-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RSptjXnWgzkcwo/2mQYNbh+9u/0+zd0dx3e3WVs8OPtCvobIOfGr1N9Qv4l7d2P1 KwLdaDv7nPBZuiwV5tiKOg== 0000914836-96-000012.txt : 19960430 0000914836-96-000012.hdr.sgml : 19960430 ACCESSION NUMBER: 0000914836-96-000012 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960429 EFFECTIVENESS DATE: 19960429 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURA CENTRAL INDEX KEY: 0000914836 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 951060502 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-71746 FILM NUMBER: 96552306 BUSINESS ADDRESS: STREET 1: 1150 SOUTH OLIVE CITY: LOS ANGELES STATE: CA ZIP: 90015 BUSINESS PHONE: 2137424454 MAIL ADDRESS: STREET 1: 1150 S OLIVE ST CITY: LOS ANGELES STATE: CA ZIP: 90015 485BPOS 1 N-4 FILING PURSUANT TO RULE 485(B) April 26, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Transamerica Occidental Life Insurance Company Separate Account VA-5, Post-Effective Amendment No. 4 To Form N-4, (File Nos. 33-71746, 811-8158) Dear Commissioners: Transmitted herewith for filing via EDGAR, please find Post-Effective Amendmen No. 4 to the Registration Statement on Form N-4 for Separate Account VA-5 of Transamerica Occidental Life Insurance Company. This Amendment is being filed pursuant to Paragraph (b) of Rule 485 under the Securities Act of 1933. Please call Regina M. Fink, Esq. of Transamerica's Law Department at (213) 742-3131 with any questions. Very truly yours, Susan Vivino Paralegal cc: F. Bellamy, Esq. R. Fink, Esq. Enclosures As filed with the Securities and Exchange Commission on __________, 1996 Registration No. 33-71746 811-8158 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_| Pre-Effective Amendment No. |_| Post-Effective Amendment No. 4 |X| and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_| Amendment No. 5 |X| ----- SEPARATE ACCOUNT VA-5 (Exact Name of Registrant) TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY (Name of Depositor) 1150 South Olive Street, Los Angeles, CA 90015 (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number, including Area Code: (213) 742-2111 Name and Address of Agent for Service: Copy to: James W. Dederer, Esquire Frederick R. Bellamy, Esquire Executive Vice President, General Counsel and Sutherland, Asbill & Brennan Corporate Secretary 1275 Pennsylvania Avenue, N.W. Transamerica Occidental Life Insurance Co. Washington, D.C. 20004-2404 1150 South Olive Street Los Angeles, CA 90015 Approximate date of proposed sale to the public: As soon as practicable after effectiveness of the Registration Statement. The Registrant has previously filed a declaration of indefinite registration of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice for the year ended December 31, 1995 was filed on February 28, 1996. It is proposed that this filing will become effective: |_| immediately upon filing pursuant to paragraph (b) |X| on May 1, 1996 pursuant to paragraph (b) |_| 60 days after filing pursuant to paragraph (a)(i) |_| on ________________ pursuant to paragraph (a)(i) |_| 75 days after filing pursuant to paragraph (a)(ii) |_| on ________________ pursuant to paragraph (a)(ii) of Rule 485 If appropropriate, check the following box: |_| this Post-Effective Amendment designates a new effective date for a previously filed Post-Effective Amendment. CROSS REFERENCE SHEET Pursuant to Rule 495 Showing Location in Part A (Prospectus), Part B (Statement of Additional Information) and Part C of Registration Statement Information Required by Form N-4 PART A Item of Form N-4 Prospectus Caption 1. Cover Page.......................... Cover Page 2. Definitions......................... Definitions 3. Synopsis............................ Key Features of the Contracts 4. Condensed Financial Information..... Condensed Financial Information 5. General (a) Depositor......... Transamerica Occidental Life Insurance Company; Available Information (b) Registrant.................... The Variable Account (c) Portfolio Company............. The Portfolios (d) Portfolio Prospectus...... The Portfolios (e) Voting Rights................. Voting Rights 6. Deductions and Expenses............. (a) General....................... Charges and Deductions (b) Sales Load %.................. Not Applicable (c) Special Purchase Plan......... Not Applicable (d) Commissions................... Distribution of the Contracts (e) Fund Expenses................. The Funds (f) Operating Expenses............ Variable Account Fee Table 7. Contracts (a) Persons with Rights................................ The Contract; Application and Purchase Payments; Cash Withdrawals; Account Value; Death Benefit; Voting Rights (b) (i) Allocation of Purchase Payments Payments....... Allocation of Purchase Payments (ii) Transfers...... Transfers (iii) Exchanges...... Federal Tax Matters (c) Changes.............. Addition, Deletion, or Substitution (d) Inquiries............ Key Features of the Contracts; Available Information 8. Annuity Period............. Annuity Payments 9. Death Benefit.............. Death Benefit 10. Purchase and Contract Balances........................... (a) Purchases.............. Application and Purchase Payments (b) Valuation.............. Account Value; Appendix A (c) Daily Calculation...... Account Value (d) Underwriter............ Distribution of the Contracts 11. Redemptions (a) By Contract Owners..... Cash Withdrawals; Automatic Payout Option By Annuitant........... Not Applicable (b) Texas ORP.............. Not Applicable (c) Check Delay............ Cash Withdrawals (d) Lapse.................. Not Applicable (e) Free Look............ Key Features of the Contracts; Application and Purchase Payments 12. Taxes........................ Federal Tax Matters 13. Legal Proceedings............ Legal Proceedings 14. Table of Contents for the Statement of Additional Information..... Statement of Additional Information Table of Contents PART B Item of Form N-4 Statement of Additional Information Caption 15. Cover Page............................................... Cover Page 16. Table of Contents.................................... Table of Contents 17. General Information and History.................(Prospectus) Transamerica Occidental Life Insurance Company; (Prospectus) Available Information; Transamerica 18. Services.................... (a) Fees and Expenses of Registrant.........(Prospectus) Variable Account Fee Table; (Prospectus) The Portfolios (b) Management Contracts..(Prospectus) Third Party Administrator (c) Custodian.............Safekeeping of Account Assets; Records and Reports Independent Auditors Experts (d) Assets of Registrant..Not Applicable (e) Affiliated Person.....Not Applicable (f) Principal Underwriter.Not Applicable - 3 - 19. Purchase of Securities Being Offered................. (Prospectus) The Contract Offering Sales Load........... Not Applicable 20. Underwriters.................. (Prospectus) Distribution of the Contracts 21. Calculation of Performance Data..................... (Prospectus) Performance Data; Performance Data 22. Annuity Payments........... (Prospectus) Annuity Payments; Annuity Period 23. Financial Statements.......... Financial Statements PART C -- OTHER INFORMATION Item of Form N-4 Part C Caption 24. Financial Statements and Exhibits...................... Financial Statements and Exhibits (a) Financial Statements........ Financial Statements (b) Exhibits.................... Exhibits 25. Directors and Officers of the Depositor.................. Directors and Officers of the Depositor 26. Persons Controlled By or Under Common Control with the Depositor or Registrant ...... Persons Controlled By or Under Common Control with the Depositor or Registrant 27. Number of Contract Owners................... Number of Contract Owners 28. Indemnification..................................... Indemnification 29. Principal Underwriters........................... Principal Underwriter 30. Location of Accounts and Records........................... Location of Accounts and Records 31. Management Services........................... Management Services 32. Undertakings.......................................... Undertakings Signature Page......................................... Signature Page - 4 - SCHWAB INVESTMENT ADVANTAGETM A VARIABLE ANNUITY Distributed by CHARLES SCHWAB & CO., INC. Issued by Transamerica Occidental Life Insurance Company The Schwab Investment Advantage ("Contract") is a combination variable and fixed annuity issued by Transamerica Occidental Life Insurance Company. It allows you to invest in your choice of eleven different mutual fund Portfolios offered by eight different mutual fund investment advisers. It also provides a Fixed Account option with different maturities which provide guaranteed annual returns. You may withdraw funds in the Contract as a lump sum, through a systematic withdrawal program, or from a choice of Annuity Payment Options. The minimum initial investment is $5,000. There are no sales charges, redemption, surrender or withdrawal charges. The Contract provides a Free Look Period of 10 days from your receipt of the Contract (or longer, if required by state law) during which you may cancel your investment in the Contract. Your investment in the Contract may be allocated among eleven Sub-Accounts of Transamerica Separate Account VA- 5 ("Variable Account") and the available Guarantee Periods of the Fixed Account. Based on your instructions, your Investment in the Contract may be invested in Portfolios of various mutual funds (open-end investment companies) offered by fund families such as Federated, INVESCO, Janus, Lexington, Schwab Funds(R), Stein Roe, Strong and Twentieth Century. Your initial investment in the Variable Account is automatically allocated to the Schwab Money Market Portfolio until after the end of the Free Look Period, and is then allocated according to your instructions. You also have the option of allocating some or all of your investment in the Contract to one or more Guarantee Periods, each of which offers you a specified interest rate for a specified period. The wide array of mutual fund choices and Fixed Account options allows you to select a mix of investment vehicles specifically suited to your particular risk tolerances, as well as investment objectives and adviser preferences. Prior to the Annuity Date, you are free to transfer amounts among the Portfolios; transfers involving the Fixed Account are limited to 10 during any Contract Year. This ability to transfer assets among the various Portfolios and the Guarantee Periods of the Fixed Account allows you to change your investment mix in response to changes in your personal objectives or investment outlook. Your Account Value, except for amounts in the Fixed Account, will increase or decrease based on the investment performance of the Portfolios you select. You bear the entire investment risk under the Contract prior to the Annuity Date for all amounts in the Variable Account. While there is a guaranteed death benefit, there is no guaranteed or minimum Account Value for amounts in the Variable Account. Therefore, the Account Value you receive could be less than the total amount you have invested. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus Dated May 1, 1996 The Contracts are not deposits of, or guaranteed or endorsed by any bank, nor is the Contract federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. The Contracts involve certain investment risks, including possible loss of principal. - i - The Contract offers a number of ways of withdrawing funds at a future date, including a lump-sum payment and several annuity payment forms. You may choose the Annuity Date on which the annuity payments begin. Full or partial withdrawals from the Variable Account may be made at any time before the Annuity Date. Up to ten partial withdrawals may be made from the Fixed Account during any Contract Year. Generally, withdrawals made prior to age 591/2 are subject to ordinary income taxes and a 10% federal income penalty tax. Withdrawals or transfers from a Guarantee Period of the Fixed Account before its Expiration Date will be subject to an interest adjustment which will reduce the interest earned to 3% per year on the amount withdrawn. To Place Orders and for Account Information: Contact the Annuity Service Center ("Service Center"), Charles Schwab & Co., Inc. ("Schwab") at 800-838-0650 or P.O. Box 7785, San Francisco, California 94120-9420. About This Prospectus: This Prospectus concisely presents important information you should have before investing in the Contract. Please read it carefully and retain it for future reference. You can find more detailed information pertaining to the Contract in the Statement of Additional Information dated May 1, 1996 (as may be amended from time to time), and filed with the Securities and Exchange Commission. The Statement of Additional Information is incorporated by reference into this Prospectus, and may be obtained without charge by contacting Schwab at 800-838-0650 or P.O. Box 7785, San Francisco, California 94120-9420. - ii - ii TABLE OF CONTENTS Page DEFINITIONS....................................................... iv KEY FEATURES OF THE CONTRACT...................................... 1 CONDENSED FINANCIAL INFORMATION................................... 9 TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT...................................................... 11 THE PORTFOLIOS.................................................... 12 THE FIXED ACCOUNT................................................. 17 THE CONTRACT...................................................... 20 APPLICATION AND PURCHASE PAYMENTS................................. 21 ACCOUNT VALUE..................................................... 23 TRANSFERS......................................................... 25 CASH WITHDRAWALS.................................................. 27 TELEPHONE TRANSACTIONS............................................ 31 DEATH BENEFIT..................................................... 31 CHARGES AND DEDUCTIONS............................................ 33 ANNUITY PAYMENTS.................................................. 36 FEDERAL TAX MATTERS............................................... 41 PERFORMANCE DATA.................................................. 46 DISTRIBUTION OF THE CONTRACTS..................................... 48 VOTING RIGHTS..................................................... 48 LEGAL PROCEEDINGS................................................. 49 LEGAL MATTERS..................................................... 49 ACCOUNTANTS....................................................... 51 AVAILABLE INFORMATION............................................. 51 STATEMENT OF ADDITIONAL INFORMATION--TABLE OF CONTENTS............ 52 - ----------------------------------------------------------- THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON. ---------------------------------------------------------------- The Contract is not available in all states. - iii - iii - -------------------------------------------------------------------------- DEFINITIONS - ------------------------------------------------------------------------------ Account Value: The Account Value of a particular Contract is equal to the sum of: (a) the Fixed Accumulated Value plus (b) the Variable Accumulated Value. Annuitant: The person or persons named on the application and whose life is used to determine the amount of monthly annuity payments on the Annuity Date. Annuity Date: The date on which the Account Value, less any applicable premium taxes, will be applied to provide an Annuity for you under the annuity form you selected. Unless a different Annuity Date is elected under the annuity payment provisions, the Annuity Date will be as shown in the Contract. The date annuity payments start is the Commencement of Annuity Payment Date shown in the Contract. Contract: An individual annuity contract issued to an individual or a certificate issued to an individual which evidences his or her coverage under a group annuity contract. Expiration Date: The last day of a Guarantee Period. Fixed Account: The Fixed Account is part of Transamerica's general account to which you may allocate Net Purchase Payments. The Fixed Account provides guarantees of principal and income. Special limits apply to transfers of Account Value to and from the Fixed Account. Fixed Accumulated Value: The total dollar amount of all Guarantee Amounts held under the Fixed Account for the Contract prior to the Annuity Date. Guarantee Amount: The Guarantee Amount is equal to: (a) the amount of the Net Purchase Payment or transfer allocated to a particular Guarantee Period of the Fixed Account with a particular Expiration Date; less (b) any withdrawals or transfers made from that Guarantee Period; less (c) any applicable Transfer Fee; less (d) reductions for the Annual Contract Charge; and plus (e) interest credited. Guarantee Period: The period for which Transamerica will guarantee a specified interest rate for amounts allocated or transferred to the Fixed Account. The guarantee period will be at least one year in duration. Joint Owners: Must be husband and wife as of the Annuity Issue Date. - iv - iv Net Purchase Payment: A Purchase Payment reduced by any applicable premium tax charge (including charge for retaliatory premium taxes) (see "Premium Taxes," page 34 ). Owner or You: The person or persons who, while living, controls all rights and benefits under an individual annuity contract, or under a certificate issued under a group annuity contract. Payee: The person who receives the annuity payments after the Annuity Date. The Payee will be the Annuitant unless you designate that some other person shall be the Payee. Portfolio: (1) A separate "series" or portfolio of investments within a mutual fund or (2) a mutual fund available for investment under the Contract. Receipt: Receipt and acceptance by us at our Service Center. Service Center: The Annuity Service Center, P.O. Box 7785, San Francisco, California 94120-9420, telephone 800-838-0650. Sub-Account: A subdivision of the Variable Account investing solely in shares of one of the Portfolios. Variable Account: Transamerica Separate Account VA-5 which is not part of Transamerica's general account. The Variable Account is divided into Sub-Accounts. Variable Accumulated Value: The total dollar amount of all Variable Accumulation Units under each Sub-Account of the Variable Account held for the Contract prior to the Annuity Date. We, our, us, or Transamerica: Transamerica Occidental Life Insurance Company. - v - v KEY FEATURES OF THE CONTRACT The Schwab Investment Advantage ("Contract") allows you to invest currently in your choice of eleven different mutual fund Portfolios offered by eight different mutual fund investment advisers. You can also invest in the Fixed Account option. You may withdraw funds in the Contract as a lump sum, through a systematic withdrawal program, or from a choice of annuity payment options. Your Account Value will vary with the investment performance of the Portfolios you select. You bear the entire investment risk for all amounts invested in the Variable Account. The Account Value could be less than the total amount you have invested. Who should invest. The Contract is designed for investors who are seeking long-term tax-deferred asset accumulation with a wide range of investment options. The Contract can be used for retirement or other long-term investment purposes. The deferral of income taxes is particularly attractive to investors in high federal and state tax brackets who have already taken full advantage of their ability to make IRA contributions or "pre-tax" contributions to their employer sponsored retirement or savings plans. A Wide Range of Investment Choices. The Contract gives you an opportunity to select among eleven different Portfolios offered by eight different mutual fund investment advisers and the Fixed Account option. The mutual fund investment options cover a wide range of investment objectives as follows: Aggressive Growth SteinRoe Capital Appreciation Fund Strong Discovery Fund II Growth Janus Aspen Growth Portfolio TCI Growth Portfolio Growth & Income Federated American Leaders Fund II INVESCO VIF-Industrial Income Portfolio Balanced/Asset Allocation INVESCO VIF-Total Return Portfolio International Lexington Emerging Markets Fund High Yield Bond INVESCO VIF-High Yield Portfolio Government Bond Federated Fund for U.S. Government Securities II - 1 - 1 Money Market Schwab Money Market Portfolio The assets of each Portfolio are separate, and each Portfolio has distinct investment objectives and policies as described in their individual Fund Prospectuses which are available without charge from the Service Center, Charles Schwab & Co., Inc., P.O. Box 7785, San Francisco, California 94120- 9420, 800-838-0650. (See "The Portfolios," page 11). The Fixed Account Option. The Contract also gives you an opportunity to allocate your net Purchase Payments and to transfer your Account Value to the Fixed Account. The Fixed Account is divided into Guarantee Periods, each of which has its own guaranteed interest rate and its own expiration date. Each time amounts are allocated or transferred to the Fixed Account, a new Guarantee Period is established. The guaranteed interest rate for the Guarantee Period will depend on the date the Guarantee Period is established and the duration of the Guarantee Period you select from among those available. The guaranteed interest rate will be at least 3% per year. Transamerica may, in its discretion, declare interest rates in excess of the 3% minimum annual rate. Amounts withdrawn or transferred from a Guarantee Period prior to its Expiration Date will be subject to an interest adjustment which will reduce the interest earned to the 3% minimum annual rate. (See "The Fixed Account," page 16.) How to Invest. You must complete an application form in order to invest in a Contract and you must either have sufficient funds available in your Schwab account to purchase a Contract or pay by check. The minimum initial investment is $5,000. Subsequent investments must be at least $1,000. (See "Application and Purchase Payments," page 20.) Free Look Period. The Contract provides for a Free Look Period which allows you to cancel your investment generally within 10 days of your receipt of the Contract. You can cancel the Contract during the Free Look Period by telephone (where permitted by law) or by delivering or mailing written notice or sending a telegram to the Service Center. The cancellation is not effective unless we receive the notice before the end of the Free Look Period. We will reimburse you all Purchase Payments made to the Contract and any appreciation in the amounts you allocated to the Variable Account. These procedures may vary where required by state law. (See "Application and Purchase Payments," page 20.) Allocation of the Initial Investment. Your initial investment in the Variable Account will be allocated to the Schwab Money Market Portfolio until the estimated end of the Free Look Period (allowing 5 days for mail delivery of the Contract), at which time the then current value of your Contract in the Variable Account will be allocated to the Portfolios in accordance with your instructions. (See "Account Value," page 22.) Your initial investment in the Fixed Account will be immediately allocated to the Fixed Account. Charges and Deductions Under the Contract. The Contract is a "no load" variable annuity and imposes no sales charges, redemption or withdrawal charges. - 2 - 2 There is a Mortality and Expense Risk Charge at an effective annual rate of 0.85% of the value of the net assets in the Variable Account. An Annual Contract Charge of $25 (or 2% of Account Value, if lower) will be deducted from your Account Value. Although we currently do not deduct any additional charge for administrative expenses, we reserve the right to deduct one. We guarantee that this charge will never exceed an effective annual rate of 0.15% of your Variable Account Value, if imposed. Depending on your state of residence, we may deduct a charge for state premium taxes from purchase payments or amounts withdrawn or at the Annuity Date. (See "Charges and Deductions," page 32.) Switching Investments. You may switch investments among the Portfolios of the Variable Account as often as you like. However, you may make up to only ten transfers involving the Fixed Account during any Contract Year. You may make a transfer by giving telephone instructions or making a written request to our Service Center. For any transfer, the minimum amount which may be transferred is $1,000 (or the entire value of the Portfolio or Guarantee Period being transferred, if less). Ten free transfers will be allowed per Contract Year and a charge of $10 (or 2% of the amount of the transfer, whichever is less) will be imposed for each subsequent transfer during that Contract Year. Amounts transferred out of a Guarantee Period prior to its Expiration Date will be subject to an interest adjustment which will reduce the interest earned to the 3% per year minimum rate. (See "The Fixed Account," page 16.) Full and Partial Withdrawals. You may withdraw all or part of your Account Value before the earlier of the Annuity Date you selected or the Annuitant's or Owner's death. Withdrawals may be taxable and if made prior to age 591/2 may be subject to a 10% penalty tax. Withdrawals from a Guarantee Period prior to its Expiration Date will be subject to an interest adjustment which will reduce the interest earned to 3%. (See "The Fixed Account," page 16.) Transamerica may delay payment of any withdrawal from the Fixed Account for up to six months. (See "Cash Withdrawals," page 26.) Annuity Forms. Beginning on the first day of the month immediately following the Annuity Date you select (which generally may not be later than Annuitant's age 85), you may receive annuity payments on a fixed basis. A wide range of annuity forms are available to provide flexibility in choosing an annuity payment schedule that meets your particular needs. These annuity forms include alternatives designed to provide payments for life (for either a single or joint life) with or without a guaranteed minimum number of payments. Death Benefit. If the death of the Owner or the Annuitant specified in your Contract occurs prior to the Annuity Date, a Death Benefit will be paid to the appropriate Beneficiary. The Death Benefit will be the greater of the sum of your Purchase Payments, less withdrawals and any applicable premium taxes, or the then current Account Value. The beneficiary may elect to receive the Death Benefit proceeds as a lump sum or as Annuity Payments. - 3 - 3 Customer Service. Schwab's professional representatives are available toll-free to assist you. If you have any questions about your Contract, please telephone the Service Center (800-838-0650) or write to the Service Center, Charles Schwab Co., Inc., at P.O. Box 7785, San Francisco, California 94120-9420. All inquiries should include the Contract Number, your name and the Annuitant's name. As a Contract Owner you will receive periodic statements confirming any transactions relating to your Contract, as well as a quarterly statement and an Annual Report. - 4 - 4 VARIABLE ANNUITY FEE TABLE The purpose of this table and the examples that follow is to assist you in understanding the various costs and expenses that you will bear directly or indirectly when investing in the Contract. The table and examples reflect expenses of the Variable Account as well as of the Portfolios. The table assumes that the entire Account Value is in the Variable Account. The information set forth should be considered together with the narrative provided under the heading "Charges and Deductions" on page 32 of this Prospectus, and with the Funds' prospectuses. In addition to the expenses listed below, premium taxes may be applicable. Contract Owner Transaction Expenses (1) Sales Load...........................................None Surrender Fee........................................None Transfer Fee (First 10 Per Year)(2)..................None Annual Contract Charge(3)............................$25.00 Variable Account Annual Expenses(1) (as a percentage of average Variable Account assets) Mortality and Expense Risk Charge...................0.85% Administrative Expense Charge(4)....................0.00% Other Fees and Expenses of the Variable Account.....0.00% Total Variable Account Annual Expenses..............0.85% (1) The Contract Owner Transaction Expenses apply to each Contract, regardless of how Account Value is allocated between the Variable Account and the Fixed Account. The Variable Account Annual Expenses do not apply to the Fixed Account. (2) There is a $10 (or 2% of the amount of the transfer, whichever is less) fee for each transfer in excess of 10 in any Contract Year. (3) This is a maximum annual charge. The Annual Contract Charge is the lesser of $25 or 2% of Account Value. (4) There is currently no Administrative Expense Charge. If one is added in the future, it will not exceed an annual rate of 0.15% of the Variable Account assets. - 5 - 5
Portfolio Annual Expenses(1) (as a percentage of Portfolio net assets, after expenses reimbursements) Total Management Other Portfolio Fees Expenses Expenses Portfolio Federated American Leaders Fund II............................ 0.00% 0.85% 0.85% Federated Fund for U.S. Government Securities II.............. 0.00% 0.80% 0.80% INVESCO VIF-High Yield Portfolio.............................. 0.60% 0.37% 0.97% INVESCO VIF-Industrial Income Portfolio....................... 0.75% 0.28% 1.03% INVESCO VIF-Total Return Portfolio............................ 0.75% 0.26% 1.01% Janus Aspen Growth Portfolio.................................. 0.65% 0.13% 0.78% Lexington Emerging Markets Fund............................... 0.85% 0.47% 1.32% Schwab Money Market Portfolio................................. 0.44% 0.06% 0.50% SteinRoe Capital Appreciation Fund............................ 0.50% 0.27% 0.77% Strong Discovery Fund II...................................... 1.00% 0.31% 1.31% TCI Growth Portfolio.......................................... 1.00% 0.00% 1.00%
(1) The figures given above are based on expenses that would have been incurred but for expense offset arrangements, if any, for 1995. From time to time, a Portfolio's investment adviser, in its sole discretion, may waive all or part of its fees and/or voluntarily assume certain Portfolio expenses. For a more complete description of the Portfolios' fees and expenses, see the Portfolio's prospectuses. As of the date of this Prospectus, certain fees are being waived or expenses are being assumed, in each case on a voluntary basis. Without such waivers or reimbursements, the Total Portfolio Annual Expenses that would have been incurred for the last completed fiscal year would be: 2.21% for Federated American Leaders Fund II; 5.61% for Federated Fund for U.S. Government Securities II; 2.71% for INVESCO VIF-High Yield Portfolio; 2.31% for INVESCO VIF-Industrial Income Portfolio; 2.51% for INVESCO VIF-Total Return Portfolio; 0.98% for Janus Aspen Growth Portfolio; 4.09% for Lexington Emerging Markets Fund; and 1.02% for Schwab Money Market Portfolio. See the Portfolios' prospectuses for a discussion of fee waiver and expense reimbursements. - 6 - 6 EXAMPLES(1) The following chart reflects the $25 Annual Contract Charge as an annual charge of 0.048% of assets based on an approximate average Account Value of $52,000, assuming a 5% annual return before expenses. The tabular information also assumes that the entire Account Value is allocated to the particular Sub-Account. These examples assume that no premium taxes have been assessed (although premium taxes may be applicable - see "Premium Taxes," page 34). If you retain, annuitize, or surrender the Contract at the end of the applicable time period, assuming a $1,000 Purchase Payment, you would pay the following fees and expenses
Sub-Account 1 Year 3 Years 5 Years 10 Years - -------------------------------------- ------ ------- ------- -------- Federated American Leaders Fund II............. 17.76 55.05 94.79 206.03 Federated Fund for U.S. Government Securities II 17.26 53.51 92.20 200.65 INVESCO VIF-High Yield Portfolio............... 18.97 58.72 101.00 218.83 INVESCO VIF-Industrial Income Portfolio........ 19.58 60.55 104.09 225.17 INVESCO VIF-Total Return Portfolio............. 19.38 59.94 103.06 223.06 Janus Aspen Growth Portfolio................... 17.06 52.90 91.16 198.49 Lexington Emerging Markets Fund................ 22.49 69.36 118.88 255.24 Schwab Money Market Portfolio.................. 14.23 44.25 76.48 167.76 SteinRoe Capital Appreciation Fund............. 16.96 52.59 110.61 197.41 Strong Discovery Fund II....................... 22.39 69.06 118.37 254.22 TCI Growth Portfolio........................... 19.28 59.64 102.54 222.01
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO THE GUARANTEES IN THE CONTRACT. - 7 - 7 (1) The Portfolio Annual Expenses and these examples are based on data provided by the Portfolios. Transamerica has no reason to doubt the accuracy or completeness of that data, but Transamerica has not verified the Funds' figures. In preparing the Portfolio Expense table and the Examples above, Transamerica has relied on the figures provided by the Portfolios. - 8 - 8 Federal Income Tax Consequences A Contract Owner who is a natural person generally should not be taxed on increases in the Account Value (if any) until a distribution under a Contract occurs (e.g., a withdrawal or Annuity Payment) or is deemed to occur (e.g., a pledge, loan, or assignment of the Contract). 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 (if permitted) elects otherwise. In addition, a federal penalty tax may apply to certain distributions or deemed distributions. (See "Federal Tax Matters," page 39.) NOTES: The foregoing summary is qualified in its entirety by the detailed information in the remainder of this Prospectus and in the prospectuses for the Portfolios which should be referred to for more detailed information. With respect to Qualified Contracts, it should be noted that 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, may impose additional limits or restrictions on Purchase Payments, withdrawals, surrenders, distributions, or benefits, or on other provisions of the Contract. This Prospectus does not describe any such limitations or restrictions. (See "Federal Tax Matters," page 39.) - ------------------------------------------------------------------------------ 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 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 these Sub-Accounts on April 25, 1994, through December 31, 1995. Financial statements for the Variable Account and Transamerica and reports of the independent certified public accountants are available in the Statement of Additional Information. - 9 - 9
Accumulation Accumulation No. of Units Unit Values Unit Values Outstanding as of as of as of Sub-Accounts (commenced 4/25/94) 4/25/94 12/31/94 12/31/94 Federated American Leaders Fund II $9.768 $10.024 53,914.919 Federated Fund for U.S. Government Securities II $9.994 $10.114 46,770.953 INVESCO VIF-High Yield Portfolio $9.994 $9.996 60,841.351 INVESCO VIF-Industrial Income Portfolio $9.993 $10.058 49,645.395 INVESCO VIF-Total Return Portfolio $10.004 $10.110 100,047.367 Janus Aspen Growth Portfolio $9.965 $9.950 79,075.200 Lexington Emerging Markets Fund $9.704 $10.011 123,057.764 Schwab Money Market Portfolio $0.999 $1.019 7,182,951.890 SteinRoe Capital Appreciation Fund $9.380 $10.204 85,615.721 Strong Discovery Fund II $10.723 $10.848 134,743.547 TCI Balanced Portfolio $9.798 $9.773 8,724.244 TCI Growth Portfolio $9.666 $9.695 42,130.724 Accumulation Accumulation No. of Units Unit Values Unit Values Outstanding as of as of as of Sub-Accounts 1/1/95 12/31/95 12/31/95 Federated America Leaders Fund II $10.024 13.350 369,810.694 Federated Fund for U.S. Government Securities II 10.114 10.950 268,795.355 INVESCO VIF-High Yield Portfolio $9.996 11.870 325,562.577 INVESCO VIF-Industrial Income Portfolio $10.058 12.891 523,887.849 INVESCO VIF-Total Return Portfolio $10.110 12.310 475,508.048 Janus Aspen Growth Portfolio $9.950 12.843 567,398.939 Lexington Emerging Markets Fund $10.011 9.536 33,348.590 Schwab Money Market Portfolio $1.019 1.064 14,778,494.692 SteinRoe Capital Appreciation Fund $10.204 11.307 234,375.748 Strong Discovery Fund II $10.848 14.550 501,172.961 TCI Balanced Portfolio $9.773 11.736 25,564.912 TCI Growth Portfolio $9.695 12.603 452,055.571
The TCI Balanced Portfolio Sub-Account, which - 10 - 10 was offered prior to May 1, 1995, remains part of the Variable Account and is included in the Condensed Financial Information and financial statement. However, the TCI Balanced Portfolio Sub- Account is no longer available for investment. - ------------------------------------------------------------------------------ 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 in 1906. It is principally engaged in the sale of life insurance and annuity policies. Transamerica is a wholly-owned subsidiary of Transamerica Insurance Corporation of California which, in turn, is a direct subsidiary of Transamerica Corporation. The address of Transamerica is 1150 South Olive Street, Los Angeles, California 90015 and the telephone number for Transamerica is (213) 742-2111. Published Ratings We may from time to time publish in advertisements, sales literature and reports, the ratings and other information assigned to Transamerica 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 our financial strength and/or claims-paying ability and should not be considered as bearing on the investment performance of assets held in the Variable Account. Each year the A.M. Best Company reviews the financial status of thousands of insurers, culminating in the assignment of Best's Ratings. 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, our claims-paying ability as measured by Standard & Poor's Insurance Ratings Services or Duff & Phelps may be referred to in advertisements or sales literature or in reports. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance and annuity policies 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. The Variable Account Separate Account VA-5 of Transamerica ("Variable Account") was established by us as a separate account under the laws of the State of California on September 28, 1993, pursuant to resolutions of our Board of Directors. The Variable Account is registered with the Securities and Exchange Commission ("Commission") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. It - 11 - 11 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 policies of the Variable Account. The assets of the Variable Account are owned by Transamerica but they are held separately from our other assets. 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 our other income, gains or losses. Therefore, the investment performance of the Variable Account is entirely independent of the investment performance of our general account assets or any other separate account maintained by us. The Variable Account currently has eleven Sub-Accounts available for investment, each of which invests solely in a specific corresponding mutual fund Portfolio. (See "The Portfolios," page 11.) Changes to the Sub-Accounts may be made at our discretion. (See "Addition, Deletion, or Substitution," page 15.) - ------------------------------------------------------------------------------ THE PORTFOLIOS - ------------------------------------------------------------------------------ The Portfolios described below are exclusively for use as funding vehicles for insurance products and qualified plans in certain circumstances and, consequently, are not publicly available mutual funds. 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. See the Portfolios' prospectuses for more information. Federated Insurance Series Federated American Leaders Fund II: Seeks to achieve long-term growth of capital as a primary objective and seeks to provide income as a secondary objective through investment of at least 65% of its total assets (under normal circumstances) in common stocks of "blue-chip" companies. Federated Fund for U.S. Government Securities II: Seeks to provide current income through investment of at least 65% of its total assets (under normal circumstances) in securities which are primary or direct obligations of the U.S. government or its agencies or instrumentalities or which are guaranteed by the U.S. government, its agencies, or instrumentalities and in collateralized mortgage obligations issued by U.S. government agencies and instrumentalities. - 12 - 12 INVESCO Variable Investment Funds, Inc. INVESCO VIF-Industrial Income Portfolio: Seeks the best possible current income while following sound investment practices. Capital growth potential is an additional, but secondary, consideration in the selection of portfolio securities. The Industrial Income Portfolio seeks to achieve its investment objective by investing in securities which will provide a relatively high yield and stable return and which, over a period of years, also may provide capital appreciation. INVESCO VIF-Total Return Portfolio: Seeks a high total return on investment through capital appreciation and current income. The Total Return Portfolio seeks to achieve its investment objective by investing in a combination of equity securities (consisting of common stocks and, to a lesser degree, securities convertible into common stock) and fixed income securities. INVESCO VIF-High Yield Portfolio: Seeks a high level of current income by investing substantially all of its assets in lower rated bonds and other debt securities and in preferred stock. These bonds and other securities are sometimes referred to as "junk bonds." The High Yield Portfolio pursues its investment objective through investment in a variety of long-term, intermediate-term, and short-term bonds. Potential capital appreciation is a factor in the selection of investments, but is secondary to the Portfolio's primary objective. Janus Aspen Series Janus Aspen Growth Portfolio: Seeks long-term growth of capital in a manner consistent with the preservation of capital. Realization of income is not a significant investment consideration and any income realized on the Growth Portfolio's investments will be incidental to its primary objective. The Growth Portfolio seeks to achieve its investment objective by investing substantially all of its assets in common stock when its portfolio manager believes that the relevant market environment favors profitable investing in those securities. Generally, the Portfolio emphasizes issuers with larger market capitalizations. - 13 - 13 Lexington Emerging Markets Fund, Inc. Lexington Emerging Markets Fund: Seeks long term growth of capital by investing primarily in emerging country and emerging market equity securities. For purposes of its investment objective, the Fund considers emerging country equity securities to be any country whose economy and market the World Bank or United Nations considers to be emerging or developing. The Fund may also invest in equity securities and equivalents traded in any market, of companies that derive 50% or more of their total revenue from either goods or services produced in such emerging countries or markets or sales made in such countries. Schwab Annuity Portfolios Schwab Money Market Portfolio: Seeks maximum current income consistent with liquidity and stability of capital. It seeks to achieve its objective by investing in short-term money market instruments. This Portfolio is neither insured nor guaranteed by the United States Government and there can be no assurance that it will be able to maintain a stable net asset value of $1.00 per share. SteinRoe Variable Investment Trust SteinRoe Capital Appreciation Fund: Seeks capital growth by investing primarily in common stocks, convertible securities, and other securities selected for prospective capital growth. Strong Discovery Fund II, Inc. - 14 - 14 Strong Discovery Fund II: Seeks capital growth by investing in a diversified portfolio of securities that the Fund's investment adviser believes represent attractive growth opportunities. TCI Portfolios, Inc. TCI Growth Portfolio: Seeks capital growth by investing in common stocks (including securities convertible into common stocks and other equity equivalents) and other securities that meet certain fundamental and technical standards of selection and have, in the opinion of the investment manager, better-than-average potential for appreciation. The Portfolio's investment manager intends to stay fully invested in such securities, regardless of the movement of stock prices generally. The two Federated Insurance Series Portfolios are advised by Federated Advisers of Pittsburgh, Pennsylvania. The three INVESCO Variable Investment Funds, Inc., Portfolios are advised by INVESCO Funds Group, Inc., of Denver, Colorado. The Janus Aspen Growth Portfolio is advised by Janus Capital Corporation of Denver, Colorado. The Lexington Emerging Markets Fund is advised by Lexington Management Corporation of Saddle Brook, New Jersey. The Schwab Money Market Portfolio is advised by Charles Schwab Investment Management, Inc., of San Francisco, California. The SteinRoe Capital Appreciation Fund is advised by Stein Roe & Farnham Incorporated of Chicago, Illinois. Strong Discovery Fund II is advised by Strong Capital Management, Inc. of Milwaukee, Wisconsin. The TCI Growth Portfolio is advised by Investors Research Corporation of Kansas City, Missouri, advisers to the Twentieth Century family of mutual funds. * * * - 15 - 15 Meeting investment objectives depends on various factors, including, but not limited to, how well the portfolio managers anticipate changing economic and market conditions. THERE IS NO ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL ACHIEVE THEIR STATED OBJECTIVES. The Contracts are not deposits of, or guaranteed or endorsed by, any bank, nor is the Contract federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. The Contracts involve certain investment risks, including possible loss of principal. Each Portfolio is registered with the Commission as an open-end management investment company or a series thereof. The Commission does not supervise the management or the investment practices and policies of any of the Portfolios. Since some of the Portfolios are available to registered separate accounts of other insurance companies offering variable annuity and variable life products and to qualified plans in certain circumstances, there is a possibility that a material conflict may arise between the interests of the Variable Account and one or more other separate accounts or qualified plans investing in the Portfolios. In the event of a material conflict, the affected insurance companies or qualified plans are required to take any necessary steps to resolve the matter, including stopping their separate accounts or qualified plans from investing in the Portfolios. See the Portfolios' prospectuses for more details. Additional information concerning the investment objectives and policies of all of the Portfolios and the investment advisory services and administrative services and charges can be found in the current prospectuses for the Portfolios, which can be obtained by calling the Service Center at 800-838-0650 or by writing to the Service Center, Charles Schwab & Co., Inc., P.O. Box 7785, San Francisco, California 94120-9420. The Portfolios' prospectuses should be read carefully before any decision is made concerning the allocation of Purchase Payments to, or transfers among, the Sub-Accounts. Addition, Deletion, or Substitution Transamerica does not control the Portfolios and cannot guarantee that any of the Portfolios will always be available for allocation of Purchase Payments or transfers, so Transamerica retains the right to make changes in the Variable Account and in its investments. Currently, Charles Schwab & Co., Inc., must approve certain fundamental changes. Transamerica and Schwab reserve the right to eliminate the shares of any Portfolio held by a Sub- Account and to substitute shares of another Portfolio or of another investment company, for the shares of any Portfolio, if the shares of the Portfolio are no longer available for investment or if, in our judgment, investment in any Portfolio would be inappropriate in view of the purposes of the Variable Account. To the extent required by the 1940 Act, a substitution of shares attributable to the Owner's interest in a Sub-Account will not be made without prior notice to the Owners and the prior approval of the Commission. Nothing contained herein shall prevent the Variable Account from purchasing other - 16 - 16 securities for other series or classes of variable annuity policies, or from effecting an exchange between series or classes of variable policies on the basis of requests made by Owners. New Sub-Accounts may be established when, in our discretion, marketing, tax, investment or other conditions so warrant. Any new Sub-Accounts will be made available to existing Owners on a basis to be determined by us. 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 the Owners and request a re-allocation of the amounts invested in the eliminated Sub-Account. We also reserve the right to restrict the transfer privilege. In the event of any such substitution or change, we may make such changes to your Contract as may be necessary or appropriate to reflect such substitution or change. Furthermore, if deemed 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, may be de- registered under such 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 as a disclosure document only for the Contract and the Variable Account. For complete details regarding the Fixed Account, see the Contract itself. Purchase Payments allocated to and amounts transferred to the Fixed Account become part of the general account of Transamerica, 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 (the "1933 Act"), nor is the general account registered as an investment company under the Investment Company Act of 1940 (the "1940 Act"). Accordingly, neither the general account nor any interests therein are generally subject to the provisions of the 1933 and 1940 Acts and Transamerica has been advised that the staff of 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 the general account of Transamerica. The general account of Transamerica consists of all the general assets of Transamerica, other than those in the Variable Account, or in any other segregated asset account. Instead of the Owner bearing the investment risk as is the case for values in the Variable Account, Transamerica bears the full investment risk for all values in the Fixed Account. Transamerica has sole discretion to invest the assets of its general account subject to applicable law. - 17 - 17 The allocation or transfer of funds to the Fixed Account does not entitle the Owner to share in the investment experience of Transamerica's general account. Instead, Transamerica guarantees that the funds allocated or transferred to the Fixed Account will accrue a specified annual rate of interest for a specific duration. The rate of interest credited will always be at least 3% per year. Consequently, if the Owner allocates all Net Purchase Payments only to the Fixed Account and makes no transfers or withdrawals, the minimum amount of the Account Value will be determinable and guaranteed. The Policy Owner bears the risk that, after the initial Guarantee Period, Transamerica will not credit interest in excess of 3% per year on amounts allocated to the Fixed Account. Net Purc hase Pay ment s allocated to or amounts transferred to the Fixed Account will establish a new Guarantee Period of a duration selected by the Owner from among those currently being offered by Transamerica. Every Guarantee Period offered by Transamerica will have a duration of at least one year. The minimum amount that may be allocated or transferred to a Guarantee Period is $1,000. Net Purchase Payments allocated to the Fixed Account will be credited on the date the payment is received at the Service Center. Any amount transferred from another Guarantee Period or from a Sub-Account of the Variable Account to the Fixed Account will establish a new Guarantee Period as of the effective date of the transfer. Each Guarantee Period will have its own Guaranteed Interest Rate and Expiration Date. The Guarantee Interest Rate applicable to a Guarantee Period will depend on the date the Guarantee Period is established and the duration chosen by the Owner. A Guarantee Period chosen may not extend beyond the Annuity Date. Transamerica reserves the right to change the maximum number of Guarantee Periods that may be in effect at any one time. Transamerica will declare an effective annual rate of interest for each Guarantee Period ("Guaranteed Interest Rate"). Interest will be credited 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 prior to its Expiration Date will be subject to an interest adjustment. 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. - 18 - 18 An interest adjustment will not apply to amounts withdrawn or transferred within the 30-day period ending on the Expiration Date of the Guarantee Period from which the withdrawal or transfer is being made. No interest adjustment applies to death benefits. At least 45 days, but not more than 60 days, prior to the Expiration Date of a Guarantee Period, Transamerica will notify the Owner as to the options available when a Guarantee Period expires. The Owner 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 Transamerica at such time. The Guarantee Amount is 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 Fees; less (d) reductions for the Annual Contract Charge; and plus (e) interest credited. The new Guarantee Period will be established on the later of (i) the date selected by the Owner, or (ii) the date the notice, in a form and manner acceptable to Transamerica, is received by Transamerica at the 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. Transamerica must receive the Owner's notice electing one of these options at the Service Center by the expiration date of the Guarantee Period. If such election has not been received by Transamerica at the Service Center, the Guarantee Amount of that Guarantee Period will remain in the Fixed Account and a new Guarantee Period of the same duration as the expiring Guarantee Period, if offered, will automatically be established by Transamerica with a new Guaranteed Interest Rate declared by Transamerica for that Guarantee Period. The new Guarantee Period will start on the day following the expiration date of the previous Guarantee Period. If Transamerica is not currently offering Guarantee Periods having the same duration as the expiring Guarantee Period, the new Guarantee Period will be the next longer duration, or if Transamerica is not offering Guarantee Periods longer than the duration of the expiring Guarantee Period, the next shorter duration. If the Guarantee Amount of an expiring Guarantee Period is less than $1,000, Transamerica reserves the right to transfer such amount to the Money Market Sub-Account of the Variable Account. A transfer from a Guarantee Period made within the 30-day period ending on its Expiration Date will not be counted for the purpose of the ten allowable transfers under the Fixed Account, nor for the purpose of determining any Transfer Fee on transfers in excess of the ten transfers a year, nor will such transfer be subject to any interest adjustment. - ------------------------------------------------------------------------------ - 19 - 19 THE CONTRACT - ------------------------------------------------------------------------------ The Contract is a combination deferred variable and fixed annuity contract. Your rights and benefits are described below and in the individual contract or in the certificate and group contract; however, we reserve the right to make any modification to conform the individual contract or the group contract and certificates thereunder to, or give you the benefit of, any federal or state statute or rule or regulation. The obligations under the Contract are our obligations. You as Owner will designate the Annuitant. You can be the Annuitant and must be the Annuitant in the case of a Qualified Contract issued to fund an IRA. (See "Qualified Contracts" below.) Annuity payments will be made to the Annuitant after the Annuity Date unless, in the case of a Non-Qualified Contract, you designate a different Payee. The term "Contract" as used herein refers to either an individual annuity contract or to a certificate issued under a group annuity contract. For each Contract, a different Account will be established and values and benefits will be calculated separately. The various administrative rules described below will apply separately to each Contract, unless otherwise noted. Qualified Contracts The Contracts may be used to fund IRA rollovers for use in connection with Section 408(b) of the Code. If a Contract is purchased to fund an IRA, the Annuitant must also be the Owner. In addition, if a Contract is purchased to fund an IRA or other Qualified Plan, minimum distributions must commence not later than April 1st of the calendar year following the calendar year in which you attain age 701/2. You should consult your tax adviser concerning these matters. The Contract and prototype IRA endorsement have received IRS approval that they are acceptable under Section 408 of the Code, and that each individual who purchases a Contract with an IRA endorsement will be considered to have adopted a retirement savings program that satisfies the requirements of Section 408 of the Code. The IRS approval is a determination only as to the form of the Contract and does not represent a determination of the merits of the Contract. An IRA rollover is a rollover of certain kinds of distributions from qualified plans, Section 403(b) tax sheltered annuities, and individual retirement plans, following the rules set out in the Code to maintain favorable tax treatment, to an Individual Retirement Annuity. The Contracts may also be used for various types of qualified pension and profit sharing plans under Section 401 of the Code, which permits employers to establish various types of retirement plans for themselves and for employees. - 20 - 20 Purchasers of the Contract for use in Qualified Plans should seek competent advice regarding the suitability of the proposed plan documents and the Contract to their specific needs. Transamerica reserves the right to decline to sell the Contract to certain Qualified Plans or terminate the Contract if in Transamerica's judgment the Contract is not appropriate for the Plan. - ------------------------------------------------------------------------------ APPLICATION AND PURCHASE PAYMENTS - ------------------------------------------------------------------------------ Purchase Payments All Purchase Payments can be paid to the Service Center by a check payable to Transamerica or by transfer of available funds from your Schwab account. The Initial Purchase Payment for the Contract must be at least $5,000. A confirmation will be issued to you upon the acceptance of each Purchase Payment. Your Contract will be issued and your Net Purchase Payment derived from the Initial Purchase Payment generally will be accepted and credited within two business days after receipt of an acceptable application and receipt of the Initial Purchase Payment at the Service Center. (A Net Purchase Payment is the Purchase Payment less any applicable premium taxes, including any retaliatory premium taxes.) The Purchase Payment can be paid by check (payable to Transamerica) or by transfer of available cash from your account with Schwab. Acceptance is subject to there being sufficient information in a form acceptable to us, and we reserve the right to reject any application or Purchase Payment. The Service Center will process your application and Purchase Payments. If your application is complete and your initial Purchase Payment is being transferred from funds available in your Schwab account, then the Purchase Payment will generally be credited on the business day following receipt of the application. If your application is incomplete, the Service Center will either complete the application from information Schwab has on file, or contact you for the additional information. No transfer of funds will be made from your Schwab Account until your application is complete. The funds will be credited to the Contract when they are transferred. If your Purchase Payment is by check, and the application is complete, Schwab will use its best efforts to credit the Purchase Payment on the day of receipt, but in all such cases it will be credited to your Contract within two business days of receipt. If your application is incomplete, the Service Center will complete the application from information Schwab has on file or contact you by telephone to obtain the required information. If your application remains incomplete for five business days, we will return to you both the check and the application unless you consent to our retaining the Initial Purchase Payment and crediting it as soon as the requirements are fulfilled. - 21 - 21 Each Contract provides for a Free Look Period of ten days (or longer, if required by state law) after you receive the Contract. You may cancel the Contract by notifying us within the Free Look Period. Then you will be refunded the sum of: (i) the Purchase Payments allocated to the Fixed Account; and (ii) the greater of the Purchase Payments allocated to the Variable Account or the Variable Accumulated Value. Additional Purchase Payments may be made at any time prior to the Annuity Date, as long as the Annuitant or Contingent Annuitant is living. Additional Purchase Payments must be at least $1,000. In addition, minimum allocation amounts apply (see "Allocation of Purchase Payments" ). Additional Purchase Payments made by check are credited to your Contract as of the date of receipt of the payment at the Service Center. If made by transfer of funds from your Schwab account, funds for the additional Purchase Payment will be transferred and credited to your Contract the business day of receipt of your instructions in good order. Total Purchase Payments 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 law, rules, or regulations. Allocation of Purchase Payments You specify either in your application or by subsequent telephone or written notice how Purchase Payments will be allocated. You may allocate each Net Purchase Payment to one or more of the Sub- Accounts of the Variable Account, to the available Guarantee Periods of the Fixed Account, or to both, as long as the portions are whole number percentages. Any allocation percentage for a Sub-Account must be at least 10%. In addition, the Initial Purchase Payment allocation is subject to a minimum allocation of $1,000 to each Sub-Account you select and the amount allocated to a Guarantee Period must be at least $1,000. On the Annuity Issue Date, the Net Purchase Payment, or portion thereof, derived from your Initial Purchase Payment which you allocate to the Variable Account will first be allocated to the Money Market Sub-Account and will remain in that Sub-Account until the estimated end of the Free Look Period ( plus 5 days for delivery of the Contract by mail). At that time, the dollar value of the Accumulation Units held in the Money Market Sub-Account attributable to such Net Purchase Payment will be allocated among the Sub-Accounts in accordance with the allocation percentages selected by you. Each Net Purchase Payment will be subject to the allocation percentages in effect at the time of receipt of such Purchase Payment. The allocation percentages for new Purchase Payments among the Sub-Accounts of the Variable Account and the Guarantee Periods of the Fixed Account may be changed by you at any time by request in a manner and form acceptable to us. 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 of notice of the change by our Service Center and will continue - 22 - 22 in effect until subsequently changed. The minimum amount of any new Purchase Payment that can be allocated to establish a Sub-Account or Guarantee Period is $1,000. - ------------------------------------------------------------------------------ ACCOUNT VALUE - ------------------------------------------------------------------------------ Before the Annuity Date, your Account Value is the total dollar amount of each Sub-Account and Guarantee Period credited to your Contract. The Account Value is equal to: (a) the Fixed Accumulated Value plus (b) 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 prior to the Annuity Date. The Fixed Accumulated Value is determined without regard to any interest adjustment. Before the Annuity Date, 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. The Variable Accumulated Value prior to 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) reductions for the Annual Contract Charge deducted on the last business day of each Contract or Certificate Year; plus or minus (f) amounts transferred from or to the Fixed Account; less (g) any applicable Transfer Fees; and less (h) any withdrawals from the Sub-Accounts. 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 and 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. The Variable Accumulated Value is expected to change from Valuation Period to Valuation Period, reflecting the investment experience of the selected Portfolios as well as the deductions for charges. Any time the value in a Sub-Account is less than $250, whether by transfer, withdrawal or investment experience, we reserve the right to transfer the balance in the Sub-Account to the Money Market sub-account. - 23 - 23 Net Purchase Payments which you allocate to a Sub-Account of the Variable Account are used to purchase Variable Accumulation Units in the Sub-Account or Sub-Accounts you select. The number of Variable Accumulation Units to be credited for each Sub-Account will be determined by dividing the portion of each Net Purchase Payment allocated to the Sub-Account by the Variable Accumulation Unit Value determined at the end of the Valuation Period during which the Net Purchase Payment was received. In the case of the Initial Net Purchase Payment, Variable Accumulation Units for that payment will be credited to the Account Value (and held in the Money Market Sub-Account until the estimated end of the Free Look Period) as soon as possible, but no later than two Valuation Days after the later of: (a) the date sufficient information in a form acceptable to us is received by us at the Service Center; or (b) the date the Service Center receives the Initial Purchase Payment. In the case of any subsequent Purchase Payment, Variable Accumulation Units for that payment will be credited at the end of the Valuation Period during which we receive the payment. The value of a Variable Accumulation Unit for each Sub-Account for a Valuation Period is established at the end of each Valuation Period and 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 Net Investment Factor is a formula that reflects the changes in the value of a share of the applicable Portfolio (and any dividends declared by the Portfolio); it is used to determine the value of Accumulation Units. The applicable formula can be found in the Statement of Additional Information. The value of a Variable Accumulation Unit may go up or down. Unlike a brokerage account, this account is not covered by the Securities Investor Protection Corporation ("SIPC"). - -------------------------------------------------------------------------------- TRANSFERS - ------------------------------------------------------------------------------ In General Prior to the Annuity Date you may transfer all or part of your Account Value among and between the Sub-Accounts and the available Guarantee Periods by telephone or by sending a written request to our Service Center. The minimum amount which may be transferred, is the lesser of $1,000 or the entire value of the Sub-Account or Guarantee Period from which the transfer is being made. Any transfer intended to establish a new Guarantee Period under the Fixed Amount must be at least $1,000. The request must specify the amounts being transferred, the Sub-Account(s) and/or Guarantee Period(s) from which the transfer is to be made and the Sub-Account(s) and/or Guarantee Period(s) that will receive the transfer. - 24 - 24 Currently, there is no limit on the number of transfers you can make within the Variable Account during any Contract Year. There is no charge for the first ten transfers each Contract Year, but there is a charge of $10 (or 2% of the amount of the transfer, whichever is less) for each additional transfer in each Contract Year. We reserve the right to limit the number of transfers you can make. Transfers involving the Fixed Account (including transfers to or from the Variable Account) are limited to ten (10) during any Contract Year. No additional transfers may be made involving the Fixed Account. These Fixed Account transfers are counted against your ten free transfers. (Partial cash withdrawals from the Contract from the Fixed Account are limited to ten during a Contract Year. See "Cash Withdrawals," page 26.) A transfer generally will be effective on the date the request for transfer is received by our Service Center if received before 4:00 p.m. Eastern Time. Under current law, there will not be any tax liability to you if you make a transfer. Transfers among the Sub-Accounts may also be subject to such terms and conditions as may be imposed by the Portfolios. Transfers involving the Sub-Accounts will result in the purchase and/or cancellation of Variable Accumulation Units having a total value equal to the dollar amount being transferred to or from a particular Sub-Account. The purchase and/or cancellation of such units generally shall be made using the Variable Accumulation Unit value of the applicable Sub-Accounts as of the end of the Valuation Day on which the transfer is effective. When a transfer is made from a Guarantee Period before its Expiration Date, the amount transferred will be subject to an interest adjustment, resulting in the crediting of interest at a rate of only 3% per year for the amount transferred from the date the Guarantee Period was established to the date of transfer. (See "The Fixed Account," page 16.) A transfer from a Guarantee Period made within the 30- day period ending on its Expiration Date will not be counted for the purpose of the ten allowable transfers under the Fixed Account, nor for the purpose of determining any Transfer Fee on transfers in excess of the ten transfers per year, nor will such transfer be subject to any interest adjustment. 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 Contract 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 underlying Portfolio from taking advantage of investment opportunities because the Portfolio must maintain a significant cash position in order to handle redemptions. Such movement may also cause a substantial increase in Portfolio transaction costs which must be indirectly borne by Contract Owners. Therefore, we reserve the right - 25 - 25 to require that all transfer requests be made by the Contract Owner and not by a third party holding a power of attorney and to 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 Contract Owner or Owners; facsimile transfer requests may not be allowed. Dollar Cost Averaging (Automatic Transfers) Prior to the Annuity Date, you may automatically transfer, without charge, amounts from one Sub- Account selected from among those being allowed under this option to any of the other Sub-Accounts on a monthly basis. The transfers will begin on the tenth day of the next month following receipt of the request, provided that automatic transfers will not commence until the later of (a) 30 days after the Annuity Issue Date, or (b) the estimated end of the Free Look Period. Transfers will continue unless terminated by you or automatically terminated by us because there are insufficient funds in the applicable Sub-Account, or for other reasons as set forth in the Contract. Automatic transfers must meet the following conditions: (1) the minimum amount that can be transferred out of the selected Sub-Account is $250 per month; and (2) the minimum amount transferred into any other Sub-Account is the greater of $250 or 10% of the amount being transferred that month. At the time of your election and of the first automatic transfer made under this option, the amount in the selected Sub-Account from which the transfers are to be made must be at least $5,000. Automatic transfers will not count toward the limitation of 10 free transfers per Contract Year. Dollar Cost Averaging is not available with respect to the Fixed Account. - ------------------------------------------------------------------------------ CASH WITHDRAWALS - ------------------------------------------------------------------------------ Withdrawals You (the Owner) may withdraw from the Contract all or part of your Account Value at any time during the life of the Annuitant and prior to the Annuity Date by request in a manner and form acceptable to us at our Service Center subject to the rules below. Federal or state laws, rules or regulations may apply. The amount payable to you if you surrender your Contract on or before the Annuity Date is your Account Value, less any interest adjustment, and less any applicable premium taxes. No withdrawals may be made after the Annuity Date. A full surrender will result in a cash withdrawal payment equal to the Account Value (less any interest adjustment and any applicable premium taxes) at the end of the Valuation Period during which the request is received. A request for a partial withdrawal will result in a reduction in your Account Value equal to the sum of the dollar amount withdrawn plus any interest adjustment. - 26 - 26 Partial withdrawals must be at least $1,000. Partial withdrawals from the Variable Accounts are unlimited; partial withdrawals from the Fixed Account are limited to ten during any Contract Year. If you specify the Variable Account but do not specify the Sub-Account(s) from which the withdrawal is to be made, our Service Center will effect such withdrawal pro rata from all Sub-Accounts in which your Account Value is invested. If you have Account Value in both the Fixed and Variable Accounts and do not specify from which one the withdrawal should come, then the withdrawal request cannot be processed. When a withdrawal is made from a Guarantee Period of the Fixed Account before its Expiration Date, the amount withdrawn will be subject to interest adjustment and 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 withdrawal. (See "The Fixed Account," page 16.) In accordance with state insurance law, Transamerica may delay payment of any withdrawal from the Fixed Account for up to six months after Transamerica receives the request for such withdrawal. If Transamerica delays payment for more than 30 days, Transamerica will pay interest on the withdrawal amount up to the date of payment. 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 contacted to decide either to: (a) withdraw a lesser amount (subject to the $1,000 minimum) leaving an Account Value of at least $2,000; or (b) completely surrender the Contract. You will have ten days to notify us of your decision. 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 election is received from you, the withdrawal request will be considered null and void and no withdrawal will be processed. Withdrawals may be taxable transactions (this includes APO withdrawals and Systematic Withdrawals discussed below). Moreover, the Internal Revenue Code provides that a 10% penalty tax may be imposed on the taxable portions of certain early withdrawals. The Code generally requires us to withhold federal income tax from withdrawals. However, generally you will be entitled to elect, in writing, not to have tax withholding apply although withholding is mandatory for certain types of Qualified Contracts. Withholding applies to the portion of the withdrawal which is included in your income and subject to federal income tax. The tax withholding rate is 10% 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. (See "Federal Tax Matters," page 39.) Withdrawal requests must be in writing to ensure that your instructions regarding withholding are followed. Since you assume the investment risk under the Contract for amounts allocated to the Variable Account, the total amount paid upon surrender of your Contract (taking into account any prior withdrawals) may be more or less than the total Purchase Payments you made. - 27 - 27 Withdrawal (including surrender) requests generally will be processed as of the end of the Valuation Period during which the completed request, including any necessary forms, is received by the Service Center. Payment of any cash withdrawal or lump sum death benefit due from the Variable Account will occur no longer than seven days from the date the 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; or (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 any necessary withdrawal request forms are received. Payments of any amounts derived from Purchase Payment paid by check may be delayed until the check has cleared the Owner's bank. After a surrender of your total Account Value, or at any time that your Account Value is zero, all your rights under the Contract will terminate. Since the Qualified Contracts offered by this Prospectus will be issued in connection with retirement plans which meet the requirements of the Code, reference should be made to the Code and the terms of the particular retirement plans for any additional limitations or restrictions on cash withdrawals. Systematic Withdrawal Option Under the Systematic Withdrawal Option, you can instruct Transamerica to make automatic payments of a predetermined dollar amount or fixed percentage of the Account Value to you monthly. To be eligible for systematic withdrawal, the Account Value must be at least $15,000 at the time you elect the Systematic Withdrawal Option and at the time of the first withdrawal. The minimum systematic withdrawal payment is $150. Systematic withdrawals will commence on the fourth day of the month following receipt of the election at our Service Center. Such date may not be earlier than: (a) 30 days after the Annuity Issue Date shown on the Certificate Data page; or (b) the end of the Free Look Period, whichever is later. If the fourth day is not a Valuation Day, systematic withdrawals will start on the next following Valuation Day. Subsequent withdrawals will be made on the fourth day of each month thereafter. To ensure that your instructions regarding withholding are followed, requests for systematic withdrawal must be in a manner and form acceptable to the Service Center. You may specify the Sub-Accounts from which systematic withdrawals will be made, but if you do not specify the Sub-Accounts from which systematic withdrawals are to be taken, systematic withdrawals will be taken from each Sub-Account in the proportion that the Account Value in each Sub-Account bears to the total Account Value of the Contract. When using systematic withdrawals, an Owner may not simultaneously participate in the Automatic Payout Option. - 28 - 28 Systematic withdrawals may be taxable, subject to withholding, and subject to the 10% penalty tax. (See "Federal Tax Matters," page 39.) Qualified Policies are subject to complex rules with respect to restrictions on and taxation of distributions, including the applicability of penalty taxes. A qualified tax adviser should be consulted before a Systematic Withdrawal Option is requested. (See "Federal Tax Matters," page 39.) The Systematic Withdrawal Option is not available with respect to the Fixed Account. Automatic Payout Option ("APO") For Qualified Contracts Prior to the Annuity Date, for Qualified Contracts, you may elect the Automatic Payout Option ("APO") to satisfy minimum distribution requirements under Sections 401 and 408(b)(3) of the Code. This may be elected no earlier than six months prior to the calendar year in which you attain age 701/2, but payments may not begin earlier than January 1 of such calendar year. The APO is not available with respect to the Fixed Account. Payments will be made on the seventh day of the month, and will continue unless terminated by you or automatically terminated by us as stated in the Contract. APO may be elected in any calendar month, but no later than the month immediately preceding the month in which you attain age 84. To be eligible for this option, the following conditions must be met: (1) your Account Value must be at least $15,000 at the time of election and the time of the first APO withdrawal; and (2) the annual withdrawal amount is the larger of the required minimum distribution for this contract as defined under Code Sections 401 or 408(b)(3) or $1,000. APO withdrawals are available on a monthly, quarterly, semi-annual or annual basis. If you elect other than an annual distribution mode, the minimum modal APO withdrawal amount is $150. APO allows the required minimum distribution to be paid periodically from any of the Sub- Accounts. If there are insufficient funds in any of the Accounts to make a withdrawal, or for other reasons as set forth in the Contract, this option will terminate. If you have more than one qualified plan, you must consider all such plans in the calculation of your minimum annual distribution requirement. Termination of distributions from this Contract will not relieve you from your distribution requirements if you own multiple contracts. You may also make partial withdrawals in addition to APO withdrawals, subject to the withdrawal provisions of the Contract. APO withdrawals may be taxable and subject to withholding. - 29 - 29 - ------------------------------------------------------------------------------ TELEPHONE TRANSACTIONS - ------------------------------------------------------------------------------ We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine and 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 transactions may include requiring some form of personal identification prior to acting on instructions received by telephone, providing written confirmation of the transaction, and/or tape recording the instructions given by telephone. We reserve the right to suspend telephone transaction privileges at any time, for some or all Contracts, and for any reason. Telephone transactions may not be allowed in all states. Withdrawals are not permitted by telephone. - ------------------------------------------------------------------------------ DEATH BENEFIT - ------------------------------------------------------------------------------ Before the Annuity Date, the death benefit will equal the larger of (1) the sum of the Purchase Payments, less withdrawals and less premium or similar taxes as of the date of death of you or the Annuitant, or (2) your Account Value, as of the end of the Valuation Period during which the later of (a) due Proof of Death is received by our Service Center and (b) a written notice of the method of settlement elected by the Beneficiary is received at our Service Center. (See "Designation of Beneficiaries," page 31). If no settlement method is elected, the death benefit will be paid in a lump sum no later than one year after the date of death. Until the death benefit is paid, the Account Value allocated to the Variable Account remains in the Variable Account, and fluctuates with the investment performance of the applicable Portfolio(s). Accordingly, the amount of the death benefit depends on the Account Value at the time the death benefit is paid (not on the date of death). Due 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. - 30 - 30 Payment of Death Benefit The death benefit is generally payable upon receipt of Proof of Death of you or the Annuitant. Upon receipt of this proof and an election of a method of settlement, the death benefit generally will be paid within seven days, or as soon thereafter as we have sufficient information about the Beneficiary to make the payment. The Beneficiary may receive the amount payable in a lump sum cash benefit or, subject to any limitations under any state or federal law, rule, or regulation, under one of the annuity forms unless a settlement agreement is effective under the Contract preventing such election. If no settlement method is elected within one year of the date of death, the death benefit will be paid in a lump sum based upon the Account Value at that time (i.e., one year after the date of death). The payment of the death benefit may be subject to certain distribution requirements under the federal income tax laws. (See "Federal Tax Matters," page 39.) Designation of Beneficiaries You may select one or more Beneficiaries and name them in the application or a Beneficiary designation form. If you select more than one Beneficiary, unless you otherwise indicate, they will 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 upon your death if there is no Joint Owner. Different Beneficiaries may be named with respect to the Annuitant's death ("Annuitant's Beneficiary") and your death ("Owner's Beneficiary"). Before the Annuitant's death, you may change any Beneficiary by written notice to the Service Center. You may also make the designation of a Beneficiary irrevocable by sending written notice to and obtaining approval from our Service Center. Irrevocable Beneficiaries may be changed only with the written consent of the designated Irrevocable Beneficiaries, except to the extent required by law. The interest of any Beneficiary who dies before you or the 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 your or the Annuitant's death, 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 has died before you or the Annuitant. If the interest of all designated beneficiaries has terminated, or if you do not designate a beneficiary, any benefits payable will be paid to your 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 Prior to the Annuity Date If the Annuitant dies prior to the Annuity Date, the Annuitant is not an Owner, and there is no Contingent Annuitant, a death benefit under the Contract relating to that Annuitant will be paid to the - 31 - 31 Annuitant's Beneficiary. If there is a Contingent Annuitant, then the Contingent Annuitant will become the Annuitant. Death of Owner Prior to the Annuity Date If an Owner dies before the Annuity Date, a death benefit will be paid to the Owner's Beneficiary. If your Joint Owner or Beneficiary is your spouse, then your spouse may elect to treat the Contract as his or her own. Death of Owner or Annuitant After the Annuity Date If an Owner or the Annuitant dies after the Annuity Date, 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. - ------------------------------------------------------------------------------ CHARGES AND DEDUCTIONS - ------------------------------------------------------------------------------ THIS PRODUCT HAS NO SALES CHARGE AND NO WITHDRAWAL OR SURRENDER CHARGES. No deductions are made from Purchase Payments except for any applicable premium taxes. Therefore, the full amount of the Purchase Payments (less any applicable premium tax charges) is invested in the Contract. The variable account expenses for the Contract are substantially below the costs of most other variable annuity contracts. The average variable account expense charge of other variable annuity contracts was 1.30% as reported by Morningstar Annuity/Life Sourcebook, 1995, and 1.25% as reported by Barron's-Lipper Mutual Fund Quarterly, January 1996. The variable account expense charge for this Contract is 0.85%. As more fully described below, charges under the Contract are assessed only as deductions for premium taxes, if applicable, as charges against the assets of the Variable Account for our assumption of mortality and expense risks and administrative expenses (if charged), for certain transfers, and as an Annual Contract Charge. In addition, an interest adjustment applies to withdrawals and transfers from a Guarantee Period prior to its Expiration Date. In addition, certain deductions are made from the assets of the Portfolios for investment management fees and expenses. These fees and expenses are described in the Portfolios' prospectuses and their Statements of Additional Information. - 32 - 32 Mortality and Expense Risk Charge We deduct a Mortality and Expense Risk Charge from the Variable Account at the end of each Valuation Period to compensate us for bearing certain mortality and expense risks under the Contracts. This is a daily charge equal to an effective annual rate of 0.85% of the value of the net assets in the Variable Account. The approximate portion of this charge attributable to mortality risks is 0.30%; the approximate portion of this charge estimated to be attributable to expense risk is 0.55% of the value of the net assets in the Variable Account. We guarantee that this charge will never increase beyond 0.85%. The Mortality and Expense Risk Charge is reflected in the Variable Accumulation Unit Values for each Sub-Account. Account Values and 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 determined in accordance with the annuity tables and other provisions contained in the Contract. Thus you are assured that neither the Annuitant's 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 we will pay a death benefit equal to the greater of your Account Value or your Purchase Payments less withdrawals and premium taxes (so 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 Contracts and the Variable Account will be greater than anticipated, or exceed the amount recovered through the Annual Contract Charge plus the amount, if any, recovered through Transfer Fees and the Administrative Expense Charge (currently not being charged). 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. Our expenses for distributing the Contracts will be borne by our general assets, including any profits from this charge. Administrative Expense Charges We currently deduct a $25 (or 2% of Account Value if less) Annual Contract Charge from the Account Value on each Contract Anniversary to partially cover our costs for administering the Contracts and the Variable Account. The Annual Contract Charge is deducted from the Money Market Sub- Account. If there are not sufficient funds in the Money Market Sub-Account to cover the Annual Contract Charge, then the Charge or any portion thereof will be deducted on a pro rata basis from all Sub-Accounts of the Variable Account with current value. If the entire Account is in the Fixed Account, - 33 - 33 then the Annual Contract Charge will be deducted on a pro rata basis from all Guarantee Periods under the Fixed Account. We do not expect a profit from the Annual Contract Charge. We currently do not deduct any other administrative expense charge. However, we reserve the right to deduct such a Charge from the Variable Account at the end of each Valuation Period at an effective annual rate that is guaranteed not to exceed 0.15% of the assets held in the Variable Account to reimburse us for those administrative expenses attributable to the Contracts and the Variable Account. We will provide you at least 30 days written notice before any such charge is imposed. If we impose an Administrative Expense Charge, it will be at a level that will be designed to recover no more than the anticipated and estimated costs associated with administering the Contract and the Variable Account that are not recovered through the Annual Contract Charge. We do not expect to make a profit from any Administrative Expense Charge. Premium Taxes We may be required to pay state premium taxes 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 will deduct charges for the premium taxes we incur 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 on applicable state law. Other 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. A complete description of the fees, expenses, and deductions from the Portfolios are found in the Funds' prospectuses. (See "The Portfolios," page 11.) Current prospectuses for the Funds can be obtained by calling the Service Center at 800-838-0650, or by writing to theService Center, Charles Schwab & Co., Inc., P.O. Box 7785, San Francisco, California 94120-9420. Transfer Fee - 34 - 34 There will be a $10 (or 2% of the amount of the transfer, whichever is less) charge for each transfer in excess of ten transfers in any Contract Year. Interest Adjustment For a description of the interest adjustment applicable to early withdrawals or transfers from a Guarantee Period of the Fixed Account, see "The Fixed Account," page 16. - ------------------------------------------------------------------------------ ANNUITY PAYMENTS - ------------------------------------------------------------------------------ Election of Annuity Date and Annuity Form The Annuity Date is the date that your Account Value (less any applicable premium taxes) is applied to provide the annuity payments under your selected annuity form (unless your entire Account Value has been withdrawn or the death benefit has been paid to the Beneficiary prior to that date). When the contract is issued, the designated annuity form is a Life Annuity with period certain of 120 months (10 years). Before the Annuity Date, and while the Annuitant is living, you may change the Annuity Date or annuity form by telephone or written request. The request for change of the Annuity Date or annuity form must be received by the Service Center at least 30 days prior to the Annuity Date. We will provide you with at least 90 days notice of your Annuity Date so you can change the date or the annuity form, if you so desire. The Annuity Date must not be earlier than the first day of the calendar month coinciding with or next following the first Contract Anniversary. The latest Annuity Date which may be elected is the first day of the calendar month immediately preceding the month of the Annuitant's 85th birthday. The Annuity Date must be the first day of a calendar month and initially will be the first day of the month prior to the Commencement of Annuity Payment Date selected by you at the time the application is completed. The first annuity payment will be on the Commencement of Annuity Payment Date, which is the first day of the month immediately following the Annuity Date. Fixed Annuity Payment The amount of each annuity payment is fixed and will remain constant pursuant to the terms of the annuity form elected (variable annuity payment options are not currently offered). On the Annuity Date, the Account Value, less any applicable premium taxes, will be transferred to our general account assets. The amount of annuity payments will be established by the fixed annuity form selected and the age and sex (unless unisex rates are required by law) of the Annuitant. The annuity payments will not reflect investment experience after the Annuity Date. The fixed annuity payment amounts are determined by applying the Annuity Purchase Rate specified in your Contract to the annuity form selected by you. - 35 - 35 Payments may change after the death of the Annuitant under some annuity forms; the amounts of these changes are fixed on the Annuity Date. Choice of Annuity Forms You may choose any of the four annuity forms described below. Subject to our approval, you may select any other annuity forms then being offered by us. (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 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 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 require proof of age for the Annuitant and for 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 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, who may elect to receive the commuted value of these payments in a - 36 - 36 single sum. We will determine the commuted value by discounting the rest of the payments at the then current rate of interest used by us for commuted values. If after the Annuitant's death, you have not elected to have the commuted value paid in a single sum and if the Annuitant's Beneficiary dies before all of the payments under the period certain have been made, you may designate a Payee to receive any remaining payments. 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 you, if living, otherwise in a single sum to your estate. The 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 to the Annuitant, starting on the first day of the month immediately following the Annuity Date, if and for as long as the Annuitant and the Joint Annuitant are living. After the Annuitant or the Joint Annuitant dies, payments will continue for as long as the survivor lives. Payments will be made to the survivor for his or her life. Payments end with the payment due just before the death of the survivor. 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 the Joint Annuitant both die shortly after payments begin. The 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 Annuitant 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. * * * 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. We reserve the right to ask for satisfactory proof of the Annuitant's (or 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 under a selected annuity form will be greater for older Annuitants than for younger Annuitants. In the event that an annuity form is not selected at least 30 days before the Annuity Date, we will make annuity payments in accordance with the "Life Annuity With Period Certain" of 120 months, and the applicable provisions of the Contract. - 37 - 37 The Annuity Date and annuity forms available for Qualified Contracts may also be controlled by endorsements, the plan documents, or applicable law. If the amount of the monthly annuity payment would be less than $150 or if your Account Value (less any applicable premium taxes) is less than $5,000, we reserve the right to offer a less frequent mode of payment or to pay that amount in a lump sum cash payment to you. Once payments start under the annuity form selected by the Owner: (a) no changes can be made in the annuity form, (b) no additional Purchase Payments will be accepted under the Contract, and (c) no further withdrawals, other than withdrawals made to provide annuity benefits, will be allowed. You may, at any time after the Annuity Date, request, in a manner and form acceptable to us, the Service Center to 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 notice for such change; or (b) the date specified by you. If the Contract is issued as an IRA, you may not change the Payee on or after the Annuity Date. * * * 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 (an election not to have taxes withheld is not permitted for certain Qualified Contracts). State income tax withholding may also apply. (See "Federal Tax Matters," page 41.) 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 Purchase Payment fixed annuity rates at that time, whichever would result in a higher amount of monthly fixed annuity payments. - 38 - 38 - ------------------------------------------------------------------------------ FEDERAL TAX MATTERS - ------------------------------------------------------------------------------ Introduction The following discussion is a general description of federal tax considerations relating to the Contracts 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. Any person concerned about these tax implications 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. 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 Internal Revenue Service. Moreover, no attempt has been made to consider any applicable state or other tax laws. The Contract may be purchased on a non-tax qualified basis ("Non-Qualified Contract") or purchased and used in connection with plans qualifying for favorable tax treatment ("Qualified Contract"). Qualified Contracts are designed for use in connection with plans entitled to special income tax treatment under sections 401 or 408 of the Internal Revenue Code of 1986, as amended ("Code"). The ultimate effect of federal income taxes on the amounts held under a Contract, on annuity payments, and on the economic benefit to you, the Annuitant, or the Beneficiary may depend on the type of retirement plan, and on the tax status of the individual concerned. In addition, certain requirements must be satisfied in purchasing a Qualified Contract and receiving distributions from a Qualified Contract in order to continue receiving favorable tax treatment. Therefore, purchasers of Qualified Contracts should seek competent legal and tax advice regarding the suitability of the Contract for their situation, 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 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. - 39 - 39 Taxation of Annuities In General Section 72 of the Code governs taxation of annuities in general. We believe that an Owner who is a natural person generally is not taxed on increases (if any) in the value of an Account Value until distribution occurs by withdrawing all or part of the Account Value (e.g., withdrawals or annuity payments under the annuity form 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 qualified 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 annuity 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" (discussed below) during each taxable year. There are some exceptions to this rule and a prospective Owner that is not a natural person may wish to discuss these with a competent tax adviser. The following discussion generally applies to a Contract owned by a natural person. Withdrawals In the case of a withdrawal under a Qualified Contract, including withdrawals under the Automatic Payout Option, a ratable portion of the amount received is taxable, 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 Contract issued in connection with qualified plans, the "investment in the contract" can be zero. Special tax rules may be available for certain distributions from a Qualified Contract. With respect to Non-Qualified Contracts, partial withdrawals, including systematic withdrawals, 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. If a partial withdrawal made 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 - 40 - 40 Although the tax consequences may vary depending on the annuity form 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 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. If the annuity payments cease as a result of an Annuitant's death before full recovery of the "investment in the contract," you should consult a competent tax adviser regarding the deductibility of the unrecovered amount. Penalty Tax In the case of a distribution pursuant to a Non-Qualified Contract, there may be imposed a federal income tax penalty equal to 10% of the amount treated as taxable income. In general, however, there is no penalty tax on distributions: (1) made on or after the date on which the Owner attains age 591/2; (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 pursuant to 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 includable in the income of the recipient 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 form, 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. Transfers, Assignments, or Exchanges A transfer of ownership of a Contract, the designation of an Annuitant, Payee or other 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. An Owner contemplating any such designation, transfer, assignment, or exchange of a Contract should contact a competent tax adviser with respect to the potential tax effects of such a transaction. Multiple Contracts - 41 - 41 All deferred, non-qualified annuity contracts that are issued by us (or our affiliates) to the same Owner during any calendar year are treated as one annuity contract for purposes of determining the amount includable in gross income under section 72(e) of the Code. 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. Withholding Pension and annuity distributions generally are subject to withholding for the recipient's federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients, however, generally are provided the opportunity to elect not to have tax withheld from distributions. Certain distributions from Qualified Contracts are subject to mandatory federal income tax withholding. (See discussion of this election under "Withdrawals" on page .) Possible Changes in Taxation In past years, legislation has been proposed that would have adversely modified the federal taxation of certain annuities. For example, one such proposal would have changed the tax treatment of non-qualified annuities that did not have "substantial life contingencies" by taxing income as it is credited to the annuity. Although, as of the date of this prospectus, Congress is not actively considering any legislation regarding the taxation of annuities, there is always the possibility that the tax treatment of annuities could change by legislation or other means (such as IRS regulations, revenue rulings, judicial decisions, etc.). Moreover, it is also possible that any change could be retroactive (that is, effective prior to the date of the change). 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 estate tax consequences and state and local estate, inheritance, and other tax consequences of ownership or receipt of distributions under a Contract depend on the individual circumstances of each Owner or recipient of the distribution. A competent tax adviser should be consulted for further information. Qualified Plans The Contract is designed for use with several types of qualified plans. The tax rules applicable to qualified plans, including restrictions on contributions and benefits, taxation of distributions, and any tax - 42 - 42 penalties, vary according to the type of plan and the terms and conditions of the plan itself. Various tax penalties may apply to contributions in excess of specified limits, aggregate distributions in excess of $150,000 annually, distributions that do not satisfy specified requirements, and certain other transactions with respect to qualified plans. Therefore, no attempt is made to provide more than general information about the use of the Contract with the various types of qualified plans. Owners, Annuitants and Beneficiaries are cautioned that the rights of any person to any benefits under qualified plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the Contract. Qualified plans are also subject to distribution and other requirements that are not incorporated in the administration of the Contracts. Owners, participants, and Beneficiaries are responsible for determining that contributions, distributions, and other transactions with respect to the Contracts comply with applicable law. Following are brief descriptions of the various types of qualified plans in connection with which Transamerica will issue the Contract. Contracts for all types of qualified plans may not be available in all states. When issued in connection with a qualified plan, the Contract will be amended as necessary to conform to the requirements of the Code. Qualified Pension and Profit Sharing Plans. Section 401(a) of the Code permits corporate 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. Purchasers of 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. 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 benefit payments. Individual Retirement Annuities The Contract is designed for use with IRA rollovers. Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (each referred to as an "IRA"). Also, distributions from certain other types of qualified plans may be "rolled over" on a tax-deferred basis into an IRA. The sale of a Contract for use with an IRA may be subject to special disclosure requirements of the Internal Revenue Service. Purchasers of the Contract for use with IRA's 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 seven days of the earlier of the establishment of the IRA or their purchase. Various tax penalties may apply to contributions in excess of specified limits, aggregate distributions in excess of $150,000 annually, distributions that do not satisfy specified requirements, and certain other transactions. If a Qualified Contract is issued in connection with an employer's Simplified Employee Pension ("SEP") plan, - 43 - 43 Owners, Annuitants and Beneficiaries are cautioned that the rights of any person to any of the benefits under the Qualified Contract may be subject to the terms and conditions of the plan itself, regardless of the terms and conditions of the Contract. A Qualified Contract will be amended as necessary to conform to the requirements of the Code. Purchasers should seek competent advice as to the suitability of the Contract for use with IRA's. Restrictions under Qualified Contracts Other restrictions with respect 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. General At the time the Initial Purchase Payment is paid, a prospective purchaser must specify whether he or she is 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 the prospective purchaser provide information with regard to the federal income tax status of the previous annuity contract. We will require that persons purchase separate Contracts if they desire to invest monies qualifying for different annuity tax treatment under the Code. Each such separate Contract would require the minimum Initial Purchase Payment stated above. 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. - ------------------------------------------------------------------------------ PERFORMANCE DATA - ------------------------------------------------------------------------------ From time to time, we may advertise yields and average annual total returns for the Sub-Accounts of 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. 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 that the income generated for that seven-day period is generated each seven-day period over a 52-week period and 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. - 44 - 44 The yield of a Sub-Account (other than 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 premium taxes that may be applicable to a particular Contract. To the extent that premium taxes are applicable to a particular Contract, the yield of that Contract will be reduced. For a description of the methods used to determine yield and total returns, see the Statement of Additional Information. The average annual total return of a Sub-Account refers to return quotations assuming an investment has been held in the Sub-Account for various periods of time including, but not limited to, a period measured from the date the Sub-Account commenced operations. When a Sub-Account has been in operation for 1, 5, and 10 years, respectively, the average annual total return for these periods will be provided. The average annual total return quotations 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 (excluding premium taxes) as of the last day of each of the periods for which total return quotations are provided. For additional information regarding yields and total returns calculated using the standard formats briefly described herein, please refer to the Statement of Additional 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. Performance information should be considered in light of the investment objectives and policies and characteristics of the Portfolios in which the Sub-Account invests, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. 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, Morningstar, Value Line, IBC/Donoghue's Money Fund Report, Financial Planning Magazine, Money Magazine, Bank Rate Monitor, Standard & Poor's Indices, Dow Jones Industrial Average, and 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, and which may include a comparison, at various points in time, of the return from an investment in a Contract (or returns in general) on a tax-deferred basis (assuming one or more tax rates) with the return on a currently taxable basis. Other ranking services and indices may be used. - 45 - 45 We may from time to time also disclose cumulative (non-annualized) total returns for the Sub- Accounts. We may from time to time also disclose yield and standard total returns for any or all Sub- Accounts. We may also advertise performance figures for the Sub-Accounts based on the performance of a Portfolio prior to the time the Variable Account commenced operations. For additional information regarding the calculation of other performance data, please refer to the Statement of Additional Information. - ------------------------------------------------------------------------------ DISTRIBUTION OF THE CONTRACTS - ------------------------------------------------------------------------------ Charles Schwab & Co., Inc. ("Schwab") is the principal underwriter and distributor of the Contracts. Schwab is registered with the Commission as a broker/dealer and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Its principal offices are located at P.O. Box 7785, San Francisco, California 94120-9420, telephone 800-838-0650. Certain administrative services are provided by Schwab to assist Transamerica in the processing of the Contracts, which services are described in written agreements between Schwab and Transamerica. - ------------------------------------------------------------------------------ VOTING RIGHTS - ------------------------------------------------------------------------------ To the extent required by applicable law, all Portfolio shares held in the Variable Account will be voted by us 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 we determine that we are allowed to vote all Portfolio shares in our own right, we may elect to do so. Before the Annuity Date, you, the Owner, have the voting interest. The number of votes which are available to you will be calculated separately for each Sub-Account. That number will be determined by applying your percentage interest, if any, in a particular Sub-Account to the total number of votes attributable to that Sub-Account. You hold a voting interest in each Sub-Account to which your Contract Value is allocated. You have no voting interest after the Annuity Date. 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. - 46 - 46 Voting instructions will be solicited by written communication prior to such meeting in accordance with procedures established by the respective Funds. Shares as to which no timely instructions are received and shares held by us 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 generally the Funds are not required to, and do not intend to, hold annual or other regular meetings of shareholders. - ------------------------------------------------------------------------------ LEGAL PROCEEDINGS - ------------------------------------------------------------------------------ There is at present no pending material legal proceeding to which the Variable Account is a party or to which the assets of the Variable Account are subject. We are involved in various kinds of litigation which, in management's judgment, is not of material importance in relation to our total assets or to the assets of the Variable Account. - ------------------------------------------------------------------------------ LEGAL MATTERS - ------------------------------------------------------------------------------ Advice regarding certain legal matters concerning the federal securities laws applicable to the issue and sale of the Contract has been provided by Sutherland, Asbill & Brennan. The organization of Transamerica, Transamerica's authority to issue the Contract, and the validity of the form of the Contract have been passed upon by James W. Dederer, Executive Vice President, Secretary, and General Counsel of Transamerica. - ------------------------------------------------------------------------------ ACCOUNTANTS - ------------------------------------------------------------------------------ The consolidated financial statements of Transamerica Occidental Life Insurance Company at December 31, 1995, and for each of the three years in the period then ended, and the financial statements for the Variable Account at December 31, 1995, have been audited by Ernst & Young LLP, - 47 - 47 Independent Auditors, as set forth in their report appearing in the Statement of Additional Information, and are included in reliance upon such reports given upon the authority of such firm experts in accounting and auditing. - ------------------------------------------------------------------------------ AVAILABLE INFORMATION - ------------------------------------------------------------------------------ We have filed a registration statement ("Registration Statement") with the Commission under the 1933 Act relating to the Contracts 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, and reference is hereby made to the Registration Statement and exhibits for further information relating to us and the Contracts. Statements contained in this Prospectus, as to the content of the Contracts and other legal instruments, are summaries. For a complete statement of the terms thereof, reference is made to the instruments as filed as exhibits to the Registration Statement. The Registration Statement and its exhibits may be inspected and copied at the offices of the Commission located at 450 Fifth Street, N.W., Washington, D.C. - 48 - 48 - ------------------------------------------------------------------------------ STATEMENT OF ADDITIONAL INFORMATION - ------------------------------------------------------------------------------ A Statement of Additional Information is available upon request which contains more details concerning the subjects discussed in this Prospectus. The following is the Table of Contents for that Statement: TABLE OF CONTENTS Page THE CONTRACT (Page 20)...................... 3 ADDITIONAL DEFINITIONS ..................... 3 NET INVESTMENT FACTOR (Page 25)............. 4 GENERAL PROVISIONS.......................... 5 CALCULATION OF PERFORMANCE DATA (Page 46)... 8 HISTORIC PERFORMANCE DATA................... 11 TERMINATION OF DOLLAR COST AVERAGING ....... 13 FEDERAL TAX MATTERS (Page 41)............... 14 DISTRIBUTION OF THE CONTRACTS............... 16 SAFEKEEPING OF ACCOUNT ASSETS............... 16 TRANSAMERICA (Page 11)...................... 17 STATE REGULATION............................ 17 RECORDS AND REPORTS......................... 17 FINANCIAL STATEMENTS (Page 9)............... 17 Schwab Investment Advantage(TM) Variable Annuity issued by Transamerica Occidental Life Insurance Company, Policy form 1-504 11-194, Certificate number GNC-37-193. - 49 - 49 va5sai.3 STATEMENT OF ADDITIONAL INFORMATION April 20, 1996 for the SCHWAB INVESTMENT ADVANTAGETM A VARIABLE ANNUITY Distributed by CHARLES SCHWAB & CO., INC. Issued by Transamerica Occidental Life Insurance Company 1150 South Olive Los Angeles, California 90015 (213) 742-2111 This Statement of Additional Information expands upon subjects discussed in the current Prospectus for the deferred variable annuity contract ("Contract") offered by Transamerica Occidental Life Insurance Company ("Transamerica") and its Separate Account VA-5 ("Variable Account"). You may obtain a copy of the Prospectus dated May 1, 1996, as supplemented from time to time, by writing to the Service Center, Charles Schwab & Co., Inc., P.O. Box 7785, San Francisco, California 94120-9420, or calling (800) 838-0650. Terms used in the current Prospectus for the Contract are incorporated in this Statement. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT. Dated May 1, 1996 - 50 - TABLE OF CONTENTS Page THE CONTRACT (page 20)........................... 3 ADDITIONAL DEFINITIONS .......................... 3 NET INVESTMENT FACTOR (page 25).................. 4 GENERAL PROVISIONS............................... 5 CALCULATION OF PERFORMANCE DATA.................. 8 HISTORIC PERFORMANCE DATA (page 46).............. 11 TERMINATION OF DOLLAR COST AVERAGING............. 13 FEDERAL TAX MATTERS (page 41).................... 14 DISTRIBUTION OF THE CONTRACTS.................... 16 SAFEKEEPING OF ACCOUNT ASSETS.................... 16 TRANSAMERICA (page 11)........................... 17 STATE REGULATION................................. 17 RECORDS AND REPORTS.............................. 17 FINANCIAL STATEMENTS (page 9).................... 17 (Additional page references refer to the current Prospectus.) - 51 - 51 THE CONTRACT As a supplement to the description in the Prospectus, the following provides additional information about the Contract which may be of interest to you. 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 each certificate issued under the group contract. The group contract has been issued to a trust organized under Missouri law. However, the sole purpose of the trust is to hold the Contract. You, the Owner, have all rights and benefits under the Contract. ADDITIONAL DEFINITIONS Account: The account established and maintained for you 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. Age: The applicable person's age nearest birthday. Annuitant's Beneficiary: The person or persons named by you, the Owner, who may receive the death benefits under the Contract if: (a) there is no named Contingent Annuitant and the Annuitant dies before the Annuity Date; or (b) the Annuitant dies after the Annuity Date under an Annuity Form containing a period certain option. Annuity Issue Date: The effective date of your Contract as shown on the Contract. 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. Contract Anniversary: The same month and day as the Annuity Issue Date in each calendar year after the calendar year in which the Annuity Issue Date occurs. - 52 - 52 Contract Year: A 12-month period from the Annuity Issue Date and ending with the day before the Contract Anniversary and each twelve month period thereafter. Owner's Beneficiary: The person who becomes the Owner of the Contract if the Owner dies. If the Contract has Joint Owners, the surviving Joint Owner will be the Owner's Beneficiary. Valuation Day: Any day the New York Stock Exchange is open for trading. Valuation occurs currently as of 4:00 p.m. ET each Valuation Day. Valuation Period: The time interval between the closing of the New York Stock Exchange on consecutive Valuation Days. Withdrawals: Refers to partial withdrawals, full surrenders, and withdrawals under the Automatic Payout Option that are paid in cash to you. 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). 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 of the end of the Valuation Period for tax reserves for realized and unrealized capital gains, if any. 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 - 53 - 53 The daily charge of 0.002319% (0.85% annually) for assuming the mortality and expense risks under this Contract times the number of calendar days in the current Valuation Period, plus The daily Administrative Expense Charge (currently zero) times the number of calendar days in the current Valuation Period. This charge will not exceed 0.000411% (0.15% annually). A Valuation Day is defined as any day that the New York Stock Exchange is open. Example of Variable Accumulation Unit Value Calculations Assume 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 was $20.10; the Valuation Period is one day; and no dividends or distributions caused the Portfolio shares 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 the Mortality and Expense Risk Charge 0.002319% (the daily equivalent of the current charge of 0.85% on an annual basis) gives a Net Investment Factor of 1.002464810. If the value of the Variable Accumulation Unit for the immediately preceding Valuation Period had been 15.50000, the value for the current Valuation Period would be 15.538204555 (15.5 X 1.002464810). GENERAL PROVISIONS IRS Required Distributions If you have a Non-Qualified Contract and any Owner dies before the entire interest in the Contract is distributed, the remaining value generally must be distributed to the designated Beneficiary so that the Contract qualifies as an annuity under the Code. (See "Federal Tax Matters," page 14.) 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 any measuring life has been misstated, 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 you and/or the other measuring life. Any overpayments or underpayments by Transamerica as a result of any such misstatement may be respectively charged against or credited to the Annuity Payment or Annuity Payments to be made after the correction so as to adjust for such overpayment or underpayment. Proof of Existence and Age - 54 - 54 Before making any payment under the Contract, Transamerica may require proof of the existence and/or proof of the age of you or any other measuring life, or any other information Transamerica deems necessary in order to provide benefits under the Contract. Transamerica will not be liable for obligations which depend on receiving information from or about a Payee or measuring life until such information is received in a satisfactory form. Assignment No assignment of a Contract will be binding on Transamerica unless made in writing and given to Transamerica at its Service Center. Transamerica is not responsible for the adequacy of any assignment. Your rights and the interest of any Annuitant or Beneficiary will be subject to the rights of any assignee of record. Annual Report At least once each Contract Year prior to the Annuity Date, you will be given a report of the current Account Value allocated to each Sub-Account. This report will also include any other information required by law or regulation. Incontestability Each Contract is incontestable from the Annuity Issue Date. Ownership Only you will be entitled to the rights granted by the Contract or allowed by Transamerica under the Contract. If you die, your rights belong to your estate unless you have previously named an Owner's Beneficiary. Entire Contract The individual annuity Contract, or the Certificate and the group annuity contract under which the certificate has been issued, makes the entire Contract. Changes in the Contract Only two authorized officers of Transamerica, acting together, have the authority to bind Transamerica or to make any change in the Contract and then only in writing. Transamerica will not be bound by any promise or representation made by any other persons. - 55 - 55 Transamerica may not change or amend the Contract, except as expressly provided in the Contract without your consent. However, Transamerica may change or amend the Contract if such change or amendment is necessary for the Contract to comply with any state or federal law, rule or regulation. Protection of Benefits To the extent permitted by law, no benefit under the Contract will be subject to any claim or process of law by any creditor. Delay of Payments Payment of any amounts due from the Variable Account generally will occur within seven days from the date an acceptable Written Request, including all completed forms Transamerica requires, is received at the Service Center, except that Transamerica is permitted to postpone such payment if: (1) the New York Stock Exchange is closed for reasons 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 your protection. Notices and Directions We will not be bound by any authorization, direction, election or notice which is not made in a manner and form acceptable to us and, if required to be in writing, not 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. - 56 - 56 CALCULATION OF PERFORMANCE DATA Money Market Sub-Account Yield Calculation In accordance with regulations adopted by the Securities and Exchange Commission, Transamerica is 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 Portfolio 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 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 Mortality and Expense Risk Charge and Annual Contract Charge 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 Transamerica 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. Other Sub-Account Yield Calculations Transamerica 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] - 57 - 57 cd Where: 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. 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. 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. Standard Total Return Calculations Transamerica 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 - 58 - 58 Where: 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). All recurring fees that are charged to all Contracts are recognized in the ending redeemable value. Other Performance Data Transamerica 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. CTR = {ERV/P}-1 Where: CTR = the cumulative total return net of Sub-Account recurring charges for the period. ERV = 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. Hypothetical Performance Data Transamerica may also disclose "hypothetical" 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 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 hypothetical performance data may be disclosed on both an average annual total return and a cumulative total return basis. HISTORIC PERFORMANCE DATA - 59 - 59 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. The performance data for the Portfolios was provided by or on behalf of the Portfolios. The Sub- Account performance data is derived from the data provided for the Portfolios. None of the Portfolios is affiliated with Transamerica. In preparing the tables below, Transamerica has relied on the data provided by the Portfolios. While Transamerica has no reason to doubt the accuracy of the figures provided for the Portfolios, Transamerica has not verified these figures. Sub-Account Performance Figures The charts below show the historical performance data for the Sub-Accounts since each Sub- Account's commencement of operations. The average annual total returns for each Sub-Account is as follows:
For the period from SUB-ACCOUNT For the 1-year commencement of (date of commencement of period ending Sub-Account operations operation of each Sub-Account is 4/25/94) 12/31/95 to 12/31/95 Federated American Leaders Fund II 22.08% 20.97% Federated Fund for U.S. Government Securities II 5.1% 5.57% INVESCO VIF-High Yield 13.20% 10.87% INVESCO VIF-Industrial Income 18.39% 16.63% INVESCO VIF-Total Return 15.09% 13.48% Janus Aspen Growth 19.03% 16.50% Lexington Emerging Markets -7.15% -0.47% Schwab Money Market 3.99% 3.82% SteinRoe Capital Appreciation 6.54% 11.88% Strong Discover Fund II 23.79% 19.32% TCI Growth 26.30% 17.16%
- 60 - 60
The cumulative total return for each Sub-Account is as follows: SUB-ACCOUNT For the period from (date of commencement of commencement of Sub-Account operation of each Sub-Account is 4/25/94) operations to 12/31/95 Federated American Leaders Fund II 37.82% Federated Fund for U.S. Government Securities II 9.56% INVESCO VIF-High Yield 18.98% INVESCO VIF-Industrial Income 29.60% INVESCO VIF-Total Return 23.75% Janus Aspen Growth 29.35% Lexington Emerging Markets -0.79% Schwab Money Market 6.52% SteinRoe Capital Appreciation 20.82% Strong Discovery Fund II 34.66% TCI Growth 30.58%
Money Market Sub-Account Yields The annualized yield for the Schwab Money Market Sub-Account for the seven-day period ending December 29, 1995 was 4.21%. The effective yield for the Schwab Money Market Sub- Account for the seven-day period ending December 29, 1995, was 4.30%. Hypothetical Sub-Account Performance Data Transamerica may also disclose "hypothetical" 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 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 hypothetical performance data may be disclosed on both an average annual total return and a cumulative total return basis. These figures are not an indication of the present, past, or future performance of the Sub- Accounts. The figures may reflect the waiver of advisory fees and reimbursement of other expenses. - 61 - 61
The hypothetical average annual total return for each Sub-Account is as follows: For the period from For the For the commencement 1-year 5-year of Portfolio SUB-ACCOUNT period period operations (date of commencement of ending ending to operation of Corresponding Portfolio) 12/31/95 12/31/95 12/31/95 SteinRoe Capital Appreciation(12/30/88 ) 11.76% 18.10% 15.18% Strong Discovery Fund II(5/4/92) 35.05% N/A 14.15% TCI Growth(11/20/87 ) 31.70% 14.18% 12.33%
The hypothetical cumulative total return for each Sub-Account is as follows: For the period For the For the from 1-year 5-year commencement SUB-ACCOUNT period period of Portfolio (date of commencement of operations ending ending operations to of Corresponding Portfolio 12/31/95 12/31/95 12/31/95 SteinRoe Capital Appreciation(12/30/88 ) 11.76% 129.73% 169.00% Strong Discovery Fund II(05/04/92) 35.05% N/A 62.30% TCI Growth(11/20/87) 31.70% 94.10% 144.50% TERMINATION OF DOLLAR COST AVERAGING We reserve the right to send written notification to you as to the options available if termination of Dollar Cost Averaging, either by you or by us, results in the value in the receiving Sub-Account(s) to which monthly transfers were made to be less than $1,000. You will have 10 days from the date our notice is mailed to: - 62 - 62 (a) transfer the value of the Sub-Account(s) to another Sub-Account with a current value; or (b) transfer funds from another Sub-Account (either $1,000 or the entire value of the Sub-Account) into the receiving Sub-Account(s) to bring the value of that Sub-Account to at least $1,000; or (c) submit an additional Purchase Payment (subject to the $1,000 minimum) to make the value of the Sub-Account equal to or greater than $1,000; or (d) transfer the entire value of the receiving Sub-Account(s) back into the Sub-Account from which the automatic transfers were made. If no written election is made by you and received by us at our Service Center prior to the end of the 10 day period, we reserve the right to transfer the value of the receiving Sub-Account(s) back into the Sub-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 ten free transfers per Contract Year limitation. FEDERAL TAX MATTERS The Contract is designed for use by individuals in retirement plans which may or may not be plans qualified for special tax treatment under sections 401 or 408 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 you, the Annuitant or the Beneficiary may depend on the type of retirement plan for which the Contract is purchased, on the tax and employment status of the individual concerned and on Transamerica's 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 Transamerica's understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service. No representation is made as to the likelihood of continuation of these present federal income tax laws or of the current interpretations by the Internal Revenue Service. Moreover, no attempt has been made to consider any applicable state or other tax laws. Taxation of Transamerica Transamerica is 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 Contract. Under existing federal income tax law, Transamerica believes 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 Contract. - 63 - 63 Accordingly, Transamerica does not anticipate that it will incur any federal income tax liability attributable to the Variable Account and, therefore, Transamerica does not intend to make provisions for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in Transamerica being taxed on income or gains attributable to the Variable Account, then Transamerica 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 Contracts Section 817(h) of the Code requires that with respect to Non-Qualified Contracts, the investments of the Portfolios be "adequately diversified" in accordance with Treasury regulations in order for the Contract to qualify as annuity contracts under federal tax law. The Variable Account, through the Portfolios, intends to comply with the diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how the Portfolios' 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 account used to support their contracts. In those circumstances, income and gains from the separate account assets would be includable in the variable annuity contract owner's gross income. Several years ago, the IRS 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. More recently, the Treasury Department announced, in connection with the issuance of regulations concerning investment diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the contract owner), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also states 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 of a Contract has the choice of more Sub-Accounts in which to allocate net purchase payments and Contract Values, may be able to transfer among Sub- Accounts more frequently, and the Sub-Accounts may have narrower investment strategies, than in such rulings. These differences could result in an Owner being treated as the owner of the assets of the Variable Account. In addition, Transamerica does 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. Transamerica therefore reserves 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. - 64 - 64 In order to be treated as an annuity contract for federal income tax purposes, section 72(s) of the Code 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 your 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 your death. Your "designated beneficiary" is a natural person designated by you as a Beneficiary and to whom ownership of the Contract passes by reason of death. However, if your "designated beneficiary" is your surviving spouse, 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 section 72(s) of the Code, although no regulations interpreting these requirements have yet been issued. Transamerica intends 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 CONTRACTS Charles Schwab & Co., Inc. ("Schwab"), located at P.O. Box 7785, San Francisco, California 94120- 9420, (800) 838-0650, is the principal underwriter and distributor of the Contracts. Schwab is registered with the Commission as a broker/dealer and is a member of the National Association of Securities Dealers, Inc. ("NASD"). The offering of the Contracts is expected to be continuous. No underwriting commissions have been paid to Schwab since commencement of sales of the Contracts. SAFEKEEPING OF 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's general account assets. Records are maintained of all purchases and redemptions of Portfolio shares held by each of the Sub-Accounts. - 65 - 65 TRANSAMERICA General Information and History Transamerica Occidental Life Insurance Company was formerly known as Occidental Life Insurance Company of California. The name change occurred approximately on 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 Transamerica is subject to the insurance laws and regulations of all the states where it is 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 Transamerica or by our Service Center. As presently required by 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 you semi-annually at your last known address of record. FINANCIAL STATEMENTS The consolidated financial statements of Transamerica should be considered only as bearing on the ability of Transamerica to meet its obligations under the Contracts. They should not be considered as bearing on the investment performance of the assets held in the Variable Account. This Statement of Additional Information contains the financial statements of the Variable Account as of December 31, 1995. Schwab Investment Advantage(TM) Variable Annuity issued by Transamerica Occidental Life Insurance Company, Policy form 1-504 11-194, Certificate number GNC-37-193. - 66 - 66 Audited Financial Statements Separate Account VA-5 of Transamerica Occidental Life Insurance Company December 31, 1995 - 2 - REPORT OF INDEPENDENT AUDITORS Unitholders of Separate Account VA-5 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-5 of Transamerica Occidental Life Insurance Company (comprised of the Federated Equity Growth and Income Fund, Federated U.S. Government Bond Fund, INVESCO VIF-Industrial Income Portfolio, INVESCO VIF-Total Return Portfolio, INVESCO VIF-High Yield Portfolio, Janus Aspen Growth Portfolio, Lexington Emerging Markets Fund, Schwab Money Market Portfolio, SteinRoe Capital Appreciation Fund, Strong Discovery Fund II, TCI Balanced Portfolio and TCI Growth Portfolio Sub-accounts) as of December 31, 1995, and the related statement of operations for the year then ended, and the statements of changes in net assets for the year then ended and the period from May 1, 1994 (commencement of operations) to December 31, 1994. These financial statements are the responsibility of Separate Account VA-5'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, 1995, 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-5 of Transamerica Occidental Life Insurance Company as of December 31, 1995, and the results of their operations for the year then ended, and the changes in their net assets for the year ended December 31, 1995 and the period from May 1, 1994 (commencement of operations) to December 31, 1994 in conformity with generally accepted accounting principles. April 15, 1996 SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995 Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-Account Sub-Account ASSETS: Investments, at fair value--Notes 1 and 2: Federated Investors Insurance Management Series: Equity Growth and Income-376,851.611 shares at $12.80 per share (cost $4,485,815) $ 4,823,701 U.S. Government Bond-281,325.744 shares at $10.29 per share (cost $2,825,272) $ 2,894,842 INVESCO Variable Investment Funds, Inc.: INVESCO VIF-Industrial Income-539,497.739 shares at $12.58 per share (cost $6,447,773) $ 6,786,882 INVESCO VIF-Total Return-433,299.505 shares at $12.14 per share (cost $4,976,762) $ 5,260,256 INVESCO VIF-High Yield-342,049.523 shares at $11.04 per share (cost $3,895,546) Janus Aspen Growth-537,958.164 shares at $13.45 per share (cost $6,623,037) Lexington Emerging Markets-343,710.179 shares at $9.38 per share (cost $3,287,611) Schwab Money Market-16,476,429.440 shares at $1.00 per share (cost $16,476,429) SteinRoe Capital Appreciation-162,626.529 shares at $16.33 per share (cost $2,484,932) Strong Discovery Fund II-529,381.897 shares at $13.44 per share (cost $6,609,998) TCI Portfolios, Inc.: TCI Balanced-46,001.447 shares at $7.04 per share (cost $292,208) TCI Growth-461,403.991 shares at $12.06 per share (cost $5,560,001) Receivable for unsettled investments 136,727 55,000 - 240,431 Dividends accrued - - - - Due from Transamerica Life - - - 356,121 ------------- ------------- ------------- ------------- TOTAL ASSETS $ 4,960,428 $ 2,949,842 $ 6,786,882 $ 5,856,808 LIABILITIES: Payable for unsettled investments - - 29,455 - Due to Transamerica Life 23,570 6,652 3,898 3,308 ------------- ------------- ------------- ------------- TOTAL LIABILITIES 23,570 6,652 33,353 3,308 ------------- ------------- ------------- ------------- NET ASSETS $ 4,936,858 $ 2,943,190 $ 6,753,529 $ 5,853,500 ============= ============= ============= ============= Accumulation units outstanding 369,810.694 268,795.355 523,887.849 475,508.048 ============= ============= ============= ============= Net asset value and redemption price per unit $ 13.349691 $ 10.949555 $ 12.891173 $ 12.309991 ============= ============= ============= =============
See notes to financial statements.
INVESCO VIF Janus Lexington Schwab SteinRoe Strong High Aspen Emerging Money Capital Discovery TCI TCI Yield Growth Markets Market Appreciation Fund II Balanced Growth Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account $ 3,776,227 $ 7,235,537 $ 3,224,001 $ 16,476,429 $ 2,655,691 $ 7,114,893 $ 323,850 $ 5,564,532 41,173 55,268 - - - 136,070 - 135,775 - - - 10,253 - - - - 49,249 487 1,196 - - 44,926 692 - - -------------- -------------- -------------- ---------------- ------------- ------------- -------------- ------------- 3,866,649 7,291,292 3,225,197 16,486,682 2,655,691 7,295,889 324,542 5,700,307 - - 45,408 746,284 2,612 - 24,334 - 2,192 4,006 1,804 12,134 3,018 3,929 189 3,070 - -------------- -------------- -------------- ---------------- ------------- ------------- -------------- ------------- 2,192 4,006 47,212 758,418 5,630 3,929 24,523 3,070 - -------------- -------------- -------------- ---------------- ------------- ------------- -------------- ------------- $ 3,864,457 $ 7,287,286 $ 3,177,985 $ 15,728,264 $ 2,650,061 $ 7,291,960 $ 300,019 $ 5,697,237 ============== ============== ============== ================ ============= ============= ============== ============= 325,562.577 567,398.939 333,248.590 14,778,494.692 234,375.748 501,172.961 25,564.912 452,055.571 ============= ============== ============= ================ ============= ============== ============== ============== $ 11.870090 $ 12.843319 $ 9.536380 $ 1.064267 $ 11.306890 $ 14.549788 $ 11.735577 $ 12.602957 ============= ============= ============= ================ ============= ============= ============== ==============
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS Year Ended December 31, 1995
Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-Account Sub-Account Investment income--Note 2 $ 45,545 $ 96,470 $ 102,520 $ 103,484 Expenses--Note 3: Mortality and expense risk charge 18,530 13,831 27,755 28,489 ------------- -------------- ------------- -------------- NET INVESTMENT INCOME (LOSS) 27,015 82,639 74,765 74,995 Net realized and unrealized gain (loss) on investments: Realized gain (loss) on investments 197,397 4,992 425,165 228,436 Unrealized appreciation (depreciation) on investments 342,002 70,217 334,977 285,112 ------------- -------------- ------------- -------------- NET GAIN (LOSS) ON INVESTMENTS 539,399 75,209 760,142 513,548 ------------- -------------- ------------- -------------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 566,414 $ 157,848 $ 834,907 $ 588,543 ============= ============== ============= ==============
See notes to financial statements.
INVESCO VIF Janus Lexington Schwab SteinRoe Strong High Aspen Emerging Money Capital Discovery TCI TCI Yield Growth Markets Market Appreciation Fund II Balanced Growth Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account $ 173,848 $ 147,090 $ 31,316 $ 576,808 $ 22,669 $ 92,941 $ 7,645 $ 395 19,520 32,334 19,321 100,679 13,886 32,589 2,404 19,754 - ------------- ------------- -------------- -------------- -------------- ------------- ------------- ------------- 154,328 114,756 11,995 476,129 8,783 60,352 5,241 (19,359) 338,745 208,076 (174,655) - (25,752)729 427,454 14,694 352,787 (120,441) 614,394 89,593 - 228,293 571,949 31,672 4,056 - -------------- ------------- -------------- -------------- ------------- ------------- -------------- ------------- 218,304 822,470 (85,062) - 202,541 999,403 46,366 356,843 - ------------- ------------- -------------- -------------- ------------- ------------- -------------- ------------- $ 372,632 $ 937,226 $ (73,067) $ 476,129 $ 211,324 $ 1,059,755 $ 51,607 $ 337,484 ============= ============= ============= ============= ============= ============= ============= =============
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, 1995
Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-Account Sub-Account Increase in net assets: Operations: Net investment income (loss) $ 27,015 $ 82,639 $ 74,765 $ 74,995 Realized gain (loss) on investment transactions 197,397 4,992 425,165 228,436 Unrealized appreciation (depreciation) of investments 342,002 70,217 334,977 285,112 ------------- -------------- ------------- -------------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 566,414 157,848 834,907 588,543 Change from accumulation unit transactions--Note 5 3,830,020 2,312,317 5,419,280 4,253,491 ------------- -------------- ------------- -------------- TOTAL INCREASE IN NET ASSETS 4,396,434 2,470,165 6,254,187 4,842,034 Net assets at beginning of period 540,425 473,025 499,342 1,011,466 ------------- -------------- ------------- -------------- NET ASSETS AT END OF PERIOD $ 4,936,859 $ 2,943,190 $ 6,753,529 $ 5,853,500 ============= ============== ============= ============== See notes to financial statements.
INVESCO VIF Janus Lexington Schwab SteinRoe Strong High Aspen Emerging Money Capital Discovery TCI TCI Yield Growth Markets Market Appreciation Fund II Balanced Growth Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account $ 154,328 $ 114,756 $ 11,995 $ 476,129 $ 8,783 $ 60,352 $ 5,241 $ (19,359) 338,745 208,076 (174,655) - (25,752) 427,454 14,694 352,787 (120,441) 614,394 89,593 - 228,293 571,949 31,672 4,056 - ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- 372,632 937,226 (73,067) 476,129 211,324 1,059,755 51,607 337,484 2,883,681 5,563,251 2,019,120 7,933,102 1,565,145 4,770,444 163,151 4,951,299 - ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- 3,256,313 6,500,477 1,946,053 8,409,231 1,776,469 5,830,199 214,758 5,288,783 608,144 786,809 1,231,932 7,319,033 873,592 1,461,761 85,261 408,454 - ------------- ------------- -------------- -------------- -------------- ------------- ------------- ------------- $ 3,864,457 $ 7,287,286 $ 3,177,985 $ 15,728,264 $ 2,650,061 $ 7,291,960 $ 300,019 $ 5,697,237 ============= ============= ============== ============== ============== ============= ============= =============
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS Period from May 1, 1994 (commencement of operations) to December 31, 1994
Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-Account Sub-Account Increase in net assets: Operations: Net investment income (loss) $ (184) $ 1,541 $ 858 $ 6,653 Realized gain (loss) on investment transactions (142) 63 235 419 Unrealized appreciation (depreciation) of investments (4,116) (647) 4,132 (1,618) ------------- -------------- ------------- -------------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,442) 957 5,225 5,454 Change from accumulation unit transactions--Note 5 544,867 472,068 494,117 1,006,012 ------------- -------------- ------------- -------------- TOTAL INCREASE IN NET ASSETS 540,425 473,025 499,342 1,011,466 Net assets at beginning of year - - - - ------------- -------------- ------------- -------------- NET ASSETS AT END OF YEAR $ 540,425 $ 473,025 $ 499,342 $ 1,011,466 ============= ============== ============= ==============
See notes to financial statements.
INVESCO VIF Janus Lexington Schwab SteinRoe Strong High Aspen Emerging Money Capital Discovery TCI TCI Yield Growth Markets Market Appreciation Fund II Balanced Growth Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account $ 2,174 $ 808 $ 23,620 $ 62,907 $ 101,856 $ 66,126 $ 335 $ (640) (58) (1,223) (6,830) 95,326 (31,112) 605 118 (57) 1,122 (1,894) (153,203) - (57,533) (67,054) (30) 475 - ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- 3,238 (2,309) (136,413) 158,233 13,211 (323) 423 (222) 604,906 789,118 1,368,345 7,160,800 860,381 1,462,084 84,838 408,676 - ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- 608,144 786,809 1,231,932 7,319,033 873,592 1,461,761 85,261 408,454 - - - - - - - - - ------------- ------------- -------------- -------------- -------------- ------------- ------------- ------------- $ 608,144 $ 786,809 $ 1,231,932 $ 7,319,033 $ 873,592 $ 1,461,761 $ 85,261 $ 408,454 ============= ============= ============== ============== ============== ============= ============= =============
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1995 NOTE 1--ORGANIZATION Separate Account VA-5 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 September 28, 1993. 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 May 1, 1994. 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 twelve sub-accounts, each of which invests exclusively in a specific corresponding mutual fund portfolio. The mutual fund portfolios are: Federated Equity Growth and Income Fund, Federated U.S. Government Bond Fund, INVESCO VIF-Industrial Income Portfolio, INVESCO VIF-Total Return Portfolio, INVESCO VIF-High Yield Portfolio, James Aspen Growth Portfolio, Lexington Emerging Markets Fund, Schwab Money Market Portfolio, SteinRoe Capital Appreciation Fund, Strong Discovery Fund II, TCI Balanced Portfolio, and TCI Growth Portfolio Sub-accounts (together "the Funds"). The Funds are open-end, diversified investment companies registered under the Investment Company Act of 1940. NOTE 2--SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the Separate Account have been prepared on the basis of generally accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. The accounting principles followed and the methods of applying those principles are presented below: Investment Valuation--Investments in the Funds' shares are carried at fair (net asset) value. Realized investment gains or losses on investments are determined on a specific identification basis which approximates average cost. Investment transactions are accounted for on the date the order to buy or sell is executed (trade date). Investments have a cost basis for federal income tax purposes of $63,965,384. 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. No income taxes are payable by the Separate Account. SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--Continued December 31, 1995 NOTE 3--EXPENSES AND CHARGES Mortality and expense risk charges are deducted by Transamerica Life from each sub-account of the Separate Account on a daily basis which is equal, on an annual basis, to 0.85% of the daily net asset value of the sub-account. This amount can never increase and is paid to Transamerica Life. No administrative expense charge is currently deducted from each sub-account but Transamerica Life may deduct such a charge not to exceed a maximum effective annual rate of .15% of the daily net asset value of the sub-account. The following charges are deducted from a contract holder's account by Transamerica Life and not directly from the Separate Account. An annual contract charge of $25 (or 2% of the account value, if less) is deducted at the end of each contract year. Additionally, there is a $10 (or 2% of the transfer amount, if less) fee for each transfer in excess of 10 in any contract year. NOTE 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. SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--Continued December 31, 1995
NOTE 5--ACCUMULATION UNITS Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-account Sub-account Year Ended December 31, 1995 Accumulation Units: Units sold 33,989.997 18,385.047 25,300.404 10,131.169 Units redeemed (7,402.837) (3,990.595) (11,461.323) (3,408.666) Units transferred 289,308.615 207,629.950 460,403.374 368,738.178 ----------- ----------- ----------- ------------------ NET INCREASE 315,895.775 222,024.402 474,242.455 375,460.681 =========== =========== =========== ================== INVESCO VIF Janus Lexington Schwab High Aspen Emerging Money Yield Growth Markets Market Sub-account Sub-account Sub-account Sub-account Accumulation Units: Units sold 16,499.508 37,162.182 38,855.069 44,992,172.273 Units redeemed (91,623.325) (10,004.042) (11,008.681) (2,245,515.422) Units transferred 339,845.043 461,165.599 182,344.438 (35,151,114.049) ----------- ----------- ----------- ------------------- NET INCREASE 264,721.226 488,323.739 210,190.826 7,595,542.802 =========== =========== =========== =================== SteinRoe Strong Capital Discovery TCI TCI Appreciation Fund II Balanced Growth Sub-account Sub-account Sub-account Sub-account Accumulation Units: Units sold 19,939.843 32,820.394 937.287 29,225.415 Units redeemed (3,348.806) (13,397.004) (4,566.424) (1,154.368) Units transferred 132,168.990 347,006.024 20,469.805 381,853.801 ----------- ----------- -------------- ------------------- NET INCREASE 148,760.027 366,429.414 16,840.668 409,924.848 =========== =========== ============== ===================
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--Continued December 31, 1995
NOTE 5--ACCUMULATION UNITS (continued) Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-account Sub-account Year Ended December 31, 1995 Amounts: Sales $ 408,171 $ 203,744 $ 312,007 $ 175,846 Redemptions (90,061) (41,338) (143,063) (40,073) Transfers 3,511,910 2,149,911 5,250,336 4,117,718 ---------------- --------------- --------------- ------------------- NET INCREASE $ 3,830,020 $ 2,312,317 $ 5,419,280 $ 4,253,491 ================ ================ =============== =================== INVESCO VIF Janus Lexington Schwab High Aspen Emerging Money Yield Growth Markets Market Sub-account Sub-account Sub-account Sub-account Amounts: Sales $ 189,780 $ 446,328 $ 374,225 $ 46,958,378 Redemptions (1,040,853) (121,013) (102,596) (2,574,506) Transfers 3,734,754 5,237,936 1,747,491 (36,450,770) ---------------- --------------- ---------------- ------------------- NET INCREASE $ 2,883,681 $ 5,563,251 $ 2,019,120 $ 7,933,102 ================ ================ ================ =================== SteinRoe Strong Capital Discovery TCI TCI Appreciation Fund II Balanced Growth Sub-account Sub-account Sub-account Sub-account Amounts: Sales $ 204,205 $ 449,177 $ 11,488 $ 374,646 Redemptions (35,770) (186,085) (53,666) (14,670) Transfers 4,507,352 205,329 4,591,323 ------------------ --------------- ---------------- ------------------- 1,396,710 NET INCREASE $ 1,565,145 $ 4,770,444 $ 163,151 $ 4,951,299 ================ =============== ================ ===================
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--Continued December 31, 1995
NOTE 5--ACCUMULATION UNITS Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-account Sub-account Period Ended December 31, 1994 Accumulation Units: Units sold 1,090.515 3,063.597 2,802.131 579.992 Units redeemed (309.845) (312.928) - (627.201) Units transferred 53,134.249 44,020.284 46,843.263 100,094.576 --------------- ---------------- --------------- ----------------- .. NET INCREASE 53,914.919 46,770.953 49,645.394 100,047.367 =============== ================ =============== ================= INVESCO VIF Janus Lexington Schwab High Aspen Emerging Money Yield Growth Markets Market Sub-account Sub-account Sub-account Sub-account Accumulation Units: Units sold 1,535.672 3,132.662 3,158.884 15,008,329.434 Units redeemed - (158.427) (281.236) (61,840.317) Units transferred 59,305.679 76,100.965 120,180.116 (7,763,537.227) --------------- --------------- ---------------- ------------------ .. NET INCREASE 60,841.351 79,075.200 123,057.764 7,182,951.890 =============== =============== ================ ================== SteinRoe Strong Capital Discovery TCI TCI Appreciation Fund II Balanced Growth Sub-account Sub-account Sub-account Sub-account Accumulation Units: Units sold 3,270.104 2,029.572 1,376.260 1,462.027 Units redeemed - - - - Units transferred 82,345.617 132,713.975 7,347.984 40,668.696 --------------- ---------------- ---------------- ------------------ NET INCREASE 85,615.721 134,743.547 8,724.244 42,130.723 =============== ================ ================ ==================
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--Continued December 31, 1995
NOTE 5--ACCUMULATION UNITS (continued) Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-account Sub-account Period Ended December 31, 1994 Amounts: Sales $ 8,979 $ 31,161 $ 28,046 $ 5,927 Redemptions (3,225) (3,161) - (6,309) Transfers 539,113 444,068 466,071 1,006,394 ---------------- ---------------- ---------------- ------------------- NET INCREASE $ 544,867 $ 472,068 $ 494,117 $ 1,006,012 ================ ================ ================ =================== INVESCO VIF Janus Lexington Schwab High Aspen Emerging Money Yield Growth Markets Market Sub-account Sub-account Sub-account Sub-account Amounts: Sales $ 15,294 $ 31,557 $ 31,939 $ 15,096,940 Redemptions - (1,602) (3,159) (62,556) Transfers 589,612 759,163 1,339,565 (7,873,584) ---------------- ---------------- ---------------- ------------------- NET INCREASE $ 604,906 $ 789,118 $ 1,368,345 $ 7,160,800 ================ ================ ================ =================== SteinRoe Strong Capital Discovery TCI TCI Appreciation Fund II Balanced Growth Sub-account Sub-account Sub-account Sub-account Amounts: Sales $ 35,953 $ 7,271 $ 13,266 $ 14,042 Redemptions - 15,849 - - Transfers 824,428 1,438,964 71,572 394,634 ---------------- ---------------- ---------------- ------------------- NET INCREASE $ 860,381 $ 1,462,084 $ 84,838 $ 408,676 ================ ================ ================ ===================
SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--Continued December 31, 1995 NOTE 6--INVESTMENT TRANSACTIONS The aggregate cost of purchases and the aggregate proceeds from the sales of investments for the year ended December 31, 1995 were as follows:
Federated Federated INVESCO INVESCO Equity U.S. VIF VIF Growth and Government Industrial Total Income Bond Income Return Sub-account Sub-account Sub-account Sub-account Aggregate purchases $ 5,249,466 $ 3,174,091 $ 7,460,216 $ 6,562,104 ================= ================= ================= ================== Aggregate proceeds from sales $ 1,508,385 $ 827,700 $ 1,795,488 $ 2,824,838 ================= ================= ================= ================== INVESCO VIF Janus Lexington Schwab High Aspen Emerging Money Yield Growth Markets Market Sub-account Sub-account Sub-account Sub-account Aggregate purchases $ 6,086,090 $ 7,641,899 $ 3,493,613 $ 64,714,418 ================= ================= ================= ================== Aggregate proceeds from sales $ 3,011,871 $ 2,015,452 $ 1,417,157 $ 55,565,772 ================= ================= ================= ================== SteinRoe Strong Capital Discovery TCI TCI Appreciation Fund II Balanced Growth Sub-account Sub-account Sub-account Sub-account Aggregate purchases $ 4,178,854 $ 7,918,365 $ 346,768 $ 8,013,522 ================= ================= ================= ================== Aggregate proceeds from sales $ 2,599,402 $ 3,279,296 $ 154,734 $ 3,214,456 ================= ================= ================= ==================
Audited Consolidated Financial Statements Transamerica Occidental Life Insurance Company and Subsidiaries December 31, 1995 TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES Audited Consolidated Financial Statements December 31, 1995 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 REPORT OF INDEPENDENT AUDITORS Board of Directors Transamerica Occidental Life Insurance Company We have audited the accompanying consolidated balance sheet of Transamerica Occidental Life Insurance Company and Subsidiaries as of December 31, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note A, the Company changed its method of accounting for certain debt securities effective January 1, 1994. ERNST & YOUNG LLP February 14, 1996
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31 1995 1994 --------------------- ------------- (In thousands, except for share data) ASSETS Investments: Fixed maturities available for sale $ 25,997,403 $ 21,006,469 Equity securities available for sale 307,881 201,011 Mortgage loans on real estate 565,086 366,727 Investment real estate 38,376 69,246 Policy loans 426,377 412,938 Other long-term investments 62,536 50,079 Short-term investments 211,500 144,163 --------------------- --------------------- 27,609,159 22,250,633 Cash 49,938 42,916 Accrued investment income 394,008 363,121 Accounts receivable 174,266 202,456 Reinsurance recoverable on paid and unpaid losses 1,957,160 1,490,491 Deferred policy acquisitions costs 1,974,211 2,480,474 Deferred tax assets - 164,513 Other assets 257,333 241,733 Separate account assets 2,533,424 1,666,451 --------------------- --------------------- $ 34,949,499 $ 28,902,788 ===================== ===================== LIABILITIES AND SHAREHOLDER'S EQUITY Policy liabilities: Policyholder contract deposits $ 22,057,773 $ 19,281,515 Reserves for future policy benefits 5,245,233 4,846,072 Policy claims and other 542,511 555,289 --------------------- --------------------- 27,845,517 24,682,876 Income tax liabilities 587,801 67,870 Accounts payable and other liabilities 534,866 567,300 Separate account liabilities 2,533,424 1,666,451 --------------------- --------------------- 31,501,608 26,984,497 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 333,578 319,279 Retained earnings 2,171,412 1,921,232 Foreign currency translation adjustments (23,618) (28,347) Net unrealized investment gains (losses) 938,932 (321,460) --------------------- --------------------- 3,447,891 1,918,291 --------------------- --------------------- $ 34,949,499 $ 28,902,788 ===================== =====================
See notes to consolidated financial statements.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME Year Ended December 31 1995 1994 1993 --------------- --------------- ---------- (In thousands) Revenues: Premiums and other considerations $ 1,811,888 $ 1,430,019 $ 1,212,680 Net investment income 1,972,759 1,771,575 1,724,301 Other operating revenue - 13,273 - Net realized investment gains 28,112 20,730 44,887 --------------- --------------- --------------- TOTAL REVENUES 3,812,759 3,235,597 2,981,868 Benefits: Benefits paid or provided 2,587,468 2,116,125 1,993,013 Increase in policy reserves and liabilities 236,205 204,159 121,325 --------------- --------------- --------------- 2,823,673 2,320,284 2,114,338 Expenses: Amortization of deferred policy acquisition costs 182,123 176,033 169,457 Salaries and salary related expenses 145,681 133,591 127,130 Other expenses 200,339 190,500 182,193 --------------- --------------- --------------- 528,143 500,124 478,780 --------------- --------------- --------------- TOTAL BENEFITS AND EXPENSES 3,351,816 2,820,408 2,593,118 --------------- --------------- --------------- INCOME BEFORE INCOME TAXES 460,943 415,189 388,750 Provision for income taxes 149,647 143,491 138,997 --------------- --------------- --------------- NET INCOME $ 311,296 $ 271,698 $ 249,753 =============== =============== ===============
See notes to consolidated financial statements.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY Net Foreign Unrealized Additional Currency Investment Common Stock Paid-in Retained Translation Gains Shares Amount Capital Earnings Adjustments (Losses) (In thousands, except for share data) Balance at January 1, 1993 2,206,933 $ 27,587 $ 229,900 $ 1,495,781 $ (17,314) $ 74,643 Net income 249,753 Capital contributions from parent 89,379 Dividends declared (56,000) Change in foreign currency translation adjustments (3,740) Change in net unrealized investment gains (losses) (11,061) Balance at December 31, 1993 2,206,933 27,587 319,279 1,689,534 (21,054) 63,582 Cumulative effect of change in accounting for investments 795,187 Net income 271,698 Dividends declared (40,000) Change in foreign currency translation adjustments (7,293) Change in net unrealized investment gains (losses) (1,180,229) Balance at December 31, 1994 2,206,933 27,587 319,279 1,921,232 (28,347) (321,460) Net income 311,296 Capital contributions from parent 14,298 Dividends declared (61,114) Change in foreign currency translation adjustments 4,728 Change in net unrealized investment gains (losses) 1,260,392 Balance at December 31, 1995 2,206,933 $ 27,587 $ 333,577 $ 2,171,414 $ (23,619) $ 938,932 ============ ========== ============= ============ ============ =============
See notes to consolidated financial statements.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31 1995 1994 1993 ----------------- ------------------ ---------- (In thousands) OPERATING ACTIVITIES Net income $ 311,296 $ 271,698 $ 249,753 Adjustments to reconcile net income to net cash provided by operating activities: Changes in: Reinsurance recoverable (466,669) (290,926) (175,952) Accounts receivable (58,866) (31,934) (183,598) Policy liabilities 1,273,723 804,296 921,067 Other assets, accounts payable and other liabilities, and income taxes (252,362) 133,499 135,658 Policy acquisition costs deferred (381,806) (394,858) (359,146) Amortization of deferred policy acquisition costs 191,313 182,312 232,309 Net realized gains on investment transactions (37,247) (27,008) (107,769) Other (22,917) (124,644) (107,831) ----------------- ----------------- ----------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 556,465 522,435 604,491 INVESTMENT ACTIVITIES Purchases of securities (5,667,539) (9,354,375) (11,878,171) Purchases of other investments (330,503) (143,771) (157,368) Sales of securities 3,587,367 4,607,572 5,054,460 Sales of other investments 155,084 143,815 177,064 Maturities of securities 341,485 2,251,763 4,433,933 Net change in short-term investments (67,337) 38,597 (57,625) Other (35,384) (25,354) (25,655) ----------------- ----------------- ----------------- NET CASH USED BY INVESTING ACTIVITIES (2,016,827) (2,481,753) (2,453,362) FINANCING ACTIVITIES Additions to policyholder contract deposits 5,151,428 4,434,726 4,166,316 Withdrawals from policyholder contract deposits (3,624,044) (2,419,915) (2,313,176) Capital contributions from parent or its affiliate - - 31,300 Dividends paid to parent (60,000) (40,000) (56,000) ----------------- ----------------- ----------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,467,384 1,974,811 1,828,440 ----------------- ----------------- ----------------- INCREASE (DECREASE) IN CASH 7,022 15,493 (20,431) Cash at beginning of year 42,916 27,423 47,854 ----------------- ----------------- ----------------- CASH AT END OF YEAR $ 49,938 $ 42,916 $ 27,423 ================= ================= =================
See notes to consolidated financial statements. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 NOTE A--SIGNIFICANT ACCOUNTING POLICIES Business: Transamerica Occidental Life Insurance Company ("TOLIC") and its subsidiaries (collectively, the "Company"), engages in providing life insurance, pension and annuity products, reinsurance, structured settlements and investments which are distributed through a network of independent and company-affiliated agents and independent brokers. The Company's customers are primarily in the United States and Canada. Basis of Presentation: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles which differ from statutory accounting practices prescribed or permitted by regulatory authorities. Use of Estimates: Certain amounts reported in the accompanying combined financial statements are based on the management's best estimates and judgment. Actual results could differ from those estimates. New Accounting Standards: In March 1995, the Financial Accounting Standards Board issued a new standard on accounting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company will adopt the standard in 1996. The standard required that an impaired long-lived asset be measured based on the fair value of the asset to be held and used or the fair value less cost to sell of the asset to be disposed of. When adopted, this standard is not expected to have a material effect on the consolidated financial position or results of operations of the Company. In 1995, the Company adopted the Financial Accounting Standards Board's new standard on accounting for impairment of loans, which requires that an impaired loan be measured based on the present value of expected cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. There was no material effect on the consolidated financial position or results of operations of the Company. In 1994, the Company adopted the Financial Accounting Standards Board's new standard on accounting for certain investments in debt and equity securities which requires the Company to report at fair value, with unrealized gains and losses excluded from earnings and reported on an after tax basis as a separate component of shareholder's equity, its investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity. Additionally, such unrealized gains and losses are considered in evaluating deferred policy acquisition costs, with any resultant adjustment also excluded from earnings and reported on an after tax basis in shareholder's equity. As of January 1, 1994, the impact of adopting the standard was to increase shareholder's equity by $795.2 million (net of deferred policy acquisition cost adjustment of $367.2 million and deferred taxes of $428.2 million) with no effect on net income. Principles of Consolidation: The financial statements 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. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 1995 -8- NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments: Investments are shown on the following bases: Fixed maturities--All debt securities, including redeemable preferred stocks, are classified as available for sale and carried at fair value effective as of January 1, 1994. 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 M - 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. Investment real estate--at cost, less allowances for depreciation and 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 investment 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 deferred income taxes as a separate component of shareholder's equity and, accordingly, have no effect on net income. 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 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 NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued) gains or losses on an after tax basis as a separate component of shareholder's equity and, accordingly, have no effect on net income. Separate Accounts: The Company administers segregated asset accounts for certain holders of universal life policies, variable annuity contracts, and other pension deposit contracts. The assets held in these Separate Accounts are invested primarily in fixed maturities, equity securities, other marketable securities, and short-term investments. The Separate Account assets are stated at fair value and are not subject to liabilities arising out of any other business the Company may conduct. Investment risks associated with fair value changes are borne by the contract holders. Accordingly, investment income and realized gains and losses attributable to Separate Accounts are not reported in the Company's results of operations. Policyholder Contract Deposits: Non-traditional life insurance products include universal life and other interest-sensitive life insurance policies. Investment-type products include single and flexible premium deferred annuities, single premium immediate annuities, guaranteed investment contracts, and other group pension deposit contracts that do not have mortality or morbidity risk. Policyholder contract deposits on universal life and investment 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 10% in 1995 and 1994, and from 3.0% to 10.5% in 1993. 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 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 4.3% in earlier years to 9.5% on later issues. 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 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 1995, 1994, or 1993. 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. NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. In 1993, the Company adopted this method of accounting for its single premium immediate annuity contracts issued under structured settlement arrangements based on a determination that such contracts do not involve significant mortality risk. Accordingly, amounts received by the Company as payments under these contracts are no longer included in revenues but are reported as policyholder contract deposits. 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. Premiums ceded and recoverable losses have been reported as a reduction of premium income and benefits, respectively. The ceded amounts related to policy liabilities have been reported as an asset. Income Taxes: TOLIC and its domestic subsidiaries are included in the consolidated federal income tax returns filed by Transamerica Corporation, which by the terms of a tax sharing agreement generally requires TOLIC to accrue and settle income tax obligations in amounts that would result from filing 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 for independent pricing services. Fair values for derivative instruments, including off-balance-sheet instruments, are estimated using values obtained for 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. NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 maturities 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. Reclassifications: Certain reclassifications of 1994 and 1993 amounts have been made to conform with the 1995 - ----------------- presentation. NOTE B--INVESTMENTS
The cost and fair value of fixed maturities available for sale are as follows (in thousands): Gross Gross Carrying Unrealized Unrealized Fair Value Gain Loss Value ---------------- --------------- --------------- ----------- December 31, 1995 - ----------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 92,958 $ 6,840 $ 99,798 Obligations of states and political subdivisions 229,028 7,832 $ 572 236,288 Foreign governments 109,632 9,068 118,700 Corporate securities 11,945,631 1,126,903 30,58 13,041,953 Public utilities 4,338,637 390,237 2,909 4,725,965 Mortgage-backed securities 7,277,976 487,190 15,092 7,750,074 Redeemable preferred stocks 21,372 3,757 504 24,625 ------ ----- --- ------ $ 24,015,234 $ 2,031,827 $ 49,658 $ 25,997,403 ================ ================ ================ ================ December 31, 1994 U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 218,404 $ 535 $ 19,885 $ 199,054 Obligations of states and political subdivisions 220,127 3,586 8,123 215,590 Foreign governments 210,789 1,551 6,367 205,973 Corporate securities 9,517,763 133,191 396,488 9,254,466 Public utilities 3,948,366 48,455 234,885 3,761,936 Mortgage-backed securities 7,791,957 105,175 530,362 7,366,770 Redeemable preferred stocks 3,140 - 460 2,680 ----- - --- ----- $ 21,910,546 $ 292,493 $ 1,196,570 $ 21,006,469 ================ ================ ================ ================
NOTE B--INVESTMENTS (Continued)
The cost and fair value of fixed maturities available for sale at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands): Fair Cost Value Maturity Due in 1996 $ 590,327 $ 603,732 Due in 1997-2000 3,016,991 3,150,785 Due in 2001-2005 3,714,128 3,962,712 Due after 2005 9,394,440 10,505,474 ------------ --------------- 16,715,886 18,222,703 Mortgage-backed securities 7,277,976 7,750,075 Redeemable preferred stock 21,372 24,625 ---------------- ---------------- $ 24,015,234 $ 25,997,403 ================ =============== The cost and fair value of equity securities available for sale are as follows (in thousands): 1995 1994 --------------- ----------- Cost $ 150,968 $ 142,831 26,316 26,m Gross unrealized gain 163,264 69,693 Gross unrealized loss (6,351) (11,513) --------------- --------------- Fair values $ 307,881 $ 201,011 =============== =============== The components of the carrying value of investment real estate are as follows (in thousands): 1995 1994 Cost $ 48,913 $ 89,992 26,316 26,m Allowance for depreciation (10,537) (20,746) --------------- --------------- $ 38,376 $ 69,246 =============== ===============
NOTE B--INVESTMENTS (Continued) As of December 31, 1995, the Company did not hold a total investment in any one issuer, other than the United States Government or a Unites States Government agency or authority, which exceeded 10% of total shareholder's equity. The carrying value of those assets that were on deposit with public officials in compliance with regulatory requirements were $22.0 million at December 31, 1995.
Net investment income by major investment category is summarized as follows (in thousands): 1995 1994 1993 Fixed maturities $ 1,904,519 $ 1,705,618 $ 1,657,178 Equity securities 3,418 5,587 7,624 Mortgage loans on real estate 40,702 40,030 44,230 Investment real estate 3,209 5,024 4,232 Policy loans 25,641 24,614 23,219 Other long-term investments 2,353 7,173 7,973 Short-term investment 13,286 9,689 5,584 ---------------- ---------------- ---------------- 1,993,128 1,797,735 1,750,040 Investment expenses (20,369) (26,160) (25,739) ---------------- ---------------- ---------------- $ 1,972,759 $ 1,771,575 $ 1,724,301 ================ ================ ================ Significant components of net realized investment gains are as follows (in thousands): 1995 1994 1993 ---------------- ---------------- ---------- Net gains on disposition of investments in: Fixed maturities $ 52,889 $ 7,181 $ 149,145 Equity securities 5,637 32,374 12,491 Other 2,327 2,546 1,607 ---------------- ---------------- ---------------- 60,853 42,101 163,243 Provision for impairment (23,551) (15,092) (55,504) Accelerated amortization of DPAC (9,190) (6,279) (62,852) ---------------- ---------------- ---------------- $ 28,112 $ 20,730 $ 44,887 ================ ================ ================ The components of net gains on disposition of investment in fixed maturities are as follows (in thousands): 1995 1994 1993 Gross gains $ 61,504 $ 46,702 $ 151,232106,649 Gross losses (8,615) (39,521) (2,087) ---------------- ---------------- ---------------- $ 52,889 $ 7,181 $ 149,145 ================ ================ ================
NOTE B--INVESTMENTS (Continued)
The costs of certain investments have been reduced by the following allowances for impairment in value (in thousands): December 31 1995 1994 ---------------- ----------- Fixed maturities $ 71,429 $ 92,145 Equity securities - 395 Mortgage loans on real estate 21,516 23,479 Investment real estate 16,207 14,656 Other long-term investments 11,025 11,125 ---------------- --------------- $ 120,177 $ 141,800 ================ ===============
The components of changes in net unrealized investment gains (losses) in the accompanying consolidated statement of shareholder's equity are as follows (in thousands): 1995 1994 1993 ---------------- ---------------- ---------- Changes in unrealized gains (losses): Fixed maturities $ 2,886,246 $ (2,494,478) $ 10 Equity securities 98,733 (39,756) (15,287) ---------------- ---------------- ---------------- 2,984,979 (2,534,234) (15,277) Change in related DPAC adjustments (706,915) 718,498 - Change in policy liability adjustments (339,000) - - Related deferred taxes (678,672) 635,507 4,216 ---------------- ---------------- ---------------- $ 1,260,392 $ (1,180,229) $ (11,061) ================ ================ ================
Proceeds from disposition of investment in fixed maturities available for sale were $3,802.6 million in 1995, $6,737.7 million in 1994 and $9,187.1 million in 1993. NOTE C--DEFERRED POLICY ACQUISITION COSTS (DPAC) Significant components of changes in DPAC are as follows (in thousands): 1995 1994 1993 ----------------- ---------------- ----------- Balance at beginning of year $ 2,480,474 $ 1,929,332 $ 1,811,992 Cumulative effect of change in accounting for investments - (367,154) - Amounts deferred: Commissions 298,698 305,858 288,195 Other 83,108 89,000 70,951 Amortization attributed to: Net gain on disposition of investments (9,190) (6,279) (62,852) Operating income (182,123) (176,033) (169,457) Fair value adjustment (706,915) 718,498 - Foreign currency translation adjustment 10,159 (12,748) (9,497) ---------------- ---------------- ---------------- Balance at end of year $ 1,974,211 $ 2,480,474 $ 1,929,332 ================ ================ ================
NOTE D--POLICY LIABILITIES
Components of policyholder contract deposits are as follows (in thousands): December 31 1995 1994 ---------------- ----------- Liabilities for investment-type products $ 17,948,652 $ 15,862,970 Liabilities for non-traditional life insurance products 4,109,121 3,418,545 ------------ ------------- $ 22,057,773 $ 19,281,515 =============== ================
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 $339 million as of December 31, 1995. NOTE E--INCOME TAXES
Components of income tax liabilities are as follows (in thousands): December 31 1995 1994 ---------------- ----------- Current tax liabilities $ 35,689 $ 67,870 Deferred tax liabilities 552,112 - ---------------- --------------- $ 587,801 $ 67,870 ================ ===============
Significant components of deferred tax liabilities (assets) are as follows (in thousands): December 31 1995 1994 ---------------- ----------- Deferred policy acquisition costs $ 696,728 $ 650,207 Unrealized investment gains (losses) 505,579 (173,094) Life insurance policy liabilities (601,875) (586,025) Provision for impairment of investments (42,062) (49,630) Other-net (6,258) (5,971) ---------------- --------------- $ 552,112 $ (164,513) ================ ===============
TOLIC offsets all deferred tax assets and liabilities and presents them in a single amount in the consolidated balance sheet.
Components of provisions for income taxes are as follows (in thousands): 1995 1994 1993 ---------------- ---------------- ----------- Current tax expense: $ 115,614 $ 204,087 $ 162,408 Deferred tax expense (benefit) 34,033 (60,596) (26,947)997 Adjustment for enacted change in tax laws - - 3,536 ---------------- ---------------- ---------------- $ 149,647 $ 143,491 $ 138,997 ================ ================ ================
NOTE E--INCOME TAXES (Continued)
The differences between federal income taxes computed at the statutory rate and the provision for income taxes as reported are as follows (in thousands): 1995 1994 1993 ---------------- ---------------- ---------- Income before income taxes: Income from U.S. operations $ 425,946 $ 389,778 $ 367,560 Income from foreign operations 34,997 25,411 21,190 --------------- --------------- --------------- 460,943 415,189 388,750 Tax rate 35% 35% 35% --------------- --------------- --------------- Federal income taxes at statutory rate 161,330 145,316 136,063 Income not subject to tax (685) (910) (535) Low income housing credits (3,137) (902) - Adjustment for enacted change in tax laws - - 3,536 Other, net (7,861) (13) (67) --------------- --------------- --------------- $ 149,647 $ 143,491 $ 138,997 =============== =============== ===============
Low income housing credits are recognized over the productive life of acquired assets. In 1995, the Company recognized a $4.4 million tax benefit related to the favorable settlement of a prior year tax matter. Under the Life Insurance Company Income Tax Act of 1959, a portion of "gain from operations" was not subject to current income taxation but was accumulated, for tax purposes, in a memorandum account designated as "policyholders' surplus account." The balance in this account was frozen at December 31, 1983 pursuant to the Deficit Reduction Act of 1984. This amount becomes subject to tax when it exceeds a certain maximum or when cash dividends are paid therefrom. The policyholders' surplus account balance at December 31, 1995 was $138 million. At December 31, 1995, $1,788.9 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 $153.3 million, $195.4 million and $162.2 were paid principally to the parent in 1995, 1994 and 1993, respectively. NOTE F--REINSURANCE The Company is involved in both the cession and assumption of reinsurance with other companies. Risks are reinsured with other companies to permit the recovery of a portion of the direct losses, however, the Company remains liable to the extent the reinsuring companies do not meet their obligations under these reinsurance agreements.
The components of the Company's life insurance in force and premiums and other considerations are summarized as follows (in thousands): Ceded to Assumed Direct Other from Other Net Amount Companies Companies Amount 1995 Life insurance in force, at end of year $ 206,722,573 $ 116,762,869 $ 174,193,592 $ 264,153,296 ==================== =================== =================== =================== Premiums and other considerations $ 1,857,449 $ 1,079,303 $ 1,033,752 $ 1,811,898 ==================== =================== =================== =================== Benefits paid or provided $ 2,803,213 $ 1,065,545 $ 849,800 $ 2,587,468 ==================== =================== =================== =================== 1994 Life insurance in force, at end of year $ 191,884,093 $ 115,037,553 $ 158,882,366 $ 235,728,906 ==================== =================== =================== =================== Premiums and other considerations $ 1,085,555 $ 689,615 $ 1,034,079 $ 1,430,019 ==================== =================== =================== =================== Benefits paid or provided $ 2,338,370 $ 867,341 $ 645,096 $ 2,116,125 ==================== =================== =================== =================== 1993 Life insurance in force, at end of year $ 180,902,966 $ 95,719,350 $ 149,728,434 $ 234,912,050 ==================== =================== =================== =================== Premiums and other considerations $ 1,273,293 $ 953,489 $ 892,876 $ 1,212,680 ==================== =================== =================== =================== Benefits paid or provided $ 2,142,424 $ 633,782 $ 484,371 $ 1,993,013 ==================== =================== =================== ===================
NOTE G--PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS Substantially all employees of the Company are covered by noncontributory defined pension benefit plans sponsored by the Company and the Retirement Plan for Salaried Employees of Transamerica Corporation and Affiliates. Pension benefits are based on the employee's compensation during the highest paid 60 consecutive months during the 120 months before NOTE G--PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS (Continued) retirement. Annual contributions to the plans generally include a provision for current service costs plus amortization of prior service costs over periods ranging from 10 to 30 years. Assets of the plans are invested principally in publicly traded stocks and bonds. The Company's total pension costs recognized for all plans were $2.5 million in 1995, $4.9 million in 1994 and $4.1 million in 1993, of which $2.0 million in 1995, $4.7 million in 1994 and $3.3 million in 1993, 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 1995, 1994 and 1993. NOTE H--RELATED PARTY TRANSACTIONS The Company has various transactions with Transamerica Corporation and certain of its other subsidiaries in the normal course of operations. These transactions include premiums for employee benefits (none in 1995, $5.5 million in 1994, and $7.3 million in 1993), loans and advances, investments in a money market fund managed by an affiliated company, rental of space, and other specialized services. At December 31, 1995, pension funds administered for these related companies aggregated $933.3 million and the investment in an affiliated money market fund, included in short-term investments, was $55.2 million. During 1995, the Company transferred real estate with an aggregate book value of $27.7 million to an affiliate within the Transamerica Corporation group of consolidated companies in exchange for consideration with a fair value of $49.7 million, comprising mortgage loans of $35.1 million and cash of $14.6 million. The excess of fair value of the consideration received over the book value of the real estates transferred, net of related tax payable to the parent, is included as a capital contribution. During 1993, the Company transferred equity securities with a cost of $110.7 million and agreed to pay $31.3 million to Transamerica Corporation in exchange for a note receivable of $200 million. The excess of fair value of the consideration received over the cost of the assets transferred is included as a capital contribution. The note matures in 2013 and bears interest at 7%. NOTE I--OTHER OPERATING REVENUE In 1994, the Company disposed of an investment in an affiliate which had been accounted for under the equity method. Total consideration of $23.3 million was received from the sale, resulting in income of $13.3 million. NOTE J-LEASES Substantially all leases of the Company are operating leases principally for the rental of real estate. Rental expense for equipment and properties was $25.3 million in 1995, $17.9 million in 1994, and $15 million in 1993. 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, 1995 (in thousands): Year ending December 31: 1996 $ 20,011 1997 15,298 1998 11,429 1999 8,423 2000 5,897 Thereafter 24,445 $ 85,503 NOTE K--LITIGATION The Company is a defendant in various legal actions arising from the normal course of operations. Contingent liabilities arising from litigation are not considered material in relation to the consolidated financial position and results of operations of the Company. NOTE L--REGULATORY MATTERS
TOLIC and its insurance subsidiaries are subject to state insurance laws and regulations, principally those of the Company'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 insurance 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): 1995 1994 1993 ------------------- ------------------- ------------ Statutory net income $ 131,607 $ 175,850 $ 192,978 Statutory capital and surplus, at end of year 1,115,691 947,164 801,722
NOTE M--FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of financial instruments are as follows (in thousands): December 31 ----------------------------------------- 1995 1994 ----------------------------------- ----------------- Carrying Fair Carrying Fair Value Value Value Value Financial Assets: Fixed maturities $ 25,997,403 $ 25,997,403 $ 21,006,469 $ 21,006,469 Equity securities 307,881 307,881 201,011 201,011 Mortgage loans on real estate 565,086 671,835 366,727 382,164 Policy loans 426,377 408,088 412,938 383,531 Short-term investments 211,500 211,500 144,163 144,163 Cash 49,938 49,938 42,916 42,916 Accrued investment income 394,008 394,008 363,121 363,121 Financial Liabilities: Liabilities for investment-type contracts: Single and flexible premium deferred annuities 8,080,139 7,518,211 7,425,778 6,898,534 Single premium immediate annuities 4,123,954 4,677,652 3,735,691 3,510,764 Guaranteed investment contracts 2,958,850 2,998,047 2,382,195 2,336,682 Other deposit contracts 2,785,709 2,848,301 2,319,306 2,243,992 Off-balance-sheet assets (liabilities): Exchange derivatives designated as hedges of liabilities in a: Receivable position - 23,881 - 4,974 Payable position - (3,086) - (24,625)
Exchange derivatives, which require no premium payments at initiation, consist principally of interest rate swap agreements and conditional derivatives, which require premium payments at initiation, consist principally of swaptions and interest rate floor and cap agreements. 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 NOTE M--FINANCIAL INSTRUMENTS (Continued) income. The differential to be paid or received on those interest rate swap agreements that are designated as hedges of financial liabilities is recorded on an accrual basis as a component of benefits paid or provided. While the Company is not exposed to credit risk with respect to the notional amounts of the interest rate swap agreements, the Company is subject to credit risk from potential nonperformance of counterparties throughout the contract periods. The amounts potentially subject to such credit risk are much smaller than the notional amounts. The Company controls this credit risk by entering into transactions with only a selected number of high quality institutions, establishing credit limits and maintaining collateral when appropriate. Generally, the Company is subject to basis risk when an interest rate swap agreement is not funded. As of December 31, 1995, there were no unfunded interest rate swap agreements. 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. The conditional receipts under these agreements are recorded on an accrual basis as a component of net investment income if designated as hedges of financial assets or as a component of benefits paid or provided if designated as hedges of financial liabilities. NOTE M--FINANCIAL INSTRUMENTS (Continued)
The information on derivative instruments is summarized as follows (in thousands): Aggregate Weighted Notional Average Amount Fixed Rate Fair Value December 31, 1995 Interest rate swap agreements designated as hedges of securities available for sale, where TLC pays: Fixed rate interest $ 235,173 7.99% $ (9,307) Floating rate interest 140,000 5.65% 137 Floating rate interest based on one index and receives floating rate interest based on another index 65,000 242 Interest rate swap agreements designated as hedges of financial liabilities, where TLC pays: Fixed rate interest 60,000 4.39% 741 Floating rate interest 934,678 6.17% 17,169 Floating rate interest based on one index and receives floating rate interest based on another index 152,000 (108) 560,500 6.46% 35,820 250,000 5.93% 792 1,367,140 5.52% 55,540 December 31, 1994 Interest rate swap agreements designated as hedges of securities available for sale, where TLC pays: Fixed rate interest 178,777 7.20% (1,305) Floating rate interest 96,000 4.96% (2,975) Interest rate swap agreements designated as hedges of financial liabilities, where TLC Pays floating rate interest: 601,545 5.88% (19,651) Interest rate floor agreements 560,500 6.46% 10,948 Interest rate cap agreements 100,000 5.00% 1,333 Swaptions and other 200,000 7.00% 5,313
Generally, notional amounts indicate the volume of transactions and estimated fair values indicate the amounts subject to credit risk. NOTE M--FINANCIAL INSTRUMENTS (Continued) Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, fixed maturities and mortgage loans on real estate. The Company places its temporary cash investments 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, 1995, the Company had no significant concentration of credit risk. PART C OTHER INFORMATION Item 24. Financial Statement and Exhibit (a) Financial Statements All required financial statements are included in Parts A or B of this Registration Statement. (b) Exhibits (1) Resolution of the Board of Directors of Transamerica Occidental Life Insurance Company authorizing establishment of the Variable Account. (6) (2) Not Applicable. (3) Principal Underwriting Agreement between Transamerica Occidental Life Insurance Company and Charles Schwab & Co., Inc. (12) (4) Group Contract Form, Certificate Form, Individual Contract Form, and Endorsements.(7) (a) Group Contract Form and Endorsements. (i) Form of Flexible Purchase Payment Deferred Group Annuity Contract (Form No. GNP-215-193). (ii) Form of Dollar Cost Averaging Option Endorsement to Contract (Form No. GPM-020-193). (iii) Form of Automatic Payout Option Endowment to Contract (Form No. GPM-021-193). (iv) Form of Systematic Withdrawal Option Endorsement to Contract (Form No. GPM-022-193). (v) Form of Fixed Account Rider to Group Contract.(10) (b) Certificate of Participation Form ant Endorsements. (i) Form of Certificate of Participation ( Form No. GNC-020-193). (ii) Form of IRA Endorsement to Certificate (Form No. GCE-020-193). (iii) Form of Benefit Distribution Endorsement to Certificate (Form No. GCE-021-193). (iv) Form of Dollar Cost Averaging Option Endorsement to Certificate (Form No. GCE-022-193). (v) Form of Automatic Payout Option Endorsement to Certificate (Form No. GCE-023-193). (vi) Form of Systematic Withdrawal Option Endorsement to Certificate (Form No. GCE-024-193). (c) Individual Contract Form and Endorsements. (i) Form of Flexible Purchase Payment Deferred Individual Annuity Contact (Form No. 1-504 11-194). (ii) Form of IRA Endorsement to Individual Contract (Form No. 1-007 - 67 - 100 194). (iii) Form of Benefit Distribution Endorsement to Individual Contract (Form No. 1-007 101-194). (iv) Form of Dollar Cost Averaging Option Endorsement to Individual Contract (Form No. 1-007 102-194). (v) Form of Automatic Payout Endorsement to Individual Contract (Form No. 1-007 103-194). (vi) Form of Systemative Withdrawal Option Endorsement to Individual Contract (Form No. 1-007 104-194). (vii) Form of Fixed Account Rider to Individual Contract.(10) (5) (a) Form of Acceptance of Group Annuity Contract (Form No. GNA-212-193).(7) (b) Form of Variable Annuity Application for Certificate and Individual Contract (Form No. GNA-213-913).(7) (6) (a) Restated Articles of Incorporation of Transamerica Occidental Life Insurance Company. (1) (b) Restated By-Laws of Transamerica Occidental Life Insurance Company. (1) (7) Not applicable. (8) Participation Agreements between Transamerica Occidental Life Insurance Company, the Funds, the Fund Advisers, and Charles Schwab & Co., Inc (9) (9) Opinion and Consent of Counsel. (12) (10) (a) Consent of Counsel. (12) (b) Consent of Independent Auditors. (12) (11) No financial statements are omitted from item 23. (12) Not applicable. (13) Performance Data Calculations. (11) (14) Not applicable. (15) Powers of Attorney. Richard N. Latzer (3) Kent L. Colwell (3) Charles E. LeDoyen (3) Thomas J. Cusack (8) Karen MacDonald (12) John A. Fibiger (8) Gary U. Rolle' (3) Richard H. Finn (5) James B. Roszak (3) David E. Gooding (3) Williams E. Simms (4) Edgar H. Grubb (3) Nooruddin S. Veerjee (2) Frank C. Herringer (3) Robert A. Watson (12) (1) Incorporated by reference to the like-numbered exhibit to the initial filing of Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VA-2NL on Form N4, File No. 33-52300 (September 23, 1992). (2) Incorporated by reference to the like-numbered exhibit to Post-Effective Amendment No. 1 to the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VA-2L on Form N-4, File No. 33-49998 (April 30, 1993). (3) Incorporated by reference to Exhibit 7(c) of Post-Effective Amendment No. I to the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VL on Form S-6, File No. 33-28107 (April 30, 1990). - 68 - (4) Incorporated by reference to Exhibit 7(t) of Post-Effective Amendment No. 2 to the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VL on Form S-6, File No. 33-28107 (April 30, 1991). (5) Incorporated by reference to the like-numbered exhibit to the initial filing of the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VA-2L on Form N 4, File No. 33-49998 (July 24, 1992). (6) Incorporated by reference to the like-numbered exhibit to the initial filing of the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VA-S on Form N-4, File No. 33-71746 (November 17, 1993). (7) Incorporated by reference to the like-numbered exhibit to Pre Effective Amendment No. 1 to the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VA-5 on Form N-4, File No. 33-71746 (February 2, 1994). (8) Incorporated by reference to the like-numbered exhibit to Post-Effective Amendment No. 4 to the Registration Statement of Transamerica Occidental Life Insurance Company's Separate Account VA-2L on Form N-4, File No. 33 19998 (April 29, 1994). (9) Incorporated by reference to the like-numbered exhibit to Post-Effective Amendment No. 1 to this Form N-4 Registration Statement, File No. 33-71746 (May 2, 1994). (10) Incorporated by reference to the like-numbered exhibit to Post-Effective Amendment No. 2 to this Form N-4 Registration Statement, File No. 33-71746 (March 1, 1995). (11) Incorporated by reference to the like-numbered exhibit to Post-Effective Amendment No. 3 to this Form N-4 Registration Statement File No. 33-71746 (April 28, 1995). (12) Filed herewith. Item 25. List of Directors of Transamerica Occidental Life Insurance Company Frank C. Herringer Kent L. Colwell Richard N. Latzer Thomas J. Cusack Charles E. LeDoyen James W. Dederer Karen MacDonald John A. Fibiger Gary U. Rolle' Richard H. Finn James B. Roszak David E. Gooding William E. Simms Edgar H. Grubb Nooruddin S. Veerjee Robert A. Watson List of Officers for Transamerica Occidental Life Insurance Company Thomas J. Cusack President and Chief Executive Officer - 69 - John A. Fibiger, FSA Chairman James B. Roszak President, Life Insurance Division and Chief Marketing Officer William E. Simms President - Reinsurance Division James W. Dederer, CLU Executive Vice President, General Counsel and Corporate Secretary David E. Gooding Executive Vice President and Chief Information Officer Charles E. LeDoyen President-Structured Settlements Division Bruce Clark Senior Vice President and Chief Actuary Daniel E. Jund, FLMI Senior Vice President Karen MacDonald Senior Vice President and Corporate Actuary Louise K. Neal Senior Vice President William N. Scott, CLU, FLMI Senior Vice President T. Desmond Sugrue Senior Vice President Ron F. Wagley Senior Vice President and Chief Agency Officer Nooruddin S. Veerjee, FSA President - Group Pension Division Darrel K.S. Yuen President-Asian Operations Richard N. Latzer Chief Investment Officer Gary U. Rolle', CFA Chief Investment Officer Glen E. Bickerstaff Investment Officer John M. Casparian Investment Officer Kent L. Colwell Investment Officer Heather E. Creeden Investment Officer Colin Funai Investment Officer Sharon K. Kilmer Investment Officer Lyman Lokken Investment Officer Michael F. Luongo Investment Officer Matthew Palmer Investment Officer Thomas C. Pokorski Investment Officer Susan A. Silbert Investment Officer John J. Strain Investment Officer Jeffrey S. Van Harte Investment Officer Lennart H. Walin Investment Officer Paul Wintermute Investment Officer William D. Adams Vice President Sandra Bailey-Whichard Vice President Nicki Bair Senior Vice President Dennis Barry Vice President Laurie Bayless Vice President Marsha Blackman Vice President Thomas Briggle Vice President Thomas Brimacombe Vice President Roy Chong-Kit Vice President and Chief Actuary - 70 - C-70 Alan T. Cunningham Vice President and Deputy General Counsel Aldo Davanzo Vice President and Assistant Secretary Daniel Demattos Vice President Peter DeWolf Vice President Mary J. Dinkel, CLU Vice President Randy Dobo Vice President and Actuary Thomas P. Dolan, FLMI Vice President John V. Dohmen Vice President Gail DuBois Vice President and Associate Actuary Ken Ellis Vice President George Garcia Vice President and Chief Medicare Officer David M. Goldstein Vice President and Associate General Counsel John D. Haack Vice President Paul Hankwitz, MD Vice President and Chief Medical Director Randall C. Hoiby Vice President and Associate General Counsel John W. Holowasko Vice President William M. Hurst Vice President and Associate General Counsel James M. Jackson Vice President and Deputy General Counsel Allan H. Johnson, FSA Vice President and Actuary James D. Lamb, FSA Vice President and Chief Actuary Ronald G. Larson, FLMI Regional Vice President Frank J. LaRusso Vice President and Chief Underwriting Officer Richard K. M. Lau, ASA Vice President Thomas Liu Vice President Katherine Lomeli Vice President and Assistant Secretary Philip E. McHale, FLMI Vice President Vic Modugno Vice President and Associate Actuary Mischelle Mullin Vice President Wayne Nakano, CPA Vice President and Controller Paul Norris Vice President and Actuary John W. Paige, FSA Vice President and Associate Actuary Stephen W. Pinkham Vice President Bruce Powell Vice President Larry H. Roy Vice President Joel D. Seigle Vice President Sandra Smith Vice President James O. Strand Vice President Deborah Tatro Vice President Lawrence Taylor Vice President Claude W. Thau, FSA Senior Vice President Kim A. Tursky Vice President and Assistant Secretary William R. Wellnitz, FSA Senior Vice President and Actuary Anthony Wilkey Vice President - 71 - C-71 Thomas Winters Vice President Ronald R. Wolfe Regional Vice President Sally Yamada Vice President and Treasurer Flora Bahaudin Second Vice President David Barcellos Vice President Michael C. Barnhart Second Vice President Dan Bass , ASA Second Vice President Frank Beardsley Vice President Esther Blount Second Vice President Benjamin Bock Vice President Art Bueno Second Vice President Barry Buner Second Vice President Beverly Cherry Second Vice President Wonjoon Cho Second Vice President Art Cohen Second Vice President Gloria Durosko Second Vice President Reid A. Evers Vice President and Associate General Counsel David Fairhall Second Vice President and Associate Actuary Selma Fox Second Vice President Jerry Gable, FSA Second Vice President Roger Hagopian Second Vice President Sharon Haley Second Vice President Zahid Hussain Second Vice President and Associate Actuary Ahmad Kamil, FIA, MAAA Vice President and Associate Actuary Ronald G. Keller Second Vice President Ken Kiefer Second Vice President Dean LeCesne Second Vice President Marilyn McCullough Vice President Carl Marcero Second Vice President Lisa Moriyama Second Vice President Joseph K. Nelson Second Vice President John Oliver Second Vice President Daragh O'Sullivan Second Vice President Stephanie Quincey Second Vice President James R. Robinson Second Vice President John J. Romer Vice President Thomas M. Ronce Second Vice President and Assistant General Counsel Hugh Shellenberger Second Vice President Mary Spence Second Vice President Jean Stefaniak Second Vice President Michael S. Stein Second Vice President Christina Stiver Second Vice President David Stone Second Vice President John Tillotson Second Vice President Janet Unruh Second Vice President and Assistant General Counsel - 72 - C-72 Colleen Vandermark Vice President Susan Viator Second Vice President Richard T. Wang Second Vice President James B. Watson Second Vice President and Assistant General Counsel Joanne E. Whitaker Second Vice President Sheila Wickens, MD Second Vice President and Medical Director William Wojciechowski Second Vice President Michael B. Wolfe Vice President Wilbur L. Fulmer Tax Officer James Wolfenden Statement Officer Item 26. Person Controlled by or Under Common Control With the Depositor or Registrant. The Depositor, Transamerica Occidental Life Insurance Company (Transamerica), is wholly owned by Transamerica Insurance Corporation of California. The Registrant is a segregated asset account of Transamerica. The following chart indicates the persons controlled by or under common control with Transamerica. TRANSAMERICA CORPORATION AND SUBSIDIARIES WITH STATE OR COUNTRY OF INCORPORATION Transamerica Corporation ARC Reinsurance Corporation - Hawaii *Coast Service Company - California *Inter-America Corporation - California *LMS Co. - California *Mortgage Corporation of America - California Pyramid Insurance Company, Ltd. - Hawaii Pacific Cable Ltd. - Bermuda TC Cable, Inc. (25% ownership) - Delaware River Thames Insurance Company Ltd. (51% ownership) - United Kingdom *RTI Holdings, Inc. - Delaware *TCS Inc. - Delaware *Trans International Entities Inc. - Delaware Transamerica Airlines, Inc. - Delaware Transamerica Asset Management Group, Inc. - Delaware - 73 - Criterion Investment Management Company - Texas *Transamerica Corporation (Oregon) - Oregon ss.Transamerica Delaware, L.P. - Delaware Transamerica Finance Group, Inc. - Delaware Transamerica Financial Services Finance Company - Delaware (TFG owns 100% of common stock; TFC owns 100% of preferred stock) Transamerica HomeFirst, Inc. - California Transamerica Finance Corporation - Delaware BWAC Twelve, Inc. - Delaware Transamerica Insurance Finance Corporation - Maryland Transamerica Insurance Finance Corporation, California - California Transamerica Insurance Finance Corporation, Canada - Canada Transamerica Insurance Finance Company (U.K.) - Maryland Arcadia General Insurance Company - Arizona Arcadia National Life Insurance Company - Arizona Transamerica Insurance Administrators, Inc. - Delaware First Credit Corporation - Delaware *Pacific Agency, Inc. - Indiana Pacific Finance Loans - California Pacific Service Escrow Inc. - Delaware Transamerica Acceptance Corporation - Delaware Transamerica Credit Corporation - Nevada Transamerica Credit Corporation - Washington Transamerica Financial Consumer Discount Company - Pennsylvania Transamerica Financial Corporation - Nevada Transamerica Financial Professional Services, Inc. - California Transamerica Financial Services, Inc. - British Columbia Transamerica Financial Services - California NAB Services, Inc. - California Transamerica Financial Services - Wyoming Transamerica Financial Services Company - Ohio Transamerica Financial Services, Inc. - Alabama Transamerica Financial Services, Inc. - Arizona Transamerica Financial Services, Inc. - Hawaii Transamerica Financial Services, Inc. - Kansas Transamerica Financial Services Inc. - Minnesota Transamerica Financial Services, Inc. - New Jersey Transamerica Financial Services, Inc. - Texas Transamerica Financial Services (Inc.) - Oklahoma Transamerica Financial Services of Dover, Inc. - Delaware TELCO Holding Co., Inc. - Delaware Transamerica Commercial Finance Corporation, I - Delaware BWAC Credit Corporation - Delaware BWAC International Corporation - Delaware Transamerica Business Credit Corporation - Delaware Transamerica Inventory Finance Corporation - Delaware Transamerica Commercial Finance Corporation - Delaware TCF Asset Management Corporation - Colorado - 74 - Transamerica Joint Ventures, Inc. - Delaware BWAC Seventeen, Inc. - Delaware *Transamerica Commercial Finance Canada, Limited - Ontario Transamerica Commercial Finance Corporation, Canada - Canada *TCF Commercial Leasing Corporation, Canada - Ontario Transamerica Commercial Finance France S.A. - France BWAC Twenty-One, Inc. - Delaware Transamerica Commercial Holdings Limited - United Kingdom Transamerica Commercial Finance Limited - United Kingdom Transamerica Trailer Leasing Limited - United Kingdom (51%) Transamerica GmbH Inc. - Delaware Transamerica Financieringsmattschappij B.V. - Netherlands *Transamerica Finanzierungs GmbH - Germany (BWAC Twenty-One, Inc./Transamerica GmbH Inc.) Transamerica Finanzierungs GmbH - Germany TA Leasing Holding Co., Inc. - Delaware Transamerica Leasing Inc. - Delaware Transamerica Leasing Holdings, Inc. - Delaware Greybox Services Ltd. - United Kingdom Greybox L.L.C. - Delaware Intermodal Equipment, Inc. - Delaware Transamerica Leasing N.V. - Belgium Transamerica Leasing Srl. - Italy Transamerica Container Acquisition Corporation - Delaware Transamerica Distribution Services Inc. - Delaware Transamerica Leasing Coordination Center - Belgium Transamerica Leasing do Brasil S/C Ltda. - Brazil Transamerica Leasing GmbH - Germany Transamerica Leasing (HK) Ltd. - Hong Kong Transamerica Leasing Limited - United Kingdom ICS Terminals (U.K.) Limited - United Kingdom Transamerica Leasing Proprietary Limited - South Africa Transamerica Leasing Pty. Ltd. - Australia Transamerica Leasing (Canada) Inc. - Canada Transamerica Tank Container Leasing Pty. Limited - Australia Transamerica Trailer Holdings I Inc. - Delaware Transamerica Trailer Holdings II Inc. - Delaware Transamerica Trailer Holdings III - Delaware Transamerica Trailer Leasing AB - Sweden Transamerica Trailer Leasing (Belgium) N.V. - Belgium Transamerica Trailer Leasing (Netherlands) B.V. - Netherlands Transamerica Trailer Leasing A/S - Denmark Transamerica Trailer Leasing GmbH - Germany - 75 - Transamerica Trailer Leasing S.A. - France Transamerica Trailer Leasing S.p.A. - Italy Transamerica Trailer Spain, S.A. - Spain Transamerica Transport Inc. - New Jersey *Transamerica Homes, Inc. - Delaware Transamerica Information Management Services, Inc. - Delaware Transamerica Insurance Corporation of California - California Arbor Life Insurance Company - Arizona Plaza Insurance Sales, Inc. - California *Transamerica Advisors, Inc. - California Transamerica Annuity Service Corporation - New Mexico Transamerica Financial Resources, Inc. - Delaware Financial Resources Insurance Agency of Texas, Inc. - Texas TBK Insurance Agency of Ohio - Ohio Transamerica Financial Resources Insurance Agency of Alabama, Inc. - Alabama Transamerica Financial Resources Insurance Agency of Massachusetts, Inc. - Massachusetts Transamerica Securities Sales Corporation - Maryland Transamerica International Insurance Services, Inc. - Delaware Bulkrich Trading Limited (50%) - Hong Kong Home Loans & Finance Limited - United Kingdom Transamerica Occidental Life Insurance Company - California Bulkrich Trading Limited (50%) - Hong Kong First Transamerica Life Insurance Company - New York *NEF Investment Company - Delaware Transamerica Life Insurance and Annuity Company - North Carolina Transamerica Assurance Company - Missouri Transamerica Life Insurance Company of Canada - Canada Transamerica Variable Insurance Fund, Inc. - Maryland USA Administration Services, Inc. - Kansas Transamerica Products, Inc. - California Transamerica Leasing Ventures, Inc. - California Transamerica Products I, Inc. - California Transamerica Products II, Inc. - California Transamerica Products IV, Inc. - California Transamerica Service Company - Delaware Transamerica International Holdings, Inc. - Delaware TC Cable, Inc. (75% ownership) *Transamerica International Limited - Canada Transamerica Investment Services, Inc. - Delaware Transameric Investors, Inc. - Maryland *Transamerica Land Capital, Inc. - California *Bankers Mortgage Company of California - California - 76 - ss.Transamerica LP Holdings Corp. - Delaware oTransamerica Real Estate Tax Service oTransamerica Flood Hazard Certification - New Jersey Transamerica Realty Services, Inc. - Delaware *The Gilwell Company - California Pyramid Investment Corporation - Delaware Transamerica Minerals Company - California Transamerica Oakmont Corporation - California Transamerica Properties, Inc. - Delaware Transamerica Real Estate Management Co. - California Transamerica Retirement Management Corporation - Delaware Ventana Inn, Inc. - California *Transamerica Systems Corporation - Delaware Transamerica Telecommunications Corporation - Delaware *Designates INACTIVE COMPANIES oA Division of Transamerica Corporation ss.Limited Partner; Transamerica Corporation is General Partner Item 27. Number of Contract/Certificate Owners As of April 1, 1996, there were 1472Owners of Non- Qualified Individual Contracts and34 Owners of Qualified Individual Contracts. Item 28. Indemnification Transamerica's Bylaws provide in Article V as follows: Section 1. Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved, even as a witness, in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent Hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by statutory and decisional law, as the same exists or may hereafter be interpreted or- amended (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expense, liability, and loss (including attorneys' fees, judgements, fines, ERISA excise taxes and penalties, amounts paid or to be pad in settlement, any interest, assessments, or other charges imposed thereon, and any federal, state, local or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing, in any Proceeding (hereafter Expenses"); provided however. that except as to actions to enforce indemnification rights pursuant to - 77 - Section 3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) we authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. [It is the Corporation's intent that the bylaws provide indemnification in excess of that expressly permitted by Section 317 of the California General Corporation Law, as authorized by the Corporation's Articles of Incorporation.] Section 2. Authority to Advance Expenses. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be pad by the corporation in advance of the final disposition of such Proceeding, provided however. that if required by the California General Corporation Law, as amended, such Expanses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to Employee benefit plans) may be advanced upon the receipt of a similar undertaking, if required by law, and upon such other terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. Section 3. Right of Claimant to Bring Suit. If a claim under Section I or 2 of this Article is not paid in full by the corporation within 30 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to h paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Lee -burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the-claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of.conduct. Section 4. Provisions Nonexclusive. The rights conferred on any person by this Article shill not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Articles, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence. Section 5. Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense asserted against or incurred by such person, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article [provided that, in cases where the corporation owns all or a portion of the shares of the company issuing the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317 of the California General Corporation Law, as amended]. Section 6. Survival of Rights. - 78 - The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such person. Section 7. Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award, if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. Section 8. Effect of Amendment Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. Section 9. Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. Section 10. No Duplication of Payments. The corporation shall not he liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling person of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by the director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. The directors and officers of Transamerica Occidental Life Insurance Company are covered under a Directors and Officers liability program which includes direct coverage to directors and officers (Coverage A) and corporate reimbursement (Coverage B) to reimburse the Company for indemnification of its directors and officers. Such directors and officers are indemnified for loss arising from any covered claim by reason of any Wrongful Act in their capacities as directors or officers. In general, the term "loss" means any amount which the insureds are legally obligated to pay for a claim for Wrongful Acts. In general, the term "Wrongful Acts" means any breach of duty, neglect, error, misstatement, misleading statement or omission caused, committed or attempted by a director or officer while acting individually or collectively in their capacity as such, claimed against them solely by reason of their being directors and officers. The limit of liability under the program is $65,000,000 for Coverage A and $55,000,000 for Coverage B for the period 11/25/93 to 11/25/94. Coverage B is subject to a self insured retention of $5,000,000. The primary policy under the program is with Corporate Officers and Directors Assurance Holding Limited (CODA). - 79 - Item 29. Principal Underwriter The business, profession, vocation or employment of a substantial nature in which each director and/or executive officer of Schwab and/or the Investment Manager is or has been engaged during the past two fiscal years for his or her own account in the capacity of director, officer, employee, partner or trustee is indicated in the table below. The principal business address for each of the Schwab directors and/or officers listed below is 101 Montgomery Street, San Francisco, California 94104.
NAME OF DIRECTOR AND/OR OFFICER NAME OF COMPANY CAPACITY Charles R. Schwab Charles Schwab & Co., Inc. Chairman and Director The Charles Schwab Corporation Chairman, Chief Executive Officer and Director Charles Schwab Investment Chairman and Director Management, Inc. The Charles Schwab Trust Chairman and Director Company Mayer & Schweitzer, Inc. Chairman and Director The Gap, Inc. Director Transamerica Corporation Director AirTouch Communications Director Siebel Systems Director Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995; Vice Chairman until August 1994 The Charles Schwab Corporation Vice Chairman and Director; Chief Operating Officer until March 1994 Mayer & Schweitzer, Inc. Director until February 1995 The Charles Schwab Trust Director Company David S. Pottruck Charles Schwab & Co., Inc. President, Chief Executive Officer and Director The Charles Schwab Corporation President, Chief Operating Officer and Director - 80 - C-80 Charles Schwab Investment Director Management, Inc. Mayer & Schweitzer, Inc. Chairman, Chief Executive Officer and Director Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and Director until January 1996; Senior Executive Vice President and Chief Operating Officer until January 1995 The Charles Schwab Corporation Executive Vice President until January 1996; Senior Executive Vice President until January 1995 Mayer & Schweitzer, Inc. Director until January 1996 John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President - Schwab Institutional The Charles Schwab Corporation Executive Vice President - Schwab Institutional The Charles Schwab Trust Company Director and Executive Vice President A. John Gambs Charles Schwab & Co., Inc. Executive Vice President, Chief Financial Officer and Director The Charles Schwab Corporation Executive Vice President and Chief Financial Officer Charles Schwab Investment Chief Financial Officer and Management, Inc. Director The Charles Schwab Trust Chief Financial Officer Company Mayer & Schweitzer, Inc. Director Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and Chief Information Officer The Charles Schwab Corporation Executive Vice President and Chief Information Officer - 81 - C-81 Daniel O. Leemon The Charles Schwab Corporation Executive Vice President - Business Strategy Charles Schwab & Co., Inc. Executive Vice President - Business Strategy Timothy F. McCarthy Charles Schwab Investment Chief Executive Officer Management, Inc. Charles Schwab & Co., Inc. Executive Vice President - Mutual Funds The Charles Schwab Corporation Executive Vice President - Mutual Funds Jardine Fleming Unit Trusts Ltd. Chief Executive Officer until October 1995 Fidelity Investment Advisor Group President until 1994 Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President - Electronic Brokerage The Charles Schwab Corporation Executive Vice President - Electronic Brokerage Tom D. Seip Charles Schwab & Co., Inc. Executive Vice President - Retail Brokerage The Charles Schwab Corporation Executive Vice President - Retail Brokerage Charles Schwab Investment President and Chief Operating Management, Inc. Officer until 1994 John N. Tognino Charles Schwab & Co., Inc. Executive Vice President - Capital Markets and Trading until February 1996 The Charles Schwab Corporation Executive Vice President - Capital Markets and Trading until February 1996 - 82 - C-82 Mayer & Schweitzer, Inc. Director and Vice Chairman until February 1996 Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President - Human Resources and Corporate Support The Charles Schwab Corporation Executive Vice President and Chief Administrative Officer Commercial Credit Corporation Managing Director until February 1994 Christopher V. Dodds Charles Schwab & Co., Inc. Treasurer and Senior Vice President The Charles Schwab Corporation Treasurer and Senior Vice President Mayer & Schweitzer, Inc. Treasurer William J. Klipp Charles Schwab & Co., Inc. Senior Vice President - SchwabFunds Charles Schwab Investment President and Chief Operating Management, Inc. Officer Stephen B. Ward Charles Schwab Investment Senior Vice President and Chief Management, Inc. Investment Officer Frances Cole Charles Schwab Investment Vice President, Chief Counsel, Management, Inc. Chief Compliance Officer and Assistant Corporate Secretary Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate Secretary Charles Schwab & Co., Inc. Assistant Corporate Secretary Charles Schwab Investment Corporate Secretary Management, Inc. The Charles Schwab Trust Assistant Corporate Secretary Company - 83 - C-83 David J. Neuman The Charles Schwab Trust Corporate Secretary Company Mary B. Templeton Charles Schwab Investment Assistant Corporate Secretary Management, Inc. The Charles Schwab Corporation Senior Vice President, General Counsel and Corporate Secretary Charles Schwab & Co., Inc. Senior Vice President, General Counsel and Corporate Secretary Mayer & Schweitzer Assistant Corporate Secretary The Charles Schwab Trust Assistant Corporate Secretary until Company February 1996 David H. Lui Charles Schwab Investment Vice President and Senior Counsel Management, Inc. Christina M. Perrino Charles Schwab Investment Vice President and Senior Counsel Management, Inc.
- 84 - - 85 - - 86 - The following table lists the amounts of commissions paid to the co-underwriter during the last fiscal year.
Name of Principal Net Underwriting Compensation on Brokerage Underwriter Discounts & Commission Redemption Commissions Compensation Schwab -0- -0- -0- -0-
Item 30. Location and Accounts and Records All accounts and records required to be maintained by Section 31(a) of the 1940 Act and the rules under it are maintained by Transamerica or the Service Office at their administrative offices. Item 31. Management Services All management contracts are discussed in Parts A or B. Items 32. Undertakings - 87 - (a) Registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. (b) Registrant undertakes that it will include either (1) as part of any application to purchase a Certificate offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information. (c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request to Transamerica at the address or phone number listed in the Prospectus. - 88 - SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, Transamerica Occidental Life Insurance Company certifies that this Amendment meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Registration Statement to be signed on its behalf by the undersigned in the City of Los Angeles, State of California on the 26th day of April, 1996. SEPARATE ACCOUNT VA-5 OF TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY (REGISTRANT) TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY (DEPOSITOR) ---------------------------- Aldo Davanzo, Vice President and Assistant Secretary As Required by the Securities Act of 1933, this Post-Effective Amendment No. 4 to the Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signatures Titles Date ______________________* Director, President April 26, 1996 Thomas J. Cusack and Chief Executive Officer David R. Carpenter and Chief Executive Officer ______________________* Director and Chairman April 26, 199 6 John A. Fibiger ______________________* Director April 26, 1996 Kent L. Colwell - 89 - ______________________* Director April 26, 1996 Richard I. Finn ______________________* Director April 26, 1996 David E. Gooding ______________________* Director April 26, 1996 Edgar H. Grubb ______________________* Director April 26, 1996 Frank C. Herringer ______________________* Director April 26, 1996 Richard N. Latzer ______________________* Director April 26, 1996 Charles E. LeDoyen ______________________* Director April 26, 1996 Karen MacDonald ______________________* Director April 26, 1996 Gary U. Rolle' ______________________* Director April 26, 1996 James B. Roszak ______________________* Director April 26, 1996 William E. Simms ______________________* Director April 26, 1996 Nooruddin S. Veerjee ______________________* Director April 26, 199 6 Robert A. Watson ______________________ *By: James W. Dederer
On April 26, 1996 as Attorney-in-Fact pursuant to powers of attorney previously filed and filed herewith, and in his own capacity as Executive Vice President, General Counsel, Corporate Secretary and Director EXHIBIT INDEX Exhibit Description Page No. of Exhibit No. (3)(A) Principal Underwriting Agreement between Transamerica Occidental Life Insurance Company and Charles Schwab and Co., Inc. C-26 (3)(B) Agency Agreement (9) Opinion and Consent of Counsel C-27 (10) (a) Consent of Counsel C-28 (b) Consent of Independent Auditors C-30 (15) Power of Attorney C-32 - 91 - EXHIBIT (3) PRINCIPAL UNDERWRITING AGREEMENT BETWEEN TRANSAMERICA OCCIDENTAL LIFE INSURNACE COMPANY AND CHARLES SCHWAB AND CO., INC. PRINCIPAL UNDERWRITING AGREEMENT PRINCIPAL UNDERWRITING AGREEMENT made this ____ day of __________, 1994, by and between Charles Schwab & Co., Inc. (the "Underwriter") and Transamerica Occidental Life Insurance Company (the "Insurance Company"), on its own behalf and on behalf of its Separate Account VA-5 (the "Account"), a separate account of the Insurance Company, as follows: WHEREAS, the Account was established under authority of a resolution of the Insurance Company's Board of Directors on September 28, 1993, in order to set aside and invest assets attributable to certain flexible purchase payment variable annuity contracts (the "Contracts," as specified in Schedule A hereto) issued by the Insurance Company; and WHEREAS, the Underwriter is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, the Insurance Company and the Account desire to have the Contracts sold and distributed through the Underwriter and the Underwriter is willing to sell and distribute such Contracts under the terms stated herein. NOW THEREFORE, the parties hereto agree as follows: 1. The Insurance Company grants to the Underwriter the right to be, and the Underwriter agrees to serve as, the exclusive distributor and exclusive principal underwriter of the Contracts during the term of this Agreement in accordance with the marketing plan and plan of operations mutually agreed to by the parties and as amended or revised from time to time. The Underwriter agrees to use its best efforts to solicit applications for the Contracts, and to undertake, at its own expense to perform all duties and functions which are necessary and proper for the distribution of the Contracts. 2. All purchase payments for the Contracts shall be remitted promptly in full together with such application, forms and any other required documentation to the Insurance Company or its agent. Purchase payments for the Contracts may be made (a) by checks or money orders drawn to the order of "Transamerica Occidental Life Insurance Company;" or (b) by authorized debit of the applicant's account with the Underwriter and wire transfer of proceeds to the Insurance Company; or (c) by wire transfer to such account as the Insurance Company may specify; or (d) by such other means as may be agreed to by the Insurance Company. The Underwriter shall hold purchase payments received by it on behalf of the Insurance Company in a fiduciary capacity. 3. The Underwriter agrees to offer the Contracts for sale in accordance with the registration statement therefor then in effect. 4. The Insurance Company represents and warrants that the Contracts are or will be registered under the Securities Act of 1933 (the "1933 Act") and that the Contracts will be issued in compliance in all material respects with all applicable federal and state laws. The Insurance Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account under Section 10506 of the California Insurance Code and has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the Investment Company Act of 1940 (the "1940 Act") to serve as a segregated investment account for the Contracts. The Insurance Company shall be responsible for the qualification and/or registration of the Contracts under applicable federal and state laws and for providing a list to the Underwriter prior to the offering of all states where the Contracts are qualified for sale and any restrictions or conditions applicable in such states, and the Insurance Company shall immediately notify the Underwriter of any changes in such qualifications, registrations, restrictions or conditions. On behalf of the Account, the Insurance Company shall furnish the Underwriter with copies of all prospectuses, statements of additional information, financial statements and other documents in such quantities which the Underwriter reasonably requests for use in connection with the distribution of the Contracts. The Insurance Company shall provide the Underwriter with drafts of all amendments to the registration statement for the Contracts under the 1933 Act one week prior to filing such statement with the SEC. 5. The Underwriter represents that it is duly registered as a broker-dealer under the 1934 Act and is a member in good standing of the NASD and, to the extent necessary to offer the Contracts and otherwise enter into and carry out all transactions contemplated by this Agreement, has obtained or will obtain all approvals, licenses, authorizations, orders or consents, and shall be duly registered or otherwise qualified under the securities and insurance laws of any state or other jurisdiction where offers or sales of the Contracts may be made. The Underwriter shall be bonded as required by all applicable laws and regulations. The Underwriter shall be responsible for carrying out its sales and underwriting obligations hereunder in continued compliance with the NASD Rules of Fair Practice and federal and state securities laws and regulations and state insurance laws and regulations. 2 Without limiting the generality of the foregoing, the Underwriter agrees that it shall be fully responsible for: (a) ensuring that no associated person (as defined in Article I of the NASD's By-Laws) of the Underwriter shall offer or sell the Contracts on its behalf, or sign an application or enrollment form as agent, or receive compensation for soliciting purchases of the Contracts (sometimes referred to as a Schwab Annuity Specialist or "SAS"), until such person is duly registered as a representative of the Underwriter, duly licensed and appointed by the Insurance Company, and appropriately licensed, registered or otherwise qualified to offer and sell such Contracts under the federal securities laws and any applicable securities and insurance laws of each state or other jurisdiction in which such Contracts may be lawfully sold, in which the Insurance Company is licensed to sell the Contracts and in which such persons shall offer or sell the Contracts; and (b) training, supervising and controlling of all such persons for purposes of complying on a continuous basis with the NASD Rules of Fair Practice and with federal and state securities law requirements applicable in connection with the offering and sale of the Contracts. In this connection, the Underwriter shall: (1) conduct such training (including the preparation and utilization of training materials) of SASs as in the opinion of the Underwriter is necessary to accomplish the purposes of this Agreement; (2) establish and implement reasonable written procedures for supervision of sales practices of SASs, agents, representatives or brokers selling the Contracts; (3) take reasonable steps to ensure that its associated persons shall not make recommendations to an applicant to purchase a Contract and shall not sell a Contract in the absence of reasonable grounds to believe that the purchase of the Contract is suitable for such applicant; and (4) establish and implement reasonable procedures for periodic inspection and supervision of sales practices of the SASs and submit reports to the Insurance Company as may be agreed to between the parties from time to time. (c) developing sales materials for the Contracts and filing such materials as necessary with the NASD, subject to approval of all such materials by the Insurance Company. 3 6. (a) The Underwriter shall furnish, or cause to be furnished, to the Insurance Company, each piece of sales literature or other promotional material that the Underwriter develops or uses and in which the Insurance Company, the Account, or the Contracts are named, at least 10 (ten) Business Days prior to its use. No such material shall be used if the Insurance Company objects to such use within 5 (five) Business Days after receipt of such material. (b) The Insurance Company shall furnish, or shall cause to be furnished, to the Underwriter, each piece of sales literature or other promotional material in which the Underwriter is named at least 10 (ten) Business Days prior to its use. No such material shall be used if the Underwriter objects to such use within 5 (five) Business Days after receipt of such material. (c) The Underwriter shall not make any representations on behalf of the Insurance Company or concerning the Insurance Company, the Account, or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports for the Account, or in sales literature of other promotional material approved by the Insurance Company or its designee, except with the permission of the Insurance Company. (d) The phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodicals, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published articles), and registration statements, prospectuses, Statements of Additional Information, shareholder reports, and proxy materials. 7. The Insurance Company and the Underwriter in its capacity as broker-dealer shall cause to be maintained and preserved for the periods prescribed such accounts, books, and other documents as are required of them by the Investment Company Act of 1940, the 1934 Act, and any other applicable securities laws and regulations. The books, accounts and records of the Insurance Company, the Account, and the Underwriter as to all transactions hereunder shall be maintained so as to disclose clearly and accurately the nature and details of the transactions. The Insurance Company, as agent for the Underwriter, shall be responsible for sending all required confirmations on customer transactions in compliance with applicable 4 securities laws and regulations, as modified by any exemption or other relief obtained by the Insurance Company or Underwriter. The Underwriter shall cause the Insurance Company to be furnished with such reports as the Insurance Company may reasonably request for the purpose of meeting its reporting and recordkeeping requirements under the securities and insurance laws of any applicable states or jurisdictions. 8. Each party to this agreement shall bear all expenses of fulfilling its duties and obligations hereunder. With respect to the printing and mailing of prospectuses, these obligations and the responsible parties include those listed below: Printing Costs Mailing Costs Annuity Product Prospectus For Marketing Purposes Schwab Schwab For New Policy Issue Transamerica Transamerica For Annual Updates Transamerica Transamerica Sub-Account Prospectuses For Marketing Purposes Fund Schwab For New Policy Issue Fund Transamerica For Annual Updates Fund Schwab As used above, the "Fund" can mean either the fund, the adviser, or the fund's distributor. 9. (a) The Insurance Company shall immediately notify the Underwriter of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to the Contract's Registration Statement or Prospectus, (ii) any request by the SEC for any amendment to the Contract's Registration Statement or Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of interests in the Contracts, and (iv) any other action or circumstances that may prevent the lawful offer or sale of any of the Contracts in any state or jurisdiction. The Insurance Company will make every reasonable effort to prevent the issuance of any stop order, cease and desist or similar order and if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) The Underwriter shall immediately notify the Insurance Company of (i) the issuance by any regulatory body of any order having a material effect with respect to the Underwriter, (ii) the initiation of any proceeding for any purpose relating to the sale of the Contracts, and (iii) of any other actions or circumstances that may prevent the lawful offer or sale of any of the Contracts in any state or jurisdiction. In addition, the Underwriter shall promptly advise the Insurance 5 Company if any of their SASs is or becomes subject to any proceedings or is sanctioned or suspended (i) by the SEC or NASD, (ii) by any Court for securities law violations, or (iii) by any state regulatory authority. Each party shall promptly notify the other party of any written customer complaints regarding the Contracts or the sale thereof and the proposed response thereto, and each party shall cooperate in the proposed response to and the resolution of customer complaints. 10. Indemnification: 10(a). Of the Underwriter With Respect to the Registration Statement and Prospectus for the Contracts or Sales Literature. The Insurance Company shall indemnify and hold harmless the Underwriter against any and all losses, claims, damages or liabilities (or actions in respect thereof), to which the Underwriter may become subject, including amounts paid in settlement with the written consent of the Insurance Company, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or the Prospectus, or Sales Literature for the Contracts or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse the Underwriter for reasonable legal or other expenses reasonably incurred by them in connection with investigating or defending against such loss, claim, damage, liability or action in respect thereof; provided, however, that the Insurance Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement or Prospectus or Sales Literature for the Contracts in reliance upon and in conformity with information furnished in writing by the Underwriter, or any affiliate of the Underwriter, or any Fund participating in the Account, or any affiliate of such Fund, for use in the preparation thereof, and provided, however, that the Insurance Company shall not be liable in any such cases to the extent that any such loss, claim damages, liability, or action arises out of or is based on any matter relating to the mutual funds (or portfolios thereof) in which the Account invests ("Funds"). The indemnities in this paragraph 10(a) shall, upon the same terms and conditions, extend to and inure to the benefit of each director and officer of the Underwriter and any person controlling the Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act. 6 10(b). Of The Company With Respect to the Registration Statement and Prospectus or Sales Literature for the Contracts. Except as provided in paragraph 10(c) below, the Underwriter shall indemnify and hold harmless the Insurance Company against any losses, claims, damages or liabilities (or actions in respect thereof), to which the Insurance Company may become subject, including amounts paid in settlement with the written consent of the Underwriter, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, Prospectus or Sales Literature for the Contracts, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, Prospectus or Sales Literature in reliance upon and in conformity with information furnished in writing by the Underwriter for use in the preparation thereof; and will reimburse the Insurance Company for reasonable legal or other expenses reasonably incurred by the Insurance Company in connection with investigating or defending against any such loss, claim, damage, liability or action. The indemnities in this paragraph 10(b) shall, upon the same terms and conditions, extend to and inure to the benefit of each director and officer of the Insurance Company and any person controlling the Insurance Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act. 10(c). Of The Insurance Company With Respect to Other Matters. (i) The Underwriter shall indemnify and hold harmless the Insurance Company from any losses, claims, damages or liabilities (or actions in respect thereof) to which the Insurance Company may become subject, including amounts paid in settlement with the written consent of the Underwriter, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or result from gross negligence , illegal or fraudulent acts or omissions by the Underwriter or its officers, directors, employees, agents, SASs or principals, including, but not limited to, solicitation of Contracts, and will reimburse the Insurance Company for reasonable legal or other expenses reasonably incurred by the Insurance Company in connection with investigating or defending against any such loss, claim, damage, liability or action, except as stated below in subparagraph 10(c)(iii). (ii) The Underwriter shall indemnify and hold harmless the 7 Insurance Company for any losses, claims, damages or liabilities (or actions in respect thereof) to which the Insurance Company may become subject, including amounts paid in settlement with the written consent of the Underwriter, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any unauthorized use of sales materials or advertisements or any oral or written misrepresentations or any unlawful sales practices concerning the Contracts by the Underwriter or its officers, directors, employees, agents, SASs or principals, and will reimburse the Insurance Company for reasonable legal or other expenses reasonably incurred by the Insurance Company in connection with investigating or defending against any such loss, claim, damage, liability or action, except as stated below in subparagraph 10(c)(iii) except if such loss, claim, damage or liability arises or results from information provided by the Insurance Company and relied on by Underwriter. (iii) Scope of Indemnities. The indemnities in this paragraph 10(c) shall, upon the same terms and conditions, extend to and inure to the benefit of each director and officer of the Insurance Company and any person controlling the Insurance Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act. The indemnities in this paragraph 10(c) shall not extend to losses, claims, damages or liabilities (or actions in respect thereof) arising out of death claims or claims related to the mortality risk of the Contracts. 10(d). Of the Underwriter With Respect to Other Matters. The Insurance Company shall indemnify and hold harmless the Underwriter, against any losses, claims, damages or liabilities (or actions in respect thereof) to which the Underwriter may become subject, including amounts paid in settlement with the written consent of the Insurance Company, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or result from gross negligence, illegal or fraudulent acts or omissions by the Insurance Company or its employees, officers, directors, agents or principals and will reimburse the Underwriter, for reasonable legal or other expenses reasonably incurred by the Underwriter in connection with investigating or defending against any such loss, claim, damage, liability or action except that this indemnification shall not apply to Underwriter's willful misfeasance, bad faith, gross negligence or reckless disregard of duties. The indemnities in this paragraph 10(d) shall, upon the same terms and conditions, extend to and inure to the benefit of each director and officer of the Underwriter, and any person controlling the Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act. 8 10(e). Notice of Actions. (i) Notice Required. Within a reasonable time after service on an indemnified party of the summons or other first legal process giving information of the nature of an action (or after such indemnified party shall have received notice of such service on any designated agent), the Insurance Company shall, if a claim in respect thereof is to be made against the Underwriter, notify the Underwriter in writing of the commencement thereof and the Underwriter shall, if a claim in respect thereof is to be made against the Insurance Company, notify the Insurance Company in writing of the commencement thereof; but the omission so to notify any indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than pursuant to this Section 10. In case any such action shall be brought against any indemnified party, and an indemnifying party shall have been notified of the commencement thereof as aforesaid, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel approved by such indemnified party, which approval shall not be unreasonably withheld. After notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnified party shall cooperate fully in such defense and the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. (ii) Effect of Notice. Any notice given by the indemnifying party to an indemnified party of participation in or control of the litigation of any claim by the indemnifying party will in no event be deemed to be an admission by the indemnifying party of liability, culpability or responsibility, and the indemnifying party will remain free to contest liability with respect to the claim among the parties or otherwise. 11. The Insurance Company will consult with and provide 10 (ten) business days advance notice to the Underwriter before making any changes to the Annuity Contracts. 12. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts, and the investment managers enrolled in Schwab's Financial Advisor Service Program and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information may come 9 into the public domain, except as permitted by this Agreement for as otherwise necessary to service the Contracts and/or respond to appropriate regulatory authorities. Nothing in this Section 12 shall prevent Schwab from using the list of contractholders for marketing purposes. In no event shall the names and addresses of owners or prospective owners be furnished by the Insurance Company to any other company or person (except as required by law or regulation) or used to solicit sales of any kind, including but not limited to any other products, securities or services. Without limiting the foregoing, no party hereto shall disclose any information that another party reasonably considers to be proprietary. The intent of this Section 12 is that no party or any affiliate thereof shall utilize, or permit to be utilized, its knowledge of the other party which is derived as a result of the relationship created by this Agreement and any related agreements, except to the extent necessary by the terms of this Agreement or the related agreements. 13. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Securities and Exchange Commission, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable annuity operations of the Insurance Company are being conducted in a manner consistent with the California Variable Annuity Regulations then in effect and any other applicable law or regulations. 14. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and Federal laws or under any other contract. 15. The Underwriter shall be responsible for selecting the mutual fund portfolios in which the Account will invest and for determining that such portfolios are suitable for the Contracts, but no such portfolios will be added to or deleted from those available under the Contracts without the consent of the Insurance Company, which consent shall not be withheld unreasonably. 16. The term "Schwab Investment Advantage" is a trademark of the Underwriter, and the Insurance Company acknowledges that is has no rights to use that term (except as may be set forth in a license agreement between the parties to this Agreement). 10 17. (a) This Agreement may be terminated by either party hereto upon 6 (six) months' notice to the other party. (b) This Agreement may be terminated at any time upon the mutual written consent of the parties thereto. (c) This Agreement shall automatically be terminated in the event of its assignment. (d) In the event of any material breach (as defined below) of this Agreement by any party, the aggrieved party may, at its option, terminate this Agreement by giving notice of termination, effective upon the date specified in such termination notice. This remedy shall be in addition to any other remedies available under this Agreement or at law. 18. The Insurance Company shall be deemed to have materially breached this Agreement and failed to perform hereunder upon the occurrence of any of the following events: (a) The Insurance Company shall become insolvent or otherwise admit in writing its inability to pay its debts when they become due, seek protection under any law for the protection of insolvents, or have a receiver, rehabilitator, conservator or similar official appointed for it under any law pertaining to the insolvency of the Insurance Company; or (b) The Insurance Company shall breach any material provision of this Agreement and such breach shall remain uncured for more than 30 days following the Insurance Company's receipt of the Underwriter's written notice of such breach. 19. The Underwriter shall be deemed to have materially breached this Agreement and failed to perform hereunder upon the occurrence of any of the following events: (a) The Underwriter shall become insolvent or otherwise admit in writing its inability to pay its debts when they become due, become bankrupt, seek protection under any law for the protection of insolvents, or have a receiver, rehabili- tator, conservator or similar official appointed for it under any law pertaining to the Underwriter's insolvency; or (b) The Underwriter shall breach any material provision of this Agreement and such breach shall remain uncured for more than 30 days following the Underwriter's receipt of written notice by the Insurance Company of such breach. 20. Upon termination of this Agreement, all authorizations, rights and obligations shall cease except the obligations to settle accounts hereunder, including purchase payments subsequently received for Contracts in effect at the time of 11 termination or issued pursuant to applications received by the Insurance Company prior to termination. 21. Nothing in this Agreement shall be deemed to impose any limitation on the rights of the Insurance Company (a) to immediately terminate the Insurance Company's appointment of any SAS under the law of any state, with reasonable cause and with ten (10) business days advance written notice, and (b) to require the Underwriter to immediately terminate any agreement between the Underwriter and any such SAS to the extent necessary to preclude any such SAS from representing the Insurance Company. 22. This Agreement shall be subject to the provisions of the Investment Company Act of 1940 and the 1934 Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions from the Investment Company Act as the Securities and Exchange Commission may grant, and the terms hereof shall be interpreted and construed in accordance therewith. Without limiting the generality of the foregoing, the term "assigned" shall not include any transaction exempted from Section 15(c)(2) of the Investment Company Act. 23. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties are entitled to under state and federal laws. Failure of either party to insist upon strict compliance with any of the conditions of this Agreement shall not be construed as a waiver of any of the conditions, but the same shall remain in full force and effect. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. 24. The Underwriter shall submit to all regulatory and administrative bodies having jurisdiction over the operations of the Account, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws or regulations. 25. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 26. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of California. 27. Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in the forum jointly selected by the Insurance 12 Company and the Underwriter (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 28. All notices hereunder are to be made in writing and shall be given: if to Transamerica to: President, Living Benefits Division Transamerica Occidental Life Insurance Company Transamerica Center 1150 South Olive Street Los Angeles, CA 90015 with a simultaneous copy to: Regina M. Fink, Esq., Law Department Transamerica Occidental Life Insurance Company Transamerica Center 1150 South Olive Street Los Angeles, CA 90015 if to Schwab to: General Counsel Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officials thereunder duly authorized and seals to be affixed, as of the day and year first above written. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY By______________________________________________________ Title____________________________________________________ CHARLES SCHWAB & CO., INC. By______________________________________________________ Title____________________________________________________ 13 EXHIBIT (3)(B) AGENCY AGREEMENT AGENCY AGREEMENT AGREEMENT dated as of ______________ 1994, by and between TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY ("Transamerica"), and Charles Schwab & Co., Inc. ("Schwab"). WITNESSETH: WHEREAS, Schwab is an insurance agent and desires to distribute certain contracts issued by Transamerica; and WHEREAS, Transamerica desires to issue certain variable annuity contracts through Schwab acting as insurance agent for such products; NOW, THEREFORE, in consideration of their mutual promises, Transamerica and Schwab hereby agree as follows: 1. Definitions Affiliate -- With respect to a person, any other person controlling, controlled by or under common control with, such person. Application -- An application for a Contract. Contracts -- The class or classes of variable annuity contracts set forth on Schedule 1 to this Agreement, as amended from time to time. "Class of Contracts" shall mean those Contracts issued by Transamerica on the same policy form or forms and covered by the same Registration Statement. Annuity Service Center -- Schwab Annuity Service Center, P.O Box 7785, San Francisco, CA 94120-9420, (800) 838-0650 or such other location as may be designated in writing. Representative -- When used with reference to Schwab or Transamerica, an individual who is an associated person, as that term is defined in the Securities Exchange Act of 1934, thereof. Territory -- The states or other jurisdictions of the United States set forth on Schedule 2 to this Agreement, as amended from time to time and in all cases excluding New York. 2. Distribution Activities a. Appointment and Authority (1) Transamerica appoints Schwab, and Schwab accepts such appointment, as its exclusive insurance agent in the Territory for sales of the Contracts. It is understood that, pursuant to the Principal Underwriting Agreement, Transamerica has granted to Schwab the right to be the exclusive distributor and the exclusive principal underwriter of the Contracts in the Territory. Transamerica hereby authorizes Schwab to solicit Applications and Purchase Payments directly from customers and prospective customers in the Territory. (2) The Contracts shall be solicited and sold by licensed Representatives who are employees of Schwab. Schwab has the power and authority to select and recommend Schwab Representatives for appointment as agents of Transamerica, and only Representatives so recommended by Schwab shall become agents of Transamerica with authority under this Agreement to engage in solicitation activities with respect to the Contracts. Schwab shall be solely responsible for background investigations of the Schwab Representatives to determine their qualifications, good character and moral fitness to sell the Contracts. Transamerica shall appoint in the appropriate states or jurisdictions such selected and recommended agents, provided that Transamerica reserves the right, which right shall not be exercised unreasonably, to refuse to appoint as agent any Schwab Representative or, once appointed, to terminate the same at any time with or without cause. In the event Transamerica elects to exercise its right to refuse to appoint or to terminate the appointment of a recommended agent it shall not act except upon ten (10) days prior written notice to Schwab. (3) Schwab and Schwab Representatives shall not have authority, and shall not grant authority to Schwab Representatives, on behalf of Transamerica: to make, alter or discharge any Contract or other contract entered into pursuant to a Contract; or to waive any Contract forfeiture provisions to extend the time of paying any Purchase Payment. Schwab shall not expend, nor contract for the expenditure of, the funds of Transamerica. Schwab shall not possess or exercise any authority on behalf of Transamerica other than that expressly conferred on Schwab by this Agreement. b. Solicitation Activities, Applications and Premiums Schwab shall use its best efforts to market the Contracts in accordance with the marketing plan and plan of operations mutually agreed to by the parties and as amended or revised from time to time. Solicitation activities shall be subject to applicable securities and insurance and other laws and regulations, this Agreement and the policies and procedures of Transamerica. 2 (1) Transamerica and Schwab shall develop together Applications and other materials for use by Schwab in its solicitation activities with respect to the Contracts. Transamerica shall notify Schwab in writing of those states or jurisdictions which require delivery of a Statement of Additional Information with a Prospectus to a prospective purchaser. (2) Schwab shall require that Schwab Representatives appointed by Transamerica as agents not make recommendations to an applicant to purchase a Contract in the absence of reasonable grounds to believe that the purchase of the Contract is suitable for the applicant. While not limited to the following, a determination of suitability shall be based on information supplied to a Schwab Representative after a reasonable inquiry concerning the applicant's insurance and investment objectives and financial situation and needs. (3) All Purchase Payments paid, under the Schwab Investment Advantage Variable Annuity Contract by check or money order that are collected by the Schwab Annuity Service Center shall be remitted promptly in full, together with any Applications, forms and any other required documentation, to Transamerica. Checks or money orders in payment of Purchase Payments shall be drawn to the order of "Transamerica Occidental Life Insurance Company." Purchase Payments may be transmitted by wire order to the Schwab Annuity Service Center in accordance with Transamerica's written procedures. If any Purchase Payment is held at any time by Schwab, Schwab shall hold such Purchase Payment in a fiduciary capacity. All such Purchase Payments, whether by check, money order or wire, shall be the property of Transamerica. (4) Schwab acknowledges that Transamerica shall have the unconditional right to reject, in whole or in part, any Application. (5) It is specifically understood and agreed that no policy will be solicited or negotiated by Schwab with or concerning any New York resident, or with any person located in New York, either as insured or owner, either in New York or anywhere else. 3 c. Independent Contractor Schwab shall act as an independent contractor in the performance of its duties and obligations under this Agreement and nothing herein contained shall constitute Schwab or Schwab Representatives or employees as employees of Transamerica in connection with the distribution of the Contracts. d. Supervision Schwab shall train, supervise and be responsible (to the extent required by applicable insurance law) for the conduct of the Schwab Representatives in their solicitation of Applications and Premiums, and shall supervise their compliance with applicable rules and regulation of any insurance regulatory agencies that have jurisdiction over variable insurance product activities. e. Regulations Schwab shall observe and comply with the applicable state insurance laws and regulations and Transamerica's procedures and policies. 3. Compensation Transamerica shall have no obligation for payment of any commissions or other compensation for the services of Schwab Representatives. Any compensation to Schwab's Representatives will be the sole obligation of Schwab. 4. Expenses a. Expenses Except as set forth in this Agreement each party to this Agreement shall bear all expenses of fulfilling its duties and obligations hereunder. b. Appointment Fees Fees imposed by state insurance regulatory authorities for appointment or renewal thereof of Schwab and Schwab Representatives appointed as agents of Transamerica shall be paid by Transamerica. 5. Licensing a. It is understood that neither Schwab, nor its employees may engage in services which would require insurance agent licensing in the state where such activities are 4 performed unless and until Schwab and the employee are properly licensed to perform such services in the particular state or other jurisdiction involved as required by the applicable laws and regulations of said state or other jurisdiction. Schwab further agrees to undertake all actions necessary, including license and examination fees, to effect licensing of itself and its employees and renewals thereof as required for the business of this Agreement. Transamerica agrees to take all actions necessary, including the payment of all appointment filing fees, to effect the appointment of Schwab, its employees and renewals thereof as required for the business of this Agreement. "Properly licensed" includes the filing of an appointment by Transamerica , Schwab and/or other person when required by the laws or regulations of the applicable jurisdiction. b. It is further understood and agreed that Schwab will undertake to effect and maintain licensing for itself and Schwab Representatives as may otherwise be required by the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission. 6. Complaints and Investigations Proceedings Transamerica and Schwab shall notify each other promptly in writing of any customer complaint or notice of any investigation or proceeding. Schwab and Transamerica shall cooperate fully in responding to any customer complaint and in any regulatory or judicial investigation or proceeding in connection with the offering or sale of the Contracts distributed under this Agreement. 7. Indemnification a. By Transamerica Transamerica shall indemnify and hold harmless Schwab and its affiliates and each person who controls or is an associated person with Schwab and any officer, director, employee or agent of the foregoing, against any and all losses, claims, damages or liabilities, joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which Schwab and/or any such person may become subject, under any statute or regulation, any National Association of Securities Dealers rule or interpretation, at common law or otherwise, insofar as such losses, claims, damages or liabilities: 5 (1) result of any breach by Transamerica of any provision of this Agreement; or (2) proximately result from any activities of Transamerica's officers, directors, employees or agents or their failure to take action in connection with the sale, processing or administration of the Contracts. This indemnification shall be in addition to any liability that Transamerica may otherwise have; provided, however, that no person shall be entitled to indemnification pursuant to this provision if such loss, claim, damage or liability is due to the willful misfeasance, bad faith, gross negligence or reckless disregard of duty by the person seeking indemnification. b. By Schwab Schwab shall indemnify and hold harmless Transamerica and each person who controls or is an associated person with Transamerica and any officer, director, employee or agent of the foregoing, against any and all losses, claims, damages or liabilities, joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which Transamerica and/or any such person may become subject under any statute or regulation, any NASD rule or interpretation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon: (1) the breach by Schwab of any provision of this Agreement; (2) any unlawful sales practices by Schwab or a Schwab Representative under state insurance laws but not including any violations resulting from a failure to comply with such laws to the extent that such compliance is a responsibility of Transamerica's under such laws, this Agreement or otherwise; or (3) claims by agents or employees of Schwab or Schwab Representatives for commissions or other compensation or remuneration of any type. This indemnification shall be in addition to any liability that Schwab may otherwise have; provided, however, that no person shall be entitled to indemnification pursuant to this provision if such loss, claim, damage or liability is due to the willful misfeasance, bad faith, gross negligence or 6 reckless disregard of duty by the person seeking indemnification. c. General After receipt by a party entitled to indemnification ("indemnified party") under this Section of notice of the commencement of any action, if a claim in respect thereof is to be made against any person obligated to provide indemnification under this Section ("indemnifying party"), such indemnified party shall notify the indemnifying party in writing of the commencement thereof as soon as practicable thereafter, provided that the omission to so notify the indemnifying party shall not relieve the indemnifying party of any liability under this Section 6, except to the extent that the omission results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged solely as a result of the failure to give such notice. The indemnifying party, upon the request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party from and against any loss or liability by reason of such settlement or judgment. The indemnification provisions contained in this Section shall remain operative and in full force and effect, regardless of (1) any investigation made by or on behalf of Transamerica or Schwab or by or on behalf of any controlling person thereof, and (3) any termination of this Agreement. A successor by law of Schwab or Transamerica, as the case may be, shall be entitled to the benefits of the indemnification provisions contained in this Section . 7 This Section shall remain operative and in full force and effect regardless of the termination of this Agreement, and shall survive any such termination. 8. Termination a. This Agreement may be terminated by either party with or without cause upon six months written notice. b. This Agreement shall terminate automatically if it is assigned by a party without the prior written consent of the other party. c. This Agreement may be terminated by written notice to the other party upon termination of the Principal Underwriting Agreement and the Administrative Services Agreement between Transamerica and Schwab. d. This Agreement may be terminated, immediately with written notice, at the option of either party to this Agreement upon the other party's material breach of any provision of this Agreement or of any material misrepresentation made in this Agreement, unless such breach has been cured within 30 days after receipt of written notice of breach from the non-breaching party. e. Upon termination of this Agreement all authorizations, rights and obligations shall cease except (1) the obligation to settle accounts hereunder; and (2) the provisions contained in Sections 4, 5, 6 and 7 hereof. 9. Miscellaneous a. Confidentiality Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts, and the investment managers enrolled in Schwab's Financial Advisor Service Program and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information may come into the public domain, except as permitted by this Agreement for as otherwise necessary to service the Contracts and/or respond to appropriate regulatory authorities. Nothing in this Section 9 shall prevent Schwab from using the list of contractholders for marketing purposes. In no event shall the names and addresses of owners or prospective owners be furnished by the Insurance Company to any other company or person (except as required by law 8 or regulation) or used to solicit sales of any kind, including but not limited to any other products, securities or services. Without limiting the foregoing, no party hereto shall disclose any information that another party reasonably considers to be proprietary. The intent of this Section 9 is that no party or any affiliate thereof shall utilize, or permit to be utilized, its knowledge of the other party which is derived as a result of the relationship created by this Agreement and any related agreements, except to the extent necessary by the terms of this Agreement or the related agreements. b. Binding Effect Each party represents that the execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary corporate action by such party and when so executed and delivered this Agreement shall be the valid and binding obligation of such party enforceable in accordance with its terms. This Agreement shall be binding on and shall inure to the benefit of the respective successors and assigns of the parties hereto provided that neither party shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party. c. Amendment of Schedules The parties to this Agreement may amend subject to reasonable prior written notice Schedules 1 and 2 to this Agreement from time to time to reflect additions of or changes in any class of Contracts, Separate Accounts, Funds and Fund Series that have been agreed upon by the parties. Transamerica may amend Schedule 2 from time to time to reflect additions to or deletions from the list of jurisdictions in which Transamerica is qualified to offer the Contracts. Schwab may amend from time to time to reflect changes in its licensing status. The provisions of this Agreement shall be equally applicable to each such class of Contracts, Separate Accounts and Funds that may be added to the Schedules, unless the context otherwise requires. Any other changes in the terms and provisions of this Agreement shall be made by written agreement between Transamerica and Schwab. d. Rights, Remedies, etc. Are Cumulative The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. Failure of either party to insist upon strict compliance with any of the conditions of this Agreement 9 shall not be construed as a waiver of any of the conditions, but the same shall remain in full force and effect. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. e. Notices All notices hereunder are to be made in writing and shall be given: if to Transamerica to: President, Living Benefits Division Transamerica Occidental Life Insurance Company Transamerica Center 1150 South Olive Street Los Angeles, CA 90015 with a simultaneous copy to: Regina M. Fink, Esq., Law Department Transamerica Occidental Life Insurance Company Transamerica Center 1150 South Olive Street Los Angeles, CA 90015 If to Schwab to: General Counsel Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104 or such other address as such party may hereafter specify in writing. Each such notice to a party shall be either hand delivered or transmitted by registered or certified United States mail with return receipt requested, and shall be effective upon delivery. f. Arbitration Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in a forum jointly selected by Transamerica and Schwab (but, if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 10 g. Interpretation; Jurisdiction This Agreement constitutes the whole agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral or written understandings, agreements or negotiations between the parties with respect to such subject matter. No prior writing by or between the parties with respect to the subject matter hereof shall be used by either party in connection with the interpretation of any provision of this Agreement. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the internal laws of the State of California without giving effect to principles of conflict of laws. However, no decision, question, dispute or issue arising from or in any way related to the matters referred to in Section 2(b)(5) will be submitted to or subject to arbitration, and no arbitrator shall be empowered to consider or decide any such decision, question, dispute, issue or matter. h. Severability This is a severable Agreement. In the event that any provision of this Agreement would require a party to take action prohibited by applicable federal or state law or prohibit a party from taking action required by applicable federal or state law, then it is the intention of the parties hereto that such provision shall be enforced to the extent permitted under the law, and, in any event, that all other provisions of this Agreement shall remain valid and duly enforceable as if the provision at issue had never been a part hereof. i. Section and Other Headings The headings contained in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. j. Counterparts This Agreement may be executed in two or more counterparts, each of which taken together shall constitute one and the same instrument. 11 IN WITNESS WHEREOF, each party hereto represents that the officer signing this Agreement on the party's behalf is duly authorized to execute this Agreement; and the parties hereto have caused this Agreement to be duly executed by such authorized officers on the date specified below. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY By:_________________________________ Name:_______________________________ Title:______________________________ CHARLES SCHWAB & CO., INC. By:_________________________________ Name:_______________________________ Title:______________________________ 12 Schedule 1 Contracts Subject to Agency Agreement Effective April 14, 1994 Group Product Variable Annuity Application Form No. GNA-213-194 (See notes below) Certificate of Participation Form No. GNC-37-193 IRA Endorsement Form No. GCE-020-193 Benefit Distribution Endorsement Form No. GCE-021-193 Dollar Cost Averaging Option Endorsement Form No. GCE-022-193 Automatic Payout Option Endorsment Form No. GCE-023-193 Systematice Withdrawal option Endorsement Form No. GCE-024-193 Individual Product Flexible Purchase Payment Deferred Variable Annuity Contract Form No. 1-504 11-194 IRA Endorsement Form No. 1-007 100-194 Benefit Distribution Endorsement Form No. 1-007 101-194 Dollar Cost Averaging Option Endorsement Form No. 1-007 102-194 Automatic Payout Option Endorsement Form No. 1-007 103-194 Systematic Withdrawal optin Endorsment Form No. 1-007 104-194 NOTES: For Arizona, use GNA-213-194(AZ); for Florida, use GNA-213-194(FL); for Minnesota, use GNA-213-194(MN); for Ohio, use GNA-213-194(OH). Revised Application Form No. GNA-214-194 replaces GNA-213-193. 13 Schedule 2 List of Jurisdictions in Which Transamerica is Qualified to Offer the Contracts Effective April 14, 1994 Arkansas California Connecticut Delaware Georgia Hawaii Illinois Indiana Iowa Kansas Kentucky Louisisana Maine Maryland Michigan Minnesota Missississippi Nebraska Nevada New Hampshire New Mexico Ohio Oklahoma South Carolina South Dakota Tennessee Texas Utah Virginia West Virginia Wisconsin Wyoming Other States will be added as approved. 14 EXHIBIT (9) OPINION AND CONSENT OF COUNSEL April 17, 1996 Transamerica Occidental Life Insurance Company 1150 South Olive Street Los Angeles, CA 90015 Gentlemen: With reference to the Post-Effective Amendment No. 4 to the Registration Statement on Form N-4 filed by Transamerica Occidental Life Insurance Company and its Separate Account VA-5 with the Securities and Exchange Commission covering certain variable annuity contracts (File No. 33- 71746), I have examined such documents and such law as I considered necessary and appropriate, and on the basis of such examinations, it is my opinion that: 1.) Transamerica Occidental Life Insurance Company is duly organized and validly existing under the laws of the State of California. 2.) The variable annuity contracts, when issued as contemplated by the said Form N-4 Registration Statement, as amended, will constitute legal, validly issued and binding obligations of Transamerica Occidental Life Insurance Company. I hereby consent to the filing of this opinion as an exhibit to the said Post- Effective Amendment No. 4 to the Form N-4 Registration Statement and to the reference to my name under the caption "Legal Matters" in the Prospectus contained in the said Post-Effective Amendment No. 4. In giving this consent, I am not admitting that I am in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Very truly yours, James W. Dederer Executive Vice President, General Counsel and Corporate Secretary EXHIBIT (10) (a) CONSENT OF COUNSEL Sutherland, Asbill & Brennan 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2402 Telephone: 202-383-0100 Fax: 202-637-3593 Frederick R. Bellamy Direct Line: 202-383-0126 MCI Mail: 649-7433 April 17, 1996 Transamerica Occidental Life Insurance Company 1150 South Olive Street Los Angeles, CA 90015 Re: Separate Account VA-5 File No. 33-71746 Gentlemen: We hereby consent to the reference to our name under the caption "Legal Matters" in the Prospectus filed as part of Post-Effective Amendment No. 4 to the Form N-4 Registration Statement for Separate Account VA-5. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Very truly yours, Sutherland, Asbill & Brennan BY: Frederick R. Bellamy - 95 - EXHIBIT (10) (b) CONSENT OF INDEPENDENT AUDITORS - 96 - CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Condensed Financial Information" and "Accountants" in the Prospectus and to the use of our reports dated April 15, 1996 and February 14, 1996 on Separate Account VA-5 of Transamerica Occidental Life Insurance Company and Transamerica Occidental Life Insurance Company, respectively, contained in the Statement of Additional Information. Ernst & Young LLP Los Angeles, California April 26, 1996 - 97 - EXHIBIT (15) POWER OF ATTORNEY - 98 - POWER OF ATTORNEY The undersigned director of Transamerica Occidental Life Insurance Company, a California corporation (the "Company"), hereby constitutes and appoints Aldo Davanzo, James W. Dederer, Charles E. LeDoyen and David E. Gooding and each of them (with full power to each of them to act alone), her true and lawful attorney-in-fact and agent, with full power of substitution to each, for her and on her behalf and in her name, place and stead, to execute and file any of the documents referred to below relating to registrations under the Securities Act of 1933 and under the Investment Company Act of 1940 with respect to any variable life insurance or annuity policies: registration statements on any form or forms under the Securities Act of 1933 and under the Investment Company Act of 1940, and any and all amendments and supplements thereto, with all exhibits and all instruments necessary or appropriate in connection therewith, each of said attorneys-in-fact and agents and her or their substitutes being empowered to act with or without the others or other, and to have full power and authority to do or cause to be done in the name and on behalf of the undersigned each and every act and thing requisite and necessary or appropriate with respect thereto to be done in and about the premises in order to effectuate the same, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand, this _________ day of January, 1996. _____________________________ Karen MacDonald POWER OF ATTORNEY The undersigned director of Transamerica Occidental Life Insurance Company, a California corporation (the "Company"), hereby constitutes and appoints Aldo Davanzo, James W. Dederer, Charles E. LeDoyen and David E. Gooding and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, with full power of substitution to each, for his and on his behalf and in his name, place and stead, to execute and file any of the documents referred to below relating to registrations under the Securities Act of 1933 and under the Investment Company Act of 1940 with respect to any variable life insurance or annuity policies: registration statements on any form or forms under the Securities Act of 1933 and under the Investment Company Act of 1940, and any and all amendments and supplements thereto, with all exhibits and all instruments necessary or appropriate in connection therewith, each of said attorneys-in-fact and agents and his or their substitutes being empowered to act with or without the others or other, and to have full power and authority to do or cause to be done in the name and on behalf of the undersigned each and every act and thing requisite and necessary or appropriate with respect thereto to be done in and about the premises in order to effectuate the same, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this _________ day of January, 1996. _____________________________ Robert A. Watson -----END PRIVACY-ENHANCED MESSAGE-----