans;
2. sales to current or former officers, directors, employees and their
families, of Transamerica and its affiliates;
3. sales to officers, directors, employees and their families, of the
portfolios' investment advisers and their affiliates; or
4. sales to officers, directors, employees and sales agents, including
registered representatives and their families, or broker-dealers and other
financial institutions that have sales agreements with us to sell the
contracts.
In such situations:
1. the contingent deferred sales load may be reduced or waived;
40
<PAGE>
2. the mortality and expense risk charge or administration charges may be
reduced or waived; or
3. certain amounts may be credited to the contract account value, for
example, amounts related to commissions or sales compensation otherwise
payable to a broker-dealer may be credited to the contract account value.
These reductions in fees or charges or credits to the account value will not
unfairly discriminate against any contract owner. These reductions in fees or
charges or credits to the account value are generally taxable and treated as
purchase payments for purposes of income tax and any possible premium tax.
DISTRIBUTION OF THE CONTRACT
Transamerica Securities Sales Corporation, also referred to as TSSC, is the
principal underwriter of the contracts under a Distribution Agreement with
Transamerica. TSSC may also serve as an underwriter and distributor of other
contracts issued through the variable account and certain other separate
accounts of Transamerica and any affiliates of Transamerica. TSSC is an
indirect wholly-owned subsidiary of Transamerica Insurance Corporation. TSSC
is registered with the Commission as a broker/dealer and is a member of the
National Association of Securities Dealers, Inc., also known as the NASD. Its
principal offices are located at 1150 South Olive, Los Angeles, California
90015. Transamerica pays TSSC for acting as the principal underwriter under a
distribution agreement.
TSSC has entered into sales agreements with other broker/dealers to solicit
applications for the contracts through registered representatives who are
licensed to sell securities and variable insurance products. These agreements
provide that applications for the contracts may be solicited by registered
representatives of the broker/dealers appointed by Transamerica to sell its
variable life insurance and variable annuities. These broker/dealers are
registered with the Commission and are members of the NASD. The registered
representatives are authorized under applicable state regulations to sell
variable life insurance and variable annuities.
Under the agreements, contracts will be sold by broker/dealers which will
generally receive compensation of up to 6.25% of any initial and additional
purchase payments paid, although higher amounts may be paid in certain
circumstances. Additional amounts may be paid in certain circumstances (such
as upon certain annuitizations, when an additional commission of 2.5% of the
account value annuitized may be paid). Additional amounts, including asset
based trail commissions, may be paid in certain circumstances.
Transamerica Financial Resources, Inc., referred to as TFR, also is an
underwriter and distributor of the contracts. TFR is a wholly-owned subsidiary
of Transamerica Insurance Corporation of California and is registered with the
Commission and the NASD as a broker/dealer.
ANNUITY PAYMENTS
Annuity Date
Initially, you select the annuity date at the time you pay the initial
purchase payment. After that, you may change the annuity date from time to
time by giving notice to our service center in a form and manner acceptable to
us. Our service center must receive notice of each change at least 30 days
before to the then-current annuity date. The annuity date must not be earlier
than the third contract anniversary, except for certain qualified contracts.
The annuity date is the date that the annuity purchase amount is applied to
provide the annuity payments under the contract. The annuity date will be used
together with the annuity form and payment option you have selected. The
annuity date will remain effective unless the entire account value has been
withdrawn or the death benefit has been paid to the beneficiary before that
date.
The latest annuity date which may be elected is the later of:
a) the first day of the calendar month immediately preceding the month of the
annuitant's 85th birthday; or
b) the first day of the month coinciding with or next following the tenth
contract anniversary.
This annuity date extension to the tenth contract anniversary may not be
available in all states. The annuity date must be the first day of a calendar
41
<PAGE>
month. The first annuity payment will be on the first day of the month
immediately following the annuity date.
Annuity Payment
The annuity purchase amount is the account value, minus any interest
adjustment, minus any applicable contingent deferred sales load and minus any
applicable premium taxes. Any contingent deferred sales load will be waived if
the annuity form involves life contingencies and begins on or after the third
contract anniversary.
If the amount of the monthly annuity payment from of the payment options which
you select results in a monthly annuity payment of less than $150, or if the
annuity purchase amount is less than $5,000, we reserve the right to offer a
less frequent mode of payment or pay the account value in a cash payment.
Monthly annuity payments from the variable annuity payment option will further
be subject to a minimum monthly annuity amount of $75 from each sub-account of
the variable account from which such payments are made.
You may choose from the annuity forms below. We may consent to other plans of
payment before the annuity date. For annuity forms involving life income, the
actual age and/or sex of the annuitant, or a joint or contingent annuitant
will affect the amount of each payment. Sex-distinct rates generally are not
allowed under certain qualified contracts and in some jurisdictions. We
reserve the right to ask for satisfactory proof of the annuitant's, or the
joint or contingent annuitant's age. We may delay annuity payments until
satisfactory proof is received. Since payments to older annuitants are
expected to be fewer in number, the amount of each annuity payment will be
greater for older annuitants than for younger annuitants.
You may choose from the two annuity payment options described below. The
annuity date and annuity forms available for qualified contracts may also be
controlled by endorsements, the plan or applicable law.
A portion or the entire amount of the annuity payments may be taxable as
ordinary income. If, at the time the annuity payments begin, we have not
received a proper written election not to have federal income taxes withheld,
we must by law withhold such taxes from the taxable portion of such annuity
payments and remit that amount to the federal government. Federal income tax
withholding is mandatory for certain distributions from Section 401 retirement
plans and 403(b) annuities. State income tax withholding may also apply.
Election of Annuity Forms and Payment Options
Before the annuity date and while the annuitant is living, you may, by written
request, change the annuity form or annuity payment option or may request
payment of the cash surrender value of the contract. The request for change of
the annuity date or annuity payment option must be received by our service
center at least 30 days before the annuity date.
If you do not select an annuity form and payment option within at least 30
days before the annuity date, we will make variable annuity payments according
to the 120 month period certain and life annuity form and the applicable
provisions of the contract.
Annuity Payment Options
The annuity forms may be paid under fixed or variable annuity payment options.
Under the fixed annuity payment option, the amount of each payment will be
determined on the annuity date and will not subsequently be affected by the
investment performance of the sub-accounts.
Under the variable annuity payment option, the annuity payments after the
first, will reflect the investment experience of the sub-account or sub-
accounts chosen by the owner.
You may elect a fixed annuity, a variable annuity, or a combination of both,
in 25% increments of the annuity purchase amount. If you elect a combination,
you must specify what part of the annuity purchase amount is to be applied to
the fixed and variable payment options.
Unless you specify otherwise, the applied annuity purchase amount will be used
to provide a variable annuity. The initial allocation of variable annuity
units for the variable sub-accounts will be in proportion to the contract's
value in the sub-accounts on the annuity date.
Fixed Annuity Payment Option
A fixed annuity provides for annuity payments that remain constant according
to the terms of the annuity
42
<PAGE>
form elected. If a fixed annuity is selected, the portion of the annuity
purchase amount used to provide the fixed annuity will be transferred to the
general account assets. The amount of annuity payments will be established by
the fixed annuity provisions selected and the age and sex, (if sex-distinct
rates are allowed by law), of the annuitant and will not reflect investment
performance after the annuity date.
The fixed annuity payment amounts are determined by applying the annuity
purchase rate specified in the contract to the portion of the annuity purchase
amount you applied to the fixed annuity option. Payments may vary after the
death of the annuitant under some annuity options; the amounts of these
variances are fixed on the annuity date.
Variable Annuity Payment Option
A variable annuity provides for payments that vary in dollar amount, based on
the investment performance of the selected sub-accounts of the variable
account. The variable annuity purchase rate tables in the contract reflect an
assumed, but not guaranteed, annual interest rate of 4%, so if the actual net
investment performance of the sub-accounts is less than this rate, then the
dollar amount of the actual annuity payments will decrease. If the actual net
investment performance of the sub-accounts is higher than this rate, then the
dollar amount of the actual annuity payments will increase. If the net
investment performance exactly equals the 4% rate, then the dollar amount of
the actual annuity payments will remain constant.
Variable annuity payments will be based on the sub-accounts you select, and on
the allocations you make among the sub-accounts. For further details as to the
determination of variable annuity payments, see the Statement of Additional
Information.
Annuity Forms
You may choose any of the annuity forms described below. Subject to our
approval, you may also select any other annuity form then being offered by us.
You may select among any of the following contract choices:
1. Life Annuity. Payments start on the first day of the month immediately
following the annuity date, if the annuitant is living. Payments end with
the payment due just before the annuitant's death. There is no death
benefit under this form. It is possible that only one payment will be made
under this form if the annuitant dies before the second payment is due;
only two payments will be made if the annuitant dies before the third
payment is due, and so forth.
2. Life and Contingent Annuity. Payments start on the first day of the month
immediately following the annuity date, if the annuitant is living.
Payments will continue for as long as the annuitant lives. After the
annuitant dies, payments will be made to the contingent annuitant, if
living, for as long as the contingent annuitant lives. The continued
payments can be in the same amount as the original payments, or in an
amount equal to one-half or two-thirds thereof. Payments will end with the
payment due just before the death of the contingent annuitant. There is no
death benefit after both the annuitant and the contingent annuitant die. If
the contingent annuitant does not survive the annuitant, payments will end
with the payment due just before the death of the annuitant. It is possible
that only one payment or very few payments will be made under this form, if
the annuitant and contingent annuitant die shortly after payments begin.
The written request for this form must:
a) name the contingent annuitant; and
b) state the percentage of payments for the contingent annuitant.
Once annuity payments start under this annuity form, the person named as
contingent annuitant for purposes of being the measuring life, may not be
changed. we will need proof of age for the annuitant and the contingent
annuitant before payments start.
3. Life Annuity With Period Certain. Payments start on the first day of the
month immediately following the annuity date, if the annuitant is living.
Payments will be made for the longer of:
a) the annuitant's life; or,
b) the period certain.
The period certain may be 120 or 180 or 240 months, but in no event may it
exceed the life expectancy of the annuitant. If the annuitant dies
43
<PAGE>
after all payments have been made for the period certain, payments will
cease with the payment due just before the annuitant's death. No benefit
will then be payable to the annuitant's beneficiary. If the annuitant dies
during the period certain, the rest of the period certain payments will be
made to the annuitant's beneficiary. You may elect to have the commuted
value of these payments paid in a single sum. The commuted value is the
remaining amount of the period certain payments discounted at the then
current rate of interest used for such values.
If you do not elect to have the commuted value paid in a single sum after
the annuitant's death, you may designate a payee to receive any remaining
payments payable if the annuitant's beneficiary dies before all of the
payments under the period certain have been made.
If the annuitant's beneficiary dies before receiving all of the remaining
period certain payments and a designated payee does not survive the
annuitant's beneficiary for at least 30 days, then the remaining payments
will be paid to the owner, if living, otherwise in a single sum to the
owner's estate.
The written request for this form must:
a) state the length of the period certain; and
b) name the annuitant's beneficiary.
4. Joint and Survivor Annuity. Payments will be made, starting on the first
day of the month immediately following the annuity date, if and for as long
as the annuitant and joint annuitant are living. After the annuitant or
joint annuitant dies, payments will continue as long as the survivor lives.
The continued payments can be in the same amount as the original payments,
or in an amount equal to one-half or two-thirds thereof. It is possible
that only one payment or very few payments will be made under this form if
the annuitant and joint annuitant both die shortly after payments begin.
The written request for this form must:
a) name the joint annuitant; and
b) state the percentage of continued payments for the survivor.
Once payments start under this annuity form, the person named as joint
annuitant, for the purpose of being the measuring life, may not be changed.
We will need proof of age for the joint annuitants before payments start.
5. Other Forms of Payment. Benefits can be provided under any other annuity
form not described in this section subject to our agreement and any
applicable state or federal law or regulation. Requests for any other
annuity form must be made in writing to our service center at least 30 days
before the annuity date.
Once payments start under the annuity form and payment option you selected:
a) no changes can be made in the annuity form and payment option;
b) no additional purchase payments will be accepted under the contract; and
c) no further withdrawals will be allowed.
You may, at any time after the annuity date by written notice to us at our
service center, change the payee of annuity benefits being provided under the
contract.
The effective date of change in payee will be the later of:
a) the date we receive the written request for such change; or
b) the date you specify.
If the contract is issued as a qualified contract, you may not change the
payee on or after the annuity date.
Alternate Fixed Annuity Rates
The amount of any fixed annuity payments will be determined on the annuity
date by using either the guaranteed fixed annuity rates or our current single
premium fixed annuity rates at the time, whichever would result in a higher
amount of monthly fixed annuity payments.
Qualified Contracts
The qualified contracts may be used to fund contributory and rollover IRAs and
Roth IRAs. With our prior approval, the qualified contracts may also be used
for various types of qualified pension and profit sharing plans under Code
Section 401, which permits
44
<PAGE>
corporate employers to establish various types of retirement plans for
employees, and as Section 403(b) annuities. Currently, additional premiums
after the initial premium may not be made to certificates used as Section
401(a) or Section 403(b) annuities. The tax rules applicable to distribution
from qualified retirement plans, including restrictions on contributions and
benefits, taxation of distributions, and any tax penalties, vary according to
the type of plan and the terms and the conditions of the plan itself.
Various tax penalties may apply to:
a) contributions in excess of specified limits;
b) distributions before age 59 1/2, subject to certain exceptions;
c) distributions that do not satisfy specified requirements; and
d) certain other transactions subject to qualified plans.
If you are purchasing a contract for use in a qualified plan, you should seek
competent advice regarding the suitability of the proposed plan documents and
the contracts to their specific needs. We reserve the right to decline to sell
the contract to certain qualified plans or terminate the contract if, in our
judgment, the contract is not appropriate for the plan.
If a contract is purchased to fund an IRA or Roth IRA, you must also be the
annuitant. In addition, under current tax law, minimum distributions are
required from certain qualified contracts. You should consult your tax adviser
concerning these matters.
The Automatic Payout Option, or APO
Before to the annuity date, for qualified contract other than Roth IRAs, you
may elect the automatic payout option, or APO, to satisfy minimum distribution
requirements under Code Sections 401(a)(9), 403(b), and 408(b)(3).
For IRAs and SEP/IRAs, this may be elected no earlier than six months before
the calendar year in which you attain age 70 1/2, but payments may not begin
earlier than January of such calendar year. For other qualified contracts, APO
can be elected no earlier than six months before the later of when you:
a) attain age 70 1/2; and
b) retire from employment.
Additionally, APO withdrawals may not begin before the later of:
a) 30 days after the contract date; or
b) the end of the free look period.
You may elect APO in any calendar month, but no later than the month in which
you attain age 84. APO withdrawals will be from the sub-accounts and in the
percentage allocations which you specify. If no specifications are made,
withdrawals will be pro rata from all sub-accounts with value. Withdrawals can
not be made from a sub-account from which dollar cost averaging transfers are
being made.
Payments will be made annually, and will continue unless terminated by you or
automatically terminated by us as set forth in the contract. Once terminated,
APO may not be elected again.
If only APO withdrawals are made, no contingent deferred sales load will
apply, regardless of the allowed amount. However, if a partial withdrawal is
taken, that partial withdrawal and any subsequent withdrawals in that contract
year will be subject to a contingent deferred sales load to the extent they
exceed the allowed amount.
To be eligible for this option, the following conditions must be met:
1. the account value must be at least $12,000 at the time of election; and
2. the annual withdrawal amount is the larger of the required minimum
distribution under Code Sections 401(a)(9) or 408(b)(3), or $500.
APO allows the required minimum distribution to be paid from the sub-accounts
of the variable account. If there are insufficient funds in the variable
account to make a withdrawal, or for other reasons as set forth in the
contract, this option will terminate. In which case, if there are amounts in a
contract's account value remaining in the fixed account, the minimum
distribution requirements with regard to the account value may not be met. If
amounts are transferred to sub-accounts from a guaranteed period before its
expiration date, an interest adjustment will be made to such amounts.
If you have more than one qualified plan subject to the Code's minimum
distribution requirements, you must consider all such plans in the calculation
of your
45
<PAGE>
minimum distribution requirement, but we will make calculations and
distributions from this contract only.
Restrictions under Section 403(b) Programs
Certain restrictions apply to annuity contracts used in connection Section
403(b) retirement plans. Code Section 403(b) provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations.
According to the requirements of the Code, Section 403(b) annuities generally
may not permit distribution of:
a) elective contributions made in years beginning after December 31, 1988;
b) earnings on those contributions; or
c) earnings on amounts attributable to elective contributions held as of the
end of the last year beginning before January 1, 1989.
Distributions of such amounts will be allowed only upon death of the employee,
on or after attainment of age 59 1/2, separation from service, disability, or
financial hardship, except that income attributable to elective contributions
may not be distributed in the case of hardship.
FEDERAL TAX MATTERS
Introduction
The following discussion is a general description of federal tax
considerations relating to the contract and is not intended as tax advice.
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the contract. If you are concerned about these tax
implications, you should consult a competent tax adviser before initiating any
transaction. This discussion is based upon our understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service, or simply, the IRS. No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of
the current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
The contract may be purchased:
a) on a non-tax qualified basis for use as a non-qualified contract; or
b) purchased and used in connection with plans qualifying for special tax
treatment as a qualified contract.
Qualified contracts are designed for use by individuals solely as plans
entitled to special income tax treatment under Code Sections 401, 403(b), 408
and 408A.
The ultimate effect of federal income taxes on the amounts held under a
contract, on annuity payments, and on the economic benefit to the owner, the
annuitant, or the beneficiary may depend on:
a) the type of retirement plan or arrangement for which the contract is
purchased;
b) the tax status of the individual concerned; or
c) our tax status.
In addition, certain requirements must be satisfied in purchasing a qualified
contract with proceeds from a tax qualified retirement plan or other
arrangement. Certain requirements must also be met when receiving
distributions from a qualified contract in order to continue receiving special
tax treatment. Therefore, if you are considering the purchase of a qualified
contract, you should seek competent legal and tax advice regarding the
suitability of the contract for your situation. You will also need to be aware
of the applicable requirements, and the tax treatment of the rights and
benefits of the contract.
The following discussion assumes that a qualified contract is purchased with
proceeds from and/or contributions under retirement plans that qualify for the
intended special federal income tax treatment. The following discussion is
also based on the assumption that the contract qualifies as an annuity
contract for federal income tax purposes. The Statement of Additional
Information discusses the requirements for qualifying as an annuity.
Purchase Payments
At the time the initial purchase payment is paid, as a prospective purchaser,
you must specify whether you are purchasing a non-qualified contract or a
qualified contract. If the initial purchase payment is derived from an
exchange or surrender of another annuity contract, we may require that you
provide information with regard to the federal income tax status of the
previous annuity contract. We will require you purchase separate contracts if
you desire
46
<PAGE>
to invest monies qualifying for different annuity tax treatment under the
Code.
Each such separate contract would require the minimum initial purchase payment
previously described. Additional purchase payments under a contract must
qualify for the same federal income tax treatment as the initial purchase
payment under the contract. We will not accept an additional purchase payment
under a contract if the federal income tax treatment of such purchase payment
would be different from that of the initial purchase payment.
Taxation of Annuities In General
Code Section 72 governs taxation of annuities in general. We believe that the
owner who is a natural person generally is not taxed on increases in the value
of a contract until distribution occurs by withdrawing all or part of the
account value, for example, through withdrawals or annuity payments under the
annuity option elected. For this purpose, the assignment, pledge, or agreement
to assign or pledge any portion of the account value, and in the case of a
qualified contract, any portion of an interest in the plan, generally will be
treated as a distribution. The taxable portion of a distribution, in the form
of a single sum payment or an annuity, is taxable as ordinary income.
The owner of any non-qualified contract who is not a natural person generally
must include in income any increase in the excess of the account value over
the investment in the contract during the taxable year. There are some
exceptions to this rule and a prospective owner that is not a natural person,
for example, a trust, may wish to discuss these with a competent tax adviser.
The following discussion generally applies to contracts owned by natural
persons.
Withdrawals
In the case of a withdrawal under a qualified contract, including withdrawals
under the systematic withdrawal option or the automatic payout option, a
ratable portion of the amount received is taxable. This portion is generally
based on the ratio of the investment in the contract to the individual's total
accrued benefit under the retirement plan.
The investment in the contract generally equals the amount of any non-
deductible purchase payments paid by or on behalf of any individual. For a
qualified contract, the investment in the contract can be zero. Special tax
rules may apply to certain distributions from a qualified contract.
With respect to non-qualified contracts, partial withdrawals, including
withdrawals under the systematic withdrawal option, are generally treated as
taxable income to the extent that the account value immediately before the
withdrawal exceeds the investment in the contract at that time. The investment
in the contract is generally equal to the amount of non-deductible purchase
payments made. If a partial withdrawal from the fixed account is subject to an
interest adjustment, the account value immediately before the withdrawal will
not be altered to take into account the interest adjustment. As a result, for
purposes of determining the taxable portion of the partial withdrawal, the
account value will be treated as including the amount deducted from the fixed
account due to the interest adjustment. Full surrenders are treated as taxable
income to the extent that the amount received exceeds the investment in the
contract.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment
elected under the contract. In general, only the portion of the annuity
payment that represents the amount by which the account value exceeds the
investment in the contract will be taxed. After the investment in the contract
is recovered, the full amount of any additional annuity payments is taxable.
For variable annuity payments, the taxable portion is generally determined by
an equation that establishes a specific dollar amount of each payment that is
not taxed. The dollar amount is determined by dividing the investment in the
contract by the total number of expected periodic payments. However, the
entire distribution will be taxable once the recipient has recovered the
dollar amount of his or her investment in the contract.
For fixed annuity payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the investment in the contract
bears to the total expected value of the annuity payments for the term of the
payments. However, the remainder of each annuity payment is taxable. Once the
investment in the contract has been fully recovered, the full amount of any
additional annuity payments is taxable.
47
<PAGE>
If annuity payments cease as a result of an annuitant's death before full
recovery of the investment in the contract, consult a competent tax adviser
regarding deductibility of the unrecovered amount.
Withholding
The Code requires us to withhold federal income tax from distributions under
the contracts. However, except for distributions from certain qualified
contracts, an owner will be entitled to elect, in writing, not to have tax
withheld. Withholding applies to the portion of a distribution which is
includible in income and subject to federal income tax, where the taxable
amount is at least $200. Some states also require withholding for state income
taxes.
The withholding varies according to the type of distribution and the owner's
tax status. "Eligible rollover distributions" from Section 401(a) plans and
Section 403(b) tax sheltered annuities are subject to mandatory federal income
tax withholding at the rate of 20%. An eligible rollover distribution is the
taxable portion of any distribution from such a plan, except for certain
distributions, such as minimum required distributions or settlement option
payments made in a specified form. The 20% mandatory withholding does not
apply, however, if the owner chooses a "direct rollover" from the plan to
another tax-qualified plan or to an IRA, other than a Roth IRA. The federal
income tax withholding rate for a distribution that is not an eligible
rollover distribution is 10% of the taxable amount of the distribution.
Penalty Tax
A federal income tax penalty equal to 10% of the amount treated as taxable
income may be imposed. In general, however, there is no penalty tax on
distributions:
1. made on or after the date on which the owner attains age 59 1/2;
2. made as a result of death or disability of the owner; or
3. received in substantially equal periodic payments as a life annuity or a
joint and survivor annuity for the lives or life expectancies of the owner
and a designated beneficiary.
Other tax penalties may apply to certain distributions under a qualified
contract.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the contract because of the death of an owner
or the annuitant. Generally such amounts are includible in income as follows:
1. if distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above; or
2. if distributed under an annuity option, they are taxed in the same manner
as annuity payments, as described above.
For these purposes, the investment in the contract is not affected by the
owner's or annuitant's death. That is, the investment in the contract remains
the amount of any purchase payments paid which were not excluded from gross
income. Other rules relating to distributions at death apply to qualified
contracts. You should consult your legal counsel and tax adviser regarding
these rules and their impact on qualified contracts.
Required Distributions upon Owner's Death
Notwithstanding any provision of the contract or this prospectus to the
contrary, no payment of benefits provided under the contract will be allowed
that does not satisfy the requirements of Code Section 72(s). If the owner
dies before the annuity date, the death benefit payable to the owner's
beneficiary will be distributed as follows:
a) the death benefit must be completely distributed within five years of the
owner's date of death; or
b) the owner's beneficiary may elect, within the one year period after the
owner's date of death, to receive the death benefit in the form of an
annuity from us.
Please note that Item b) is based on the following provisions:
1. the annuity must be distributed in substantially equal installments over
the life of the owner's beneficiary or over a period not extending beyond
the life expectancy of the owner's beneficiary; and
2. the distributions must not begin later than one year after the owner's date
of death.
Notwithstanding Items a) and b) above, if the sole owner's beneficiary is the
deceased owner's surviving
48
<PAGE>
spouse, then the surviving spouse may elect, within the one year period after
the owner's date of death, to continue the contract under the same terms as
before the owner's death. If the spouse elects to continue the contract, an
amount equal to the excess, if any, of the Death Benefit over the account
value will then be added to the account value. This amount will be added only
once, at the time of such election. Furthermore, all future contingent
deferred sales loads will be waived.
Upon receipt of such election from the spouse, in a form and manner acceptable
to us, at our service office:
1. all rights of the spouse as owner's beneficiary under the contract in
effect before such election will cease;
2. the spouse will become the owner of the contract and will also be treated
as the contingent annuitant, if none has been named and only if the
deceased owner was the annuitant; and
3. all rights and privileges granted by the contract or allowed by us will
belong to the spouse as owner of the contract.
This election will be deemed to have been made by the spouse if such spouse
makes a purchase payment to the contract or fails to make a timely election as
described in this paragraph. If the owner's beneficiary is a nonspouse, the
distribution provisions described in subparagraphs a) and b) above, will apply
even if the annuitant and/or contingent annuitant are alive at the time of the
owner's death. If the nonspouse owner's beneficiary is not an individual, then
only a cash payment will be paid.
If no election is received by us from a nonspouse owner's beneficiary within
the one year period after the owner's date of death, then we will pay the
death benefit to the owner's beneficiary in a cash payment. The death benefit
will be determined as of the date we make the cash payment. Such cash payment
will be in full settlement of all our liability under the contract.
If Annuitant Dies After Annuity Starts -- If the annuitant dies after the
annuity starts, any benefit payable will be distributed at least as rapidly as
under the annuity form then in effect.
If Owner Dies After Annuity Starts -- If the owner dies after the annuity
starts, any benefit payable will continue to be distributed at least as
rapidly as under the annuity form then in effect. All of the owner's rights
granted under the contract or allowed by us will pass to the owner's
beneficiary.
Joint Ownership -- For purposes of this section, if the contract has joint
owners we will consider the date of death of the first joint owner as the
death of the owner and the surviving joint owner will become the owner of the
contract, subject to the provisions described above.
Transfers, Assignments, or Exchanges of the Contract
A transfer of ownership of a non-qualified contract, the designation of an
annuitant, payee, or beneficiary who is not also the owner, or the exchange of
a contract may result in certain tax consequences to the owner that are not
discussed herein.
If you are contemplating any such designation, transfer, assignment, or
exchange, you should contact a competent tax adviser with respect to the
potential tax effects of such a transaction. Certain qualified contracts
cannot be transferred or assigned, except as permitted by the Code or the
Employee Retirement Income Security Act of 1974, or simply ERISA.
Multiple Policies
All deferred non-qualified annuity contracts that are issued by Transamerica,
or its affiliates, to the same owner during any calendar year are treated as
one annuity contract for purposes of determining the amount includible in
gross income under Code Section 72(e). In addition, the Treasury Department
has specific authority to issue regulations that prevent the avoidance of
Section 72(e) through the serial purchase of annuity contracts or otherwise.
Congress has also indicated that the Treasury Department may have authority to
treat the combination purchase of an immediate annuity contract and separate
deferred annuity contracts as a single annuity contract under its general
authority to prescribe rules as may be necessary to enforce the income tax
laws.
49
<PAGE>
Qualified Contracts
In General
The qualified contract is designed for use as an IRA or Roth IRA. With our
prior approval, the contract may also be used as a Section 403(b) annuity, and
for use in qualified pension and profit sharing plans established by corporate
employers.
The tax rules applicable to participants and beneficiaries in retirement plans
vary according to the type of plan and the terms and conditions of the plan.
Special favorable tax treatment may be available for certain types of
contributions and distributions.
Adverse tax consequences may result from:
. contributions in excess of specified limits;
. distributions before age 59 1/2, subject to certain exceptions;
. distributions that do not conform to specified commencement and minimum
distribution rules; and
. other specified circumstances.
We make no attempt to provide more than general information about use of the
contracts with the various types of retirement plans. Owners and participants
under retirement plans as well as annuitants and beneficiaries are cautioned
that the rights of any person to any benefits under qualified contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the contract issued in connection with such a plan.
Some retirement plans are subject to distribution and other requirements that
are not incorporated in the administration of the contracts. Owners are
responsible for determining that contributions, distributions and other
transactions with respect to the contracts satisfy applicable law. Purchasers
of contracts for use with any retirement plan should consult their legal
counsel and tax adviser regarding the suitability of the contract.
For qualified plans under Section 401(a), 403(a) and 403(b), the Code requires
that distributions generally must commence no later than the later of April 1
of the calendar year following the calendar year in which the owner or plan
participant:
1. reaches age 70 1/2; or
2. retires and distribution must be made in a specified manner.
If the plan participant is a "5 percent owner" as defined in the Code,
distributions generally must begin no later than April 1 of the calendar year
following the calendar year in which the owner, or plan participant reaches,
age 70 1/2.
For IRAs described in Section 408, distributions generally must commence no
later than the later of April 1 of the calendar year following the calendar
year in which the owner, or plan participant, reaches age 70 1/2. Roth IRAs
under Section 408A do not require distributions at any time before the owner's
death.
Qualified Pension and Profit Sharing Plans
Code Section 401(a) permits employers to establish various types of retirement
plans for employees. Such retirement plans may permit the purchase of the
contract in order to provide retirement savings under the plans. The Self-
Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as H.R. 10, also permits self-employed individuals to establish
qualified plans for themselves and their employees.
Adverse tax consequences to the plan, to the participant, or to both, may
result if this contract is assigned or transferred to any individual as a
means to provide benefits payments. If you are buying a contract for use with
such plans should seek competent advice regarding the suitability of the
proposed plan documents and the contract to their specific needs. The contract
is designed to invest retirement savings and not to distribute retirement
benefits.
Individual Retirement Annuities, Simplified Employee Plans and Roth IRAs
The contract is designed for use with contributory and rollover IRAs and Roth
IRAs.
A contributory IRA is a contract in which initial and subsequent purchase
payments are subject to
50
<PAGE>
limitations imposed by the Code. Code Section 408 permits eligible individuals
to contribute to an individual retirement program known as an individual
retirement annuity or individual retirement account, each hereinafter referred
to as an IRA. Also, distributions from certain other qualified plans may be
rolled over, or transferred on a tax-deferred basis into an IRA described in
Code Section 408.
A Section 408 IRA is an IRA described in Sections 408(a) or 408(b), other than
a Roth IRA.
Earnings in an IRA are not taxed until distributed. IRA contributions are
limited each year to the lesser of $2,000 or 100% of the owner's compensation.
This includes earned income as defined in Code Section 401(c)(2) and may be
deductible in whole or in part depending on the individual's adjusted gross
income and whether or not the individual is considered an active participant
in a qualified plan. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
rolled over or transferred on a tax-deferred basis into an IRA.
Other than nondeductible contributions, amounts in the IRA are taxed when
distributed from the IRA. Distributions before age 59 1/2 are subject to a 10%
penalty tax, unless certain exceptions apply. Purchasers should seek competent
advice as to the suitability of the contract for use with IRAs.
Eligible employers that meet specified criteria under Code Section 408(k)
could establish simplified employee pension plans, also referred to as SEP-
IRAs, for their employees using IRAs. Employer contributions that may be made
to such plans are larger than the amounts that may be contributed to regular
IRAs, and may be deductible to the employer. SEP-IRAs are subject to certain
Code requirements regarding participation and amounts of contributions.
The contract may also be used with rollover Roth IRAs and contributory Roth
IRAs. A contributory Roth IRA is a contract to which initial and subsequent
purchase payments are subject to limitations imposed by the Code. Code Section
408A permits eligible individuals to contribute to an individual retirement
program known as a Roth IRA on a non-deductible basis. In addition,
distributions from a Section 408 IRA may be converted to a Roth IRA.
Distributions from a Roth IRA generally are not taxed, except that, once total
distributions exceed contributions to the Roth IRA, income tax and a 10%
penalty tax may apply to distributions made:
1. before age 59 1/2, subject to certain exceptions; or
2. during the five taxable years starting with the year in which the first
contribution is made to the Roth IRA.
Purchasers should seek competent advice as to the suitability of the contract
for use with Roth IRAs. The sale of a contract for use with an IRA, SEP-IRA or
Roth IRA may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of these contracts will be provided with
supplemental information required by the Internal Revenue Service or other
appropriate agency. Such purchasers will have the right to revoke their
purchase within 7 days of the earlier of the establishment of the IRA, SEP-IRA
or Roth IRA or their purchase.
Tax Sheltered Annuities
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to Social Security and
Medicare (FICA) taxes.
Code Section 403(b)(11) restricts the distribution under Code Section 403(b)
annuity contracts of:
. elective contributions made in years beginning after December 31, 1988;
. earnings on those contributions; or
. earnings in such years on amounts held as of the last year beginning before
January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not
be distributed in the case of hardship.
Pre-1989 contributions and earnings through December 31, 1989 are not subject
to the restrictions described above. However, funds transferred to a
51
<PAGE>
qualified contract from a Section 403(b)(7) custodial account will be subject
to the restrictions.
Restrictions under Qualified Policies
Other restrictions may apply to the election, commencement, or distribution of
benefits may apply under qualified contracts or under the terms of the plans
in respect of which qualified contracts are issued. A qualified contract will
be amended as necessary to conform to the requirements of the Code.
Possible Changes in Taxation
Legislation has been proposed the in the past that, if enacted, would
adversely modify the federal taxation of certain insurance and annuity
contracts. For example, one proposal would tax transfers among investment
options and tax exchanges involving variable contracts. A second proposal
would reduce the investment in the contract under cash value life insurance
and certain annuity contracts by certain amounts, thereby increasing the
amount of income for purposes of computing gain. Although the likelihood of
there being any changes is uncertain, there is always the possibility that the
tax treatment of the contracts could be changed by legislation or other means.
Moreover, it is also possible that any change could be retroactive, that is,
effective before the date of the change. You should consult a tax adviser with
respect to legislative developments and their effect on the contract.
Other Tax Consequences
As noted above, the foregoing discussion of the federal income tax
consequences is not exhaustive and special rules are provided with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law and the law may change. Federal gift and estate tax consequences and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under the contract depend on the individual
circumstances of each owner or recipient of the distribution. A competent tax
adviser should be consulted for further information.
LEGAL PROCEEDINGS
There is no pending material legal proceeding affecting the variable account.
Transamerica is involved in various kinds of routine litigation which, in
management's judgment, are not of material importance to Transamerica's assets
or to the variable account.
LEGAL MATTERS
The organization of Transamerica, its authority to issue the contracts and the
validity of the form of the contracts have been passed upon by James W.
Dederer, general counsel of Transamerica.
ACCOUNTANTS AND FINANCIAL STATEMENTS
The consolidated financial statements of Transamerica at December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
and and the financial statements of Separate Account VA-2L at December 31,
1998 and for each of the three years in the period then ended appearing in the
Statement of Additional Information have been audited by Ernst & Young LLP,
Independent Auditors, as set forth in their reports appearing in the Statement
of Additional Information. The financial statements audited by Ernst & Young
LLP have been included in reliance upon such reports given upon the authority
of such firm experts in accounting and auditing.
VOTING RIGHTS
To the extent required by applicable law, all portfolio shares held in the
variable account will be voted by Transamerica at regular and special
shareholder meetings of the respective funds in accordance with instructions
received from persons having voting interests in the corresponding sub-
account. If, however, the 1940 Act or any regulation thereunder should be
amended, or if the present interpretation thereof should change, or if
Transamerica determines that it is allowed to vote all portfolio shares in its
own right, Transamerica may elect to do so.
The person with the voting interest is the owner. The number of votes which
are available to an owner will be calculated separately for each sub-account
of the variable account. Before the annuity date, that number will be
determined by applying his or her percentage interest, if any, in a particular
sub-account to the total number of votes attributable to that sub-account. The
owner holds a voting interest in each sub-account to which the account value
is allocated.
52
<PAGE>
After the annuity date, the number of votes decreases as annuity payments are
made and as the reserves for the contract decrease.
The number of votes of a portfolio will be determined as of the date
coincident with the date established by that portfolio for determining
shareholders eligible to vote at the meeting of the funds. Voting instructions
will be solicited by written communication before such meeting in accordance
with procedures established by the respective funds.
Shares as to which no timely instructions are received and shares held by
Transamerica as to which owners have no beneficial interest will be voted in
proportion to the voting instructions which are received with respect to all
contracts participating in the sub-account. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
Each person or entity having a voting interest in a sub-account will receive
proxy material, reports and other material relating to the appropriate
portfolio. It should be noted that the funds are not required to, and do not
intend to, hold annual or other regular meetings of shareholders.
AVAILABLE INFORMATION
Transamerica has filed a registration statement with the Securities and
Exchange Commission under the Securities Act of 1933 relating to the contract
offered by this prospectus. This prospectus has been filed as a part of the
registration statement and does not contain all of the information set forth
in the registration statement and exhibits thereto. Reference is hereby made
to such Registration Statement and exhibits for further information relating
to Transamerica and the contract.
Statements contained in this prospectus, as to the content of the contract and
other legal instruments, are summaries. For a complete statement of the terms
thereof, reference is made to the instruments filed as exhibits to the
registration statement. The registration statement and the exhibits thereto
may be inspected and copied at the office of the Commission, located at 450
Fifth Street, N.W., Washington, D.C.
53
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this prospectus. The following is the
table of contents for that statement:
<TABLE>
<CAPTION>
Page
<S> <C>
THE CONTRACT.............................................................. 3
DOLLAR COST AVERAGING..................................................... 3
SPECIAL DOLLAR COST AVERAGING OPTION...................................... 3
NET INVESTMENT FACTOR..................................................... 3
ANNUITY PERIOD............................................................ 4
Variable Annuity Units and Payments...................................... 4
Variable Annuity Unit Value.............................................. 4
Transfers After the Annuity Date......................................... 4
Guaranteed Minimum Income Benefit--Hypothetical Illustration............. 5
GENERAL PROVISIONS........................................................ 6
Adjusted Partial Withdrawals.............................................. 6
IRS Required Distributions................................................ 7
Non-Participating........................................................ 7
Misstatement of Age or Sex............................................... 7
Proof of Existence and Age............................................... 8
Assignment............................................................... 8
Annuity Data............................................................. 8
Annual Report............................................................ 8
Incontestability......................................................... 8
Ownership................................................................ 8
Entire Contract.......................................................... 8
Changes in the Contract.................................................. 9
Protection of Benefits................................................... 9
Delay of Payments........................................................ 9
Notices and Directions................................................... 9
CALCULATION OF YIELDS AND TOTAL RETURNS................................... 10
Money Market Sub-Account Yield Calculation............................... 10
Other Sub-Account Yield Calculations..................................... 10
Average Total Return Calculations........................................ 11
Adjusted Historical Performance Data..................................... 11
Other Performance Data................................................... 12
HISTORICAL PERFORMANCE DATA............................................... 12
General Limitations...................................................... 12
Money Market Sub-Account Yields.......................................... 12
Sub-Account Performance Figures Including Adjusted Historical
Performance............................................................. 12
Since Commencement of the Sub-Accounts................................... 13
Since Commencement of the Portfolios..................................... 15
FEDERAL TAX MATTERS....................................................... 17
Taxation of Transamerica................................................. 17
Tax Status of the Contract............................................... 17
DISTRIBUTION OF THE CONTRACT.............................................. 18
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS.................................... 19
TRANSAMERICA.............................................................. 19
General Information and History.......................................... 19
STATE REGULATION.......................................................... 19
RECORDS AND REPORTS....................................................... 19
FINANCIAL STATEMENTS...................................................... 19
APPENDIX.................................................................. 20
Accumulation Transfer Formula............................................ 20
</TABLE>
54
<PAGE>
Appendix A
Example of Variable Accumulation Unit Value Calculations
Suppose the net asset value per share of a portfolio at the end of the current
valuation period is $20.15; at the end of the immediately preceding valuation
period it was $20.10; the valuation period is one day; and no dividends or
distributions caused the portfolio to go ex-dividend during the current
valuation period. $20.15 divided by $20.10 is 1.002488. Subtracting the one
day risk factor for mortality and expense risk charge and the administrative
expense charge of 0.003814% (the daily equivalent of the current charge of
1.40% on an annual basis) gives a net investment factor of 1.002449. If the
value of the variable accumulation unit for the immediately preceding
valuation period had been 15.500000, the value for the current valuation
period would be 15.537966 (15.5 x 1.002449).
Example of Variable Annuity Unit Value Calculations
Suppose the circumstances of the first example exist, and the value of a
variable annuity unit for the immediately preceding valuation period had been
13.500000. If the first variable annuity payment is determined by using an
annuity payment based on an assumed interest rate of 4% per year, the value of
the variable annuity unit for the current valuation period would be 13.531613
(13.5 x 1.002449, which is the Net Investment Factor x 0.999893). 0.999893 is
the factor, for a one day valuation period, that neutralizes the assumed rate
of four percent (4%) per year used to establish the variable annuity rates
found in the contract.
Example of Variable Annuity Payment Calculations
Suppose that the account is currently credited with 3,200.000000 variable
accumulation units of a particular sub-account. Also suppose that the variable
accumulation unit value and the variable annuity unit value for the particular
sub-account for the valuation period which ends immediately preceding the
first day of the month is 15.500000 and 13.500000 respectively, and that the
variable annuity rate for the age and option elected is $5.73 per $1,000.
Then the first variable annuity payment would be:
3.200 x 15.5 x 5.73 divided by 1,000 = $284.21,
and the number of variable annuity units credited for future payments would
be:
284.21 divided by 13.5 = 21.052444.
For the second monthly payment, suppose that the variable annuity unit value
on the 10th day of the second month is 13.565712. Then the second variable
annuity payment would be $285.59 (21.052444 x 13.565712).
55
<PAGE>
Appendix B
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the variable account. The data should be read in conjunction
with the financial statements, related notes, and other financial information
included in the Statement of Additional Information.
The following table sets forth certain information regarding the sub-accounts
for the period from commencement of business operations of the sub-account
through December 31, 1998. The variable accumulation unit values and the
number of variable accumulation units outstanding for each sub-account for the
periods shown are as follows:
Year Ending December 31, 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quality
Special Zero Coupon Bond
Money Value 2000 Sub- Small Cap
Market Sub-Account Sub-Account Account Sub-Account
Sub-Account (Inception (Inception (Inception (Inception
(Inception 1/4/93) 1/4/93) 1/4/93) 1/4/93) 1/4/93)
------------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $1.021 $12.797 $13.225 $12.310 $39.620
Accumulation Unit Value
at End of Period $1.018 $12.861 $13.373 $12.445 $37.702
Number of Accumulation
Units Outstanding at
End of Period 2,678,280.492 167,686.797 137,252.898 86,752.856 138,557.449
</TABLE>
<TABLE>
<CAPTION>
Stock
Index
Capital Appreciation Sub- Socially Responsible
Sub-Account Account Sub-Account
(Inception- (Inception (Inception-
4/5/93) 1/4/93) 10/7/93)
-------------------- ---------- --------------------
<S> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $12.500 $15.310 $12.490
Accumulation Unit Value
at End of Period $13.160 $16.521 $13.364
Number of Accumulation
Units Outstanding at End
of Period 237,733.021 93,536.733 26,089.826
</TABLE>
Year Ending December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Special Zero Coupon Quality
Market Value 2000 Bond Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $1.018 $12.861 $13.373 $12.445 $37.702
Accumulation Unit Value
at End of Period $1.048 $12.496 $12.672 $11.710 $40.064
Number of Accumulation
Units Outstanding at
End of Period 23,559,789.795 1,486,438.137 476,355.738 931,527.691 1,250,237.625
<CAPTION>
Growth and International
Income Equity
Capital Socially Sub-Account Sub-Account
Appreciation Stock Index Responsible (Inception (Inception
Sub-Account Sub-Account Sub-Account 12/15/94) 12/15/94)
-------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $13.160 $16.521 $13.364 $12.177 $12.247
Accumulation Unit Value
at End of Period $13.373 $16.437 $13.377 $12.167 $12.240
Number of Accumulation
Units Outstanding at
End of Period 919,622.615 348,937.285 135,018.350 4,300.380 8,552.073
</TABLE>
56
<PAGE>
Year Ending December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Special Zero Coupon Quality
Market Value 2000 Bond Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------------- -------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $1.048 $12.496 $12.672 $11.710 $40.064
Accumulation Unit Value
at End of Period $1.093 $12.292 $14.740 $13.908 $51.121
Number of Accumulation
Units Outstanding at
End of Period 31,807,563.947 1,288,429.555 903,799.152 2,052,313.888 2,155,879.198
<CAPTION>
Growth and Income International Equity
Sub-Account Sub-Account
Capital Appreciation Stock Index Socially Responsible (Inception (Inception
Sub-Account Sub-Account Sub-Account 1/5/95) 1/5/95)
-------------------- -------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $13.373 $16.437 $13.377 $12.167 $12.240
Accumulation Unit Value
at End of Period $17.610 $22.172 $17.752 $19.426 $12.964
Number of Accumulation
Units Outstanding at
End of Period 2,077,029.504 977,271.816 295,077.936 2,565,038.589 530,374.642
</TABLE>
57
<PAGE>
Year Ending December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Special Zero Coupon Quality
Market Value 2000 Bond Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $1.093 $12.292 $14.740 $13.908 $51.121
Accumulation Unit Value
at End of Period $1.132 $11.682 $14.911 $14.142 $58.773
Number of Accumulation
Units Outstanding at
End of Period 38,983,053.941 1,232, 530.711 1,320,168.687 3,072,774.847 2,736,720.675
</TABLE>
<TABLE>
<CAPTION>
Socially International
Capital Appreciation Stock Index Responsible Growth and Income Equity
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------------- ------------------ ------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $17.610 $22.172 $17.752 $19.426 $12.964
Accumulation Unit Value
at End of Period $21.802 $26.791 $21.221 $23.131 $14.267
Number of Accumulation
Units Outstanding at
End of Period 3,665,146.389 2,030,280.057 708,680.320 6,332,649.215 1,480,395.223
<CAPTION>
International Value Disciplined Stock Small Company Stock
Sub-Account Sub-Account Sub-Account
(Inception 5/1/96) (Inception 5/1/96) (Inception 5/1/96)
-------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $10.00 $10.00 $10.00
Accumulation Unit Value
at End of Period $10.244 $11.776 $10.772
Number of Accumulation
Units Outstanding at
End of Period 230,868.491 618,809.191 543,949.419
</TABLE>
58
<PAGE>
Year Ending December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Special Zero Coupon Quality
Market Value 2000 Bond Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------------- -------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $1.132 $11.682 $14.911 $14.142 $58.773
Accumulation Unit Value
at End of Period $1.175 $14.185 $15.736 $15.260 $67.668
Number of Accumulation
Units Outstanding at
End of Period 42,660,950.364 2,649,561.005 1,350,865.031 4,020,220.452 2,954,842.907
<CAPTION>
Socially International
Capital Appreciation Stock Index Responsible Growth and Income Equity
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------------- -------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $21.802 $26.791 $21.221 $23.131 $14.267
Accumulation Unit Value
at End of Period $27.532 $35.128 $26.879 $26.509 $15.422
Number of Accumulation
Units Outstanding at
End of Period 6,447,159.634 3,357,236.245 1,335,814.063 7,480,387.355 2,176,230.247
<CAPTION>
Limited Term
High Income Balanced
Disciplined Sub-Account Sub-Account
International Value Stock Small Company Stock (Inception (Inception
Sub-Account Sub-Account Sub-Account 5/1/97) 5/1/97)
-------------------- -------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $10.244 $11.776 $10.772 $10.000 $10.000
Accumulation Unit Value
at End of Period $10.982 $15.272 $12.935 $10.852 $11.738
Number of Accumulation
Units Outstanding at
End of Period 1,047,389.002 2,278,146.352 1,604,089.554 2,424,231.798 647,855.304
</TABLE>
59
<PAGE>
Year Ending December 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Special Zero Coupon Quality
Market Value 2000 Bond Small Cap
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------------- -------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $1.175 $14.185 $15.736 $15.260 $67.668
Accumulation Unit Value
at End of Period $1.22 $16.19 $16.65 $15.88 $64.44
Number of Accumulation
Units Outstanding at
End of Period 53,939,642.196 2,764,173.241 1,263,163.357 5,030,446.431 2,615,765.058
<CAPTION>
International
Capital Appreciation Stock Index Socially Responsible Growth and Income Equity
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------------- -------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $27.532 $35.128 $26.879 $26.509 $15.422
Accumulation Unit Value
at End of Period $35.36 $44.42 $34.30 $29.23 $15.89
Number of Accumulation
Units Outstanding at
End of Period 8,121,246.029 4,443,711.383 1,744,708.001 7,270,897.396 2,456,885.911
</TABLE>
<TABLE>
<CAPTION>
Limited Term
High Income Balanced
International Value Disciplined Stock Small Company Stock Sub-Account Sub-Account
Sub-Account Sub-Account Sub-Account (Inception 5/1/97) (Inception 5/1/97)
------------------- ----------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of Period $10.982 $15.272 $12.935 $10.852 $11.738
Accumulation Unit Value
at End of Period $11.78 $19.09 $11.99 $10.73 $14.16
Number of Accumulation
Units Outstanding at
End of Period 1,380,692.935 4,753,022.290 2,111,028.689 6,458,312.119 2,280,501.753
</TABLE>
<TABLE>
<CAPTION>
Cash Value MidCap
Transamerica Growth Sub- Stock
Sub-Account Account Sub-Account
------------------- ---------- -----------
<S> <C> <C> <C>
Accumulation Unit Value at
Beginning of Period N/A N/A N/A
Accumulation Unit Value at End of
Period $11.35 $9.29 $9.63
Number of Accumulation Units
Outstanding at End of Period 1,634,054.907 95,759.521 467,292.833
</TABLE>
Financial Statements for the Variable Account and Transamerica
The financial statements and reports of independent auditors for the variable
account and Transamerica are contained in the Statement of Additional
Information.
60
<PAGE>
Appendix C
DEFINITIONS
Account: The account established and maintained under the contract to which
your net purchase payments are credited.
Account Value: The account value is equal to the sum of: a) the fixed
accumulated value, plus b) the variable accumulated value.
Active Sub-Account: A sub-account of the variable account in which the
contract has current value.
Annuitant: The person: (a) whose life is used to determine the amount of
monthly annuity payments on the annuity date; and (b) who is the payee
designated to receive monthly annuity payments, unless such payee is changed
by the owner. The annuitant cannot be changed after the contract has been
issued, except upon the annuitant's death before the annuity date if a
contingent annuitant has previously been named. In the case of a qualified
contract used to fund an IRA or a 403(b) annuity, the owner must be the
annuitant.
Annuitant's Beneficiary: The person or persons named by the owner who may
receive the death benefit under the contract, if: (a) the annuitant is not the
owner, there is no named contingent annuitant and the annuitant dies before
the annuity date and before the death of the owner or owners; or (b) the
annuitant dies after the annuity date under an annuity form containing a
period certain option.
Annuity Date: The date on which the annuity purchase amount will be applied to
provide an annuity under the annuity form and payment option selected by the
owner. Monthly annuity payments will start the first day of the month
immediately following the annuity date. Unless the annuity date is changed as
allowed by the contract, the annuity date will be as shown in the contract.
Annuity Payment: An amount paid by Transamerica at regular intervals to the
annuitant and/or any other payee specified by the owner. It may be on a
variable or fixed basis.
Annuity Purchase Amount: The amount applied as a single purchase payment to
provide an annuity under the annuity form and payment options available under
the contract. The annuity purchase amount is equal to the account value, less
any applicable contingent deferred sales load, and less any applicable premium
taxes. In determining the annuity purchase amount, Transamerica will waive the
contingent deferred sales load if the annuity form involves life contingencies
and the annuity date occurs on or after the third contract anniversary.
Annuity Year: A one-year period starting on the annuity date and, after that,
each succeeding one-year period.
Cash Surrender Value: The amount payable to the owner if the contract is
surrendered on or before the annuity date. The cash surrender value is equal
to the account value, less the account fee, less any applicable contingent
deferred sales load, and less applicable premium taxes.
Code: The U.S. Internal Revenue Code of 1986, as amended, and the rules and
regulations issued thereunder.
Contingent Annuitant: The person who: (a) becomes the annuitant if the
annuitant dies before the annuity date; or (b) may receive benefits under the
contract if the annuitant dies after the annuity date under an annuity form
containing a contingent annuity option. A contingent annuitant may be
designated only if the owner is not also the annuitant. The contingent
annuitant may be changed at any time by the owner while the annuitant is
living and before the annuity date.
Contingent Deferred Sales Load: A charge equal to a percentage of premiums
withdrawn from the certificate that are less than seven years old. See
Contingent Deferred Sales Load/Surrender Charge for the specific percentages.
Contract Anniversary: The same month and day as the contract date in each
calendar year after the calendar year in which the contract date occurs.
Contract Date: The effective date of the contract as shown on the contract.
Contract Year: The 12-month period from the contract date and ending with the
day before the first contract anniversary and each twelve month period
thereafter. The first contract year for any particular net purchase payment is
the contract year in which
61
<PAGE>
the purchase payment is received by the service center.
Expiration Date: The last day of a guarantee period.
Fixed Account: The fixed account contains one or more guarantee periods to
which all or portions of net purchase payments and transfers may be allocated.
The fixed account assets are general assets of the company and are
distinguishable from those allocated to a separate account of the company.
Fixed Accumulated Value: The total dollar amount of all guarantee amounts held
under the fixed account for the contract before the annuity date. The fixed
accumulated value is determined without regard to any interest adjustment.
Fixed Annuity: An annuity with predetermined payment amounts.
Free Look Period: The period of time, beginning on the date the owner receives
the contract, during which the owner has the right to cancel the contract. The
length of this period depends upon the state of issuance.
Funds: Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund, The Dreyfus
Socially Responsible Growth Fund, Inc., Dreyfus Investment Portfolios and
Transamerica Variable Insurance Fund, Inc., in which the variable account
currently invests.
Guarantee Amount: An amount equal to: a) the amount of the net purchase
payment or transfer allocated to a particular guarantee period with a
particular expiration date; less b) any withdrawals or transfers made from
that guarantee period; less c) any applicable transfer fee; less d) any
reductions for the annual account fee; and plus e) interest credited.
Guarantee Period: The period for which a guaranteed interest rate is credited
which shall not be less than one year.
Inactive Sub-Account: A sub-account of the variable account in which the
contract has a zero balance.
Net Investment Factor: An index that measures the investment performance of a
sub-account from one valuation period to the next.
Net Purchase Payment: A purchase payment reduced by any applicable premium
tax, including retaliatory premium taxes.
Non-Qualified Contract: A contract that does not receive favorable tax
treatment under the Code.
Owner or Joint Owners: The person or persons who, while living, control all
rights and benefits under the contract. Joint owners own the contract equally
with the right of survivorship. The right of survivorship means that if a
joint owner dies, his or her interest in the contract will pass to the
surviving joint owner in accordance with the death benefit provision. Joint
owners must be husband and wife as of the contract date (except in
Pennsylvania). Qualified contracts may not have joint owners.
Owner's Beneficiary: If the owner is an individual, the owner's beneficiary is
the person(s) who may receive the death benefit if the owner dies before the
annuity date and before the death of the annuitant. If the contract has joint
owners, the surviving joint owner will be the owner's beneficiary.
Payee: The person who receives the annuity payments after the annuity date.
The payee will be the annuitant, unless otherwise changed by the owner.
Portfolio: Dreyfus Stock Index Fund, The Dreyfus Socially Responsible Growth
Fund, Inc., or any one of the series of Dreyfus Variable Investment Fund or
any one of the portfolios of Dreyfus Investment Portfolios or the Growth
Portfolio of Transamerica Variable Insurance Fund, Inc., underlying a sub-
account of the variable account.
Proof of Death: May be: (a) a copy of a certified death certificate; (b) a
copy of a certified decree of a court of competent jurisdiction as to the
finding of death; (c) a written statement by a medical doctor who attended the
deceased; or (d) any other proof satisfactory to us.
Qualified Contract: A contract issued in connection with a retirement plan or
program.
Receipt: Receipt and acceptance by us at our service center.
Series: Any of the portfolios of Dreyfus Variable Investment Fund available
for investment by a sub-account under the contract.
62
<PAGE>
Service Center: Transamerica's Annuity Service Center, at P.O. Box 31728,
Charlotte, North Carolina 28231-1728 and at telephone (800) 258-4261.
Source Account: A sub-account of the variable account or the fixed account, as
permitted, from which dollar cost averaging transfers are being made.
Sub-Account: A subdivision of the variable account investing solely in shares
of one of the portfolios.
Surrender Charge: See Contingent Deferred Sales Load.
Valuation Day: Any day the New York Stock Exchange is open for trading.
Valuation Period: The time interval between the closing of the New York Stock
Exchange on consecutive valuation days.
Variable Account: Separate Account VA-2L, a separate account established and
maintained by Transamerica for the investment of a portion of its assets
pursuant to Section 10506 of the California Insurance Code. The variable
account contains several sub-accounts to which all or portions of net purchase
payments and transfers may be allocated.
Variable Accumulated Value: The total dollar amount of all variable
accumulation units under each sub-account of the variable account held for the
contract before the annuity date. The variable accumulated value before the
annuity date is equal to: (a) net purchase payments allocated to the sub-
accounts; plus or minus (b) any increase or decrease in the value of assets of
the sub-accounts due to investment results; less (c) the daily mortality and
expense risk charge; less (d) the daily administrative expense charge; less
(e) reductions for the annual account fee deducted on the last business day of
each contract year; plus or minus (f) amounts transferred to or from the fixed
account; less (g) any applicable transfer fees; and less (h) withdrawals from
the sub-accounts.
Variable Accumulation Unit: A unit of measure used to determine the account
value before the annuity date. The value of a variable accumulation unit
varies with each sub-account.
Variable Annuity: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified sub-accounts of the
variable account.
Variable Annuity Unit: A unit of measure used to determine the amount of the
second and each subsequent payment under a variable annuity payment option.
The value of a variable annuity unit varies with each sub-account.
Withdrawals: Refers to partial withdrawals, full surrenders, and systematic
withdrawals that are paid in cash to the owner, person or persons specified by
the owner.
Written Notice or Written Request: A notice or request in writing by the owner
to our service center. Such a request must contain original signatures; no
carbons or photocopies will be accepted. We reserve the right to accept a
facsimile copy.
63
<PAGE>
Appendix D
Transamerica Life Insurance and Annuity Company
DISCLOSURE STATEMENT
for Individual Retirement Annuities
The following information is being provided to you, the owner, in accordance
with the requirements of the Internal Revenue Service (IRS). This Disclosure
Statement contains information about opening and maintaining an Individual
Retirement Account or Annuity (IRA), and summarizes some of the financial and
tax consequences of establishing an IRA.
Part I of this Disclosure Statement discusses Traditional IRAs, while Part II
addresses Roth IRAs. Because the tax consequences of the two categories of
IRAs differ significantly, it is important that you review the correct part of
this Disclosure Statement to learn about your particular IRA. This Disclosure
Statement does not discuss Education IRAs or SIMPLE-IRAs, except as necessary
in the context of discussing other types of IRAs.
Your Transamerica Life Insurance and Annuity Company's Individual Retirement
Annuity, also referred to as a Transamerica Life IRA Contract has been
approved as to form by the IRS. In addition, we are using an IRA and a Roth
IRA Endorsement based on the IRS-approved text. Please note that IRS approval
applies only to the form of the contract and does not represent a
determination of the merits of such IRA contract.
It may be necessary for us to amend your Transamerica Life IRA or Roth IRA
Contract in order for us to obtain or maintain IRS approval of its tax
qualification. In addition, laws and regulations adopted in the future may
require changes to your contract in order to preserve its status as an IRA. We
will send you a copy of any such amendment.
No contribution to a Transamerica Life IRA will be accepted under a SIMPLE
plan established by any employer pursuant to Internal Revenue Code
Section 408(p). No transfer or rollover of funds attributable to contributions
made by an employer to your SIMPLE IRA under the employer's SIMPLE plan may be
transferred or rolled over to your Transamerica Life IRA before the expiration
of the two year period beginning on the date you first participated in the
employer's SIMPLE plan. In addition, depending on the annuity contract you
purchased, contributory IRAs may or may not be available.
This Disclosure Statement includes the non-technical explanation of some of
the changes made by the Tax Reform Act of 1986 applicable to IRAs and more
recent changes made by the Small Business Job Protection Act of 1996, the
Health Insurance Portability and Accountability Act of 1996, the Tax Relief
Act of 1997 and the IRS Restructuring and Reform Act of 1998.
The information provided applies to contributions made and distributions
received after December 31, 1986, and reflects the relevant provisions of the
Code as in effect on January 1, 1999. This Disclosure Statement is not
intended to constitute tax advice, and you should consult a tax professional
if you have questions about your own circumstances.
Revocation of Your IRA or Roth IRA
You have the right to revoke your Traditional IRA or Roth IRA issued by us
during the seven calendar day period following its establishment. The
establishment of your Traditional IRA or Roth IRA contract will be the
contract effective date. This seven day calendar period may or may not
coincide with the free look period of your contract.
In order to revoke your Traditional IRA or Roth IRA, you must notify us in
writing and you must mail or deliver your revocation to us postage prepaid,
at: 401 North Tryon Street, Charlotte, NC 28202. The date of the postmark, or
the date of certification or registration if sent by certified or registered
mail, will be considered your revocation date. If you revoke your Traditional
IRA or Roth IRA during the seven day period, an amount equal to your premium
will be returned to you without any adjustment.
Definitions
Code -- Internal Revenue Code of 1986, as amended, and regulations issued
thereunder.
Contributions -- Purchase payments paid to your contract.
Contract -- The annuity policy, certificate or contract which you purchased.
64
<PAGE>
Compensation -- For purposes of determining allowable contributions, the term
compensation includes all earned income, including net earnings from self-
employment and alimony or separate maintenance payments received under a
decree of divorce or separate maintenance and includable in your gross income,
but does not include deferred compensation or any amount received as a pension
or annuity.
Regular Contributions -- In General
As is more fully discussed below, for 1998 and later years, the maximum total
amount that you may contribute for any tax year to your regular IRAs and your
regular Roth IRAs combined is $2,000, or if less, your compensation for that
year. Once you attain age 70 1/2, this limit is reduced to zero only for your
regular IRAs, not for your Roth IRAs, but the separate limit on Roth IRA
contributions can be reduced to zero for taxpayers with adjusted gross income,
also referred to as AGI, above certain levels, as described below in Part II,
Section 1. While your Roth IRA contributions are never deductible, your
regular IRA contributions are fully deductible, unless you, or your spouse, is
an active participant in some form of tax-qualified retirement plan for the
tax year. In the latter case, any deductible portion of your regular IRA
contributions for each year is subject to the limits that are described below
in Part I, Section 2, and any remaining regular IRA contributions for that
year must be reported to the IRS as nondeductible IRA contributions, along
with your Roth IRA contributions.
IRA PART I: TRADITIONAL IRAs
The rules that apply to a Traditional Individual Retirement Account or
Annuity, which is referred to in this Disclosure Statement simply as an "IRA"
or as a "Traditional IRA" and which includes a regular or Spousal IRA and a
rollover IRA, generally also apply to IRAs under Simplified Employee Pension
plans or SEP-IRAs, unless specific rules for SEP-IRAs are stated.
1. Contributions
(a) Regular IRA. Regular IRA contributions must be in cash and are subject to
the limits described above. Such contributions are also subject to the minimum
amount under the Transamerica IRA contract. In addition, any of your regular
contributions to an IRA for a tax year must be made by the due date, not
including extensions, for your federal tax return for that tax year. See also
Part II, Section 4 below about recharacterizing IRA and Roth IRA contributions
by such date.
(b) Spousal IRA. If you and your spouse file a joint federal income tax return
for the taxable year and if your spouse's compensation, if any, includable in
gross income for the year is less than the compensation includable in your
gross income for the year, you and your spouse may each establish your own
separate regular IRA, and Roth IRA, and may make contributions to such IRAs
for your spouse that are not limited by your spouse's lower amount of
compensation. Instead, the limit for the total contribution to spousal IRAs
that can be made by you or your spouse for the tax year is:
1. $2,000; or
2. if less, the total combined compensation for both you and your spouse
reduced by any deductible IRA contributions and any Roth IRA contributions
for such year.
As with any regular IRA contributions, those for your spouse cannot be made
for any tax year in which your spouse has attained age 70 1/2, must be in
cash, and must be made by the due date, not including extensions, for your
federal income tax return for that tax year.
(c) Rollover IRA. Rollover contributions to a Traditional IRA are unlimited in
dollar amount. These can include rollover contributions of eligible
distributions received by you from another Traditional IRA or tax-qualified
retirement plan. Generally, any distribution from a tax-qualified retirement
plans, such as a pension or profit sharing plan, Code Section 401(k) plan,
H.R. 10 or Keogh plan, or a Traditional IRA can be rolled over to a
Traditional IRA unless it is a required minimum distribution as discussed
below in Part I, Section 4(a) or it is part of a series of payments to be paid
to you over your life, life expectancy or a period of at least 10 years. In
addition, distributions of "after-tax" plan contributions, i.e., amounts which
are not subject to federal income tax when distributed from a tax-qualified
retirement plan, are not eligible to be rolled over to an IRA. If a
distribution from a tax-qualified plan or a Traditional IRA is paid to you and
you want to roll over all or part of the eligible distributed
65
<PAGE>
amount to a Transamerica Life Traditional IRA, the rollover must be
accomplished within 60 days of the date you receive the amount to be rolled
over. However, you may roll over any amount from one Traditional IRA into
another Traditional IRA only once in any 365-day period.
A timely rollover of an eligible distributed amount that has been paid to you
directly will prevent its being taxable to you at the time of distribution;
that is, none of it will be includable in your gross income until you withdraw
some amount from your rollover IRA. However, any such distribution directly to
you from a tax-qualified retirement plan is generally subject to a mandatory
20% withholding tax.
By contrast, a direct transfer from a tax-qualified retirement plan to a
Traditional IRA is considered a "direct" rollover and is not subject to any
mandatory withholding tax, or other federal income tax, upon the direct
transfer. If you elect to make such a "direct" rollover from a tax-qualified
plan to a Transamerica Life Traditional IRA, the transferred amount will be
deposited directly into your rollover IRA.
Strict limitations apply to rollovers, and you should seek competent tax
advice in order to comply with all the rules governing rollovers.
(d) Direct Transfers from another Traditional IRA. You may make an initial or
subsequent contribution to your Transamerica Life Traditional IRA by directing
the fiduciary or issuer of any of your existing IRAs to make a direct transfer
of all or part of such IRAs in cash to your Transamerica Life Traditional IRA.
Such a direct transfer between Traditional IRAs is not considered a rollover ,
e.g., for purposes of the 1-year waiting period or withholding.
(e) Simplified Employee Pension Plan, or SEP-IRA. If an IRA is established
that meets the requirements of a SEP-IRA, generally your employer may
contribute an amount not to exceed the lesser of 15% of your includable
compensation ($160,000 for 1999, adjusted for inflation thereafter) or
$30,000, even after you attain age 70 1/2. The amount of such contribution is
not includable in your income for federal income tax purposes. In the case of
a SEP-IRA that has a grandfathered qualifying form of salary reduction,
referred to as a SARSEP, that was established by an employer before 1997,
generally any employee, including a self-employed individual, who:
1. has worked for the employer for 3 of the last 5 preceding tax years;
2. is at least age 21; and
3. has received from the employer compensation of at least $400 for the
current tax year, adjusted for inflation after 1999.
is eligible to make a before tax salary reduction contribution to the SARSEP
for the current tax year of up to $10,000, adjusted for inflation after 1998,
subject to the overall limits for SEP-IRA contributions.
Your employer is not required to make a SEP-IRA contribution in any year nor
make the same percentage contribution each year. But if contributions are
made, they must be made to the SEP-IRA for all eligible employees and must not
discriminate in favor of highly compensated employees. If these rules are not
met, any SEP-IRA contributions by the employer could be treated as taxable to
the employees and could result in adverse tax consequences to the
participating employee. For further details about SARSEPs and SEP-IRAs, e.g.,
for computing contribution limits for self-employed individuals, see IRS
Publication 590, as indicated below.
(f) Responsibility of the Owner. Contributions, rollovers, or transfers to any
IRA must be made in accordance with the appropriate sections of the Code. It
is your full and sole responsibility to determine the tax deductibility of any
contribution to your Traditional IRA, and to make such contributions in
accordance with the Code. Transamerica does not provide tax advice, and
assumes no liability for the tax consequences of any contribution to your
Transamerica Life Traditional IRA.
2. Deductibility of Contributions for a Regular IRA
(a) General Rules. The deductible portion of the contributions made to the
regular IRAs for you, or your spouse, for a tax year depends on whether you,
or your spouse, is an "active participant" in some type of a tax-qualified
retirement plan for such year, as described in Section 2(b) immediately below.
66
<PAGE>
If you and your spouse file a joint return for a tax year and neither of you
is an active participant for such year, then the permissible contributions to
the regular IRAs for each of you are fully deductible up to $2,000 each, i.e.,
your combined deductible IRA contribution limit for the tax year could be
$4,000.
Similarly, if you are not married, or treated as such, for the tax year and
you are not an active participant for such year, the permissible contributions
to your regular IRAs for the tax year are fully deductible up to $2,000. For
instance, if you and your spouse file separate returns for the tax year and
you did not live together at any time during such tax year, then you are
treated as unmarried for such year, and if you were not an active participant
for the tax year, then your deductible limit for your regular IRA contribution
is $2,000, even if your spouse was an active participant for such year.
If you are an active participant for the tax year, then your $2,000 limit is
subject to a phase-out rule if your AGI for such year exceeds a Threshold
Level, depending on your tax filing status and the calendar year. If, however,
you are not an active participant for the tax year but your spouse is, then
your $2,000 limit is subject to the phase-out rule only if your AGI exceeds a
higher Threshold Level. See Part I, Section 2(c), below.
(b) Active Participant. You are an "active participant" for a year if you
participate in some type of tax-qualified retirement plan. For example, if you
participate in a qualified pension or profit sharing plan, a Code Section
401(k) plan, certain government plans, a tax-sheltered arrangement under Code
Section 403, a SIMPLE plan or a SEP-IRA plan, you are considered to be an
active participant. Your Form W-2 for the year should indicate your
participation status.
(c) Adjusted Gross Income, also referred to as AGI. If you are an active
participant, you must look at your AGI for the year, or if you and your spouse
file a joint tax return, you use your combined AGI, to determine whether you
can make a deductible IRA contribution for that taxable year. The instructions
for your tax return will show you how to calculate your AGI for this purpose.
If you are at or below a certain AGI level, called the Threshold Level, you
are treated as if you were not an active participant and you can make a
deductible contribution under the same rules as a person who is not an active
participant.
If you are an active participant for the tax year, then your Threshold Level
depends upon whether you are a married taxpayer filing a joint tax return, an
unmarried taxpayer, or a married taxpayer filing a separate tax return. If you
are a married taxpayer but file a separate tax return, the Threshold Level is
$0. If you are a married taxpayer filing a joint tax return, or an unmarried
taxpayer, your Threshold Level depends upon the taxable year, and can be
determined using the appropriate table below:
<TABLE>
<CAPTION>
Married Filing Jointly Unmarried
Taxable Threshold Taxable Threshold
Year Level Year Level
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $50,000 1998 $30,000
1999 $51,000 1999 $31,000
2000 $52,000 2000 $32,000
2001 $53,000 2001 $33,000
2002 $54,000 2002 $34,000
2003 $60,000 2003 $40,000
2004 $65,000 2004 $45,000
2005 $70,000 2005 and thereafter $50,000
2006 $75,000
2007 and thereafter $80,000
- -----------------------------------------------------------------------------------
</TABLE>
Beginning in 1998, if you are not an active participant for the tax year but
your spouse is, and you are not treated as unmarried for filing purposes, then
your Threshold Level is $150,000.
If your AGI is less than $10,000 above your Threshold Level, or $20,000 for
married taxpayers filing jointly for the taxable year beginning on or after
January 1, 2007, you will still be able to make a
67
<PAGE>
deductible contribution, but it will be limited in amount. The amount by which
your AGI exceeds your Threshold Level is called your Excess AGI. The Maximum
Allowable Deduction is $2,000, even for Spousal IRAs. You can calculate your
Deduction Limit as follows:
10,000 -- Excess AGI x Maximum Allowable Deduction = Deduction Limit 10,000
For taxable years beginning on or after January 1, 2007, married taxpayers
filing jointly should substitute 20,000 for 10,000 in the numerator and
denominator of the above equation.
You must round up any computation of the Deduction Limit to the next highest
$10 level, that is, to the next highest number which ends in zero. For
example, if the result is $1,525, you must round it up to $1,530. If the final
result is below $200 but above zero, your Deduction Limit is $200. Your
Deduction Limit cannot in any event exceed 100% of your compensation.
3. Nondeductible Contributions to Regular IRAs
The amounts of your regular IRA contributions which are not deductible will be
nondeductible contributions to such IRAs. You may also choose to make a
nondeductible contribution to your regular IRA, even if you could have
deducted part or all of the contribution. Interest or other earnings on your
regular IRA contributions, whether from deductible or nondeductible
contributions, will not be taxed until taken out of your IRA and distributed
to you.
If you make a nondeductible contribution to an IRA, you must report the amount
of the nondeductible contribution to the IRS as a part of your tax return for
the year, e.g., on Form 8606.
4. Distributions
(a) Required Minimum Distributions, or simply, RMD. Distributions from your
Traditional IRAs must be made or begin no later than April 1 of the calendar
year following the calendar year in which you attain age 70 1/2, the required
beginning date. You may take RMDs from any Traditional IRA you maintain, but
not from any Roth IRA, as long as:
a) distributions begin when required;
b) distributions are made at least once a year; and
c) the amount to be distributed is not less than the minimum required under
current federal tax law.
If you own more than one Traditional IRA, you can choose whether to take your
RMD from one Traditional IRA or a combination of your Traditional IRAs. A
distribution may be made at once in a lump sum, as qualifying partial
withdrawals or as qualifying settlement option payments. Qualifying partial
withdrawals and settlement option payments must be made in equal or
substantially equal amounts over:
a) your life or the joint lives of you and your beneficiary; or
b) a period not exceeding your life expectancy, as redetermined annually under
IRS tables in the income tax regulations, or the joint life expectancy of
you and your beneficiary, as redetermined annually, if that beneficiary is
your spouse.
Also, special rules may apply if your designated beneficiary, other than your
spouse, is more than ten years younger than you.
If qualifying settlement option payments start before the April 1 following
the year you turn age 70 1/2, then the annuity date of such settlement option
payments will be treated as the required beginning date for purposes of the
RMD provisions, above, and the death benefit provisions, below.
If you die before the entire interest in your Traditional IRAs is distributed
to you, but after your required beginning date, the entire interest in your
Traditional IRAs must be distributed to your beneficiaries at least as rapidly
as under the method in effect at your death. If you die before your required
beginning date and if you have a designated beneficiary, distributions to your
designated beneficiary can be made in substantially equal installments over
the life or life expectancy of the designated beneficiary, beginning by
December 31 of the calendar year that is one year after the year of your
death. Otherwise, if you die before your required beginning date and your
surviving spouse is not your designated beneficiary, distributions must be
completed by December 31 of the calendar year that is five years after the
year of your death.
68
<PAGE>
If your designated beneficiary is your surviving spouse, and you die before
your required beginning date, your surviving spouse can become the new
owner/annuitant and can continue the Transamerica Life Traditional IRA on the
same basis as before your death. If your spouse elects to continue the
contract, an amount equal to the excess, if any, of the Death Benefit over the
account value will then be added to the account value. This amount will be
added only once, at the time of such election. Furthermore, all future
contingent deferred sales loads will be waived. If your surviving spouse does
not wish to continue the contract as his or her IRA, he or she may elect to
receive the death benefit in the form of qualifying settlement option payments
in order to avoid the 5-year rule. Such payments must be made in substantially
equal amounts over your spouse's life or a period not extending beyond his or
her life expectancy. Your surviving spouse must elect this option and begin
receiving payments no later than the later of the following dates:
a) December 31 of the year following the year you died; or
b) December 31 of the year in which you would have reached the required
beginning date if you had not died.
Either you or, if applicable, your beneficiary, is responsible for assuring
that the RMD is taken in a timely manner and that the correct amount is
distributed.
(b) Taxation of IRA Distributions. Because nondeductible Traditional IRA
contributions are made using income which has already been taxed, that is,
they are not deductible contributions, the portion of the Traditional IRA
distributions consisting of nondeductible contributions will not be taxed
again when received by you. If you make any nondeductible contributions to
your Traditional IRAs, each distribution from any of your Traditional IRAs
will consist of a nontaxable portion, return of nondeductible contributions,
and a taxable portion, return of deductible contributions, if any, and
earnings.
Thus, if you receive a distribution from any of your Traditional IRAs and you
previously made deductible and nondeductible contributions to such IRAs, you
may not take a Traditional IRA distribution which is entirely tax-free. The
following formula is used to determine the nontaxable portion of your
distributions for a taxable year.
Remaining nondeductible contributions
Divided by
Year-end total adjusted Traditional IRA balances
Multiplied by
Total distributions for the year
Equals:
Nontaxable distributions for the year
To figure the year-end total adjusted Traditional IRA balance, you must treat
all of your Traditional IRAs as a single Traditional IRA. This includes all
regular IRAs, as well as SEP-IRAs, SIMPLE IRAs and Rollover IRAs, but not Roth
IRAs. You also add back to your year-end total Traditional IRA balances,
specifically the distributions taken during the year from your Traditional
IRAs. Please refer to IRS Publication 590, Individual Retirement Arrangements
for instructions, including worksheets, that can assist you in these
calculations. Transamerica Life Insurance and Annuity Company will report all
distributions from your Transamerica Traditional IRA to the IRS as fully
taxable income to you.
Even if you withdraw all of the assets in your Traditional IRAs in a lump sum,
you will not be entitled to use any form of lump sum treatment or income
averaging to reduce the federal income tax on your distribution. Also, no
portion of your distribution qualifies as a capital gain. Moreover, any
distribution made before you reach age 59 1/2, may be subject to a 10% penalty
tax on early distributions, as indicated below.
(c) Withholding. Unless you elect not to have withholding apply, federal
income tax will be withheld from your Traditional IRA distributions. If you
receive distributions under a settlement option, tax will be withheld in the
same manner as taxes withheld on wages, calculated as if you were married and
claim three withholding allowances. If you are receiving any other type of
distribution, tax will be withheld in the amount of 10% of the distribution.
If payments are delivered to foreign countries, federal income tax will
generally be withheld at a 10% rate unless you certify to Transamerica that
you are not a U. S. citizen residing abroad or a tax avoidance
69
<PAGE>
expatriate as defined in Code Section 877. Such certification may result in
mandatory withholding of federal income taxes at a different rate.
5. Penalty Taxes
(a) Excess Contributions. If at the end of any taxable year the total regular
IRA contributions you made to your Traditional IRAs and your Roth IRAs, other
than rollovers or transfers, exceed the maximum allowable deductible and
nondeductible contributions for that year, the excess contribution amount will
be subject to a nondeductible 6% excise penalty tax. Such penalty tax cannot
exceed 6% of the value of your IRAs at the end of such year.
However, if you withdraw the excess contribution, plus any earnings on it,
before the due date for filing your federal income tax return, including
extensions, for the taxable year in which you made the excess contribution,
the excess contribution will not be subject to the 6% penalty tax. The amount
of the excess contribution withdrawn will not be considered an early
distribution, nor otherwise be includible in your gross income if you have not
taken a deduction for the excess amount. However, the earnings withdrawn will
be taxable income to you and may be subject to the 10% penalty tax on early
distributions. Alternatively, excess contributions for one year may be
withdrawn in a later year or may be carried forward as regular IRA
contributions in the following year to the extent that the excess, when
aggregated with your regular IRA contributions, if any, for the subsequent
year, does not exceed the maximum allowable deductible and nondeductible
amount for that year. The 6% excise tax will be imposed on excess
contributions in each subsequent year they are neither returned to you nor
applied as permissible regular IRA contributions for such year.
(b) Early Distributions. Since the purpose of an IRA is to accumulate funds
for retirement, your receipt or use of any portion of your IRA before you
attain age 59 1/2 constitutes an early distribution subject to a 10% penalty
tax unless the distribution occurs as a result of your death or disability or
is part of a series of substantially equal payments made over your life
expectancy or the joint life expectancies of you and your beneficiary, as
determined from IRS tables in the income tax regulations.
Also, the 10% penalty tax will not apply if distributions are used to pay for
medical expenses in excess of 7.5% of your AGI or if distributions are used to
pay for health insurance premiums for you, your spouse and/or your dependents
if you are an unemployed individual who is receiving unemployment compensation
under federal or state programs for at least 12 consecutive weeks. Effective
for distributions made in 1998 or later, the 10% penalty tax also will not
apply to an early distribution made to pay for certain qualifying first-time
homebuyer expenses of you or certain family members, or for certain qualifying
higher education expenses for you or certain family members.
First-time homebuyer expenses must be paid within 120 days of the distribution
from the IRA and include up to $10,000 of the costs of acquiring,
constructing, or reconstructing a principal residence, including any usual or
reasonable settlement, financing or other closing costs. Higher education
expenses include tuition, fees, books, supplies, and equipment required for
enrollment, attendance, and room and board at a post-secondary educational
institution. The amount of an early distribution, excluding any nondeductible
contribution included therein, is includable in your gross income and may be
subject to the 10% penalty tax unless you transfer it to another IRA as a
qualifying rollover contribution.
(c) Failure To Satisfy RMD. If the RMD rules described above in Part I,
Section 4(a) apply to you and if the amount distributed during a calendar year
is less than the minimum amount required to be distributed, you will be
subject to a penalty tax equal to 50% of the excess of the amount required to
be distributed over the amount actually distributed.
(d) Policy Loans and Prohibited Transactions. If you or any beneficiary engage
in any prohibited transaction, such as any sale, exchange or leasing of any
property between you and the Traditional IRA, or any interference with the
independent status of such IRA, the Traditional IRA will lose its tax
exemption and be treated as having been distributed to you. The value of the
entire Traditional IRA, excluding any nondeductible contributions included
therein, will be includable in your gross income; and, if at the time of the
prohibited transaction you are under age 59 1/2, you may also be subject to
the 10% penalty tax on early distributions, as described above in Part I,
Section 5(b).
If you borrow from or pledge your Traditional IRA, or your benefits under the
contract, as security for a
70
<PAGE>
loan, the portion borrowed or pledged as security will cease to be tax-
qualified, the value of that portion will be treated as distributed to you,
and you will have to include the value of the portion borrowed or pledged as
security in your income that year for federal tax purposes. You may also be
subject to the 10% penalty tax on early distributions.
(e) Overstatement or Understatement of Nondeductible Contributions. If you
overstate your nondeductible Traditional IRA contributions on your federal
income tax return, without reasonable cause, you may be subject to a reporting
penalty. Such a penalty also applies for failure to file any form required by
the IRS to report nondeductible contributions. These penalties are in addition
to any ordinary income or penalty taxes, interest, and penalties for which you
may be liable if you underreport income upon receiving a distribution from
your Traditional IRA. See Part I, Section 4(b) above for the tax treatment of
such distributions.
IRA PART II: ROTH IRAs
1. Contributions
(a) Regular Roth IRA. You may make contributions to a regular Roth IRA in any
amount up to the contribution limits described in Part II, Section 3, below.
Such contributions are also subject to the minimum amount under the
Transamerica Life Roth IRA contract. Such contribution must be in cash. Your
contribution for a tax year must be made by the due date, not including
extensions, for your federal income tax return for that tax year. Unlike
Traditional IRAs, you may continue making Roth IRA contributions after
reaching age 70 1/2 to the extent that your AGI does not exceed the levels
described below.
(b) Spousal Roth IRA. If you and your spouse file a joint federal income tax
return for the taxable year and if your spouse's compensation, if any,
includable in gross income for the year is less than the compensation
includable in your gross income for the year, you and your spouse may each
establish your own individual Roth IRA and may make contributions to those
Roth IRAs in accordance with the rules and limits for contributions contained
in the Code, which are described in Part II, Section 3, below. Such
contributions must be in cash. Your contribution to a Spousal Roth IRA for a
tax year must be made by the due date, not including extensions, for your
federal income tax return for that tax year.
(c) Rollover Roth IRA. You may make contributions to a Rollover Roth IRA
within 60 days after receiving a distribution from an existing Roth IRA,
subject to certain limitations discussed in Part II, Section 3, below.
(d) Transfer Roth IRA. You may make an initial or subsequent contribution to
your Transamerica Life Roth IRA by directing a fiduciary or issuer of any of
your existing Roth IRAs to make a direct transfer of all or a portion of the
assets from such Roth IRAs to your Transamerica Life Roth IRA.
(e) Conversion Roth IRA. You may make contributions to a Conversion Roth IRA
within 60 days of receiving a distribution from an existing Traditional IRA or
by instructing the fiduciary or issuer of any of your existing Traditional
IRAs to make a direct transfer of all or a portion of the assets from such a
Traditional IRA to your Transamerica Life Roth IRA, subject to certain
restrictions and subject to income tax on some or all of the converted
amounts. If your AGI, not including the conversion amount, is greater than
$100,000 for the tax year, or if you are married and you and your spouse file
separate tax returns, you may not convert or transfer any amount from a
Traditional IRA to a Roth IRA.
(f) Responsibility of the Owner. Contributions, rollovers, transfers or
conversions to a Roth IRA must be made in accordance with the appropriate
sections of the Code. It is your full and sole responsibility to make
contributions to your Roth IRA in accordance with the Code. Transamerica Life
Insurance and Annuity Company does not provide tax advice, and assumes no
liability for the tax consequences of any contribution to your Roth IRA.
2. Deductibility of Contributions
Your Roth IRA permits only nondeductible after-tax contributions. However,
distributions from your Roth IRA are generally not subject to federal income
tax. See Part II, 4(b) below. This is unlike a Traditional IRA, which permits
deductible and nondeductible contributions, but which provides that most
distributions are subject to federal income tax.
3. Contribution Limits
Contributions for each taxable year to all Traditional and Roth IRAs may not
exceed the lesser of 100% of your compensation or $2,000 for any calendar
year,
71
<PAGE>
subject to AGI phase-out rules described below in Section 3(a). Rollover,
transfer and conversion contributions, if properly made, do not count towards
your maximum annual contribution limit, nor do employer contributions to a
SEP-IRA or SIMPLE IRA.
(a) Regular Roth IRAs. The maximum amount you may contribute to a regular Roth
IRA will depend on the amount of your AGI for the calendar year. Your maximum
$2,000 contribution limit begins to phase out when your AGI reaches $95,000 as
unmarried or $150,000 when married filing jointly. Under this phase out, your
maximum regular Roth IRA contributions generally will not be less than $200;
however, no contribution is allowed if your AGI exceeds $110,000 as unmarried
or $160,000 when married filing jointly. If you are married and you and your
spouse file separate tax returns, your maximum regular Roth IRA contribution
phases out between $0 and $10,000. If you are married but you and your spouse
lived apart for the entire taxable year and file separate federal income tax
returns, your maximum contribution is calculated as if you were not married.
You should consult your tax adviser to determine your maximum contribution.
You may make contributions to a regular Roth IRA after age 70 1/2, subject to
the phase-out rules. Regular Roth IRA contributions for a tax year should be
reported on your tax return for that year, specifically, on Form 8606.
(b) Spousal Roth IRAs. Contributions to your lower-earning spouse's Spousal
Roth IRA may not exceed the lesser of:
1. 100% of both spouses' combined compensation minus any Roth IRA or
deductible Traditional IRA contribution for the spouse with the higher
compensation for the year; or
2. $2,000, as reduced by the phase-out rules described above for regular Roth
IRAs.
A maximum of $4,000 may be contributed to both spouses' Roth IRAs.
Contributions can be divided between the spouses' Roth IRAs as you and your
spouse wish, but no more than $2,000 in regular Roth IRA contributions can be
contributed to either individual's Roth IRA each year.
(c) Rollover Roth IRAs. There is no limit on the amounts that you may rollover
from one Roth IRA into another Roth IRA, including your Transamerica Life Roth
IRA. You may roll over a distribution from any single Roth IRA to another Roth
IRA only once in any 365-day period.
(d) Transfer Roth IRAs. There is no limit on amounts that you may transfer
directly from one Roth IRA into another Roth IRA, including your Transamerica
Life Roth IRA. Such a direct transfer does not constitute a rollover for
purposes of the 1-year waiting period.
(e) Conversion Roth IRAs. There is no limit on amounts that you may convert
from your Traditional IRA into your Transamerica Life Roth IRA if you are
eligible to open a Conversion Roth IRA as described in Part II, Section 1(e),
above. In the case of a conversion from a SIMPLE-IRA, the conversion may only
be done after the expiration of your 2-year participation period described in
Code Section 72(t)(6). However, the distribution proceeds from your
Traditional IRA are includable in your taxable income to the extent that they
represent a return of deductible contributions and earnings on any
contributions. The distribution proceeds from your Traditional IRA are not
subject to the 10% early distribution penalty tax, described below, if the
distribution proceeds are deposited to your Roth IRA within 60 days.
You can also make contributions to a Roth IRA by instructing the fiduciary or
issuer, custodian or trustee of your existing Traditional IRAs to transfer the
assets in your Traditional IRAs to the Roth IRA, which can be a successor to
your existing Traditional IRAs. The transfer will be treated as a distribution
from your Traditional IRAs, and that amount will be includable in your taxable
income to the extent that it represents a return of deductible contributions
and earnings on any contributions, but will not be subject to the 10% early
distribution penalty tax.
If you converted from a Traditional IRA to a Roth IRA during 1998, the income
reportable upon distribution from the Traditional IRA may be reportable
entirely for 1998 or reportable ratably over four years beginning in 1998.
4. Recharacterization of IRA Contributions
(a) Eligibility. By making a timely transfer and election, you generally can
treat a contribution made to one type of IRA as made to a different type of
IRA
72
<PAGE>
for a taxable year. For example, if you make contributions to a Roth IRA and
later discover that you are not eligible to make Roth IRA contributions, you
may recharacterize all or a portion of the contribution as a Traditional IRA
contribution by the filing due date, including extensions, for the applicable
tax year.
You may not recharacterize amounts paid into a Traditional IRA that
represented tax-free rollovers or transfers, or employer contributions.
(b) Election. You may elect to recharacterize a contribution amount made to
one type of IRA by simply making a trustee-to-trustee transfer of such amount,
plus net income attributable to it, to a second type of IRA on or before the
federal income tax due date, including extensions, for the tax year for which
the contribution was initially made. After the recharacterization has been
made, you may not revoke or modify the election.
(c) Taxation of a Recharacterization. For federal income tax purposes, a
recharacterized contribution will be treated as having been contributed to the
transferee IRA, rather than to the transferor IRA, on the same date and for
the same tax year that the contribution was initially made to the transferor
IRA. A recharacterized transfer is not considered a rollover for purposes of
the 1-year waiting period.
The transfer of the contribution amount being recharacterized must include the
net income attributable to such amount. If such amount has experienced net
losses as of the time of the recharacterization transfer, the amount
transferred, the original contribution amount less any losses, will generally
constitute a transfer of the entire contribution amount. You must treat the
contribution amount as made to the transferee IRA on your federal income tax
return for the year to which the original contribution amount related.
For reconversions following a recharacterization, see Publication 590 and
Treasury Regulation Section 1.408A-5.
5. Distributions
(a) Required Minimum Distribution, or simply, RMD. Unlike a Traditional IRA,
there are no rules that require that any distribution be made to you from your
Roth IRA during your lifetime.
If you die before the entire value of your Roth IRA is distributed to you, the
balance of your Roth IRA must be distributed by December 31 of the calendar
year that is five years after your death. However, if you die and you have a
designated beneficiary, your beneficiary may elect to take distributions in
the form of qualifying settlement option payments in substantially equal
installments over the life or life expectancy of the designated beneficiary,
beginning by December 31 of the calendar year that is one year after your
death.
If your beneficiary is your surviving spouse, he or she can become the new
owner/annuitant and can continue the Transamerica Life Roth IRA on the same
basis as before your death. If your surviving spouse does not wish to continue
the Transamerica Life Roth IRA as his or her Roth IRA, he or she may elect to
receive the death benefit in the form of qualifying settlement option payments
in order to avoid the 5-year distribution requirement. Such payments must be
made in substantially equal amounts over your spouse's life or a period not
extending beyond his or her life expectancy. Your surviving spouse must elect
this option and begin receiving payments no later than the later of the
following dates:
a) December 31 of the year following the year you died; or
b) December 31 of the year in which you would have reached age 70.
Your beneficiary is responsible for assuring that the RMD following your death
is taken in a timely manner and that the correct amount is distributed.
(b) Taxation of Roth IRA Distributions. The amounts that you withdraw from
your Roth IRA are generally tax-free. For federal income tax purposes, all of
your Roth IRAs are aggregated and Roth IRA distributions are treated as made
first from Roth IRA contributions and second from earnings. Distributions that
are treated as made from Roth IRA contributions are treated as made first from
regular Roth IRA contributions, which are always tax-free, and second from
conversion or rollover Roth IRA contributions on a first-in, first-out basis.
A distribution allocable to a particular conversion or rollover Roth IRA
contribution is treated as consisting first of the portion, if any, of the
conversion contribution that
73
<PAGE>
was previously includible in gross income by reason of the conversion.
In any event, since the purpose of a Roth IRA is to accumulate funds for
retirement, your receipt or use of Roth IRA earnings before you attain age 59
1/2, or within 5 years of your first contribution to the Roth IRA, including a
contribution rolled over, transferred or converted from a Traditional IRA,
will generally be treated as an early distribution subject to regular income
tax and to the 10% penalty tax described below in Section 6(b).
No income tax will apply to earnings that are withdrawn before you attain age
59 1/2, but which are withdrawn five or more years after the first
contribution to the Roth IRA, including a rollover or transfer contribution or
conversion from a Traditional IRA, where the withdrawal is made:
a) upon your death or disability; or
b) to pay qualified first-time homebuyer expenses of you or certain family
members.
No portion of your Roth IRA distribution qualifies as a capital gain. There is
also a separate 5-year rule for the recapture of the 10% penalty tax that is
described below in Section 6(b) and that applies to any Roth IRA distribution
made before age 59 1/2 if any conversion or rollover contribution has been
made to any Roth IRA owned by the individual within the 5 most recent taxable
years, even if this current distribution from the Roth IRA is otherwise tax-
free under the rules described in this Subsection 5(b).
(c) Withholding. If the distribution from your Roth IRA is subject to federal
income tax, unless you elect not to have withholding apply, federal income tax
will be withheld from your Roth IRA distributions. If you receive
distributions under a settlement option, tax will be withheld in the same
manner as taxes withheld on wages, calculated as if you were married and claim
three withholding allowances. If you are receiving any other type of
distribution, tax will be withheld in the amount of 10% of the amount of the
distribution. If payments are delivered to foreign countries, federal income
tax will generally be withheld at a 10% rate unless you certify to
Transamerica Life Insurance and Annuity Company that you are not a U. S.
citizen residing abroad or a "tax avoidance expatriate" as defined in Code
Section 877. Such certification may result in mandatory withholding of federal
income taxes at a different rate.
6. Penalty Taxes
(a) Excess Contributions. If at the end of any taxable year your total regular
Roth IRA contributions, other than rollovers, transfers or conversions, exceed
the maximum allowable contributions for that year, taking into account
Traditional IRA contributions, the excess contribution amount will be subject
to a nondeductible 6% excise penalty tax. Such penalty tax cannot exceed 6% of
the value of your Roth IRAs at the end of such year. However, if you withdraw
the excess contribution, plus any earnings on it, before the due date for
filing your federal income tax return, including extensions, for the taxable
year in which you made the excess contribution, the excess contribution will
not be subject to the 6% penalty tax.
The amount of the excess contribution withdrawn will not be considered an
early distribution, but the earnings withdrawn will be taxable income to you
and may be subject to the 10% penalty tax on early distributions.
Alternatively, excess contributions for one year may be withdrawn in a later
year or may be carried forward as Roth IRA contributions in a later year to
the extent that the excess, when aggregated with your regular Roth IRA
contributions, if any, for the subsequent year, does not exceed the maximum
allowable contribution for that year. The 6% excise tax will be imposed on
excess contributions in each subsequent year they are neither returned to you
nor applied as permissible regular Roth IRA contributions for such year.
(b) Early Distributions. Since the purpose of a Roth IRA is to accumulate
funds for retirement, your receipt or use of any portion of your Roth IRA
before you attain age 59 1/2 constitutes an early distribution subject to the
10% penalty tax on the earnings in your Roth IRA. This penalty tax will not
apply if the distribution occurs as a result of your death or disability or is
part of a series of substantially equal payments made over your life
expectancy or the joint life expectancies of you and your beneficiary, as
determined from IRS tables in the income tax regulations. Also, the 10%
penalty tax will not apply if distributions are used to pay for medical
expenses in excess of 7.5% of your AGI; or if distributions are used to pay
for health insurance premiums for you, your spouse and/or your dependents if
you are an unemployed individual who is receiving unemployment compensation
under federal or state programs for at least 12 consecutive weeks.
74
<PAGE>
The 10% penalty tax also will not apply to an early distribution made to pay
for certain qualifying first-time homebuyer expenses for you or certain family
members, or for certain qualifying higher education expenses for you or
certain family members. First-time homebuyer expenses must be paid within 120
days of the distribution from the Roth IRA and include up to $10,000 of the
costs of acquiring, constructing, or reconstructing a principle residence,
including any usual or reasonable settlement, financing or other closing
costs. Higher education expenses include tuition, fees, books, supplies, and
equipment required for enrollment, attendance, and room and board at a post-
secondary educational institution.
There is also a separate 5-year recapture rule for the 10% penalty tax in the
case of a Roth IRA distribution made before age 59 1/2 that is made within 5
years after a conversion or rollover contribution from a Traditional IRA. This
recapture rule exists because such a prior Roth IRA contribution avoided the
10% penalty tax when it was rolled over or converted from the Traditional IRA.
Under this 5-year recapture rule, any Roth IRA distribution made before age 59
1/2 that is attributable to any conversion or rollover contribution from a
Traditional IRA made within the previous 5 years to any of the individual's
Roth IRAs is generally subject to the 10% penalty tax, and its exceptions, to
the extent that such prior Roth IRA contribution was subject to ordinary tax
upon the conversion or rollover, even if the Roth IRA distribution is
otherwise tax-free.
Under the distribution ordering rules for a Roth IRA, all of an individual's
Roth IRAs and distributions therefrom are treated as made: first from regular
Roth IRA contributions; then from conversion or rollover Roth IRA
contributions on a first-in, first-out basis; and last from earnings. However,
whenever any Roth IRA distribution amount is attributable to any conversion or
rollover contribution made within the 5 most recent tax years, this
distributed amount is attributed first to the taxable portion of such prior
contribution, for purposes of determining the amount of this Roth IRA
distribution that is subject to the recapture of the 10% penalty tax, unless
some exception to the penalty tax applies to the current Roth IRA
distribution, such as age 59 1/2, disability or certain health, education or
homebuyer expenses, as described above in this Subsection 6(b).
(c) Failure to Satisfy RMDs Upon Death. If the RMD rules described above in
Part II, Section 4(a) apply to the beneficiary of your Roth IRA after your
death and if the amount distributed during a calendar year is less than the
minimum amount required to be distributed, your beneficiary will be subject to
a penalty tax equal to 50% of the excess of the amount required to be
distributed over the amount actually distributed.
(d) Policy Loans and Prohibited Transactions. If you or any beneficiary engage
in any prohibited transaction, such as any sale, exchange or leasing of any
property between you and the Roth IRA, or any interference with the
independent status of the Roth IRA, the Roth IRA will lose its tax exemption
and be treated as having been distributed to you. The value of any earnings on
your Roth IRA contributions will be includable in your gross income; and if at
the time of the prohibited transaction, you are under age 59 1/2 you may also
be subject to the 10% penalty tax on early distributions, as described above
in Part II, Section 5(b). If you borrow from or pledge your Roth IRA, or your
benefits under the contract, as a security for a loan, the portion borrowed or
pledged as security will cease to be tax-qualified, the value of that portion
will be treated as distributed to you, and you may be subject to the 10%
penalty tax on early distributions from a Roth IRA.
IRA PART III: OTHER INFORMATION
(1) Federal Estate and Gift Taxes
Any amount in or distributed from your Traditional and/or Roth IRAs upon your
death may be subject to federal estate tax, although certain credits and
deductions may be available. The exercise or non-exercise of an option that
would pay a survivor an annuity at or after your death should not be
considered a transfer for federal gift tax purposes.
(2) Tax Reporting
You must report contributions to, and distributions from, your Traditional IRA
and Roth IRA, including the year-end aggregate account balance of all
Traditional IRAs and Roth IRAs, on your federal income tax return for the year
specifically on IRS Form 8606. For Traditional IRAs, you must designate on the
return how much of your annual contribution is deductible and how much is
nondeductible. You need not file IRS Form 5329 with your income tax
75
<PAGE>
return for a particular year unless for that year you are subject to a penalty
tax because there has been an excess contribution to, an early distribution
from, or insufficient RMDs from your Traditional IRA or Roth IRA, as
applicable.
(3) Vesting
Your interest in your Traditional IRA or Roth IRA is nonforfeitable at all
times.
(4) Exclusive Benefit
Your interest in your Traditional IRA or Roth IRA is for the exclusive benefit
of you and your beneficiaries.
(5) IRS Publication 590
Additional information about your Traditional IRA or Roth IRA or about SEP-
IRAs and SIMPLE-IRAs can be obtained from any district office of the IRS or by
calling 1-800-TAX-FORM for a free copy of IRS Publication 590, Individual
Retirement Arrangements.
76
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION FOR
DREYFUS/TRANSAMERICA TRIPLE ADVANTAGE
VARIABLE ANNUITY
SEPARATE ACCOUNT VA-2L
Issued By
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
The Statement of Additional Information expands upon subjects discussed in the
February 7, 2000, prospectus for the Dreyfus/Transamerica Triple Advantage
Variable Annuity ("contract") issued by Transamerica Occidental Life Insurance
Company. The owner may obtain a copy of the prospectus by writing to:
Transamerica Occidental Life Insurance Company, Annuity Service Center, P.O.
Box 31848, Charlotte, North Carolina 28231 or calling 800-258-4260. Terms used
in the current prospectus for the contract are incorporated in this statement.
The contract will be issued as a certificate under a group annuity contract in
some states and as an individual annuity contract in other states. The term
"contract" as used herein refers to both the individual contract and the
certificates issued under the group contract.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the prospectus for the contract.
Dated February 7, 2000
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE CONTRACT.............................................................. 3
DOLLAR COST AVERAGING..................................................... 3
SPECIAL DOLLAR COST AVERAGING OPTION...................................... 3
NET INVESTMENT FACTOR..................................................... 3
ANNUITY PERIOD............................................................ 4
Variable Annuity Units and Payments..................................... 4
Variable Annuity Unit Value............................................. 4
Transfers After the Annuity Date........................................ 4
Guaranteed Minimum Income Benefit--Hypothetical Illustration............ 5
GENERAL PROVISIONS........................................................ 6
Adjusted Partial Withdrawals............................................ 6
IRS Required Distributions.............................................. 8
Non-Participating....................................................... 8
Misstatement of Age or Sex.............................................. 8
Proof of Existence and Age.............................................. 9
Assignment.............................................................. 9
Annuity Data............................................................ 9
Annual Report........................................................... 9
Incontestability........................................................ 9
Ownership............................................................... 9
Entire Contract......................................................... 9
Changes in the Contract................................................. 9
Protection of Benefits.................................................. 10
Delay of Payments....................................................... 10
Notices and Directions.................................................. 10
CALCULATION OF YIELDS AND TOTAL RETURNS................................... 11
Money Market Sub-Account Yield Calculation.............................. 11
Other Sub-Account Yield Calculations.................................... 11
Average Total Return Calculations....................................... 12
Adjusted Historical Performance Data.................................... 12
Other Performance Data.................................................. 12
HISTORICAL PERFORMANCE DATA............................................... 13
General Limitations..................................................... 13
Money Market Sub-Account Yields......................................... 13
Sub-Account Performance Figures Including Adjusted Historical
Performance............................................................ 13
Since Commencement of the Sub-Accounts.................................. 13
Since Commencement of the Portfolios.................................... 17
FEDERAL TAX MATTERS....................................................... 19
Taxation of Transamerica................................................ 20
Tax Status of the Contract.............................................. 20
DISTRIBUTION OF THE CONTRACT.............................................. 21
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS.................................... 21
TRANSAMERICA.............................................................. 22
General Information and History......................................... 22
STATE REGULATION.......................................................... 22
RECORDS AND REPORTS....................................................... 22
FINANCIAL STATEMENTS...................................................... 22
APPENDIX.................................................................. 23
Accumulation Transfer Formula........................................... 23
</TABLE>
2
<PAGE>
THE CONTRACT
As a supplement to the description in prospectus, the following provides
additional information about the contract which may be of interest to some
owners.
DOLLAR COST AVERAGING
We reserve the right to send written notification to you, as the owner, as to
the options available if termination of dollar cost averaging, either by you
or by us, results in the value of the receiving sub-account(s) to which
monthly transfers were made to be less than $500. You will have 10 days from
the date our notice is mailed to:
(a) transfer the value of the sub-account(s) to another sub-account with a
value equal to or greater than $500; or
(b) transfer funds from another sub-account into the receiving sub-
account(s) to bring the value of that sub-account to at least $500; or
(c) submit an additional purchase payment to make the value of the sub-
account equal to or greater than $500; or
(d) transfer the entire value of the receiving sub-account(s) back into the
source account from which the automatic transfers were made.
If no election, in a form and manner acceptable to us, is made by you before
the end of the 10 day period, we reserve the right to transfer the value of
the receiving sub-account(s) back into the source account from which the
automatic transfers were made. Transfers made as a result of (a), (b), or (d)
above will not be counted for purposes of the eighteen free transfers per
contract year limitation.
SPECIAL DOLLAR COST AVERAGING OPTION
(May not be available in all states. See contract for availability of the
fixed account options.)
When you apply for the contract, you may elect to allocate the entire initial
purchase payment to either the six or twelve month special Dollar Cost
Averaging account of the Fixed Acount. The initial purchase payment will be
credited with interest at a guaranteed fixed rate. Amounts will then be
transferred from the special Dollar Cost Averaging account to the sub-accounts
and/or general account options pro rata on a monthly basis for six or twelve
months (depending on the option you select) in the allocations you specified
when you applied for the contract.
Amounts from the sub-accounts and/or general account options may not be
transferred into the special Dollar Cost Averaging accounts. In addition, if
you request a transfer (other than a Dollar Cost Averaging transfer) or a
withdrawal from a special Dollar Cost Averaging account, any amounts remaining
in the special account will be transferred to the sub-account and/or general
account option according to your original allocation instructions. The special
Dollar Cost Averaging option will end and cannot be reelected.
NET INVESTMENT FACTOR
For any sub-account of the variable account, the net investment factor for a
valuation period, before the annuity date, is (a) divided by (b), minus (c)
minus (d).
Where (a) is
The net asset value per share held in the sub-account, as of the end of the
valuation period, plus or minus the per-share amount of any dividend or
capital gain distributions if the "ex-dividend" date occurs in the
valuation period, plus or minus a per-share charge or credit as we may
determine, as of the end of the valuation period, for taxes.
3
<PAGE>
Where (b) is
The net asset value per share held in the sub-account as of the end of the
last prior valuation period.
Where (c) is
The daily charge of 0.003403% (1.25% annually) for the mortality and
expense risk charge under the contract times the number of calendar days in
the current valuation period.
Where (d) is
The daily administrative expense charge, currently 0.000411% (0.15%
annually) times the number of calendar days in the current valuation
period. This charge may be increased, but will not exceed 0.000684% (0.25%
annually).
A valuation day is defined as any day that the New York Stock Exchange is
open.
ANNUITY PERIOD
The variable annuity options provide for payments that fluctuate or vary in
dollar amount, based on the investment performance of the elected variable
account sub-account(s).
Variable Annuity Units and Payments
For the first monthly payment, the number of variable annuity units credited
in each sub-account will be determined by dividing: (a) the product of the
portion of the value to be applied to the sub-account and the variable annuity
purchase rate specified in the contract; by (b) the value of one variable
annuity unit in that sub-account on the annuity date.
The amount of each subsequent variable annuity payment equals the product of
the number of variable annuity units in each sub-account and the sub-account's
variable annuity unit value as of the tenth day of the month before the
payment due date. The amount of each payment may vary as may the date of
determination.
Variable Annuity Unit Value
The value of a variable annuity unit in a sub-account on any valuation day is
determined as described below.
The net investment factor for the valuation period (for the appropriate
annuity payment frequency) just ended is multiplied by the value of the
variable annuity unit for the sub-account on the preceding valuation day. The
net investment factor after the annuity date is calculated in the same manner
as before the annuity date and then multiplied by an interest factor. The
interest factor equals (.999893)n where n is the number of days since the
preceding valuation day. This compensates for the 4% interest assumption built
into the variable annuity purchase rates.
Transfers After the Annuity Date
After the annuity date, you may transfer variable annuity units from one sub-
account to another, subject to certain limitations. (See "Transfers" in the
prospectus.) The dollar amount of each subsequent monthly variable annuity
payment after the transfer must be determined using the new number of variable
annuity units multiplied by the sub-account's variable annuity unit value.
The formula used to determine a transfer after the annuity date can be found
in the Appendix to this Statement of Additional Information.
4
<PAGE>
Guaranteed Minimum Income Benefit (GMIB)--Hypothetical Illustration
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the guaranteed minimum income benefit rider for a $100,000
premium when annuity payments do not begin until the rider anniversary
indicated in the left-hand column. These figures assume the following:
. there were no subsequent purchase payments or withdrawals;
. there were no premium taxes;
. the $100,000 purchase payment is subject to the GMIB;
. the annuitant is (or both annuitants are) 60 years old when the rider is
issued;
. the annual growth rate is 5.0% (once established an annual growth rate will
not change during the life of the GMIB rider); and
. there was no upgrade of the minimum annuitization value.
Six different annuity payment options are illustrated; a male annuitant, a
female annuitant and a joint and survivor annuity, each on a Life Only and a
Life with 10-Year Certain basis. The figures below, which are the amount of
the guaranteed fixed monthly payment, are based on an assumed investment
return of 3%. Subsequent payments are calculated using a 5% assumed investment
return. If you choose the guaranteed minimum payment option, subsequent
payments will never be less than the amount of the first payment. If you do
not choose the guaranteed minimum payment option, subsequent payments may be
less than the amount of the first payment.
Life Only = Life Annuity with No Period Certain
Life 10 = Life Annuity with 10 Years
Certain
<TABLE>
<CAPTION>
Rider Anniversary
at Exercise Date Male Female Joint & Survivor
- ---------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 (age 67) $ 808 $ 774 $ 702 $ 688 $ 622 $ 621
- ---------------------------------------------------------------------------
15 $1,590 $1,418 $1,355 $1,274 $1,156 $1,143
- ---------------------------------------------------------------------------
20 (age 80) $2,523 $2,051 $2,149 $1,892 $1,775 $1,719
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows:
Withdrawals will reduce the minimum annuitization value on a pro-rata basis by
an amount equal to the minimum annuitization value multiplied by the
percentage reduction in the account value resulting from the withdrawal.
The amount of the first payment provided by the GMIB will be determined by
multiplying each $1,000 of minimum annuitization value (or account value if
greater) by the applicable annuity factor shown in Schedule I of the GMIB
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's if any) sex (or without regard to gender if required by law), age,
and the GMIB payment option selected and is based on a guaranteed interest
rate of 3% and the "1983 Table a" mortality table improved to the year 2000
with projection Scale G. Subsequent payments will be calculated as described
in the GMIB rider using a 5% assumed investment return. Subsequent payments
may fluctuate annually in accordance with the investment performance of the
annuity sub-accounts. However, if you choose the guaranteed minimum payment
option detailed in the GMIB rider, subsequent payments are guaranteed to never
be less than the initial payment. If you do not choose the guaranteed minimum
payment option, subsequent payments may be less than the initial payment.
Furthermore, if you elect the guaranteed minimum payment option, payments
throughout each policy year will be stabilized to remain level. The stabilized
payment on each subsequent contract anniversary after annuitization using the
GMIB will equal the greater of the initial payment or the payment supportable
by the annuity units in
5
<PAGE>
the selected sub-accounts. If you do not elect the guaranteed minimum payment
option, subsequent payments will be equal to the supportable payment and could
fluctuate throughout each policy year. The supportable payment is equal to the
number of variable annuity units in the selected sub-accounts multiplied by
the variable annuity unit values in those sub-accounts on the date the payment
is made. The variable annuity unit values used to calculate the supportable
payment will assume a 5% assumed investment return. Under the guaranteed
minimum payment option, if the supportable payment at any payment date during
a contract year is greater than the stabilized payment for that contract year,
the excess will be used to purchase additional annuity units. Conversely, if
the supportable payment at any payment date during a contract year is less
than the stabilized payment for the contract year, there will be a reduction
in the number of annuity units credited to the policy to fund the deficiency.
In the case of a reduction, you will not participate as fully in the future
investment performance of the sub-accounts you selected since fewer annuity
units are credited to your policy. Purchases and reductions will be allocated
to each sub-account on a proportionate basis. If you do not elect the
guaranteed minimum payment option, no annuity units will be purchased or
redeemed.
Under the guaranteed minimum payment option, we bear the risk that we will
need to make payments if all annuity units have been used in an attempt to
maintain the stabilized payment at the initial payment level. In such event,
we will make all future payments equal to the initial payment. Once all the
annuity units have been used, the amount of your payment will not increase or
decrease and will not depend upon the performance of any sub-accounts. To
compensate us for this risk, a guaranteed minimum payment fee will be
deducted.
GENERAL PROVISIONS
Adjusted Partial Withdrawals
The amount of your Guaranteed Minimum Death Benefit is reduced due to a
partial withdrawal by an amount called the adjusted partial withdrawal. The
reduction amount depends on the relationship between your Guaranteed Minimum
Death Benefit and policy value. The adjusted partial withdrawal is equal to
(1) multiplied by (2), where
(1) is the Gross Partial Withdrawals, where gross partial withdrawal =
requested withdrawal + interest adjustement + any premium taxes +
contingent deferred sales loads on (excess partial withdrawal +
interest adjustment + any premium taxes); and
(2) is the adjustment factor = current death benefit prior to the
withdrawal divided by the current account value prior to the
withdrawal.
6
<PAGE>
The following examples describe the effect of a withdrawal on the Guaranteed
Minimum Death Benefit and account value.
Example 1
(Assumed Facts for Example)
<TABLE>
- ----------------------------------------------------------------------------
<C> <S>
$75,000 Current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- ----------------------------------------------------------------------------
$50,000 Current account value before withdrawal
- ----------------------------------------------------------------------------
$75,000 Current death benefit (larger of policy value and GMDB)
- ----------------------------------------------------------------------------
6% Current contingent deferred sales surrender load percentage
- ----------------------------------------------------------------------------
$15,000 Requested withdrawal
- ----------------------------------------------------------------------------
$ 7,500 Withdrawal amount free of contingent deferred sales loads (assumes
15% penalty free withdrawals)
- ----------------------------------------------------------------------------
Excess partial withdrawal (EPW): amount subject to contingent
$7,500 deferred sales loads
- ----------------------------------------------------------------------------
$ 100 Interest adjustment
- ----------------------------------------------------------------------------
$0 Premium taxes
- ----------------------------------------------------------------------------
Contingent deferred sales load on (EPW plus EIA plus premium
$456 taxes) = 0.06*(7,500 + 100 + 0)
- ----------------------------------------------------------------------------
Reduction in account value due to excess partial
$8,056 withdrawal = 7,500 + 100 + 0 + 456
- ----------------------------------------------------------------------------
$23,334 Adjusted partial withdrawal = (7,500 + 8,056)* 75,000/50,000
- ----------------------------------------------------------------------------
$51,666 New GMDB (after withdrawal) = 75,000-23,334
- ----------------------------------------------------------------------------
$34,444 New account value (after withdrawal) = 50.000 - 15,556
</TABLE>
Summary:
Reduction in guaranteed minimum death benefit
= $23,334
Reduction in account value = $15,556
Note, guaranteed minimum death benefit is reduced more than the account value
since the guaranteed minimum death benefit was greater than the account value
just prior to withdrawal.
7
<PAGE>
Example 1
(Assumed Facts for Example)
<TABLE>
- -------------------------------------------------------------------------------
<C> <S>
$50,000 Current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- -------------------------------------------------------------------------------
$75,000 Current account value before withdrawal
- -------------------------------------------------------------------------------
$75,000 Current death benefit (larger of policy value and GMDB)
- -------------------------------------------------------------------------------
6% Current contingent deferred sales load percentage
- -------------------------------------------------------------------------------
$15,000 Requested withdrawal
- -------------------------------------------------------------------------------
$11,125 Withdrawal amount free of contingent deferred sales loads (assumes
15% penalty free withdrawals)
- -------------------------------------------------------------------------------
Excess partial withdrawal (EPW): amount subject to contingent
$ 3,750 deferred sales loads
- -------------------------------------------------------------------------------
$ 100 Interest adjustment
- -------------------------------------------------------------------------------
$ 0 Premium taxes
- -------------------------------------------------------------------------------
$ 231 Contingent deferred sales load on (EPW plus EIA plus premium taxes) =
0.06*
(3,750 + 100 + 0)
- -------------------------------------------------------------------------------
Reduction in account value due to excess partial withdrawal = 3,750 +
$ 4,081 100 + 0 + 231
- -------------------------------------------------------------------------------
$15,331 Adjusted partial withdrawal = (11,250 + 4,081)*75,000/75,000
- -------------------------------------------------------------------------------
$34,669 New GMDB (after withdrawal) = 50,000--15,331
- -------------------------------------------------------------------------------
$59,669 New account value (after withdrawal) = 75.000--15,331
</TABLE>
Summary:
Reduction in guaranteed minimum death benefit
= $15,331
Reduction in account value = $15,331
Note, guaranteed minimum death benefit and account value are reduced by the
same amount since the policy value was higher than the guaranteed minimum
death benefit just prior to withdrawal.
IRS Required Distributions
The contract is intended to qualify as an annuity contract for federal income
tax purposes. All provisions in the contract will be interpreted to maintain
such tax qualification. We may make changes in order to maintain this
qualification or to conform the contract to any applicable changes in the tax
qualification requirements. We will provide you with a copy of any changes
made to the contract. If any owner under a non-qualified contract dies before
the entire interest in the contract is distributed, the value generally must
be distributed to the designated beneficiary so that the contract qualifies as
an annuity under the Code. (See "Federal Tax Matters" in the prospectus.)
Non-Participating
The contract is non-participating. No dividends are payable and the contract
will not share in the profits or surplus earnings of Transamerica.
Misstatement of Age or Sex
If the age or sex of the annuitant or any other measuring life has been
misstated in the application, or other form relied upon to determine annuity
payment, the annuity payments under the contract will be whatever the annuity
purchase amount applied on the annuity date would purchase on the basis of the
correct age or sex of the
8
<PAGE>
annuitant and/or other measuring life. Any overpayments or underpayments by us
as a result of any such misstatement may be respectively charged against or
credited to the annuity payment or payments to be made after the correction so
as to adjust for such overpayment or underpayment.
Proof of Existence and Age
Before making any payment under the contract, we may require proof of the
existence and/or proof of the age of the annuitant or any other measuring
life, or any other information deemed necessary in order to provide benefits
under the contract.
Assignment
No assignment of a contract will be binding on us unless made in writing and
given to us at our service center. We are not responsible for the adequacy of
any assignment. Your rights and the interest of any annuitant or non-
irrevocable beneficiary will be subject to the rights of any assignee of
record.
Annuity Data
We will not be liable for obligations which depend on receiving information
from a payee or measuring life until such information is received in a
satisfactory form.
Annual Report
At least once each contract year prior to the annuity date, you will be given
a report of the current account value. This report will also include any other
information required by law or regulation. After the annuity date, a
confirmation will be provided with every variable annuity payment.
Incontestability
Each contract is incontestable from the contract date.
Ownership
Only you, as the owner(s) will be entitled to the rights granted by the
contract, or allowed by us under the contract. If an owner dies, the rights of
the owner belong to the estate of the owner unless the owner has previously
named an owner's beneficiary. A surviving joint owner automatically becomes
the owner's beneficiary.
Entire Contract
We have issued the contract in consideration and acceptance of the payment of
the initial purchase payment and, where state law requires, the application.
In those states that require a written application, a copy of the application
is attached to and is part of the contract and, along with the contract,
constitutes the entire contract. All statements made by you are considered
representations and not warranties. We will not use any statement in defense
of a claim unless it is made in the application and a copy of the application
is attached to the contract when issued.
The group annuity contract has been issued to a trust organized under Missouri
law. However, the sole purpose of the trust is to hold the group annuity
contract. You have all rights and benefits under the individual certificate
issued under the group contract.
Changes in the Contract
Only two of our authorized officers, acting together, have the authority to
bind Transamerica or to make any change in the individual contract or the
group contract or individual certificates thereunder and then only in writing.
We will not be bound by any promise or representation made by any other
persons.
9
<PAGE>
We may not change or amend the individual contract or the group contract or
individual certificates thereunder, except as expressly provided therein,
without your consent. However, we may change or amend the individual contract
or the group contract or individual certificates thereunder if such change or
amendment is necessary for the individual contract or the group contract or
individual certificates thereunder to comply with any state or federal law,
rule or regulation.
Protection of Benefits
To the extent permitted by law, no benefit (including death benefits) under
the contract will be subject to any claim or process of law by any creditor.
Delay of Payments
Payment of any cash withdrawal or lump sum death benefit due from the variable
account will occur within seven days from the date the election becomes
effective, except that we may be permitted to postpone such payment or
transfers if: (1) the New York Stock Exchange is closed for other than usual
weekends or holidays, or trading on the Exchange is otherwise restricted; or
(2) an emergency exists as defined by the Securities and Exchange Commission
(Commission), or the Commission requires that trading be restricted; or (3)
the Commission permits a delay for the protection of owners.
In addition, while it is our intention to process all transfers from the sub-
accounts immediately upon receipt of a transfer request, the contract gives us
the right to delay effecting a transfer from a sub-account for up to seven
days, but only in certain limited circumstances. However, the staff of the
Commission currently interprets the Investment Company Act of 1940 to require
the immediate processing of all transfers, and in compliance with that
interpretation we will process all transfers immediately unless and until the
Commission or its staff changes its interpretation or otherwise permits us to
exercise this right. Subject to such approval, we may delay effecting such a
transfer only if there is a delay of payment from an affected portfolio. If
this happens, and if the prior approval of the Commission or its staff is
obtained, then we will calculate the dollar value or number of units involved
in the transfer from a sub-account on or as of the date we receive a written
transfer request, but will not process the transfer to the transferee sub-
account until a later date during the seven-day delay period when the
portfolio underlying the transferring sub-account obtains liquidity to fund
the transfer request through sales of portfolio securities, new purchase
payments, transfers by investors or otherwise. During this period, the amount
transferred would not be invested in a sub-account.
We may delay payment of any withdrawal from the fixed account for a period of
not more than six months after we receive the request for such withdrawal. If
we delay payment for more than 30 days, we will pay interest on the withdrawal
amount up to the date of payment. (See "Cash Withdrawals" in the prospectus.)
Notices and Directions
We will not be bound by any authorization, direction, election or notice which
is not in writing, in a form and manner acceptable to us, and received at our
service center.
Any written notice requirement by us to you will be satisfied by our mailing
of any such required written notice, by first-class mail, to your last known
address as shown on our records.
10
<PAGE>
CALCULATION OF YIELDS AND TOTAL RETURNS
Money Market Sub-Account Yield Calculation
In accordance with regulations adopted by the Commission, we are required to
compute the Money Market Sub-Account's current annualized yield for a seven-
day period in a manner which does not take into consideration any realized or
unrealized gains or losses on shares of the Money Market Series or on its
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of
securities and unrealized appreciation and depreciation) in the value of a
hypothetical account having a balance of one unit of the Money Market Sub-
Account and income other than investment income at the beginning of such
seven-day period, dividing such net change in account value by the value of
the account at the beginning of the period to determine the base period return
and annualizing this quotient on a 365-day basis. The net change in account
value reflects the deductions for the annual account fee, the mortality and
expense risk charge and administrative expense charges and income and expenses
accrued during the period. Because of these deductions, the yield for the
Money Market Sub-Account of the variable account will be lower than the yield
for the Money Market Portfolio or any comparable substitute funding vehicle.
The Commission also permits us to disclose the effective yield of the Money
Market Sub-Account for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the unannualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result.
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio or substitute funding vehicle, the types and quality of
portfolio securities held by the Money Market Portfolio or substitute funding
vehicle, and operating expenses. In addition, the yield figures do not reflect
the effect of any contingent deferred sales load (of up to 6% of purchase
payments) that may be applicable to a contract.
Other Sub-Account Yield Calculations
We may from time to time disclose the current annualized yield of one or more
of the sub-accounts (except the Money Market Sub-Account) for 30-day periods.
The annualized yield of a sub-account refers to the income generated by the
sub-account over a specified 30-day period. Because this yield is annualized,
the yield generated by a sub-account during the 30-day period is assumed to be
generated each 30-day period. The yield is computed by dividing the net
investment income per variable accumulation unit earned during the period by
the price per unit on the last day of the period, according to the following
formula:
YIELD = 2[{a-b + 1}/6/ - 1]
cd
Where:
<TABLE>
<C> <C> <S>
a = net investment income earned during the period by the portfolio
attributable to the shares owned by the sub-account.
b = expenses for the sub-account accrued for the period (net of
reimbursements).
c = the average daily number of variable accumulation units outstanding
during the period.
d = the maximum offering price per variable accumulation unit on the last
day of the period.
</TABLE>
11
<PAGE>
Net investment income will be determined in accordance with rules established
by the Commission. Accrued expenses will include all recurring fees that are
charged to all contracts. The yield calculations do not reflect the effect of
any contingent deferred sales load that may be applicable to a particular
contract. The contingent deferred sales load ranges from 6% to 0% of the
amount of account value withdrawn depending on the elapsed time since the
receipt of each purchase payment attributable to the portion of the account
value withdrawn.
Because of the charges and deductions imposed by the variable account, the
yield for the sub-account will be lower than the yield for the corresponding
portfolio. The yield on amounts held in the sub-accounts normally will
fluctuate over time. Therefore, the disclosed yield for any given period is
not an indication or representation of future yields or rates of return. The
sub-account's actual yield will be affected by the types and quality of
portfolio securities held by the portfolio, and its operating expenses.
Average Total Return Calculations
We may from time to time also disclose average annual total returns for one or
more of the sub-accounts for various periods of time. Average annual total
return quotations are computed by finding the average annual compounded rates
of return over one, five and ten year periods that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P{1 + T}n = ERV
Where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five or ten-year period at the end of the one,
five, or ten-year period (or fractional portion thereof).
</TABLE>
All recurring fees are recognized in the ending redeemable value. The standard
average annual total return calculations will reflect the effect of any
contingent deferred sales load that may be applicable to a particular period.
Adjusted Historical Performance Data
We may also disclose adjusted historical performance data for a sub-account,
for periods before the sub-account commenced operations. Such performance
information for the sub-account will be calculated based on the performance of
the corresponding portfolio and the assumption that the sub-account was in
existence for the same periods as those indicated for the portfolio, with a
level of contract charges currently in effect. The portfolio used for these
calculations will be the actual portfolio that the sub-account will invest in.
This type of adjusted historical performance data may be disclosed on both an
average annual total return and a cumulative total return basis. Moreover, it
may be disclosed assuming that the contract is not surrendered (i.e., with no
deduction for the contingent deferred sales load) and assuming that the
contract is surrendered at the end of the applicable period (i.e., reflecting
a deduction for any applicable contingent deferred sales load).
Other Performance Data
We may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard described above. The non-
standard format will be identical to the standard format except that the
contingent deferred sales load percentage will be assumed to be 0%.
12
<PAGE>
We may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the contingent deferred
sales load percentage will be 0%.
CTR = {ERV/P} - 1
Where:
<TABLE>
<C> <C> <S>
CTR = the cumulative total return net of sub-account recurring charges for
the period.
EVR = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one, five, or ten-year period at the end of the one,
five, or ten-year period (or fractional portion thereof).
P = a hypothetical initial payment of $1,000.
</TABLE>
All non-standard performance data will be advertised only if the standard
performance data is also disclosed.
HISTORICAL PERFORMANCE DATA
General Limitations
The figures below represent the past performance of the sub-accounts and are
not indicative of future performance. The figures may reflect the waiver of
advisory fees and reimbursement of other expenses.
Except for Transamerica Growth, the funds have provided the performance data
for the sub-accounts. Except for Transamerica Growth, none of the funds or
their investment advisers are affiliated with Transamerica. In preparing the
tables below, we have relied on the data provided by the funds. While we have
no reason to doubt the accuracy of the figures provided by the funds, we have
not verified those figures.
Money Market Sub-Account Yields
The annualized yield for the Money Market Sub-Account for the seven-day period
ending December 31, 1998 was 3.21%. The effective yield for the Money Market
Sub-Account for the seven-day period ending December 31, 1998 was 3.25%.
Sub-Account Performance Figures Including Adjusted Historical Performance
The charts below show historical performance data for the sub-accounts. Charts
1 through 3 show performance since the commencement of the sub-accounts.
Charts 4 through 6 include, for certain sub-accounts, adjusted historical
performance for the periods prior to the inception of the sub-accounts, based
on the performance of the corresponding portfolios since their inception date,
with a level of charges equal to those currently assessed under the
certificates. These figures are not an indication of the future performance of
the sub-accounts. Some of the figures reflect the waiver of advisory fees and
reimbursement of other expenses for part or all of the periods indicated.
Since Commencement of the Sub-Accounts
The dates to the right of the sub-account names indicate the date of
commencement of operation of the sub-accounts.
13
<PAGE>
1. Average annual total returns for periods since inception of the sub-account
are as follows. These figures include mortality and expenses charges deducted
at 1.25%, the administrative expenses charge of 0.15% per annum, the
administration charge of $30 per annum adjusted for average account size and
the maximum contingent deferred sales load of 6%.
<TABLE>
<CAPTION>
For the period
from
commencement
SUB-ACCOUNT (date of For the 1-year For the 3-year For the 5-year of sub-account
commencement of operation of period ending period ending period ending operations to
sub-account) 12/31/98 12/31/98 12/31/98 12/31/98
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market (1/4/93) -2.02% 2.02% N/A 2.99%
- --------------------------------------------------------------------------------------------
Special Value (1/4/93) 8.02% 7.88% N/A 7.81%
- --------------------------------------------------------------------------------------------
Zero Coupon 2000
(1/4/93) -0.03% 2.51% N/A 5.63%
- --------------------------------------------------------------------------------------------
Quality Bond (1/4/93) -1.86% 2.88% N/A 6.09%
- --------------------------------------------------------------------------------------------
Small Cap (1/4/93) -10.26% 6.58% N/A 18.78%
- --------------------------------------------------------------------------------------------
Capital Appreciation
(4/5/93) 22.34% 24.68% 21.43% 19.54%
- --------------------------------------------------------------------------------------------
Stock Index (1/4/93) 20.37% 24.60% N/A 19.21%
- --------------------------------------------------------------------------------------------
Socially Responsible
(10/7/93) 21.52% 23.32% 20.37% 20.86%
- --------------------------------------------------------------------------------------------
Growth and Income
(12/15/94) 4.19% 13.12% N/A 23.68%
- --------------------------------------------------------------------------------------------
International Equity
(12/15/94) -2.61% 5.42% N/A 6.02%
- --------------------------------------------------------------------------------------------
International Value
(5/1/96) 1.33% N/A N/A 4.52%
- --------------------------------------------------------------------------------------------
Disciplined Stock
(5/1/96) 18.90% N/A N/A 26.06%
- --------------------------------------------------------------------------------------------
Small Company Stock
(5/1/96) -12.75% N/A N/A 5.28%
- --------------------------------------------------------------------------------------------
Balanced (5/1/97) 14.57% N/A N/A 19.92%
- --------------------------------------------------------------------------------------------
Limited Term High Income
(5/1/97) -6.57% N/A N/A 0.81%
- --------------------------------------------------------------------------------------------
Transamerica Growth
(5/1/98)* N/A N/A N/A 18.14%
- --------------------------------------------------------------------------------------------
Core Value (5/1/98) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
MidCap Stock (5/1/98) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
Founder's Growth
(5/1/99) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
Founder's Passport
(5/1/99) N/A N/A N/A N/A
</TABLE>
14
<PAGE>
2. Average annual total returns for period since inception of the sub-account
are as follows. These figures include mortality and expenses charges deducted
at 1.25%, the administrative expenses charge of 0.15% per annum, the
administration charge of $30 per annum adjusted for average account size but
do not reflect the maximum contingent deferred sales load of 6% which if
reflected would reduce the figures. Performance data with no contingent
deferred sales load deduction will only be disclosed if the performance data
for the required periods with the contingent deferred sales load deduction is
also disclosed.
<TABLE>
<CAPTION>
For the period
from
commencement
SUB-ACCOUNT (date of For the 1-year For the 3-year For the 5-year of sub-account
commencement of operation of period ending period ending period ending operations to
sub-account) 12/31/98 12/31/98 12/31/98 12/31/98
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market (1/4/93) 3.59% 3.59% N/A 3.27%
- --------------------------------------------------------------------------------------------
Special Value (1/4/93) 14.02% 9.29% N/A 8.04%
- --------------------------------------------------------------------------------------------
Zero Coupon 2000
(1/4/93) -5.71% 4.07% N/A 5.88%
- --------------------------------------------------------------------------------------------
Quality Bond (1/4/93) 3.96% 4.44% N/A 6.34%
- --------------------------------------------------------------------------------------------
Small Cap (1/4/93) 4.86% 8.01% N/A 18.92%
- --------------------------------------------------------------------------------------------
Capital Appreciation
(4/5/93) 28.34% 25.75% 21.80% 19.84%
- --------------------------------------------------------------------------------------------
Stock Index (1/4/93) 26.37% 25.66% N/A 19.35%
- --------------------------------------------------------------------------------------------
Socially Responsible
(10/7/93) 27.52% 24.32% 20.75% 21.20%
- --------------------------------------------------------------------------------------------
Growth and Income
(12/15/94) 10.19% 14.41% N/A 24.19%
- --------------------------------------------------------------------------------------------
International Equity
(12/15/94) 2.97% 6.90% N/A 6.83%
- --------------------------------------------------------------------------------------------
International Value
(5/1/96) 7.16% N/A N/A 6.27%
- --------------------------------------------------------------------------------------------
Disciplined Stock
(5/1/96) 24.90% N/A N/A 27.34%
- --------------------------------------------------------------------------------------------
Small Company Stock
(5/1/96) -7.35% N/A N/A 7.00%
- --------------------------------------------------------------------------------------------
Balanced (5/1/97) 20.57% N/A N/A 28.12%
- --------------------------------------------------------------------------------------------
Limited Term High Income
(5/1/97) -1.17% N/A N/A 4.29%
- --------------------------------------------------------------------------------------------
Transamerica Growth
(5/1/98)* N/A N/A N/A 23.45%
- --------------------------------------------------------------------------------------------
Core Value (5/1/98) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
MidCap Stock (5/1/98) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
Founder's Growth
(5/1/99) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
Founder's Passport
(5/1/99) N/A N/A N/A N/A
</TABLE>
15
<PAGE>
3. Cumulative total returns for periods since inception of the sub-accounts
are as follows. These figures include mortality and expenses charges deducted
at 1.25%, the administrative expenses charge of 0.15% per annum, the
administration charge of $30 per annum adjusted for average account size but
do not reflect the maximum contingent deferred sales load of 6%, which if
reflected would reduce the figures. Performance data with no contingent
deferred sales load deduction will only be disclosed if performance data for
the required periods with the contingent deferred sales load deduction is also
disclosed.
<TABLE>
<CAPTION>
For the period from
commencement
SUB-ACCOUNT For the 1-year of sub-account
(date of commencement of period ending operations to
operation of sub-account) 12/31/98 12/31/98
- -----------------------------------------------------------------------
<S> <C> <C>
Money Market (1/4/93) 3.59% 21.31%
- -----------------------------------------------------------------------
Special Value (1/4/93) 14.02% 59.04%
- -----------------------------------------------------------------------
Zero Coupon 2000 (1/4/93) -5.71% 40.89%
- -----------------------------------------------------------------------
Quality Bond (1/4/93) -3.96% 44.57%
- -----------------------------------------------------------------------
Small Cap (1/4/93) -4.86% 182.86%
- -----------------------------------------------------------------------
Capital Appreciation (4/5/93) 28.34% 183.09%
- -----------------------------------------------------------------------
Stock Index (1/4/93) 26.87% 189.03%
- -----------------------------------------------------------------------
Socially Responsible (10/7/93) 27.52% 173.93%
- -----------------------------------------------------------------------
Growth and Income (12/15/94) 10.19% 110.47%
- -----------------------------------------------------------------------
International Equity (12/15/94) 2.97% 30.70%
- -----------------------------------------------------------------------
International Value (5/1/96) 7.16% 17.62%
- -----------------------------------------------------------------------
Disciplined Stock (5/1/96) 24.90% 90.67%
- -----------------------------------------------------------------------
Small Company Stock (5/1/96) -7.95% 19.60%
- -----------------------------------------------------------------------
Balanced (5/1/97) 20.57% 41.53%
- -----------------------------------------------------------------------
Limited Term High Income (5/1/97) -1.17% 7.26%
- -----------------------------------------------------------------------
Transamerica Growth (5/1/98)* N/A 23.54%
- -----------------------------------------------------------------------
Core Value (5/1/98) N/A -7.12%
- -----------------------------------------------------------------------
MidCap Stock (5/1/98) N/A -3.66%
- -----------------------------------------------------------------------
Founder's Growth (5/1/99) N/A N/A
- -----------------------------------------------------------------------
Founder's Passport (5/1/99) N/A N/A
</TABLE>
16
<PAGE>
Since Commencement of the Portfolios
The dates to the right of the sub-account names indicate the date of
commencement of operation of the Portfolios.
4. Average annual total returns for periods since inception of the portfolio,
including adjusted historical performance are as follows. These figures include
mortality and expenses charges deducted at 1.25%, the administrative expenses
charge of 0.15% per annum, the administration charge of $30 per annum adjusted
for average account size and the maximum contingent deferred sales load of 6%.
<TABLE>
<CAPTION>
For the period from
PORTFOLIO For the 1-year For the 3-year For the 5-year commencement
(date of commencement of period ending period ending period ending of portfolio to
operation of portfolio) 12/31/98 12/31/98 12/31/98 12/31/98
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market (8/31/90) -2.02% 2.02% 2.87% 3.44%
- ---------------------------------------------------------------------------------------------
Special Value (8/31/90) 8.02% 7.88% 3.95% 6.94%
- ---------------------------------------------------------------------------------------------
Zero Coupon 2000
(8/31/90) -0.03% 2.51% 3.72% 7.88%
- ---------------------------------------------------------------------------------------------
Quality Bond (8/31/90) -1.88% 2.88% 4.25% 7.52%
- ---------------------------------------------------------------------------------------------
Small Cap (8/31/90) -10.26% 6.58% 10.73% 35.32%
- ---------------------------------------------------------------------------------------------
Capital Appreciation
(4/5/93) 22.34% 24.68% 21.43% 19.54%
- ---------------------------------------------------------------------------------------------
Stock Index (9/29/89) 20.37% 24.60% 21.45% 15.45%
- ---------------------------------------------------------------------------------------------
Socially Responsible
(10/7/93) 21.52% 23.23% 20.37% 20.86%
- ---------------------------------------------------------------------------------------------
Growth and Income
(12/15/94) 4.19% 13.12% N/A 23.68%
- ---------------------------------------------------------------------------------------------
International Equity
(12/15/94) -2.61% 5.42% N/A 6.02%
- ---------------------------------------------------------------------------------------------
International Value
(5/1/96) 1.33% N/A N/A 4.52%
- ---------------------------------------------------------------------------------------------
Disciplined Stock
(5/1/96) 18.90% N/A N/A 26.06%
- ---------------------------------------------------------------------------------------------
Small Company Stock
(5/1/96) -12.75% N/A N/A 5.28%
- ---------------------------------------------------------------------------------------------
Balanced (5/1/97) 14.57% N/A N/A 19.92%
- ---------------------------------------------------------------------------------------------
Limited Term High Income
(5/1/97) -6.57% N/A N/A 0.81%
- ---------------------------------------------------------------------------------------------
Transamerica Growth
(2/26/69)* 35.81% 36.13% 32.50% 24.63%
- ---------------------------------------------------------------------------------------------
Core Value (5/1/98) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
MidCap Stock (5/1/98) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Founder's Growth
(11/30/98) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Founder's Passport
(11/30/98) N/A N/A N/A N/A
</TABLE>
17
<PAGE>
5. Average annual total returns for period since inception of the portfolio
including adjusted historical performance are as follows. These figures
include mortality and expenses charges deducted at 1.25%, the administrative
expenses charge of 0.15% per annum, the administration charge of $30 per annum
adjusted for average account size but do not reflect the maximum contingent
deferred sales load of 6%, which if reflected would reduce the figures.
Performance data with no contingent deferred sales load deduction will only be
disclosed if the performance data for the required periods with no contingent
deferred sales load deduction is also disclosed.
<TABLE>
<CAPTION>
For the period from
PORTFOLIO For the 1-year For the 3-year For the 5-year commencement
(date of commencement of period ending period ending period ending of portfolio to
operation of portfolio) 12/31/98 12/31/98 12/31/98 12/31/98
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market (8/31/90) 3.59% 3.59% 3.57% 3.45%
- ---------------------------------------------------------------------------------------------
Special Value (8/31/90) 14.02% 9.29% 4.63% 6.94%
- ---------------------------------------------------------------------------------------------
Zero Coupon 2000
(8/31/90) 5.71% 4.07% 4.41% 7.89%
- ---------------------------------------------------------------------------------------------
Quality Bond (8/31/90) -3.96% 4.44% 4.92% 7.53%
- ---------------------------------------------------------------------------------------------
Small Cap (8/31/90) -4.86% 8.01% 11.28% 35.32%
- ---------------------------------------------------------------------------------------------
Capital Appreciation
(4/5/93) 28.34% 25.75% 21.83% 19.84%
- ---------------------------------------------------------------------------------------------
Stock Index (9/29/89) 26.37% 25.86% 21.81% 15.45%
- ---------------------------------------------------------------------------------------------
Socially Responsible
(10/7/93) 21.52% 24.32% 20.75% 20.86%
- ---------------------------------------------------------------------------------------------
Growth and Income
(5/2/94) 10.19% 14.41% N/A 24.19%
- ---------------------------------------------------------------------------------------------
International Equity
(5/2/94) 2.97% 6.90% N/A 6.83%
- ---------------------------------------------------------------------------------------------
International Value
(4/30/96) 7.16% N/A N/A 6.27%
- ---------------------------------------------------------------------------------------------
Disciplined Stock
(4/30/96) 24.90% N/A N/A 27.34%
- ---------------------------------------------------------------------------------------------
Small Company Stock
(4/30/96) -7.35% N/A N/A 7.00%
- ---------------------------------------------------------------------------------------------
Balanced (5/1/97) 20.57% N/A N/A 28.12%
- ---------------------------------------------------------------------------------------------
Limited Term High Income
(4/30/97) -1.17% N/A N/A 4.21%
- ---------------------------------------------------------------------------------------------
Transamerica Growth
(2/26/69)* 41.21% 36.13% 32.50% 24.63%
- ---------------------------------------------------------------------------------------------
Core Value (5/1/98) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
MidCap Stock (5/1/98) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Founder's Growth
(9/30/98) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Founder's Passport
(9/30/98) N/A N/A N/A N/A
</TABLE>
18
<PAGE>
6. Cumulative total returns for periods since inception of the portfolio,
including hypothetical performance are as follows. These figures include
mortality and expenses charges deducted at 1.25%, the administrative expenses
charge of 0.15% per annum, the administration charge of $30 per annum adjusted
for average account size but do not reflect the maximum contingent deferred
sales load of 6%, which if reflected would reduce the figures. Performance
data with no contingent deferred sales load deduction will only be disclosed
if performance data for the required periods with no contingent deferred sales
load deduction is also disclosed.
<TABLE>
<CAPTION>
For the period from
PORTFOLIO For the 1-year commencement
(date of commencement of period ending of portfolio to
operation of portfolio) 12/31/98 12/31/98
- ------------------------------------------------------------------------
<S> <C> <C>
Money Market (8/31/90) 3.59% 32.70%
- ------------------------------------------------------------------------
Special Value (8/31/90) 14.02% 75.06%
- ------------------------------------------------------------------------
Zero Coupon 2000 (8/31/90) 5.71% 88.37%
- ------------------------------------------------------------------------
Quality Bond (8/31/90) 3.96% 83.19%
- ------------------------------------------------------------------------
Small Cap (8/31/90) -4.86% 1145.95%
- ------------------------------------------------------------------------
Capital Appreciation (4/5/93) 28.34% 183.09%
- ------------------------------------------------------------------------
Stock Index (9/29/89) 26.37% 278.20%
- ------------------------------------------------------------------------
Socially Responsible (10/7/93) 27.52% 173.93%
- ------------------------------------------------------------------------
Growth and Income (5/2/94) 10.19% 140.47%
- ------------------------------------------------------------------------
International Equity (5/2/94) 2.97% 30.70%
- ------------------------------------------------------------------------
International Value (4/30/96) 7.16% 17.62%
- ------------------------------------------------------------------------
Disciplined Stock (4/30/96) 24.90% 90.67%
- ------------------------------------------------------------------------
Small Company Stock (4/30/96) -7.35% 19.80%
- ------------------------------------------------------------------------
Balanced (5/1/97) 20.57% 41.53%
- ------------------------------------------------------------------------
Limited Term High Income (4/30/97) -1.17% 7.26%
- ------------------------------------------------------------------------
Transamerica Growth (2/26/69)* 41.21% 809.17%
- ------------------------------------------------------------------------
Core Value (5/1/98) N/A -7.12%
- ------------------------------------------------------------------------
MidCap Stock (5/1/98) N/A -3.66%
- ------------------------------------------------------------------------
Founder's Growth (9/30/98) N/A N/A
- ------------------------------------------------------------------------
Founder's Passport (9/30/98) N/A N/A
</TABLE>
* The Growth Portfolio of the Transamerica Variable Insurance Fund, Inc., is
the successor to Separate Account Fund C of Transamerica Occidental Life
Insurance Company, a management investment company funding variable
annuities, through a reorganization on November 1, 1996. Accordingly, the
performance data for the Transamerica VIF Growth Portfolio include
performance of its predecessor. The performance shown in the "since
inception" box for the Transamerica Growth Sub-Account is 10-year
performance, not performance since 1969.
FEDERAL TAX MATTERS
The Dreyfus/Transamerica Triple Advantage Variable Annuity may be purchased on
a non-tax qualified basis ("non-qualified contract") or purchased and used in
connection with plans qualifying for special tax treatment ("qualified
contract"). Qualified contracts are designed for use by retirement plans
qualified for special tax treatment under Sections 401, 403(b), 408 or 408A of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate
effect of federal income taxes on the account value, on annuity payments, and
on the economic benefit to the owner, the annuitant or the beneficiary may
depend on the type of retirement plan for
19
<PAGE>
which the contract is purchased, on the tax and employment status of the
individual concerned and on our tax status. THE FOLLOWING DISCUSSION IS
GENERAL AND IS NOT INTENDED AS TAX ADVICE. Any person concerned about these
tax implications should consult a competent tax adviser. This discussion is
based upon our understanding of the present federal income tax laws as they
are currently interpreted by the Internal Revenue Service ("IRS"). No
representation is made as to the likelihood of continuation of these present
federal income tax laws or of the current interpretations by the IRS.
Moreover, no attempt has been made to consider any applicable state or other
tax laws.
Taxation of Transamerica
We are taxed as a life insurance company under Part I of Subchapter L of the
Code. Since the variable account is not an entity separate from Transamerica,
and its operations form a part of Transamerica, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains are automatically applied to
increase reserves under the contracts. Under existing federal income tax law,
we believe that the variable account investment income and realized net
capital gains will not be taxed to the extent that such income and gains are
applied to increase the reserves under the contracts.
Accordingly, we do not anticipate that we will incur any federal income tax
liability attributable to the variable account and, therefore, we do not
intend to make provisions for any such taxes. However, if changes in the
federal tax laws or interpretations thereof result in our being taxed on
income or gains attributable to the variable account, then we may impose a
charge against the variable account (with respect to some or all contracts) in
order to set aside provisions to pay such taxes.
Tax Status of the Contract
Code Section 817(h) requires that with respect to non-qualified contracts, the
investments of the funds be "adequately diversified" in accordance with
Treasury regulations in order for the contracts to qualify as annuity
contracts under federal tax law. The variable account, through the funds,
intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817-5, which affect how the Funds' assets may be
invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control
for the investments of a segregated asset account may cause the investor
(i.e., the owner), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular sub-accounts
without being treated as owners of the underlying assets."
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
For example, the owner has additional flexibility in allocating premium
payments and account values. These differences could result in an owner being
treated as the owner of a pro rata portion of the assets of the variable
account. In addition, we do not know what standards will be set forth, if any,
in the regulations or rulings which the Treasury Department has stated it
expects to issue. We therefore reserve the right to modify the contract as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the variable account.
20
<PAGE>
In order to be treated as an annuity contract for federal income tax purposes,
Code Section 72(s) requires any non-qualified contract to provide that (a) if
any owner dies on or after the annuity date but prior to the time the entire
interest in the contract has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that owner's death; and (b) if any
owner dies prior to the annuity date, the entire interest in the contract will
be distributed within five years after the date of the owner's death. These
requirements will be considered satisfied as to any portion of the owner's
interest which is payable to or for the benefit of a "designated beneficiary"
and which is distributed over the life of such "designated beneficiary" or
over a period not extending beyond the life expectancy of that beneficiary,
provided that such distributions begin within one year of the owner's death.
The owner's "designated beneficiary" refers to a natural person designated by
such owner as a beneficiary and to whom ownership of the contract passes by
reason of death. However, if the owner's "designated beneficiary" is the
surviving spouse of the deceased owner, the contract may be continued with the
surviving spouse as the new owner.
The non-qualified contracts contain provisions which are intended to comply
with the requirements of Code Section 72(s), although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
DISTRIBUTION OF THE CONTRACT
Transamerica Securities Sales Corporation ("TSSC") is principal underwriter of
the contracts under a Distribution Agreement with Transamerica. TSSC may also
serve as principal underwriter and distributor of other contracts issued
through the variable account and certain other separate accounts of
Transamerica and any affiliates of Transamerica. TSSC is an indirect wholly
owned subsidiary of Transamerica Insurance Corporation. TSSC is registered
with the Commission as a broker/dealer and is a member of the National
Association of Securities Dealers, Inc. ("NASD"). Transamerica pays TSSC for
acting as the principal underwriter under a distribution agreement.
TSSC has entered into sales agreements with other broker/dealers to solicit
applications for the contracts through registered representatives who are
licensed to sell securities and variable insurance products. These agreements
provide that applications for the contracts may be solicited by registered
representatives of the broker/dealers appointed by Transamerica to sell its
variable life insurance and variable annuities. These broker/dealers are
registered with the Commission and are members of the NASD. The registered
representatives are authorized under applicable state regulations to sell
variable life insurance and variable annuities.
Transamerica Financial Resources, Inc. ("TFR") is an underwriter and
distributor of the contracts. TFR is a wholly-owned subsidiary of Transamerica
Insurance Corporation of California and is registered with the Commission and
the NASD as a broker/dealer.
Under the agreements, applications for the contracts will be sold by
broker/dealers which will receive compensation as described in the prospectus.
The offering of the contracts is expected to be continuous and neither TSSC
nor TFR anticipate discontinuing the offering of the contracts. However, TSSC
and TFR reserve the right to discontinue the offering of the contracts.
During fiscal year 1998, $22,999,381 in commissions were paid to TSSC as
underwriter of the contracts; no amounts were retained by TSSC. During fiscal
year 1998, $1,737,090.86 in commissions were paid to TFR as underwriter of the
contracts; no amounts were retained by TFR.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to assets of the variable account is held by Transamerica. The assets of
the variable account are kept separate and apart from Transamerica general
account assets. Records are maintained of all purchases and redemptions of
portfolio shares held by each of the sub-accounts.
21
<PAGE>
TRANSAMERICA
General Information and History
Transamerica Occidental Life Insurance Company was formerly known as
Occidental Life Insurance Company of California. The name change occurred
September 1, 1981.
Transamerica is wholly-owned by Transamerica Insurance Corporation of
California, which is in turn, wholly-owned by Transamerica Corporation.
Transamerica Corporation is a financial services organization which engages
through its subsidiaries in two primary businesses: finance and insurance.
Finance consists of consumer lending, commercial lending, leasing and real
estate services. Insurance comprises life insurance, asset management, and
insurance brokerage.
STATE REGULATION
We are subject to the insurance laws and regulations of all the states where
we are licensed to operate. The availability of certain contract rights and
provisions depends on state approval and/or filing and review processes. Where
required by state law or regulation, the contract will be modified
accordingly.
RECORDS AND REPORTS
All records and accounts relating to the variable account will be maintained
by us or by our service office. As presently required by the provisions of the
1940 Act and regulations promulgated thereunder which pertain to the variable
account, reports containing such information as may be required under the 1940
Act or by other applicable law or regulation will be sent to owners semi-
annually at their last known address of record.
FINANCIAL STATEMENTS
This Statement of Additional Information contains the financial statements of
the variable account as of and for the period ended December 31, 1998.
The consolidated financial statements of Transamerica included in this
Statement of Additional Information should be considered only as bearing on
the ability of Transamerica to meet its obligations under the contract. They
should not be considered as bearing on the investment performance of the
assets held in the variable account.
22
<PAGE>
APPENDIX
Accumulation Transfer Formula
Transfers after the annuity date are implemented according to the following
formulas:
(1) Determine the number of units to be transferred from the variable sub-
account as follows:
= AT/AUV1
(2) Determine the number of variable accumulation units remaining in such
variable sub-account (after the transfer):
= UNIT1 AT/AUV1
(3) Determine the number of variable accumulation units in the transferee
variable sub-account (after the transfer):
= UNIT2 + AT/AUV2
(4) Subsequent variable accumulation payments will reflect the changes in
variable accumulation units in each variable sub-account as of the next
variable accumulation payment's due date.
Where:
(AUV1) is the variable accumulation unit value of the variable sub-
account that the transfer is being made from as of the end of the
valuation period in which the transfer request was received.
(AUV2) is the variable accumulation unit value of the variable sub-
account that the transfer is being made to as of the end of the
valuation period in which the transfer request was received.
(UNIT1) is the number of variable accumulation units in the variable
sub-account that the transfer is being made from, before the transfer.
(UNIT2) is the number of variable accumulation units in the variable
sub-account that the transfer is being made to, before the transfer.
(AT) is the dollar amount being transferred from the variable sub-
account.
23
<PAGE>
Audited Consolidated Financial Statements
Transamerica Occidental Life Insurance Company and Subsidiaries
December 31, 1998
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Audited Consolidated Financial Statements
December 31, 1998
Audited Consolidated Financial Statements
Report of Independent Auditors.................................. 1
Consolidated Balance Sheet.................................... 2
Consolidated Statement of Income.................................. 3
Consolidated Statement of Shareholder's Equity....................... 4
Consolidated Statement of Cash Flows............................... 5
Notes to Consolidated Financial Statements......................... 6
<PAGE>
-28-
04/21/99 3:12 PM
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transamerica Occidental Life Insurance Company
We have audited the accompanying consolidated balance sheets of Transamerica
Occidental Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Transamerica
Occidental Life Insurance Company and subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
January 22, 1999
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
1998 1997
-------------- -------------
(In thousands, except
for share data)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale $ 28,997,454 $ 29,231,998
Equity securities available for sale 880,141 791,221
Mortgage loans on real estate 789,959 706,939
Policy loans 455,481 451,023
Other long-term investments 121,107 89,426
Short-term investments 1,186,166 324,672
-------------- ----------------
32,430,308 31,595,279
Cash 87,125 36,656
Accrued investment income 449,289 481,913
Other receivables 292,694 294,542
Reinsurance recoverable on paid and unpaid losses 1,172,022 920,847
Deferred policy acquisitions costs 2,082,506 2,102,588
Other assets 342,129 299,500
Separate account assets 9,101,014 5,494,703
-------------- ----------------
$ 45,957,087 $ 41,226,028
============== =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Policy and contract liabilities:
Policyholder contract deposits $ 24,077,627 $ 24,061,811
Reserves for future policy benefits 5,689,577 5,468,611
Policy claims and other 452,534 557,822
-------------- -----------------
30,219,738 30,088,244
Income tax liabilities 992,667 814,088
Accounts payable and other liabilities 843,988 482,716
Separate account liabilities 9,101,014 5,494,703
-------------- -----------------
41,157,407 36,879,751
Shareholder's equity:
Common stock ($12.50 par value):
Authorized--4,000,000 shares
Issued and outstanding--2,206,933 shares 27,587 27,587
Additional paid-in capital 374,968 422,342
Retained earnings 3,175,020 2,738,151
Foreign currency translation adjustments (49,168) (33,440)
Net unrealized investment gains 1,271,273 1,191,637
-------------- -----------------
4,799,680 4,346,277
-------------- -----------------
$ 45,957,087 $ 41,226,028
============== =================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
--------------- --------------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums and other considerations $ 1,804,896 $ 1,777,371 $ 1,641,985
Net investment income 2,243,321 2,165,565 2,077,232
Net realized investment gains 277,654 40,263 17,471
--------------- --------------- ---------------
TOTAL REVENUES 4,325,871 3,983,199 3,736,688
Benefits:
Benefits paid or provided 2,782,127 2,727,064 2,558,792
Increase in policy reserves and liabilities 70,221 59,246 57,968
--------------- --------------- ---------------
2,852,348 2,786,310 2,616,760
Expenses:
Amortization of deferred policy acquisition costs 269,261 265,264 235,180
Salaries and salary related expenses 166,832 165,768 158,699
Other expenses 264,198 284,220 224,084
--------------- --------------- ---------------
700,291 715,252 617,963
--------------- --------------- ---------------
TOTAL BENEFITS AND EXPENSES 3,552,639 3,501,562 3,234,723
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 773,232 481,637 501,965
Provision for income taxes 256,363 149,581 164,685
--------------- --------------- ---------------
NET INCOME $ 516,869 $ 332,056 $ 337,280
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net
Foreign Unrealized
Additional Currency Investment
Common Stock Paid-in Comprehensive Retained Translation Gains
Shares Amount Capital Income Earnings Adjustments (Losses)
(In thousands, except for share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,206,933 $ 27,587 $ 333,578 $ 2,171,412 $ (23,618) $ 938,932
Comprehensive income
Net income $ 337,280 337,280
Other comprehensive income,
net of tax:
Unrealized losses from
investments marked to
fair value (377,804) (377,804)
Reclassification adjustment
for (gains) included in
net income (11,356) (11,356)
Foreign currency
translation adjustment (854) (854)
-------------
Comprehensive loss $ (52,734)
=============
Capital contributions from
parent 2,041
Dividends declared (41,286)
Balance at December 31,
1996 2,206,933 27,587 335,619 2,467,406 (24,472) 549,772
Comprehensive income
Net income $ 332,056 332,056
Other comprehensive income,
net of tax:
Unrealized gains from
investments marked
to fair value 668,036 668,036
Reclassification adjustment
for (gains) included in
net income (26,171) (26,171)
Foreign currency
translation adjustment (8,968) (8,968)
-------------
Comprehensive income $ 964,953
=============
Capital transactions with
parent 86,723
Dividends declared (61,311)
Balance at December 31,
1997 2,206,933 27,587 422,342 2,738,151 (33,440) 1,191,637
Comprehensive income
Net income $ 516,869 516,869
Other comprehensive income,
net of tax:
Unrealized gains (losses)
from investments
marked to fair value (47,374) 260,111 260,111
Reclassification adjustment
for (gains) included in
net income (180,475) (180,475)
Foreign currency
translation adjustment (15,728) (15,728)
------------- ---------
Comprehensive income $ 580,777
=============
Dividends declared (80,000)
Balance at December 31,
1998 2,206,933 $ 27,587 $ 374,968 $ 3,175,020 $ (49,168) $ 1,271,273
========= ========== ========== ============= ========= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
--------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 516,869 $ 332,056 $ 337,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in:
Reinsurance recoverable (251,175) (91,194) (73,328)
Accounts receivable 130,229 (15,983) (159,309)
Policy liabilities 989,989 1,102,246 949,108
Other assets, accounts payable and other
liabilities, and income taxes 530,661 (89,954) (32,662)
Policy acquisition costs deferred (512,599) (467,730) (388,003)
Amortization of deferred policy acquisition costs 427,203 256,303 268,770
Net realized gains on investment transactions (435,596) (31,302) (51,061)
Other (73,788) (64,651) (15,758)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,321,793 929,791 835,037
INVESTMENT ACTIVITIES
Purchases of fixed and equity securities (6,040,371) (9,825,763) (7,362,635)
Purchases of other investments (244,907) (127,437) (334,895)
Sales of fixed and equity securities 6,317,188 8,193,409 5,064,780
Sales of other investments 128,315 129,671 175,001
Maturities of securities 489,280 559,361 506,941
Net change in short-term investments (861,494) (188,946) 75,774
Other (40,665) (53,478) (21,358)
--------------- --------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (252,654) (1,313,183) (1,896,392)
FINANCING ACTIVITIES
Additions to policyholder contract deposits 9,538,924 6,851,644 6,260,653
Withdrawals from policyholder contract deposits (10,477,594) (6,411,213) (5,173,419)
Capital contributions from parent - 3,800 -
Dividends paid to parent (80,000) (60,000) (40,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,018,670) 384,231 1,047,234
--------------- --------------- ---------------
INCREASE (DECREASE) IN CASH 50,469 839 (14,121)
Cash at beginning of year 36,656 35,817 49,938
--------------- --------------- ---------------
CASH AT END OF YEAR $ 87,125 $ 36,656 $ 35,817
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business: Transamerica Occidental Life Insurance Company ("TOLIC") and its
subsidiaries (collectively, the "Company"), engage in providing life insurance,
pension and annuity products, reinsurance, structured settlements and
investments, which are distributed through a network of independent and company-
affiliated agents and independent brokers. The Company's customers are primarily
in the United States and Canada. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation.
Basis of Presentation: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles which
differ from statutory accounting practices prescribed or permitted by regulatory
authorities.
Reclassification: Certain prior year amounts have been reclassified to conform
with current year presentation.
Use of Estimates: Certain amounts reported in the accompanying consolidated
financial statements are based on management's best estimates and judgment.
Actual results could differ from those estimates.
New Accounting Standards: In 1997, the Financial Accounting Standards Board
issued a new standard on reporting comprehensive income, which establishes
standards for reporting and displaying comprehensive income and its components
in the financial statements. This standard is effective for 1998; 1997 and 1996
have been reclassified to reflect the 1998 presentation. Application of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's consolidated results of operations or
financial position.
In 1998, the Financial Accounting Standards Board issued a new standard on
accounting for derivative instruments and hedging activities. This standard is
effective for all quarters of fiscal years beginning after June 15, 1999
(effective for year 2000 for the Company). Application of the statement is not
expected to have a material impact on TOLIC's combined financial position or
results of operations.
Principles of Consolidation: The consolidated financial statements of the
Company include the accounts of TOLIC and its subsidiaries, all of which operate
primarily in the life insurance industry. TOLIC is a wholly owned subsidiary of
Transamerica Insurance Corporation of California, which is a wholly owned
subsidiary of Transamerica Corporation. All significant intercompany balances
and transactions have been eliminated in consolidation.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments: Investments are reported on the following bases:
Fixed maturities--All debt securities, including redeemable preferred
stocks, are classified as available for sale and carried at fair value. The
Company does not carry any debt securities principally for the purpose of
trading. Prepayments are considered in establishing amortization periods
for premiums and discounts and amortized cost is further adjusted for
other-than-temporary fair value declines. Derivative instruments are also
reported as a component of fixed maturities and are carried at fair value
if designated as hedges of securities available for sale or at amortized
cost if designated as hedges of liabilities. See Note L - Financial
Instruments.
Equity securities available for sale (common and nonredeemable preferred
stocks)--at fair value. The Company does not carry any equity securities
principally for the purpose of trading.
Mortgage loans on real estate--at unpaid balances, adjusted for
amortization of premium or discount, less allowance for possible
impairment.
Policy loans--at unpaid balances.
Other long-term investments--at cost, less allowance for possible
impairment.
Short-term investments--at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined generally on
a specific identification basis. The Company reports realized gains and losses
on investment transactions in the accompanying consolidated statement of income,
net of the amortization of deferred policy acquisition costs when such
amortization results from the realization of gains or losses other than as
originally anticipated on the sale of investments associated with interest-
sensitive products. Changes in fair values of fixed maturities available for
sale and equity securities available for sale are included in net unrealized
investment gains or losses after adjustment of deferred policy acquisition costs
and reserves for future policy benefits, net of deferred income taxes, as a
separate component of shareholder's equity and, accordingly, have no effect on
net income.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Policy Acquisition Costs (DPAC): Certain costs of acquiring new and
renewal insurance contracts, principally commissions, medical examination and
inspection report fees, and certain variable underwriting, issue and field
office expenses, all of which vary with and are primarily related to the
production of such business, have been deferred. DPAC for non-traditional life
and investment-type products are amortized over the life of the related policies
in relation to estimated future gross profits. DPAC for traditional life
insurance products are amortized over the premium-paying period of the related
policies in proportion to premium revenue recognized, using principally the same
assumptions used for computing future policy benefit reserves. DPAC related to
non-traditional and investment type products is adjusted as if unrealized gains
or losses on securities available for sale were realized. Changes in such
adjustments are included in net unrealized investment gains or losses on an
after tax basis as a separate component of shareholder's equity and,
accordingly, have no effect on net income.
Separate Accounts: The Company administers segregated asset accounts for certain
holders of universal life policies, variable annuity contracts, and other
pension deposit contracts. The assets held in these Separate Accounts are
invested primarily in fixed maturities, equity securities, other marketable
securities, and short-term investments. The Separate Account assets are stated
at fair value and are not subject to liabilities arising out of any other
business the Company may conduct. Substantially all investment risks associated
with fair value changes are borne by the contract holders. Accordingly,
investment income and realized gains and losses attributable to Separate
Accounts are not reported in the Company's results of operations.
Policyholder Contract Deposits: Non-traditional life insurance products include
universal life and other interest-sensitive life insurance policies.
Investment-type products include single and flexible premium deferred annuities,
single premium immediate annuities, guaranteed investment contracts, funding
agreements, and other deposit contracts that do not have mortality or morbidity
risk. Policyholder contract deposits on non-traditional life insurance and
investment-type products represent premiums received plus accumulated interest,
less mortality charges on universal life products and other administration
charges as applicable under the contract. Interest credited to these policies
ranged from 2.8% to 13.5% in 1998, 3.0% to 9.7% in 1997 and 2.6% to 9.8% in
1996.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reserves for Future Policy Benefits: Traditional life insurance products
primarily include those contracts with fixed and guaranteed premiums and
benefits and consist principally of whole life and term insurance policies,
limited-payment life insurance policies and certain annuities with life
contingencies. The reserve for future policy benefits for traditional life
insurance products has been provided on a net-level premium method based upon
estimated investment yields, withdrawals, mortality, and other assumptions which
were appropriate at the time the policies were issued. Such estimates are based
upon past experience with a margin for adverse deviation. Interest assumptions
range from 2.25% to 12.0%. Reserves for future policy benefits are evaluated as
if unrealized gains or losses on securities available for sale were realized and
adjusted for any resultant premium deficiencies. Changes in such adjustments are
included in net unrealized investment gains or losses on an after tax basis as a
separate component of shareholder's equity and, accordingly, have no effect on
net income.
Foreign Currency Translation: The effect of changes in exchange rates in
translating the foreign subsidiary's financial statements is accumulated as a
separate component of shareholder's equity, net of applicable income taxes.
Aggregate transaction adjustments included in income were not significant for
1998, 1997 or 1996.
Recognition of Revenue and Costs: Traditional life insurance contract premiums
are recognized as revenue over the premium-paying period, with reserves for
future policy benefits established from such premiums.
Revenues for universal life and investment products consist of policy charges
for the cost of insurance, policy administration charges, amortization of policy
initiation fees, and surrender charges assessed against policyholder account
balances during the period. Expenses related to these products consist of
interest credited to policyholder account balances and benefit claims incurred
in excess of policyholder account balances.
Claim reserves include provisions for reported claims and claims incurred but
not reported.
Reinsurance: Coinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies and the terms of the
reinsurance contracts. Yearly renewable term reinsurance is accounted for the
same as direct business. The revenue as well as the receivables and payables
under certain modified coinsurance arrangements are presented on a net basis to
the extent that such receivables and payables are with the same ceding company.
Premiums ceded and recoverable losses have been reported as a reduction of
premium income and benefits, respectively. The ceded amounts related to policy
liabilities have been reported as an asset.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: TOLIC and its domestic subsidiaries are included in the
consolidated federal income tax returns filed by Transamerica Corporation, which
by the terms of a tax sharing agreement generally requires TOLIC to accrue and
settle income tax obligations in amounts that would result if TOLIC filed
separate tax returns with federal taxing authorities.
Deferred income taxes arise from temporary differences between the bases of
assets and liabilities for financial reporting purposes and income tax purposes,
based on enacted tax rates in effect for the years in which the temporary
differences are expected to reverse.
Fair Values of Financial Instruments: Fair values for debt securities are based
on quoted market prices, where available. For debt securities not actively
traded and private placements, fair values are estimated using values obtained
from independent pricing services. Fair values for derivative instruments,
including off-balance-sheet instruments, are estimated using values obtained
from independent pricing services.
Fair values for equity securities are based on quoted market prices.
Fair values for mortgage loans on real estate and policy loans are estimated
using discounted cash flow calculations, based on interest rates currently being
offered for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for calculation purposes.
The carrying amounts of short-term investments, cash, and accrued investment
income approximate their fair value.
Fair values for liabilities under investment-type contracts are estimated using
discounted cash flow calculations, based on interest rates currently being
offered by similar contracts with maturates consistent with those remaining for
the contracts being valued. The liabilities under investment-type contracts are
included in policyholder contract deposits in the accompanying consolidated
balance sheet.
<PAGE>
NOTE B--INVESTMENTS
The cost and fair value of fixed maturities available for sale and equity
securities are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gain Loss Value
<S> <C> <C> <C> <C>
December 31, 1998
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 297,609 $ 112,717 $ 34 $ 410,292
Obligations of states and political
subdivisions 235,529 23,292 - 258,821
Foreign governments 62,000 7,417 - 69,417
Corporate securities 18,901,026 1,692,527 153,029 20,440,524
Public utilities 3,949,600 426,218 2,255 4,373,563
Mortgage-backed securities 2,988,703 304,073 3,238 3,289,538
Redeemable preferred stocks 148,783 15,519 9,003 155,299
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 26,583,250 $ 2,581,763 $ 167,559 $ 28,997,454
================ ================ ================ ================
Equity securities $ 313,490 $ 578,708 $ 12,057 $ 880,141
================ ================ ================ ================
December 31, 1997
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 273,949 $ 78,390 $ - $ 352,339
Obligations of states and political
subdivisions 219,391 16,765 31 236,125
Foreign governments 81,425 6,996 2 88,419
Corporate securities 18,596,027 1,438,385 57,729 19,976,683
Public utilities 4,017,154 340,580 811 4,356,923
Mortgage-backed securities 3,795,464 342,805 1,977 4,136,292
Redeemable preferred stocks 69,773 24,326 8,882 85,217
---------------- ---------------- ---------------- ----------------
Total fixed maturities $ 27,053,183 $ 2,248,247 $ 69,432 $ 29,231,998
================ ================ ================ ================
Equity securities $ 309,637 $ 488,322 $ 6,738 $ 791,221
================ ================ ================ ================
</TABLE>
The cost and fair value of fixed maturities available for sale at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual
<PAGE>
NOTE B--INVESTMENTS (Continued)
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
Maturity
Fair
Cost Value
<S> <C> <C>
Due in 1999 $ 736,903 $ 776,522
Due in 2000-2003 3,440,803 3,602,491
Due in 2004-2008 5,852,742 6,235,162
Due after 2008 13,415,316 14,938,442
---------------- ----------------
23,445,764 25,552,617
Mortgage-backed securities 2,988,703 3,289,538
Redeemable preferred stock 148,783 155,299
---------------- ----------------
$ 26,583,250 $ 28,997,454
================ ================
</TABLE>
As of December 31, 1997, the Company held a total investment in one issuer,
other than the United States Government or a United States Government agency or
authority, which exceeded 10% of total shareholder's equity as follows (in
thousands):
Name of Issuer Carrying Value
Hill Street Funding LP $ 989,283
The carrying value of those assets that were on deposit with public officials in
compliance with regulatory requirements was $21.4 million and $21.7 million at
December 31, 1998 and 1997, respectively.
<PAGE>
NOTE B--INVESTMENTS (Continued)
Net investment income by major investment category is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Fixed maturities $ 2,138,442 $ 2,096,543 $ 2,005,764
Equity securities 11,153 5,339 5,458
Mortgage loans on real estate 65,350 62,877 58,165
Real estate 9,344 10,886 12,821
Policy loans 27,408 28,080 27,012
Other long-term investments 16,365 511 978
Short-term investments 25,401 12,770 10,616
---------------- ---------------- ----------------
2,293,463 2,217,006 2,120,814
Investment expenses (50,142) (51,441) (43,582)
----------------- ----------------- ----------------
$ 2,243,321 $ 2,165,565 $ 2,077,232
================ ================ ================
</TABLE>
Significant components of net realized investment gains (losses) are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net gains (losses) on disposition of investments in:
Fixed maturities $ 74,887 $ (14,482) $ 40,967
Equity securities 402,542 59,834 15,750
Other 5,958 3,459 3,424
---------------- ---------------- ----------------
483,387 48,811 60,141
Provision for impairment (47,791) (17,509) (9,080)
Accelerated amortization of DPAC (157,942) 8,961 (33,590)
----------------- ---------------- ----------------
$ 277,654 $ 40,263 $ 17,471
================ ================ ================
</TABLE>
The components of net gains (losses) on disposition of investment in fixed
maturities are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Gross gains $ 89,655 $ 82,452 $ 74,817
Gross losses (14,768) (96,934) (33,850)
----------------- ---------------- ----------------
$ 74,887 $ (14,482) $ 40,967
================ ================= ================
</TABLE>
Proceeds from disposition of investment in fixed maturities available for sale
were $5,702.4 million in 1998, $7,896.5 million in 1997 and $4,969.2 million in
1996.
<PAGE>
NOTE B--INVESTMENTS (Continued)
The costs of certain investments have been reduced by the following allowances
for impairment in value (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
---------------- ----------------
<S> <C> <C>
Fixed maturities $ 70,123 $ 64,168
Mortgage loans on real estate 24,697 24,508
Real estate 665 5,854
Other long-term investments 5,737 5,900
---------------- ----------------
$ 101,222 $ 100,430
================ ================
</TABLE>
The components of net unrealized investment gains in the accompanying
consolidated balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
---------------- ----------------
<S> <C> <C>
Unrealized gains on investment in:
Fixed maturities $ 2,414,204 $ 2,178,815
Equity securities 566,651 481,584
---------------- ----------------
2,980,855 2,660,399
Fair value adjustments to:
DPAC (633,795) (546,111)
Reserves for future policy benefits (377,000) (281,000)
Reserves for guaranteed index fund (14,255) -
----------------- ----------------
(1,025,050) (827,111)
Related deferred taxes (684,532) (641,651)
----------------- ----------------
$ 1,271,273 $ 1,191,637
================ ================
</TABLE>
<PAGE>
NOTE C--DEFERRED POLICY ACQUISITION COSTS (DPAC)
Significant components of changes in DPAC are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,102,588 $ 2,138,203 $ 1,974,211
Amounts deferred:
Commissions 398,578 352,300 290,512
Other 114,021 115,431 97,491
Amortization attributed to:
Net gain on disposition of investments (157,942) 8,961 (33,590)
Operating income (269,261) (265,264) (235,180)
Fair value adjustment (87,684) (239,509) 48,969
Foreign currency translation adjustment (17,794) (7,534) (4,210)
----------------- ----------------- ----------------
Balance at end of year $ 2,082,506 $ 2,102,588 $ 2,138,203
================ ================ ================
</TABLE>
NOTE D--POLICY AND CONTRACT LIABILITIES
Components of policyholder contract deposits are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
---------------- ----------------
<S> <C> <C>
Liabilities for investment-type products:
Guaranteed investment contracts and
funding agreements $ 7,444,192 $ 7,766,601
Annuity contracts 11,034,394 11,531,365
Liabilities for non-traditional life insurance
products 5,599,041 4,763,845
--------------- ---------------
$ 24,077,627 $ 24,061,811
=============== ===============
</TABLE>
Obligations under guaranteed investment contracts and funding agreements are
recorded as liabilities at the face value of the agreement, adjusted for draws
paid and interest credited to the account.
<PAGE>
NOTE D-- POLICY AND CONTRACT LIABILITIES (Continued)
Reserves for future policy benefits were evaluated as if the unrealized gains on
securities available for sale had been realized and adjusted for resultant
premium deficiencies by $377 million as of December 31, 1998, $281 million as of
December 31, 1997, and $195 million as of December 31, 1996.
NOTE E--COMPREHENSIVE INCOME
The components of comprehensive income in the statement of shareholder's equity
are shown net of the following tax provision (benefit) (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Unrealized investment gains (losses) $ 140,060 $ 359,712 $ (203,433)
Reclassification adjustment for (gains) included in
net income (97,179) (14,092) (6,115)
Foreign currency transaction adjustments (8,469) (4,829) (460)
----------------- ----------------- -----------------
Income tax effect on comprehensive income $ 34,412 $ 340,791 $ (210,008)
================ ================ =================
</TABLE>
NOTE F--INCOME TAXES
Components of income tax liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
---------------- ----------------
<S> <C> <C>
Current tax liabilities $ 64,412 $ 44,510
Deferred tax liabilities 928,255 769,578
---------------- ----------------
$ 992,667 $ 814,088
================ ================
</TABLE>
<PAGE>
December 31, 1998
NOTE F--INCOME TAXES (Continued)
Significant components of deferred tax liabilities (assets) are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred policy acquisitions costs $ 802,953 $ 783,624
Unrealized investment gains 684,532 641,651
--------- ---------
Total deferred tax liabilities 1,487,485 1,425,275
Life insurance policy liabilities (517,130) (613,874)
Provision for impairment of investments (35,428) (35,151)
Other-net (6,672) (6,672)
--------- ---------
Total deferred tax assets (559,230) (655,697)
--------- ---------
$ 928,255 $ 769,578
========= =========
</TABLE>
The Company offsets all deferred tax assets and liabilities and presents them in
a single amount in the consolidated balance sheet.
Components of provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Current tax expense $ 132,398 $ 122,201 $ 99,692
Deferred tax expense:
Domestic 112,139 14,731 55,261
Foreign 11,826 12,649 9,732
---------- ---------- ----------
$ 256,363 $ 149,581 $ 164,685
========== ========== ==========
</TABLE>
<PAGE>
NOTE F--INCOME TAXES (Continued)
The differences between federal income taxes computed at the statutory rate and
the provision for income taxes as reported are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Income before income taxes:
Income from U.S. operations $ 724,702 $ 430,449 $ 474,160
Income from foreign operations 48,530 51,189 27,805
--------------- --------------- ---------------
773,232 481,638 501,965
Tax rate 35% 35% 35%
---------------- --------------- ---------------
Federal income taxes at statutory rate 270,631 168,573 175,688
Income not subject to tax (1,949) (3,284) (2,262)
Low income housing credits (17,604) (10,156) (8,175)
Other, net 5,285 (5,552) (566)
--------------- --------------- ---------------
$ 256,363 $ 149,581 $ 164,685
=============== =============== ===============
</TABLE>
Income not subject to tax represents permanent differences between financial
statements and tax income and is composed principally of dividends on common
stock for which a dividend received deduction is taken for federal income tax
purposes. Low income housing credits are recognized over the productive life of
acquired assets. In 1998, the Company recognized a $3.3 million tax expense,
included in other differences, related to an unfavorable settlement of prior
year tax matters.
Under the Life Insurance Company Income Tax Act of 1959, a portion of "gain from
operations" was not subject to current income taxation but was accumulated, for
tax purposes, in a memorandum account designated as "policyholders' surplus
account." The balance in this account was frozen at December 31, 1983 pursuant
to the Deficit Reduction Act of 1984. This amount becomes subject to tax when it
exceeds a certain maximum or when cash dividends are paid therefrom. The
policyholders' surplus account balance at December 31, 1998 was $138 million. At
December 31, 1998, $2,305 million was available for payment of dividends without
such tax consequences. No income taxes have been provided on the policyholders'
surplus account since the conditions that would cause such taxes are remote.
Income taxes of $107.3 million, $58.5 million and $149.1 million were paid
principally to the Company's parent in 1998, 1997 and 1996, respectively.
NOTE G--REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. Risks are reinsured with other companies to permit the recovery
of a portion of the direct losses; however, the Company remains liable to the
extent the reinsuring companies do not meet their obligations under these
reinsurance agreements.
<PAGE>
NOTE G--REINSURANCE (Continued)
The components of the Company's life insurance in force and premiums and other
considerations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
<S> <C> <C> <C> <C>
1998
Life insurance in force, at
end of year $ 232,996,314 $ 315,629,686 $ 307,192,042 $ 224,558,670
==================== =================== =================== ===================
Premiums and other considerations $ 1,465,483 $ 1,196,972 $ 1,536,385 $ 1,804,896
==================== =================== =================== ===================
Benefits paid or provided $ 2,392,139 $ 1,243,706 $ 1,633,694 $ 2,782,127
==================== =================== =================== ===================
1997
Life insurance in force, at
end of year $ 241,379,957 $ 207,533,095 $ 225,685,653 $ 259,532,515
==================== =================== =================== ===================
Premiums and other considerations $ 1,854,918 $ 1,116,613 $ 1,039,066 $ 1,777,371
==================== =================== =================== ===================
Benefits paid or provided $ 2,287,025 $ 940,461 $ 1,380,500 $ 2,727,064
==================== =================== =================== ===================
1996
Life insurance in force, at
end of year $ 220,162,932 $ 195,158,214 $ 201,560,322 $ 226,565,040
==================== =================== =================== ===================
Premiums and other considerations $ 1,702,975 $ 1,033,201 $ 972,211 $ 1,641,985
==================== =================== =================== ===================
Benefits paid or provided $ 2,292,822 $ 1,344,790 $ 1,610,760 $ 2,558,792
==================== =================== =================== ===================
</TABLE>
<PAGE>
NOTE H--PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Substantially all employees of the Company are covered by noncontributory
defined pension benefit plans sponsored by the Company and the Retirement Plan
for Salaried Employees of Transamerica Corporation and Affiliates. Pension
benefits are based on the employee's compensation during the highest paid 60
consecutive months during the 120 months before retirement. Annual contributions
to the plans generally include a provision for current service costs plus
amortization of prior service costs over periods ranging from 10 to 30 years.
Assets of the plans are invested principally in publicly traded stocks and
bonds.
The Company's total pension benefits recognized for all plans were $9.1 million
in 1998, $5.4 million in 1997 and $3.1 million in 1996, of which $9.1 million in
1998, $6.1 million in 1997 and $3.7 million in 1996, respectively, related to
the plan sponsored by Transamerica Corporation. The plans sponsored by the
Company are not material to the consolidated financial position of the Company.
The Company also participates in various contributory defined benefit programs
sponsored by Transamerica Corporation that provide medical and certain other
benefits to eligible retirees. Postretirement benefit costs charged to income
were not significant in 1998, 1997 and 1996.
NOTE I--RELATED PARTY TRANSACTIONS
The Company has various transactions with Transamerica Corporation and certain
of its other subsidiaries in the normal course of operations. These transactions
include loans and advances, a fixed maturity investment in a special purpose
subsidiary of Transamerica, investments in a money market fund managed by an
affiliated company, rental of space, and other specialized services, including
administration of pension funds. At December 31, 1998, pension funds
administered for these related companies aggregated $1,969.0 million, the
investment in the special purpose subsidiary was $413.9 million and the
investment in an affiliated money market fund, included in short-term
investments, was $29.5 million. In December 1998, the Company reinsured certain
life insurance obligations totaling $59.0 million with a subsidiary of
Transamerica Corporation.
During 1997, equity securities with a fair value of $177.2 million were received
from Transamerica Corporation. $50 million was used as a partial paydown on a
$200 million note due from Transamerica Corporation. The excess of fair value
over cost less the amount applied to the note was recorded as additional paid-in
capital. During 1998, the Company refined its accounting for this transaction
and decreased the cost of the equity securities obtained and charged paid-in
capital in the amount of $47.4 million. The remaining balance on the note, which
is due in 2013 and bears interest at 7% is $150 million.
In addition, during 1997 the Company received a capital contribution of $15
million from Transamerica corporation.
<PAGE>
NOTE J--REGULATORY MATTERS
TOLIC and its insurance subsidiaries are subject to state insurance laws and
regulations, principally those of TOLIC and each subsidiary's state of
incorporation. Such regulations include the risk-based capital requirement and
the restriction on the payment of dividends. Generally, dividends during any
year may not be paid, without prior regulatory approval, in excess of the
greater of 10% of the Company's statutory capital and surplus as of the
preceding year end or the Company's statutory net income from operations for the
preceding year. The insurance department of the domiciliary state recognizes
these amounts as determined in conformity with statutory accounting practices
prescribed or permitted by the insurance department, which vary in some respects
from generally accepted accounting principles. The Company's statutory net
income and statutory capital and surplus which are represented by TOLIC's net
income and capital and surplus are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income $ 200,482 $ 96,472 $ 112,296
Statutory capital and surplus, at
end of year 1,844,161 1,556,228 1,249,045
</TABLE>
NOTE K-COMMITMENTS AND CONTINGENCIES
The Company issues synthetic guaranteed investment contracts which guarantee, in
exchange for a fee, the liquidity of pension plans to pay certain qualified
benefits if other sources of plan liquidity are exhausted. Unlike traditional
guaranteed investment contracts, the plan sponsor retains the credit risk in a
synthetic contract while the Company assumes some limited degree of interest
rate risk. To minimize the risk of loss, the Company underwrites these contracts
based on plan sponsor agreement, at the inception of the contract, on investment
guidelines to be followed, including overall portfolio credit and maturity
requirements. Adherence to these investment requirements is monitored regularly
by the Company. At December 31, 1998, commitments to maintain liquidity for
benefit payments on notional amounts of $5.2 billion were outstanding ($3.3
billion at December 31, 1997).
The Company is subject to mandatory assessments by state guaranty funds to cover
losses to policyholders of those insurance companies that are under regulatory
supervision. Certain states allow such assessments to be used to reduce future
premium taxes. The Company estimates and recognizes its obligation for guaranty
fund assessments, net of premium tax deductions, based on the survey data
provided by the National Organization of Life and Health Insurance Guaranty
Associations. At December 31, 1998 and 1997, the estimated exposures and the
resultant accruals recorded were not material to the consolidated financial
position or results of operations of the Company.
<PAGE>
NOTE K-COMMITMENTS AND CONTINGENCIES (Continued)
Substantially all leases of the Company are operating leases principally for the
rental of real estate. Rental expenses for equipment and properties were $31.0
million in 1998, $28.7 million in 1997 and $20.6 million in 1996. The following
is a schedule by years of future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1998 (in thousands):
Year ending December 31:
1999 $ 17,731
2000 14,913
2001 12,452
2002 11,450
2003 11,499
Later years 56,549
$124,594
========
The Company is a defendant in various legal actions arising from its operations.
These include legal actions similar to those faced by many other major life
insurers which allege damages related to sales practices for universal life
policies sold between January 1981 and June 1996. In one such action, the
Company and plaintiffs' counsel entered into a settlement which was approved on
June 26, 1997. The settlement required prompt notification to affected
policyholders. Administrative and policy benefit costs associated with the
settlement of $31 million pre-tax were accrued in 1997 and $12 million of
additional costs were incurred in 1998. Additional costs related to the
settlement, which are not currently determinable, are not expected to be
material and will be incurred over a period of years. In the opinion of the
Company, any ultimate liability which might result from other litigation would
not have a materially adverse effect on the combined financial position of the
Company or the results of its operations.
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------
1998 1997
----------------------------------- -------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities available for sale $ 28,997,454 $ 28,997,454 $ 29,231,998 $ 29,231,998
Equity securities available for sale 880,141 880,141 791,221 791,221
Mortgage loans on real estate 789,959 870,173 706,939 774,556
Policy loans 455,481 432,929 451,023 427,924
Short-term investments 1,186,166 1,186,166 324,672 324,672
Cash 87,125 87,125 36,656 36,656
Accrued investment income 449,289 449,289 481,913 481,913
Financial Liabilities:
Liabilities for investment-type contracts:
Single and flexible premium
deferred annuities 6,180,292 5,828,950 6,779,951 6,261,707
Single premium immediate annuities 4,382,389 5,305,667 4,361,311 5,122,562
Guaranteed investment contracts 3,112,929 3,183,266 3,211,834 3,265,384
Funding agreements and other 4,616,150 4,624,033 4,944,870 4,992,906
Off-balance-sheet assets (liabilities):
Interest rate swap agreements designated
as hedges of liabilities in a:
Receivable position - 20,435 - 8,189
Payable position - (3,507) - (5,247)
</TABLE>
The Company enters into various interest rate agreements in the normal course of
business, primarily as a means of managing its interest rate exposure in
connection with asset and liability management.
Interest rate swap agreements generally involve the periodic exchange of fixed
rate interest and floating rate interest payments by applying a specified market
index to the underlying contract or notional amount, without exchanging the
underlying notional amounts. The differential to be paid or received on those
interest rate swap agreements that are designated as hedges of financial assets
is recorded on an accrual basis as a component of net investment income. The
differential to be paid or
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
received on those interest rate swap agreements that are designated as hedges of
financial liabilities is recorded on an accrual basis as a component of benefits
paid or provided. While the Company is not exposed to credit risk with respect
to the notional amounts of the interest rate swap agreements, the Company is
subject to credit risk from potential nonperformance of counterparties
throughout the contract periods. The amounts potentially subject to such credit
risk are much smaller than the notional amounts. The Company controls this
credit risk by entering into transactions with only a selected number of high
quality institutions, establishing credit limits and maintaining collateral when
appropriate.
Interest rate floor and cap agreements generally provide for the receipt of
payments in the event the average interest rates during a settlement period fall
below specified levels under interest rate floor agreements or rise above
specified levels under interest rate cap agreements. A swaption generally
provides for an option to enter into an interest rate swap agreement in the
event of unfavorable interest rate movements. These agreements generally require
upfront premium payments. The costs of swaptions and interest rate floor and cap
agreements are amortized over the contractual periods and resulting amortization
expenses are included in net investment income. Any conditional receipts under
these agreements are recorded on an accrual basis as a component of net
investment income if designated as hedges of financial assets or as a component
of benefits paid or provided if designated as hedges of financial liabilities.
Gains or losses on terminated interest rate agreements are deferred and
amortized over the remaining life of the underlying assets or liabilities being
hedged.
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
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, 1998
Interest rate swap agreements designated as hedges of
securities available for sale, where TLC pays:
Fixed rate interest $ 577,973 5.37% $ (16,484)
Floating rate interest 325,000 4.75% 22,279
Floating rate interest based on one index and
receives floating rate interest based on
another index 147,562 - 1,096
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest 28,600 5.54% 177
Floating rate interest 2,718,089 5.41% 18,891
Floating rate interest based on one index and
receives floating rate interest based on
another index 262,666 - (2,140)
Interest rate floor agreements 560,500 6.45% 38,380
Swaptions 8,270,000 5.27% 140,482
Others 35,576 .55% 28,536
December 31, 1997
Interest rate swap agreements designated as hedges of
securities available for sale, where TLC pays:
Fixed rate interest $ 419,715 6.81% $ 1,820
Floating rate interest 280,905 6.48% 3,000
Floating rate interest based on one index and
receives floating rate interest based on
another index 337,371 - (320)
Interest rate swap agreements designated as
hedges of financial liabilities, where TLC pays:
Fixed rate interest - - -
Floating rate interest 2,252,089 6.17% 4,507
Floating rate interest based on one index and
receives floating rate interest based on
another index 304,820 - (1,565)
Interest rate floor agreements 560,500 6.46% 25,254
Swaptions 8,326,030 4.50% 103,018
Others 29,117 - 15,314
</TABLE>
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
Generally, notional amounts indicate the volume of transactions and estimated
fair values indicate the amounts subject to credit risk.
Activities with respect to the notional amounts are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Beginning End
of Year Additions Maturities Terminations of Year
<S> <C> <C> <C> <C> <C>
1998:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 1,037,991 $ 469,126 $ 268,364 $ 188,218 $ 1,050,535
Interest rate swap agreements
designated as hedges of
financial liabilities 2,556,909 3,748,545 207,345 3,088,754 3,009,355
Interest rate floor agreements 560,500 - - - 560,500
Swaptions 8,326,030 - 56,030 - 8,270,000
Others 29,117 7,359 - 900 35,576
-------------- -------------- -------------- ------------ ----------------
$ 12,510,547 $ 4,225,030 $ 531,739 $ 3,277,870 $ 12,925,966
============== ============== ============== ============ ================
1997:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 847,584 $ 322,165 $ 91,858 $ 39,900 $ 1,037,991
Interest rate swap agreements
designated as hedges of
financial liabilities 1,829,301 2,297,133 1,554,525 15,000 2,556,909
Interest rate floor agreements 560,500 - - - 560,500
Swaptions 8,327,570 - - 1,540 8,326,030
Others 108,745 20,572 100,200 - 29,117
-------------- -------------- -------------- ------------ ----------------
$ 11,673,700 $ 2,639,870 $ 1,746,583 $ 56,440 $ 12,510,547
============== ============== ============== ============ ================
1996:
Interest rate swap agreements
designated as hedges of
securities available for sale $ 440,173 $ 566,023 $ 143,554 $ 15,058 $ 847,584
Interest rate swap agreements
designated as hedges of
financial liabilities 1,146,678 1,887,348 1,103,525 101,200 1,829,301
Interest rate floor agreements 560,500 - - - 560,500
Interest rate cap agreements 250,000 - 250,000 - -
Swaptions 1,267,140 7,170,000 109,570 - 8,327,570
Others 100,000 8,745 - - 108,745
-------------- -------------- -------------- ------------ ----------------
$ 3,764,491 $ 9,632,116 $ 1,606,649 $ 116,258 $ 11,673,700
============== ============== ============== ============ ================
</TABLE>
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS (Continued)
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments, derivatives,
fixed maturities and mortgage loans on real estate. The Company places its
temporary cash investments and enters into derivative transactions with high
credit quality financial institutions. Concentrations of credit risk with
respect to investments in fixed maturities and mortgage loans on real estate are
limited due to the large number of such investments and their dispersion across
many different industries and geographic areas. At December 31, 1998, the
Company had no significant concentration of credit risk.
NOTE M--SUBSEQUENT EVENT(Unaudited)
On February 18, 1999, Transamerica Corporation announced that it had signed an
agreement with AEGON N.V. (AEGON) providing for AEGON's acquisition of
Transamerica Corporation for cash and stock worth $9.7 billion. In addition,
AEGON N.V. will assume on a consolidated basis approximately $1.1 billion of
Transamerica Corporation's debt. Transamerica Corporation's corporate and
insurance operations will merge with AEGON USA's operations immediately after
closing, which is expected to occur during the summer of 1999.
NOTE N--YEAR 2000 (Unaudited)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations, causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar business
activities.
Based upon recent assessments, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications and replacements of
existing software and certain hardware, disruptions to business activities
caused by the Year 2000 Issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed on time, the Year 2000 Issue
could have an impact on the operations of the Company.
The Company's plan to address the Year 2000 Issue involves the following four
phases: (1) problem determination, (2) planning and resource acquisition, (3)
remediation, and (4) testing and acceptance. The Company has completed phase one
and phase two. A significant portion of the remediation phase was completed as
of December 31, 1998, and remediation is expected to be substantially complete
by March 1999. As of December 31, 1998, Year 2000 readiness testing was well
underway and is expected to be substantially complete by June 1999.
The Company's Year 2000 project also addresses issues related to non-information
technology, embedded software and equipment, the readiness of key business
partners and updating business continuity plans.
<PAGE>
Audited Financial Statements
Separate Account VA-2L of
Transamerica Occidental
Life Insurance Company
Year ended December 31, 1998
with Report of Independent Auditors
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Audited Financial Statements
Year ended December 31, 1998
Contents
Report of Independent Auditors......................... 1
Statement of Assets and Liabilities.................... 2
Statement of Operations................................ 6
Statements of Changes in Net Assets.................... 10
Notes to Financial Statements.......................... 18
<PAGE>
1
Report of Independent Auditors
Unitholders of Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Board of Directors, Transamerica Occidental Life Insurance Company
We have audited the accompanying statement of assets and liabilities of Separate
Account VA-2L of Transamerica Occidental Life Insurance Company (comprised of
the Money Market, Managed Assets, Zero Coupon 2000, Quality Bond, Small Cap,
Capital Appreciation, Stock Index Fund, Socially Responsible Fund, Growth and
Income, International Equity, International Value, Disciplined Stock, Small
Company Stock, Limited Term High Income, Balanced, Core Value, MidCap, and TA
VIF Growth Sub-accounts) as of December 31, 1998, the related statement of
operations for the year then ended, and the statements of changes in net assets
for each of the two years in the period then ended. These financial statements
are the responsibility of Separate Account VA-2L's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the fund managers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective sub-
accounts comprising Separate Account VA-2L of Transamerica Occidental Life
Insurance Company at December 31, 1998, the results of their operations for the
year then ended, and the changes in their net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Charlotte, North Carolina
April 21, 1999
<PAGE>
2
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Zero
Money Managed Coupon
Market Assets 2000
Sub-account Sub-account Sub-account
------------------ ------------------ ------------------
<S> <C> <C> <C>
Assets
Investments, at fair value $ 65,851,739 $ 44,752,200 $ 21,021,531
Receivable for units sold - - 5,561
Due from Transamerica Life - 1,579
------------------ ------------------ ------------------
Total assets 65,851,739 44,753,779 21,027,092
Liabilities
Payable for units redeemed 150,446 15,284 -
Due to Transamerica Life 10,668 - 175
------------------ ------------------ ------------------
Total liabilities 161,114 15,284 175
------------------ ------------------ ------------------
Net assets $ 65,690,625 $ 44,738,495 $ 21,026,917
================== ================== ==================
Accumulation units outstanding 53,939,642.196 2,764,173.241 1,263,163.357
================== ================== ==================
Net asset value and redemption price per unit $ 1.217854 $ 16.185127 $ 16.646237
================== ================== ==================
Investment sub-account information:
Number of mutual fund shares 65,851,738.790 2,997,468.168 1,681,722.491
Net asset value per share $ 1.00 $ 14.93 $ 12.50
Investment cost $ 65,851,739 $ 39,339,123 $ 20,800,569
</TABLE>
<PAGE>
3
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Socially
Quality Small Capital Stock Responsible Growth and
Bond Cap Appreciation Index Fund Fund Income
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
- ------------------ -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 79,898,551 $ 168,743,070 $ 287,044,866 $ 197,434,730 $ 59,834,180 $ 212,404,040
- - 111,513 - 1,845 113,149
4,025 - - 3,687 9 18,842
----------------- -------------- -------------- -------------- -------------- ---------------
79,902,576 168,743,070 287,156,379 $ 197,438,417 59,836,034 212,536,031
43,291 192,358 - 64,661 - -
13 2,763 17,211 - - -
----------------- -------------- -------------- -------------- -------------- ---------------
43,304 195,121 17,211 64,661 - -
----------------- -------------- -------------- -------------- -------------- ---------------
$ 79,859,272 $ 168,547,949 $ 287,139,168 $ 197,373,756 $ 59,836,034 $ 212,536,031
================= ============== ============== ============== ============== ===============
5,030,446.431 2,615,765.058 8,121,246.029 4,443,711.383 $1,744,708.001 7,270,897.396
================= ============== ============== ============== ============== ===============
$ 15.875186 $ 64.435431 $ 35.356541 $ 44.416421 $ 34.295730 $ 29.231059
================= ============== ============== ============== ============== ===============
6,947,700.054 3,130,088.482 7,949,179.338 6,071,178.651 1,925,166.667 9,385,949.603
$ 11.50 $ 53.91 $ 36.11 $ 32.52 $ 31.08 $ 22.63
$ 80,905,708 $ 162,028,989 $ 214,899,540 $ 151,673,995 $ 47,938,545 $ 195,878,650
</TABLE>
See accompanying notes.
<PAGE>
4
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Assets and Liabilities (continued)
December 31, 1998
<TABLE>
<CAPTION>
International International Disciplined
Equity Value Stock
Sub-account Sub-account Sub-account
----------------- ------------------- --------------------
<S> <C> <C> <C>
Assets
Investments, at fair value $ 39,038,393 $ 16,277,248 $ 90,680,312
Receivable for units sold 3,382 - 32,727
Due from Transamerica Life 292 1,739 5,660
-------------- ---------------- ----------------
Total assets 39,042,067 16,278,987 90,718,699
Liabilities
Payable for units redeemed - 17,722 -
Due to Transamerica Life - - -
-------------- ---------------- ----------------
Total liabilities - 17,722 -
-------------- ---------------- ----------------
Net assets $ 39,042,067 $ 16,261,265 $ 90,718,699
============== ================ ================
Accumulation units outstanding 2,456,885.911 1,380,692.935 4,753,022.290
============== ================ ================
Net asset value and redemption price per unit $ 15.890875 $ 11.777610 $ 19.086529
============== ================ ================
Investment sub-account information:
Number of mutual fund shares 2,692,302.998 1,210,204.297 3,951,211.834
Net asset value per share $ 14.50 $ 13.45 $ 22.95
Investment cost $ 39,657,248 $ 17,093,262 $ 77,290,738
</TABLE>
<PAGE>
5
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Assets and Liabilities (continued)
December 31, 1998
<TABLE>
<CAPTION>
Small
Company Limited Term Core Mid TA VIF
Stock High Income Balanced Value Cap Growth
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
- ------------------ ------------------ ---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 25,333,481 $ 69,402,039 $ 32,299,326 $ 889,245 $ 4,553,781 $ 18,595,198
- - - 143 - -
- 6,541 962 1 24 1,305
- ------------------ ------------------ ---------------- ----------------- ---------------- ---------------
25,333,481 69,408,580 32,300,288 889,389 4,553,805 18,596,503
11,984 91,778 5,144 - 51,769 50,699
163 63 - - - -
- ------------------ ------------------ ---------------- ----------------- ---------------- ---------------
12,147 91,841 5,144 - 51,769 50,699
- ------------------ ------------------ ---------------- ----------------- ---------------- ---------------
$ 25,321,334 $ 69,316,739 $ 32,295,144 $ 889,389 $ 4,502,036 $ 18,545,804
================== ================== ================ ================= ================ ===============
2,111,028.689 6,458,312.119 2,280,501.753 95,759.521 467,292.833 1,634,054.907
================== ================== ================ ================= ================ ===============
$ 11.994784 $ 10.732950 $ 14.161420 $ 9.287734 $ 9.634293 $ 11.349560
================== =================== ================ ================= ================ ===============
1,678,825.758 5,881,528.697 2,027,578.542 75,874.168 374,488.594 960,495.778
$ 15.09 $ 11.80 $ 15.93 $ 11.72 $ 12.16 $ 19.36
$ 26,602,800 $ 75,035,473 $ 30,364,320 $ 845,991 $ 4,196,871 $ 17,510,857
</TABLE>
See accompanying notes.
<PAGE>
6
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Zero
Money Managed Coupon
Market Assets 2000
Sub-account Sub-account Sub-account
----------------- ------------------ ------------------
<S> <C> <C> <C>
Investment income $ 3,030,988 $ 291,880 $1,124,788
Expenses
Mortality and expense risk charge 781,026 591,970 290,938
----------------- ------------------ ------------------
Net investment income (loss) 2,249,962 (300,090) 833,850
Net realized and unrealized gain (loss) on investments:
Realized gain (loss) on investment transactions - 1,450,849 12,744
Unrealized appreciation (depreciation) of investments - 4,182,696 329,560
----------------- ------------------ ------------------
Net gain (loss) on investments - 5,633,545 342,304
----------------- ------------------ ------------------
Increase in net assets resulting from operations $ 2,249,962 $ 5,333,455 $1,176,154
================= ================== ==================
</TABLE>
<PAGE>
7
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Socially
Quality Small Capital Stock Responsible Growth and
Bond Cap Appreciation Index Fund Fund Income
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
- -------------------- ------------------- ------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 5,246,883 $ 3,397,330 $ 1,633,806 $ 4,684,124 $ 2,259,173 $ 5,733,339
972,185 2,549,950 3,191,383 2,193,307 649,856 2,883,979
- -------------------- ------------------- ------------------- ------------------ ------------------ ------------------
4,274,698 847,380 (1,557,577) 2,490,817 1,609,317 2,849,360
525,863 11,570,695 19,922,208 11,278,570 2,813,333 4,834,113
(1,966,478) (23,355,836) 37,801,962 25,219,458 7,040,819 11,336,135
- -------------------- ------------------- ------------------- ------------------ ------------------ ------------------
(1,440,615) (11,785,141) 57,724,170 36,498,028 9,854,152 16,170,248
- -------------------- ------------------- ------------------- ------------------ ------------------ ------------------
$ 2,834,083 $ (10,937,761) $ 56,166,593 $38,988,845 $ 11,463,469 $ 19,019,608
==================== =================== =================== ================== ================== ==================
</TABLE>
See accompanying notes.
<PAGE>
8
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Small
International International Disciplined Company
Equity Value Stock Stock
Sub-account Sub-account Sub-account Sub-account
---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Investment income $ 393,497 $1,235,765 $ 717,446 $ 131,182
Expenses
Mortality and expense risk charge 544,368 204,904 860,825 342,118
---------------- -------------- --------------- ----------------
Net investment income (loss) (150,871) 1,030,861 (143,379) (210,936)
Net realized and unrealized gain (loss) on investments:
Realized gain (loss) on investment transactions 685,545 607,912 3,146,901 854,546
Unrealized appreciation (depreciation) of investments 177,915 (673,621) 10,667,924 (2,793,046)
---------------- -------------- --------------- ----------------
Net gain (loss) on investments 863,460 (65,709) 13,814,825 (1,938,500)
---------------- -------------- --------------- ----------------
Increase (decrease) in net assets resulting from operations $ 712,589 $ 965,152 $ 13,671,446 $ (2,149,436)
================ ============== =============== ================
</TABLE>
<PAGE>
9
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Limited Term
High Core TA VIF
Income Balanced Value Mid-Cap Growth
Sub-account Sub-account Sub-account Sub-account Sub-account
- ------------------ ---------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
$5,109,433 $2,311,321 $ 4,669 $ 7,851 $1,541,511
714,682 246,227 3,991 22,127 81,215
- ------------------ ---------------- ---------------- ---------------------------
4,394,751 2,065,094 678 (14,276) 1,460,296
(960,194) 224,759 (4,095) (80,941) (322,061)
(5,156,021) 2,034,493 43,255 356,911 1,084,341
- ------------------ ---------------- ---------------- ---------------------------
(6,116,215) 2,259,252 39,160 275,970 762,280
- ------------------ ---------------- ---------------- ---------------------------
$(1,721,464) $4,324,346 $39,838 $261,694 $2,222,576
================== ================ ================ ===========================
</TABLE>
See accompanying notes.
<PAGE>
10
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
Zero
Money Managed Coupon
Market Assets 2000
Sub-account Sub-account Sub-account
----------------- ------------------ ------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ 2,249,962 $ (300,090) $ 833,850
Realized gain (loss) on investment transactions - 1,450,849 12,744
Unrealized appreciation (depreciation) of investments - 4,182,696 329,560
----------------- ------------------ ------------------
Increase (decrease) in net assets resulting from operations 2,249,962 5,333,455 1,176,154
Changes from accumulation unit transactions 13,329,404 1,819,817 (1,406,450)
----------------- ------------------ ------------------
Total increase (decrease) in net assets 15,579,366 7,153,272 (230,296)
Net assets at beginning of year 50,111,259 37,585,223 21,257,213
----------------- ------------------ ------------------
Net assets at end of year $ 65,690,625 $ 44,738,495 $21,026,917
================= ================== ==================
</TABLE>
<PAGE>
11
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Socially
Quality Small Capital Stock Responsible Growth and
Bond Cap Appreciation Index Fund Fund Income
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
- ------------------- ------------------ --------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
$ 4,274,698 $ 847,380 $ (1,557,577) $ 2,490,817 $ 1,609,317 $ 2,849,360
525,863 11,570,695 19,922,208 11,278,570 2,813,333 4,834,113
(1,966,478) (23,355,836) 37,801,962 25,219,458 7,040,819 11,336,135
- ------------------- ------------------ --------------------- ------------------ ------------------ -----------------
2,834,083 (10,937,761) 56,166,593 38,988,845 11,463,469 19,019,608
15,677,722 (20,461,935) 53,467,371 40,451,181 12,467,511 (4,781,367)
- ------------------- ------------------ --------------------- ------------------ ------------------ -----------------
18,511,805 (31,399,696) 109,633,964 79,440,026 23,930,980 14,238,241
61,347,467 199,947,645 177,505,204 117,933,730 35,905,054 198,297,790
- ------------------- ------------------ --------------------- ------------------ ------------------ -----------------
$ 79,859,272 $ 168,547,949 $ 287,139,168 $ 197,373,756 $ 59,836,034 $212,536,031
=================== ================== ===================== ================== ================== =================
</TABLE>
See accompanying notes.
<PAGE>
12
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
International International Internat Disciplined
Equity Value Stock
Sub-account Sub-account Sub-account
----------------- ------------------ -------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ (150,871) $ 1,030,861 $(143,379)
Realized gain on investment transactions 685,545 607,912 3,146,901
Unrealized appreciation (depreciation) of investments 177,915 (673,621) 10,667,924
----------------- ------------------ -------------------
Increase (decrease) in net assets resulting from operations 712,589 965,152 13,671,446
Increase (decrease) in net assets resulting from operations
Changes from accumulation unit transactions 4,768,717 3,793,037 42,254,185
----------------- ------------------ -------------------
Total increase (decrease) in net assets 5,481,306 4,758,189 55,925,631
Net assets at beginning of year 33,560,761 11,503,076 34,793,068
----------------- ------------------ -------------------
Net assets at end of year $ 39,042,067 $ 16,261,265 $90,718,699
================= ================== ===================
</TABLE>
<PAGE>
13
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Small Limited Term
Company High Core TA VIF
Stock Income Balanced Value Mid-Cap Growth
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
- ------------------- ------------------ --------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ (210,936) $ 4,394,751 $ 2,065,094 $ 678 $ (14,276) $ 1,460,296
854,546 (960,194) 224,759 (4,095) (80,941) (322,061)
(2,793,046) (5,156,021) 2,034,493 43,255 356,911 1,084,341
- ------------------- ------------------ --------------- ---------------- ---------------- -----------------
(2,149,436) (1,721,464) 4,324,346 39,838 261,694 2,222,576
6,721,573 44,730,747 20,366,431 849,551 4,240,342 16,323,228
- ------------------- ------------------ --------------- ---------------- ---------------- -----------------
4,572,137 43,009,283 24,690,777 889,389 4,502,036 18,545,804
20,749,197 26,307,456 7,604,367 - - -
- ------------------- ------------------ --------------- ---------------- ---------------- -----------------
$ 25,321,334 $ 69,316,739 $ 32,295,144 $ 889,389 $ 4,502,036 $ 18,545,804
=================== ================== =============== ================ ================ =================
</TABLE>
See accompanying notes.
<PAGE>
14
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
Zero
Money Managed Coupon
Market Assets 2000
Sub-account Sub-account Sub-account
----------------- ------------------ ------------------
<S> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss) $ 1,741,713 $ (155,809) $ 1,082,603
Realized gain (loss) on investment transactions - (202,908) 35,106
Unrealized appreciation (depreciation) of investments - 3,388,026 (6,228)
----------------- ------------------ ------------------
Increase in net assets resulting from operations 1,741,713 3,029,309 1,111,481
Changes from accumulation unit transactions 4,225,058 20,158,011 460,083
----------------- ------------------ ------------------
Total increase in net assets 5,966,771 23,187,320 1,571,564
Net assets at beginning of year 44,144,488 14,397,903 19,685,649
----------------- ------------------ ------------------
Net assets at end of year $ 50,111,259 $37,585,223 $ 21,257,213
================= ================== ==================
</TABLE>
<PAGE>
15
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Quality Small Capital Growth and International Stock
Bond Cap Appreciation Income Equity Index Fund
Sub-account Sub-account Sub-account Sub-account Sub-account Sub-account
- ------------------- ----------------- ----------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 2,920,535 $ 9,003,792 $ (360,327) $ 13,620,352 $ 1,920,795 $ 3,431,181
126,456 7,851,059 7,299,736 5,008,940 851,741 4,486,732
957,869 7,514,049 20,112,491 4,751,784 (1,206,438) 13,124,422
- ------------------- ----------------- ----------------- ------------------- ------------------ ------------------
4,004,860 24,368,900 27,051,900 23,381,076 1,566,098 21,042,335
13,886,928 14,733,974 70,544,573 28,437,984 10,873,817 42,498,940
- ------------------- ----------------- ----------------- ------------------- ------------------ ------------------
17,891,788 39,102,874 97,596,473 51,819,060 12,439,915 63,541,275
43,455,679 160,844,771 79,908,731 146,478,730 21,120,846 54,392,455
- ------------------- ----------------- ----------------- ------------------- ------------------ ------------------
$ 61,347,467 $ 199,947,645 $ 177,505,204 $ 198,297,790 $33,560,761 $117,933,730
=================== ================= ================= =================== ================== ==================
</TABLE>
See accompanying notes.
<PAGE>
16
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Socially
Responsible International Disciplined
Fund Value Stock
Sub-account Sub-account Sub-account
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income $ 787,776 $ 255,214 $ 1,580,849
Realized gain on investment transactions 746,963 155,929 641,361
Unrealized appreciation (depreciation) of investments 3,880,151 (210,301) 2,140,092
-------------------- ------------------- --------------------
Increase in net assets resulting from operations 5,414,890 200,842 4,362,302
Increase (decrease) in net assets resulting from operations
Changes from accumulation unit transactions 15,451,216 8,937,137 23,143,704
-------------------- ------------------- --------------------
Total increase in net assets 20,866,106 9,137,979 27,506,006
Net assets at beginning of year 15,038,948 2,365,097 7,287,062
-------------------- ------------------- --------------------
Net assets at end of year $35,905,054 $ 11,503,076 $ 34,793,068
==================== =================== ====================
</TABLE>
<PAGE>
17
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
Small Limited Term
Company High
Stock Income Balanced
Sub-account Sub-account Sub-account
----------------- ---------------- -------------
$ 241,711 $ 821,650 $ 317,787
316,013 33,817 16,765
1,191,352 (477,413) (99,488)
--------------- ------------ -----------
1,749,076 378,054 235,064
13,140,876 25,929,402 7,369,303
--------------- ------------ -----------
14,889,952 26,307,456 7,604,367
5,859,245 - -
--------------- ------------ -----------
$ 20,749,197 $ 26,307,456 $ 7,604,367
=============== ============ ===========
See accompanying notes.
<PAGE>
26
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements
December 31, 1998
1. Organization
Separate Account VA-2L of Transamerica Occidental Life Insurance Company
("Separate Account") was established by Transamerica Occidental Life Insurance
Company ("Transamerica Life") as a separate account under the laws of the State
of California on May 22, 1992. The Separate Account is registered with the
Securities and Exchange Commission (the Commission) under the Investment Company
Act of 1940 as a unit investment trust and is designed to provide annuity
benefits pursuant to deferred annuity contracts ("Contract") issued by
Transamerica Life. The Separate Account commenced operations when initial
deposits were received on March 31, 1993.
In accordance with the terms of the Contract, all payments allocated to the
Separate Account by contract owners must be allocated to purchase units of any
or all of the Separate Account's eighteen sub-accounts, each of which invests
exclusively in a specific corresponding mutual fund portfolio. The mutual fund
portfolios consist of: sixteen Series in the Dreyfus Variable Investment Fund
(Variable Fund), The Dreyfus Stock Index Fund (Stock Index Fund) and The Dreyfus
Socially Responsible Growth Fund (Socially Responsible Fund) (together "the
Funds"). The Variable Fund's sixteen series are: Money Market, Managed Assets,
Zero Coupon 2000, Quality Bond, Small Cap, Capital Appreciation, Growth and
Income, International Equity, International Value, Disciplined Stock, Small
Company Stock, Limited Term High Income, Balanced, Core Value, MidCap, and TA
VIF Growth. The Funds are open-end management investment companies registered
under the Investment Company Act of 1940.
2. Significant Accounting Policies
The accompanying financial statements of the Separate Account have been prepared
in accordance with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes. Such
estimates and assumptions could change in the future as more information becomes
known which could impact the amounts reported and disclosed herein. The
accounting principles followed and the methods of applying those principles are
presented below:
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Investment Valuation--Investments in the Funds' shares are carried at fair (net
asset) value. Realized investment gains or losses on investments are determined
on a specific identification basis which approximates average cost. Investment
transactions are accounted for on the date the order to buy or sell is executed
(trade date).
Investment Income--Investment income consists of dividend income (both ordinary
and capital gains) and is recognized on the ex-dividend date. All distributions
received are reinvested in the respective sub-accounts.
Federal Income Taxes--Operations of the Separate Account are part of, and will
be taxed with, those of Transamerica Life, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current federal income tax law,
income from assets maintained in the Separate Account for the exclusive benefit
of participants is generally not subject to federal income tax.
3. Expenses and Charges
Mortality and expense risk charges are deducted from each sub-account of the
Separate Account on a daily basis which is equal, on an annual basis, to 1.25%
of the daily net asset value of the sub-account. This amount can never increase
and is paid to Transamerica Life. An administrative expense charge is also
deducted by Transamerica Life from each sub-account on a daily basis which is
equal, on an annual basis, to .15% of the daily net asset value of the sub-
account. This amount may change, but it is guaranteed not to exceed a maximum
effective annual rate of .25%.
The following charges are deducted from a contract holder's account by
Transamerica Life and not directly from the Separate Account. An annual contract
fee is deducted at the end of each contract year prior to the annuity date.
Currently, this charge is $30 (or 2% of the account value, if less). This charge
may change but is guaranteed not to exceed $60 (or 2% of the account value, if
less). After the annuity date this charge is referred to as the Annuity Fee. The
Annuity Fee is $30. In the event that a contract holder withdraws all or a
portion of the contract holder's account, a contingent deferred sales load
(CDSL) not exceeding 6% of premiums may be applied to the amount of the contract
value withdrawn to cover certain expenses relating to the sale of contracts. The
amount of the CDSL is based upon elapsed time since the premium was received and
disappears after the seventh year. During 1998, CDSL amounted to $1,768,625.
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
4. Remuneration
The Separate Account pays no remuneration to directors, advisory boards or
officers or such other persons who may from time to time perform services for
the Separate Account.
5. Accumulation Units
The changes in accumulation units and amounts are as follows:
<TABLE>
<CAPTION>
Zero
Money Managed Coupon Quality Small
Market Assets 2000 Bond Cap
Sub-account Sub-account Sub-account Sub-account Sub-account
------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Accumulation Units:
Units sold 70,696,490.525 431,512.064 91,321.144 1,019,962.867 234,681.638
Units redeemed (9,761,252.122) (155,113.771) (158,857.779) (416,437.579) (213,727.639)
Units transferred (49,656,546.571) (161,786.057) (20,165.039) 406,700.691 (360,031.848)
-------------------- ----------------- ---------------- ----------------- ---------------
Net increase (decrease) 11,278,691.832 114,612.236 (87,701.674) 1,010,225.979 (339,077.849)
==================== ================= ================ ================= ===============
</TABLE>
<TABLE>
<CAPTION>
Socially
Capital Stock Responsible Growth International
Appreciation Index Fund Fund and Income Equity
Sub-account Sub-account Sub-account Sub-account Sub-account
------------------ ----------------- ---------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Accumulation Units:
Units sold 1,308,881.635 819,174.264 342,022.489 1,425,664.086 267,800.374
Units redeemed (391,074.330) (227,663.429) (104,201.019) (864,288.213) (119,005.108)
Units transferred 756,279.090 494,964.303 171,072.468 (770,865.832) 131,860.398
------------------ ----------------- ---------------- -------------------- --------------
Net increase (decrease) 1,674,086.395 1,086,475.138 408,893.938 (209,489.959) 280,655.664
================== ================= ================ ==================== ==============
</TABLE>
<TABLE>
<CAPTION>
Small Limited
International Disciplined Company Term High
Value Stock Stock Income Balanced
Sub-account Sub-account Sub-account Sub-account Sub-account
------------------- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Accumulation Units:
Units sold 236,093.978 1,684,646.132 519,717.268 3,892,661.610 940,995.080
Units redeemed (74,812.187) (157,107.679) (90,325.699) (259,363.171) (59,307.949)
Units transferred 172,022.142 947,337.485 77,547.566 400,781.882 750,959.318
------------------- ---------------- ---------------- ----------------- ----------------
Net increase (decrease) 333,303.933 2,474,875.938 506,939.135 4,034,080.321 1,632,646.449
=================== ================ ================ ================= ================
</TABLE>
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
5. Accumulation Units (continued)
Core TA VIF
Value Mid-Cap Growth
Sub-account Sub-account Sub-account
----------------- ----------------- -------------
Accumulation Units:
Units sold 57,442.774 226,642.705 352,213.661
Units redeemed (370.559) (9,084.899) (8,530.642)
Units transferred 38,687.306 249,735.027 1,290,371.888
----------------- ----------------- -------------
Net increase (decrease) 95,759.521 467,292.833 1,634,054.907
================= ================= =============
<TABLE>
<CAPTION>
Zero
Money Managed Coupon Quality Small
Market Assets 2000 Bond Cap
Sub-account Sub-account Sub-account Sub-account Sub-account
-------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998 Amounts:
Sales $ 83,519,319 $ 6,824,210 $ 1,464,615 $ 15,852,712 $ 14,214,475
Redemptions (11,532,099) (2,452,375) (2,548,032) (6,471,182) (12,937,358)
Transfers (58,657,816) (2,552,018) (323,033) 6,296,192 (21,739,052)
-------------- --------------- --------------- ---------------- ----------------
Net increase (decrease) $ 13,329,404 $ 1,819,817 $ (1,406,450) $ 15,677,722 $(20,461,935)
============== =============== =============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Socially
Capital Stock Responsible Growth International
Appreciation Index Fund Fund and Income Equity
Sub-account Sub-account Sub-account Sub-account Sub-account
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Amounts:
Sales $ 41,792,181 $ 30,494,466 $10,419,964 $ 32,732,420 $ 4,556,299
Redemptions (12,471,416) (8,481,089) (3,166,246) (19,858,704) (2,025,079)
Transfers 24,146,606 18,437,804 5,213,793 (17,655,083) 2,237,497
--------------- --------------- --------------- --------------- ---------------
Net increase (decrease) $ 53,467,371 $ 40,451,181 $12,467,511 $ (4,781,367) $ 4,768,717
=============== =============== =============== =============== ===============
</TABLE>
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
5. Accumulation Units (continued)
<TABLE>
<CAPTION>
Small Limited Term
International Disciplined Company High
Value Stock Stock Income Balanced
Sub-Account Sub-Account Sub-Account Sub-account Sub-account
--------------- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Amounts:
Sales $ 2,692,071 $ 28,776,566 $ 6,890,558 $ 43,168,005 $ 11,737,905
Redemptions (851,803) (2,690,995) (1,196,161) (2,876,293) (740,519)
Transfers 1,952,769 16,168,614 1,027,176 4,439,035 9,369,045
--------------- --------------- -------------- ---------------- ---------------
Net increase (decrease) $ 3,793,037 $ 42,254,185 $ 6,721,573 $ 44,730,747 $ 20,366,431
=============== =============== ============== ================ ===============
</TABLE>
<TABLE>
<CAPTION>
Core TA VIF
Value Mid-Cap Growth
Sub-account Sub-account Sub-account
--------------- --------------- ---------------
<S> <C> <C> <C>
Amounts:
Sales $ 509,397 $ 2,058,199 $ 3,518,372
Redemptions (3,286) (82,426) (85,132)
Transfers 343,440 2,264,569 12,889,988
--------------- --------------- ---------------
Net increase (decrease) $ 849,551 $ 4,240,342 $ 16,323,228
=============== =============== ===============
</TABLE>
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
5. Accumulation Units (continued)
<TABLE>
<CAPTION>
Zero
Money Managed Coupon Quality Small
Market Assets 2000 Bond Cap
Sub-account Sub-account Sub-account Sub-account Sub-account
----------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Accumulation Units:
Units sold 83,712,800.356 896,854.738 134,531.514 1,149,685.619 407,361.656
Units redeemed (5,029,007.362) (72,572.707) (86,744.492) (249,610.219) (154,203.877)
Units transferred (75,005,896.573) 592,748.263 (17,090.696) 47,370.205 (35,035.547)
------------------- ----------------- ---------------- ---------------- -----------------
Net increase (decrease) 3,677,896.421 1,417,030.294 30,696.326 947,445.605 218,122.232
=================== ================= ================ ================ =================
</TABLE>
<TABLE>
<CAPTION>
Socially
Capital Growth International Stock Responsible
Appreciation and Income Equity Index Fund Fund
Sub-account Sub-account Sub-account Sub-account Sub-account
----------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Accumulation Units:
Units sold 1,874,404.220 1,583,834.677 601,318.310 922,018.336 411,050.080
Units redeemed (226,001.847) (407,307.100) (98,874.112) (137,084.298) (38,596.704)
Units transferred 1,133,610.872 (28,789.437) 193,390.826 542,022.150 254,680.367
----------------- ----------------- ---------------- ---------------- -----------------
Net increase (decrease) 2,782,013.245 1,147,738.140 695,835.024 1,326,956.188 627,133.743
================= ================= ================ ================ =================
</TABLE>
<TABLE>
<CAPTION>
Small Limited
International Disciplined Company Term High
Value Stock Stock Income Balanced
Sub-account Sub-account Sub-account Sub-account Sub-account
----------------- ------------------ --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Accumulation Units:
Units sold 554,443.908 981,075.667 659,601.527 1,631,738.279 413,663.428
Units redeemed (25,039.540) (22,227.511) (25,277.506) (15,858.442) (2,376.140)
Units transferred 287,116.143 700,489.005 425,816.114 808,351.961 236,568.016
----------------- ----------------- --------------- ----------------- -----------------
Net increase (decrease) 816,520.511 1,659,337.161 1,060,140.135 2,424,231.798 647,855.304
================= ================= =============== ================= =================
</TABLE>
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
5. Accumulation Units (continued)
<TABLE>
<CAPTION>
Zero
Money Managed Coupon Quality Small
Market Assets 2000 Bond Cap
Sub-account Sub-account Sub-account Sub-account Sub-account
--------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 Amounts:
Sales $ 96,675,164 $ 12,637,211 $ 2,035,469 $ 16,782,687 $25,822,848
Redemptions (5,788,809) (1,007,675) (1,320,324) (3,635,760) (9,754,503)
Transfers (86,661,297) 8,528,475 (255,062) 740,001 (1,334,371)
--------------- --------------- -------------- --------------- ---------------
Net increase (decrease) $ 4,225,058 $ 20,158,011 $ 460,083 $ 13,886,928 $14,733,974
=============== =============== ============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Socially
Capital Growth International Stock Responsible
Appreciation and Income Equity Index Fund Fund
Sub-account Sub-account Sub-account Sub-account Sub-account
--------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Amounts:
Sales $ 48,079,038 $ 39,388,244 $ 9,381,825 $29,585,638 $10,234,085
Redemptions (5,778,453) (10,151,169) (1,519,126) (4,390,571) (950,360)
Transfers 28,243,988 (799,091) 3,011,118 17,303,873 6,167,491
--------------- --------------- -------------- --------------- ---------------
Net increase (decrease) $ 70,544,573 $ 28,437,984 $ 10,873,817 $42,498,940 $15,451,216
=============== =============== ============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Small Limited Term
International Disciplined Company High
Value Stock Stock Income Balanced
Sub-Account Sub-Account Sub-Account Sub-account Sub-account
---------------- -------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Amounts:
Sales $6,090,814 $ 13,710,492 $ 8,054,531 $17,489,564 $4,717,587
Redemptions (278,170) (316,317) (300,972) (167,003) (27,523)
Transfers 3,124,493 9,749,529 5,387,317 8,606,841 2,679,239
---------------- -------------- -------------- ---------------- --------------
Net increase (decrease) $8,937,137 $ 23,143,704 $ 13,140,876 $25,929,402 $7,369,303
================ ============== ============== ================ ==============
</TABLE>
<PAGE>
Separate Account VA-2L of
Transamerica Occidental Life Insurance Company
Notes to Financial Statements (continued)
6. Investment Transactions
The aggregate cost of purchases and the aggregate proceeds from the sales of
investments for the year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Zero
Money Managed Coupon Quality Small
Market Assets 2000 Bond Cap
Sub-account Sub-account Sub-account Sub-account Sub-account
---------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $177,685,348 $15,390,257 $6,651,326 $41,294,689 $46,473,117
================ ================= ================ ================= ================
Aggregate proceeds from sales $162,325,478 $12,996,107 $7,122,364 $20,158,544 $54,024,721
================ ================= ================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Socially
Capital Stock Responsible Growth International
Appreciation Index Fund Fund and Income Equity
Sub-account Sub-account Sub-account Sub-account Sub-account
---------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $96,442,222 $75,653,007 $24,125,647 $44,287,561 $14,539,760
================ ================= ================ ================= ================
Aggregate proceeds from sales $42,316,920 $28,685,881 $ 8,589,762 $45,495,261 $ 7,278,476
================ ================= ================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
International Disciplined Small Company Limited Term High
Value Stock Stock Income Sub-account Balanced
Sub-account Sub-account Sub-account Sub-account
---------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases $15,010,722 $57,027,868 $14,077,790 $72,292,531 $26,133,996
================ ================= ================ ================= ================
Aggregate proceeds from sales $ 9,555,716 $11,883,854 $ 7,204,706 $20,525,525 $ 2,805,680
================ ================= ================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Core TA VIF
Value Mid-Cap Growth
Sub-account Sub-account Sub-account
---------------- ----------------- ----------------
<S> <C> <C> <C>
Aggregate purchases $902,112 $4,652,971 $21,373,249
================ ================= ================
Aggregate proceeds from sales $ 52,026 $ 375,160 $ 3,540,331
================ ================= ================
</TABLE>
