485BPOS 1 d485bpos.txt FORM 485BPOS As filed with the Securities and Exchange Commission on April 30, 2002 Registration No. 333-62738 811-10411 SECURITIES AND EXCHANGE COMMISSION ---------------------------------- WASHINGTON, D.C. 20549 PREMIER ASSET BUILDER VARIABLE ANNUITY FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X Pre-Effective Amendment No. ____ Post-Effective Amendment No. 4 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X Amendment No. 4 SEPARATE ACCOUNT VA F (Exact Name of Registrant) TRANSAMERICA LIFE INSURANCE COMPANY (Name of Depositor) 4333 Edgewood Road N.E. Cedar Rapids, IA 52499-0001 (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number: (319) 297-8468 Frank A. Camp, Esq. Transamerica Life Insurance Company 4333 Edgewood Road, N.E. Cedar Rapids, IA 52499-4240 (Name and Address of Agent for Service) Copy to: Frederick R. Bellamy, Esq. Sutherland, Asbill and Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2415 Title of Securities Being Registered: Flexible Premium Variable Annuity Policies ------------------------------------ It is proposed that this filing become effective: _____ immediately upon filing pursuant to paragraph (b) of Rule 485 X on May 1, 2002 pursuant to paragraph (b) of Rule 485 ----- _____ 60 days after filing pursuant to paragraph (a)(1) Rule 485 _____ on _________ pursuant to paragraph (a)(1) of Rule 485 _____ 75 days after filing pursuant to paragraph (a)(2) _____ on _______ pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: _____ This post-effective amendment designates a new effective date for a previously filed post-effective amendment PREMIER ASSET BUILDER VARIABLE ANNUITY Issued Through SEPARATE ACCOUNT VA F By TRANSAMERICA LIFE INSURANCE COMPANY Prospectus--May 1, 2002 This flexible premium deferred annuity policy has many investment choices. There is a fixed account, which offers interest at rates that are guaranteed by Transamerica Life Insurance Company (Transamerica), and thirty-two underlying fund portfolios. You can choose any combination of these investment choices. You bear the entire investment risk for all amounts you put in the underlying fund portfolios. This prospectus and the underlying fund prospectuses give you important information about the policies and the underlying funds. Please read them carefully before you invest and keep them for future reference. If you would like more information about the Premier Asset Builder Variable Annuity, you can obtain a free copy of the Statement of Additional Information (SAI) dated May 1, 2002. Please call us at (800) 525-6205 or write us at: Transamerica Life Insurance Company, Financial Markets Division, Variable Annuity Department, 4333 Edgewood Road NE, Cedar Rapids, Iowa, 52499-0001. A registration statement, including the SAI, has been filed with the Securities and Exchange Commission (SEC) and the SAI is incorporated herein by reference. Information about the separate account can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains the prospectus, the SAI, material incorporated by reference and other information. The table of contents of the SAI is included at the end of this prospectus. Please note that the policies and the underlying funds: . are not bank deposits . are not federally insured . are not endorsed by any bank or government agency . are not guaranteed to achieve their goal . are subject to risks, including loss of premium The Securities and Exchange Commission has not approved or disapproved these securities, or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. AEGON/Transamerica Series Fund, Inc. BlackRock Large Cap Value BlackRock Mid Cap Growth BlackRock Global Science & Technology Capital Guardian Value Capital Guardian U.S. Equity Capital Guardian Global Jennison Growth Salomon All Cap Third Avenue Value Transamerica Equity AIM Variable Insurance Funds-- Series II Shares AIM V.I. Balanced Fund AIM V.I. Premier Equity Fund AIM V.I. Dent Demographic Trends Fund Federated Insurance Series Federated International Small Company Fund II Federated Prime Money Fund II Federated Quality Bond Fund II Liberty Variable Investment Trust Colonial Small Cap Value Fund, Variable Series Colonial Strategic Income Fund, Variable Series Liberty Select Value Fund, Variable Series MFS(R) Variable Insurance TrustSM-- Service Class MFS Emerging Growth Series MFS Investors Growth Stock Series MFS Utilities Series Oppenheimer Variable Account Funds--Service Shares Oppenheimer Global Securities Fund/VA Oppenheimer Main Street Growth & Income Fund/VA Oppenheimer Main Street Small Cap Fund/VA Putnam Variable Trust--Class IB Shares Putnam VT Growth and Income Fund Putnam VT International Growth Fund Putnam VT Investors Fund Variable Insurance Products Fund-- Service Class 2 Fidelity--VIP Growth Portfolio Fidelity--VIP High Income Portfolio Fidelity--VIP Index 500 Portfolio Wanger Advisors Trust Wanger U.S. Smaller Companies
TABLE OF CONTENTS Page GLOSSARY OF TERMS.......................................................... 3 SUMMARY.................................................................... 4 ANNUITY POLICY FEE TABLE................................................... 9 EXAMPLES................................................................... 12 1.THE ANNUITY POLICY....................................................... 18 2. PURCHASE................................................................ 18 Policy Issue Requirements................................................ 18 Premium Payments......................................................... 18 Initial Premium Requirements............................................. 18 Additional Premium Payments.............................................. 19 Maximum Total Premium Payments........................................... 19 Allocation of Premium Payments........................................... 19 Policy Value............................................................. 19 3. INVESTMENT CHOICES...................................................... 19 The Separate Account..................................................... 19 The Fixed Account........................................................ 21 Transfers................................................................ 21 4. PERFORMANCE............................................................. 22 5. EXPENSES................................................................ 23 Surrender Charges........................................................ 23 Excess Interest Adjustment............................................... 24 Mortality and Expense Risk Fees.......................................... 24 Administrative Charges................................................... 24 Premium Taxes............................................................ 24 Federal, State and Local Taxes........................................... 24 Transfer Fee............................................................. 24 Managed Annuity Program.................................................. 25 Initial Payment Guarantee................................................ 25 Liquidity Rider.......................................................... 25 Beneficiary Earnings Enhancement......................................... 25 Beneficiary Earnings Enhancement--Extra.................................. 25 Portfolio Fees and Expenses.............................................. 25 6. ACCESS TO YOUR MONEY.................................................... 25 Surrenders............................................................... 25 Delay of Payment and Transfers........................................... 26 Excess Interest Adjustment............................................... 26 7. ANNUITY PAYMENTS (THE INCOME PHASE)......................................................... 26 Annuity Payment Options.................................................. 27 8. DEATH BENEFIT........................................................... 29 When We Pay A Death Benefit.............................................. 29 When We Do Not Pay A Death Benefit....................................... 29 Deaths After the Annuity Commencement Date............................... 29 Amount of Death Benefit.................................................. 30 Guaranteed Minimum Death Benefit......................................... 30 Adjusted Partial Surrender............................................... 31
Page 9.TAXES................................................................... 31 Annuity Policies in General............................................. 31 Qualified and Nonqualified Policies..................................... 31 Surrenders--Qualified Policies.......................................... 32 Surrenders--403(b) Policies............................................. 32 Diversification and Distribution Requirements........................... 32 Surrenders--Nonqualified Policies....................................... 32 Taxation of Death Benefit Proceeds...................................... 33 Annuity Payments........................................................ 33 Annuity Contracts Purchased by Nonresident Aliens and Foreign Corporations........................................................... 34 Transfers, Assignments or Exchanges of Policies......................... 34 Possible Tax Law Changes................................................ 34 Separate Account Charges................................................ 34 10. ADDITIONAL FEATURES................................................... 34 Systematic Payout Option................................................ 34 Family Income Protector................................................. 34 Managed Annuity Program................................................. 34 Initial Payment Guarantee............................................... 37 Liquidity Rider......................................................... 38 Beneficiary Earnings Enhancement........................................ 38 Beneficiary Earnings Enhancement--Extra................................. 40 Nursing Care and Terminal Condition Withdrawal Option................... 41 Unemployment Waiver..................................................... 41 Telephone Transactions.................................................. 41 Dollar Cost Averaging Program........................................... 42 Asset Rebalancing....................................................... 43 11. OTHER INFORMATION..................................................... 43 Ownership............................................................... 43 Assignment.............................................................. 43 Transamerica Life Insurance Company..................................... 43 The Separate Account.................................................... 43 Mixed and Shared Funding................................................ 44 Exchanges and Reinstatements............................................ 44 Voting Rights........................................................... 44 Distributor of the Policies............................................. 44 IMSA.................................................................... 45 Legal Proceedings....................................................... 45 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............. 45 APPENDIX A Condensed Financial Information......................................... 46 APPENDIX B Historical Performance Data............................................. 50 APPENDIX C Policy Variations....................................................... 63
2 GLOSSARY OF TERMS Accumulation Unit--An accounting unit of measure used in calculating the policy value in the separate account before the annuity commencement date. Adjusted Policy Value--The policy value increased or decreased by any excess interest adjustment. Annuitant--The person during whose life any annuity payments involving life contingencies will be based on. Annuity Commencement Date--The date upon which annuity payments are to commence. The annuity commencement date may not be later than the last day of the policy month starting after the annuitant attains age 85, except as expressly allowed by Transamerica. In no event will this date be later than the last day of the policy month following the month in which the annuitant attains age 95. The annuity commencement date may have to be earlier for qualified policies and may be earlier if required by state law. Annuity Payment Option--A method of receiving a stream of annuity payments selected by the owner. Cash Value--The adjusted policy value less any applicable surrender charge and less any rider fees (imposed upon surrender). Cumulative Free Percentage--The percentage (as applied to the policy value) which is available free of any surrender charge. Excess Interest Adjustment--A positive or negative adjustment to amounts surrendered (both partial or full surrenders and transfers) or applied to annuity payment options from the fixed account guaranteed period options prior to the end of the guaranteed period. The adjustment reflects changes in the interest rates declared by Transamerica since the date any payment was received by (or an amount was transferred to) the guaranteed period option. The excess interest adjustment can either decrease or increase the amount to be received by the owner upon surrender (either full or partial) or commencement of annuity payments, depending upon whether there has been an increase or decrease in interest rates, respectively. Fixed Account--One or more investment choices under the policy that are part of Transamerica's general assets and are not in the separate account. Guaranteed Period Options--The various guaranteed interest rate periods of the fixed account which Transamerica may offer and into which premium payments may be paid or amounts transferred. Owner--The person who may exercise all rights and privileges under the policy. The owner during the lifetime of the annuitant and prior to the annuity commencement date is the person designated as the owner in the information given to us to issue a policy. Policy Value--On or before the annuity commencement date, the policy value is equal to the owner's: .. premium payments; minus .. partial surrenders (including the net effect of any applicable excess interest adjustments and/or surrender charges on such surrenders); plus .. interest credited in the fixed account; plus .. accumulated gains in the separate account; minus .. losses in the separate account; minus .. service charges, rider fees, premium taxes and transfer fees and any other charges, if any. Separate Account--Separate Account VA F is a separate account established and registered as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"), to which premium payments under the policies may be allocated. Subaccount--A subdivision within the separate account, the assets of which are invested in a specified portfolio of the underlying funds. You (Your)--The owner of the contract. (Note: The SAI contains a more extensive Glossary.) 3 SUMMARY The sections in this summary correspond to sections in this prospectus, which discuss the topics in more detail. 1.THE ANNUITY POLICY The flexible premium deferred variable annuity policy offered by Transamerica Life Insurance Company (Transamerica, we, us, or our) provides a way for you to invest on a tax-deferred basis in the following investment choices: subaccounts of the separate account, and the fixed account of Transamerica. The policy is intended to accumulate money for retirement or other long-term investment purposes. This policy offers thirty-two subaccounts that are listed in Section 3. Each subaccount invests exclusively in shares of one of the portfolios of the underlying funds. The policy value depends on the investment experience of the selected subaccounts. Therefore, you bear the entire investment risk with respect to all policy value in any subaccount. You could lose the amount that you invest. The fixed account offers an interest rate that Transamerica guarantees. We guarantee to return your investment with interest credited for all amounts allocated to the fixed account. The policy, like all deferred annuity policies, has two phases: the "accumulation phase" and the "income phase." During the accumulation phase, earnings accumulate on a tax-deferred basis and are taxed as ordinary income when you take them out of the policy. The income phase occurs when you annuitize and begin receiving regular payments from your policy. The money you can accumulate during the accumulation phase will largely determine the income payments you receive during the income phase. 2.PURCHASE You can buy this policy with $2,000 or more under most circumstances. You can add as little as $50 at any time during the accumulation phase. 3.INVESTMENT CHOICES You can allocate your premium payments to one or more of the following investment choices described in the underlying fund prospectuses: BlackRock Large Cap Value BlackRock Mid Cap Growth BlackRock Global Science & Technology Capital Guardian Value Capital Guardian U.S. Equity Capital Guardian Global Jennison Growth Salomon All Cap Third Avenue Value Transamerica Equity AIM V.I. Balanced Fund--Series II Shares AIM V.I. Premier Equity Fund--Series II Shares(/1/) AIM V.I. Dent Demographic Trends Fund--Series II Shares Federated International Small Company Fund II Federated Prime Money Fund II Federated Quality Bond Fund II Colonial Small Cap Value Fund, Variable Series(/2/) Colonial Strategic Income Fund, Variable Series Liberty Select Value Fund, Variable Series MFS Emerging Growth Series--Service Class MFS Investors Growth Stock Series--Service Class MFS Utilities Series--Service Class Oppenheimer Global Securities Fund/VA--Service Shares Oppenheimer Main Street Growth & Income Fund/VA--Service Shares Oppenheimer Main Street Small Cap Fund/VA--Service Shares Putnam VT Growth and Income Fund--Class IB Shares Putnam VT International Growth Fund--Class IB Shares Putnam VT Investors Fund--Class IB Shares Fidelity--VIP Growth Portfolio--Service Class 2 Fidelity--VIP High Income Portfolio--Service Class 2 Fidelity--VIP Index 500 Portfolio--Service Class 2 Wanger U.S. Smaller Companies (/1/)Formerly known as AIM V.I. Value Fund (/2/)This fund will be available as an investment option on or about August 1, 2002. 4 Depending upon their investment performance, you can make or lose money in any of these subaccounts. You can also allocate your premium payments to the fixed account. We currently allow you to transfer money between any of the investment choices. While we currently do not charge for transfers, we reserve the right to impose a $10 fee for each transfer in excess of 12 transfers per policy year and to impose restrictions and limitations on transfers. 4. PERFORMANCE The value of the policy will vary up or down depending upon the investment performance of the subaccounts you choose. We provide performance information in Appendix B and in the SAI. This data does not indicate future performance. 5. EXPENSES No deductions are made from premium payments at the time you buy the policy so that the full amount of each premium payment is invested in one or more of your investment choices. We may deduct a surrender charge of up to 6.0% of premium payments surrendered within five years after the premium is paid. However, after the tenth policy year, no surrender charges apply, regardless of when you made your last premium payment. We will calculate surrender charges by taking the earnings, if any, out before premium payments. Full surrenders and partial surrenders from a guaranteed period option of the fixed account may also be subject to an excess interest adjustment, which may increase or decrease the amount you receive. This adjustment may also apply to amounts applied to an annuity payment option from a guaranteed period option of the fixed account. We deduct daily mortality and expense risk fees and administrative charges of 1.25% per year from the assets in each subaccount for the Return of Premium Death Benefit. An additional 0.15% or 0.25% fee will be charged if you elect the Annual Step-Up Death Benefit or the Enhanced Death Benefit, respectively. During the accumulation phase, we deduct an annual service charge of no more than $30 from the policy value on each policy anniversary and at the time of surrender. The charge is waived if either the policy value or the sum of all premium payments, minus all partial surrenders, is at least $50,000. Upon total surrender, payment of a death benefit, or when annuity payments begin, we will deduct state premium taxes, which currently range from 0% to 3.50%. If you elect the Managed Annuity Program, there is an annual fee during the accumulation phase of 0.45% of the minimum income base. If you receive annuity payments under the rider, then during the income phase, there is a guaranteed payment fee at an annual rate of 1.25% of the daily net asset value in the subaccounts. If you elect the Initial Payment Guarantee when you annuitize, there is a fee equal to an annual rate of 1.25% of the daily net asset value in the subaccounts. If you elect the Liquidity Rider, there is a fee equal to an annual rate of 0.50% of the daily net asset value in the subaccounts. This fee is only charged for the first three years. If you elect the Beneficiary Earnings Enhancement, there is an annual fee during the accumulation phase of 0.25% of the policy value. If you elect the Beneficiary Earnings Enhancement--Extra, there is an annual fee equal to 0.50% or 0.60% of the policy value in the subaccounts for the 50% and 75% initial death benefit option, respectively. The value of the net assets of the variable subaccounts will reflect the management fee and other expenses incurred by the underlying fund portfolios. 6. ACCESS TO YOUR MONEY You can generally take out $500 or more anytime during the accumulation phase (except 5 under certain qualified policies). You may take out up to 10% of the policy value free of surrender charges each policy year. The amount that may be taken free of surrender charges is referred to as the cumulative free percentage. Any cumulative free percentage that is not taken in one year is carried forward and is available to be taken in the following policy year. Amounts surrendered in excess of this free amount may be subject to a surrender charge and excess interest adjustment. You may also have to pay income tax and a tax penalty on any money you take out. If you have policy value in the fixed account, you may also take out cumulative interest credited free of excess interest adjustments. Access to amounts held in qualified policies may be restricted or prohibited. Unless you elect the Life with Emergency CashSM annuity payment option, you can not take money out during the income phase, although you will be receiving annuity payments. 7. ANNUITY PAYMENTS(THE INCOME PHASE) The policy allows you to receive income under one of several annuity payment options. You may choose from fixed payment options, variable payment options, or a combination of both. If you select a variable payment option, the dollar amount of your payments may go up or down. However, the Managed Annuity Program and Initial Payment Guarantee are available as optional riders and they guarantee a minimum amount for each payment. 8. DEATH BENEFIT If the annuitant dies before the income phase begins, then a death benefit will become payable. Naming different persons as owner and annuitant can affect to whom amounts will be paid. Use care when naming owners, annuitants and beneficiaries, and consult your agent if you have questions. When you purchase the policy, you generally may choose one of the following guaranteed minimum death benefits: .. Return of Premium; or .. Annual Step-Up; or .. Enhanced. Charges are lower for the Return of Premium Death Benefit than they are for the other death benefits. After the policy is issued, the guaranteed minimum death benefit cannot be changed. If the owner is not the annuitant, no death benefit is paid if the owner dies. The death benefit is paid first to a surviving owner, if any; it is only paid to the beneficiary if there is no surviving owner. 9. TAXES Your earnings, if any, are generally not taxed until you take them out. If you take money out of a nonqualified policy during the accumulation phase, earnings come out first for federal tax purposes, and are taxed as ordinary income. Under qualified policies, surrenders are prorated between taxable and nontaxable amounts. If you are younger than 59 1/2 when you take money out, you may be charged a 10% federal penalty tax on the taxable earnings. For non- qualified policies, payments during the income phase may be considered partly a return of your original investment so that part of each payment may not be taxable as income. 10. ADDITIONAL FEATURES This policy has additional features that might interest you. These include the following: .. You can arrange to have money automatically sent to you monthly, quarterly, semi-annually or annually while your policy is in the accumulation phase. This feature is referred to as the "Systematic Payout Option" ("SPO"). Amounts you receive may be included in your gross income, and in certain circumstances, may be subject to penalty taxes. 6 .. You can elect an optional rider that guarantees you a minimum income base. This feature is called the "Managed Annuity Program" ("MAP"). There is an extra charge for this rider. .. You can elect an optional rider at the time of annuitization that guarantees your variable annuity payments will never be less than 80% of the initial variable annuity payment. This feature is called the "Initial Payment Guarantee ". There is an extra charge for this rider. .. You can elect an optional rider that reduces the number of years each premium payment is subject to surrender charges. You can only elect this rider at the time you purchase your policy. This feature is called the "Liquidity Rider". There is an extra charge for this rider. .. You can elect one of two optional riders that might pay an additional amount on top of the policy death benefit, in certain circumstances. These features are called the "Beneficiary Earnings Enhancement" ("BEE") and the "Beneficiary Earnings Enhancement--Extra" ("BEE-Extra"). There is an extra charge for these riders. .. Under certain medically related circumstances, you may surrender all or a part of the policy value without a surrender charge and excess interest adjustment. This feature is called the "Nursing Care and Terminal Condition Withdrawal Option". .. Under certain unemployment circumstances, you may surrender all or a portion of the policy value free of surrender charges and excess interest adjustments. This feature is called the "Unemployment Waiver". .. You may generally make transfers and/or change the allocation of additional premium payments by telephone. We may restrict or eliminate this feature. .. You can arrange to automatically transfer money (at least $500 per transfer) monthly or quarterly from certain investment options into one or more subaccounts. This feature is known as "Dollar Cost Averaging". .. We will, upon your request, automatically transfer amounts among the subaccounts on a regular basis to maintain a desired allocation of the policy value among the various subaccounts. This feature is called "Asset Rebalancing". These features are not available in all states, may vary by state, and may not be suitable for your particular situation. 11. OTHER INFORMATION Right to Cancel Period. You may return your policy for a refund, but only if you return it within a prescribed period, which is generally 10 days (after you receive the policy), or whatever longer time may be required by state law. The amount of the refund will generally be the policy value. We will pay the refund within 7 days after we receive written notice of cancellation and the returned policy within the applicable period. The policy will then be deemed void. No Probate. Usually the person receiving the death benefit under this policy will not have to go through probate. State laws vary on how the amount that may be paid is treated for estate tax purposes. Who should purchase the Policy? This policy is designed for people seeking long-term tax-deferred accumulation of assets, generally for retirement or other long-term purposes; and for persons who have maximized their use of other retirement savings methods, such as 401(k) plans. The tax-deferred feature is most attractive to people in high federal and state tax brackets. The tax deferral features of variable annuities are unnecessary when purchased to fund a qualified plan. You should not buy this policy if you are looking for a short-term investment, market timing, or if you cannot take the risk of losing the money that you put in. There are various fees and charges associated with variable annuities. You should consider whether the features and benefits of this policy, such as the opportunity for lifetime income payments, a guaranteed death benefit, the guaranteed level of certain charges, the Managed Annuity Program, the Initial Payment Guarantee, the Liquidity Rider, the Beneficiary Earnings Enhancement, and the Beneficiary Earnings Enhancement--Extra make this policy appropriate for your needs. 7 Old Policies. This prospectus generally describes policies issued after May 1, 2002. See Appendix C for information on how older policies have different features and requirements, and sometimes different fees and deductions. State Variations. Certain provisions of the policies may be different than the general description in this prospectus, and certain riders and options may not be available, because of legal restrictions in your state. See your policy for specific variations since any such state variations will be included in your policy or in riders or endorsements attached to your policy. See your agent or contact us for specific information that may be applicable to your state. Financial Statements. Financial statements for Transamerica and the subaccounts are in the SAI. Condensed financial information for the subaccounts (those in operation before January 1, 2002) is in Appendix A to this prospectus. 12.INQUIRIES If you need more information, please contact us at: Administrative and Service Office Financial Markets Division Variable Annuity Department Transamerica Life Insurance Company 4333 Edgewood Road NE P.O. Box 3183 Cedar Rapids, IA 52406-3183 You may check your policy at www.talife.com. Follow the logon procedures. You will need your pre-assigned Personal Identification Number ("PIN") to access information about your policy. We cannot guarantee that you will be able to access this site. You should protect your PIN, because one-line (or telephone) options may be available and could be made by anyone that knows your PIN. We may not be able to verify that the person providing instructions using your PIN is you or someone authorized by you. 8 ANNUITY POLICY FEE TABLE (ACCUMULATION PHASE) --------------------------------------------------------------------------------
Policy Owner Transaction Expenses ---------------------------------------- Sales Load On Purchase Payments. 0 Maximum Surrender Charge (as a % of Premium Payments Surrendered)(/1/). 6% Annual Service Charge(/2/)....... $0 - $30 Per Policy Transfer Fee(/3/).. $0 - $10 Optional Rider Fees: Managed Annuity Program(/4/)...... 0.45% Beneficiary Earnings Enhancement(/5/).. 0.25% Beneficiary Earnings Enhancement-- Extra(/6/)........ 0.50% - 0.60%
Separate Account Annual Expenses (as a percentage of average account value) Mortality and Expense Risk Fees(/7/)....................... 1.10% Administrative Charge............ 0.15% ----- TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES........................ 1.25% Optional Separate Account Expenses: Annual Step-Up Death Benefit(/8/).................... 0.15% Enhanced Death Benefit(/9/)...... 0.25% Liquidity Rider(/10/)............ 0.50% TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES WITH HIGHEST OPTIONAL SEPARATE ACCOUNT EXPENSES(/11/). 2.00%
-------------------------------------------------------------------------------- Portfolio Annual Expenses(/12/) (as a percentage of average net assets and after fee waivers and/or expense reimbursements) --------------------------------------------------------------------------------- Total Rule Portfolio Management Other 12b-1 Annual Fees Expenses Fees Expenses --------------------------------------------------------------------------------- BlackRock Large Cap Value................ 0.80% 0.50% 0.00% 1.30% BlackRock Mid Cap Growth................. 0.80% 0.50% 0.00% 1.30% BlackRock Global Science & Technology.... 0.90% 0.50% 0.00% 1.40% Capital Guardian Value................... 0.85% 0.09% 0.00% 0.94% Capital Guardian U.S. Equity............. 0.85% 0.23% 0.00% 1.08% Capital Guardian Global.................. 1.05% 0.29% 0.00% 1.34% Jennison Growth.......................... 0.85% 0.16% 0.00% 1.01% Salomon All Cap.......................... 0.85% 0.15% 0.00% 1.00% Third Avenue Value....................... 0.80% 0.12% 0.00% 0.92% Transamerica Equity...................... 0.75% 0.10% 0.00% 0.85% AIM V.I. Balanced Fund--Series II shares. 0.75% 0.37% 0.25% 1.37% AIM V.I. Premier Equity Fund--Series II shares.................................. 0.60% 0.25% 0.25% 1.10% AIM V.I. Dent Demographic Trends Fund-- Series II shares(/13/).................. 0.71% 0.59% 0.15% 1.45% Federated International Small Company Fund II(/14/)........................... 0.00% 1.65% 0.00% 1.65% Federated Prime Money Fund II(/14/)...... 0.50% 0.16% 0.00% 0.66% Federated Quality Bond Fund II(/14/)..... 0.00% 0.70% 0.00% 0.70% Federated Small Cap Strategies Fund II(/14/)(/15/).......................... 0.00% 1.21% 0.00% 1.21% Colonial Small Cap Value Fund, Variable Series(/16/)(/17/)...................... 0.80% 0.30% 0.00% 1.10% Colonial Strategic Income Fund, Variable Series.................................. 0.65% 0.20% 0.00% 0.85% Liberty Select Value Fund, Variable Series(/18/)............................ 0.70% 0.40% 0.00% 1.10% MFS Emerging Growth Series--Service Class(/19/)............................. 0.75% 0.12% 0.25% 1.12% MFS Investors Growth Stock Series-- Service Class(/19/)..................... 0.75% 0.17% 0.25% 1.17% MFS Utilities Series--Service Class(/19/)............................. 0.75% 0.18% 0.25% 1.18% Oppenheimer Global Securities Fund/VA-- Service Shares(/20/).................... 0.64% 0.06% 0.25% 0.95% Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares(/20/).......... 0.68% 0.05% 0.25% 0.98% Oppenheimer Main Street Small Cap Fund/VA-- Service Shares(/20/).......... 0.75% 0.29% 0.25% 1.29% Putnam VT Growth and Income Fund--Class IB Shares(/21/)......................... 0.46% 0.05% 0.25% 0.76% Putnam VT International Growth Fund-- Class IB Shares(/21/)................... 0.76% 0.18% 0.25% 1.19% Putnam VT Investors Fund--Class IB Shares(/21/)............................ 0.60% 0.06% 0.25% 0.91% Fidelity--VIP Growth--Service Class 2(/22/)................................. 0.58% 0.10% 0.25% 0.93% Fidelity--VIP High Income--Service Class 2(/22/)................................. 0.58% 0.15% 0.25% 0.98% Fidelity--VIP Index 500--Service Class 2(/23/)................................. 0.24% 0.04% 0.25% 0.53% Wanger U.S. Smaller Companies(/24/)...... 0.94% 0.05% 0.00% 0.99%
9 (/1/)The surrender charge is decreased based on the number of years since the premium payment was made, from 6% in the year in which the premium payment was made to 0% in the sixth year after the premium payment was made. However, after the tenth policy year, no surrender charges apply, regardless of when you made your last premium payment. If applicable, a surrender charge will only be applied to surrenders that exceed the amount available under certain listed exceptions. The surrender charge, if any is imposed, applies to each policy, regardless of how policy value is allocated among the separate account and the fixed account. (/2/)The service charge is the lesser of $30 or 2% of the policy value. It applies to both the fixed account and the separate account, and is assessed on a prorata basis relative to each account's policy value as a percentage of the policy's total policy value. (/3/)The transfer fee, if any is imposed, applies to each policy, regardless of how policy value is allocated among the separate account and the fixed account. There is no fee for the first 12 transfers per policy year. For additional transfers, Transamerica may charge a fee of $10 per transfer, but currently does not charge for any transfers. (/4/)The Managed Annuity Program fee is 0.45% of the minimum income base value and is deducted only during the accumulation phase. If you annuitize under the rider, a guaranteed payment fee is deducted at an annual rate of 1.25%. See Section 5, Expenses. (/5/)The annual Beneficiary Earnings Enhancement fee is 0.25% of the policy value and is deducted only during the accumulation phase. (/6/)The annual Beneficiary Earnings Enhancement-Extra fee is 0.50% or 0.60% of the policy in the subaccounts for the 50% and 75% initial death benefit option, respectively. (/7/)The mortality and expense risk fee shown (1.10%) is for the "Return of Premium Death Benefit". (/8/)The fee for the Annual Step-Up Death Benefit is in addition to the mortality and expense risk fee (1.10%). (/9/)The fee for the Enhanced Death Benefit is in addition to the mortality and expense risk fee (1.10%). (/10/)The fee for the Liquidity Rider is in addition to the mortality and expense risk fee (1.10%). This fee is only charged for the first three policy years. (/11/)The Enhanced Death Benefit fee and Liquidity Rider fee are included herein. The Annual Step-Up Death Benefit fee is not included herein since it is less expensive than the Enhanced Death Benefit and the two optional death benefits may not be elected together. (/12/)The fee table information relating to the underlying fund portfolios is for the year 2001 (unless otherwise noted) and was provided to Transamerica by the underlying funds portfolios, their investment advisers or managers, and Transamerica has not and cannot independently verify the accuracy or completeness of such information. Actual future expenses of the portfolios may be greater or less than those shown in the Table. (/13/)The Investment advisor has agreed to waive fees and/or reimburse Rule 12b-1 distribution plan expenses (excluding interest, taxes, dividend expenses on short sales, extraordinary items and increases in expenses due to expense offset arrangements, if any) to limit total Series II operating expenses to 1.45% of average daily net assets until December 31, 2002. Total Annual Fund Operating Expenses before waivers and reimbursements for AIM V.I. Dent Demographic Trends Fund--Series II was 1.69%. (/14/)Although not contractually obligated to do so, the shareholder services provider will 10 waive certain amounts. Total Portfolio Annual Expenses before waivers for the Prime Money Fund II, Quality Bond Fund II, International Small Company Fund II and thee Small Cap Strategies Fund II were 0.91%, 1.25%, 5.54% and 4.76%, respectively. (/15/)Effective May 1, 2002 the Federated Small Cap Strategies Fund II subaccount was closed to new investments. (/16/)The Colonial Small Cap Value Fund, Variable Series will be available as an investment option on or about August 1, 2002. (/17/)Other Expenses and Total Portfolio Annual Expenses before waivers and/or reimbursements were 0.52% and 1.32%, respectively. (/18/)Other Expenses and Total Portfolio Annual Expenses before waivers and/or reimbursements were 0.88% and 1.58%, respectively. (/19/)Each series has an expenses offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series which its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. Other expenses do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. The ratios for Other Expenses and Total Underlying Fund Annual Expenses (reduced by custodial offset arrangements), respectively, would have been as follows: Emerging Growth Series--0.11% and 1.11%; Investors Growth Stock Series--0.15% and 1.15%; and Utilities Series--0.17% and 1.17%. (/20/)As of May 1, 2002, the 12b-1 fee increased to 0.25%. As of December 31, 2001, the 12b-1 fee was 0.15% and total portfolio annual expenses were: 0.85%--Oppenheimer Global Securities Fund/VA--Service Shares; 0.88%-- Oppenheimer Main Street Growth & Income Fund/VA--Service Shares; and 1.19%--Oppenheimer Main Street Small Cap Fund/VA--Service Shares. (/21/)As of April 30, 2001, the 12b-1 fee increased to 0.25%. As of April 29, 2001, the 12b-1 fee was 0.22%, and total portfolio annual expenses were: Growth and Income Fund--0.73%; International Growth Fund--1.16%; and Investors Fund--0.88%. (/22/)The expenses presented in the table are shown without brokerage/custodial expense reductions. With these reductions, the Growth Portfolio's other expenses and total expenses would have been 0.07% and 0.90%, respectively. (/23/)The fund's manager agreed to reimburse a portion of the portfolio's expenses during the period. The expenses presented in the table are shown with this reimbursement. Without this reimbursement, the portfolio's other expenses and total expenses would have been 0.12% and 0.61%, respectively. (/24/)Liberty Wanger Asset Management, L.P. will reimburse the fund if its annual ordinary operating expenses exceed 2.00% of average daily net assets. This commitment expires on September 30, 2002. 11 EXAMPLES--TABLE A You would pay the following expenses on a $1,000 investment, assuming a hypothetical 5% annual return on assets, assuming the entire policy value is in the applicable2 subaccount,, and assuming no optional riders or features have been selected: The expenses reflect different mortality and expense risk fees depending on which death benefit you select: A = Return of Premium Death Benefit B = Annual Step-Up Death Benefit C = Enhanced Death Benefit
If the Policy is surrendered If the Policy is annuitized at at the end of the The end of the applicable time applicable Period or if the Policy is still time period. In the accumulation phase. ------------------------------------------------------- 1 3 5 10 1 3 5 10 Subaccounts Year Years Years Years Year Years Years Years ----------------------------------------------------------------------------------------- BlackRock Large Cap Value A $81 $123 $149 $298 $ 27 $ 82 $ 141 $ 298 ---------------------------------------------------------- B $82 $128 $157 $313 $ 28 $ 87 $ 148 $ 313 ---------------------------------------------------------- C $83 $131 $162 $322 $ 29 $ 90 $ 153 $ 322 ----------------------------------------------------------------------------------------- BlackRock Mid Cap Growth A $81 $123 $149 $298 $ 27 $ 82 $ 141 $ 298 ---------------------------------------------------------- B $82 $128 $157 $313 $ 28 $ 87 $ 148 $ 313 ---------------------------------------------------------- C $83 $131 $162 $322 $ 29 $ 90 $ 153 $ 322 ----------------------------------------------------------------------------------------- BlackRock Global Science & Technology A $82 $126 $154 $308 $ 28 $ 85 $ 146 $ 308 ---------------------------------------------------------- B $83 $131 $162 $322 $ 29 $ 90 $ 153 $ 322 ---------------------------------------------------------- C $84 $132 $167 $332 $ 30 $ 93 $ 158 $ 332 ----------------------------------------------------------------------------------------- Capital Guardian Value A $77 $112 $161 $263 $ 23 $ 72 $ 123 $ 263 ---------------------------------------------------------- B $79 $117 $139 $278 $ 25 $ 76 $ 130 $ 278 ---------------------------------------------------------- C $80 $120 $144 $288 $ 26 $ 79 $ 135 $ 288 ----------------------------------------------------------------------------------------- Capital Guardian U.S. Equity A $78 $116 $138 $277 $ 25 $ 76 $ 130 $ 277 ---------------------------------------------------------- B $80 $121 $146 $292 $ 26 $ 80 $ 137 $ 292 ---------------------------------------------------------- C $81 $124 $151 $301 $ 27 $ 83 $ 142 $ 301 ----------------------------------------------------------------------------------------- Capital Guardian Global A $81 $124 $151 $302 $ 27 $ 84 $ 143 $ 302 ---------------------------------------------------------- B $83 $129 $159 $317 $ 29 $ 88 $ 150 $ 317 ---------------------------------------------------------- C $84 $132 $164 $326 $ 30 $ 91 $ 155 $ 326 ----------------------------------------------------------------------------------------- Jennison Growth A $78 $114 $135 $270 $ 24 $ 74 $ 126 $ 270 ---------------------------------------------------------- B $79 $119 $142 $285 $ 25 $ 78 $ 134 $ 285 ---------------------------------------------------------- C $80 $122 $147 $295 $ 26 $ 81 $ 139 $ 295 ----------------------------------------------------------------------------------------- Salomon All Cap A $78 $114 $134 $269 $ 24 $ 73 $ 126 $ 269 ---------------------------------------------------------- B $79 $119 $142 $284 $ 25 $ 78 $ 133 $ 284 ---------------------------------------------------------- C $80 $122 $147 $294 $ 26 $ 81 $ 138 $ 294 ----------------------------------------------------------------------------------------- Third Avenue Value A $77 $111 $130 $261 $ 23 $ 71 $ 122 $ 261 ---------------------------------------------------------- B $78 $116 $138 $276 $ 25 $ 75 $ 129 $ 276 ---------------------------------------------------------- C $79 $119 $143 $286 $ 26 $ 79 $ 134 $ 286 ----------------------------------------------------------------------------------------- Transamerica Equity A $76 $109 $127 $254 $ 22 $ 69 $ 118 $ 254 ---------------------------------------------------------- B $78 $114 $134 $269 $ 24 $ 73 $ 126 $ 269 ---------------------------------------------------------- C $79 $117 $139 $279 $ 25 $ 76 $ 131 $ 279
12 EXAMPLES TABLE A continued . . .
If the Policy is annuitized at the end of the applicable time If the Policy is surrendered Period or if the Policy is at the end of the applicable still In the accumulation time period. phase. ----------------------------------------------------------- 10 10 Subaccounts 1 Year 3 Years 5 Years Years 1 Year 3 Years 5 Years Years --------------------------------------------------------------------------------------------- AIM V.I. Balanced Fund-- A $ 81 $ 125 $ 153 $ 305 $ 28 $ 84 $ 144 $ 305 -------------------------------------------------------------- Series II Shares B $ 83 $ 130 $ 160 $ 320 $ 29 $ 89 $ 151 $ 320 -------------------------------------------------------------- C $ 84 $ 133 $ 165 $ 329 $ 30 $ 92 $ 156 $ 329 --------------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund-- A $ 79 $ 117 $ 139 $ 279 $ 25 $ 76 $ 131 $ 279 -------------------------------------------------------------- Series II Shares B $ 80 $ 122 $ 147 $ 294 $ 26 $ 81 $ 138 $ 294 -------------------------------------------------------------- C $ 81 $ 125 $ 152 $ 303 $ 27 $ 84 $ 143 $ 303 --------------------------------------------------------------------------------------------- AIM V.I. Dent Demographic Trends Fund-- A $ 82 $ 128 $ 157 $ 313 $ 28 $ 87 $ 148 $ 313 -------------------------------------------------------------- Series II Shares B $ 84 $ 132 $ 164 $ 327 $ 30 $ 91 $ 155 $ 327 -------------------------------------------------------------- C $ 85 $ 135 $ 169 $ 337 $ 31 $ 94 $ 160 $ 337 --------------------------------------------------------------------------------------------- Federated International Small Company A $ 84 $ 134 $ 167 $ 332 $ 30 $ 93 $ 158 $ 332 -------------------------------------------------------------- Fund II B $ 86 $ 138 $ 174 $ 346 $ 32 $ 97 $ 165 $ 346 -------------------------------------------------------------- C $ 87 $ 141 $ 179 $ 355 $ 33 $ 100 $ 170 $ 355 --------------------------------------------------------------------------------------------- Federated Prime Money Fund II A $ 74 $ 103 $ 117 $ 234 $ 20 $ 63 $ 108 $ 234 -------------------------------------------------------------- B $ 76 $ 108 $ 124 $ 249 $ 22 $ 68 $ 116 $ 249 -------------------------------------------------------------- C $ 77 $ 111 $ 130 $ 260 $ 23 $ 71 $ 121 $ 260 --------------------------------------------------------------------------------------------- Federated Quality Bond Fund II A $ 75 $ 105 $ 119 $ 238 $ 21 $ 64 $ 110 $ 238 -------------------------------------------------------------- B $ 76 $ 109 $ 127 $ 254 $ 22 $ 69 $ 118 $ 254 -------------------------------------------------------------- C $ 77 $ 112 $ 132 $ 264 $ 23 $ 72 $ 123 $ 264 --------------------------------------------------------------------------------------------- Federated Small Cap Strategies Fund II A $ 80 $ 120 $ 145 $ 290 $ 26 $ 80 $ 136 $ 290 -------------------------------------------------------------- B $ 81 $ 125 $ 152 $ 304 $ 27 $ 84 $ 144 $ 304 -------------------------------------------------------------- C $ 82 $ 128 $ 157 $ 314 $ 28 $ 87 $ 145 $ 314 --------------------------------------------------------------------------------------------- Colonial Small Cap Value Fund, A $ 79 $ 117 $ 139 $ 279 $ 25 $ 76 $ 131 $ 279 -------------------------------------------------------------- Variable Series B $ 80 $ 122 $ 147 $ 294 $ 26 $ 81 $ 138 $ 294 -------------------------------------------------------------- C $ 81 $ 125 $ 152 $ 303 $ 27 $ 84 $ 143 $ 303 --------------------------------------------------------------------------------------------- Colonial Strategic Income Fund, A $ 76 $ 109 $ 127 $ 254 $ 22 $ 69 $ 118 $ 254 -------------------------------------------------------------- Variable Series B $ 78 $ 114 $ 134 $ 269 $ 24 $ 73 $ 126 $ 269 -------------------------------------------------------------- C $ 79 $ 117 $ 139 $ 279 $ 25 $ 76 $ 131 $ 279 --------------------------------------------------------------------------------------------- Liberty Select Value Fund, Variable Series A $ 79 $ 117 $ 139 $ 279 $ 25 $ 76 $ 131 $ 279 -------------------------------------------------------------- B $ 80 $ 122 $ 147 $ 294 $ 26 $ 81 $ 138 $ 294 -------------------------------------------------------------- C $ 81 $ 125 $ 152 $ 303 $ 27 $ 84 $ 143 $ 303 --------------------------------------------------------------------------------------------- MFS Emerging Growth Series-- A $ 79 $ 118 $ 140 $ 281 $ 25 $ 77 $ 132 $ 281 -------------------------------------------------------------- Service Class B $ 80 $ 122 $ 148 $ 296 $ 27 $ 81 $ 139 $ 296 -------------------------------------------------------------- C $ 81 $ 125 $ 153 $ 305 $ 28 $ 84 $ 144 $ 305 --------------------------------------------------------------------------------------------- MFS Investors Growth Stock Series-- A $ 79 $ 119 $ 143 $ 286 $ 26 $ 79 $ 134 $ 286 -------------------------------------------------------------- Service Class B $ 81 $ 124 $ 150 $ 300 $ 27 $ 83 $ 142 $ 300 -------------------------------------------------------------- C $ 82 $ 127 $ 155 $ 310 $ 28 $ 86 $ 146 $ 310
13 EXAMPLES TABLE A continued . . .
If the Policy is annuitized at the end of the applicable time If the Policy is surrendered Period or if the Policy is at the end of the applicable still In the accumulation time period. phase. ------------------------------------------------------------ 10 10 Subaccounts 1 Year 3 Years 5 Years Years 1 Year 3 Years 5 Years Years ---------------------------------------------------------------------------------------------- MFS Utilities Series-- A $79 $ 119 $ 143 $ 287 $ 26 $ 79$ 135$ 287 --------------------------------------------------------------- Service Class B $81 $ 124 $ 151 $ 301 $ 27 $ 83$ 142$ 301 --------------------------------------------------------------- C $82 $ 127 $ 156 $ 311 $ 28 $ 86$ 147$ 311 ---------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA-- A $77 $ 112 $ 132 $ 264 $ 23 $ 72$ 123$ 264 --------------------------------------------------------------- Service Shares B $79 $ 117 $ 139 $ 279 $ 25 $ 76$ 131$ 279 --------------------------------------------------------------- C $80 $ 120 $ 144 $ 289 $ 26 $ 79$ 136$ 289 ---------------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & A $77 $ 113 $ 133 $ 267 $ 24 $ 73$ 125$ 267 --------------------------------------------------------------- Income Fund/VA--Service Shares B $79 $ 118 $ 141 $ 282 $ 25 $ 77$ 132$ 282 --------------------------------------------------------------- C $80 $ 121 $ 146 $ 292 $ 26 $ 80$ 137$ 292 ---------------------------------------------------------------------------------------------- Oppenheimer Main Street Small Cap A $81 $ 123 $ 149 $ 297 $ 27 $ 82$ 140$ 297 --------------------------------------------------------------- Fund/VA--Service Shares B $82 $ 127 $ 156 $ 312 $ 28 $ 87$ 147$ 312 --------------------------------------------------------------- C $83 $ 130 $ 161 $ 321 $ 29 $ 90$ 152$ 321 ---------------------------------------------------------------------------------------------- Putnam VT Growth and Income Fund-- A $75 $ 107 $ 122 $ 244 $ 21 $ 66$ 113$ 244 --------------------------------------------------------------- Class IB Shares B $77 $ 111 $ 130 $ 260 $ 23 $ 71$ 121$ 260 --------------------------------------------------------------- C $78 $ 114 $ 135 $ 270 $ 24 $ 74$ 126$ 270 ---------------------------------------------------------------------------------------------- Putnam VT International Growth Fund-- A $80 $ 120 $ 144 $ 288 $ 15 $ 79$ 135$ 288 --------------------------------------------------------------- Class IB Shares B $81 $ 124 $ 151 $ 302 $ 27 $ 84$ 143$ 302 --------------------------------------------------------------- C $82 $ 127 $ 156 $ 312 $ 28 $ 87$ 147$ 312 ---------------------------------------------------------------------------------------------- Putnam VT Investors Fund-- A $77 $ 111 $ 130 $ 260 $ 23 $ 71$ 121$ 260 --------------------------------------------------------------- Class IB Shares B $78 $ 116 $ 137 $ 275 $ 24 $ 75$ 129$ 275 --------------------------------------------------------------- C $79 $ 119 $ 142 $ 285 $ 25 $ 78$ 134$ 285 ---------------------------------------------------------------------------------------------- Fidelity--VIP Growth-- Service Class 2 A $77 $ 112 $ 131 $ 262 $ 23 $ 71$ 122$ 262 --------------------------------------------------------------- B $78 $ 116 $ 138 $ 277 $ 25 $ 76$ 130$ 277 --------------------------------------------------------------- C $79 $ 119 $ 143 $ 287 $ 26 $ 79$ 135$ 287 ---------------------------------------------------------------------------------------------- Fidelity--VIP High Income-- A $77 $ 113 $ 133 $ 267 $ 24 $ 73$ 125$ 267 --------------------------------------------------------------- Service Class 2 B $79 $ 118 $ 141 $ 282 $ 25 $ 77$ 132$ 282 --------------------------------------------------------------- C $80 $ 121 $ 146 $ 292 $ 26 $ 80$ 137$ 292 ---------------------------------------------------------------------------------------------- Fidelity--VIP Index 500--Service Class 2 A $73 $ 99 $ 110 $ 220 $ 19 $ 59$ 102$ 220 --------------------------------------------------------------- B $74 $104 $ 118 $ 236 $ 21 $ 64$ 109$ 236 --------------------------------------------------------------- C $75 $107 $ 123 $ 246 $ 22 $ 67$ 114$ 246 ---------------------------------------------------------------------------------------------- Wanger U.S. Smaller Companies A $78 $114 $ 134 $ 268 $ 24 $ 73$ 125$ 268 --------------------------------------------------------------- B $79 $118 $ 141 $ 283 $ 25 $ 78$ 133$ 283 --------------------------------------------------------------- C $80 $121 $ 146 $ 293 $ 26 $ 81$ 138$ 293
14 EXAMPLES--TABLE B You would pay the following expenses on a $1,000 investment, assuming a hypothetical 5% annual return on assets, assuming the entire policy value is in the applicable subaccount, and assuming the Managed Annuity Program, the Liquidity Rider, and the Beneficiary Earnings Enhancement--Extra have been selected: The expenses reflect different mortality and expense risk fees depending on which death benefit you select: A = Return of Premium Death Benefit B = Annual Step-Up Death Benefit C = Enhanced Death Benefit
If the Policy is annuitized at the end If the Policy is of the applicable time surrendered at the end period or if the of the applicable time Policy is still in the period. accumulation phase. ------------------------------------------- 1 3 5 10 1 3 5 10 Subaccounts Year Years Years Years Year Years Years Years ------------------------------------------------------------------------------- BlackRock Large Cap Value A $91 $156 $204 $408 $37 $115 $195 $408 --------------------------------------------- B $93 $160 $211 $421 $39 $119 $202 $421 --------------------------------------------- C $94 $163 $216 $430 $40 $122 $206 $403 ------------------------------------------------------------------------------- BlackRock Mid Cap Growth A $91 $156 $204 $408 $37 $115 $195 $408 --------------------------------------------- B $93 $160 $211 $421 $39 $119 $202 $421 --------------------------------------------- C $94 $163 $216 $430 $40 $122 $206 $430 ------------------------------------------------------------------------------- BlackRock Global Science & Technology A $92 $159 $209 $417 $38 $117 $199 $417 --------------------------------------------- B $94 $163 $216 $430 $40 $122 $206 $430 --------------------------------------------- C $95 $166 $221 $439 $41 $125 $211 $439 ------------------------------------------------------------------------------- Capital Guardian Value A $88 $145 $187 $376 $34 $104 $177 $376 --------------------------------------------- B $89 $150 $194 $389 $35 $108 $185 $389 --------------------------------------------- C $90 $153 $199 $398 $36 $111 $189 $398 ------------------------------------------------------------------------------- Capital Guardian U.S. Equity A $89 $149 $193 $389 $35 $108 $184 $389 --------------------------------------------- B $91 $154 $201 $402 $37 $113 $191 $402 --------------------------------------------- C $92 $157 $205 $411 $38 $115 $196 $411 ------------------------------------------------------------------------------- Capital Guardian Global A $92 $157 $206 $412 $38 $116 $196 $412 --------------------------------------------- B $93 $162 $213 $425 $39 $120 $204 $425 --------------------------------------------- C $94 $164 $218 $433 $40 $123 $208 $433 ------------------------------------------------------------------------------- Jennison Growth A $89 $147 $190 $382 $35 $106 $181 $382 --------------------------------------------- B $90 $152 $197 $396 $36 $110 $188 $396 --------------------------------------------- C $91 $155 $202 $405 $37 $113 $193 $405 ------------------------------------------------------------------------------- Salomon All Cap A $88 $147 $189 $381 $35 $106 $180 $381 --------------------------------------------- B $90 $151 $197 $395 $36 $110 $187 $395 --------------------------------------------- C $91 $154 $202 $404 $37 $113 $192 $404 ------------------------------------------------------------------------------- Third Avenue Value A $88 $145 $186 $374 $34 $103 $176 $374 --------------------------------------------- B $89 $149 $193 $388 $35 $108 $184 $388 --------------------------------------------- C $90 $152 $198 $397 $36 $111 $188 $397 ------------------------------------------------------------------------------- Transamerica Equity A $87 $142 $182 $367 $33 $101 $173 $367 --------------------------------------------- B $88 $147 $189 $381 $35 $106 $180 $381 --------------------------------------------- C $89 $150 $194 $390 $36 $109 $185 $390 ------------------------------------------------------------------------------- AIM V.I. Balanced Fund-- A $92 $158 $207 $414 $38 $117 $198 $414 --------------------------------------------- Series II Shares B $94 $162 $214 $427 $40 $121 $205 $427 --------------------------------------------- C $95 $165 $219 $436 $41 $124 $210 $436
15 EXAMPLES TABLE B--continued...
If the Policy is surrendered If the Policy is annuitized at at the end of the the end of the applicable time applicable period or if the Policy is still time period. in the accumulation phase. ---------------------------------------------------- 1 3 5 10 Subaccounts Year Years Years Years 1 Year 3 Years 5 Years 10 Years ----------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund-- A $89 $150 $194 $390 $36 $ 109 $ 185 $390 -------------------------------------------------------- Series II Shares B $91 $154 $202 $404 $37 $ 113 $ 192 $404 -------------------------------------------------------- C $92 $157 $206 $413 $38 $ 116 $ 197 $413 ----------------------------------------------------------------------------------------- AIM V.I. Dent Demographic Trends Fund-- A $93 $160 $211 $421 $ 39 $ 119 $ 202 $ 421 -------------------------------------------------------- Series II Shares B $94 $165 $218 $434 $ 40 $ 123 $ 209 $ 434 -------------------------------------------------------- C $95 $168 $223 $443 $ 41 $ 126 $ 213 $ 443 ----------------------------------------------------------------------------------------- Federated International Small Company A $95 $166 $221 $439 $ 41 $ 125 $ 211 $ 439 -------------------------------------------------------- Fund II B $96 $171 $228 $451 $ 42 $ 129 $ 218 $ 451 -------------------------------------------------------- C $97 $174 $232 $460 $ 43 $ 132 $ 223 $ 460 ----------------------------------------------------------------------------------------- Federated Prime Money Fund II A $85 $137 $173 $349 $ 31 $ 96 $ 164 $ 349 -------------------------------------------------------- B $87 $141 $180 $364 $ 33 $ 10 $ 171 $ 364 -------------------------------------------------------- C $88 $144 $185 $373 $ 34 $ 103 $ 176 $ 373 ----------------------------------------------------------------------------------------- Federated Quality Bond Fund II A $85 $138 $175 $353 $ 32 $ 97 $ 166 $ 353 -------------------------------------------------------- B $87 $142 $182 $367 $ 33 $ 101 $ 173 $ 367 -------------------------------------------------------- C $88 $145 $187 $377 $ 34 $ 104 $ 178 $ 377 ----------------------------------------------------------------------------------------- Federated Small Cap Strategies Fund II A $91 $153 $200 $400 $ 37 $ 112 $ 190 $ 400 -------------------------------------------------------- B $92 $158 $207 $413 $ 38 $ 116 $ 197 $ 413 -------------------------------------------------------- C $93 $161 $212 $422 $ 39 $ 119 $ 202 $ 422 ----------------------------------------------------------------------------------------- Colonial Small Cap Value Fund, A $89 $150 $194 $390 $ 36 $ 109 $ 185 $ 390 -------------------------------------------------------- Variable Series B $91 $154 $202 $404 $ 37 $ 113 $ 192 $ 404 -------------------------------------------------------- C $92 $157 $206 $413 $ 38 $ 116 $ 197 $ 413 ----------------------------------------------------------------------------------------- Colonial Strategic Income Fund, A $87 $142 $182 $367 $ 33 $ 101 $ 173 $ 367 -------------------------------------------------------- Variable Series B $88 $147 $189 $381 $ 35 $ 106 $ 180 $ 381 -------------------------------------------------------- C $89 $150 $194 $390 $ 36 $ 109 $ 185 $ 390 ----------------------------------------------------------------------------------------- Liberty Select Value Fund, A $89 $150 $194 $390 $ 36 $ 109 $ 185 $ 390 -------------------------------------------------------- Variable Series B $91 $154 $202 $404 $ 37 $ 113 $ 192 $ 404 -------------------------------------------------------- C $92 $157 $206 $413 $ 38 $ 116 $ 197 $ 413 ----------------------------------------------------------------------------------------- MFS Emerging Growth Series-- A $90 $151 $195 $392 $ 36 $ 109 $ 186 $ 392 -------------------------------------------------------- Service Class B $91 $155 $203 $406 $ 37 $ 114 $ 193 $ 406 -------------------------------------------------------- C $92 $158 $207 $414 $ 38 $ 117 $ 198 $ 414 ----------------------------------------------------------------------------------------- MFS Investors Growth Stock Series-- A $90 $152 $198 $397 $ 36 $ 111 $ 188 $ 397 -------------------------------------------------------- Service Class B $92 $156 $205 $410 $ 38 $ 115 $ 196 $ 410 -------------------------------------------------------- C $93 $159 $210 $419 $ 39 $ 118 $ 200 $ 419 ----------------------------------------------------------------------------------------- MFS Utilities Series-- A $90 $152 $198 $398 $ 36 $ 111 $ 189 $ 398 -------------------------------------------------------- Service Class B $92 $157 $205 $411 $ 38 $ 115 $ 196 $ 411 -------------------------------------------------------- C $93 $160 $210 $420 $ 39 $ 118 $ 201 $ 420
16 EXAMPLES TABLE B--continued...
If the Policy is If the Policy is annuitized at the end surrendered of the applicable time at the end of the period or if the applicable Policy is still in the time period. accumulation phase. ------------------------------------------- 1 3 5 10 1 3 5 10 Subaccounts Year Years Years Years Year Years Years Years ------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA-- A $88 $145 $187 $377 $34 $104 $178 $377 --------------------------------------------- Service Shares B $89 $150 $197 $390 $36 $109 $185 $390 --------------------------------------------- C $90 $153 $199 $399 $37 $112 $190 $399 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & A $88 $146 $189 $379 $34 $105 $179 $379 --------------------------------------------- Income Fund/VA--Service Shares B $90 $151 $196 $393 $36 $110 $196 $393 --------------------------------------------- C $91 $154 $201 $402 $37 $113 $191 $402 ------------------------------------------------------------------------------- Oppenheimer Main Street Small Cap A $91 $156 $203 $407 $37 $114 $194 $407 --------------------------------------------- Fund/VA--Service Shares B $93 $160 $211 $420 $39 $119 $201 $420 --------------------------------------------- C $94 $163 $215 $429 $40 $122 $206 $429 ------------------------------------------------------------------------------- Putnam VT Growth and Income Fund-- A $86 $140 $178 $359 $32 $ 99 $169 $359 --------------------------------------------- Class IB Shares B $88 $144 $185 $373 $34 $103 $176 $373 --------------------------------------------- C $89 $147 $190 $382 $35 $106 $181 $382 ------------------------------------------------------------------------------- Putnam VT International Growth Fund-- A $90 $153 $199 $398 $36 $111 $189 $398 --------------------------------------------- Class IB Shares B $92 $157 $206 $412 $38 $116 $196 $412 --------------------------------------------- C $93 $160 $211 $420 $39 $119 $201 $420 ------------------------------------------------------------------------------- Putnam VT Investors Fund-- A $88 $144 $185 $373 $34 $103 $176 $373 --------------------------------------------- Class IB Shares B $89 $149 $192 $387 $35 $108 $183 $387 --------------------------------------------- C $90 $152 $197 $396 $36 $110 $188 $396 ------------------------------------------------------------------------------- Fidelity--VIP Growth-- A $88 $145 $186 $375 $34 $104 $177 $375 --------------------------------------------- Service Class 2 B $89 $149 $193 $389 $35 $108 $184 $389 --------------------------------------------- C $90 $152 $198 $398 $36 $111 $189 $398 ------------------------------------------------------------------------------- Fidelity--VIP High Income-- A $88 $146 $189 $379 $34 $105 $179 $379 --------------------------------------------- Service Class 2 B $90 $151 $196 $393 $36 $110 $186 $393 --------------------------------------------- C $91 $154 $201 $402 $37 $113 $191 $402 ------------------------------------------------------------------------------- Fidelity--VIP Index 500-- A $84 $133 $166 $337 $30 $ 92 $157 $337 --------------------------------------------- Service Class 2 B $85 $137 $174 $351 $31 $ 96 $165 $351 --------------------------------------------- C $86 $140 $179 $361 $32 $ 99 $170 $361 ------------------------------------------------------------------------------- Wanger U.S. Smaller Companies A $88 $147 $189 $380 $34 $106 $180 $380 --------------------------------------------- B $90 $151 $196 $394 $36 $110 $187 $394 --------------------------------------------- C $91 $154 $201 $403 $37 $113 $192 $403
Table A and Table B will assist you in understanding the costs and expenses that you will bear, directly or indirectly. These include the year 2001 expenses of the underlying fund portfolios, including any fee waivers and/or expense reimbursements (said fee waivers and expense reimbursements are assumed to continue throughout the periods shown in the examples). In addition to the expenses listed above, premium taxes may be applicable. The examples should not be considered a representation of past or future expenses, and actual expenses may be greater or less than those shown. The assumed 5% annual return is hypothetical and should not be considered a representation of past or future annual returns, which may be greater or less than the assumed rate. In these examples, the annual $30 service charge is reflected as a charge of 0.1000% based on an average policy value of $30,000 (as of December 31, 2001). 17 1.THE ANNUITY POLICY This prospectus describes the Premier Asset Builder Variable Annuity policy offered by Transamerica Life Insurance Company. This prospectus generally describes policies issued on or after May 1, 2002. Policies issued before that date may have different features (such as different death benefits or annuity payment options) and different charges. These differences are noted in Appendix C. An annuity is a contract between you, the owner, and an insurance company (in this case Transamerica), where the insurance company promises to pay you an income in the form of annuity payments. These payments begin on a designated date, referred to as the annuity commencement date. Until the annuity commencement date, your annuity is in the accumulation phase and the earnings (if any) are tax deferred. Tax deferral means you generally are not taxed until you take money out of your annuity. After the annuity commencement date, your annuity switches to the income phase. The policy is a flexible premium deferred variable annuity. You can use the policy to accumulate funds for retirement or other long-term financial planning purposes. Your individual investment and your rights are determined primarily by your own policy. The policy is a "flexible premium" annuity because after you purchase it, you can generally make additional investments of $50 or more until the annuity commencement date. You are not required to make any additional investments. The policy is a "variable" annuity because the value of your investments can go up or down based on the performance of your investment choices. If you invest in the separate account, the amount of money you are able to accumulate in your policy during the accumulation phase depends upon the performance of your investment choices. You could lose the amount you allocate to the separate account. The amount of annuity payments you receive during the income phase from the separate account also depends upon the investment performance of your investment choices for the income phase. However, if you annuitize under the Managed Annuity Program or Initial Payment Guarantee, then Transamerica will guarantee a minimum amount of your annuity payments. There is an extra charge for these riders. The policy also contains a fixed account. The fixed account offers interest at rates that we guarantee will not decrease during the selected guaranteed period. There may be different interest rates for each different guaranteed period that you select. 2.PURCHASE Policy Issue Requirements Transamerica will not issue a policy unless: .. Transamerica receives all information needed to issue the policy; .. Transamerica receives a minimum initial premium payment; .. The annuitant, owner and any joint owner are age 85 or younger (may be lower for qualified policies). We reserve the right to reject any application or premium payment. Premium Payments You should make checks for premium payments payable only to Transamerica Life Insurance Company and send them to the administrative and service office. Your check must be honored in order for Transamerica to pay any associated payments and benefits due under the policy. Initial Premium Requirements The initial premium payment for most policies must be at least $2,000. There is generally no minimum initial premium payment for policies issued under 403(b) policies of the Internal Revenue Code; however, your premium must be received within 90 days of the policy date or your policy will be canceled. We will credit your initial premium payment to your policy within two business days after the day we receive it and your complete policy information. If we are unable to credit your initial premium payment, we will contact you within five business days and explain why. We will also return your initial premium payment at that time unless you let us keep it and credit it as soon as possible. 18 The date on which we credit your initial premium payment to your policy is generally the policy date. The policy date is used to determine policy years, policy months and policy anniversaries. There may be delays in our receipt of applications that are outside of our control (for example, because of the failure of the selling broker/dealer or sales agent to forward the application to us promptly, or because of delays in determining that the policy is suitable for you). Any such delays will affect when your policy can be issued and your premium allocated among your investment choices. Additional Premium Payments You are not required to make any additional premium payments. However, you can generally make additional premium payments as often as you like during the accumulation phase. Additional premium payments must be at least $50. We will credit additional premium payments to your policy as of the business day we receive your premium and required information. Additional premium payments must be received before the New York Stock Exchange closes to get same-day pricing of the additional premium payment. Maximum Total Premium Payments Cumulative premium payments above $1,000,000 for issue ages 0-80 require prior approval by Transamerica. For issue ages over 80, we allow premium payments up to $500,000. Allocation of Premium Payments When you purchase a policy, we will allocate your premium payment to the investment choices you select. Your allocation must be in whole percentages and must total 100%. We will allocate additional premium payments the same way, unless you request a different allocation. If you allocate your premium payment to the Dollar Cost Averaging Program, you must give us instructions regarding the subaccount(s) to which transfers are to be made or we cannot accept your premium payment. You may change allocations for future additional premium payments by sending us written instructions or by telephone, subject to the limitations described below under "Telephone Transactions." The allocation change will apply to premium payments received on or after the date we receive the change request. You could lose the amount you allocate to the variable subaccounts. Policy Value You should expect your policy value to change from valuation period to valuation period. A valuation period begins at the close of regular trading on the New York Stock Exchange on each business day and ends at the close of regular trading on the next succeeding business day. A business day is each day that the New York Stock Exchange is open. The New York Stock Exchange generally closes at 4:00 p.m. eastern time. Holidays are generally not business days. 3.INVESTMENT CHOICES The Separate Account There are currently thirty-two variable subaccounts available under the policy for new investors. The subaccounts invest in shares of the various underlying fund portfolios. The companies that provide investment advice and administrative services for the underlying fund portfolios offered through this policy are listed below. The following variable investment choices are currently offered through this policy: AEGON/TRANSAMERICA SERIES FUND, INC. Subadvised by BlackRock Advisors, Inc. BlackRock Large Cap Value BlackRock Mid Cap Growth BlackRock Global Science & Technology Subadvised by Capital Guardian Trust Company Capital Guardian Value Capital Guardian U.S. Equity Capital Guardian Global Subadvised by Jennison Associates LLC Jennison Growth 19 Subadvised by Salomon Brothers Asset Management Inc. Salomon All Cap Subadvised by EQSF Advisors, Inc. Third Avenue Value Subadvised by Transamerica Investment Management, LLC Transamerica Equity AIM VARIABLE INSURANCE FUNDS--SERIES II SHARES Managed by A I M Advisors, Inc. AIM V.I. Balanced Fund AIM V.I. Premier Equity Fund Managed by A I M Advisors, Inc., and subadvised by H.S. Dent Advisors, Inc. AIM V.I. Dent Demographic Trends Fund FEDERATED INSURANCE SERIES Managed by Federated Global Investment Management Corp. Federated International Small Company Fund II Managed by Federated Investment Management Company Federated Prime Money Fund II Federated Quality Bond Fund II LIBERTY VARIABLE INVESTMENT TRUST Managed by Liberty Advisory Services Corp. Colonial Small Cap Value Fund, Variable Series (/1/) Colonial Strategic Income Fund, Variable Series Liberty Select Value Fund, Variable Series MFS(R) VARIABLE INSURANCE TRUSTSM--SERVICE CLASS Managed by Massachusetts Financial Services Company MFS Emerging Growth Series MFS Investors Growth Stock Series MFS Utilities Series OPPENHEIMER VARIABLE ACCOUNT FUNDS--SERVICE SHARES Managed by OppenheimerFunds, Inc. Oppenheimer Global Securities Fund/VA Oppenheimer Main Street Growth & Income Fund/VA Oppenheimer Main Street Small Cap Fund/VA PUTNAM VARIABLE TRUST-- CLASS IB SHARES Managed by Putnam Investments Management, LLC Putnam VT Growth and Income Fund Putnam VT International Growth Fund Putnam VT Investors Fund VARIABLE INSURANCE PRODUCTS FUND--SERVICE CLASS 2 Managed by Fidelity Management & Research Company Fidelity--VIP Growth Portfolio Fidelity--VIP High Income Portfolio Fidelity--VIP Index 500 Portfolio WANGER ADVISORS TRUST Managed by Liberty Wanger Asset Management, L.P. Wanger U.S. Smaller Companies (/1/)The Colonial Small Cap Value Fund, Variable Series will become available as an investment option on or about August 1, 2002. The following subaccount is no longer available for new investments as of May 1, 2002. FEDERATED INSURANCE SERIES Managed by Federated Investment Management Company Federated Small Cap Strategies Fund II The general public may not purchase shares of these underlying fund portfolios. The names and investment objectives and policies may be similar to other portfolios and underlying funds managed by the same investment adviser or manager that are sold directly to the public. You should not expect the investment results of the underlying fund portfolios to be the same as those of other portfolios or underlying funds. More detailed information, including an explanation of the portfolios' investment objectives, may be found in the current prospectuses for the underlying fund portfolios, which accompany this prospectus. You should read the prospectuses for the underlying fund portfolios carefully before you invest. We may receive expense reimbursements or other revenues from the underlying fund 20 portfolios or their managers. The amount of these reimbursements or revenues, if any, may be substantial and may be different for different portfolios, and may be based on the amount of assets that Transamerica or the separate account invests in the underlying fund portfolios. We do not guarantee that any of the subaccounts will always be available for premium payments, allocations, or transfers. See the SAI for more information concerning the possible addition, deletion, or substitution of investments. The Fixed Account Premium payments allocated and amounts transferred to the fixed account become part of Transamerica's general account. 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 1940 Act. Accordingly, neither the general account nor any interests therein are generally subject to the provisions of the 1933 or 1940 Acts. We guarantee that the interest credited to the fixed account will not be less than 3% per year. At the end of the guaranteed period option you selected, the value in that guaranteed period option will automatically be transferred into a new guaranteed period option of the same length (or the next shorter period if the same period is no longer offered) at the current interest rate for that period. You can transfer to another investment choice by giving us notice within 30 days before the end of the expiring guaranteed period. Full and partial surrenders and transfers from a guaranteed period option of the fixed account are generally subject to an excess interest adjustment (except at the end of the guaranteed period). This adjustment will also be made to amounts that you apply to an annuity payment option. This adjustment may increase or decrease the amount of interest credited to your policy. The excess interest adjustment will not decrease the interest credited to your policy below 3% per year, however. We determine credited rates, which are guaranteed for at least one year, in our sole discretion. You bear the risk that we will not credit interest greater than 3% per year. If you select the fixed account, your money will be placed with Transamerica's other general assets. The amount of money you are able to accumulate in the fixed account during the accumulation phase depends upon the total interest credited. The amount of each annuity payment you receive during the income phase from the fixed portion of your policy will remain level for the entire income phase. Transfers During the accumulation phase, you may make transfers to or from any subaccount or to the fixed account as often as you wish within certain limitations. Transfers out of a guaranteed period option of the fixed account are limited to the following: .. Transfers at the end of a guaranteed period. No excess interest adjustment will apply. .. Transfers of amounts equal to interest credited. This may affect your overall interest-crediting rate, because transfers are deemed to come from the oldest premium payment first. .. Other than at the end of a guaranteed period, transfers of amounts from the guaranteed period option in excess of amounts equal to interest credited, are subject to an excess interest adjustment. If it is a negative adjustment, the maximum amount you can transfer in any one policy year is 25% of the amount in that guaranteed period option, less any previous transfers during the current policy year. It if is a positive adjustment, we do not limit the amount that you can transfer. Each transfer must be at least $500, or the entire subaccount value. Transfers of interest from a guaranteed period option of the fixed account, must be at least $50. If less than $500 remains as a result of the transfer, then we reserve the right to include that amount in the transfer. Transfers must be received while the New York Stock Exchange is open to get same-day pricing of the transaction. 21 We reserve the right to prohibit transfers to the fixed account if we are crediting an effective annual interest rate of 3.0% (the guaranteed minimum). Currently, there is no charge for transfers and generally no limit on the number of transfers during the accumulation phase. However, in the future, the number of transfers permitted may be limited and a $10 charge per transfer may apply. During the income phase, you may transfer values out of any subaccount; however, you cannot transfer values out of the fixed account. The minimum amount that can be transferred during this phase is the lesser of $10 of monthly income, or the entire monthly income of the annuity units in the subaccount from which the transfer is being made. Transfers may be made by telephone, subject to limitations described below under "Telephone Transactions." Market Timing. The policy you are purchasing was not designed for professional market timing organizations or other persons that use programmed, large, or frequent transfers. The use of such transfers may be disruptive to the underlying fund portfolio and increase transaction costs. We reserve the right to reject any premium payment or transfer request from any person, if, in our judgment, the payment or transfer, or series of transfers, would have a negative impact on a portfolio's operations, or if a portfolio would reject our purchase order, or because of a history of frequent transfers. We may impose other restrictions on transfers or even prohibit them for any owner who, in our view, has abused, or appears likely to abuse, the transfer privilege. We may, at any time, discontinue transfer privileges, modify our procedures, or limit the number of transfers we permit. We do not permit market timing. Do not invest with us if you are a market timer. 4. PERFORMANCE Transamerica periodically advertises performance of the various subaccounts. Performance figures might not reflect charges for options, riders, or endorsements. We may disclose at least three different kinds of performance. First, we may calculate performance by determining the percentage change in the value of an accumulation unit by dividing the increase (decrease) for that unit by the value of the accumulation unit at the beginning of the period. This performance number reflects the deduction of the mortality and expense risk fees and administrative charges. It does not reflect the deduction of any applicable premium taxes, surrender charges or fees for any optional riders. The deduction of any applicable premium taxes, surrender charges or rider fees would reduce the percentage increase or make greater any percentage decrease. Second, advertisements may also include total return figures, which reflect the deduction of the mortality and expense risk fees and administrative charges. These figures may also include or exclude surrender charges. Third, in addition, for certain investment portfolios, performance may be shown for the period commencing from the inception date of the investment portfolio (i.e. before commencement of subaccount operations). These figures should not be interpreted to reflect actual historical performance of the subaccounts. We also may, from time to time, include in our advertising and sales materials, the performance of other funds or accounts managed by the subadviser, the performance of predecessors to the underlying fund portfolios, tax deferred compounding charts and other hypothetical illustrations, which may include comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets. Appendix B to this prospectus contains past performance information that you may find useful. It is divided into various parts, depending upon the type of performance information shown. Past performance is no indication of future performance; future performance will vary and future results will not be the same as the results shown. 22 5. EXPENSES There are charges and expenses associated with your policy that reduce the return on your investment in the policy. Surrender Charges During the accumulation phase, you can surrender part or all of the cash value (restrictions may apply to qualified policies). We may apply a surrender charge to compensate us for expenses relating to sales, including commissions to registered representatives and other promotional expenses. You can surrender up to 10% of your policy value (measured at the time of surrender) each year free of surrender charges. This free amount is cumulative and is referred to as the cumulative free percentage and is determined at the time of the surrender. If you surrender money in excess of this free amount, you might have to pay a surrender charge, which is a contingent deferred sales charge, on the excess amount. The following schedule shows the surrender charges that apply during the five years following payment of each premium payment:
Surrender Charge Number of Years Since (as a percentage of Premium Payment Date premium surrendered) --------------------------------------------- 0 - 1 6% --------------------------------------------- 1 - 2 6% --------------------------------------------- 2 - 3 6% --------------------------------------------- 3 - 4 4% --------------------------------------------- 4 - 5 2% --------------------------------------------- 5 or more 0%
For example, assume your premium is $100,000 and your policy value is $106,000 at the beginning of the second policy year and you surrender $30,000. Since that amount is more than your free amount ($21,200), you would pay a surrender charge of $528 on the remaining $8,800 (6% of $30,000--$21,200). Likewise, assume your policy value is $80,000 (premium payments $100,000) at the beginning of the second policy year and you surrender your policy. You would pay a surrender charge of $5,040 [6% of ($100,000--($80,000 x 20%))]. After the tenth policy year, no surrender charges apply, regardless of when you made your last premium payment. You generally can choose to receive the full amount of a requested partial surrender by directing us to deduct any applicable surrender charge (and any applicable excess interest adjustment) from your remaining policy value. You receive your cash value upon full surrender. For surrender charge purposes, earnings are considered to be surrendered first, then the oldest premium is considered to be surrendered next. Surrender charges are waived under the Nursing Care and Terminal Condition Withdrawal Option or the Unemployment Waiver. Keep in mind that surrenders may be taxable, and if made before age 59 1/2, may be subject to a 10% federal penalty tax. For tax purposes, surrenders from nonqualified policies are considered to come from earnings first. Under qualified policies, surrenders are prorated between taxable and nontaxable amounts. An optional rider is available which reduces the number of years a surrender charge applies to each premium payment. See Section 10--Liquidity Rider. Life with Emergency CashSM Surrender Charge. If you select the Life with Emergency CashSM annuity payment option, then you can surrender your policy even after annuity payments have begun. However, there is a surrender charge during the first four years after the annuity commencement date. The following schedule shows the current surrender charge:
Number of Years Surrender Charge Since Annuity (as a percentage of ommencementCDate adjusted policy value) ----------------------------------------- 0--1 4% ----------------------------------------- 1--2 3% ----------------------------------------- 2--3 2% ----------------------------------------- 3--4 1% ----------------------------------------- 4 or more 0%
23 Note carefully the following three things about this surrender charge: .. this surrender charge is measured from the annuity commencement date and not from the premium payment date; .. this surrender charge is a percentage of the adjusted policy value applied to the Life with Emergency CashSM annuity payment option, and not a percentage of premium; and .. under this payment option, there is no surrender charge free amount. Excess Interest Adjustment Full and partial surrenders of cash value from the fixed account may be subject to an excess interest adjustment. This adjustment could retroactively reduce the interest credited in the fixed account to the guaranteed minimum of 3% per year or increase the amount credited. This adjustment may also be made to amounts applied to an annuity payment option. Mortality and Expense Risk Fee We charge a fee as compensation for bearing certain mortality and expense risks under the policy. This fee is assessed daily based on the net asset value of each subaccount. Examples of such risks include a guarantee of annuity rates, the death benefits, certain expenses of the policy, and assuming the risk that the current charges will be insufficient in the future to cover costs of administering the policy. We may also pay distribution expenses out of this charge. During the accumulation phase, for the Return of Premium Death Benefit the daily mortality and expense risk fee is at an annual rate of 1.10%, for the Annual Step-Up Death Benefit, the daily mortality and expense risk fee is 0.15% higher at an annual rate of 1.25%, and for the Enhanced Death Benefit, the daily mortality and expense risk fee is 0.25% higher at an annual rate of 1.35%. During the income phase, the daily mortality and expense risk fee for these benefits is at an annual rate of 1.10%. If this charge does not cover our actual costs, we absorb the loss. Conversely, if the charge more than covers actual costs, the excess is added to our surplus. We expect to profit from this charge. We may use our profit or surplus for any proper purpose, including distribution expenses. Administrative Charges We deduct an administrative charge to cover the costs of administering the policies (including certain distribution-related expenses). This charge is equal to an annual rate of 0.15% of the daily net asset value of each subaccount during both the accumulation phase and the income phase. In addition, an annual service charge of $30 (but not more than 2% of the policy value) is charged on each policy anniversary and at surrender. The service charge is waived if your policy value or the sum of your premiums, less all partial surrenders, is at least $50,000. Premium Taxes Some states assess premium taxes on the premium payments you make. We currently do not deduct for these taxes at the time you make a premium payment. However, we will deduct the total amount of premium taxes, if any, from the policy value when: .. you begin receiving annuity payments; .. you surrender the policy; or .. a death benefit is paid. Generally, premium taxes range from 0% to 3.50%, depending on the state. Federal, State and Local Taxes We may in the future deduct charges from the policy for any taxes we incur because of the policy. However, no deductions are being made at the present time. Transfer Fee You are allowed to make 12 free transfers per year before the annuity commencement date. If you make more than 12 transfers per year, we reserve the right to charge $10 for each additional transfer. Premium payments, Asset Rebalancing and Dollar Cost Averaging transfers do not count as one of your 12 free transfers per 24 year. All transfer requests made at the same time are treated as a single request. Managed Annuity Program If you elect the Managed Annuity Program, there is an annual rider fee during the accumulation phase of 0.45% of the minimum income base, and a guaranteed payment fee during the income phase at an annual rate of 1.25% of the daily net asset value if you annuitize under the rider. The annual rider fee is also deducted if you surrender the policy. Initial Payment Guarantee If you elect the Initial Payment Guarantee at the time of annuitization, there is a daily rider fee currently at an annual rate of 1.25% of the daily net asset value. The rider fee may be higher or lower at the time you annuitize and elect the rider. Liquidity Rider If you elect the Liquidity Rider, there is a rider fee at an annual rate of 0.50% of the daily net asset value for the first three policy years. Beneficiary Earnings Enhancement If you elect the Beneficiary Earnings Enhancement, there is an annual rider fee during the accumulation phase of 0.25% of the policy value. The rider fee will be deducted on each rider anniversary and upon termination of the rider (once we have received all necessary regulatory approvals) during the accumulation phase. Beneficiary Earnings Enhancement--Extra If you elect the Beneficiary Earnings Enhancement--Extra, there is an annual rider fee during the accumulation phase of 0.50% or 0.60% of the policy value for the 50% and 75% initial death benefit option, respectively. The rider fee will be deducted on each rider anniversary and upon termination of the rider (once we have received all necessary regulatory approvals) during the accumulation phase. Portfolio Fees and Expenses The value of the assets in each subaccount will reflect the fees and expenses paid by the underlying fund portfolio. A list of these expenses is found in the "Fee Table" section of this prospectus. See the prospectuses for the underlying fund portfolios for more information. 6.ACCESS TO YOUR MONEY During the accumulation phase, you can have access to the money in your policy in the following ways: .. by making a surrender (either a complete or partial surrender); or .. by taking systematic payouts. Surrenders If you take a complete surrender, you will receive your cash value. If you want to take a partial surrender, in most cases it must be for at least $500. Unless you tell us otherwise, we will take the surrender from each of the investment choices in proportion to the policy value. You may take out up to 10% of the policy value free of surrender charges each policy year. The free amount is cumulative so any free amount not taken one year is available to be taken the following year free of surrender charges. Remember that any surrender you take will reduce the policy value, and might reduce the amount of the death benefit. See Section 8, Death Benefit, for more details. A surrender may also reduce other benefits. Surrenders may be subject to a surrender charge. Surrenders from the fixed account may also be subject to an excess interest adjustment. Income taxes, federal tax penalties and certain restrictions may apply to any surrenders you make. Surrenders from qualified policies may be restricted or prohibited. During the income phase, you will receive annuity payments under the annuity payment option you select; however, you generally may 25 not take any other surrenders, either complete or partial, unless you elect a Life with Emergency CashSM payment option. Delay of Payment and Transfers Payment of any amount due from the separate account for a surrender, a death benefit, or the death of the owner of a nonqualified policy, will generally occur within seven business days from the date we receive all required information at our Administrative and Service Office. We may defer such payments from the separate account if: .. the New York Stock Exchange is closed other than for usual weekends or holidays or trading on the Exchange is otherwise restricted; .. an emergency exists as defined by the SEC or the SEC requires that trading be restricted; or .. the SEC permits a delay for the protection of owners. In addition, transfers of amounts from the subaccounts may be deferred under these circumstances. Federal laws designed to counter terrorism and prevent money laundering by criminals might in certain circumstances require us to reject a premium payment and/or "freeze" a policy owner's account. If these laws apply in a particular situation, we would not be allowed to pay any request for withdrawals, surrenders, or death benefits, make transfers, or continue making annuity payments absent instructions from the appropriate federal regulator. Pursuant to the requirements of certain state laws, we reserve the right to defer payment of the cash value from the fixed account for up to six months. We may defer payment of any amount until your premium check has cleared your bank. Excess Interest Adjustment Money that you transfer out of or surrender from a guaranteed period option of the fixed account before the end of its guaranteed period (the number of years you specified the money would remain in the guaranteed period option) may be subject to an excess interest adjustment. At the time you request a transfer or surrender (either full or partial), if interest rates set by Transamerica have risen since the date of the initial guarantee, the excess interest adjustment will result in a lower cash value on surrender or transfer. However, if interest rates have fallen since the date of the initial guarantee, the excess interest adjustment will result in a higher cash value on surrender or transfer. Any amount surrendered in excess of the cumulative interest credited is generally subject to an excess interest adjustment. An excess interest adjustment may also be made on amounts applied to an annuity payment option. There will be no excess interest adjustment on any of the following: .. surrenders of cumulative interest credited; .. nursing care or terminal condition withdrawal option surrenders; .. unemployment waiver surrenders; .. surrenders to satisfy any minimum distribution requirements; and .. Systematic Payout Option payments, which do not exceed the cumulative interest credited divided by the number of payouts made per year. Please note that in these circumstances, you will not receive a higher cash value if interest rates have fallen, nor will you receive a lower cash value if interest rates have risen. The excess interest adjustment may vary by state and may not be applicable in all states. 7. ANNUITY PAYMENTS (THE INCOME PHASE) You choose the annuity commencement date. You can change this date by giving us written notice 30 days before the current annuity commencement date. The new annuity commencement date must be at least 30 days after we receive notice of the change. The latest annuity commencement date generally cannot be after the policy month following the month in which the annuitant attains age 85. We may allow a later annuity commencement date, but 26 in no event will that date be later than the last day of the policy month following the month in which the annuitant attains age 95. The earliest annuity commencement date is 30 days after you purchase your policy. Before the annuity commencement date, if the annuitant is alive, you may choose an annuity payment option or change your election. If the annuitant dies before the annuity commencement date, the death benefit is payable in a lump sum or under one of the annuity payment options (unless the surviving spouse continues the policy). Unless you specify otherwise, the annuitant will receive the annuity payments. After the annuitant's death, the beneficiary will receive any remaining guaranteed payments. Annuity Payment Options The policy provides several annuity payment options that are described below (these options are not available under the Managed Annuity Program). You may choose any combination of annuity payment options. We will use your adjusted policy value to provide these annuity payments (under some circumstances, the Managed Annuity Program could provide a higher annuitization value). If the adjusted policy value on the annuity commencement date is less than $2,000, we reserve the right to pay it in one lump sum in lieu of applying it under an annuity payment option. You can receive annuity payments monthly, quarterly, semi-annually, or annually. (We reserve the right to change the frequency if payments would be less than $50.) Unless you choose to receive variable payments, the amount of each payment will be set on the annuity commencement date and will not change. You may, however, choose to receive variable annuity payments. The dollar amount of the first variable payment will be determined in accordance with the annuity payment rates set forth in the applicable table contained in the policy. The dollar amount of additional variable payments will vary based on the investment performance of the subaccount(s). The dollar amount of each variable payment after the first may increase, decrease or remain constant. If the actual investment performance (net of fees and expenses) exactly matched the assumed investment return of 5% at all times, the amount of each variable annuity payment would remain equal. If actual investment performance (net of fees and expenses) exceeds the assumed investment return, the amount of the variable annuity payments would increase. Conversely, if actual investment performance (net of fees and expenses), is lower than the assumed investment return, the amount of the variable annuity payments would decrease. Please note that these changes only occur under the Managed Annuity Program and Initial Payment Guarantee. A charge for premium taxes and an excess interest adjustment may be made when annuity payments begin. The annuity payment options are explained below. Options 1, 2, and 4 are fixed only. Options 3 and 5 can be fixed or variable. Payment Option 1--Interest Payments. We will pay the interest on the amount we use to provide annuity payments in equal payments, or this amount may be left to accumulate for a period of time to which you and Transamerica agree. You and Transamerica will agree on surrender rights when you elect this option. Payment Option 2--Income for a Specified Period. We will make level payments only for the fixed period you choose. No funds will remain at the end of the period. Payment Option 3--Life Income. You may choose between: .. No Period Certain (fixed or variable)--Payments will be made only during the annuitant's lifetime. .. 10 Years Certain (fixed or variable)--Payments will be made for the longer of the annuitant's lifetime or ten years. .. Guaranteed Return of Policy Proceeds (fixed only)--Payments will be made for the longer of the annuitant's lifetime or until the total dollar amount of payments we make to you equals the amount applied to this option. .. Life with Emergency CashSM (fixed or variable)--Payments will be made during 27 the annuitant's lifetime. With the Life with Emergency CashSM feature, you are able to surrender all or a portion of the Life with Emergency CashSM benefit. The amount you surrender must be at least $2,500. We will provide you with a Life with Emergency CashSM benefit schedule that will assist you in estimating the amount you have available to surrender. A partial surrender will reduce all future payments pro rata. A surrender charge may apply and there may be tax consequences (consult a tax advisor before requesting a full or partial surrender). The maximum surrender charge is 4% of the annuitized premium (see "Expenses" for the surrender charge schedule). The Life with Emergency CashSM benefit will continue through age 100 of the annuitant. The Life with Emergency CashSM benefit is also a death benefit that is paid upon the death of the annuitant. (For qualified policies the death benefit ceases at the date the annuitant reaches the IRS age limitation.) Payment Option 4--Income of a Specified Amount. Payments are made for any specified amount until the amount applied to this option, with interest, is exhausted. This will be a series of level payments followed by a smaller final payment. Payment Option 5--Joint and Survivor Annuity. You may choose between: .. No Period Certain (fixed or variable)--Payments are made during the joint lifetime of the annuitant and a joint annuitant of your selection. Payments will be made as long as either person is living. .. Life with Emergency CashSM (fixed or variable)--Payments will be made during the joint lifetime of the annuitant and a joint annuitant of your selection. Payments will be made as long as either person is living. With the Life with Emergency CashSM feature, you are able to surrender all or a portion of the Life with Emergency CashSM benefit. The amount you surrender must be at least $2,500. We will provide you with a Life with Emergency CashSM benefit schedule that will assist you in estimating the amount you have available to surrender. A partial surrender will reduce all future payments pro rata. A surrender charge may apply and there may be tax consequences (consult a tax advisor before requesting a full or partial surrender). The maximum surrender charge is 4% of the annuitized premium (see "Expenses" for the surrender charge schedule). The Life with Emergency CashSM benefit will continue through age 100 of the annuitant. The Life with Emergency CashSM benefit is also a death benefit that is paid upon the death of the last annuitant. (For qualified policies the death benefit ceases at the date the annuitant reaches the IRS joint age limitation.) Other annuity payment options may be arranged by agreement with Transamerica. Certain annuity payment options may not be available in all states. NOTE CAREFULLY: IF: .. you choose Life Income with No Period Certain or a Joint and Survivor Annuity with No Period Certain; and .. the annuitant dies before the due date of the second (third, fourth, etc.) annuity payment; THEN: .. we may make only one (two, three, etc.) annuity payments. IF: .. you choose Income for a Specified Period, Life Income with 10 Years Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income of a Specified Amount; and .. the person receiving payments dies prior to the end of the guaranteed period; THEN: .. the remaining guaranteed payments will be continued to that person's beneficiary, or their present value may be paid in a single sum. However, IF: .. you choose Life with Emergency Cash SM; and .. the annuitant dies before age 100; THEN: .. the Life with Emergency Cash SM death benefit will be paid. 28 We will not pay interest on amounts represented by uncashed annuity payment checks if the postal or other delivery service is unable to deliver checks to the payee's address of record. The person receiving payments is responsible for keeping Transamerica informed of their current address. 8. DEATH BENEFIT We will pay a death benefit to your beneficiary, under certain circumstances, if the annuitant dies during the accumulation phase. If there is a surviving owner(s) when the annuitant dies, the surviving owner(s) will receive the death benefit instead of the listed beneficiary. The person receiving the death benefit may choose an annuity payment option, or may choose to receive a lump sum. When We Pay A Death Benefit We will pay a death benefit IF: .. you are both the annuitant and sole owner of the policy; and .. you die before the annuity commencement date. We will pay a death benefit to you (owner) IF: .. you are not the annuitant; and .. the annuitant dies before the annuity commencement date. .. If the only person receiving the death benefit is the surviving spouse, then he or she may elect to continue the policy as the new annuitant and owner, instead of receiving the death benefit. All current surrender charges will be waived. When We Do Not Pay A Death Benefit We will not pay a death benefit IF: .. you are not the annuitant; and .. you die prior to the annuity commencement date; Please note the new owner (unless it is the deceased owner's spouse) must generally surrender the policy within five years of your death for the adjusted policy value minus any applicable rider fee. Distribution requirements apply to the policy value upon the death of any owner. These requirements are detailed in the SAI. Deaths After the Annuity Commencement Date The death benefit payable, if any, on or after the annuity commencement date depends on the annuity payment option selected. IF: .. you are not the annuitant; and .. you die on or after the annuity commencement date; and .. the entire interest in the policy has not been paid to you; THEN: .. the remaining portion of such interest in the policy will be distributed at least as rapidly as under the method of distribution being used as of the date of your death. IF: .. You are receiving annuity payments under the Life with Emergency CashSM; and .. The annuitant dies before age 100; THEN: .. A Life with Emergency CashSM death benefit will be paid. NOTE CAREFULLY: If the owner does not name a contingent/ successor owner, the owner's estate will become the new owner. If no probate estate is opened (because, for example, the owner has precluded the opening of a probate estate by means of a trust or other instrument), and Transamerica has not received written notice of the trust as a successor/contingent owner signed prior to the owner's death, then that trust may not exercise ownership rights to the policy. It may be necessary to open a probate estate in order to exercise ownership rights to the policy if no contingent/successor owner is named in a written notice Transamerica receives. 29 Amount of Death Benefit Death benefit provisions may differ from state to state. The death benefit may be paid as a lump sum or as annuity payments. The amount of the death benefit depends on the guaranteed minimum death benefit option you chose when you bought the policy. The death benefit will be the greatest of: .. policy value on the date we receive the required information; or .. cash value on the date we receive the required information (this will be more than the policy value if there is a positive excess interest adjustment that exceeds the surrender charge); or .. guaranteed minimum death benefit (discussed below), plus premium payments, less gross partial surrenders from the date of death to the date the death benefit is paid. Guaranteed Minimum Death Benefit NOTE: The following generally applies, depending on the state of issue, to policies issued after May 1, 2002. For other policies, see Appendix C. On the policy application, you generally may choose one of the guaranteed minimum death benefit options listed below (age limitations may apply). After the policy is issued, you cannot make an election and the death benefit cannot be changed. A.Return of Premium Death Benefit The Return of Premium Death Benefit is: . total premium payments; less . any adjusted partial surrenders as of the date of death. The Return of Premium Death Benefit will be in effect if you do not choose one of the other options on the policy application. The charges are lower for this option then for the others. B.Annual Step-Up Death Benefit On each policy anniversary before your 81st birthday, a new "stepped-up" death benefit is determined and becomes the guaranteed minimum death benefit for that policy year. The death benefit is equal to: . the largest policy value on the policy date or on any policy anniversary before the earlier of the date of death or the annuitant's 81st birthday; plus . any premium payments you have made since that date; minus . any adjusted partial surrenders we have paid to you since that date. The Annual Step-Up Death Benefit is not available if the annuitant is 81 or older on the policy date. There is an extra charge for this death benefit (an extra 0.15% annually). C.Enhanced Death Benefit The death benefit under this option is the greater of 1 or 2 below: 1. The 6% Annually Compounding through age 80 Death Benefit is: . the total premium payments; less . any adjusted partial surrenders; plus . interest at an effective annual rate of 6% from the premium payment date or surrender date to the earlier of the annuitant's date of death or the annuitant's 81st birthday. 2. The Monthly Step-Up through age 80 Death Benefit is equal to: . the largest policy value on the policy date or on any monthly anniversary prior to the earlier of the annuitant's date of death or the annuitant's 81st birthday; plus . any premium payments subsequent to the date of any monthly anniversary with the largest policy value; minus any adjusted partial surrenders subsequent to the date of the monthly anniversary with the largest policy value. 30 The Enhanced Death Benefit option is not available if the annuitant is 81 or older on the policy date. There is an extra charge for this benefit (an extra 0.25% annually). IF, under all three death benefit options: .. the surviving spouse (as beneficiary or sole surviving owner) elects to continue the policy instead of receiving the death benefit; and .. the guaranteed minimum death benefit is greater than the policy value; THEN: .. we will increase the policy value to be equal to the guaranteed minimum death benefit. This increase is made only at the time the surviving spouse elects to continue the policy, and the guaranteed minimum death benefit will continue as applicable. Adjusted Partial Surrender When you request a partial surrender, your guaranteed minimum death benefit will be reduced by an amount called the adjusted partial surrender. Under certain circumstances, the adjusted partial surrender may be more than the dollar amount of your surrender request. This will generally be the case if the guaranteed minimum death benefit exceeds the policy value at the time of the surrender. It is also possible that if a death benefit is paid after you have made a partial surrender, then the total amount paid could be less than total premium payments. We have included a detailed explanation of this adjustment in the SAI. This is referred to as "adjusted partial withdrawal" in your policy. 9.TAXES NOTE: Transamerica has prepared the following information on federal income taxes as a general discussion of the subject. It is not intended as tax advice to any individual. You should consult your own tax adviser about your own circumstances. Transamerica has included an additional discussion regarding taxes in the SAI. Annuity Policies in General Deferred annuity policies are a way of setting aside money for future needs like retirement. Congress recognized how important saving for retirement is and provided special rules in the Internal Revenue Code for annuities. Simply stated, these rules generally provide that you will not be taxed on the earnings, if any, on the money held in your annuity policy until you take the money out. This is referred to as tax deferral. There are different rules as to how you will be taxed depending on how you take the money out and the type of policy--qualified or nonqualified (discussed below). You will generally not be taxed on increases in the value of your policy until a distribution occurs--either as a surrender or as annuity payments. When a non-natural person (e.g., corporation or certain other entities other than tax-qualified trusts) owns a nonqualified policy, the policy will generally not be treated as an annuity for tax purposes and tax deferral will not apply. Qualified and Nonqualified Policies If you purchase the policy under an individual retirement annuity, a pension plan, or specially sponsored program, your policy is referred to as a qualified policy. Qualified policies are issued in connection with the following plans: .. Individual Retirement Annuity (IRA): A traditional IRA allows individuals to make contributions, which may be deductible, to the contract. A Roth IRA also allows individuals to make contributions to the contract, but it does not allow a deduction for contributions, and distributions may be tax-free if the owner meets certain rules. .. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to employees of certain public school systems and tax-exempt organizations and permits contributions to the contract on a pre-tax basis. .. Corporate Pension and Profit-Sharing Plans and H.R. 10 Plan: Employers and self-employed individuals can establish pension or profit-sharing plans for their employees 31 or themselves and make contributions to the contract on a pre-tax basis. .. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt organizations can establish a plan to defer compensation on behalf of their employees through contributions to the contract. The policy contains death benefit features that in some cases may exceed the greater of the premium payments or the policy value. The death benefit could be characterized as an incidental benefit, the amount of which is limited in any pension or profit-sharing plan or 403(b) plan. Because the death benefit may exceed this limitation, anyone using the policy in connection with such plans should consult their tax adviser. The Internal Revenue Service has not reviewed the contract for qualification as an IRA, and has not addressed in a ruling of general applicability whether the death benefit provision, such as the provisions in the contract, comports with IRA qualification requirements. If you purchase the policy as an individual and not under an individual retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan, your policy is referred to as a nonqualified policy. Surrenders--Qualified Policies The information herein describing the taxation of nonqualified policies does not apply to qualified policies. There are special rules that govern with respect to qualified policies. Generally, these rules restrict: .. the amount that can be contributed to the policy during any year; .. the time when amounts can be paid from the policies; and .. the amount of any death benefit that may be allowed. In addition, a penalty tax may be assessed on amounts surrendered from the policy prior to the date you reach age 59 1/2, unless you meet one of the exceptions to this rule. You may also be required to begin taking minimum distributions from the policy by a certain date. The terms of the plan may limit the rights otherwise available to you under the policies. We have provided more information in the SAI. You should consult your legal counsel or tax adviser if you are considering purchasing a policy for use with any retirement plan. Surrenders--403(b) Policies The Internal Revenue Code limits surrender from certain 403(b) policies. Surrenders can generally only be made when an owner: .. reaches age 59 1/2; .. leaves his/her job; .. dies; .. becomes disabled (as that term is defined in the Internal Revenue Code); or .. declares hardship. However, in the case of hardship, the owner can only surrender the premium payments and not any earnings. Diversification and Distribution Requirements The Internal Revenue Code provides that the underlying investments for a variable annuity must satisfy certain diversification requirements in order to be treated as an annuity policy. The policy must also meet certain distribution requirements at the death of an owner in order to be treated as an annuity policy. These diversification and distribution requirements are discussed in the SAI. Transamerica may modify the policy to attempt to maintain favorable tax treatment. Surrenders--Nonqualified Policies If you make a surrender (including Systematic Payouts) from a nonqualified policy before the annuity commencement date, the Internal Revenue Code treats that surrender as first coming from earnings and then from your premium payments. When you make a surrender you are taxed on the amount of the surrender that is earnings. (The excess interest adjustment resulting from the surrender may affect the amount on which you are taxed. You should consult a tax adviser if a surrender results in an excess interest adjustment.) If you make a full surrender, you are generally taxed on the amount that your surrender proceeds exceeds the "investment in the contract", which is generally your premiums paid (adjusted for any prior surrenders or portions thereof that were 32 not taxable). Different rules apply for annuity payments. See "Annuity Payments" below. The Internal Revenue Code also provides that surrendered earnings may be subject to a penalty tax. The amount of the penalty tax is equal to 10% of the amount that is includable in income. Some surrenders will be exempt from the penalty tax. They include any amounts: .. paid on or after the taxpayer reaches age 59 1/2; .. paid after an owner dies; .. paid if the taxpayer becomes totally disabled (as that term is defined in the Internal Revenue Code); .. paid in a series of substantially equal payments made annually (or more frequently) under a lifetime annuity; .. paid under an immediate annuity; or .. which come from premium payments made prior to August 14, 1982. All non-qualified deferred annuity policies that are issued by Transamerica (or its affiliates) to the same owner during any calendar year are treated as one annuity for purposes of determining the amount includable in the owner's income when a taxable distributions occurs. Taxation of Death Benefit Proceeds Amounts may be distributed from the policy because of the death of the annuitant. Generally, such amounts should be includable in the income of the recipient: .. if distributed in a lump sum, these amounts are taxed in the same manner as a full surrender; or .. if distributed under an annuity payment option, these amounts are taxed in the same manner as annuity payments. Annuity Payments Although the tax consequences may vary depending on the annuity payment option you select, in general, for nonqualified policies, only a portion of the annuity payments you receive will be includable in your gross income. In general, the excludable portion of each annuity payment you receive will be determined as follows: .. Fixed payments--by dividing the "investment in the contract" on the annuity commencement date by the total expected value of the annuity payments for the term of the payments. This is the percentage of each annuity payment that is excludable. .. Variable payments--by dividing the "investment in the contract" on the annuity commencement date by the total number of expected periodic payments. This is the amount of each annuity payment that is excludable. The remainder of each annuity payment is includable in gross income. Once the "investment in the contract" has been fully recovered, the full amount of any additional annuity payments is includable in gross income. If you select more than one annuity payment option, special rules govern the allocation of the policy's entire "investment in the contract" to each such option, for purposes of determining the excludable amount of each payment received under that option. We advise you to consult a competent tax adviser as to the potential tax effects of allocating amounts to any particular annuity payment option. If, after the annuity commencement date, annuity payments stop because an annuitant died, the excess (if any) of the "investment in the contract" as of the annuity commencement date over the aggregate amount of annuity payments received that was excluded from gross income may possibly be allowable as a deduction for your last taxable year. It is unclear whether stabilized annuity payments under the Managed Annuity Program or the Initial Payment Guarantee should be treated as fixed annuity payments or variable annuity payments for federal income tax purposes. In addition, stablized annuity payments may not qualify as a series of substantially equal payments that would be exempt from any applicable penalty tax. You should consult a tax adviser on these issues. 33 Annuity Contracts Purchased by Nonresident Aliens and Foreign Corporations The discussion above provided general information (but not tax advice) regarding U.S. federal income tax consequences to annuity owners that are U.S. persons. Taxable distributions made to owners who are not U.S. persons will generally be subject to U.S. federal income tax withholding at a 30% rate, unless a lower treaty rate applies. In addition, distributions may be subject to state and/or municipal taxes and taxes that may be imposed by the owner's country of citizenship or residence. Prospective foreign owners are advised to consult with a qualified tax adviser regarding U.S., state, and foreign taxation for any annuity policy purchase. Transfers, Assignments or Exchanges of Policies A transfer of ownership or assignment of a policy, the designation of an annuitant or payee or other beneficiary who is not also the owner, the selection of certain annuity commencement dates, or a change of annuitant, may result in certain income or gift tax consequences to the owner that are beyond the scope of this discussion. An owner contemplating any such transfer, assignment, selection, or change should contact a competent tax adviser with respect to the potential tax effects of such a transaction. Possible Tax Law Changes Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the policy could change by legislation or otherwise. You should consult a tax adviser with respect to legal developments and their effect on the policy. Separate Account Charges It is possible that the Internal Revenue Service may take a position that fees for certain optional benefits (e.g., death benefits other than the Return of Premium Death Benefit) are deemed to be taxable distributions to you. In particular, the Internal Revenue Service may treat fees associated with the Beneficiary Earnings Enhancement and the Beneficiary Earnings Enhancement-- Extra as a taxable withdrawal, which might also be subject to a tax penalty if the withdrawal occurs prior to age 59 1/2. Although we do not believe that the fees associated with the Beneficiary Earnings Enhancement, Beneficiary Earnings Enhancement--Extra, or any other optional benefit provided under the policy should be treated as taxable surrenders, the tax rules associated with these benefits are unclear and we advise that you consult your tax advisor prior to selecting any optional benefit under the policy. 10.ADDITIONAL FEATURES Systematic Payout Option You can select at any time (during the accumulation phase) to receive regular payments from your policy by using the Systematic Payout Option. Under this option, you can receive the greater of (1) and (2), divided by the number of payouts made per year, where: (1) is up to 10% (annually) of your premium (less partial surrenders deemed to be from premium); and (2) is any gains in the policy. This amount may be taken free of surrender charges. Payments can be made monthly, quarterly, semi-annually, or annually. Each payment must be at least $50. Monthly and quarterly payments must be made by electronic funds transfer directly to your checking or savings account. There is no charge for this benefit. Family Income Protector The feature formerly known as the Family Income Protector is now known as the Managed Annuity Program. See the details below. Please note that if you upgrade your minimum annuitization value under the Family Income Protector, you will receive the Managed Annuity Program. Managed Annuity Program The optional "Managed Annuity Program" assures you of a minimum level of income in the 34 future by guaranteeing a minimum income base (discussed below). You may elect to purchase this benefit, which provides a minimum amount you will have to apply to a Managed Annuity Program payment option. The Managed Annuity Program also guarantees a minimum amount for those payments once you begin to receive them. By electing this benefit, you can participate in the gains (if any) of the underlying variable investment options you select while knowing that you are guaranteed a minimum level of income in the future, regardless of the performance of the underlying variable investment options. The Managed Annuity Program will not be issued if you are age 91 or older (earlier if required by state law). You also have the option to upgrade your minimum income base. You can annuitize under the Managed Annuity Program (subject to the conditions described below) at the greater of the adjusted policy value or the minimum income base. Minimum Income Base. The minimum income base on the rider date (i.e. the date the rider is added to the policy) is the policy value. After the rider date, the minimum income base is: .. the minimum income base on the rider date; plus .. any subsequent premium payments; minus .. any subsequent surrenders; .. all of which are accumulated at the annual growth rate from the date of each transaction; minus .. any premium taxes. The annual growth rate is 6% per year. Once the rider is added to your policy, the annual growth rate will not vary during the life of that rider. Surrenders may reduce the minimum income base on a basis greater than dollar-for-dollar. See the SAI for more information. The minimum income base may only be used to annuitize using the Managed Annuity Program payment options and may not be used with any other annuity payment options. The Managed Annuity Program payment options are: .. Life Income--An election may be made for "No Period Certain" or "10 Years Certain". In the event of the death of the annuitant prior to the end of the chosen period certain, the remaining period certain payments will be continued to the beneficiary. .. Joint and Full Survivor--An election may be made for "No Period Certain" or "10 Years Certain". Payments will be made as long as either the annuitant or joint annuitant is living. In the event of the death of both the annuitant and joint annuitant prior to the end of the chosen period certain, the remaining period certain payments will be continued to the beneficiary. NOTE CAREFULLY: IF: .. You choose Life Income with No Period Certain or Joint and Full Survivor with No Period Certain; and .. The annuitant dies before the due date of the second (third, fourth, etc.) annuity payment; THEN: .. We will make only one (two, three, etc.) annuity payments. IF: .. You annuitize using the Managed Annuity Program before the 10th rider anniversary; THEN: .. the first payment will be calculated with an annuity factor age adjustment. See "Annuity Factor Age Adjustment" below. Annuity Factor Age Adjustment. If you annuitize using the Managed Annuity Program before the 10th rider anniversary, the first payment will be calculated with an annuity factor age adjustment which subtracts up to 10 years from your age. NOTE CAREFULLY: An annuity factor age adjustment results in all payments being lower than if an annuity factor age adjustment was not used, and the difference can be substantial. See the SAI for information concerning the calculation of the initial payment. If you are over 84 when you elect the rider or upgrade your minimum income base (earlier if required by state law), you will be subject to an annuity 35 factor age adjustment if you annuitize under the rider. The age adjustment is as follows:
Number of Years Since the Age Adjustment: Rider Number of Years Date Subtracted from Your Age --------------------------------- 0 - 1 10 --------------------------------- 1 - 2 9 --------------------------------- 2 - 3 8 --------------------------------- 3 - 4 7 --------------------------------- 4 - 5 6 --------------------------------- 5 - 6 5 --------------------------------- 6 - 7 4 --------------------------------- 7 - 8 3 --------------------------------- 8 - 9 2 --------------------------------- 9 - 10 1 --------------------------------- >10 0
Managed Annuity Program Annuity Payments. The minimum income base is used solely to calculate the Managed Annuity Program annuity payments and does not establish or guarantee a policy value or guarantee performance of any investment option. Because this benefit is based on conservative actuarial criteria (such as the use of a 3% assumed investment return to calculate the first annuity payment, which results in a lower dollar amount for that payment than would result from using the 5.0% assumed investment return that is used with the regular annuity payment options), the level of lifetime income that it guarantees may be less than the level that would be provided by application of the adjusted policy value at otherwise applicable annuity factors. Therefore, the Managed Annuity Program should be regarded as a safety net. The costs of annuitizing under the Managed Annuity Program include the guaranteed payment fee, and also the lower payout levels inherent in the annuity tables used for those minimum payouts (which may include an annuity factor age adjustment). These costs should be balanced against the benefits of a minimum payout level. Moreover, the Initial Payment Guarantee also provides for a minimum payout level, and it uses actuarial criteria (such as a 5.0% assumed investment return) that provide for higher payment levels for a given adjusted policy value then the Managed Annuity Program. You should carefully consider these factors, since electing annuity payments under the Managed Annuity Program will generally be advantageous only when the minimum income base is sufficiently in excess of the adjusted policy value to overcome these disadvantages. In addition to the annual growth rate, other benefits and fees under the rider (the rider fee, the fee waiver threshold, the guaranteed payment fee, and the annuity factor age adjustment) are also guaranteed not to change after the rider is added. However, all of these benefit specifications may change if you elect to upgrade the minimum income base. Minimum Income Base Upgrade. You can upgrade your minimum income base to the policy value after the first rider anniversary and before your 91st birthday (earlier if required by state law). For your convenience, we will put the last date to upgrade on page one of the rider. The policy value used will be the policy value calculated immediately after we receive all necessary information to complete the upgrade. If you upgrade: .. the current rider will terminate and a new one will be issued with its own specified guaranteed benefits and fees; .. the new fees, thresholds and factors may be higher (or lower) than before; and .. the new annual growth rate may be lower (or higher) than before. Please note that if you upgrade, you will begin a new annuity factor age adjustment period. It generally will not be to your advantage to upgrade unless your adjusted policy value exceeds your minimum income base at the time you elect the upgrade. Conditions of Exercise of the Managed Annuity Program. You can only annuitize using the Managed Annuity Program within the 30 days after a policy anniversary after the Managed Annuity Program is elected. You cannot, however, annuitize using the Managed Annuity Program after the policy anniversary after your 94th birthday (earlier if required by state law). For your convenience, we will put the last date 36 to annuitize using the Managed Annuity Program on page one of the rider. NOTE CAREFULLY: .. If you annuitize at any time other than indicated above, you cannot use the Managed Annuity Program. .. If you annuitize before the 10th rider anniversary there will be an annuity factor age adjustment. See "Annuity Factor Age Adjustment." Guaranteed Minimum Stabilized Payments. Annuity payments under the Managed Annuity Program are guaranteed to never be less than the initial payment. See the SAI for information concerning the calculation of the initial payment. The payments will also be "stabilized" or held constant during each policy year. During the first policy year after annuitizing using the Managed Annuity Program, each stabilized payment will equal the initial payment. On each policy anniversary thereafter, the stabilized payment will increase or decrease depending on the performance of the investment options you selected (but will never be less than the initial payment), and then be held constant at that amount for that policy year. The stabilized payment on each policy anniversary will equal the greater of the initial payment or the payment supportable by the annuity units in the selected investment options. See the SAI for additional information concerning stabilized payments. Managed Annuity Program Fee. A rider fee, 0.45% of the minimum income base on the rider anniversary, is charged annually prior to annuitization. We will also charge this fee if you take a complete surrender. The rider fee is deducted from each investment choice in proportion to the amount of policy value in each investment option. This fee is deducted even if the adjusted policy value exceeds the minimum income base. The rider fee on any given rider anniversary will be waived if the policy value exceeds the fee waiver threshold. The fee waiver threshold is two times the minimum income base. We may change this threshold in the future. Guaranteed Payment Fee. A guaranteed payment fee, equal to an effective annual rate of 1.25% of the daily net asset value in the separate account, is reflected in the amount of the variable payments you receive if you annuitize under the Managed Annuity Program, in addition to the base product mortality and expense risk fee and administrative charge. The guaranteed payment fee is included on page one of the rider. Termination. The Managed Annuity Program will terminate upon the earliest of the following: .. The date we receive written notice from you requesting termination of the Managed Annuity Program (you may not terminate the rider before the first rider anniversary); .. annuitization (you will still get guaranteed minimum stabilized payments if you annuitize using the minimum income base under the Managed Annuity Program); .. upgrade of the minimum income base (although a new rider will be issued); .. termination of your policy; or .. 30 days after the policy anniversary after your 94th birthday (earlier if required by state law). The Managed Annuity Program may vary by state and may not be available in all states. For policies sold in Minnesota and New Jersey, certain provisions differ from the above description. Minnesota and New Jersey residents should see the separate supplement describing this feature for their state. Initial Payment Guarantee You may only elect to purchase the Initial Payment Guarantee at the time you annuitize your policy. The guarantee only applies to variable annuity payments. There is an additional charge for this guarantee. The Initial Payment Guarantee does not establish or guarantee the performance of any subaccount. With the Initial Payment Guarantee, you receive stabilized annuity payments that are guaranteed 37 to never be less than a percentage (currently 80%) of the initial payment (i.e., the guaranteed payment). Once the rider is added, the guaranteed percentage will not change during the life of the rider. Rider Fee. There is a charge for the Initial Payment Guarantee, which is in addition to the base product mortality and expense risk fee and administrative charge. This fee is reflected in the amount of the annuity payments that you receive if you select the Initial Payment Guarantee. It is reflected in the calculation of the annuity unit values. The Initial Payment Guarantee fee is currently equal to an annual rate of 1.25% of the daily net asset value in the subaccounts. Other Terms and Conditions. You may purchase the Initial Payment Guarantee only at the time you annuitize your policy. You cannot delete this payment guarantee (or eliminate the charge for it) after you have selected this option. The Initial Payment Guarantee uses a 5.0% assumed investment return to calculate your annuity payments. This means that the dollar amount of the annuity payments will remain level if the investment return (net of fees and expenses) exactly equals 5.0%. The payments will increase if actual investment performance (net of fees and expenses) exceeds the assumed investment return, and decrease if actual performance is below the assumed investment return (but not below the guaranteed level). Termination. The Initial Payment Guarantee is irrevocable. The Initial Payment Guarantee may vary by state and may not be available in all states. Liquidity Rider The optional Liquidity Rider reduces the number of years each premium payment is subject to surrender charges. You can only elect this rider at the time you purchase the policy. Surrender Schedule. The following schedule shows the surrender charges that apply if the Liquidity Rider is elected:
Number of Years Since Premium Surrender Charge Payment (as a percentage of Date premium surrendered) ------------------------------- 0 - 1 6% ------------------------------- 1 - 2 6% ------------------------------- 2 - 3 6% ------------------------------- 3 or more 0%
Rider Fee. A rider fee equal to an effective annual rate of 0.50% of the daily net asset value in the separate account is deducted in calculating the accumulation unit values. The rider fee is only charged for the first three policy years. Accumulation Unit Values. After the end of the first three policy years, the 0.50% rider fee will no longer be assessed. We intend to administer the removal of the fee by changing to a different class of accumulation units. This will result in adjusting the number of accumulation units and adjusting the unit value of the subaccounts in which you were invested at the end of the third policy year. The elimination of the fee and the adjustment in the number of accumulation units and unit values will not affect policy values. Termination. The rider is irrevocable. The Liquidity Rider may vary by state and may not be available in all states. Beneficiary Earnings Enhancement The optional "Beneficiary Earnings Enhancement" pays an additional amount (based on earnings since the rider was issued) when a death benefit is payable under your policy, in certain circumstances. No benefit is paid under the rider unless (a) the rider is in force, (b) a death benefit is payable on the policy, and (c) there are rider earnings when the death benefit is calculated. The Beneficiary Earnings Enhancement is available for issue ages through age 80. Beneficiary Earnings Enhancement Amount. The Beneficiary Earnings Enhancement is only payable if you elected the rider prior to the death triggering the payment of the policy death benefit and a death benefit is payable under the 38 policy. The Beneficiary Earnings Enhancement is equal to: .. the Beneficiary Earnings Enhancement factor (see below); multiplied by .. the rider earnings on the date the death benefit is calculated. Rider earnings equal: .. the policy death benefit; minus .. policy value on the rider date; minus .. premium payments after the rider date; plus .. surrenders after the rider date that exceed the rider earnings on the date of the surrender. No benefit is payable under the Beneficiary Earnings Enhancement if there are no rider earnings on the date the death benefit is calculated. If you purchase your policy as part of a 1035 exchange or add the Beneficiary Earnings Enhancement after you purchase the policy, rider earnings do not include any gains before the 1035 exchange or the date the Beneficiary Earnings Enhancement is added to your policy. The Beneficiary Earnings Enhancement factor is currently 40% for issue ages under 71 and 25% for issue ages 71-80. For purposes of computing taxable gains, both the death benefit payable under the policy and the Beneficiary Earnings Enhancement will be considered. Please see the SAI for an example which illustrates the Beneficiary Earnings Enhancement payable as well as the effect of a partial surrender on the Beneficiary Earnings Enhancement. Spousal Continuation. If a spouse, as the new owner of the policy, elects to continue the policy instead of receiving a death benefit and Beneficiary Earnings Enhancement, the spouse has the following options: .. Continue the policy and receive a one-time policy value increase equal to the Beneficiary Earnings Enhancement. At this time the rider would terminate. The spouse would have the option of immediately re-electing the rider as long as he or she is under the age of 81; however, it would only cover gains from the time of such election going forward; or .. Continue the policy without the one-time policy value increase and continue the rider as is. When the next death benefit is payable, the rider will pay the Beneficiary Earnings Enhancement based on gains since the rider was issued, not just since the time of the first death. If the rider is terminated prior to this death, no Beneficiary Earnings Enhancement is payable. Rider Fee. A rider fee, 0.25% of the policy value, is deducted annually on each rider anniversary prior to annuitization. We will also deduct this fee upon full surrender of the policy or other termination of the rider (once we have received all necessary regulatory approvals). The rider fee is deducted pro rata from each investment choice. The fee is deducted even during periods when the Beneficiary Earnings Enhancement would not pay any benefits (because there are no rider earnings). Termination. The rider will remain in effect until: .. you cancel it by notifying our service center in writing, .. the policy is annuitized or surrendered, or .. the Beneficiary Earnings Enhancement is paid or added to the policy value under a spousal continuation. Once terminated, the Beneficiary Earnings Enhancement may be re-elected; however, a new rider will be issued and the additional death benefit will be re-determined. Please note that if the rider is terminated and then re- elected, it will only cover gains, if any, since it was re-elected and the terms of the new rider may be different than the terminated rider. The tax consequences associated with this rider are not clear. This rider may violate the requirements of certain qualified plans and of IRAs. Consult a tax adviser before electing this rider for any qualified plan or IRA. The Beneficiary Earnings Enhancement may vary by state and may not be available in all states. 39 Beneficiary Earnings Enhancement--Extra The optional "Beneficiary Earnings Enhancement--Extra" pays an additional death benefit amount when a death benefit is payable under your policy, in certain circumstances. The Beneficiary Earnings Enhancement--Extra is available for issue ages through age 75. Additional Death Benefit Amount. The additional death benefit is only payable if you elected the rider at least five years prior to the death triggering the payment of the policy death benefit, and a death benefit is payable under the policy. If a death benefit is payable before the end of the fifth year, all rider fees paid since the rider date will be refunded. After the fifth year, the additional death benefit is equal to: .. rider benefit percentage (40% for issues ages through age 70 and 25% for ages 71-75) multiplied by the sum of: .. future growth (see below); and .. the initial death benefit option (see below) multiplied by the policy death benefit on the rider date, minus surrenders after the rider date that exceed future growth on the date of surrender. Future growth equals: .. the policy death benefit payable; minus .. the death benefit on the rider date; minus .. premium payments after the rider date; plus .. surrenders after the rider date that exceed the future growth on the date of the surrender. The initial death benefit option, either 50% or 75%, is selected by you at the time you elect this rider. If an additional death benefit is payable, the 75% initial death benefit option will generally provide a larger additional death benefit amount than the 50% initial death benefit option. Please note that you pay a higher fee for the 75% initial death benefit option than for the 50% initial death benefit option. No benefit is payable under the Beneficiary Earnings Enhancement--Extra if the policy death benefit payable is less than one minus the initial death benefit option, multiplied by the death benefit at the time the rider was added (adjusted for surrenders after the rider date). In other words, no additional death benefit is generally payable if: .. For the 75% initial death benefit option--the policy death benefit payable is less than 25% of the adjusted policy death benefit at the time the rider was added; or .. For the 50% initial death benefit option--the policy death benefit payable is less than 50% of the adjusted policy death benefit at the time the rider was added. For purposes of computing taxable gains, both the death benefit payable under the policy and the additional death benefit will be considered. Please see the SAI for an example which illustrates the additional death benefit payable as well as the effect of a partial surrender on the additional death benefit. Spousal Continuation. If a spouse, as the new owner of the policy, elects to continue the policy instead of receiving the death benefit and additional death benefit, the spouse will receive a one-time policy value increase equal to the additional death benefit. At this time the rider will terminate. The spouse will have the option of immediately re-electing the rider as long as they are under the age of 76. Rider Fee. A rider fee, currently 0.50% of the policy value for the 50% initial death benefit option and 0.60% of the policy value for the 75% initial death benefit option, is deducted annually on each rider anniversary prior to annuitization. We will also deduct this fee upon full surrender of the policy or other termination of the rider (once we have received all necessary regulatory approvals). The rider fee is deducted pro rata from each investment option. The fee is deducted even during periods when the rider would not pay any benefits. Termination. The rider will remain in effect until: .. you cancel it by notifying our service center in writing, .. the policy is annuitized or surrendered, or .. the additional death benefit is paid or added to the policy value under a spousal continuation. 40 Once terminated, the Beneficiary Earnings Enhancement--Extra may not be re- elected for one year. The tax consequences associated with this rider are not clear. This rider may violate the requirements of certain qualified plans. Consult a tax adviser before electing this rider. The Beneficiary Earnings Enhancement--Extra may vary by state and may not be available in all states. Nursing Care and Terminal Condition Withdrawal Option No surrender charges or excess interest adjustment will apply if you make a surrender, under certain circumstances, because you or your spouse has been: .. confined in a hospital or nursing facility for 30 days in a row; or .. diagnosed with a terminal condition (usually a life expectancy of 12 months or less). This benefit is also available to the annuitant or annuitant's spouse if the owner is not a natural person. You may exercise this benefit at any time (during the accumulation phase). There is no charge for this benefit. This benefit may vary by state and may not be available in all states. Unemployment Waiver No surrender charges or excess interest adjustment will apply to surrenders after you or your spouse become unemployed in certain circumstances, because you were terminated, laid off, or otherwise lost your job involuntarily. In order to qualify, you (or your spouse, whichever is applicable) must have been: .. employed full time for at least two years prior to becoming unemployed; .. employed full time on the policy date; .. unemployed for at least 60 days in a row at the time of surrender; .. must have a minimum cash value at the time of surrender of $5,000; and .. you (or your spouse) must be receiving unemployment benefits. You must provide written proof from your State's Department of Labor, which verifies that you qualify for and are receiving unemployment benefits at the time of surrender. You may select this benefit at any time (during the accumulation phase). There is no charge for this benefit. This benefit is also available to the annuitant or annuitant's spouse if the owner is not a natural person. This benefit may vary by state and may not be available in all states. Telephone Transactions You may generally make transfers and change the allocation of additional premium payments by telephone IF: .. you select the "Telephone Transfer/Reallocation Authorization" box in the policy application or enrollment information; or .. you later complete an authorization form. You will be required to provide certain information for identification purposes when requesting a transaction by telephone and we may record your telephone call. We may also require written confirmation of your request. We will not be liable for following telephone requests that we believe are genuine. We reserve the right to revoke your telephone transaction privileges at any time without revoking all owners' telephone transfer privileges. Telephone requests must be received while the New York Stock Exchange is open to get same-day pricing of the transaction. We may discontinue this option at any time. We may deny telephone transaction privileges to market timers. We cannot guarantee that telephone transactions will always be available. For example, our offices may be closed during severe circumstances or other emergencies. There may be interruptions in service beyond our control, and if the volume of calls is unusually high, we might not have anyone available, or lines available, to take your call. 41 Dollar Cost Averaging Program During the accumulation phase, you may instruct us to automatically transfer money (portions of policy value) from certain investment options into one or more variable subaccounts in accordance with your allocation instructions. This is known as Dollar Cost Averaging. Dollar Cost Averaging buys more accumulation units when prices are low and fewer accumulation units when prices are high. It does not guarantee profits or assure that you will not experience a loss. You should consider your ability to continue the Dollar Cost Averaging program during all economic conditions. There are two Dollar Cost Averaging programs available under your policy: Traditional and Special. Traditional Dollar Cost Averaging. During the accumulation phase, you may instruct us to automatically transfer money from the Traditional Dollar Cost Averaging fixed account option, or the money market subaccount, into one or more variable subaccounts in the allocations you specified. You may specify the dollar amount to be transferred either monthly or quarterly; however, each transfer must be at least $500. A minimum of 6 monthly or 4 quarterly transfers are required and a maximum of 24 monthly or 8 quarterly transfers are allowed. Transfers will begin as soon as the program is started. NOTE CAREFULLY: .. If you attempt to begin a Traditional Dollar Cost Averaging program with less than the necessary minimum amount, no transfers will be made and any amount allocated to that program will remain where it is at until the minimum amount is reached or you transfer the funds out. .. If you specify the number of transfers, up to two additional transfers may be necessary to complete a Traditional Dollar Cost Averaging program. Special Dollar Cost Averaging. During the accumulation phase, you may elect to allocate premium payments to either the six or twelve month Special Dollar Cost Averaging accounts of the fixed account. Amounts will then be transferred from the Special Dollar Cost Averaging account to the variable subaccounts on a monthly basis for six or twelve months (depending on the option you select) in the allocations you specified. Each transfer must be at least $500. Dollar Cost Averaging Program Premium Payments. If you elect Dollar Cost Averaging and have multiple sources funding your policy, the Dollar Cost Averaging Program will begin with the first money received. As the money from the other sources is received, the amount of the Dollar Cost Averaging transfers will increase but the length of the program will not. If some of the money from the other sources is not received before the Dollar Cost Averaging Program has ended, a new Dollar Cost Averaging Program will start when we receive the money (assuming it meets the minimum Dollar Cost Averaging requirements). If you make additional premium payments while a Dollar Cost Averaging program is running, absent new instructions to the contrary, the amount of the dollar cost averaging transfers will increase but the length of the program will not. If additional premium is received after a Dollar Cost Averaging Program is completed, absent new instructions to the contrary: .. a new Dollar Cost Averaging Program will be started using the previous instructions; or .. if the additional premium does not meet the minimum requirements to start a new Dollar Cost Averaging Program, then the additional premium will be allocated as identified in the previous Dollar Cost Averaging Program. NOTE CAREFULLY: .. If we do not receive all necessary information to begin a Special Dollar Cost Averaging Program within 30 days of allocating premium to the program, that premium will be transferred to the Traditional Dollar Cost Averaging fixed account. If you discontinue a Dollar Cost Averaging Program before its completion, then the interest 42 credited on amounts in the dollar cost averaging fixed account may be adjusted downward, but not below the minimum guaranteed effective annual interest rate of 3%. There is no charge for this benefit. The Dollar Cost Averaging Program may vary by state and may not be available in all states. See your policy for availability of the fixed account options. Asset Rebalancing During the accumulation phase you can instruct us to automatically rebalance the amounts in your subaccounts to maintain your desired asset allocation. This feature is called Asset Rebalancing and can be started and stopped at any time free of charge. However, we will not rebalance if you are in the Dollar Cost Averaging program or if any other transfer is requested. If a transfer is requested, we will honor the requested transfer and discontinue Asset Rebalancing. New instructions are required to start Asset Rebalancing. Asset Rebalancing ignores amounts in the fixed account. You can choose to rebalance monthly, quarterly, semi-annually, or annually. 11.OTHER INFORMATION Ownership You, as owner of the policy, exercise all rights under the policy. You can change the owner at any time by notifying us in writing. An ownership change may be a taxable event. Assignment You can also assign the policy anytime during your lifetime. We will not be bound by the assignment until we receive written notice of the assignment. We will not be liable for any payment or other action we take in accordance with the policy before we receive notice of the assignment. There may be limitations on your ability to assign a qualified policy. An assignment may have tax consequences. Transamerica Life Insurance Company Transamerica Life Insurance Company was incorporated under the laws of the State of Iowa on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in the sale of life and health insurance and annuity policies. Transamerica is a wholly-owned indirect subsidiary of AEGON USA, Inc. which conducts most of its operations through subsidiary companies engaged in the insurance business or in providing non-insurance financial services. All of the stock of AEGON USA, Inc. is indirectly owned by AEGON N.V. of The Netherlands, the securities of which are publicly traded. AEGON N.V., a holding company, conducts its business through subsidiary companies engaged primarily in the insurance business. Transamerica is licensed in all states except New York, the District of Columbia, and Guam. All obligations arising under the policies, including the promise to make annuity payments, are general corporate obligations of Transamerica. The Separate Account Transamerica established a separate account, called the Separate Account VA F, under the laws of the State of Iowa on May 15, 2000. The separate account receives and invests the premium payments that are allocated to it for investment in shares of the underlying fund portfolios. The separate account is registered with the SEC as a unit investment trust under the 1940 Act. However, the SEC does not supervise the management, the investment practices, or the policies of the separate account or Transamerica. Income gains and losses (whether or not realized), from assets allocated to the separate account are, in accordance with the policies, credited to or charged against the separate account without regard to Transamerica's other income, gains or losses. The assets of the separate account are held in Transamerica's name on behalf of the separate account and belong to Transamerica. However, those assets that underlie the policies are not chargeable with liabilities arising out of any 43 other business Transamerica may conduct. The separate account may include other subaccounts that are not available under these policies. Mixed and Shared Funding Before making a decision concerning the allocation of premium payments to a particular subaccount, please read the prospectuses for the underlying fund portfolios. The underlying fund portfolios are not limited to selling their shares to this separate account and can accept investments from any separate account or qualified retirement plan. Since the underlying fund portfolios are available to registered separate accounts offering variable annuity products of Transamerica, as well as variable annuity and variable life products of other insurance companies, and qualified retirement plans, there is a possibility that a material conflict may arise between the interests of this separate account and one or more of the other accounts of another participating insurance company. In the event of a material conflict, the affected insurance companies, including Transamerica, agree to take any necessary steps to resolve the matter. This includes removing their separate accounts from the underlying funds. See the underlying fund portfolios' prospectuses for more details. Exchanges and Reinstatements You can generally exchange one annuity policy for another in a "tax-free exchange' under Section 1035 of the Internal Revenue Code. Before making an exchange, you should compare both annuities carefully. Remember that if you exchange another annuity for the one described in this prospectus, then you may pay a surrender charge on the other annuity and there will be a new surrender charge period and other charges may be higher (or lower) and the benefits may be different. You should not exchange another annuity for this one unless you determine, after knowing all the facts, that the exchange is in your best interest and not just better for the person trying to sell you this policy (that person will generally earn a commission if you buy this policy through an exchange or otherwise). You may surrender your policy and transfer your money directly to another life insurance company (sometimes referred to as a 1035 exchange or a trustee-to- trustee transfer). You may also request us to reinstate your policy after such an exchange by returning the same total dollar amount of funds to the applicable investment choices. The dollar amount will be used to purchase new accumulation units at the then current price. Because of changes in market value, your new accumulation units may be worth more or less than the units you previously owned. We recommend that you consult a tax professional to explain the possible tax consequences of exchanges and/or reinstatements. Voting Rights Transamerica will vote all shares of the underlying fund portfolios held in the separate account in accordance with instructions we receive from you and other owners that have voting interests in the portfolios. We will send you and other owners written requests for instructions on how to vote those shares. When we receive those instructions, we will vote all of the shares in proportion to those instructions. If, however, we determine that we are permitted to vote the shares in our own right, we may do so. Each person having a voting interest will receive proxy material, reports, and other materials relating to the appropriate portfolio. Distributor of the Policies AFSG Securities Corporation is the principal underwriter of the policies. Like Transamerica, it is a wholly-owned indirect subsidiary of AEGON USA, Inc. It is located at 4333 Edgewood Road NE, Cedar Rapids, IA 52499-0001. AFSG Securities Corporation is registered as a broker/dealer under the Securities Exchange Act of 1934. It is a member of the National Association of Securities Dealers, Inc. (NASD). Commissions of up to 6% of premium payments will be paid to broker/dealers who sell the policies under agreements with AFSG Securities Corporation. These commissions are not deducted from premium payments. In addition, 44 certain production, persistency and managerial bonuses may be paid. Transamerica may also pay compensation to financial institutions for their services in connection with the sale and servicing of the policies. To the extent permitted by NASD rules, promotional incentives or payments may also be provided to broker/dealers based on sales volumes, the assumption of wholesaling functions, or other sales-related criteria. Other payments may be made for other services that do not directly involve the sale of the policies. These services may include the recruitment and training of personnel, production of promotional literature, and similar services. Transamerica intends to recoup commissions and other sales expenses primarily, but not exclusively, through: .. the administrative charge; .. the surrender charge; .. the mortality and expense risk fee; .. revenues, if any, that we receive from the underlying fund portfolios or their managers; and .. investment earnings on amounts allocated to the fixed account. Commissions paid on the policies, including other incentives or payments, are not charged to the policy owners or the separate account. Pending regulatory approvals, we intend to distribute the policies in all states, except New York, and in certain possessions and territories. IMSA We are a member of the Insurance Marketplace Standards Association (IMSA). IMSA is an independent, voluntary organization of life insurance companies. It promotes high ethical standards in the sales and advertising of individual life insurance, long-term care insurance, and annuity products. Through its Principles and Code of Ethical Market Conduct, IMSA encourages its member companies to develop and implement policies and procedures to promote sound market practices. Companies must undergo a rigorous self and independent assessment of their practices to become a member of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to these standards. You may find more information about IMSA and its ethical standards at www.imsaethics.org. Legal Proceedings There are no legal proceedings to which the separate account is a party or to which the assets of the separate account are subject. Transamerica, like other life insurance companies, is involved in lawsuits. In some class action and other lawsuits involving other insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, Transamerica believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse impact on the separate account or Transamerica. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Glossary of Terms The Policy--General Provisions Certain Federal Income Tax Consequences Investment Experience Managed Annuity Program--Additional Information Beneficiary Earnings Enhancement--Additional Information Beneficiary Earnings Enhancement--Extra--Additional Information Historical Performance Data Published Ratings State Regulation of Transamerica Administration Records and Reports Distribution of the Policies Voting Rights Other Products Custody of Assets Legal Matters Independent Auditors Other Information Financial Statements 45 APPENDIX A CONDENSED FINANCIAL INFORMATION (For policies purchased on or after May 2, 2002) The "Annual Step-Up Death Benefit" with Total Separate Account Annual Expenses of 1.40%, and the "Enhanced Death Benefit" with Total Separate Account Annual Expenses of 1.50%, were not offered as of December 31, 2001, therefore, condensed financial data is not available that reflects those death benefits. CONDENSED FINANCIAL INFORMATION (For policies purchased prior to May 1, 2002) The accumulation unit values and the number of accumulation units outstanding for each subaccount from the date of inception are shown in the following tables. 5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit* (Total Separate Account Annual Expenses: 1.40%)
Accumulation Accumulation Number of Unit Value Unit Value Accumulation at Beginning at End of Units at Subaccount of Year Year End of Year ------------------------------------------------------------------------------- BlackRock Large Cap Value 2001(/1/)........................... $1.000000 $0.960005 20,554.1609 ------------------------------------------------------------------------------- BlackRock Mid Cap Growth 2001(/1/)........................... $1.000000 $1.022677 6,184.517 ------------------------------------------------------------------------------- BlackRock Global Science & Technology 2001(/1/)........................... $1.000000 $1.039589 2,280.8119 ------------------------------------------------------------------------------- AIM V.I. Balanced Fund--Series II shares 2001(/1/)........................... $1.000000 $0.989951 6,143.1228 ------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund--Series II shares** 2001(/1/)........................... $1.000000 $0.987756 13,336.4209 ------------------------------------------------------------------------------- AIM V.I. Dent Demographic Trends Fund--Series II shares 2001(/1/)........................... $1.000000 $1.000187 1000.000 ------------------------------------------------------------------------------- Federated International Small Company Fund II 2001(/1/)........................... $1.000000 $0.883392 1000.000 ------------------------------------------------------------------------------- Federated Prime Money Fund II 2001(/1/)........................... $1.000000 $1.003966 4,598.6446 ------------------------------------------------------------------------------- Federated Quality Bond Fund II 2001(/1/)........................... $1.000000 $1.004642 19,589.4047 ------------------------------------------------------------------------------- Federated Small Cap Strategies Fund II*** 2001(/1/)........................... $1.000000 $1.007714 1000.000 ------------------------------------------------------------------------------- MFS Emerging Growth Series--Service Class 2001(/1/)........................... $1.000000 $0.999278 2,285.1752 ------------------------------------------------------------------------------- MFS Investors Growth Stock Series-- Service Class 2001(/1/)........................... $1.000000 $1.002077 1000.000 ------------------------------------------------------------------------------- MFS Utilities Series--Service Class 2001(/1/)........................... $1.000000 $0.903869 9,640.4904 ------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA--Service Shares 2001(/1/)........................... $1.000000 $0.993076 2,670.5143 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares 2001(/1/)........................... $1.000000 $0.987533 1000.000
46 5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit * (Total Separate Account Annual Expenses: 1.40%) continued . . .
Accumulation Accumulation Number of Unit Value Unit Value Accumulation at Beginning at End of Units at Subaccount of Year Year End of Year ----------------------------------------------------------------------------- Oppenheimer Main Street Small Cap Fund/VA--Service Shares 2001(/1/).......................... $1.000000 $1.039021 3,872.9341 ----------------------------------------------------------------------------- Putnam VT Growth and Income Fund-- Class IB shares 2001(/1/).......................... $1.000000 $0.96919 1000.000 ----------------------------------------------------------------------------- Putnam VT International Growth Fund--Class IB shares 2001(/1/).......................... $1.000000 $0.957628 6,296.5454 ----------------------------------------------------------------------------- Putnam VT Investors Fund--Class IB shares 2001(/1/).......................... $1.000000 $0.96562 1000.000 ----------------------------------------------------------------------------- Fidelity--VIP Growth--Service Class 2 2001(/1/).......................... $1.000000 $0.992137 10,271.8052 ----------------------------------------------------------------------------- Fidelity--VIP High Income--Service Class 2 2001(/1/).......................... $1.000000 $0.934571 15,954.1965 ----------------------------------------------------------------------------- Fidelity--VIP Index 500--Service Class 2 2001(/1/).......................... $1.000000 $0.986215 7,771.3301
47 Return of Premium Death Benefit * (Total Separate Account Annual Expenses: 1.25%)
Accumulation Accumulation Number of Unit Value Unit Value Accumulation at Beginning at Units at Subaccount of Year End of Year End of Year ------------------------------------------------------------------------------- BlackRock Large Cap Value 2001(/1/).......................... $1.000000 $0.960536 1,030,436.952 ------------------------------------------------------------------------------- BlackRock Mid Cap Growth 2001(/1/).......................... $1.000000 $1.023247 1,025,668.443 ------------------------------------------------------------------------------- BlackRock Global Science & Technology 2001(/1/).......................... $1.000000 $1.040168 1,004,753.554 ------------------------------------------------------------------------------- AIM V.I. Balanced Fund--Series II shares 2001(/1/).......................... $1.000000 $0.990503 1000.000 ------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund--Series II shares 2001(/1/).......................... $1.000000 $0.988307 19,706.2556 ------------------------------------------------------------------------------- AIM V.I. Dent Demographic Trends Fund--Series II shares 2001(/1/).......................... $1.000000 $1.000738 4,689.569 ------------------------------------------------------------------------------- Federated International Small Company Fund II 2001(/1/).......................... $1.000000 $0.88388 1000.000 ------------------------------------------------------------------------------- Federated Prime Money Fund II 2001(/1/).......................... $1.000000 $1.00452 18,381.7762 ------------------------------------------------------------------------------- Federated Quality Bond Fund II 2001(/1/).......................... $1.000000 $1.005194 81,965.9148 ------------------------------------------------------------------------------- Federated Small Cap Strategies Fund II*** 2001(/1/).......................... $1.000000 $1.008277 5,694.9454 ------------------------------------------------------------------------------- MFS Emerging Growth Series--Service Class 2001(/1/).......................... $1.000000 $0.99983 999.000 ------------------------------------------------------------------------------- MFS Investors Growth Stock Series-- Service Class 2001(/1/).......................... $1.000000 $1.002633 19,767.5696 ------------------------------------------------------------------------------- MFS Utilities Series--Service Class 2001(/1/).......................... $1.000000 $0.904363 42,009.2791 ------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA--Service Shares 2001(/1/).......................... $1.000000 $0.993627 1000.000 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA--Service Shares 2001(/1/).......................... $1.000000 $0.988069 44,512.0244 ------------------------------------------------------------------------------- Oppenheimer Main Street Small Cap Fund/VA--Service Shares 2001(/1/).......................... $1.000000 $1.039592 5,324.6063 ------------------------------------------------------------------------------- Putnam VT Growth and Income Fund-- Class IB shares 2001(/1/).......................... $1.000000 $0.969728 2,627.0745 ------------------------------------------------------------------------------- Putnam VT International Growth Fund--Class IB shares 2001(/1/).......................... $1.000000 $0.958155 21,199.0627 ------------------------------------------------------------------------------- Putnam VT Investors Fund--Class IB shares 2001(/1/).......................... $1.000000 $0.966158 35,822.966 ------------------------------------------------------------------------------- Fidelity--VIP Growth--Service Class 2 2001(/1/).......................... $1.000000 $0.992692 58,695.1526 ------------------------------------------------------------------------------- Fidelity--VIP High Income--Service Class 2 2001(/1/).......................... $1.000000 $0.935091 25,761.2844 ------------------------------------------------------------------------------- Fidelity--VIP Index 500--Service Class 2 2001(/1/).......................... $1.000000 $0.986761 7,416.3962
48 (/1/Period)from August 15, 2001, through December 31, 2001. * On May 1, 2002, the death benefits available under the policy were changed to (1) Enhanced Death Benefit, (2) Annual Step-Up Death Benefit, and (3) Return of Premium Death Benefit. ** Formerly known as the AIM V.I. Value Fund. *** Effective May 1, 2002 the Federated Small Cap Strategies Fund II subaccount was closed to new investments. The Capital Guardian Value, Capital Guardian U.S. Equity, Capital Guardian Global, Jennison Growth, Salomon All Cap, Third Avenue Value, Transamerica Equity, Colonial Small Cap Value Fund, Colonial Strategic Income Fund, Liberty Select Value Fund, and Wanger U.S. Smaller Companies had not commenced operations as of December 31, 2001, therefore comparable date is not available. 49 APPENDIX B HISTORICAL PERFORMANCE DATA Standardized Performance Data Transamerica may advertise historical yields and total returns for the subaccounts of the separate account. These figures are based on historical earnings and will be calculated according to guidelines from the SEC. They do not indicate future performance. Federated Prime Money Fund II Subaccount. The yield of the Federated Prime Money Fund II subaccount for a policy refers to the annualized income generated by an investment under a policy in the subaccount 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 under a policy in the subaccount is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. Other Subaccounts. The yield of a subaccount of the separate account (other than the Federated Prime Money Fund II subaccount) for a policy refers to the annualized income generated by an investment under a policy in the subaccount over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that 30-day period is generated each 30-day period over a 12-month period and is shown as a percentage of the investment. The total return of a subaccount of the separate account refers to return quotations assuming an investment under a policy has been held in the subaccount for various periods of time including a period measured from the date the subaccount commenced operations. When a subaccount has been in operation for 1, 5, and 10 years, respectively, the total return for these periods will be provided. The total return quotations for a subaccount will represent the average annual compounded rates of return that equate an initial investment of $1,000 in the subaccount to the redemption value of that investment as of the last day of each of the periods for which total return quotations are provided. The yield and total return calculations for a subaccount do not reflect the effect of any premium taxes that may be applicable to a particular policy and they may not reflect the charges for any optional rider. The yield calculations also do not reflect the effect of any surrender charge that may be applicable to a particular policy. To the extent that any or all of a premium tax and/or surrender charge is applicable to a particular policy, or one or more riders are elected, the yield and/or total return of that policy will be reduced. For additional information regarding yields and total returns calculated using the standard formats briefly summarized above, please refer to the SAI, a copy of which may be obtained from the administrative and service office upon request. Based on the method of calculation described in the SAI, the average annual total returns for periods from inception of the subaccounts to December 31, 2001, and for the one and five year periods ended December 31, 2001 are shown in Tables 1-A, 1-B and 1-C below. Total returns shown reflect deductions for the mortality and expense risk fee and the administrative charges. Performance figures may reflect the 1.35% mortality and expense risk fee for the Enhanced Death Benefit, the 1.25% mortality and expense risk fee for the Annual Step-Up Death Benefit, or the 1.10% mortality and expense risk fee for the Return of Premium Death Benefit. Standard total return calculations will reflect the effect of surrender charges that may be applicable to a particular period. 50 TABLE 1--A Standard Average Annual Total Returns (Assuming a Surrender Charge and No Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Enhanced Death Benefit (Total Separate Account Annual Expenses: 1.50%) --------------------------------------------------------------------------------
Inception of the 1 Year 5 Year Subaccount Ended Ended to Subaccount Subaccount 12/31/01 12/31/01 12/31/01 Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value....... N/A N/A (9.42%) August 17, 2001 BlackRock Mid Cap Growth........ N/A N/A (3.11%) August 17, 2001 BlackRock Global Science & Technology..................... N/A N/A (1.41%) August 17, 2001 Capital Guardian Value.......... N/A N/A N/A May 1, 2002 Capital Guardian U.S. Equity.... N/A N/A N/A May 1, 2002 Capital Guardian Global......... N/A N/A N/A May 1, 2002 Jennison Growth................. N/A N/A N/A May 1, 2002 Salomon All Cap................. N/A N/A N/A May 1, 2002 Third Avenue Value.............. N/A N/A N/A May 1, 2002 Transamerica Equity............. N/A N/A N/A May 1, 2002 AIM V.I. Balanced Fund--Series II shares(/2/)................. N/A N/A (6.40%) August 17, 2001 AIM V.I. Premier Equity Fund-- Series II shares(/2/)*......... N/A N/A (6.62%) August 17, 2001 AIM V.I. Dent Demographic Trends Fund-- Series II shares(/2/).......... N/A N/A (5.37%) August 17, 2001 Federated International Small Company Fund II................ N/A N/A (17.72%) August 17, 2001 Federated Quality Bond Fund II.. N/A N/A (4.92%) August 17, 2001 Colonial Small Cap Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 Colonial Strategic Income Fund, Variable Series................ N/A N/A N/A May 1, 2002 Liberty Select Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 MFS Emerging Growth Series-- Service Class(/3/)............. N/A N/A (5.46%) August 17, 2001 MFS Investors Growth Stock Series--Service Class(/3/)..... N/A N/A (5.18%) August 17, 2001 MFS Utilities Series--Service Class(/3/)..................... N/A N/A (15.06%) August 17, 2001 Oppenheimer Global Securities Fund/VA-- Service Shares................. N/A N/A (6.09%) August 17, 2001 Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares......................... N/A N/A (6.65%) August 17, 2001 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares................. N/A N/A (1.47%) August 17, 2001 Putnam VT Growth and Income Fund-- Class IB Shares................ N/A N/A (8.49%) August 17, 2001 Putnam VT International Growth Fund-- Class IB Shares................ N/A N/A (9.65%) August 17, 2001 Putnam VT Investors Fund--Class IB Shares...................... N/A N/A (8.85%) August 17, 2001 Fidelity--VIP Growth--Service Class 2........................ N/A N/A (6.18%) August 17, 2001 Fidelity--VIP High Income-- Service Class 2................ N/A N/A (11.97%) August 17, 2001 Fidelity--VIP Index 500--Service Class 2........................ N/A N/A (6.78%) August 17, 2001 Wanger U.S. Smaller Companies... N/A N/A N/A May 1, 2002
* Formerly known as the AIM V.I. Value Fund. The Salomon All Cap, Third Avenue Value, Transamerica Equity, Capital Guardian Value, Capital Guardian U.S. Equity, Capital Guardian Global, Jennison Growth, Colonial Small Cap Value Fund, Colonial Strategic Income Fund, Liberty Select Value Fund, and Wanger U.S. Smaller Companies had not commenced operations as of December 31, 2001, therefore comparable date is not available. 51 TABLE 1--B Standard Average Annual Total Returns (Assuming a Surrender Charge and No Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Annual Step-Up Death Benefit (Total Separate Account Annual Expenses: 1.40%) --------------------------------------------------------------------------------
Inception of the 1 Year 5 Year Subaccount Ended Ended to Subaccount Subaccount 12/31/01 12/31/01 12/31/01 Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value....... N/A N/A (9.42%) August 17, 2001 BlackRock Mid Cap Growth........ N/A N/A (3.12%) August 17, 2001 BlackRock Global Science & Technology..................... N/A N/A (1.42%) August 17, 2001 Capital Guardian Value.......... N/A N/A N/A May 1, 2002 Capital Guardian U.S. Equity.... N/A N/A N/A May 1, 2002 Capital Guardian Global......... N/A N/A N/A May 1, 2002 Jennison Growth................. N/A N/A N/A May 1, 2002 Salomon All Cap................. N/A N/A N/A May 1, 2002 Third Avenue Value.............. N/A N/A N/A May 1, 2002 Transamerica Equity............. N/A N/A N/A May 1, 2002 AIM V.I. Balanced Fund--Series II shares(/2/)................. N/A N/A (6.41%) August 17, 2001 AIM V.I. Premier Equity Fund-- Series II shares(/2/)*......... N/A N/A (6.63%) August 17, 2001 AIM V.I. Dent Demographic Trends Fund-- Series II shares(/2/).......... N/A N/A (5.38%) August 17, 2001 Federated International Small Company Fund II................ N/A N/A (17.13%) August 17, 2001 Federated Quality Bond Fund II.. N/A N/A (4.93%) August 17, 2001 Colonial Small Cap Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 Colonial Strategic Income Fund, Variable Series................ N/A N/A N/A May 1, 2002 Liberty Select Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 MFS Emerging Growth Series-- Service Class(/3/)............. N/A N/A (5.47%) August 17, 2001 MFS Investors Growth Stock Series--Service Class(/3/)..... N/A N/A (5.19%) August 17, 2001 MFS Utilities Series--Service Class(/3/)..................... N/A N/A (15.07%) August 17, 2001 Oppenheimer Global Securities Fund/VA-- Service Shares................. N/A N/A (6.10%) August 17, 2001 Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares......................... N/A N/A (6.65%) August 17, 2001 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares................. N/A N/A (1.47%) August 17, 2001 Putnam VT Growth and Income Fund-- Class IB Shares................ N/A N/A (8.50%) August 17, 2001 Putnam VT International Growth Fund-- Class IB Shares................ N/A N/A (9.66%) August 17, 2001 Putnam VT Investors Fund--Class IB Shares...................... N/A N/A (8.86%) August 17, 2001 Fidelity--VIP Growth--Service Class 2........................ N/A N/A (6.19%) August 17, 2001 Fidelity--VIP High Income-- Service Class 2................ N/A N/A (11.98%) August 17, 2001 Fidelity--VIP Index 500--Service Class 2........................ N/A N/A (6.79%) August 17, 2001 Wanger U.S. Smaller Companies... N/A N/A N/A May 1, 2002
52 TABLE 1--C Standard Average Annual Total Returns (Assuming a Surrender Charge and No Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Return of Premium Death Benefit (Total Separate Account Annual Expenses: 1.25%) -------------------------------------------------------------------------------
Inception of the 1 Year 5 Year Subaccount Ended Ended to Subaccount Subaccount 12/31/01 12/31/01 12/31/01 Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value....... N/A N/A (9.37%) August 17, 2001 BlackRock Mid Cap Growth........ N/A N/A (3.06%) August 17, 2001 BlackRock Global Science & Technology..................... N/A N/A (1.36%) August 17, 2001 Capital Guardian Value.......... N/A N/A N/A May 1, 2002 Capital Guardian U.S. Equity.... N/A N/A N/A May 1, 2002 Capital Guardian Global......... N/A N/A N/A May 1, 2002 Jennison Growth................. N/A N/A N/A May 1, 2002 Salomon All Cap................. N/A N/A N/A May 1, 2002 Third Avenue Value.............. N/A N/A N/A May 1, 2002 Transamerica Equity............. N/A N/A N/A May 1, 2002 AIM V.I. Balanced Fund--Series II shares(/2/)................. N/A N/A (6.36%) August 17, 2001 AIM V.I. Premier Equity Fund-- Series II shares(/2/)*......... N/A N/A (6.58%) August 17, 2001 AIM V.I. Dent Demographic Trends Fund-- Series II shares(/2/).......... N/A N/A (5.33%) August 17, 2001 Federated International Small Company Fund II................ N/A N/A (17.08%) August 17, 2001 Federated Quality Bond Fund II.. N/A N/A (4.88%) August 17, 2001 Colonial Small Cap Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 Colonial Strategic Income Fund, Variable Series................ N/A N/A N/A May 1, 2002 Liberty Select Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 MFS Emerging Growth Series-- Service Class(/3/)............. N/A N/A (5.42%) August 17, 2001 MFS Investors Growth Stock Series--Service Class(/3/)..... N/A N/A (5.14%) August 17, 2001 MFS Utilities Series--Service Class(/3/)..................... N/A N/A (15.02%) August 17, 2001 Oppenheimer Global Securities Fund/VA--Service Shares........ N/A N/A (6.04%) August 17, 2001 Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares......................... N/A N/A (6.60%) August 17, 2001 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares................. N/A N/A (1.42%) August 17, 2001 Putnam VT Growth and Income Fund--Class IB Shares.......... N/A N/A (8.45%) August 17, 2001 Putnam VT International Growth Fund--Class IB Shares.......... N/A N/A (9.61%) August 17, 2001 Putnam VT Investors Fund--Class IB Shares...................... N/A N/A (8.80%) August 17, 2001 Fidelity--VIP Growth--Service Class 2........................ N/A N/A (6.14%) August 17, 2001 Fidelity--VIP High Income-- Service Class 2................ N/A N/A (11.93%) August 17, 2001 Fidelity--VIP Index 500--Service Class 2........................ N/A N/A (6.73%) August 17, 2001 Wanger U.S. Smaller Companies... N/A N/A N/A May 1, 2002
Non-Standardized Performance Data In addition to the standardized data discussed above, similar performance data for other periods may also be shown. Transamerica may from time to time also advertise or disclose average annual total return or other performance data in non-standard formats for a subaccount of the separate account. The non-standardized performance data may assume that no surrender charge is applicable, and may also make other assumptions such as the amount invested in a subaccount, differences in time periods to be shown, or the effect of partial surrenders or annuity payments. 53 All non-standardized performance data will be advertised only if the standardized performance data is also disclosed. For additional information regarding the calculation of other performance data, please refer to the SAI. The non-standardized average annual total return figures shown in Tables 2-A, 2-B and 2-C are based on the assumption that the policy is not surrendered, and therefore the surrender charge is not imposed. Also, the tables below do not reflect the charge for any optional rider TABLE 2--A Non-Standard Average Annual Total Returns (Assuming No Surrender Charge, Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Enhanced Death Benefit (Total Separate Account Annual Expenses: 1.50%) --------------------------------------------------------------------------------
Inception of the 1 Year 5 Year Subaccount Ended Ended to Subaccount Subaccount 12/31/01 12/31/01 12/31/01 Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value....... N/A N/A (3.99%) August 17, 2001 BlackRock Mid Cap Growth........ N/A N/A 2.28% August 17, 2001 BlackRock Global Science & Technology..................... N/A N/A 3.97% August 17, 2001 Capital Guardian Value.......... N/A N/A N/A May 1, 2002 Capital Guardian U.S. Equity.... N/A N/A N/A May 1, 2002 Capital Guardian Global......... N/A N/A N/A May 1, 2002 Jennison Growth................. N/A N/A N/A May 1, 2002 Salomon All Cap................. N/A N/A N/A May 1, 2002 Third Avenue Value.............. N/A N/A N/A May 1, 2002 Transamerica Equity............. N/A N/A N/A May 1, 2002 AIM V.I. Balanced Fund--Series II Shares(/2/)................. N/A N/A (1.00%) August 17, 2001 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*......... N/A N/A (1.22%) August 17, 2001 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)... N/A N/A 0.03% August 17, 2001 Federated International Small Company Fund II................ N/A N/A (11.65%) August 17, 2001 Federated Quality Bond Fund II.. N/A N/A 0.47% August 17, 2001 Colonial Small Cap Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 Colonial Strategic Income Fund, Variable Series................ N/A N/A N/A May 1, 2002 Liberty Select Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 MFS Emerging Growth Series-- Service Class(/3/)............. N/A N/A (0.06%) August 17, 2001 MFS Investors Growth Stock Series--Service Class(/3/)..... N/A N/A 0.22% August 17, 2001 MFS Utilities Series--Service Class(/3/)..................... N/A N/A (9.61%) August 17, 2001 Oppenheimer Global Securities Fund/VA-- Service Shares....... N/A N/A (0.68%) August 17, 2001 Oppenheimer Main Street Growth & Income Fund/VA--Service Shares. N/A N/A (1.24%) August 17, 2001 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares... N/A N/A 3.91% August 17, 2001 Putnam VT Growth and Income Fund-- Class IB Shares................ N/A N/A (3.07%) August 17, 2001 Putnam VT International Growth Fund-- Class IB Shares......... N/A N/A (4.23%) August 17, 2001 Putnam VT Investors Fund--Class IB Shares...................... N/A N/A (3.43%) August 17, 2001 Fidelity--VIP Growth--Service Class 2........................ N/A N/A (0.78%) August 17, 2001 Fidelity--VIP High Income-- Service Class 2................ N/A N/A (6.53%) August 17, 2001 Fidelity--VIP Index 500--Service Class 2........................ N/A N/A (1.37%) August 17, 2001 Wanger U.S. Smaller Companies... N/A N/A N/A May 1, 2002
54 TABLE 2--B Non-Standard Average Annual Total Returns (Assuming No Surrender Charge, Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Annual Step-Up Death Benefit (Total Separate Account Annual Expenses: 1.40%) --------------------------------------------------------------------------------
Inception of the 1 Year 5 Year Subaccount Ended Ended to Subaccount Subaccount 12/31/01 12/31/01 12/31/01 Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value....... N/A N/A (4.00%) August 17, 2001 BlackRock Mid Cap Growth........ N/A N/A 2.27% August 17, 2001 BlackRock Global Science & Technology..................... N/A N/A 3.96% August 17, 2001 Capital Guardian Value.......... N/A N/A N/A May 1, 2002 Capital Guardian U.S. Equity.... N/A N/A N/A May 1, 2002 Capital Guardian Global......... N/A N/A N/A May 1, 2002 Jennison Growth................. N/A N/A N/A May 1, 2002 Salomon All Cap................. N/A N/A N/A May 1, 2002 Third Avenue Value.............. N/A N/A N/A May 1, 2002 Transamerica Equity............. N/A N/A N/A May 1, 2002 AIM V.I. Balanced Fund--Series II Shares(/2/)................. N/A N/A (1.00%) August 17, 2001 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*......... N/A N/A (1.22%) August 17, 2001 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)... N/A N/A 0.02% August 17, 2001 Federated International Small Company Fund II................ N/A N/A (11.66%) August 17, 2001 Federated Quality Bond Fund II.. N/A N/A 0.46% August 17, 2001 Colonial Small Cap Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 Colonial Strategic Income Fund, Variable Series................ N/A N/A N/A May 1, 2002 Liberty Select Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 MFS Emerging Growth Series-- Service Class(/3/)............. N/A N/A (0.07%) August 17, 2001 MFS Investors Growth Stock Series--Service Class(/3/)..... N/A N/A 0.21% August 17, 2001 MFS Utilities Series--Service Class(/3/)..................... N/A N/A (9.61%) August 17, 2001 Oppenheimer Global Securities Fund/VA-- Service Shares....... N/A N/A (0.69%) August 17, 2001 Oppenheimer Main Street Growth & Income Fund/VA--Service Shares. N/A N/A (1.25%) August 17, 2001 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares... N/A N/A 3.90% August 17, 2001 Putnam VT Growth and Income Fund-- Class IB Shares................ N/A N/A (3.08%) August 17, 2001 Putnam VT International Growth Fund-- Class IB Shares......... N/A N/A (4.24%) August 17, 2001 Putnam VT Investors Fund--Class IB Shares...................... N/A N/A (3.44%) August 17, 2001 Fidelity--VIP Growth--Service Class 2........................ N/A N/A (0.79%) August 17, 2001 Fidelity--VIP High Income-- Service Class 2................ N/A N/A (6.54%) August 17, 2001 Fidelity--VIP Index 500--Service Class 2........................ N/A N/A (1.38%) August 17, 2001 Wanger U.S. Smaller Companies... N/A N/A N/A May 1, 2002
55 TABLE 2--C Non-Standard Average Annual Total Returns (Assuming No Surrender Charge, Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Return of Premium Death Benefit (Total Separate Account Annual Expenses: 1.25%) -------------------------------------------------------------------------------
Inception of the 1 Year 5 Year Subaccount Subaccount Ended Ended to Inception Subaccount 12/31/01 12/31/01 12/31/01 Date -------------------------------------------------------------------------------- BlackRock Large Cap Value....... N/A N/A (3.95%) August 17, 2001 BlackRock Mid Cap Growth........ N/A N/A 2.32% August 17, 2001 BlackRock Global Science & Technology..................... N/A N/A 4.02% August 17, 2001 Capital Guardian Value.......... N/A N/A N/A May 1, 2002 Capital Guardian U.S. Equity.... N/A N/A N/A May 1, 2002 Capital Guardian Global......... N/A N/A N/A May 1, 2002 Jennison Growth................. N/A N/A N/A May 1, 2002 Salomon All Cap................. N/A N/A N/A May 1, 2002 Third Avenue Value.............. N/A N/A N/A May 1, 2002 Transamerica Equity............. N/A N/A N/A May 1, 2002 AIM V.I. Balanced Fund--Series II Shares(/2/)................. N/A N/A (0.95%) August 17, 2001 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*......... N/A N/A (1.17%) August 17, 2001 AIM V.I. Dent Demographic Trends Fund--Series II Shares(/2/).... N/A N/A 0.07% August 17, 2001 Federated International Small Company Fund II................ N/A N/A (11.61%) August 17, 2001 Federated Quality Bond Fund II.. N/A N/A 0.52% August 17, 2001 Colonial Small Cap Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 Colonial Strategic Income Fund, Variable Series................ N/A N/A N/A May 1, 2002 Liberty Select Value Fund, Variable Series................ N/A N/A N/A May 1, 2002 MFS Emerging Growth Series-- Service Class(/3/)............. N/A N/A (0.02%) August 17, 2001 MFS Investors Growth Stock Series--Service Class(/3/)..... N/A N/A 0.26% August 17, 2001 MFS Utilities Series--Service Class(/3/)..................... N/A N/A (9.56%) August 17, 2001 Oppenheimer Global Securities Fund/VA--Service Shares........ N/A N/A (0.64%) August 17, 2001 Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares......................... N/A N/A (1.19%) August 17, 2001 Oppenheimer Main Street Small Cap Fund/VA--Service Shares.... N/A N/A 3.96% August 17, 2001 Putnam VT Growth and Income Fund--Class IB Shares.......... N/A N/A (3.03%) August 17, 2001 Putnam VT International Growth Fund--Class IB Shares.......... N/A N/A (4.18%) August 17, 2001 Putnam VT Investors Fund--Class IB Shares...................... N/A N/A (3.38%) August 17, 2001 Fidelity--VIP Growth--Service Class 2........................ N/A N/A (0.73%) August 17, 2001 Fidelity--VIP High Income-- Service Class 2................ N/A N/A (6.49%) August 17, 2001 Fidelity--VIP Index 500--Service Class 2........................ N/A N/A (1.32%) August 17, 2001 Wanger U.S. Smaller Companies... N/A N/A N/A May 1, 2002
Adjusted Historical Performance Data. The following performance data is historic performance data for the underlying portfolios since their inception reduced by some or all of the fees and charges under the policy. Such adjusted historic performance includes data that precedes the inception dates of the subaccounts. This data is designed to show the performance that would have resulted if the policy had been in existence during that time, based on the performance of the applicable portfolio and the assumption that the applicable subaccount was in existence for the same period as the portfolio with a level of charges equal to those currently assessed under the policies. This data does not indicate future performance. For instance, as shown in the tables below, Transamerica may disclose average annual total returns for the portfolios reduced by all fees and charges under the policy, as if the policy had been in 56 existence since the inception of the portfolio. Such fees and charges include the mortality and expense risk fee, administrative charge and surrender charges. Tables 3-A, 3-B, and 3-C assume a complete surrender of the policy at the end of the period, and therefore the surrender charge is deducted. Tables 4-A, 4-B, and 4-C assume that the policy is not surrendered, and therefore the surrender charge is not deducted. Also, the tables below do not reflect the charge for any optional riders. The following information is also based on the method of calculation described in the SAI. The adjusted historical average annual total returns for periods ended December 31, 2001, were as follows: TABLE 3--A Hypothetical (Adjusted Historical) Average Annual Total Returns(/1/) (Assuming a Surrender Charge and No Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) ------------------------------------------------------------------------------- Enhanced Death Benefit (Total Separate Account Annual Expenses: 1.50%) -------------------------------------------------------------------------------
10 Year Corresponding or Portfolio Portfolio 1 Year 5 Year Inception Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value...... N/A N/A (9.42%) August 17, 2001 BlackRock Mid Cap Growth....... N/A N/A (3.11%) August 17, 2001 BlackRock Global Science & Technology.................... N/A N/A (1.41%) August 17, 2001 Capital Guardian Value......... 0.22% 6.24% 10.06% May 27, 1993 Capital Guardian U.S. Equity... (9.79%) N/A (7.54%) October 9, 2000 Capital Guardian Global........ (16.75%) N/A 2.49% February 3, 1998 Jennison Growth................ (24.92%) (3.07%) (2.92%) November 18, 1996 Salomon All Cap................ (4.33%) N/A 10.42% May 3, 1999 Third Avenue Value............. (0.25%) N/A 9.52% January 2, 1998 Transamerica Equity............ (24.00%) 14.74% 18.42%+ December 1, 1980 AIM V.I. Balanced Fund--Series II Shares(/2/)................ (17.80%) N/A 1.62% May 1, 1998 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*........ (18.94%) 7.96% 11.74% May 5, 1993 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)......... (38.25%) N/A (29.79%) December 29, 1999 Federated International Small Company Fund II............... (36.34%) N/A (35.01%) May 1, 2000 Federated Quality Bond Fund II. 1.59% N/A 3.02% April 22, 1999 Colonial Small Cap Value Fund, Variable Series............... 1.85% N/A 12.57% May 31, 2000 Colonial Strategic Income Fund, Variable Series............... (2.76%) N/A 0.40% May 31, 2000 Liberty Select Value Fund, Variable Series............... (2.94%) N/A 17.73% May 29, 2000 MFS Emerging Growth Series-- Service Class(/3/)............ (39.96%) 7.32% 10.70% July 24, 1995 MFS Investors Growth Stock Series-- Service Class(/3/)............ (31.21%) N/A (3.68%) May 3, 1999 MFS Utilities Series--Service Class(/3/).................... (30.78%) 8.74% 13.03% January 3, 1995 Oppenheimer Global Securities Fund/VA-- Service Shares...... (18.56%) 13.54% 12.09%+ July 13, 2000 Oppenheimer Main Street Growth & Income Fund/VA--Service Shares........................ (16.65%) 4.98% 11.95% July 5, 1995 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares.. (6.78%) N/A 2.59% May 1, 1998 Putnam VT Growth and Income Fund-- Class IB Shares........ (12.78%) 6.24% 10.04%+ February 1, 1988 Putnam VT International Growth Fund-- Class IB Shares........ (36.39%) N/A 5.13% January 2, 1997 Putnam VT Investors Fund--Class IB Shares..................... (31.13%) N/A (4.28%) April 30, 1998 Fidelity--VIP Growth Portfolio--Service Class 2.... (24.23%) 9.76% 11.55%+ October 9, 1986 Fidelity--VIP High Income Portfolio-- Service Class 2............... (18.31%) (5.29%) 3.52%+ September 19, 1985 Fidelity--VIP Index 500 Portfolio--Service Class 2.... (19.62%) 8.30% 11.55% August 27, 1992 Wanger U.S. Smaller Companies.. 4.95% 10.99% 16.63% May 2, 1995 --------------------------------------------------------------------------------
+ Ten Year Date *Prior to May 1, 2002, the AIM V.I. Premier Equity Fund was called the AIM V.I. Value Fund. 57 TABLE 3--B Hypothetical (Adjusted Historical) Average Annual Total Returns(/1/) (Assuming a Surrender Charge and No Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) ------------------------------------------------------------------------------- Annual Step-Up Death Benefit (Total Separate Account Annual Expenses: 1.40%) -------------------------------------------------------------------------------
Corresponding 10 Year Portfolio or Inception Portfolio 1 Year 5 Year Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value...... N/A N/A (9.42%) August 17, 2001 BlackRock Mid Cap Growth....... N/A N/A (3.12%) August 17, 2001 BlackRock Global Science & Technology.................... N/A N/A (1.42%) August 17, 2001 Capital Guardian Value......... 0.32% 6.35% 10.17% May 27, 1993 Capital Guardian U.S. Equity... (9.69%) N/A (7.44%) October 9, 2000 Capital Guardian Global........ (16.66%) N/A 2.59% February 3, 1998 Jennison Growth................ (24.84%) (2.97%) (2.82%) November 18, 1996 Salomon All Cap................ (4.22%) N/A 10.53% May 3, 1999 Third Avenue Value............. (0.14%) N/A 9.63% January 2, 1998 Transamerica Equity............ (23.92%) 14.85% 18.54%+ December 1, 1980 AIM V.I. Balanced Fund--Series II Shares(/2/)................ (17.71%) N/A 1.62% May 1, 1998 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*........ (18.85%) 8.07% 11.74% May 5, 1993 AIM V.I. Dent Demographic Trends Fund--Series II Shares(/2/)................... (38.18%) N/A (29.79%) December 29, 1999 Federated International Small Company Fund II............... (36.28%) N/A (35.02%) May 1, 2000 Federated Quality Bond Fund II. 1.70% N/A 3.02% April 22, 1999 Colonial Small Cap Value Fund, Variable Series............... 1.95% N/A 9.90% May 31, 2000 Colonial Strategic Income Fund, Variable Series............... (2.66%) N/A 0.51% May 31, 2000 Liberty Select Value Fund, Variable Series............... (2.84%) N/A 17.85% May 29, 2000 MFS Emerging Growth Series-- Service Class(/3/)............ (39.89%) 7.42% 10.70% July 24, 1995 MFS Investors Growth Stock Series-- Service Class(/3/)............ (31.14%) N/A (3.68%) May 3, 1999 MFS Utilities Series--Service Class(/3/).................... (30.71%) 8.85% 13.03% January 3, 1995 Oppenheimer Global Securities Fund/VA--Service Shares....... (18.48%) 13.65% 12.21%+ July 13, 2000 Oppenheimer Main Street Growth & Income Fund/VA--Service Shares........................ (16.56%) 5.08% 11.95% July 5, 1995 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares................ (6.68%) N/A 2.59% May 1, 1998 Putnam VT Growth and Income Fund-- Class IB Shares............... (12.69%) 6.34% 10.15%+ February 1, 1988 Putnam VT International Growth Fund-- Class IB Shares............... (36.32%) N/A 5.13% January 2, 1997 Putnam VT Investors Fund--Class IB Shares..................... (31.05%) N/A (4.29%) April 30, 1998 Fidelity--VIP Growth Portfolio-- Service Class 2............... (24.15%) 9.87% 11.66%+ October 9, 1986 Fidelity--VIP High Income Portfolio-- Service Class 2............... (18.22%) (5.20%) 3.63%+ September 19, 1985 Fidelity--VIP Index 500 Portfolio-- Service Class 2............... (19.54%) 8.41% 11.55% August 27, 1992 Wanger U.S. Smaller Companies.. 5.06% 11.10% 16.75% May 2, 1995 --------------------------------------------------------------------------------
+ Ten Year Date 58 TABLE 3--C Hypothetical (Adjusted Historical) Average Annual Total Returns(/1/) (Assuming a Surrender Charge and No Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Return of Premium Death Benefit (Total Separate Account Annual Expenses: 1.25%) --------------------------------------------------------------------------------
Corresponding 10 Year Portfolio or Inception Portfolio 1 Year 5 Year Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value...... N/A N/A (9.37%) August 17, 2001 BlackRock Mid Cap Growth....... N/A N/A (3.06%) August 17, 2001 BlackRock Global Science & Technology.................... N/A N/A (1.36%) August 17, 2001 Capital Guardian Value......... 0.48% 6.50% 10.34% May 27, 1993 Capital Guardian U.S. Equity... (9.54%) N/A (7.29%) October 9, 2000 Capital Guardian Global........ (16.52%) N/A 2.75% February 3, 1998 Jennison Growth................ (24.71%) (2.83%) (2.68%) November 18, 1996 Salomon All Cap................ (4.07%) N/A 10.71% May 3, 1999 Third Avenue Value............. 0.02% N/A 9.80% January 2, 1998 Transamerica Equity............ (23.79%) 15.02% 18.72%+ December 1, 1980 AIM V.I. Balanced Fund--Series II Shares(/2/)................ (17.58%) N/A 1.77% May 1, 1998 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*........ (18.72%) 8.23% 11.90% May 5, 1993 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)......... (38.08%) N/A (29.67%) December 29, 1999 Federated International Small Company Fund II............... (36.17%) N/A (34.91%) May 1, 2000 Federated Quality Bond Fund II. 1.86% N/A 3.18% April 22, 1999 Colonial Small Cap Value Fund, Variable Series............... 2.11% N/A 10.07% May 31, 2000 Colonial Strategic Income Fund, Variable Series............... (2.50%) N/A 0.67% May 31, 2000 Liberty Select Value Fund, Variable Series............... (2.68%) N/A 18.04% May 29, 2000 MFS Emerging Growth Series-- Service Class(/3/)............ (39.79%) 7.59% 10.86% July 24, 1995 MFS Investors Growth Stock Series--Service Class(/3/).... (31.02%) N/A (3.53%) May 3, 1999 MFS Utilities Series--Service Class(/3/).................... (30.60%) 9.01% 13.20% January 3, 1995 Oppenheimer Global Securities Fund/VA-- Service Shares................ (18.35%) 13.82% 12.37%+ July 13, 2000 Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares........................ (16.43%) 5.24% 12.12% July 5, 1995 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares.. (6.53%) N/A 2.75% May 1, 1998 Putnam VT Growth and Income Fund-- Class IB Shares............... (12.55%) 6.50% 10.32%+ February 1, 1988 Putnam VT International Growth Fund-- Class IB Shares............... (36.22%) N/A 5.29% January 2, 1997 Putnam VT Investors Fund--Class IB Shares..................... (30.94%) N/A (4.14%) April 30, 1998 Fidelity--VIP Growth Portfolio--Service Class 2.... (24.03%) 10.03% 11.83%+ October 9, 1986 Fidelity--VIP High Income Portfolio-- Service Class 2............... (18.09%) (5.06%) 3.78%+ September 19, 1985 Fidelity--VIP Index 500 Portfolio--Service Class 2.... (19.40%) 8.57% 11.72% August 27, 1992 Wanger U.S. Smaller Companies.. 5.23% 11.26% 16.92% May 2, 1995 -------------------------------------------------------------------------------- +Ten Year Date
(/1/)The calculation of total return performance for periods prior to inception of the subaccounts reflects deductions for the mortality and expense risk fee and administrative charge on a monthly basis, rather than a daily basis. The monthly deduction is made at the beginning of each month and generally approximates the performance which would have resulted if the subaccount had been in existence since the inception of the portfolio. (/2/)Returns prior to July 16, 2001 for the portfolios are based on historical returns for Series I Shares. (/3/)Returns prior to May 1, 2000 for the portfolios are based on historical returns for Initial Class Shares. 59 TABLE 4--A Hypothetical (Adjusted Historical) Average Annual Total Returns(/1/) (Assuming No Surrender Charge, Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Enhanced Death Benefit (Total Separate Account Annual Expenses: 1.50%) --------------------------------------------------------------------------------
Corresponding 10 Year Portfolio or Inception Portfolio 1 Year 5 Year Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value...... N/A N/A (3.99%) August 17, 2001 BlackRock Mid Cap Growth....... N/A N/A 2.28% August 17, 2001 BlackRock Global Science & Technology.................... N/A N/A 3.97% August 17, 2001 Capital Guardian Value......... 5.06% 6.34% 10.16% May 27, 1993 Capital Guardian U.S. Equity... (4.83%) N/A (3.44%) October 9, 2000 Capital Guardian Global........ (11.71%) N/A 3.10% February 3, 1998 Jennison Growth................ (19.78%) (2.97%) (2.82%) November 18, 1996 Salomon All Cap................ 0.57% N/A 11.65% May 3, 1999 Third Avenue Value............. 4.60% N/A 9.93% January 2, 1998 Transamerica Equity............ (18.87%) 14.84% 18.52%+ December 1, 1980 AIM V.I. Balanced Fund--Series II Shares(/2/)................ (12.75%) N/A 2.30% May 1, 1998 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*........ (13.87%) 8.06% 11.84% May 5, 1993 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)......... (32.95%) N/A (26.21%) December 29, 1999 Federated International Small Company Fund II............... (31.07%) N/A (30.73%) May 1, 2000 Federated Quality Bond Fund II. 6.42% N/A 4.51% April 22, 1999 Colonial Small Cap Value Fund, Variable Series............... 6.67% N/A 15.26% May 31, 2000 Colonial Strategic Income Fund, Variable Series............... 2.11% N/A 3.45% May 31, 2000 Liberty Select Value Fund, Variable Series............... 1.94% N/A 20.08% May 29, 2000 MFS Emerging Growth Series-- Service Class(/3/)............ (34.64%) 7.42% 10.80% July 24, 1995 MFS Investors Growth Stock Series--Service Class(/3/).... (26.00%) N/A (1.89%) May 3, 1999 MFS Utilities Series--Service Class(/3/).................... (25.58%) 8.84% 13.13% January 3, 1995 Oppenheimer Global Securities Fund/VA--Service Shares....... (13.50%) 13.64% 12.19%+ July 13, 2000 Oppenheimer Main Street Growth & Income Fund/VA--Service Shares........................ (11.61%) 5.08% 12.05% July 5, 1995 Oppenheimer Main Street Small Cap Fund/VA--Service Shares... (1.86%) N/A 3.24% May 1, 1998 Putnam VT Growth and Income Fund--Class IB Shares......... (7.79%) 6.34% 10.14%+ February 1, 1988 Putnam VT International Growth Fund--Class IB Shares......... (31.12%) N/A 5.34% January 2, 1997 Putnam VT Investors Fund--Class IB Shares..................... (25.91%) N/A (3.40%) April 30, 1998 Fidelity--VIP Growth Portfolio--Service Class 2.... (19.10%) 9.86% 11.65%+ October 9, 1986 Fidelity--VIP High Income Portfolio--Service Class 2.... (13.25%) (5.19%) 3.62%+ September 19, 1985 Fidelity--VIP Index 500 Portfolio--Service Class 2.... (14.55%) 8.40% 11.65% August 27, 1992 Wanger U.S. Smaller Companies.. 9.74% 11.09% 16.73% May 2, 1995 --------------------------------------------------------------------------------
+ Ten Year Date 60 TABLE 4--B Hypothetical (Adjusted Historical) Average Annual Total Returns(/1/) (Assuming No Surrender Charge, Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Annual Step-Up Death Benefit (Total Separate Account Annual Expenses: 1.40%) -------------------------------------------------------------------------------
Corresponding 10 Year Portfolio or Inception Portfolio 1 Year 5 Year Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value...... N/A N/A (4.00%) August 17, 2001 BlackRock Mid Cap Growth....... N/A N/A 2.27% August 17, 2001 BlackRock Global Science & Technology.................... N/A N/A 3.96% August 17, 2001 Capital Guardian Value......... 5.16% 6.45% 10.27% May 27, 1993 Capital Guardian U.S. Equity... (4.73%) N/A (3.34%) October 9, 2000 Capital Guardian Global........ (11.62%) N/A 3.21% February 3, 1998 Jennison Growth................ (19.70%) 2.87% (2.72%) November 18, 1996 Salomon All Cap................ 0.67% N/A 11.76% May 3, 1999 Third Avenue Value............. 4.70% N/A 10.04% January 2, 1998 Transamerica Equity............ (18.79%) 14.95% 18.64%+ December 1, 1980 AIM V.I. Balanced Fund--Series II Shares(/2/)................ (12.66%) N/A 2.30% May 1, 1998 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*........ (13.79%) 8.17% 11.84% May 5, 1993 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)......... (32.89%) N/A (26.21%) December 29, 1999 Federated International Small Company Fund II............... (31.00%) N/A (30.73%) May 1, 2000 Federated Quality Bond Fund II. 6.52% N/A 4.50% April 22, 1999 Colonial Small Cap Value Fund, Variable Series............... 6.77% N/A 12.69% May 31, 2000 Colonial Strategic Income Fund, Variable Series............... 2.22% N/A 3.56% May 31, 2000 Liberty Select Value Fund, Variable Series............... 2.04% N/A 20.20% May 29, 2000 MFS Emerging Growth Series-- Service Class(/3/)............ (34.58%) 7.52% 10.80% July 24, 1995 MFS Investors Growth Stock Series--Service Class(/3/).... (25.93%) N/A (1.90%) May 3, 1999 MFS Utilities Series--Service Class(/3/).................... (25.51%) 8.95% 13.13% January 3, 1995 Oppenheimer Global Securities Fund/VA-- Service Shares................ (13.42%) 13.75% 12.31%+ July 13, 2000 Oppenheimer Main Street Growth & Income Fund/VA-- Service Shares........................ (11.53%) 5.18% 12.05% July 5, 1995 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares................ (1.76%) N/A 3.24% May 1, 1998 Putnam VT Growth and Income Fund--Class IB Shares......... (7.70%) 6.44% 10.25%+ February 1, 1988 Putnam VT International Growth Fund-- Class IB Shares............... (31.05%) N/A 5.34% January 2, 1997 Putnam VT Investors Fund--Class IB Shares..................... (25.84%) N/A (3.40%) April 30, 1998 Fidelity--VIP Growth Portfolio--Service Class 2.... (19.02%) 9.97% 11.76%+ October 9, 1986 Fidelity--VIP High Income Portfolio--Service Class 2.... (13.16%) (5.10%) 3.73%+ September 19, 1985 Fidelity--VIP Index 500 Portfolio--Service Class 2.... (14.46%) 8.51% 11.65% August 27, 1992 Wanger U.S. Smaller Companies.. 9.85% 11.20% 16.85% May 2, 1995 -------------------------------------------------------------------------------- +Ten Year Date
61 TABLE 4--C Hypothetical (Adjusted Historical) Average Annual Total Returns(/1/) (Assuming No Surrender Charge, Managed Annuity Program, Liquidity Rider, Beneficiary Earnings Enhancement, or Beneficiary Earnings Enhancement--Extra) Return of Premium Death Benefit (Total Separate Account Annual Expenses: 1.25%) -------------------------------------------------------------------------------
10 Year Corresponding or Portfolio Portfolio 1 Year 5 Year Inception Inception Date -------------------------------------------------------------------------------- BlackRock Large Cap Value...... N/A N/A (3.95%) August 17, 2001 BlackRock Mid Cap Growth....... N/A N/A 2.32% August 17, 2001 BlackRock Global Science & Technology.................... N/A N/A 4.02% August 17, 2001 Capital Guardian Value......... 5.32% 6.60% 10.44% May 27, 1993 Capital Guardian U.S. Equity... (4.59%) N/A (3.20%) October 9, 2000 Capital Guardian Global........ (11.49%) N/A 3.36% February 3, 1998 Jennison Growth................ (19.58%) (2.73%) (2.58%) November 18, 1996 Salomon All Cap................ 0.82% N/A 11.93% May 3, 1999 Third Avenue Value............. 4.86% N/A 10.21% January 2, 1998 Transamerica Equity............ (18.67%) 15.12% 18.82%+ December 1, 1980 AIM V.I. Balanced Fund--Series II Shares(/2/)................ (12.53%) N/A 2.45% May 1, 1998 AIM V.I. Premier Equity Fund-- Series II Shares(/2/)*........ (13.66%) 8.33% 12.00% May 5, 1993 AIM V.I. Dent Demographic Trends Fund-- Series II Shares(/2/)......... (32.78%) N/A (26.10%) December 29, 1999 Federated International Small Company Fund II............... (30.90%) N/A (30.63%) May 1, 2000 Federated Quality Bond Fund II. 6.68% N/A 4.66% April 22, 1999 Colonial Small Cap Value Fund, Variable Series............... 6.93% N/A 12.86% May 31, 2000 Colonial Strategic Income Fund, Variable Series............... 2.37% N/A 3.71% May 31, 2000 Liberty Select Value Fund, Variable Series............... 2.19% N/A 20.37% May 29, 2000 MFS Emerging Growth Series-- Service Class(/3/)............ (34.48%) 7.69% 10.96% July 24, 1995 MFS Investors Growth Stock Series--Service Class(/3/).... (25.81%) N/A (1.75%) May 3, 1999 MFS Utilities Series--Service Class(/3/).................... (25.39%) 9.11% 13.30% January 3, 1995 Oppenheimer Global Securities Fund/VA-- Service Shares................ (13.29%) 13.92% 12.47%+ July 13, 2000 Oppenheimer Main Street Growth & Income Fund/VA--Service Shares........................ (11.39%) 5.34% 12.22% July 5, 1995 Oppenheimer Main Street Small Cap Fund/VA-- Service Shares................. (1.61%) N/A 3.40% May 1, 1998 Putnam VT Growth and Income Fund--Class IB Shares......... (7.56%) 6.60% 10.42%+ February 1, 1988 Putnam VT International Growth Fund--Class IB Shares......... (30.94%) N/A 5.50% January 2, 1997 Putnam VT Investors Fund--Class IB Shares..................... (25.73%) N/A (3.26%) April 30, 1998 Fidelity--VIP Growth Portfolio--Service Class 2.... (18.90%) 10.13% 11.93%+ October 9, 1986 Fidelity--VIP High Income Portfolio--Service Class 2.... (13.03%) (4.96%) 3.88%+ September 19, 1985 Fidelity--VIP Index 500 Portfolio--Service Class 2.... (14.33%) 8.67% 11.82% August 27, 1992 Wanger U.S. Smaller Companies.. 10.01% 11.36% 17.02% May 2, 1995 -------------------------------------------------------------------------------- +Ten Year Date
(/1/)The calculation of total return performance for periods prior to inception of the subaccounts reflects deductions for the mortality and expense risk fee and administrative charge on a monthly basis, rather than a daily basis. The monthly deduction is made at the beginning of each month and generally approximates the performance which would have resulted if the subaccount had been in existence since the inception of the portfolio. (/2/)Returns prior to July 16, 2001 for the portfolios are based on historical returns for Series I Shares. (/3/)Returns prior to May 1, 2000 for the portfolios are based on historical returns for Initial Class Shares. 62 APPENDIX C POLICY VARIATIONS The dates shown below are the approximate first issue dates of the various versions of the policy. These dates will vary by state in many cases. This Appendix describes certain of the more significant differences in features of the various versions of the policy. There may be additional variations. Please see your actual policy and any attachments for determining your specific coverage. Policy Form/Endorsement Approximate First Issue Date AV288 101 95 796 (Policy Form) October 1998 RGMI 1 798 (endorsement--family income December 1998 protector) RTP 1 201 (Additional Death Distribution May 2001 Rider)
63
AV288 101 95 796; RGMI 1 798; RTP 1 Product Feature 201 -------------------------------------- Excess Interest Adjustment Yes -------------------------------------- Guaranteed Minimum Return of Premium; Death Benefit 5% Annually Option(s) Compounding (available if owner and annuitant are age 80 or younger); and Annual Step-Up (available if owner and annuitant are age 80 or younger) -------------------------------------- Guaranteed Period Options (available 1, 3, 5 and 7 year in the fixed guaranteed periods account) available. -------------------------------------- Minimum effective annual interest rate applicable to the fixed account 3% -------------------------------------- Asset Rebalancing Yes -------------------------------------- Death Proceeds Greater of 1) the policy value; 2) the cash value; or 3) guaranteed minimum death benefit. -------------------------------------- Distribution Financing Charge N/A -------------------------------------- Is Mortality & Expense Risk Fee different after the annuity commencement date? Yes -------------------------------------- Dollar Cost Averaging Fixed Account Option Yes -------------------------------------- Service Charge $30 assessed on each policy anniversary. Not deducted from the fixed account. -------------------------------------- Nursing Care and Terminal Condition Withdrawal Option Yes -------------------------------------- Unemployment Waiver Yes -------------------------------------- Family Income Protector Yes -------------------------------------- Additional Death Distribution Yes
64 PREMIER ASSET BUILDER VARIABLE ANNUITY Issued by TRANSAMERICA LIFE INSURANCE COMPANY Supplement Dated May 1, 2002 to the Prospectus dated May 1, 2002 FOR MINNESOTA ONLY For Minnesota policies, the optional Family Income Protector is as described in this supplement and not as described in the prospectus. This feature is known as the Managed Annuity Program in the prospectus. Family Income Protector The optional "Family Income Protector" rider assures you of a minimum level of income in the future by guaranteeing a minimum annuitization value (discussed below) after ten years. You may elect to purchase this benefit, which provides a minimum amount you will have to apply to a Family Income Protector payment option and which guarantees a minimum amount for those payments once you begin to receive them. By electing this benefit, you can participate in the gains of the underlying variable investment options you select while knowing that you are guaranteed a minimum level of income in the future, regardless of the performance of the underlying variable investment options. The Family Income Protector rider will not be issued if you are 85 years old or older. You can annuitize under the rider (subject to the conditions described below) at the greater of the adjusted policy value or the minimum annuitization value. Minimum Annuitization Value. The minimum annuitization value is: .. the policy value on the date the rider is issued; plus .. any additional premium payments; minus .. an adjustment for any surrenders made after the date the rider is issued; .. the result of which is accumulated at the annual growth rate written on page one of the rider; minus .. any premium taxes. The annual growth rate is 6% per year. Once the rider is added to your policy, the annual growth rate will not vary during the life of that rider. Surrenders may reduce the minimum annuitization value on a basis greater than dollar-for- dollar. See the SAI for more information. The minimum annuitization value may only be used to annuitize using the Family Income Protector payment options and may not be used with any of the annuity payment options listed in Section 7 of this prospectus. The Family Income Protector payment options are: .. Life Income--An election may be made for "No Period Certain" or "10 Years Certain". In the event of the death of the annuitant prior to the end of the chosen period certain, the remaining period certain payments will be continued to the beneficiary. .. Joint and Full Survivor--An election may be made for "No Period Certain" or "10 Years Certain". Payments will be made as long as either the annuitant or joint annuitant is living. In the event of the death of both the annuitant and joint annuitant prior to the end of the chosen period certain, the remaining period certain payments will be continued to the beneficiary. Note Carefully: IF: .. You choose Life Income with No Period Certain or Joint and Full Survivor with No Period Certain; and .. The annuitant(s) dies before the due date of the second (third, fourth, etc.) annuity payment; THEN: .. We will make only one (two, three, etc.) annuity payments. The minimum annuitization value is used solely to calculate the Family Income Protector annuity payments and does not establish or guarantee a policy value or guarantee S-1 performance of any investment option. Because this benefit is based on conservative actuarial factors (such as the use of a 3% assumed investment return, or "AIR," to calculate the first annuity payment, which results in a lower dollar amount for that payment than would result from using the 5.0% AIR that is used with the regular annuity payments described in the prospectus), the level of lifetime income that it guarantees may be less than the level that would be provided by application of the adjusted policy value at otherwise applicable annuity factors. Therefore, the Family Income Protector should be regarded as a safety net. The costs of annuitizing under the Family Income Protector include the guaranteed payment fee, and also the lower payout levels inherent in the annuity tables used for those minimum payouts (which may include an annuity age factor adjustment). These costs should be balanced against the benefits of a minimum payout level. In addition to the annual growth rate, other benefits and fees under the rider (the rider fee, the fee waiver threshold, the guaranteed payment fee, and the waiting period before the rider can be exercised) are also guaranteed not to change after the rider is added. However, all of these benefit specifications may change if you elect to upgrade the minimum annuitization value. Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization value to the policy value on a policy anniversary. This may be done within thirty days after any policy anniversary before your 85th birthday (earlier if required by state law). For your convenience, we will put the last date to upgrade on page one of the rider. If you upgrade: .. the current rider will terminate and a new one will be issued with its own specified guaranteed benefits and fees (the new rider will be what is currently offered for new sales); .. the new fees, thresholds and factors may be higher (or lower) than before; .. the new annual growth rate may be lower (or higher) than before; and .. you will have a new ten year waiting period before you can annuitize under the rider. It generally will not be to your advantage to upgrade unless your adjusted policy value exceeds your minimum annuitization value on the applicable policy anniversary. Conditions of Exercise of the Family Income Protector. You can only annuitize using the Family Income Protector within the 30 days after the tenth or later policy anniversary after the Family Income Protector is elected or, in the case of an upgrade of the minimum annuitization value, the tenth or later policy anniversary following the upgrade. You cannot, however, annuitize using the Family Income Protector after the policy anniversary after your 94th birthday. For your convenience, we will put the first and last date to annuitize using the Family Income Protector on page one of the rider. NOTE CAREFULLY: If you annuitize at any time other than indicated above, you cannot use the Family Income Protector. Guaranteed Minimum Stabilized Payments. Annuity payments under the rider are guaranteed to never be less than the initial payment. See the SAI for information concerning the calculation of the initial payment. The payments will also be "stabilized" or held constant during each policy year. During the first policy year after annuitizing using the rider, each stabilized payment will equal the initial payment. On each policy anniversary thereafter, the stabilized payment will increase or decrease depending on the performance of the investment options you selected (but will never be less than the initial payment), and then be held constant at that amount for that policy year. The stabilized payment on each policy anniversary will equal the greater of the initial payment or the payment supportable by the annuity units in the selected investment options. See the SAI for additional information concerning stabilized payments. Rider Fee. A rider fee, 0.35% of the minimum annuitization value on the policy anniversary, is charged annually prior to annuitization. We will S-2 also charge this fee if you take a complete surrender. The rider fee is deducted from each variable investment choice in proportion to the amount of policy value in each subaccount. This fee is deducted even if the adjusted policy value exceeds the minimum annuitization value. The rider fee on any given policy anniversary will be waived if the policy value exceeds the fee waiver threshold. The fee waiver threshold is two times the minimum annuitization value. Transamerica may, at its discretion, change the fee waiver threshold in the future, but it will never be greater than two and one-half times the minimum annuitization value. Guaranteed Payment Fee. A guaranteed payment fee, equal to an effective annual rate of 1.25% of the daily net asset value in the separate account, is reflected in the amount of the variable payments you receive if you annuitize under the Family Income Protector rider, in addition to the base product mortality and expense risk fee and administrative charge. The guaranteed payment fee is included on page one of the rider. Termination. The rider is irrevocable. You have the option not to use the benefit but you will not receive a refund of any fees you have paid. The rider will terminate upon the earliest of the following: .. annuitization (you will still get guaranteed minimum stabilized payments if you annuitize using the minimum annuitization value under the Family Income Protector); .. upgrade of the minimum annuitization value (although a new rider will be issued); .. termination of your policy; or .. 30 days after the policy anniversary after your 94th birthday. S-3 PREMIER ASSET BUILDER VARIABLE ANNUITY Issued by TRANSAMERICA LIFE INSURANCE COMPANY Supplement Dated May 1, 2002 to the Prospectus dated May 1, 2002 FOR NEW JERSEY ONLY For New Jersey policies, the optional Managed Annuity Program is as described in this supplement and not as described in the prospectus. Managed Annuity Program The optional Managed Annuity Program can be used to provide you a certain level of income in the future by guaranteeing a minimum annuitization value (discussed below). You may elect to purchase this benefit, which provides a minimum amount you will have to apply to a Managed Annuity Program payment option and which guarantees a minimum level of those payments once you begin to receive them. By electing this benefit, you can participate in the gains of the underlying variable investment options you select while knowing that you are guaranteed a minimum level of income in the future, regardless of the performance of the underlying variable investment options. The Managed Annuity Program will not be issued if you are 85 years old or older. You can annuitize under the Managed Annuity Program (subject to the conditions described below) at the greater of the policy value or the minimum annuitization value (subject to any applicable adjustment). Minimum Annuitization Value. If the Managed Annuity Program is added when you purchase the policy or in the first policy year, the minimum annuitization value on the rider date (i.e., the date the rider is added to the policy) is the total premium payments. If the Managed Annuity Program is added after the first policy year, the minimum annuitization value on the rider date is the policy value. After the rider date, the minimum annuitization value is: .. the minimum annuitization value on the rider date; plus .. any additional premium payments; minus .. an adjustment for any withdrawals made after the rider date; .. the result of which is accumulated at the annual growth rate; minus .. any premium taxes. Please note that if you annuitize using the Managed Annuity Program on any date other than a rider anniversary, there may be a downward adjustment to your minimum annuitization value. See "Minimum Annuitization Value Adjustment" below. The annual growth rate is 6% per year. Withdrawals may reduce the minimum annuitization value on a basis greater than dollar-for-dollar. See the SAI for more information. In addition to the immediate reduction in the minimum annuitization value due to the withdrawal, the same withdrawal, if taken in the rider year that you annuitize using the Managed Annuity Program, may also result in a negative minimum annuitization value adjustment. See "Minimum Annuitization Value Adjustment" below. The minimum annuitization value may only be used to annuitize using the Managed Annuity Program payment options and may not be used with any of the other annuity payment options listed in the prospectus. The Managed Annuity Program payment options are: .. Life Income--An election may be made for "No Period Certain" or "10 Years Certain". In the event of the death of the annuitant prior to the end of the chosen period certain, the remaining period certain payments will be continued to the beneficiary. .. Joint and Full Survivor--An election may be made for "No Period Certain" or "10 Years Certain". Payments will be made as long as either the annuitant or joint annuitant is living. In the event of the death of both the annuitant and joint annuitant prior to the end of the chosen period certain, the remaining period certain payments will be continued to the beneficiary. S-1 Note Carefully: IF: .. You choose Life Income with No Period Certain or Joint and Full Survivor with No Period Certain; and .. The annuitant(s) dies before the due date of the second (third, fourth, etc.) annuity payment; THEN: .. We will make only one (two, three, etc.) annuity payments. Please note that if you annuitize using the Managed Annuity Program before the 10th rider anniversary, the payments will be calculated with an annuity factor age adjustment. See "Annuity Factor Age Adjustment" below. Minimum Annuitization Value Adjustment. If you annuitize under the Managed Annuity Program on any date other than a rider anniversary, the minimum annuitization value will be adjusted downward if your policy value has decreased since the last rider anniversary (or the rider date for annuitizations within the first rider year). The adjusted minimum annuitization value will equal: .. the policy value on the date you annuitize; plus .. the minimum annuitization value on the most recent rider anniversary (or the rider date for annuitizations within the first rider year); minus .. the policy value on the most recent rider anniversary (or the rider date for annuitizations within the first rider year). The minimum annuitization value will not be adjusted if: .. you annuitize on a rider anniversary; or .. your policy value has increased since the last rider anniversary (or the rider date for annuitizations within the first rider year). Annuity Factor Age Adjustment. If you annuitize using the Managed Annuity Program before the 10th rider anniversary, the first payment will be calculated with an annuity factor age adjustment which subtracts up to 10 years from your age resulting in all payments being lower than if an annuity factor age adjustment was not used. See the SAI for information concerning the calculation of the initial payment. The age adjustment is as follows:
Number of Years Age Adjustment: Since the Number of Years Rider Date Subtracted from Your Age -------------------------------------------- 0-1 10 -------------------------------------------- 1-2 9 -------------------------------------------- 2-3 8 -------------------------------------------- 3-4 7 -------------------------------------------- 4-5 6 -------------------------------------------- 5-6 5 -------------------------------------------- 6-7 4 -------------------------------------------- 7-8 3 -------------------------------------------- 8-9 2 -------------------------------------------- 9-10 1 -------------------------------------------- >10 0
The minimum annuitization value is used solely to calculate the Managed Annuity Program annuity payments and does not establish or guarantee a policy value or guarantee performance of any investment option. Because this benefit is based on conservative actuarial factors (such as the use of a 3% assumed investment return, or "AIR," to calculate the first annuity payment, which results in a lower dollar amount for that payment than would result from using the 5.0% AIR that is used with the regular annuity payments described in the prospectus), the level of lifetime income that it guarantees may be less than the level that would be provided by application of the adjusted policy value at otherwise applicable annuity factors. Therefore, the Managed Annuity Program should be regarded as a safety net. The costs of annuitizing under the Managed Annuity Program include the guaranteed payment fee, and also the lower payout levels inherent in the annuity tables used for those minimum payouts (which may include an annuity age factor adjustment). These costs should be balanced against the benefits of a minimum payout level. In addition to the annual growth rate, other benefits and fees under the rider (the rider fee, the fee waiver threshold, guaranteed payment fee, and the annuity factor age adjustment) are S-2 also guaranteed not to change after the rider is added. However, all of these benefit specifications may change if you elect to upgrade the minimum annuitization value. Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization value to the policy value at any time before your 95th birthday. If you upgrade: .. the current rider will terminate and a new one will be issued with its own specified guaranteed benefits and fees; and .. the new rider's specified benefits and fees may not be as advantageous as before. It generally will not be to your advantage to upgrade unless your policy value exceeds your minimum annuitization value at that time. Conditions of Exercise of the Managed Annuity Program. You can annuitize using the Managed Annuity Program at any time before your 95th birthday. For your convenience, we will put the last date to annuitize using the Managed Annuity Program on page one of the rider. Note Carefully: .. If you annuitize at any time other than a rider anniversary, there may be a negative adjustment to your minimum annuitization value. See "Minimum Annuitization Value Adjustment." .. If you annuitize before the 10th rider anniversary there will be an annuity factor age adjustment. See "Annuity Factor Age Adjustment." .. If you take a withdrawal during the rider year that you annuitize, your minimum annuitization value will be reduced to reflect the withdrawal and will likely be subject to a negative minimum annuitization value adjustment. Guaranteed Minimum Stabilized Payments. Annuity payments under the Managed Annuity Program are guaranteed to never be less than the initial payment. See the SAI for information concerning the calculation of the initial payment. The payments will also be "stabilized" or held constant during each rider year. During the first rider year after annuitizing using the Managed Annuity Program, each stabilized payment will equal the initial payment. On each rider anniversary thereafter, the stabilized payment will increase or decrease depending on the performance of the investment options you selected (but will never be less than the initial payment), and then be held constant at that amount for that rider year. The stabilized payment on each rider anniversary will equal the greater of the initial payment or the payment supportable by the annuity units in the selected investment options. See the SAI for additional information concerning stabilized payments. Managed Annuity Program Fee. A rider fee, currently 0.45% of the minimum annuitization value on the rider anniversary, is charged annually prior to annuitization. We will also charge this fee upon termination. The rider fee is deducted from each variable investment option in proportion to the amount of policy value in each subaccount. The rider fee on any given rider anniversary will be waived if the policy value exceeds the fee waiver threshold. The fee waiver threshold currently is two times the minimum annuitization value. Transamerica may, at its discretion, change the fee waiver threshold in the future, but it will never be greater than two and one-half times the minimum annuitization value. Guaranteed Payment Fee. A guaranteed payment fee, currently equal to an effective annual rate of 1.25% of the daily net asset value in the separate account, is reflected in the amount of the variable payments you receive if you annuitize under the Managed Annuity Program. Termination. The Managed Annuity Program will terminate upon the earliest of the following: .. the date we receive written notice from you requesting termination of the Managed Annuity Program; .. annuitization (you will still get guaranteed minimum stabilized payments if you annuitize using the minimum annuitization value under the Managed Annuity Program); .. upgrade of the minimum annuitization value (although a new rider will be issued); .. termination of your policy; or .. 30 days after the last date to elect the benefit as shown on page 1 of the rider. S-3 STATEMENT OF ADDITIONAL INFORMATION PREMIER ASSET BUILDER VARIABLE ANNUITY Issued through SEPARATE ACCOUNT VA F Offered by TRANSAMERICA LIFE INSURANCE COMPANY 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499-0001 This Statement of Additional Information expands upon subjects discussed in the current prospectus for the Premier Asset Builder Variable Annuity offered by Transamerica Life Insurance Company ("Transamerica"). You may obtain a copy of the prospectus dated May 1, 2002, by calling 1-800-525-6205, or by writing to the administrative and service office, Financial Markets Division-Variable Annuity Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. The prospectus sets forth information that a prospective investor should know before investing in a policy. Terms used in the current prospectus for the policy are incorporated in this Statement of Additional Information. This Statement of Additional Information (SAI) is not a prospectus and should be read only in conjunction with the prospectus for the policy and the underlying fund portfolios. Dated: May 1, 2002 TABLE OF CONTENTS
Page ---- GLOSSARY OF TERMS ................................................................. 3 THE POLICY--GENERAL PROVISIONS .................................................... 5 Owner ...................................................................... 5 Entire Policy .............................................................. 5 Misstatement of Age or Sex ................................................. 5 Addition, Deletion or Substitution of Investments .......................... 5 Excess Interest Adjustment ................................................. 6 Reallocation of Annuity Units After the Annuity Commencement Date .......... 10 Annuity Payment Options .................................................... 10 Death Benefit .............................................................. 11 Death of Owner ............................................................. 13 Assignment ................................................................. 13 Evidence of Survival ....................................................... 13 Non-Participating .......................................................... 13 Amendments ................................................................. 13 Present Value of Future Variable Payments .................................. 14 Stabilized Payments ........................................................ 14 Employee and Agent Purchases ............................................... 14 CERTAIN FEDERAL INCOME TAX CONSEQUENCES ........................................... 15 Tax Status of the Policy ................................................... 15 Taxation of Transamerica ................................................... 18 INVESTMENT EXPERIENCE ............................................................. 18 Accumulation Units ......................................................... 18 Annuity Unit Value and Annuity Payment Rates ............................... 20 MANAGED ANNUITY PROGRAM--ADDITIONAL INFORMATION ................................... 21 BENEFICIARY EARNINGS ENHANCEMENT - ADDITIONAL INFORMATION ........................ 24 BENEFICIARY EARNINGS ENHANCEMENT - EXTRA - ADDITIONAL INFORMATION ................. 24 HISTORICAL PERFORMANCE DATA ....................................................... 25 Money Market Yields ........................................................ 25 Other Subaccount Yields .................................................... 26 Total Returns .............................................................. 27 Other Performance Data ..................................................... 27 Adjusted Historical Performance Data ....................................... 28 PUBLISHED RATINGS ................................................................. 28 STATE REGULATION OF TRANSAMERICA .................................................. 28 ADMINISTRATION .................................................................... 28 RECORDS AND REPORTS ............................................................... 28 DISTRIBUTION OF THE POLICIES ...................................................... 28 VOTING RIGHTS ..................................................................... 29 OTHER PRODUCTS .................................................................... 29 CUSTODY OF ASSETS ................................................................. 29 LEGAL MATTERS ..................................................................... 29 INDEPENDENT AUDITORS .............................................................. 29 OTHER INFORMATION ................................................................. 30 FINANCIAL STATEMENTS .............................................................. 30
-2- GLOSSARY OF TERMS Accumulation Unit--An accounting unit of measure used in calculating the policy value in the separate account before the annuity commencement date. Adjusted Policy Value--An amount equal to the policy value increased or decreased by any excess interest adjustments applied at the time of surrender or on the annuity commencement date. Administrative and Service Office--Financial Markets Division, Variable Annuity Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. Annuitant--The person during whose life any annuity payments involving life contingencies will continue. Annuity Commencement Date--The date upon which annuity payments are to commence. The annuity commencement date may not be later than the last day of the policy month starting after the annuitant attains age 85, except as expressly allowed by Transamerica. In no event will this date be later than the last day of the policy month following the month in which the annuitant attains age 95. The annuity commencement date may be required to be earlier for qualified policies. Annuity Payment Option--A method of receiving a stream of annuity payments selected by the owner. Annuity Unit--An accounting unit of measure used in the calculation of the amount of the second and each subsequent variable annuity payment. Application--A written application, order form, or any other information received electronically or otherwise upon which the policy is issued and/or is reflected on the data or specifications page. Beneficiary--The person who has the right to the death benefit as set forth in the policy. Business Day--A day when the New York Stock Exchange is open for business. Cash Value--The adjusted policy value less any applicable surrender charge and less any rider fees (imposed upon surrender). Code--The Internal Revenue Code of 1986, as amended. Cumulative Free Percentage--The percentage (as applied to the policy value) which is available free of any surrender charge. Excess Interest Adjustment ("EIA")--A positive or negative adjustment to amounts surrendered (both partial or full surrenders and transfers) or applied to annuity payment options from the fixed account guaranteed period options prior to the end of the guaranteed period. The adjustment reflects changes in the interest rates declared by Transamerica since the date any payment was received by (or an amount was transferred to) the guaranteed period option. The excess interest adjustment can either decrease or increase the amount to be received by the owner upon surrender (either full or partial) or commencement of annuity payments, depending upon whether there has been an increase or decrease in interest rates, respectively. Excess Partial Surrender--The portion of a partial surrender (surrender) that exceeds the cumulative free percentage. Fixed Account--One or more investment choices under the policy that are part of Transamerica's general assets and are not in the separate account. Guaranteed Period Options--The various guaranteed interest rate periods of the fixed account which Transamerica may be offer and into which premium payments may be paid or amounts transferred. Nonqualified Policy--A policy other than a qualified policy. Owner--The person who may exercise all rights and privileges under the policy. The owner during the lifetime of the annuitant and prior to the annuity commencement date is the person designated as the owner or a successor owner in the information that we require to issue a policy. -3- Policy Value--On or before the annuity commencement date, the policy value is equal to the owner's: .. premium payments; minus .. partial surrenders (including the net effect of any applicable excess interest adjustments and/or surrender charges on such surrenders); plus .. interest credited in the fixed account; plus or minus .. accumulated gains or losses in the separate account; minus .. service charges, rider fees, premium taxes, and transfer fees, if any. Policy Year--A policy year begins on the policy date in which the policy becomes effective and on each anniversary thereof. Premium Payment--An amount paid to Transamerica by the owner or on the owner's behalf as consideration for the benefits provided by the policy. Qualified Policy--A policy issued in connection with retirement plans that qualify for special federal income tax treatment under the Code. Separate Account-- Separate Account VA F, a separate account established and registered as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"), to which premium payments under the policies may be allocated. Service Charge--There is an annual service charge on each policy anniversary (and a charge at the time of surrender during any policy year) for policy maintenance and related administrative expenses. This annual charge is $30, but in no event will this charge be more than 2% of the policy value. Subaccount--A subdivision within the separate account, the assets of which are invested in a specified portfolio of the underlying funds. Surrender Charge--The applicable contingent deferred sales charge, assessed on certain full surrenders or partial surrenders of premium payments to cover expenses relating to the sale of the policies. Valuation Period--The period of time from one determination of accumulation unit and annuity unit values to the next subsequent determination of values. Such determinations shall be made on each business day. Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment option which fluctuate as to dollar amount or payment term in relation to the investment performance of the specified subaccounts within the separate account. Written Notice--Written notice, signed by the owner, that gives Transamerica the information it requires and is received at the administrative and service office. For some transactions, Transamerica may accept an electronic notice such as telephone instructions. Such electronic notice must meet the requirements Transamerica establishes for such notices. -4- In order to supplement the description in the prospectus, the following provides additional information about Transamerica and the policy, which may be of interest to a prospective purchaser. THE POLICY--GENERAL PROVISIONS Owner The policy shall belong to the owner upon issuance of the policy after completion of an application and delivery of the initial premium payment. While the annuitant is living, the owner may: (1) assign the policy; (2) surrender the policy; (3) amend or modify the policy with Transamerica's consent; (4) receive annuity payments or name a payee to receive the payments; and (5) exercise, receive and enjoy every other right and benefit contained in the policy. The exercise of these rights may be subject to the consent of any assignee or irrevocable beneficiary; and of the owner's spouse in a community or marital property state. Unless Transamerica has been notified of a community or marital property interest in the policy, it will rely on its good faith belief that no such interest exists and will assume no responsibility for inquiry. Note carefully. If the owner predeceases the annuitant, the owner's estate will -------------- become the new owner. If no probate estate is opened because the owner has precluded the opening of a probate estate by means of a trust or other instrument, unless Transamerica has received written notice of the trust prior to the owner's death, that trust may not exercise ownership rights to the policy. It may be necessary to open a probate estate in order to exercise ownership rights to the policy in some situations. The owner may change the ownership of the policy in a written notice. When this change takes effect, all rights of ownership in the policy will pass to the new owner. A change of ownership may have tax consequences. When there is a change of owner, the change will not be effective until it is recorded in our records. Once recorded it will take effect as of the date the owner signs the written notice, subject to any payment Transamerica has made or action Transamerica has taken before recording the change. Changing the owner does not change the designation of the beneficiary or the annuitant. If ownership is transferred to a new owner (except to the deceased owner's spouse) because the owner dies before the annuitant, the cash value generally must be distributed to the new owner within five years of the owner's death, or payments must be made for a period certain or for the new owner's lifetime so long as any period certain does not exceed that new owner's life expectancy, if the first payment begins within one year of your death. Entire Policy The policy, any endorsements thereon, the application, and information provided in lieu thereof, constitute the entire policy between Transamerica and the owner. All statements in the application are representations and not warranties. No statement will cause the policy to be void or to be used in defense of a claim unless contained in the application or information provided in lieu thereof. Misstatement of Age or Sex If the age or sex of the annuitant or owner has been misstated, Transamerica will change the annuity benefit payable to that which the premium payments would have purchased for the correct age or sex. The dollar amount of any underpayment made by Transamerica shall be paid in full with the next payment due such person or the beneficiary. The dollar amount of any overpayment made by Transamerica due to any misstatement shall be deducted from payments subsequently accruing to such person or beneficiary. Any underpayment or overpayment will include interest at 5% per year, from the date of the wrong payment to the date of the adjustment. The age of the annuitant or owner may be established at any time by the submission of proof satisfactory to Transamerica. Addition, Deletion, or Substitution of Investments Transamerica cannot and does not guarantee that any of the subaccounts will always be available for premium payments, allocations, or transfers. Transamerica retains the right, subject to any applicable law, to make certain changes in the separate account and its investments. Transamerica reserves the right to eliminate the shares of any portfolio held by a subaccount and to substitute shares of another portfolio of the underlying funds, or of another registered open-end management investment company for the shares of any portfolio, if the shares of the portfolio are no longer available for investment or if, in Transamerica's judgment, investment in any portfolio would be inappropriate in view of the purposes of the separate account. To -5- the extent required by the 1940 Act, as amended, substitutions of shares attributable to your interest in a subaccount will not be made without prior notice to you and the prior approval of the Securities and Exchange Commission (SEC). Nothing contained herein shall prevent the separate account from purchasing other securities for other series or classes of variable annuity policies, or from effecting an exchange between series or classes of variable annuity policies on the basis of your requests. New subaccounts may be established when, in the sole discretion of Transamerica, marketing, tax, investment or other conditions warrant. Any new subaccounts may be made available to existing owners on a basis to be determined by Transamerica. Each additional subaccount will purchase shares in a mutual fund portfolio or other investment vehicle. Transamerica may also eliminate one or more subaccounts if, in its sole discretion, marketing, tax, investment or other conditions warrant such change. In the event any subaccount is eliminated, Transamerica will notify you and request a reallocation of the amounts invested in the eliminated subaccount. If no such reallocation is provided by you, Transamerica will reinvest the amounts in the subaccount that invest in the Federated Prime Money Fund II (or in a similar portfolio of money market instruments), in another subaccount, or in the fixed account, if appropriate. In the event of any such substitution or change, Transamerica may, by appropriate endorsement, make such changes in the policies 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 policies, the separate account may be (i) operated as a management company under the 1940 Act or any other form permitted by law, (ii) deregistered under the 1940 Act in the event such registration is no longer required or (iii) combined with one or more other separate accounts. To the extent permitted by applicable law, Transamerica also may (1) transfer the assets of the separate account associated with the policies to another account or accounts, (2) restrict or eliminate any voting rights of owners or other persons who have voting rights as to the separate account, (3) create new separate accounts, (4) add new subaccounts to or remove existing subaccounts from the separate account, or combine subaccounts, or (5) add new underlying funds, or substitute a new fund for an existing fund. Excess Interest Adjustment Money that you surrender from, transfer out of, or apply to an annuity payment option, from the guaranteed period option of the fixed account before the end of its guaranteed period (the number of years you specified the money would remain in the guaranteed period option) may be subject to an excess interest adjustment. At the time you request a surrender, if interest rates set by Transamerica have risen since the date of the initial guarantee, the excess interest adjustment will result in a lower cash value. However, if interest rates have fallen since the date of the initial guarantee, the excess interest adjustment will result in a higher cash value. Excess interest adjustments will not reduce the adjusted policy value for a guaranteed period option below the premium payments and transfers to the guaranteed period option, less any prior partial surrenders and transfers from the guaranteed period option, plus interest at the policy's minimum guaranteed effective annual interest rate (currently 3% per year). This is referred to as the excess interest adjustment floor. The formula which will be used to determine the excess interest adjustment is: S*(G-C)* (M/12) S = Gross amount being withdrawn that is subject to the excess interest adjustment. G = Guaranteed interest rate applicable to S. C = Current Guaranteed Interest Rate then being offered on new premium payments for the next longer guaranteed period than "M". If this policy form or such a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate for the next longer maturity (in whole years) than "M" on the 25th day of the previous calendar month, plus up to 2%. M = Number of months remaining in the current guaranteed period, rounded up to the next higher whole number of months. * = multiplication /\ = exponentiation -6- Example 1 (Full Surrender, rates increase by 3%): ------------------------------------------------------------------------------------------------------------------------------------ Single premium: $50,000 ------------------------------------------------------------------------------------------------------------------------------------ Guarantee period: 5 Years ------------------------------------------------------------------------------------------------------------------------------------ Guarantee rate: 5.50% per annum ------------------------------------------------------------------------------------------------------------------------------------ Full surrender: middle of policy year 3 ------------------------------------------------------------------------------------------------------------------------------------ Policy value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18 ------------------------------------------------------------------------------------------------------------------------------------ Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18 ------------------------------------------------------------------------------------------------------------------------------------ Amount subject to excess interest adjustment = 57,161.18 - 7,161.18 = 50,000.00 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment floor = 50,000* (1.03) /\ 2.5 = 53,834.80 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment ------------------------------------------------------------------------------------------------------------------------------------ G = .055 ------------------------------------------------------------------------------------------------------------------------------------ C = .085 ------------------------------------------------------------------------------------------------------------------------------------ M = 30 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment = S* (G-C)* (M/12) = 50,000.00* (.055 - .085)* (30/12) = -3,750.00, but excess interest adjustment cannot cause the adjusted policy value to fall below the excess interest adjustment floor, so the adjustment is limited to 53,834.80 - 57,161.18 = -3,326.38 ------------------------------------------------------------------------------------------------------------------------------------ Adjusted policy value = policy value + excess interest adjustment = 57,161.18 - 3,326.38 = 53,834.80 ------------------------------------------------------------------------------------------------------------------------------------ Portion of Surrender Charge--free amount which is deducted = Adjusted Policy Value - Premium from earnings = 53,834.80 - 50,000 = 3,834.80 ------------------------------------------------------------------------------------------------------------------------------------ Portion of Surrender Charge--free amount which is deducted = 17,148.35 - 3,834.80 = 13,313.55 from premium ------------------------------------------------------------------------------------------------------------------------------------ Surrender charge = (50,000 - 13,313.55)* .06 = 2,201.19 ------------------------------------------------------------------------------------------------------------------------------------ Cash value at middle of policy year 3 = policy value + excess interest adjustment - surrender charge = 57,161.18 - 3,326.38 - 2,201.19 ------------------------------------------------------------------------------------------------------------------------------------ = 51,633.61 ------------------------------------------------------------------------------------------------------------------------------------
-7- Example 2 (Full Surrender, rates decrease by 1%): ------------------------------------------------------------------------------------------------------------------------------------ Single premium: $50,000 ------------------------------------------------------------------------------------------------------------------------------------ Guarantee period: 5 Years ------------------------------------------------------------------------------------------------------------------------------------ Guarantee rate: 5.50% per annum ------------------------------------------------------------------------------------------------------------------------------------ Full surrender: middle of policy year 3 ------------------------------------------------------------------------------------------------------------------------------------ Policy value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18 ------------------------------------------------------------------------------------------------------------------------------------ Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18 ------------------------------------------------------------------------------------------------------------------------------------ Amount subject to excess interest adjustment = 57,161.18 - 7,161.18 = 50,000.00 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment floor = 50,000* (1.03) /\ 2.5 = 53,834.80 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment ------------------------------------------------------------------------------------------------------------------------------------ G = .055 ------------------------------------------------------------------------------------------------------------------------------------ C = .045 ------------------------------------------------------------------------------------------------------------------------------------ M = 30 ------------------------------------------------------------------------------------------------------------------------------------ Excess interest adjustment = S* (G - C)* (M/12) ------------------------------------------------------------------------------------------------------------------------------------ = 50,000* (.055 - .045)* (30/12) ------------------------------------------------------------------------------------------------------------------------------------ = 1,250.00 ------------------------------------------------------------------------------------------------------------------------------------ Adjusted policy value = policy value + excess interest adjustment ------------------------------------------------------------------------------------------------------------------------------------ = 57,161.18 + 1,250.00 = 58,411.18 ------------------------------------------------------------------------------------------------------------------------------------ Portion of Surrender Charge - free amount which is deducted = Adjusted Policy Value - Premium from earnings = 58,411.18 - 50,000 = 8,411.18 ------------------------------------------------------------------------------------------------------------------------------------ Portion of Surrender Charge - free amount which is deducted = 17,148.35 - 8,411.18 = 8,737.17 from premium ------------------------------------------------------------------------------------------------------------------------------------ Surrender charge = (50,000 - 8,737.17)* .06 = 2,475.77 ------------------------------------------------------------------------------------------------------------------------------------ Cash value at middle of policy year 3 = policy value + excess interest adjustment - surrender charge ------------------------------------------------------------------------------------------------------------------------------------ = 57,161.18 + 1,250 - 2,475.77 ------------------------------------------------------------------------------------------------------------------------------------ = 55,935.41 ------------------------------------------------------------------------------------------------------------------------------------
On a partial surrender, Transamerica will pay the policyholder the full amount of surrender requested (as long as the policy value is sufficient). Surrender charge--free surrenders will reduce the policy value by the amount withdrawn. Amounts withdrawn in excess of the surrender charge--free amount will reduce the policy value by an amount equal to: X - Y + Z X = excess partial surrender = requested surrender less surrender charge--free amount A = amount of partial surrender which is subject to excess interest adjustment = requested surrender - excess interest adjustment--free amount, where excess interest adjustment--free amount = cumulative interest credited at time of, but prior to, surrender. Y = excess interest adjustment = (A)*(G-C)*(M/12) where G, C, and M are defined above, with "A" substituted for "S" in the definition of G and M. Z = surrender charge on X minus Y. -8- Example 3 (Partial Surrender, rates increase by 1%): --------------------------------------------------------------------------------------------------------------------- Single premium: $50,000 --------------------------------------------------------------------------------------------------------------------- Guarantee period: 5 Years --------------------------------------------------------------------------------------------------------------------- Guarantee rate: 5.50% per annum --------------------------------------------------------------------------------------------------------------------- Partial surrender: $30,000; middle of policy year 3 --------------------------------------------------------------------------------------------------------------------- Policy value at middle of policy year 3 = 50,000* (1.055) /\2.5 = 57,161.18 --------------------------------------------------------------------------------------------------------------------- Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35 --------------------------------------------------------------------------------------------------------------------- Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18 --------------------------------------------------------------------------------------------------------------------- Excess interest adjustment / surrender charge --------------------------------------------------------------------------------------------------------------------- X = 30,000 - 17,148.35 = 12,851.65 --------------------------------------------------------------------------------------------------------------------- A = 30,000 - 7,161.18 = 22,838.82 --------------------------------------------------------------------------------------------------------------------- G = .055 --------------------------------------------------------------------------------------------------------------------- C = .065 --------------------------------------------------------------------------------------------------------------------- M = 30 --------------------------------------------------------------------------------------------------------------------- Y = 22,838.82* (.055 - .065)* (30/12) = -570.97 --------------------------------------------------------------------------------------------------------------------- Adjusted Policy Value = 57,161.18 + (-570.97) = 56,590.21 --------------------------------------------------------------------------------------------------------------------- Portion of withdrawal which is deducted from earnings = 56,590.21 - 50,000 = 6,590.21 --------------------------------------------------------------------------------------------------------------------- Portion of withdrawal which is deducted from premium = 30,000 - 6,590.21 = 23,409.79 --------------------------------------------------------------------------------------------------------------------- Surrender charge-free amount from premium = 17,148.35 - 6,590.21 = 10,558.14 --------------------------------------------------------------------------------------------------------------------- Z = (30,000 - 6590.21 - 10,558.14)/[1-0.06) - (30,000 - 6590.21 - 10,558.14) = 820.32 --------------------------------------------------------------------------------------------------------------------- Reduction to policy value due to surrender charge--free surrender = 17,148.35 --------------------------------------------------------------------------------------------------------------------- Reduction to policy value due to excess surrender = X - Y + Z --------------------------------------------------------------------------------------------------------------------- = 12,851.65 - (-570.97) + 820.32 --------------------------------------------------------------------------------------------------------------------- = 14,242.94 --------------------------------------------------------------------------------------------------------------------- Policy value after surrender at middle of policy year 3 = 57,161.18 - [17,148.35 + 14,242.94] --------------------------------------------------------------------------------------------------------------------- = 57,161.18 - [17,148.35 + 12,851.65 - (-570.97) + 820.32] --------------------------------------------------------------------------------------------------------------------- = 57,161.18 - [30,000 - (-570.97) + 820.32] --------------------------------------------------------------------------------------------------------------------- = 57,161.18 - 31,391.29 = 25,769.89 ---------------------------------------------------------------------------------------------------------------------
-9- Example 4 (Partial Surrender, rates decrease by 1%): --------------------------------------------------------------------------------------------------------------------- Single premium: $50,000 --------------------------------------------------------------------------------------------------------------------- Guarantee period: 5 Years --------------------------------------------------------------------------------------------------------------------- Guarantee rate: 5.50% per annum --------------------------------------------------------------------------------------------------------------------- Partial surrender: $30,000; middle of policy year 3 --------------------------------------------------------------------------------------------------------------------- Policy value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18 --------------------------------------------------------------------------------------------------------------------- Surrender charge free amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35 --------------------------------------------------------------------------------------------------------------------- Excess interest adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18 --------------------------------------------------------------------------------------------------------------------- Excess interest adjustment / surrender charge X = 30,000 - 17,148.35 = 12,851.65 A = 30,000 - 7,161.18 = 22,838.82 G = .055 C = .045 M = 30 Y = 22,838.82* (.055 - .045)* (30/12) = 570.97 Adjusted Policy Value = 57,161.18 + 570.97 = 57,732.15 --------------------------------------------------------------------------------------------------------------------- Portion of withdrawal which is deducted from earnings = 57,732.15 - 50,000 = 7,732.15 --------------------------------------------------------------------------------------------------------------------- Portion of withdrawal which is deducted from premium = 30,000 - 7,732.15 = 22,267.85 --------------------------------------------------------------------------------------------------------------------- Surrender charge-free amount from premium = 17,148.35 - 7,732.15 = 9,416.20 --------------------------------------------------------------------------------------------------------------------- Z = [30,000 - 7,732.15 - 9,416.20]/(1-0.06) - (30,000 - 7,732.15 - 9,416.20) = 820.32 --------------------------------------------------------------------------------------------------------------------- Reduction to policy value due to surrender charge--free surrender = 17,148.35 --------------------------------------------------------------------------------------------------------------------- Reduction to policy value due to excess surrender = X - Y + Z --------------------------------------------------------------------------------------------------------------------- = 12,851.65 - 570.97 + 820.32 --------------------------------------------------------------------------------------------------------------------- = 13,101 --------------------------------------------------------------------------------------------------------------------- Policy value after surrender at middle of policy year 3 = 57,161.18 - [17,148.35 + 13,101] --------------------------------------------------------------------------------------------------------------------- = 57,161.18 - [17,148.35 + 12,851.65 - 570.97 --------------------------------------------------------------------------------------------------------------------- + 820.32] --------------------------------------------------------------------------------------------------------------------- = 57,161.18 - [30,000 - (570.97) + 820.32] --------------------------------------------------------------------------------------------------------------------- = 57,161.18 - 30,249.35 = 26,911.83 ---------------------------------------------------------------------------------------------------------------------
Reallocation of Annuity Units After the Annuity Commencement Date After the annuity commencement date, you may reallocate the value of a designated number of annuity units of a subaccount then credited to a policy into an equal value of annuity units of one or more other subaccounts, or the fixed account. The reallocation shall be based on the relative value of the annuity units of the account(s) or subaccount(s) at the end of the business day on the next payment date. The minimum amount which may be reallocated is the lesser of (1) $10 of monthly income or (2) the entire monthly income of the annuity units in the account or subaccount from which the transfer is being made. If the monthly income of the annuity units remaining in an account or subaccount after a reallocation is less than $10, Transamerica reserves the right to include the value of those annuity units as part of the transfer. The request must be in writing to Transamerica's administrative and service office. There is no charge assessed in connection with such reallocation. A reallocation of annuity units may be made up to four times in any given policy year. After the annuity commencement date, no transfers may be made from the fixed account to the separate account. Annuity Payment Options Note: Portions of the following discussion do not apply to annuity payments under the Managed Annuity Program or the Initial Payment Guarantee. See the "Stabilized Payments" section of this SAI. During the lifetime of the annuitant and prior to the annuity commencement date, the owner may choose an annuity payment option or change the election, but written notice of any election or change of election must be received by Transamerica at its administrative and service office at least thirty (30) days prior to the annuity commencement date. If no election is made prior to the annuity commencement date, annuity payments will be made under (i) Payment Option 3, life income with level payments for 10 years certain, using the existing adjusted policy value of the fixed account, or (ii) under Payment Option 3, life income with -10- variable payments for 10 years certain using the existing policy value of the separate account, or (iii) in a combination of (i) and (ii). The person who elects an annuity payment option can also name one or more successor payees to receive any unpaid amount Transamerica has at the death of a payee. Naming these payees cancels any prior choice of a successor payee. A payee who did not elect the annuity payment option does not have the right to advance or assign payments, take the payments in one sum, or make any other change. However, the payee may be given the right to do one or more of these things if the person who elects the option tells Transamerica in writing and Transamerica agrees. Variable Payment Options. The dollar amount of the first variable annuity ------------------------ payment will be determined in accordance with the annuity payment rates set forth in the applicable table contained in the policy. For annuity payments (other than payments under the Managed Annuity Program) the tables are based on a 5% effective annual Assumed Investment Return and the "2000 Table" using an assumed annuity commencement date of 2005 (static projection to this point) with dynamic projection using scale G from that point (100% of G for males, 50% of G for females). The dollar amount of additional variable annuity payments will vary based on the investment performance of the subaccount(s) of the separate account selected by the annuitant or beneficiary. Determination of the First Variable Payment. The amount of the first variable ------------------------------------------- payment depends upon the sex (if consideration of sex is allowed under state law) and adjusted age of the annuitant. For regular annuity payments, the adjusted age is the annuitant's actual age nearest birthday, on the annuity commencement date, adjusted as follows: Annuity Commencement Date Adjusted Age ------------------------- ------------ Before 2010 Actual Age 2010-2019 Actual Age minus 1 2020-2026 Actual Age minus 2 2027-2033 Actual Age minus 3 2034-2040 Actual Age minus 4 After 2040 As determined by Transamerica This adjustment assumes an increase in life expectancy, and therefore it results in lower payments than without such an adjustment. Larger adjustments may be made for certain Managed Annuity Program annuity payments. Determination of Additional Variable Payments. All variable annuity payments --------------------------------------------- other than the first are calculated using annuity units which are credited to the policy. The number of annuity units to be credited in respect of a particular subaccount is determined by dividing that portion of the first variable annuity payment attributable to that subaccount by the annuity unit value of that subaccount on the annuity commencement date. The number of annuity units of each particular subaccount credited to the policy then remains fixed, assuming no transfers to or from that subaccount occur. The dollar value of variable annuity units in the chosen subaccount will increase or decrease reflecting the investment experience of the chosen subaccount. The dollar amount of each variable annuity payment after the first may increase, decrease or remain constant, and is equal to the sum of the amounts determined by multiplying the number of annuity units of each particular subaccount credited to the policy by the annuity unit value for the particular subaccount on the date the payment is made. Death Benefit Adjusted Partial Surrender. The amount of your guaranteed minimum death benefit -------------------------- is reduced due to a partial surrender called the adjusted partial surrender. The reduction amount depends on the relationship between your death benefit and policy value. The adjusted partial surrender is equal to (1) plus (2) multiplied by (3), where: (1) is the amount of the gross partial surrender that is less than the remaining annual adjustment-free amount for the policy year. For the Enhanced death benefit, this amount is equal to the annually compounding value at the beginning of the year multiplied by 6%, less prior partial surrenders during the policy year. For the Return of Premium death benefit, this amount is equal to zero; (2) is the gross partial surrender amount that exceeds the annual adjustment-free amount (excess gross partial surrender); (3) is the adjustment factor = current death benefit after the annual free surrender amount but prior to the excess gross partial surrender divided by the policy value after the free amount but prior to the gross partial surrender. The following examples describe the effect of a surrender on the guaranteed minimum death benefit and policy value. -11-
-------------------------------------------------------------------------------------------------------------------------- EXAMPLE 1 (Assumed Facts for Example) -------------------------------------------------------------------------------------------------------------------------- $75,000 current guaranteed minimum death benefit before surrender -------------------------------------------------------------------------------------------------------------------------- $50,000 current policy value before surrender -------------------------------------------------------------------------------------------------------------------------- $75,000 current death benefit (larger of policy value and guaranteed minimum death benefit) -------------------------------------------------------------------------------------------------------------------------- 6% current surrender charge percentage -------------------------------------------------------------------------------------------------------------------------- $15,000 requested surrender -------------------------------------------------------------------------------------------------------------------------- $10,000 surrender charge-free amount (assumes 20% cumulative free percentage is available) -------------------------------------------------------------------------------------------------------------------------- $ 5,000 excess partial surrender--(amount subject to surrender charge) -------------------------------------------------------------------------------------------------------------------------- $ 100 excess interest adjustment(assumes interest rates have decreased since initial guarantee) -------------------------------------------------------------------------------------------------------------------------- $ 294 surrender charge on (excess partial surrender less excess interest adjustment) = 0.06*(5000 - 100) -------------------------------------------------------------------------------------------------------------------------- $ 5,194 reduction in policy value due to excess partial surrender = 5000 - 100 + 294 -------------------------------------------------------------------------------------------------------------------------- $22,791 adjusted partial surrender = [(10,000 + 5,194) * (75,000/50,000)] -------------------------------------------------------------------------------------------------------------------------- $52,209 new guaranteed minimum death benefit (after surrender) = 75,000 - 22,791 -------------------------------------------------------------------------------------------------------------------------- $34,806 new policy value (after surrender) = 50,000 - 10,000 - 5,194 --------------------------------------------------------------------------------------------------------------------------
Summary: -------- Reduction in guaranteed minimum death benefit = $22,791 Reduction in policy value = $15,194 Note, guaranteed minimum death benefit is reduced more than the policy value since the guaranteed minimum death benefit was greater than the policy value just prior to the surrender.
-------------------------------------------------------------------------------------------------------------------------- EXAMPLE 2 (Assumed Facts for Example) -------------------------------------------------------------------------------------------------------------------------- $50,000 current guaranteed minimum death benefit before surrender -------------------------------------------------------------------------------------------------------------------------- $75,000 current policy value before surrender -------------------------------------------------------------------------------------------------------------------------- $75,000 current death benefit (larger of policy value and guaranteed minimum death benefit) -------------------------------------------------------------------------------------------------------------------------- 6% current surrender charge percentage -------------------------------------------------------------------------------------------------------------------------- $15,000 requested surrender -------------------------------------------------------------------------------------------------------------------------- $11,250 surrender charge-free amount (assumes 15% cumulative free percentage is available) -------------------------------------------------------------------------------------------------------------------------- $ 3,750 excess partial surrender--(amount subject to surrender charge) -------------------------------------------------------------------------------------------------------------------------- $-100 excess interest adjustment(assumes interest rates have increased since initial guarantee) -------------------------------------------------------------------------------------------------------------------------- $ 231 surrender charge on (excess partial surrender less excess interest adjustment) = 0.06*[(3750-(-100)] -------------------------------------------------------------------------------------------------------------------------- $ 4,081 reduction in policy value due to excess partial surrender = 3750 - (-100) + 231 = 3750 + 100 + 231 -------------------------------------------------------------------------------------------------------------------------- $15,331 adjusted partial surrender = [(11,250 + 4,081) * (75,000/75,000)] -------------------------------------------------------------------------------------------------------------------------- $34,669 new guaranteed minimum death benefit (after surrender) = 50,000 - 15,331 -------------------------------------------------------------------------------------------------------------------------- $59,669 new policy value (after surrender) = 75,000 - 11,250 - 4,081 --------------------------------------------------------------------------------------------------------------------------
Summary: -------- Reduction in guaranteed minimum death benefit = $15,331 Reduction in policy value = $15,331 Note, the guaranteed minimum death benefit and policy value are reduced by the same amount since the policy value was higher than the guaranteed minimum death benefit just prior to the surrender. Due proof of death of the annuitant is proof that the annuitant died prior to the commencement of annuity payments. A certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, a written statement by the attending physician, or any other proof satisfactory to Transamerica, will constitute due proof of death. Upon receipt of this proof and an election of a method of settlement and return of the policy, the death benefit generally will be paid within seven days, or as soon thereafter as Transamerica has 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 limitation under any -12- state or federal law, rule, or regulation, under one of the annuity payment options described above, unless a settlement agreement is effective at the death of the owner preventing such election. Distribution Requirements. If the annuitant is also an owner and dies prior to ------------------------- the annuity commencement date, the death benefit must (1) be distributed within five years of the date of the annuitant's death, or (2) payments under an annuity payment option must begin no later than one year after the annuitant's death and must be made for the beneficiary's lifetime or for a period certain (so long as any period certain does not exceed the beneficiary's life expectancy). Death Proceeds which are not paid to or for the benefit of a natural person must be distributed within five years of the date of the annuitant's death. If the sole beneficiary is the annuitant's surviving spouse, however, such spouse may elect to continue the policy as the new annuitant and owner instead of receiving the death benefit. (See "Certain Federal Income Tax Consequences.") Beneficiary. The beneficiary designation in the application will remain in ----------- effect until changed. The owner may change the designated beneficiary by sending written notice to Transamerica. The beneficiary's consent to such change is not required unless the beneficiary was irrevocably designated or law requires consent. (If an irrevocable beneficiary dies, the owner may then designate a new beneficiary.) The change will take effect as of the date the owner signs the written notice, whether or not the owner is living when the notice is received by Transamerica. Transamerica will not be liable for any payment made before the written notice is received. If more than one beneficiary is designated, and the owner fails to specify their interests, they will share equally. If upon the death of the annuitant there is a surviving owner(s), the surviving owner(s) automatically takes the place of any beneficiary designation. Death of Owner Federal tax law requires that if any owner (including any joint owner who has become a current owner) dies before the annuity commencement date, then the entire value of the policy must generally be distributed within five years of the date of death of such owner. Certain rules apply where (1) the spouse of the deceased owner is the sole beneficiary, (2) the owner is not a natural person and the primary annuitant dies or is changed, or (3) any owner dies after the annuity commencement date. See "Certain Federal Income Tax Consequences" below for more information about these rules. Other rules may apply to qualified policies. Assignment During the lifetime of the annuitant you may assign any rights or benefits provided by the policy if your policy is a nonqualified policy. An assignment will not be binding on Transamerica until a copy has been filed at its administrative and service office. Your rights and benefits and those of the beneficiary are subject to the rights of the assignee. Transamerica assumes no responsibility for the validity or effect of any assignment. Any claim made under an assignment shall be subject to proof of interest and the extent of the assignment. An assignment may have tax consequences. Unless you so direct by filing written notice with Transamerica, no beneficiary may assign any payments under the policy before they are due. To the extent permitted by law, no payments will be subject to the claims of any beneficiary's creditors. Ownership under qualified policies is restricted to comply with the Code. Evidence of Survival Transamerica reserves the right to require satisfactory evidence that a person is alive if a payment is based on that person being alive. No payment will be made until Transamerica receives such evidence. Non-Participating The policy will not share in Transamerica's surplus earnings; no dividends will be paid. Amendments No change in the policy is valid unless made in writing by Transamerica and approved by one of Transamerica's officers. No registered representative has authority to change or waive any provision of the policy. -13- Transamerica reserves the right to amend the policy to meet the requirements of the Code, regulations or published rulings. You can refuse such a change by giving written notice, but a refusal may result in adverse tax consequences. Employee and Agent Purchases The policy may be acquired by an employee or registered representative of any broker/dealer authorized to sell the policy or their spouse or minor children, or by an officer, director, trustee or bona-fide full-time employee of Transamerica or its affiliated companies or their spouse or minor children. In such a case, Transamerica may credit an amount equal to a percentage of each premium payment to the policy due to lower acquisition costs Transamerica experiences on those purchases. The credit will be reported to the Internal Revenue Service as taxable income to the employee or registered representative. Transamerica may offer certain employer sponsored savings plans, in its discretion, reduced fees and charges including, but not limited to, the annual service charge, the surrender charges, the mortality and expense risk fee and the administrative charge for certain sales under circumstances which may result in savings of certain costs and expenses. In addition, there may be other circumstances of which Transamerica is not presently aware which could result in reduced sales or distribution expenses. Credits to the policy or reductions in these fees and charges will not be unfairly discriminatory against any owner. Present Value of Future Variable Payments The present value of future variable payments is calculated by taking (a) the supportable payment on the business day we receive the surrender request, times (b) the number of payments remaining, discounted using a rate equal to the AIR. Stabilized Payments If you have selected a payout feature that provides for stabilized payments, please note that the stabilized payments remain constant throughout each year and are adjusted on your policy anniversary. Without stabilized payments, each payment throughout the year would fluctuate based on the performance of your selected subaccounts. To reflect the difference in these payments we adjust (both increase and decrease as appropriate) the number of annuity units. The units are adjusted when we calculate the supportable payment. Supportable payments are used in the calculation of surrender values, death benefits and transfers. On your policy anniversary we set the new stabilized payment equal to the current supportable payment. In the case of an increase in the number of variable annuity units, your participation in the future investment performance will be increased since more variable annuity units are credited to you. Conversely, in the case of a reduction of the number of variable annuity units, your participation in the future investment performance will be decreased since fewer variable annuity units are credited to you. The following table demonstrates, on a purely hypothetical basis, the changes in the number of variable annuity units. The changes in the variable annuity unit values reflect the investment performance of the applicable subaccounts as well as the mortality and expense risk fee and administrative charge. -14-
------------------------------------------------------------------------------------------------------------------------------- Hypothetical Changes in Annuity Units with Stabilized Payments* ------------------------------------------------------------------------------------------------------------------------------- AIR 5.0% ------------------------------------------------------------------------------------------------------------------------------- Life & Ten Years Certain ------------------------------------------------------------------------------------------------------------------------------- Male Age 65 ------------------------------------------------------------------------------------------------------------------------------- First Variable Payment $500 ------------------------------------------------------------------------------------------------------------------------------- Beginning Annuity Monthly Monthly Adjustments Cumulative Annuity Unit Payment Stabilized In Adjusted Units Values Without Payment Annuity Annuity Stabilization Units Units ------------------------------------------------------------------------------------------------------------------------------- At Issue: January 1 400.0000 1.250000 $500.00 $500.00 0.0000 400.0000 ------------------------------------------------------------------------------------------------------------------------------- February 1 400.0000 1.252005 $500.80 $500.00 0.0041 400.0041 ------------------------------------------------------------------------------------------------------------------------------- March 1 400.0000 1.252915 $501.17 $500.00 0.0059 400.0100 ------------------------------------------------------------------------------------------------------------------------------- April 1 400.0000 1.245595 $498.24 $500.00 (0.0089) 400.0011 ------------------------------------------------------------------------------------------------------------------------------- May 1 400.0000 1.244616 $497.85 $500.00 (0.0108) 399.9903 ------------------------------------------------------------------------------------------------------------------------------- June 1 400.0000 1.239469 $495.79 $500.00 (0.0212) 399.9691 ------------------------------------------------------------------------------------------------------------------------------- July 1 400.0000 1.244217 $497.69 $500.00 (0.0115) 399.9576 ------------------------------------------------------------------------------------------------------------------------------- August 1 400.0000 1.237483 $494.99 $500.00 (0.0249) 399.9327 ------------------------------------------------------------------------------------------------------------------------------- September 1 400.0000 1.242382 $496.95 $500.00 (0.0150) 399.9177 ------------------------------------------------------------------------------------------------------------------------------- October 1 400.0000 1.242382 $496.95 $500.00 (0.0149) 399.9027 ------------------------------------------------------------------------------------------------------------------------------- November 1 400.0000 1.249210 $499.68 $500.00 (0.0016) 399.9012 ------------------------------------------------------------------------------------------------------------------------------- December 1 400.0000 1.252106 $500.84 $500.00 0.0040 399.9052 ------------------------------------------------------------------------------------------------------------------------------- January 1 399.9052 1.255106 $501.92 $501.92 0.0000 399.9052 -------------------------------------------------------------------------------------------------------------------------------
* Expenses included in the calculations are 1.10% mortality and expense risk fee, 0.15% administrative expenses, 0.00% rider charge, and 1.00% portfolio expenses (1.00% is a hypothetical figure). If higher expenses were charged, the numbers would be lower. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary does not constitute tax advice. It is a general discussion of certain of the expected federal income tax consequences of investment in and distributions with respect to a policy, based on the Internal Revenue Code of 1986, as amended, proposed and final Treasury Regulations thereunder, judicial authority, and current administrative rulings and practice. This summary discusses only certain federal income tax consequences to "United States Persons," and does not discuss state, local, or foreign tax consequences. United States Persons means citizens or residents of the United States, domestic corporations, domestic partnerships and trusts or estates that are subject to United States federal income tax regardless of the source of their income. Tax Status of the Policy The following discussion is based on the assumption that the policy qualifies as an annuity contract for federal income tax purposes. Diversification Requirements. Section 817(h) of the Code provides that in order ---------------------------- for a variable contract which is based on a segregated asset account to qualify as an annuity contract under the Code, the investments made by such account must be "adequately diversified" in accordance with Treasury regulations. The Treasury regulations issued under Section 817(h) (Treas. Reg. (S) 1.817-5) apply a diversification requirement to each of the subaccounts. The separate account, through the underlying funds and their portfolios, intends to comply with the diversification requirements of the Treasury. Transamerica has entered into agreements with each underlying fund company that require the portfolios to be operated in compliance with the Treasury regulations. Owner Control. 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 policyowner's gross income. Several years ago, the IRS -15- stated in published rulings that a variable contract owner will be considered the owner of separate account assets if the policyowner 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, rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular subaccounts without being treated as owners of 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 policyowners were not owners of separate account assets. For example, you have the choice of more subaccounts in which to allocate premiums and policy values, and may be able to transfer among these accounts more frequently than in such rulings. These differences could result in policyowners being treated as the owners of the assets of the separate 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 policies as necessary to attempt to prevent the policyowners from being considered the owners of a pro rata share of the assets of the separate account. Distribution Requirements. The Code also requires that nonqualified policies ------------------------- contain specific provisions for distribution of policy proceeds upon the death of any owner. In order to be treated as an annuity contract for federal income tax purposes, the Code requires that such policies provide that if any owner dies on or after the annuity commencement date and before the entire interest in the policy has been distributed, the remaining portion must be distributed at least as rapidly as under the method in effect on such owner's death. If any owner dies before the annuity commencement date, the entire interest in the policy must generally be distributed within 5 years after such owner's date of death or be used to purchase an immediate annuity under which payments will begin within one year of such owner's death and will be made for the life of the designated beneficiary as defined in section 72(s) of the Code. However, if upon such owner's death prior to the annuity commencement date, such owner's surviving spouse becomes the sole new owner under the policy, then the policy may be continued with the surviving spouse as the new owner. If any owner is not a natural person, then for purposes of these distribution requirements, the primary annuitant shall be treated as the owner and any death or change of such primary annuitant shall be treated as the death of an owner. The non-qualified policy contains provisions intended to comply with these requirements of the Code. No regulations interpreting these requirements of the Code have yet been issued and thus no assurance can be given that the provisions contained in the policies satisfy all such Code requirements. The provisions contained in the policies will be reviewed and modified if necessary to assure that they comply with the Code requirements when clarified by regulation or otherwise. Withholding. The portion of any distribution under a policy that is includable ----------- in gross income will be subject to federal income tax withholding unless the recipient of such distribution elects not to have federal income tax withheld. Election forms will be provided at the time distributions are requested or made. The withholding rate varies according to the type of distribution and the owner's tax status. For qualified policies, "eligible rollover distributions" from Section 401(a) plans, Section 403(a) annuities, and Section 403(b) tax-sheltered annuities are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is a distribution from such a plan, other than specified distributions such as distributions required by the Code, distribution of certain after-tax contributions, distributions in a specified annuity form, or hardship distributions. The 20% withholding does not apply, however, if the owner chooses a "direct rollover" from the plan to another tax-qualified plan or IRA. Different withholding requirements may apply in the case of non-United States persons. Qualified Policies. The qualified policy is designed for use with several types ------------------ of tax-qualified retirement plans. The tax rules applicable to participants and beneficiaries in tax-qualified retirement plans vary according to the type of plan and the terms and conditions of the plan. Special favorable tax treatment may be available for certain types of contributions and distributions. Adverse tax consequences may result from contributions in excess of specified limits; distributions prior to age 59 1/2 (subject to certain exceptions); distributions that do not conform to specified commencement and minimum distribution rules; and in other specified circumstances. Some retirement plans are subject to distribution and other requirements that are not incorporated into the policies or our policy administration procedures. Owners, participants and beneficiaries are responsible for determining that contributions, distributions and other transactions with respect to the policies comply with applicable law. For qualified plans under section 401(a), 403(a), 403(b), and 457, the Code requires that distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the owner (or plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a specified form or manner. If the plan participant is a "5 percent owner" (as defined in the Code), distributions generally must begin no later than April 1 of the calendar year in which the owner (or plan -16- participant) reaches age 70 1/2. Each owner is responsible for requesting distributions under the policy that satisfy applicable tax rules. Transamerica makes no attempt to provide more than general information about use of the policy with the various types of retirement plans. Purchasers of policies for use with any retirement plan should consult their legal counsel and tax adviser regarding the suitability of the policy. Individual Retirement Annuities. In order to qualify as a traditional individual ------------------------------- retirement annuity under Section 408(b) of the Code, a policy must contain certain provisions: (i) the owner must be the annuitant; (ii) the policy generally is not transferable by the owner, e.g., the owner may not designate a new owner, designate a contingent owner or assign the policy as collateral security; (iii) subject to special rules, the total premium payments for any calendar year on behalf of any individual may not exceed the deductible amount specified in the Code ($3000 for 2002), except in the case of a rollover amount or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv) annuity payments or surrenders must begin no later than April 1 of the calendar year following the calendar year in which the annuitant attains age 70 1/2; (v) an annuity payment option with a period certain that will guarantee annuity payments beyond the life expectancy of the annuitant and the beneficiary may not be selected; (vi) certain payments of death benefits must be made in the event the annuitant dies prior to the distribution of the policy value; and (vii) the entire interest of the owner is non-forfeitable. Policies intended to qualify as traditional individual retirement annuities under Section 408(b) of the Code contain such provisions. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject to a 10% penalty tax. No part of the funds for an individual retirement account (including a Roth IRA) or annuity should be invested in a life insurance contract, but the regulations thereunder allow such funds to be invested in an annuity policy that provides a death benefit that equals the greater of the premiums paid or the cash value for the contract. The policy provides an enhanced death benefit that could exceed the amount of such a permissible death benefit, but it is unclear to what extent such an enhanced death benefit could disqualify the policy as an IRA. The Internal Revenue Service has not reviewed the policy for qualification as an IRA, and has not addressed in a ruling of general applicability whether an enhanced death benefit provision, such as the provision in the policy, comports with IRA qualification requirements. Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section ----------------------------------------------- 408A of the Code, contains many of the same provisions as a traditional IRA. However, there are some differences. First, the contributions are not deductible and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax and other special rules may apply to the rollover or conversion and to distributions attributable thereto. You should consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. The Roth IRA is available to individuals with earned income and whose modified adjusted gross income is under $110,000 for single filers, $160,000 for married filing jointly, and $10,000 for married filing separately. Subject to special rules, the amount per individual that may be contributed to all IRAs (Roth and traditional) is the deductible amount specified in the Code ($3000 for 2002). Secondly, the distributions are taxed differently. The Roth IRA offers tax-free distributions when made 5 tax years after the first contribution to any Roth IRA of the individual and made after attaining age 59 1/2, or to pay for qualified first time homebuyer expenses (lifetime maximum of $10,000), or due to death or disability. All other distributions are subject to income tax when made from earnings and may be subject to a premature surrender penalty tax unless an exception applies. Unlike the traditional IRA, there are no minimum required distributions during the owner's lifetime; however, required distributions at death are generally the same. Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public -------------------- school systems and certain tax exempt organizations to purchase policies for their employees are excludable from the gross income of the employee, subject to certain limitations. However, such payments may be subject to FICA (Social Security) taxes. The policy includes a death benefit that in some cases may exceed the greater of the premium payments or the policy value. The death benefit could be characterized as an incidental benefit, the amount of which is limited in any tax-sheltered annuity under section 403(b). Because the death benefit may exceed this limitation, employers using the policy in connection with such plans should consult their tax adviser. Additionally, in accordance with the requirements of the Code, Section 403(b) annuities generally may not permit distribution of (i) elective contributions made in years beginning after December 31, 1988, (ii) earnings on those contributions, and (iii) earnings on amounts attributed to elective contributions held as of the end of the last year beginning before January 1, 1989. Distributions of such amounts will be allowed only upon the death of the employee, on or after attainment of age 59 1/2, separation from service, disability, or financial hardship, except that income attributable to elective contributions may not be distributed in the case of hardship. Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a) ------------------------------------------------------------ and 403(a) of the Code permit corporate employers to establish various types of retirement plans for employees and self-employed individuals to establish qualified plans -17- for themselves and their employees. Such retirement plans may permit the purchase of the policies to accumulate retirement savings. Adverse tax consequences to the plan, the participant or both may result if the policy is assigned or transferred to any -18- individual as a means to provide benefit payments. The policy includes a death benefit that in some cases may exceed the greater of the premium payments or the policy value. The death benefit could be characterized as an incidental benefit, the amount of which is limited in an pension or profit sharing plan. Because the death benefit may exceed this limitation, employers using the policy in connection with such plans should consult their tax adviser. Deferred Compensation Plans. Section 457 of the Code, while not actually --------------------------- providing for a qualified plan as that term is normally used, provides for certain deferred compensation plans with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The policies can be used with such plans. Under such plans a participant may specify the form of investment in which his or her participation will be made. For non-governmental Section 457 plans, all such investments, however, are owned, and are subject to the claims of the general creditors of the sponsoring employer. Depending on the terms of the particular plan, a non-governmental employer may be entitled to draw on deferred amounts for purposes unrelated to its Section 457 plan obligations. In general, all amounts received under a Section 457 plan are taxable and are subject to federal income tax withholding as wages. Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract ------------------- held by a taxpayer other than a natural person generally will not be treated as an annuity contract under the Code; accordingly, an owner who is not a natural person will recognize as ordinary income for a taxable year the excess of (i) the sum of the value as of the close of the taxable year and all previous distributions under the policy over (ii) the sum of the premium payments paid for the taxable year and any prior taxable year and the amounts includable in gross income for any prior taxable year with respect to the policy. For these purposes, the policy value at year end may have to be increased by any positive excess interest adjustment which could result from a full surrender at such time. There is, however, no definitive guidance on the proper tax treatment of excess interest adjustments and the owner should contact a competent tax adviser with respect to the potential tax consequences of an excess interest adjustment. Notwithstanding the preceding sentences in that paragraph, Section 72(u) of the Code does not apply to (i) a policy where the nominal owner is not a natural person but the beneficial owner of which is a natural person, (ii) a policy acquired by the estate of a decedent by reason of such decedent's death, (iii) a qualified policy (other than one qualifying under Section 457) or (iv) a single-payment annuity where the annuity commencement date is no later than one year from the date of the single premium payment; instead, such policies are taxed as described above under the heading "Taxation of Annuities." Taxation of Transamerica Transamerica at present is taxed as a life insurance company under part I of Subchapter L of the Code. The separate account is treated as part of Transamerica and, accordingly, will not be taxed separately as a "regulated investment company" under Subchapter M of the Code. Transamerica does not expect to incur any federal income tax liability with respect to investment income and net capital gains arising from the activities of the separate account retained as part of the reserves under the policy. Based on this expectation, it is anticipated that no charges will be made against the separate account for federal income taxes. If, in future years, any federal income taxes are incurred by Transamerica with respect to the separate account, Transamerica may make a charge to that account. INVESTMENT EXPERIENCE A "Net Investment Factor" is used to determine the value of accumulation units and annuity units, and to determine annuity payment rates. Accumulation Units Allocations of a premium payment directed to a subaccount are credited in the form of accumulation units. Each subaccount has a distinct accumulation unit value. The number of units credited is determined by dividing the premium payment or amount transferred to the subaccount by the accumulation unit value of the subaccount as of the end of the valuation period during which the allocation is made. For each subaccount, the accumulation unit value for a given business day is based on the net asset value of a share of the corresponding portfolio of the underlying funds less any applicable charges or fees. The investment performance of the portfolio, expenses, and deductions of certain charges affect the value of an accumulation unit. Upon allocation to the selected subaccount, premium payments are converted into accumulation units of the subaccount. The number of accumulation units to be credited is determined by dividing the dollar amount allocated to each subaccount by the value of an accumulation unit for that subaccount as next determined after the premium payment is received at the administrative -19- and service office or, in the case of the initial premium payment, when the application is completed, whichever is later. The value of an accumulation unit for each subaccount was arbitrarily established at $1 at the inception of each subaccount. Thereafter, the value of an accumulation unit is determined as of the close of trading on each day the New York Stock Exchange is open for business. An index (the "Net Investment Factor") which measures the investment performance of a subaccount during a valuation period, is used to determine the value of an accumulation unit for the next subsequent valuation period. The Net Investment Factor may be greater or less than or equal to one; therefore, the value of an accumulation unit may increase, decrease or remain the same from one valuation period to the next. The owner bears this investment risk. The net investment performance of a subaccount and deduction of certain charges affect the accumulation unit value. The Net Investment Factor for any subaccount for any valuation period is determined by dividing (a) by (b) and subtracting (c) from the result, where: (a) is the net result of: (1) the net asset value per share of the shares held in the subaccount determined at the end of the current valuation period, plus (2) the per share amount of any dividend or capital gain distribution made with respect to the shares held in the subaccount if the ex-dividend date occurs during the current valuation period, plus or minus (3) a per share credit or charge for any taxes determined by Transamerica to have resulted during the valuation period from the investment operations of the subaccount; (b) the net asset value per share of the shares held in the subaccount determined as of the end of the immediately preceding valuation period; and (c) is an amount representing the separate account charge and any optional benefit fees, if applicable. Illustration of Accumulation Unit Value Calculations Formula and Illustration for Determining the Net Investment Factor (Assume the Enhanced Death Benefit is in effect and no optional riders or benefits are elected.) Investment Experience Factor = (A + B - C) - E ----------- D Where: A = The Net Asset Value of an underlying fund share as of the end of the current valuation period. Assume...................................................A = $11.57 B = The per share amount of any dividend or capital gains distribution since the end of the Immediately preceding valuation period. Assume........................................................B = 0 C = The per share charge or credit for any taxes reserved for at the end of the current Valuation period. Assume........................................................C = 0 D = The Net Asset Value of an underlying fund share at the end of the immediately preceding Valuation period. Assume...................................................D = $11.40 E = The daily deduction for mortality and expense risk fee and administrative charges, which (on these assumptions) totals 1.50% on an annual basis. On a daily basis..................................... = .0000407916 Then, the Investment Experience Factor = (11.57+ 0 - 0) - .0000407916 = Z = 1.0148714891 -------------- 11.40
-20- Formula and Illustration for Determining Accumulation Unit Value Accumulation Unit Value = A * B Where: A = The accumulation unit value for the immediately preceding valuation period. Assume..................................................... = $X B = The Net Investment Factor for the current valuation period. Assume..................................................... = Y Then, the accumulation unit value = $X * Y = $Z Annuity Unit Value and Annuity Payment Rates The amount of variable annuity payments will vary with annuity unit values. Annuity unit values rise if the net investment performance of the subaccount exceeds the annual assumed investment return of 5% annually. Conversely, annuity unit values fall if the net investment performance of the subaccount is less than the annual assumed investment return. The value of a variable annuity unit in each subaccount was established at $1on the date operations began for that subaccount. The value of a variable annuity unit on any subsequent business day is equal to (a) multiplied by (b) multiplied by (c), where: (a) is the variable annuity unit value for that subaccount on the immediately preceding business day; (b) is the net investment factor for that subaccount for the valuation period; and (c) is the investment result adjustment factor for the valuation period. The investment result adjustment factor for the valuation period is the product of discount factors of .99986634 per day to recognize the 5% effective annual assumed investment return. The valuation period is the period from the close of the immediately preceding business day to the close of the current business day. The net investment factor for the policy used to calculate the value of a variable annuity unit in each subaccount for the valuation period is determined by dividing (i) by (ii) and subtracting (iii) from the result, where: (i) is the result of: (1) the net asset value of a fund share held in that subaccount determined at the end of the current valuation period; plus (2) the per share amount of any dividend or capital gain distributions made by the fund for shares held in that subaccount if the ex-dividend date occurs during the valuation period; plus or minus (3) a per share charge or credit for any taxes reserved for, which Transamerica determines to have resulted from the investment operations of the subaccount. (ii) is the net asset value of a fund share held in that subaccount determined as of the end of the immediately preceding valuation period. (iii) is a factor representing the mortality and expense risk fee and administrative charge. This factor is equal, on an annual basis, to 1.25% (for the Return of Premium Death Benefit) or 1.40% (for the Annual Step-Up Death Benefit) or 1.50% (for the Enhanced Death Benefit) of the daily net asset value of a fund share held in that subaccount. (For calculating annuity payments, the factor is 1.25% for all death benefits, but 2.50% for Managed Annuity Program annuity payments). The dollar amount of subsequent variable annuity payments will depend upon changes in applicable annuity unit values. The annuity payment rates vary according to the annuity option elected and the sex and adjusted age of the annuitant at the annuity commencement date. The policy also contains a table for determining the adjusted age of the annuitant. -21- Illustration of Calculations for Annuity Unit Value and Variable Annuity Payments Formula and Illustration for Determining Annuity Unit Value Annuity Unit Value = A * B * C Where: A = Annuity unit value for the immediately preceding valuation period. Assume.....................................................= $X B = Investment Experience Factor for the valuation period for which the annuity unit value is being Calculated.* Assume......................................................= Y C = A factor to neutralize the annual assumed investment return of 5% built into the Annuity Tables used. Assume......................................................= Z Then, the annuity unit value is: $X * Y * Z = $Q * For Managed Annuity Program annuity payments, this will reflect not only the 1.25% mortality and expense risk fee and administrative charge, but also the 1.25% guaranteed payment fee. Formula and Illustration for Determining Amount of First Monthly Variable Annuity Payment First Monthly Variable Annuity Payment = A * B ------ $1,000 Where: A = The policy value as of the annuity commencement date. Assume.....................................................= $X B = The Annuity purchase rate per $1,000 based upon the option selected, the sex and adjusted age of the annuitant according to the tables contained in the policy. Assume.....................................................= $Y Then, the first Monthly Variable Annuity Payment = $X * $Y = $Z ------- 1,000 Formula and Illustration for Determining the Number of Annuity Units Represented by Each Monthly Variable Annuity Payment Number of annuity units = A - B Where: A = The dollar amount of the first monthly Variable Annuity Payment. Assume.....................................................= $X B = The annuity unit value for the Valuation Date on which the first monthly payment is due. Assume.....................................................= $Y Then, the number of annuity units = $X = Z -- $Y MANAGED ANNUITY PROGRAM -- ADDITIONAL INFORMATION The amounts shown below are hypothetical guaranteed minimum monthly payment amounts under the "Managed Annuity Program" for a $100,000 premium when annuity payments do not begin until the policy anniversary indicated in the left-hand column. These figures assume the following: -22- .. there were no subsequent premium payments or surrenders; .. there were no premium taxes; .. the $100,000 premium is subject to the Managed Annuity Program; .. the annuitant is (or both annuitants are) 60 years old when the rider is issued; .. the annual growth rate is 6.0% (once established an annual growth rate will not change during the life of the Managed Annuity Program); and .. there was no upgrade of the minimum income base. Six different annuity payment options are illustrated: a male annuitant, a female annuitant and a joint and survivor annuity, each on a Life Only and a Life with 10 Year Certain basis. The figures below, which are the amount of the first monthly payment, are based on an assumed investment return of 3%. Subsequent payments will never be less than the amount of the first payment (although subsequent payments are calculated using a 5% assumed investment return).
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10 Years Certain -------------------------------------------------------------------------------------------------------------------------------- Rider Anniversary at Male Female Joint & Survivor Exercise Date -------------------------------------------------------------------------------------------------------------------------------- Life Only Life 10 Life Only Life 10 Life Only Life 10 -------------------------------------------------------------------------------------------------------------------------------- 10 (age 70) $ 1,112 $ 1,049 $1,035 $ 999 $ 876 $ 872 -------------------------------------------------------------------------------------------------------------------------------- 15 2,212 1,824 2,075 1,788 1,336 1,349 -------------------------------------------------------------------------------------------------------------------------------- 20 (age 80) 3,759 2,707 3,605 2,694 2,200 2,117 --------------------------------------------------------------------------------------------------------------------------------
This hypothetical illustration should not be deemed representative of past or future performance of any underlying variable investment option. Surrenders will affect the minimum income base as follows: Each policy year, surrenders up to the limit of the total free amount (the minimum income base on the last policy anniversary multiplied by the annual growth rate) reduce the minimum income base on a dollar-for-dollar basis. Surrenders over this free amount will reduce the minimum income base on a pro rata basis by an amount equal to the minimum income base immediately prior to the excess surrender multiplied by the percentage reduction in the policy value resulting from the excess surrender. The free amount will always be a relatively small fraction of the minimum income base. Examples of the effect of surrenders on the minimum income base are as follows: ------------------------------------------------------------------------------------------------------------------------------- EXAMPLE 1 ------------------------------------------------------------------------------------------------------------------------------- Assumptions ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base on last policy anniversary: $10,000 ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base at time of distribution: $10,500 ------------------------------------------------------------------------------------------------------------------------------- .. policy value at time of distribution: $15,000 ------------------------------------------------------------------------------------------------------------------------------- .. distribution amount: $500 ------------------------------------------------------------------------------------------------------------------------------- .. prior distribution in current policy year: None ------------------------------------------------------------------------------------------------------------------------------- Calculations ------------------------------------------------------------------------------------------------------------------------------- .. maximum annual free amount: $10,000 x 6% = $600 ------------------------------------------------------------------------------------------------------------------------------- .. policy value after distribution: $15,000 - $500 = $14,500 ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base after distribution (since the distribution $10,500 - $500 = $10,000 amount was less then the maximum annual adjustment free amount): -------------------------------------------------------------------------------------------------------------------------------
-23-
------------------------------------------------------------------------------------------------------------------------------- EXAMPLE 2 ------------------------------------------------------------------------------------------------------------------------------- Assumptions ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base on last policy anniversary: $10,000 ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base at time of distribution: $10,500 ------------------------------------------------------------------------------------------------------------------------------- .. policy value at time of distribution: $15,000 ------------------------------------------------------------------------------------------------------------------------------- .. distribution amount: $1,500 ------------------------------------------------------------------------------------------------------------------------------- .. prior distribution in current policy year: $1,000 ------------------------------------------------------------------------------------------------------------------------------- Calculations ------------------------------------------------------------------------------------------------------------------------------- .. maximum annual free amount: $0.0 ------------------------------------------------------------------------------------------------------------------------------- (prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600]) ------------------------------------------------------------------------------------------------------------------------------- .. policy value after distribution: $15,000 - $1,500 = $13,500 ------------------------------------------------------------------------------------------------------------------------------- (since the policy value is reduced 10% ($1,500/$15,000), the minimum income base is also reduced 10%) ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base after distribution: $10,500 - (10% x $10,500) = $9,450 -------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------- EXAMPLE 3 ------------------------------------------------------------------------------------------------------------------------------- Assumptions ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base on last policy anniversary: $10,000 ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base at time of distribution: $10,500 ------------------------------------------------------------------------------------------------------------------------------- .. policy value at time of distribution: $7,500 ------------------------------------------------------------------------------------------------------------------------------- .. distribution amount: $1,500 ------------------------------------------------------------------------------------------------------------------------------- .. prior distribution in current policy year: $1,000 ------------------------------------------------------------------------------------------------------------------------------- Calculations ------------------------------------------------------------------------------------------------------------------------------- .. maximum annual free amount: $0.0 ------------------------------------------------------------------------------------------------------------------------------- (prior distributions have exceeded the current year free amount of $600 [$10,000 x 6% = $600]) ------------------------------------------------------------------------------------------------------------------------------- .. policy value after distribution: $7,500 - $1,500 = $6,000 ------------------------------------------------------------------------------------------------------------------------------- (since the policy value is reduced 20% ($1,500/$7,500), the minimum income base is also reduced 20%) ------------------------------------------------------------------------------------------------------------------------------- .. minimum income base after distribution: $10,500 - (20% x $10,500) = $8,400 -------------------------------------------------------------------------------------------------------------------------------
The amount of the first payment provided by the Managed Annuity Program will be determined by multiplying each $1,000 of minimum income base by the applicable annuity factor shown on Schedule I of the Managed Annuity Program. The applicable annuity factor depends upon the annuitant's (and joint annuitant's, if any) sex (or without regard to gender if required by law), age, any annuity factor age adjustment, and the Managed Annuity Program payment option selected and is based on a guaranteed interest rate of 3% and the "2000 Table" using an assumed annuity commencement date of 2005 (static projection to this point) with dynamic projection using scale G from that point (100% of G for males, 50% of G for females). Subsequent payments will be calculated as described in the Managed Annuity Program using a 5% assumed investment return. Subsequent payments may fluctuate annually in accordance with the investment performance of the annuity subaccounts. However, subsequent payments are guaranteed to never be less than the initial payment. The stabilized payment on each subsequent policy anniversary after annuitization using the rider will equal the greater of the initial payment or the payment supportable by the annuity units in the selected subaccounts. The supportable payment is equal to the number of variable annuity units in the selected subaccounts multiplied by the variable annuity unit values in those subaccounts on the date the payment is made. The variable annuity unit values used to calculate the supportable payment will assume a 5% assumed investment return. If the supportable payment at any payment date during a policy year is greater than the stabilized payment for that policy year, the excess will be used to purchase additional annuity units. Conversely, if the supportable payment at any payment date during a policy year is less than the stabilized payment for that policy year, there will be a reduction in the number of annuity units credited to the policy to fund the deficiency. In the case of a reduction, you will not participate as fully in the future investment performance of the subaccounts you selected since fewer annuity units are credited to your policy. Purchases and reductions will be allocated to each subaccount on a proportionate basis. Transamerica bears the risk that it will need to make payments if all annuity units have been used in an attempt to maintain the stabilized payment at the initial payment level. In such an event, Transamerica will make all future payments equal to the initial payment. Once all the annuity units have been used, the amount of your payment will not increase or decrease and will not depend upon the performance of any subaccounts. To compensate Transamerica for this risk, a guaranteed payment fee will be deducted. -24- BENEFICIARY EARNINGS ENHANCEMENT -- ADDITIONAL INFORMATION The following examples illustrate the Beneficiary Earnings Enhancement additional death benefit payable by this rider as well as the effect of a partial surrender on the additional death benefit amount. Example 1 ------------------------------------------------------------------------------------------------------------------------- Policy Value on the Rider Date: $100,000 ------------------------------------------------------------------------------------------------------------------------- Premiums paid after the Rider Date before Surrender: $25,000 ------------------------------------------------------------------------------------------------------------------------- Gross Partial Surrenders after the Rider Date: $30,000 ------------------------------------------------------------------------------------------------------------------------- Death Benefit on date of surrender $150,000 ------------------------------------------------------------------------------------------------------------------------- Rider Earnings on Date of Surrender (Death Benefit - Policy Value on Rider Date - Premiums paid after Rider Date = $150,000 - $100,000 - $25,000): $25,000 ------------------------------------------------------------------------------------------------------------------------- Amount of Surrender that exceeds Rider Earnings ($30,000 - $25,000): $5,000 ------------------------------------------------------------------------------------------------------------------------- Base Policy Death Benefit on the date of Death Benefit Calculation: $200,000 ------------------------------------------------------------------------------------------------------------------------- Rider Earnings (= Death Benefit - policy value on Rider Date - Premiums since Rider Date + Surrenders since Rider Date that exceeded Rider Earnings at time of Surrender = $200,000 - $100,000 - $25,000 + $5,000): $80,000 ------------------------------------------------------------------------------------------------------------------------- Additional Death Benefit Amount (= Additional Death Benefit Factor * Rider Earnings = 40%* $80,000): $32,000 ------------------------------------------------------------------------------------------------------------------------- Total Death Benefit paid (=Base policy death benefit plus Additional Death Benefit Amount): $232,000 -------------------------------------------------------------------------------------------------------------------------
Example 2 ------------------------------------------------------------------------------------------------------------------------- Policy Value on the Rider Date: $100,000 ------------------------------------------------------------------------------------------------------------------------- Premiums paid after the Rider Date before Surrender: $0 ------------------------------------------------------------------------------------------------------------------------- Gross Partial Surrenders after the Rider Date: $0 ------------------------------------------------------------------------------------------------------------------------- Base Policy Death Benefit on the date of Death Benefit Calculation: $75,000 ------------------------------------------------------------------------------------------------------------------------- Rider Earnings (= Death Benefit - policy value on Rider Date - Premiums since Rider Date + Surrenders since Rider Date that exceeded Rider Earnings at time of Surrender = $75,000 - $100,000 - $0 + $0): $0 ------------------------------------------------------------------------------------------------------------------------- Additional Death Benefit Amount (= Additional Death Benefit Factor * Rider Earnings = 40%* $0): $0 ------------------------------------------------------------------------------------------------------------------------- Total Death Benefit paid (=Base policy death benefit plus Additional Death Benefit Amount): $75,000 -------------------------------------------------------------------------------------------------------------------------
BENEFICIARY EARNINGS ENHANCEMENT - EXTRA -- ADDITIONAL INFORMATION Assume the Beneficiary Earnings Enhancement- Extra is added to a new policy opened with $100,000 initial premium. The client is less than age 70 on the Rider Date. The client chose the 75% Initial Death Benefit Option with a Rider Fee of 0.60%. On the first and second Rider Anniversaries, the Policy Value is $110,000 and $95,000 respectively when the Rider Fees are deducted. The client adds $25,000 premium in the 3rd Rider Year when the Death Proceeds are equal to $115,000 and then takes a withdrawal of $35,000 during the 4th Rider Year when the Death Proceeds are equal to $145,000. After 5 years, the Death Proceeds have grown to $130,000. -25- EXAMPLE ------------------------------------------------------------------------------------------------------------------------- Death Proceeds on Rider Date (equals initial policy value since new policy) $100,000 ------------------------------------------------------------------------------------------------------------------------- Additional Death Benefit during first Rider Year $0 ------------------------------------------------------------------------------------------------------------------------- Rider Fee on first Rider Anniversary (= Rider Fee * Policy Value = 0.60% * $110,000) $660 ------------------------------------------------------------------------------------------------------------------------- Additional Death Benefit during 2nd Rider Year (= sum of total Rider Fees paid) $660 ------------------------------------------------------------------------------------------------------------------------- Rider Fee on second Rider Anniversary (= Rider Fee * Policy Value = 0.60% * $95,000) $570 ------------------------------------------------------------------------------------------------------------------------- Additional Death Benefit during 3rd Rider Year (= sum of total Rider Fees paid = $660 + $570) $1,230 ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Future Growth prior to premium payment in 3rd year (= Current Death Proceeds - Death Proceeds on Rider Date - Premiums paid after Rider Date + Withdrawal amounts that exceeded Future Growth prior to withdrawal = $115,000 - $100,000 - $0 + $0) $15,000 ------------------------------------------------------------------------------------------------------------------------- Percentage of Initial Death Proceeds remaining (= Initial Death Benefit Option * Death Proceeds on Rider Date - withdrawal amounts that exceeded Future Growth prior to withdrawal = 75% * $100,000 - $0) $75,000 ------------------------------------------------------------------------------------------------------------------------- Rider Benefit Base (= Future Growth + Percentage of Initial Death Proceeds remaining = $15,000 + $75,000) $90,000 ------------------------------------------------------------------------------------------------------------------------- Future Growth after premium payment (= $140,000 (increased by premium) -$100,000 - $25,000 + $0) $15,000 ------------------------------------------------------------------------------------------------------------------------- Percentage of Initial Death Proceeds remaining (=75% * $100,000 - $0) $75,000 ------------------------------------------------------------------------------------------------------------------------- Rider Benefit Base (=$15,000 + $75,000) $90,000 ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Future Growth prior to withdrawal in 4th Rider Year (= $145,000 - $100,000 - $25,000 + $0) $20,000 ------------------------------------------------------------------------------------------------------------------------- Amount of Withdrawal that exceeds Future Growth prior to withdrawal (= maximum of 0 and $35,000 - $15,000 $20,000) ------------------------------------------------------------------------------------------------------------------------- Future Growth just after withdrawal in 4th Rider Year (= $110,000 (reduced by withdrawal ignoring any potential adjustments on a variable policy) - $100,000 - $25,000 + $15,000) $0 ------------------------------------------------------------------------------------------------------------------------- Percentage of Initial Death Proceeds remaining after withdrawal (= 75% * $100,000 - $15,000) $60,000 ------------------------------------------------------------------------------------------------------------------------- Rider Benefit Base (= $0 + $60,000) $60,000 ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Future Growth after 5 Years (=$130,000 - $100,000 - $25,000 + $15,000) $20,000 ------------------------------------------------------------------------------------------------------------------------- Percentage of Initial Death Proceeds remaining (= 75% * $100,000 - $15,000) $60,000 ------------------------------------------------------------------------------------------------------------------------- Rider Benefit Base (= $20,000 + $60,000) $80,000 ------------------------------------------------------------------------------------------------------------------------- Additional Death Benefit = Rider Benefit Percentage * Rider Benefit Base = 40% * $80,000 $32,000 ------------------------------------------------------------------------------------------------------------------------- Total Death Proceeds (= base policy Death Proceeds + Additional Death Benefit Amount = $130,000 + $32,000) $162,000 -------------------------------------------------------------------------------------------------------------------------
HISTORICAL PERFORMANCE DATA Money Market Yields Transamerica may from time to time disclose the current annualized yield of the Federated Prime Money Fund II subaccount for a 7-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 and income other than investment income) at the end of the 7-day period in the value of a hypothetical account having a balance of 1 unit at the beginning of the 7-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 (i) net income from the portfolio attributable to the hypothetical account; and (ii) charges and deductions imposed under a policy that are attributable to the hypothetical account. The charges and deductions include the per unit charges for the hypothetical account for (i) the administrative charges; and (ii) the mortality and expense risk fee. Current Yield will be calculated according to the following formula: -26- Current Yield = ((NCS * ES)/UV) * (365/7) Where: NCS = The net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation and income other than investment income) for the 7-day period attributable to a hypothetical account having a balance of 1 subaccount unit. ES = Per unit expenses of the subaccount for the 7-day period. UV = The unit value on the first day of the 7-day period. Because of the charges and deductions imposed under a policy, the yield for the Federated Prime Money Fund II subaccount will be lower than the yield for the Federated Prime Money Fund II portfolio. The yield calculations do not reflect the effect of any premium taxes or surrender charges that may be applicable to a particular policy. Surrender charges range from 6% to 0% of the amount of premium payments withdrawn based on the number of years since the premium payment was made. However, surrender charges will not be assessed after the tenth policy year. Transamerica may also disclose the effective yield of the Federated Prime Money Fund II subaccount for the same 7-day period, determined on a compounded basis. The effective yield is calculated by compounding the base period return according to the following formula: Effective Yield = (1 + ((NCS - ES)/UV))365/7/ - 1 Where: NCS = The net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation and income other than investment income) for the 7-day period attributable to a hypothetical account having a balance of 1 subaccount unit. ES = Per unit expenses of the subaccount for the 7-day period. UV = The unit value on the first day of the 7-day period. The yield on amounts held in the Federated Prime Money Fund II subaccount 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 Federated Prime Money Fund II subaccount actual yield is affected by changes in interest rates on money market securities, average portfolio maturity of the Federated Prime Money Fund II portfolio, the types and quality of portfolio securities held by the Federated Prime Money Fund II portfolio and its operating expenses. For the seven days ended December 31, 2001, the yield of the Federated Prime Money Fund II subaccount was 0.47% and the effective yield was 0.47% for the Return of Premium Death Benefit. For the seven days ended December 31, 2001, the yield of the Federated Prime Money Fund II subaccount was 0.32%, and the effective yield was 0.32% for the Annual Step-Up Death Benefit. Other Subaccount Yields Transamerica may from time to time advertise or disclose the current annualized yield of one or more of the subaccounts account (except the Federated Prime Money Fund II subaccount) for 30-day periods. The annualized yield of a subaccount refers to income generated by the subaccount over a specific 30-day period. Because the yield is annualized, the yield generated by a subaccount during the 30-day period is assumed to be generated each 30-day period over a 12-month period. The yield is computed by: (i) dividing the net investment income of the subaccount less subaccount expenses for the period, by (ii) the maximum offering price per unit on the last day of the period times the daily average number of units outstanding for the period, (iii) compounding that yield for a 6-month period, and (iv) multiplying that result by 2. Expenses attributable to the subaccount include (i) the administrative charge and (ii) the mortality and expense risk fee. The 30-day yield is calculated according to the following formula: Yield = 2 * ((((NI - ES)/(U * UV)) + 1)/6/ -1) Where: NI = Net investment income of the subaccount for the 30-day period attributable to the subaccount's unit. ES = Expenses of the subaccount for the 30-day period. U = The average number of units outstanding. UV = The unit value at the close (highest) of the last day in the 30-day period. -27- Because of the charges and deductions imposed by the separate account, the yield for a subaccount of the separate account will be lower than the yield for its corresponding portfolio. The yield calculations do not reflect the effect of any premium taxes or surrender charges that may be applicable to a particular policy. Surrender charges range from 6% to 0% of the amount of premium payments withdrawn based on the number of years since the premium payment was made. However, surrender charges will not be assessed after the tenth policy year. The yield on amounts held in the subaccounts normally will fluctuate over time. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. A subaccount's actual yield is affected by the types and quality of its investments and its operating expenses. Total Returns Transamerica may from time to time also advertise or disclose total returns for one or more of the subaccounts for various periods of time. One of the periods of time will include the period measured from the date the subaccount commenced operations. When a subaccount has been in operation for 1, 5 and 10 years, respectively, the total return for these periods will be provided. Total returns for other periods of time may from time to time also be disclosed. Total returns represent the average annual compounded rates of return that would equate an initial investment of $1,000 to the redemption value of that investment as of the last day of each of the periods. The ending date for each period for which total return quotations are provided will be for the most recent month end practicable, considering the type and media of the communication and will be stated in the communication. Total returns will be calculated using subaccount unit values which Transamerica calculates on each business day based on the performance of the subaccount's underlying fund portfolio, and the deductions for the mortality and expense risk fee and the administrative charges. Total return calculations will reflect the effect of surrender charges that may be applicable to a particular period. The total return will then be calculated according to the following formula: P (1 + T)/N/ = ERV Where: T = The average annual total return net of subaccount recurring charges. ERV = The ending redeemable value of the hypothetical account at the end of the period. P = A hypothetical initial payment of $1,000. N = The number of years in the period. Other Performance Data Transamerica may from time to time also disclose average annual total returns in a non-standard format in conjunction with the standard format described above. The non-standard format will be identical to the standard format except that the surrender charge percentage will be assumed to be 0%. 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 assuming that the surrender charge percentage will be 0%. CTR = (ERV/P) -1 Where: CTR = The cumulative total return net of subaccount recurring charges for the period. ERV = The ending redeemable value of the hypothetical investment at the end of the period. P = A hypothetical initial payment of $1,000. All non-standardized performance data will only be advertised if the standardized performance data is also disclosed. -28- Adjusted Historical Performance Data From time to time, sales literature or advertisements may quote average annual total returns for periods prior to the date a particular subaccount commenced operations. Such performance information for the subaccounts will be calculated based on the performance of the various portfolios and the assumption that the subaccounts were in existence for the same periods as those indicated for the portfolios, with the level of policy charges that are currently in effect. PUBLISHED RATINGS Transamerica may from time to time publish in advertisements, sales literature and reports to owners, the ratings and other information assigned to it by one or more independent rating organizations such as A.M. Best Company, Standard & Poor's Insurance Ratings Services, Moody's Investors Service and Fitch Financial Ratings. The purpose of the ratings is to reflect the financial strength of Transamerica. The ratings should not be considered as bearing on the investment performance of assets held in the separate account or of the safety or riskiness of an investment in the separate 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, these ratings may be referred to in advertisements or sales literature or in reports to owners. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance policies in accordance with their terms. STATE REGULATION OF TRANSAMERICA Transamerica is subject to the laws of Iowa governing insurance companies and to regulation by the Iowa Division of Insurance. An annual statement in a prescribed form is filed with the Division of Insurance each year covering the operation of Transamerica for the preceding year and its financial condition as of the end of such year. Regulation by the Division of Insurance includes periodic examination to determine Transamerica's contract liabilities and reserves so that the Division may determine the items are correct. Transamerica's books and accounts are subject to review by the Division of Insurance at all times and a full examination of its operations is conducted periodically by the National Association of Insurance Commissioners. In addition, Transamerica is subject to regulation under the insurance laws of other jurisdictions in which it may operate. ADMINISTRATION Transamerica performs administrative services for the policies. These services include issuance of the policies, maintenance of records concerning the policies, and certain valuation services. RECORDS AND REPORTS All records and accounts relating to the separate account will be maintained by Transamerica. As presently required by the 1940 Act, as amended, and regulations promulgated thereunder, Transamerica will mail to all owners at their last known address of record, at least annually, reports containing such information as may be required under that Act or by any other applicable law or regulation. Owners will also receive confirmation of each financial transaction and any other reports required by law or regulation. However, for certain routine transactions (for example, regular monthly premiums deducted from your checking account, or regular annuity payments Transamerica sends to you) you may only receive quarterly confirmations. DISTRIBUTION OF THE POLICIES The policies are offered to the public through brokers licensed under the federal securities laws and state insurance laws. The offering of the policies is continuous and Transamerica does not anticipate discontinuing the offering of the policies, however, Transamerica reserves the right to do so. AFSG Securities Corporation, an affiliate of Transamerica, is the principal underwriter of the policies and may enter into agreements with broker-dealers for the distribution of the policies. During 2001, the amount paid to AFSG Securities Corporation and/or broker dealers for their services related to Separate Account VA F policies was $82,387.19. No fees had been paid to any broker-dealers for their services prior to 2001. -29- VOTING RIGHTS To the extent required by law, Transamerica will vote the underlying fund portfolios' shares held by the separate account at regular and special shareholder meetings of the underlying fund portfolios in accordance with instructions received from persons having voting interests in the portfolios, although none of the underlying fund portfolios hold regular annual shareholder meetings. If, however, the 1940 Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result Transamerica determines that it is permitted to vote the underlying fund portfolios shares in its own right, it may elect to do so. Before the annuity commencement date, you hold the voting interest in the selected portfolios. The number of votes that you have the right to instruct will be calculated separately for each subaccount. The number of votes that you have the right to instruct for a particular subaccount will be determined by dividing your policy value in the subaccount by the net asset value per share of the corresponding portfolio in which the subaccount invests. Fractional shares will be counted. After the annuity commencement date, the person receiving annuity payments has the voting interest, and the number of votes decreases as annuity payments are made and as the reserves for the policy decrease. The person's number of votes will be determined by dividing the reserve for the policy allocated to the applicable subaccount by the net asset value per share of the corresponding portfolio. Fractional shares will be counted. The number of votes that you or the person receiving income payments has the right to instruct will be determined as of the date established by the underlying fund portfolio for determining shareholders eligible to vote at the meeting of the underlying fund portfolio. Transamerica will solicit voting instructions by sending you, or other persons entitled to vote, written requests for instructions prior to that meeting in accordance with procedures established by the underlying fund portfolio. Portfolio shares as to which no timely instructions are received and shares held by Transamerica in which you, or other persons entitled to vote, have no beneficial interest will be voted in proportion to the voting instructions that are received with respect to all policies participating in the same subaccount. Each person having a voting interest in a subaccount will receive proxy material, reports, and other materials relating to the appropriate portfolio. OTHER PRODUCTS Transamerica makes other variable annuity policies available that may also be funded through the separate account. These variable annuity policies may have different features, such as different investment options or charges. CUSTODY OF ASSETS Transamerica holds assets of each of the subaccounts. The assets of each of the subaccounts are segregated and held separate and apart from the assets of the other subaccounts and from Transamerica's general account assets. Transamerica maintains records of all purchases and redemptions of shares of the underlying fund portfolios held by each of the subaccounts. Additional protection for the assets of the separate account is afforded by Transamerica's fidelity bond, presently in the amount of $5,000,000, covering the acts of officers and employees of Transamerica. LEGAL MATTERS Sutherland Asbill & Brennan LLP, of Washington D.C. has provided legal advice to Transamerica relating to certain matters under the federal securities laws applicable to the issue and sale of the policies. INDEPENDENT AUDITORS The statutory-basis financial statements and schedules of Transamerica Life Insurance Company as of December 31, 2001, and 2000 and 1999, and for each of the three years in the period ended December 31, 2001, and the financial statements of the subaccounts of Separate Account VA F which are available for investment by Premier Asset Builder Variable Annuity policyowners as of December 31, 2001, for the periods indicated thereon, included in this SAI have been audited by Ernst & Young LLP, Independent Auditors, Suite 3400, 801 Grand Avenue, Des Moines, Iowa 50309. -30- OTHER INFORMATION A Registration Statement has been filed with the SEC, under the Securities Act of 1933 as amended, with respect to the policies discussed in this SAI. Not all of the information set forth in the registration statement, amendments and exhibits thereto has been included in the prospectus or this SAI. Statements contained in the prospectus and this SAI concerning the content of the policies and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC. FINANCIAL STATEMENTS The values of your interest in the separate account will be affected solely by the investment results of the selected subaccount(s). The statutory-basis financial statements of Transamerica Life Insurance Company, which are included in this SAI, should be considered only as bearing on the ability of Transamerica to meet its obligations under the policies. They should not be considered as bearing on the investment performance of the assets held in the separate account. -31- Financial Statements - Statutory Basis Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Years Ended December 31, 2001, 2000, and 1999 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Financial Statements - Statutory Basis Years Ended December 31, 2001, 2000, and 1999 Contents Report of Independent Auditors........................................................................ 1 Audited Financial Statements Balance Sheets - Statutory Basis...................................................................... 3 Statements of Operations - Statutory Basis............................................................ 5 Statements of Changes in Capital and Surplus - Statutory Basis........................................ 6 Statements of Cash Flow - Statutory Basis............................................................. 7 Notes to Financial Statements - Statutory Basis....................................................... 8 Statutory-Basis Financial Statement Schedules Summary of Investments - Other Than Investments in Related Parties.................................... 40 Supplementary Insurance Information................................................................... 41 Reinsurance........................................................................................... 42
Report of Independent Auditors The Board of Directors Transamerica Life Insurance Company We have audited the accompanying statutory-basis balance sheets of Transamerica Life Insurance Company (formerly known as PFL Life Insurance Company), an indirect, wholly-owned subsidiary of AEGON N.V., as of December 31, 2001 and 2000, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flow for each of the three years in the period ended December 31, 2001. Our audits also included the accompanying statutory-basis financial statement schedules required by Article 7 of Regulation S-X. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa, which practices differ from accounting principles generally accepted in the United States. The variances between such practices and accounting principles generally accepted in the United States also are described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material. In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States, the financial position of Transamerica Life Insurance Company at December 31, 2001 and 2000, or the results of its operations or its cash flow for each of the three years in the period ended December 31, 2001. 1 However, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Transamerica Life Insurance Company at December 31, 2001 and 2000, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 2001, in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, in 2001 Transamerica Life Insurance Company changed various accounting policies to be in accordance with the revised NAIC Accounting Practices and Procedures Manual, as adopted by the Insurance Division, Department of Commerce, of the State of Iowa. /s/ Ernst & Young LLP Des Moines, Iowa February 15, 2002 2 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Balance Sheets - Statutory Basis (Dollars in Thousands, Except per Share Amounts)
December 31 2001 2000 ---------------------------------- Admitted assets Cash and invested assets: Cash and short-term investments $ 193,296 $ 98,224 Bonds 12,891,333 7,009,825 Stocks: Preferred 51,786 19,987 Common (cost: 2001 - $91,042; 2000 - $75,141) 93,367 84,736 Mutual funds sponsored by affiliated entities (cost: 2001 - $4,403; 2000 - $4,132) 3,947 3,781 Affiliated entities (cost: 2001 - $10,167; 2000 - $2,153) 1,018 - Mortgage loans on real estate 2,063,388 1,585,896 Real estate, at cost less accumulated depreciation (2001 - $14,304; 2000 - $12,641): Home office properties 7,374 7,601 Properties acquired in satisfaction of debt 15,082 15,599 Investment properties 30,034 31,070 Policy loans 59,034 57,571 Net short-term notes receivable from affiliates 140,000 - Other invested assets 413,500 218,340 ---------------------------------- Total cash and invested assets 15,963,159 9,132,630 Premiums deferred and uncollected 13,860 14,235 Accrued investment income 165,836 89,976 Receivable from affiliate - 92,235 Net deferred income tax asset 33,961 - Other assets 34,261 19,359 Separate account assets 5,304,781 4,519,029 ---------------------------------- Total admitted assets $ 21,515,858 $ 13,867,464 ==================================
3
December 31 2001 2000 ------------------------------------ Liabilities and capital and surplus Liabilities: Aggregate reserves for policies and contracts: Life $ 2,251,299 $ 2,109,505 Annuity 7,402,612 4,653,643 Accident and health 384,234 305,365 Policy and contract claim reserves: Life 13,561 10,071 Accident and health 28,202 32,323 Liabilities for deposit-type contracts 4,773,460 1,284,572 Other policyholders' funds 2,147 2,840 Remittances and items not allocated 412,696 332,961 Asset valuation reserve 58,872 106,192 Interest maintenance reserve 26,415 16,693 Net short-term notes payable to affiliates - 6,200 Other liabilities 131,216 101,705 Provision for reinsurance in unauthorized companies 1,605 495 Federal income taxes payable 32,064 3,288 Funds held under reinsurance treaties with unauthorized reinsurers 13,403 - Transfers from separate accounts due or accrued (150,654) (118,075) Payable for securities 119,715 24,482 Payable to affiliates 6,694 - Separate account liabilities 5,259,079 4,512,979 ------------------------------------ Total liabilities 20,766,620 13,385,239 Commitments and contingencies (Note 10) Capital and surplus: Common stock, $10 par value, 500,000 shares authorized, 223,500 and 266,000 issued and outstanding shares in 2001 and 2000, respectively 2,235 2,660 Preferred stock, $10 par value, 42,500 shares authorized, issued and outstanding in 2001 425 - Paid-in surplus 534,282 254,282 Unassigned surplus 212,296 225,283 ------------------------------------ Total capital and surplus 749,238 482,225 ------------------------------------ Total liabilities and capital and surplus $ 21,515,858 $ 13,867,464 ====================================
See accompanying notes. 4 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Statements of Operations - Statutory Basis (Dollars in Thousands)
Year Ended December 31 2001 2000 1999 ---------------------------------------------- Revenues: Premiums and other considerations, net of reinsurance: Life $ 554,684 $ 882,537 $ 227,510 Annuity 4,118,905 3,223,121 1,413,049 Accident and health 150,586 152,293 160,570 Net investment income 825,953 527,313 437,549 Amortization of interest maintenance reserve 3,503 3,867 7,588 Commissions and expense allowances on reinsurance ceded 160,960 26,942 24,741 Separate account fee income 60,188 62,982 49,826 ---------------------------------------------- 5,874,779 4,879,055 2,320,833 Benefits and expenses: Benefits paid or provided for: Life and accident and health benefits 127,370 111,054 115,621 Surrender benefits 1,194,122 1,315,484 1,046,611 Other benefits 356,649 205,110 169,479 Increase in aggregate reserves for policies and contracts: Life 141,397 556,724 195,606 Annuity 2,730,317 541,540 111,427 Accident and health 78,869 50,794 48,835 Other - 5,986 10,480 Increase in liability for premium and other deposit funds - 1,183,833 - ---------------------------------------------- 4,628,724 3,970,525 1,698,059 Insurance expenses: Commissions 290,622 196,101 167,146 General insurance expenses 81,737 58,019 54,191 Taxes, licenses and fees 15,934 26,740 12,382 Net transfers to separate accounts 823,622 515,325 309,307 Other expenses 15,525 776 229 ---------------------------------------------- 1,227,440 796,961 543,255 ---------------------------------------------- 5,856,164 4,767,486 2,241,314 ---------------------------------------------- Gain from operations before federal income tax expense and net realized capital gains (losses) on investments 18,615 111,569 79,519 Federal income tax expense 28,149 51,251 25,316 ---------------------------------------------- Gain (loss) from operations before net realized capital gains (losses) on investments (9,534) 60,318 54,203 Netrealized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to (from) interest maintenance reserve) (107,276) (9,474) 6,365 ---------------------------------------------- Net income (loss) $ (116,810) $ 50,844 $ 60,568 ==============================================
See accompanying notes. 5 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Statements of Changes in Capital and Surplus - Statutory Basis (Dollars in Thousands)
Total Common Preferred Paid-in Unassigned Capital Stock Stock Surplus Surplus and Surplus ---------------------------------------------------------- Balance at January 1, 1999 $2,660 $ - $154,282 $205,586 $362,528 Net income - - - 60,568 60,568 Change in net unrealized capital gains/losses - - - (20,217) (20,217) Change in non-admitted assets - - - (980) (980) Change in asset valuation reserve - - - (11,605) (11,605) Dividend to stockholder - - - (40,000) (40,000) Tax benefit on stock options exercised - - - 1,305 1,305 Change in surplus in separate accounts - - - 245 245 Settlement of prior period tax returns and other tax-related adjustments - - - 2,811 2,811 ---------------------------------------------------------- Balance at December 31, 1999 2,660 - 154,282 197,713 354,655 Net income - - - 50,844 50,844 Change in net unrealized capital gains/losses - - - (19,784) (19,784) Change in non-admitted assets - - - (1,210) (1,210) Change in asset valuation reserve - - - (2,999) (2,999) Tax benefit on stock options exercised - - - 1,438 1,438 Change in surplus in separate accounts - - - (224) (224) Change in provision for reinsurance in unauthorized companies - - - (495) (495) Capital contribution - - 100,000 - 100,000 ---------------------------------------------------------- Balance at December 31, 2000 2,660 - 254,282 225,283 482,225 Net loss - - - (116,810) (116,810) Change in net unrealized capital gains/losses - - - (10,700) (10,700) Change in non-admitted assets - - - (51,381) (51,381) Change in asset valuation reserve - - - 47,320 47,320 Tax benefit on stock options exercised - - - 897 897 Change in surplus in separate accounts - - - (3,378) (3,378) Change in provision for reinsurance in unauthorized companies - - - (1,110) (1,110) Change in net deferred income tax - - - 64,840 64,840 Cumulative effect of changes in accounting principles - - - 23,045 23,045 Dividends to stockholder - - - (3,000) (3,000) Exchange of common stock for preferred stock (425) 425 - - - Reinsurance transactions - - - 37,290 37,290 Capital contribution - - 280,000 - 280,000 ---------------------------------------------------------- Balance at December 31, 2001 $2,235 $425 $534,282 $212,296 $749,238 ==========================================================
See accompanying notes. 6 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Statements of Cash Flow - Statutory Basis (Dollars in Thousands)
Year Ended December 31 2001 2000 1999 ------------------------------------------------ Operating activities Premiums and other considerations received, net of reinsurance $ 5,024,130 $ 4,285,644 $ 1,830,365 Net investment income received 763,113 508,646 441,737 Life and accident and health claims paid (125,561) (114,001) (124,178) Surrender benefits and other fund withdrawals paid (1,330,575) (1,315,484) (1,046,611) Other benefits paid to policyholders (170,315) (205,100) (169,476) Commissions, other expenses and other taxes (399,599) (267,778) (238,192) Net transfers to separate accounts (797,040) (477,575) (280,923) Federal income taxes received (paid) 1,525 (45,190) (24,709) ------------------------------------------------ Net cash provided by operating activities 2,965,678 2,369,162 388,013 Investing activities Proceeds from investments sold, matured or repaid: Bonds and preferred stocks 7,556,980 4,817,508 3,283,038 Common stocks 76,287 50,953 60,293 Mortgage loans on real estate 178,704 129,336 158,739 Real estate 2,179 2,042 13,367 Policy loans - 2,300 186 Other 38,584 14,366 6,133 ------------------------------------------------ 7,852,734 5,016,505 3,521,756 Cost of investments acquired: Bonds and preferred stocks (13,496,958) (6,989,279) (3,398,158) Common stocks (102,352) (54,697) (76,200) Mortgage loans on real estate (659,617) (372,757) (480,750) Real estate - (149) (7,568) Policy loans (1,463) - - Other (288,641) (116,485) (48,719) ------------------------------------------------ (14,549,031) (7,533,367) (4,011,395) ------------------------------------------------ Net cash used in investing activities (6,696,297) (2,516,862) (489,639) Financing and miscellaneous activities Other cash provided: Capital and surplus paid in 280,000 100,000 - Borrowed money (6,200) (138,300) 135,079 Deposits on deposit-type contracts 4,406,794 - - Other sources 354,709 338,402 28,835 ------------------------------------------------ Total other cash provided 5,035,303 300,102 163,914 Other cash applied: Dividends to stockholder (3,000) - (40,000) Withdrawals from deposit-type contracts (944,380) - - Other applications (262,232) (107,873) (51,882) ------------------------------------------------ Total other cash applied (1,209,612) (107,873) (91,882) ------------------------------------------------ Net cash provided by financing and miscellaneous activities 3,825,691 192,229 72,032 ------------------------------------------------ Increase (decrease) in cash and short-term investments 95,072 44,529 (29,594) Cash and short-term investments at beginning of year 98,224 53,695 83,289 ------------------------------------------------ Cash and short-term investments at end of year $ 193,296 $ 98,224 $ 53,695 ================================================
See accompanying notes. 7 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (Dollars in Thousands, Except per Share Amounts) December 31, 2001 1. Organization and Summary of Significant Accounting Policies Organization Transamerica Life Insurance Company (the Company), formerly PFL Life Insurance Company, is a stock life insurance company and is a wholly-owned subsidiary of Transamerica Holding Company, LLC (Transamerica Holding), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc. (AEGON). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a holding company organized under the laws of The Netherlands. Prior to 2001, the Company was a wholly-owned subsidiary of First AUSA Life Insurance Company, a subsidiary of AEGON. Nature of Business The Company sells individual non-participating whole life, endowment and term contracts, as well as a broad line of single fixed and flexible premium annuity products and guaranteed interest contracts and funding agreements. In addition, the Company offers group life, universal life, and individual and specialty health coverages. The Company is licensed in 49 states and the District of Columbia and Guam. Sales of the Company's products are primarily through the Company's agents and financial institutions. Basis of Presentation The preparation of financial statements of insurance companies 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. 8 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa, which practices differ from accounting principles generally accepted in the United States (GAAP). The more significant variances from GAAP are: Investments: Investments in bonds and mandatory redeemable preferred stocks are reported at amortized cost or market value based on their National Association of Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in operations for those designated as trading and as a separate component of shareholders' equity for those designated as available-for-sale. All single class and multi-class mortgage-backed/asset-backed securities (e.g., CMOs) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium of such securities using either the retrospective or prospective methods. If it is determined that a decline in fair value is other than temporary, the cost basis of the security is written down to the undiscounted estimated future cash flows. Prior to April 1, 2001 under GAAP, changes in prepayment assumptions were accounted for in the same manner. Effective April 1, 2001 for GAAP purposes, all securities, purchased or retained, that represent beneficial interests in securitized assets (e.g., CMO, CBO, CDO, CLO, MBS and ABS securities), other than high credit quality securities, are adjusted using the prospective method when there is a change in estimated future cash flows. If it is determined that a decline in fair value is other than temporary, the cost basis of the security is written down to the fair value. If high credit quality securities are adjusted, the retrospective method is used. 9 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) Derivative instruments that meet the criteria of an effective hedge are valued and reported in a manner that is consistent with the hedged asset or liability. Embedded derivatives are not accounted for separately from the host contract. Under GAAP, the effective and ineffective portions of a single hedge are accounted for separately, an embedded derivative within a contract that is not clearly and closely related to the economic characteristics and risk of the host contract is accounted for separately from the host contract and valued and reported at fair value, and the change in fair value for cash flow hedges is credited or charged directly to a separate component of shareholders' equity rather than to income as required for fair value hedges. Investments in real estate are reported net of related obligations rather than on a gross basis. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as under GAAP, and investment income and operating expenses include rent for the Company's occupancy of those properties. Changes between depreciated cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than to income as would be required under GAAP. Valuation allowances, if necessary, are established for mortgage loans based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Prior to January 1, 2001, valuation allowances were based on the difference between the unpaid loan balance and the estimated fair value of the underlying real estate. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loan's effective interest rate or, if foreclosure is probable, on the estimated fair value of the collateral. The initial valuation allowance and subsequent changes in the allowance for mortgage loans as a result of a temporary impairment are charged or credited directly to unassigned surplus, rather than being included as a component of earnings as would be required under GAAP. 10 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) Valuation Reserves: Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the bond or mortgage loan. That net deferral is reported as the "interest maintenance reserve" (IMR) in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses would be reported in the income statement on a pretax basis in the period that the assets giving rise to the gains or losses are sold. The "asset valuation reserve" (AVR) provides a valuation allowance for invested assets. The AVR is determined by an NAIC prescribed formula with changes reflected directly in unassigned surplus; AVR is not recognized for GAAP. Subsidiaries: The accounts and operations of the Company's subsidiaries are not consolidated with the accounts and operations of the Company as would be required under GAAP. Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under GAAP, acquisition costs related to traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves; for universal life insurance and investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins. Nonadmitted Assets: Certain assets designated as "nonadmitted" are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. Under GAAP, such assets are included in the balance sheet. 11 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) Universal Life and Annuity Policies: Subsequent to January 1, 2001, revenues for universal life and annuity policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and benefits incurred represent the total of death benefits paid and the change in policy reserves. Premiums received and benefits incurred for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and recorded directly to an appropriate policy reserve account, without recognizing premium income or benefits expense. Interest on these policies are reflected in other benefits. Prior to January 1, 2001, all revenues for universal life and annuity policies consist of the entire premium received and benefits incurred represent the total of surrender and death benefits paid and the change in policy reserves. Under GAAP, for universal life, premiums received in excess of policy charges would not be recognized as premium revenue and benefits would represent the excess of benefits paid over the policy account value and interest credited to the account values. Under GAAP, for all annuity policies, premiums received and benefits paid would be recorded directly to the reserve liability. Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP. Reinsurance: A liability for reinsurance balances would be provided for unsecured policy reserves ceded to reinsurers not authorized to assume such business. Changes to those amounts are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings. Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under GAAP. Commissions allowed by reinsurers on business ceded are reported as income when received rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP. Deferred Income Taxes: Effective January 1, 2001, deferred income tax assets are limited to 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse by the 12 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) end of the subsequent calendar year, plus 2) the lesser of the remaining gross deferred income tax assets expected to be realized within one year of the balance sheet date or 10% of capital and surplus excluding any net deferred income tax assets, EDP equipment and operating software and any net positive goodwill, plus 3) the amount of remaining gross deferred income tax assets that can be offset against existing gross deferred income tax liabilities. The remaining deferred income tax assets are nonadmitted. Deferred income taxes do not include amounts for state taxes. Prior to January 1, 2001, deferred federal income taxes were not provided for differences between the financial statement amounts and tax bases of assets and liabilities. Under GAAP, states taxes are included in the computation of deferred taxes, a deferred tax asset is recorded for the amount of gross deferred tax assets expected to be realized in future years, and a valuation allowance is established for deferred tax assets not realizable. Statements of Cash Flow: Cash, cash equivalents, and short-term investments in the statements of cash flow represent cash balances and investments with initial maturities of one year of less. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and investments with initial maturities of three months or less. The effects of these variances have not been determined by the Company, but are presumed to be material. Investments Investments in bonds (except those to which the Securities Valuation Office of the NAIC has ascribed a value), mortgage loans on real estate and short-term investments are reported at cost adjusted for amortization of premiums and accretion of discounts. Amortization is computed using methods which result in a level yield over the expected life of the investment. The Company reviews its prepayment assumptions on mortgage and other asset-backed securities at regular intervals and adjusts amortization rates retrospectively when such assumptions are changed due to experience and/or expected future patterns. Investments in preferred stocks in good standing are reported at cost. Investments in preferred stocks not in good standing are reported at the lower of cost or market. Common stocks of unaffiliated companies and affiliated mutual funds are carried at market value. Stocks of affiliated companies are carried at equity in the underlying net 13 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) assets. Real estate is reported at cost less allowances for depreciation. Depreciation is computed principally by the straight-line method. Policy loans are reported at unpaid principal. Other invested assets consist principally of investments in various joint ventures and limited partnerships and are recorded at equity in underlying net assets. Other "admitted assets" are valued, principally at cost, as required or permitted by Iowa Insurance Laws. Net realized capital gains and losses are determined on the basis of specific identification and are recorded net of related federal income taxes. The AVR is established by the Company to provide for potential losses in the event of default by issuers of certain invested assets. These amounts are determined using a formula prescribed by the NAIC and are reported as a liability. The formula for the AVR provides for a corresponding adjustment for realized gains and losses. Under a formula prescribed by the NAIC, the Company defers, in the IMR, the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the security. Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or on real estate where rent is in arrears for more than three months. Further, income is not accrued when collection is uncertain. During 2001, 2000, and 1999, the Company excluded investment income due and accrued of $16,146, $6,584, and $530, respectively, with respect to such practices. The Company uses interest rate swaps as part of its overall interest rate risk management strategy for certain life insurance and annuity products. The Company has entered into several interest rate swap contracts to modify the interest rate characteristics of the underlying assets and liabilities. The net interest effect of such swap transactions is reported as an adjustment of interest income from the hedged items as incurred. The Company issues a product that provides the customer a return based on the Standard & Poors (S&P) 500 Index. The Company uses swaps that allow for an exchange of the increase in the S&P 500 Index over the life of the contract for payments based upon LIBOR rates. The Company has designated this swap as a hedge and, as such, the 14 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) change in the value of the contract is recorded consistent with the related liability. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses are included in income in the period they are incurred. The Company also utilizes credit default swaps in replication transactions. A replication transaction is a derivative transaction entered into in conjunction with a cash instrument to reproduce the investment characteristics of an otherwise permissible investment. The Company replicates investment grade corporate bonds by combining a AAA rated security as a cash component with a credit default swap. A premium is received by the Company on a periodic basis and recognized in investment income. In the event that the representative issuer defaults on its obligation referenced in the credit default swap contract, a payment equal to the notional amount of the contract will be made by the Company and recognized as a capital loss. At December 31, 2001, the Company did not have any outstanding replication transactions. During the year ended December 31, 2001, the Company recognized capital losses in the amount of $20,125 related to replication transactions. The Company has entered into interest rate cap agreements to hedge the exposure of changing interest rates. The cash flows from the interest rate caps will help offset losses that might occur from changes in interest rates. The cost of such agreement is included in interest expense ratably during the life of the agreement. Income received as a result of the cap agreement will be recognized in investment income as earned. The unamortized cost of the agreement is included in other invested assets. Aggregate Policy Reserves Life, annuity and accident and health benefit reserves are developed by actuarial methods and are determined based on published tables based on statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum required by law. 15 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958, and 1980 Commissioners' Standard Ordinary Mortality and American Experience Mortality Tables. The reserves are calculated using interest rates ranging from 2.00 to 6.00 percent and are computed principally on the Net Level Premium Valuation and the Commissioners' Reserve Valuation Methods. Reserves for universal life policies are based on account balances adjusted for the Commissioners' Reserve Valuation Method. The Company waives deduction of deferred fractional premiums upon death and refunds portions of premiums beyond the date of death. Additional premiums are charged or additional mortality charges are assessed for policies issued on substandard lives according to underwriting classification. Tabular interest, tabular less actual reserves released, and tabular cost have been determined by formula. Tabular interest on funds not involving life contingencies has also been determined by formula. Deferred annuity reserves are calculated according to the Commissioners' Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with life contingencies are equal to the present value of future payments assuming interest rates ranging from 3.50 to 8.75 percent and mortality rates, where appropriate, from a variety of tables. Annuity reserves also include guaranteed investment contracts (GIC)s and funding agreements classified as life-type contracts as defined in Statement of Statutory Accounting Principles (SSAP) No. 50, Classifications and Definitions of Insurance or Managed Care Contracts in Force. These liabilities have annuitization options at guaranteed rates and consist of floating interest rate and fixed interest rate contracts. The contract reserves are carried at the greater of the account balance or the value as determined for an annuity with cash settlement option, on a change in fund basis, according to the Commissioners' Annuity Reserve Valuation Method. 16 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) Accident and health policy reserves are equal to the greater of the gross unearned premiums or any required midterminal reserves plus net unearned premiums and the present value of amounts not yet due on both reported and unreported claims. Reinsurance Reinsurance premiums and benefits paid or provided are accounted for on bases of consistency with those used in accounting policies for the original policies issued and the terms of the reinsurance contracts. Policy and Contract Claim Reserves Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the statement date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. Liability for Deposit-Type Contracts Deposit-type contracts do not incorporate risk from the death or disability of policyholders. These types of contracts may include GICs, funding agreements, and other annuity contracts. Deposits and withdrawals received on these contracts are recorded as a direct increase or decrease directly to the liability balance, and are not reflected as premiums, benefits, or changes in reserve in the statement of operations. Separate Accounts Assets held in trust for purchases of variable annuity contracts and the Company's corresponding obligation to the contract owners are shown separately in the balance sheets. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the contract owners and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. 17 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 1. Organization and Summary of Significant Accounting Policies (continued) Premiums and Annuity Considerations Subsequent to January 1, 2001, revenues for policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and benefits incurred represent the total of death benefits paid and the change in policy reserves. These revenues are recognized when due. Premiums received and benefits paid for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and recorded directly to an appropriate policy reserve account, without recognizing premium income or benefits paid. Prior to January 1, 2001, all life, annuity, accident and health premiums are recognized as revenue when due. Stock Option Plan AEGON N.V. sponsors a stock option plan that includes eligible employees of the Company. Pursuant to the plan, the option price at the date of grant is equal to the market value of the stock. Under statutory accounting principles, the Company does not record any expense related to this plan. However, the Company is allowed to record a deduction in the consolidated tax return filed by the Company and certain affiliates. The tax benefit of this deduction has been credited directly to surplus. Reclassifications Certain reclassifications have been made to the 2000 and 1999 financial statements to conform to the 2001 presentation. 2. Accounting Changes The Company prepares its statutory financial statements in conformity with accounting practices prescribed or permitted by the State of Iowa. Effective January 1, 2001, the State of Iowa required that insurance companies domiciled in the State of Iowa prepare their statutory basis financial statements in accordance with the NAIC Accounting Practices and Procedures Manual subject to any deviations prescribed or permitted by the State of Iowa insurance commissioner. 18 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 2. Accounting Changes (continued) Accounting changes adopted to conform to the previsions of the NAIC Accounting Practices and Procedures Manual are reported as changes in accounting principles. The cumulative effect of changes in accounting principles is reported as an adjustment to unassigned surplus in the period of the change in accounting principle. The cumulative effect is the difference between the amount of capital and surplus at the beginning of the year and the amount of capital and surplus that would have been reported at that date if the new accounting principles had been applied retroactively for all prior periods. As a result of these changes, the Company reported a change of accounting principle, as an adjustment that increased capital and surplus, of $23,045 as of January 1, 2001. This amount included the establishment of deferred income tax assets of $19,124 and the release of mortgage loan prepayment fees from the IMR of $11,151, offset by the release of mortgage loan origination fees of $3,100, bond writedowns of $3,490, and the establishment of a vacation accrual of $640. 3. Capital Structure During 2001, the Company exchanged 42,500 shares of its common stock with 42,500 shares of preferred stock. The par value of the preferred stock is $10 per share and the liquidation value is equal to $1,364.70 per share. This per share liquidation value shall be adjusted proportionally to reflect any resulting increase or decrease in the number of outstanding shares of preferred stock. Holders of the preferred shares shall be entitled to receive dividends equal to the amount of income generated from a segregated pool of assets, including cash, cash equivalents, mortgages and debt securities and these dividends are cumulative in nature. Holders of the shares of preferred stock have no right to cause mandatory or optional redemption of the shares. 4. Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and short-term investments: The carrying amounts reported in the balance sheet for these instruments approximate their fair values. 19 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 4. Fair Values of Financial Instruments (continued) Investment securities: Fair values for fixed maturity securities (including redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for equity securities, including affiliated mutual funds, are based on quoted market prices. Mortgage loans on real estate and policy loans: The fair values for mortgage loans on real estate are estimated utilizing discounted cash flow analyses, using interest rates reflective of current market conditions and the risk characteristics of the loans. The fair value of policy loans is assumed to equal their carrying amount. Interest rate caps and swaps: Estimated fair value of interest rate caps are based upon the latest quoted market price. Estimated fair value of swaps, including interest rate and currency swaps, are based upon the pricing differential for similar swap agreements. The related carrying value of these items is included with other invested assets. Separate Account Assets: The fair value of separate account assets are based on quoted market prices. Investment contracts: Fair values for the Company's liabilities under investment-type insurance contracts, which include guaranteed interest contracts and funding agreements, are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Net short-term receivable from/notes payable to affiliates: The fair values for short-term notes receivable from/payable to affiliates are assumed to equal their carrying amount. Separate account annuity liabilities: Separate account annuity liabilities approximate the market value of the separate account assets less a provision for the present value of future profits related to the underlying contracts. 20 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 4. Fair Values of Financial Instruments (continued) Fair values for the Company's insurance contracts other than investment contracts (including separate account universal life liabilities) are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. The following sets forth a comparison of the fair values and carrying amounts of the Company's financial instruments subject to the provisions of SFAS No. 107 and No. 133:
December 31 2001 2000 ------------------------------- ----------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------------------------------- ----------------------------- Admitted assets Cash and short-term investments $ 193,296 $ 193,296 $ 98,224 $ 98,224 Bonds 12,891,333 12,936,983 7,009,825 7,014,991 Preferred stocks 51,786 49,549 19,987 18,214 Common stocks 93,367 93,367 84,736 84,736 Mutual funds sponsored by affiliated entities 1,018 1,018 3,781 3,781 Mortgage loans on real estate 2,063,388 2,117,378 1,585,896 1,628,936 Policy loans 59,034 59,034 57,571 57,571 Net short-term notes receivable from affiliates 140,000 140,000 - - Interest rate caps 1,406 3 3,224 49 Swaps (29,268) (140,307) 3,875 (14,777) Separate account assets 5,304,781 5,304,781 4,519,029 4,519,029 Liabilities Investment contract liabilities 12,176,072 12,109,052 5,937,734 5,848,592 Separate account annuity liabilities 4,172,376 4,102,548 4,070,462 3,986,122 Net short-term notes payable to affiliates - - 6,200 6,200
21 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments The carrying amounts and estimated fair values of investments in bonds and preferred stocks were as follows:
Gross Gross Estimated Carrying Unrealized Unrealized Fair Amount Gains Losses Value ------------------------------------------------------------- December 31, 2001 Bonds: United States Government and agencies $ 116,098 $ 1,806 $ 889 $ 117,015 State, municipal, and other government 245,626 13,251 16,610 242,267 Public utilities 922,762 20,165 12,901 930,026 Industrial and miscellaneous 5,598,744 123,985 94,570 5,628,159 Mortgage and other asset-backed securities 6,008,103 61,403 49,990 6,019,516 ------------------------------------------------------------- 12,891,333 220,610 174,960 12,936,983 Preferred stocks 51,786 254 2,491 49,549 Affiliated preferred stocks 761 - - 761 ------------------------------------------------------------- $12,943,880 $220,864 $177,451 $12,987,293 ============================================================= December 31, 2000 Bonds: United States Government and agencies $ 88,108 $ 1,121 $ 1,044 $ 88,185 State, municipal, and other government 239,700 8,954 9,465 239,189 Public utilities 573,870 9,149 4,213 578,806 Industrial and miscellaneous 2,945,326 63,181 73,026 2,935,481 Mortgage and other asset-backed securities 3,162,821 43,092 32,583 3,173,330 -------------------------------------------------------------- 7,009,825 125,497 120,331 7,014,991 Preferred stocks 19,987 14 1,787 18,214 -------------------------------------------------------------- $ 7,029,812 $125,511 $122,118 $ 7,033,205 ==============================================================
22 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments (continued) The carrying amounts and estimated fair values of bonds at December 31, 2001, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Carrying Estimated Amount Fair Value ----------------------------- Due in one year or less $ 331,362 $ 333,479 Due after one year through five years 2,231,644 2,267,763 Due after five years through ten years 2,578,710 2,583,662 Due after ten years 1,741,514 1,732,563 ----------------------------- 6,883,230 6,917,467 Mortgage and other asset-backed securities 6,008,103 6,019,516 ----------------------------- $12,891,333 $12,936,983 ============================= A detail of net investment income is presented below: Year Ended December 31 2001 2000 1999 ----------------------------------- Interest on bonds and preferred stock $684,756 $421,931 $347,639 Dividends on equity investments 1,362 644 734 Interest on mortgage loans 147,811 111,356 92,325 Rental income on real estate 8,289 8,070 7,322 Interest on policy loans 4,269 4,248 4,141 Other investment income 16,058 4,549 7,978 ----------------------------------- Gross investment income 862,545 550,798 460,139 Less investment expenses 36,592 23,485 22,590 ----------------------------------- Net investment income $825,953 $527,313 $437,549 =================================== 23 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments (continued) Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows: Year Ended December 31 2001 2000 1999 ----------------------------------------- Proceeds $7,556,980 $4,817,508 $3,283,038 ========================================= Gross realized gains $ 82,314 $ 24,440 $ 21,171 Gross realized losses (123,094) (55,422) (32,259) ----------------------------------------- Net realized losses $ (40,780) $ (30,982) $ (11,088) ========================================= Gross realized losses for the year ended December 31, 2001 include $86,275 which relates to losses recognized on other than temporary declines in market value of debt securities. At December 31, 2001, investments with an aggregate carrying value of $57,725 were on deposit with regulatory authorities or were restrictively held in bank custodial accounts for the benefit of such regulatory authorities as required by statute. Realized investment gains (losses) and changes in unrealized gains/losses on investments are summarized below:
Realized ------------------------------------------ Year Ended December 31 2001 2000 1999 ------------------------------------------ Bonds $ (40,780) $(30,982) $(11,088) Equity securities 6,266 5,551 11,433 Mortgage loans on real estate - 2,659 4,661 Real estate 399 220 900 Short-term investments 661 9 (1,407) Other invested assets (40,788) (7,690) 534 ------------------------------------------ (74,242) (30,233) 5,033 Tax effect (8,658) 5,199 (5,535) Transfer from (to) interest maintenance reserve (24,376) 15,560 6,867 ------------------------------------------ Net realized gains (losses) $(107,276) $ (9,474) $ 6,365 ==========================================
24 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments (continued) Change in Unrealized ------------------------------------- Year Ended December 31 2001 2000 1999 ------------------------------------- Bonds $ 15,112 $(20,789) $(12,711) Preferred stocks 3,437 4,462 (2,753) Common stocks (7,270) (249) (4,873) Affiliated entities (15,246) (3,506) 893 Mortgage loans on real estate (834) 296 (147) Other invested assets 712 183 (626) Real estate - (181) - Derivative instruments (6,611) - - ------------------------------------- Change in unrealized gains/losses $(10,700) $(19,784) $(20,217) ===================================== Gross unrealized gains and gross unrealized losses on common stocks are as follows: December 31 2001 2000 --------------------- Unrealized gains $ 4,025 $11,387 Unrealized losses (1,700) (1,792) --------------------- Net unrealized gains $(2,325) $ 9,595 ===================== During 2001, the Company issued mortgage loans with interest rates ranging from 4.6% to 11.25%. The maximum percentage of any one mortgage loan to the value of the underlying real estate at origination was 87%. Mortgage loans with a carrying value of $245 were non-income producing for the previous 180 days. Accrued interest of $160 related to these mortgage loans was excluded from investment income at December 31, 2001. The Company requires all mortgaged properties to carry fire insurance equal to the value of the underlying property. 25 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments (continued) At December 31, 2001 and 2000, the Company held a mortgage loan loss reserve in the asset valuation reserve of $18,991 and $18,139, respectively. The mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:
Geographic Distribution Property-Type Distribution --------------------------------------------------- ---------------------------------------------------- December 31 December 31 2001 2000 2001 2000 ---------------------- ---------------------- South Atlantic 30% 26% Office 42% 40% Pacific 28 22 Retail 19 24 E. North Central 14 14 Industrial 18 21 Middle Atlantic 9 12 Apartment 16 10 Mountain 8 11 Other 5 5 W. South Central 4 6 W. North Central 3 4 New England 3 3 E. South Central 1 2
The Company utilizes a variety of off-balance sheet financial instruments as part of its efforts to hedge and manage fluctuations in the market value of its investment portfolio attributable to changes in general interest rate levels and to manage duration mismatch of assets and liabilities. These instruments include interest rate swaps and caps. All involve elements of credit and market risks in excess of the amounts recognized in the accompanying financial statements at a given point in time. The contract or notional amounts of those instruments reflect the extent of involvement in the various types of financial instruments. Interest rate swaps are the primary derivative financial instruments used in the overall asset/liability management process. Interest rate swaps are used to modify the interest rate characteristics of the underlying asset or liability. These interest rate swaps generally provide for the exchange of the difference between fixed and floating-rate interest amounts based upon an underlying notional amount. Generally, no cash is exchanged at the outset of the swap contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. 26 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments (continued) The Company owns interest rate caps to hedge against a rising interest rate environment. The cash flows from the interest rate caps will help offset losses that might occur from disintermediation resulting from a rise in interest rates. The caps are designed to hedge against a sharp rise in interest rates and in certain situations, the caps will provide cash flow to offset the lower spread anticipated on in force liabilities during such an environment. A lower spread on in force business is anticipated due to increases in crediting rates (intended to prevent lapses), before the yield on existing assets rises by a commensurate amount. The counterparties are required to provide quarterly financial statements for the Company's review. The market value of the contracts are monitored on a timely basis and the credit exposure is measured by the fair value (market value) of the contract at the reporting date. The Company may issue foreign denominated assets or liabilities. Cross currency swaps are utilized to convert the asset or liability to a U.S. dollar denominated security. A cash payment is often exchanged at the outset of the swap contract that represents the present value of cash flows of the instrument. This may result because the derivative is being purchased between coupon periods or the rates in the swap are not at market. A single net payment is exchanged each due date as well as at the end of the contract. Each asset or liability is hedged individually and terms of the swap must meet the terms of the underlying instrument. These swaps meet hedge accounting rules and are carried at book value. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in the IMR or AVR if the underlying instrument receives that treatment. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The Company's exposure to credit risk is the risk of loss from a counterparty failing to perform according to the terms of the contract. This exposure includes settlement risk (risk that the counterparty defaults after the Company has delivered funds or securities under the terms of the contract) which results in an accounting loss and replacement cost risk (cost to replace the contract at current market rates should the counterparty default prior to the settlement date). There is no off-balance sheet exposure to credit risk that would result in an immediate accounting loss (settlement risk) associated with counterparty nonperformance on interest rate swap agreements. Interest rate swap agreements are subject to replacement cost risk, which equals the cost to replace those contracts in a net gain position should a counterparty default. These instruments are subject to market risk, which is the possibility that future changes in market prices may make the instruments less valuable. 27 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 5. Investments (continued) At December 31, 2001 and 2000, the Company's outstanding financial instruments with on and off-balance sheet risks, shown in notional amounts, are summarized as follows:
Notional Amount -------------------------- 2001 2000 -------------------------- Derivative securities: Interest rate and currency swaps: Receive fixed - pay floating $2,235,687 $451,770 Receive floating - pay fixed 2,283,912 596,388 Receive floating (uncapped) - pay floating (capped) 1,808,116 32,593 Receive floating (LIBOR) - pay floating (S&P) 45,000 345,000 Interest rate cap agreements 541,172 518,515
6. Reinsurance Certain premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The Company reinsures portions of risk on certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligation under the reinsurance treaty. Reinsurance assumption and cession treaties are transacted primarily with affiliates. Premiums earned reflect the following reinsurance assumed and ceded amounts:
Year Ended December 31 2001 2000 1999 ---------------------------------------------- Direct premiums $4,855,609 $3,205,023 $1,942,716 Reinsurance assumed 261,194 1,177,833 2,723 Reinsurance ceded (292,628) (124,905) (144,310) ---------------------------------------------- Net premiums earned $4,824,175 $4,257,951 $1,801,129 ==============================================
28 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 6. Reinsurance (continued) The Company received reinsurance recoveries in the amount of $135,889, $123,039, and $139,138 during 2001, 2000, and 1999, respectively. At December 31, 2001 and 2000, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $5,419 and $28,080, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2001 and 2000 of $1,447,904 and $1,564,867, respectively. At December 31, 2001, amounts recoverable from unauthorized reinsurers of $5,747 (2000 - $30,948) and reserve credits for reinsurance ceded of $115,987 (2000 - $85,163) were associated with a single reinsurer and its affiliates. The Company holds collateral under these reinsurance agreements in the form of trust agreements totaling $55,561 at December 31, 2001, that can be drawn on for amounts that remain unpaid for more than 120 days. During 2001, the Company entered into a reinsurance transaction with Transamerica International Re (Bermuda) Ltd., an affiliate of the Company. Under the terms of this transaction, the Company ceded the obligation of future guaranteed minimum death benefits included in certain of its variable annuity contracts. The difference between the initial premiums ceded of $13,402 and the reserve credit taken of $64,235 was credited directly to unassigned surplus on a net of tax basis. The Company holds collateral in the form of letters of credit of $70,000. Additionally, the Company entered into a reinsurance transaction with an unaffiliated company to cede certain annuity benefits on an inforce group of contracts. The effect of this transaction was also credited directly to surplus on a net of tax basis. 29 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 7. Income Taxes The components of the net deferred tax asset at January 1, 2001, the date of adoption of the revised NAIC Accounting Practices and Procedures Manual, and December 31, 2001 are as follows:
December 31, January 1, 2001 2001 ---------------------------------- Deferred income tax components: Gross deferred income tax assets $ 215,142 $ 134,020 Gross deferred income tax liabilities 31,768 15,486 Deferred income tax assets nonadmitted 149,413 99,410 ---------------------------------- Net admitted deferred income tax asset $ 33,961 $ 19,124 ==================================
The main deferred income tax amounts, as well as the net change for the year ended December 31, 2001, are as follow: December 31, January 1, Net 2001 2001 Change ------------------------------------------------------- Deferred income tax assets: Guaranty funds $ 6,362 $ 7,066 $ (704) Non-admitted assets 1,711 1,276 435 Pension expenses 1,768 1,536 232 Deferred acquisition costs 105,210 82,650 22,560 Reserves 32,767 30,056 2,711 Unrealized capital losses 61,483 7,309 54,174 Other 5,841 4,127 1,714 ------------------------------------------------------- Total deferred income tax assets 215,142 134,020 81,122 Deferred income tax assets - nonadmitted 149,413 99,410 50,003 Deferred income tax liabilities: Partnerships 1,335 2,240 (905) Real estate 1,222 2,028 (806) Unrealized capital gains 29,184 7,281 21,903 Other 27 3,937 (3,910) ------------------------------------------------------- Total deferred income tax liabilities $ 31,768 $ 15,486 $ 16,282 =======================================================
30 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 7. Income Taxes (continued) Federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to gain from operations before federal income tax expense and net realized capital gains/losses on investments for the following reasons:
December 31 2001 2000 1999 ---------------------------------------- Income tax computed at federal statutory rate (35%) $ 6,515 $39,049 $27,832 Deferred acquisition costs - tax basis 22,560 24,629 5,979 Depreciation 104 (207) (219) Dividends received deduction (2,228) (1,802) (1,666) IMR amortization (1,226) (1,353) (2,656) Investment income items (4,937) (3,866) (977) Low income housing credits (5,725) (4,328) - Prior year over accrual (918) (3,947) (3,492) Reinsurance transactions 13,051 - - Tax reserve adjustment 2,705 2,569 1,390 Other (1,752) 507 (875) ---------------------------------------- Federal income tax expense $ 28,149 $51,251 $25,316 ========================================
For federal income tax purposes, the Company joins in a consolidated income tax return filing with its parent and other affiliated companies. Under the terms of a tax sharing agreement between the Company and its affiliates, the Company computes federal income tax expense as if it were filing a separate income tax return, except that tax credits and net operating loss carryforwards are determined in the basis of the consolidated group. Additionally, the alternative minimum tax is computed for the consolidated group and the resulting tax, if any, is allocated back to the separate companies on the basis of the separate companies' alternative minimum taxable income. The Company's federal income tax returns have been examined by the Internal Revenue Service and the statute is closed through 1995. An examination is underway for 1996 and 1997. 31 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 7. Income Taxes (continued) Prior to 1984, as provided for under the Life insurance Company Tax Act of 1959, a portion of statutory income was not subject to current taxation but was accumulated for income tax purposes in a memorandum account referred to as the "policyholders' surplus account" (PSA). No federal income taxes have been provided for in the financial statements for income deferred in the PSA ($20,387 at December 31, 2001). To the extent that dividends are paid from the amount accumulated in the PSA, net earnings would be reduced by the amount of tax required to be paid. Should the entire amount in the PSA account become taxable, the tax thereon computed at the current rates would amount to approximately $7,135. 8. Policy and Contract Attributes A portion of the Company's policy reserves and other policyholders' funds (including separate account liabilities) relate to liabilities established on a variety of the Company's annuity and deposit-type products. There may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics, are summarized as follows:
December 31 2001 2000 ----------------------------- ----------------------------- Percent Percent Amount of Total Amount of Total ----------------------------- ----------------------------- Subject to discretionary withdrawal with market value adjustment $ 567,505 3% $ 221,151 2% Subject to discretionary withdrawal at book value less surrender charge 4,359,812 25 1,635,769 14 Subject to discretionary withdrawal at market value 3,869,101 22 4,006,227 34 Subject to discretionary withdrawal at book value (minimal or no charges or adjustments) 3,845,030 22 4,279,843 37 Not subject to discretionary withdrawal provision 5,061,818 28 1,453,732 13 ----------------------------- ----------------------------- 17,703,266 100% 11,596,722 100% ============= ============ Less reinsurance ceded 1,411,628 1,504,445 --------------- --------------- Total policy reserves on annuities and deposit-type liabilities $16,291,638 $ 10,092,277 =============== ===============
32 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 8. Policy and Contract Attributes (continued) Separate account assets held by the Company represent contracts where the benefit is determined by the performance of the investments held in the separate account. Information regarding the separate accounts of the Company as of and for the years ended December 31, 2001, 2000, and 1999 is as follows:
Guaranteed Nonguaranteed Separate Separate Account Account Total ------------------------------------------------ Premiums, deposits, and other considerations for the year ended December 31, 2001 $ 59,498 $ 1,221,739 $ 1,281,237 ================================================ Reserves for separate accounts with assets at: Fair value $ - $ 4,574,436 $ 4,574,436 Amortized cost 175,950 - 175,950 ------------------------------------------------ Total $ 175,950 $ 4,574,436 $ 4,750,386 ================================================ Premiums, deposits, and other considerations for the year ended December 31, 2000 $ 100,000 $ 743,550 $ 843,550 ================================================ Reserves for separate accounts with assets at: Fair value $ - $ 4,273,977 $ 4,273,977 Amortized cost 106,754 - 106,754 ------------------------------------------------ Total $ 106,754 $ 4,273,977 $ 4,380,731 ================================================ Premiums, deposits, and other considerations for the year ended December 31, 1999 $ - $ 486,282 $ 486,282 ================================================ Reserves for separate accounts with assets at: Fair value $ - $ 4,377,676 $ 4,377,676 Amortized cost - - - ------------------------------------------------ Total $ - $ 4,377,676 $ 4,377,676 ================================================
33 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 8. Policy and Contract Attributes (continued) A reconciliation of the amounts transferred to and from the separate accounts is presented below:
Year Ended December 31 2001 2000 1999 ---------------------------------------------- Transfers as reported in the summary of operations of the separate accounts statement: Transfers to separate accounts $ 1,281,237 $ 843,530 $ 486,282 Transfers from separate accounts (456,777) (325,645) (175,822) ---------------------------------------------- Net transfers to separate accounts 824,460 517,885 310,460 Miscellaneous reconciling adjustments (838) (2,560) (1,153) ---------------------------------------------- Transfers as reported in the summary of operations of the life, accident and health annual statement $ 823,622 $ 515,325 $ 309,307 ==============================================
At December 31, 2001, the Company had separate account annuities with guaranteed living benefits as follows:
Subjected Account Amount of Reinsurance Benefit and Type of Risk Value Reserve Held Reserve Credit -------------------------------------------------------------------------------------------------------- Guaranteed minimum income benefit: Guaranteed premium $ 1,262,820 $ 3,436 $ - Accumulation fund 9,157 151 -
Reserves on the Company's traditional life products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policy's paid-through date to the policy's next anniversary date. At December 31, 2001 and 2000, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loading, are as follows: 34 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 8. Policy and Contract Attributes (continued)
Gross Loading Net -------------------------------------------- December 31, 2001 Life and annuity: Ordinary direct first year business $ 2,646 $ 1,788 $ 858 Ordinary direct renewal business 18,679 5,914 12,765 Group life direct business 245 116 129 -------------------------------------------- 21,570 7,818 13,752 Accident and health: Direct 108 - 108 -------------------------------------------- Total accident and health 108 - 108 -------------------------------------------- $ 21,678 $ 7,818 $ 13,860 ============================================ December 31, 2000 Life and annuity: Ordinary direct first year business $ 2,763 $ 1,854 $ 909 Ordinary direct renewal business 20,180 6,063 14,117 Group life direct business 319 152 167 Reinsurance ceded (1,088) - (1,088) -------------------------------------------- 22,174 8,069 14,105 Accident and health: Direct 151 - 151 Reinsurance ceded (21) - (21) -------------------------------------------- Total accident and health 130 - 130 -------------------------------------------- $ 22,304 $ 8,069 $ 14,235 ============================================
At December 31, 2001 and 2000, the Company had insurance in force aggregating $65,715 and $48,824, respectively, in which the gross premiums are less than the net premiums required by the valuation standards established by the Insurance Division, Department of Commerce, of the State of Iowa. The Company established policy reserves of $2,139 and $1,227 to cover these deficiencies at December 31, 2001 and 2000, respectively. 35 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 9. Dividend Restrictions The Company is subject to limitations, imposed by the State of Iowa, on the payment of dividends to its parent company. Generally, dividends during any twelve-month period may not be paid, without prior regulatory approval, in excess of the greater of (a) 10 percent of statutory capital and surplus as of the preceding December 31, or (b) statutory gain from operations before net realized capital gains (losses) on investments for the preceding year. Subject to the availability of unassigned surplus at the time of such dividend, the maximum payment which may be made in 2002, without the prior approval of insurance regulatory authorities, is $74,658. The Company paid dividends to its parent of $3,000, $-0-, and $40,000 in 2001, 2000, and 1999, respectively. Life/health insurance companies are subject to certain Risk-Based Capital (RBC) requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life/health insurance company is to be determined based on the various risk factors related to it. At December 2001, the Company meets the RBC requirements. 10. Retirement and Compensation Plans The Company's employees participate in a qualified defined benefit pension plan sponsored by AEGON. The Company has no legal obligation for the plan. The Company recognizes pension expense equal to its allocation from AEGON. The pension expense is allocated among the participating companies based on expense in accordance with SFAS No. 87 as a percent of salaries. The benefits are based on years of service and the employee's compensation during the highest five consecutive years of employment. Pension expense aggregated $665, $457, and $408 for the years ended December 31, 2001, 2000, and 1999, respectively. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. The Company's employees also participate in a contributory defined contribution plan sponsored by AEGON which is qualified under Section 401(k) of the Internal Revenue Service Code. Employees of the Company who customarily work at least 1,000 hours during each calendar year and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to fifteen percent of their salary to the 36 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 10. Retirement and Compensation Plans (continued) plan. The Company will match an amount up to three percent of the participant's salary. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. Expense related to this plan was $314, $310, and $267 for the years ended December 31, 2001, 2000, and 1999, respectively. AEGON sponsors supplemental retirement plans to provide the Company's senior management with benefits in excess of normal pension benefits. The plans are noncontributory, and benefits are based on years of service and the employee's compensation level. The plans are unfunded and nonqualified under the Internal Revenue Service Code. In addition, AEGON has established incentive deferred compensation plans for certain key employees of the Company. The Company's allocation of expense for these plans for each of the years ended December 31, 2001, 2000, and 1999 was negligible. AEGON also sponsors an employee stock option plan for individuals employed at least three years and a stock purchase plan for its producers, with the participating affiliated companies establishing their own eligibility criteria, producer contribution limits and company matching formula. These plans have been accrued or funded as deemed appropriate by management of AEGON and the Company. In addition to pension benefits, the Company participates in plans sponsored by AEGON that provide postretirement medical, dental and life insurance benefits to employees meeting certain eligibility requirements. Portions of the medical and dental plans are contributory. The expenses of the postretirement plans are charged to affiliates in accordance with an intercompany cost sharing arrangement. The Company expensed $94, $41, and $28 for the years ended December 31, 2001, 2000, and 1999, respectively. 11. Related Party Transactions The Company shares certain offices, employees and general expenses with affiliated companies. The Company receives data processing, investment advisory and management, marketing and administration services from certain affiliates. During 2001, 2000, and 1999, the Company paid $33,505, $21,115, and $19,983, respectively, for these services, which approximates their costs to the affiliates. 37 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 11. Related Party Transactions (continued) Payables to affiliates bear interest at the thirty-day commercial paper rate of 1.76% at December 31, 2001. During 2001, 2000, and 1999, the Company paid net interest of $1,966, $1,234, and $1,994, respectively, to affiliates. During 2001 and 2000, the Company received capital contributions of $280,000 and $100,000, respectively, in cash from its parent. At December 31, 2001, the Company has net short-term notes receivable from an affiliate of $140,000 At December 31, 2000, the Company had net short-term notes payable of $6,200, which consists of short-term notes receivable from affiliates of $99,800 and short-term notes payable to affiliates of $106,000. Interest on these notes accrues based on the 30-day commercial paper rate at the time of issuance. During 1998, the Company issued life insurance policies to certain affiliated companies, covering the lives of certain employees of those affiliates. Aggregate reserves for policies and contracts related to these policies are $209,491 and $199,491 at December 31, 2001 and 2000, respectively. 12. Commitments and Contingencies The Company has issued Trust (synthetic) GIC contracts to plan sponsors totaling $607,317 and $311,477 at December 31, 2001 and 2000, respectively, pursuant to terms under which the plan sponsor retains ownership of the assets related to these contracts. The Company guarantees to provide benefit responsiveness in the event that plan benefit requests and other contractual commitments exceed plan cash flows. The plan sponsor agrees to reimburse the Company for such benefit payments with interest, either at a fixed or floating rate, from future plan and asset cash flows. In return for this guarantee, the Company receives a premium which varies based on such elements as benefit responsive exposure and contract size. The Company underwrites the plans for the possibility of having to make benefit payments and also must agree to the investment guidelines to ensure appropriate credit quality and cash flow matching. Funding requirements to date have been minimal and management does not anticipate any future material funding requirements that would have a material effect on reported financial results. The assets relating to such contracts are not recognized in the Company's statutory-basis financial statements. A contract reserve has been established for the possibility of unexpected benefit payments at below market interest rates. 38 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Notes to Financial Statements - Statutory Basis (continued) (Dollars in Thousands, Except per Share Amounts) 12. Commitments and Contingencies (continued) The Company may pledge assets as collateral for transactions involving funding agreements and reverse repurchase agreements. At December 31, 2001, the Company has pledged invested assets with a carrying value and market value of $1,129,930 and $1,129,478, respectively, in conjunction with these transactions. The Company may lend securities to approved broker and other parties to earn additional income. The Company receives collateral against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of loaned securities is determined at the close of business and any additional required collateral is delivered to the Company on the next business day. Although risk is mitigated by collateral, the account could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. At December 31, 2001 and 2000, the value of securities loaned amounted to $496,277 and $148,927, respectively. The Company has contingent commitments for $180,025 at December 31, 2001 for joint ventures, partnerships, and limited liability companies. The Company is a party to legal proceedings incidental to its business. Although such litigation sometimes includes substantial demands for compensatory and punitive damages, in addition to contract liability, it is management's opinion that damages arising from such demands will not be material to the Company's financial position. The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law; amounts available for future offsets are recorded as an asset on the Company's balance sheet. Potential future obligations for unknown insolvencies are not determinable by the Company and are not required to be accrued for financial reporting purposes. The future obligation has been based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Associations. The Company has established a reserve of $18,200 and $20,188 and an offsetting premium tax benefit of $7,316 and $7,429 at December 31, 2001 and 2000, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (benefit) was $(1,943), $1,134, and $1,994 for the years ended December 31, 2001, 2000, and 1999, respectively. 39 Statutory-Basis Financial Statement Schedules Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Summary of Investments - Other Than Investments in Related Parties (Dollars in Thousands) December 31, 2001 SCHEDULE I
Amount at Which Shown in the Market Balance Type of Investment Cost (1) Value Sheet ----------------------------------------------------------------------------------------------------------- Fixed maturities Bonds: United States Government and government agencies and authorities $ 135,982 $ 137,221 $ 135,982 States, municipalities and political subdivisions 1,230,794 1,226,251 1,230,794 Foreign governments 124,811 130,189 124,811 Public utilities 922,762 930,026 922,762 All other corporate bonds 10,476,984 10,513,296 10,476,984 Redeemable preferred stocks 51,786 49,549 51,786 ---------------------------------------------- Total fixed maturities 12,943,119 12,986,532 12,943,119 Equity securities Common stocks: Public utilities 541 590 590 Banks, trust and insurance 47,605 47,987 47,987 Industrial, miscellaneous and all other 42,896 44,790 44,790 ---------------------------------------------- Total equity securities 91,042 93,367 93,367 Mortgage loans on real estate 2,063,388 - 2,063,388 Real estate 22,456 - 22,456 Real estate held for the production of income 30,034 - 30,034 Policy loans 59,034 - 59,034 Other long-term investments 413,500 - 413,500 Cash and short-term investments 193,296 - 193,296 ---------------------------------------------- Total investments $15,815,869 $ - $15,818,194 ==============================================
(1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts. 40 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Supplementary Insurance Information (Dollars in Thousands) SCHEDULE III
Benefits, Claims Future Policy Policy and Net Losses and Benefits and Unearned Contract Premium Investment Settlement Expenses Premiums Liabilities Revenue Income* Expenses ---------------------------------------------------------------------------------------- Year ended December 31, 2001 Individual life $ 2,249,755 $ - $13,452 $ 553,951 $146,877 $ 211,100 Individual health 241,856 10,971 11,019 97,541 21,406 90,991 Group life and health 125,564 7,387 17,292 53,778 12,054 61,171 Annuity 7,402,612 - - 4,118,905 645,616 4,265,462 ---------------------------------------------------------------------------------------- $ 10,019,787 $ 18,358 $41,763 $4,824,175 $825,953 $4,628,724 ======================================================================================== Year ended December 31, 2000 Individual life $ 2,107,973 $ - $ 9,993 $ 881,652 $132,477 $ 649,924 Individual health 179,488 10,825 11,585 88,222 14,132 71,399 Group life and health 109,570 7,014 20,816 64,956 11,008 45,383 Annuity 4,577,664 - - 3,223,121 369,696 3,203,819 ---------------------------------------------------------------------------------------- $ 6,974,695 $ 17,839 $42,394 $4,257,951 $527,313 $3,970,525 ======================================================================================== Year ended December 31, 1999 Individual life $ 1,550,188 $ - $ 8,607 $ 226,456 $104,029 $ 274,730 Individual health 133,214 10,311 10,452 77,985 10,036 58,649 Group life and health 105,035 8,604 27,088 83,639 10,422 61,143 Annuity 4,036,751 - - 1,413,049 313,062 1,303,537 ---------------------------------------------------------------------------------------- $ 5,825,188 $ 18,915 $46,147 $1,801,129 $437,549 $1,698,059 ======================================================================================== Other Operating Premiums Expenses* Written ------------------------------- Year ended December 31, 2001 Individual life $ 658,786 - Individual health 40,757 $ 97,144 Group life and health 24,416 52,600 Annuity 503,481 - ------------- $ 1,227,440 ============= Year ended December 31, 2000 Individual life $ 476,394 - Individual health 39,427 $ 88,000 Group life and health 33,422 63,474 Annuity 247,718 - ------------- $ 796,961 ============= Year ended December 31, 1999 Individual life $ 141,030 - Individual health 35,329 $ 77,716 Group life and health 38,075 81,918 Annuity 328,821 - ------------- $ 543,255 =============
*Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates, and the results would change if different methods were applied. 41 Transamerica Life Insurance Company (Formerly PFL Life Insurance Company) Reinsurance (Dollars in Thousands) SCHEDULE IV
Percentage of Assumed From Amount Ceded to Other Other Net Assumed Gross Amount Companies Companies Amount to Net ------------------------------------------------------------------------------ Year ended December 31, 2001 Life insurance in force $ 12,213,483 $ 1,679,015 $ 100,311 $10,634,779 0.9% ============================================================================= Premiums: Individual life $ 547,754 $ (2,497) $ 3,700 $ 553,951 0.7% Individual health 98,925 2,167 783 97,541 0.8 Group life and health 127,085 85,018 11,711 53,778 21.8 Annuity 4,081,845 207,940 245,000 4,118,905 5.9 ----------------------------------------------------------------------------- $ 4,855,609 $ 292,628 $ 261,194 $ 4,824,175 5.4% ============================================================================= Year ended December 31, 2000 Life insurance in force $ 9,477,758 $ 1,088,937 $ 70,808 $ 8,459,629 0.8% ============================================================================= Premiums: Individual life $ 882,584 $ 4,575 $ 3,361 $ 881,370 0.4% Individual health 92,426 4,204 - 88,222 - Group life and health 173,505 108,550 - 64,955 - Annuity 2,056,508 7,576 1,174,472 3,223,404 36.4 ----------------------------------------------------------------------------- $ 3,205,023 $ 124,905 $ 1,177,833 $ 4,257,951 27.7% ============================================================================= Year ended December 31, 1999 Life insurance in force $ 6,538,901 $ (500,192) $ 415,910 $ 7,455,003 6.4% ============================================================================= Premiums: Individual life $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2% Individual health 83,489 5,504 - 77,985 - Group life and health 205,752 122,113 - 83,639 - Annuity 1,426,112 12,726 - 1,413,386 - ----------------------------------------------------------------------------- $ 1,942,716 $ 144,310 $ 2,723 $ 1,801,129 0.2% =============================================================================
42 Financial Statements Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Period From August 15, 2001 (Commencement of Operations) Through December 31, 2001 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Financial Statements Period From August 15, 2001 (Commencement of Operations) Through December 31, 2001 Contents Report of Independent Auditors.................................................1 Financial Statements Statements of Assets and Liabilities...........................................3 Statements of Operations......................................................15 Statements of Changes in Net Assets...........................................21 Notes to Financial Statements.................................................27 Report of Independent Auditors The Board of Directors and Contractholders of Premier Asset Builder Variable Annuity from Transamerica Life Insurance Company We have audited the accompanying statements of assets and liabilities of Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity (comprised of the BlackRock Large Cap Value, BlackRock Mid Cap Growth, BlackRock Global Science & Technology, AIM V.I. Balanced, AIM V.I. Value, AIM V.I. Dent Demographic Trends, Federated International Small Company Fund II, Federated Prime Money Fund II, Federated Quality Bond Fund II, Federated Small Cap Strategies Fund II, MFS Emerging Growth Series, MFS Investors Growth Stock Series, MFS Utilities Series, Oppenheimer Global Securities Fund/VA, Oppenheimer Main Street Growth & Income Fund/VA, Oppenheimer Main Street Small Cap Fund/VA, Putnam VT Growth and Income, Putnam VT International Growth, Putnam VT Investors, Fidelity - VIP Growth, Fidelity - VIP High Income, and Fidelity - VIP II Index 500 subaccounts), which are available for investment by contract owners of Distinct Assets from Transamerica, as of December 31, 2001, and the related statements of operations and changes in net assets for the periods indicated thereon. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of mutual fund shares owned as of December 31, 2001, by correspondence with the mutual fund's transfer agent. 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. 1 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the respective subaccounts comprising Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity, which are available for investment by contract owners of the Distinct Assets from Transamerica at December 31, 2001, and the results of their operations and changes in their net assets for the periods indicated thereon in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Des Moines, Iowa February 1, 2002 2 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Assets and Liabilities December 31, 2001
BlackRock BlackRock Large Cap Mid Cap Value Growth Subaccount Subaccount ----------------------- Assets Investments in mutual funds, at current market value: AEGON/Transamerica Series Fund, Inc.: BlackRock Large Cap Value $1,009,516 $ -- BlackRock Mid Cap Growth -- 1,055,856 BlackRock Global Science & Technology -- -- AIM Variable Insurance Funds: AIM V.I. Balanced Fund -- -- AIM V.I. Value Fund -- -- AIM V.I. Dent Demographic Trends Fund -- -- Federated Insurance Series: Federated International Small Company Fund II -- -- Federated Prime Money Fund II -- -- Federated Quality Bond Fund II -- -- Federated Small Cap Strategies Fund II -- -- MFS Variable Insurance Trust - Service Shares: MFS Emerging Growth Series -- -- MFS Investors Growth Stock Series -- -- MFS Utilities Series -- -- Oppenheimer Variable Account Funds - Service Shares: Oppenheimer Global Securities Fund/VA -- -- Oppenheimer Main Street Growth & Income Fund/VA -- -- Oppenheimer Main Street Small Cap Fund/VA -- -- Putnam Variable Trust - IB Shares: Putnam VT Growth and Income Fund -- -- Putnam VT International Growth Fund -- -- Putnam VT Investors Fund -- -- Variable Insurance Products Fund (VIP) - Service Class 2: Fidelity - VIP Growth Portfolio -- -- Fidelity - VIP High Income Portfolio -- -- Variable Insurance Products Fund II (VIP II) - Service Class 2: Fidelity - VIP II Index 500 Portfolio -- -- ----------------------- Total investments in mutual funds 1,009,516 1,055,856 ----------------------- Total assets 1,009,516 1,055,856 Liabilities Contract terminations payable 12 19 ----------------------- $1,009,504 $1,055,837 =======================
3 BlackRock AIM V.I. Federated Federated Global Dent International Prime Science & AIM V.I. AIM V.I. Demographic Small Company Money Technology Balanced Value Trends Fund II Fund II Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- 1,047,512 -- -- -- -- -- -- 7,072 -- -- -- -- -- -- 32,649 -- -- -- -- -- -- 5,693 -- -- -- -- -- -- 1,767 -- -- -- -- -- -- 23,082 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------------------------------------------------------------------------- 1,047,512 7,072 32,649 5,693 1,767 23,082 ------------------------------------------------------------------------------- 1,047,512 7,072 32,649 5,693 1,767 23,082 29 -- -- -- -- -- ------------------------------------------------------------------------------- $1,047,483 $7,072 $32,649 $5,693 $1,767 $23,082 =============================================================================== 4 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Assets and Liabilities (continued)
BlackRock BlackRock Large Cap Mid Cap Value Growth Subaccount Subaccount -------------------------------- Net assets: Deferred annuity contracts terminable by owners $ 1,009,504 $ 1,055,837 -------------------------------- Total net assets $ 1,009,504 $ 1,055,837 ================================ Accumulation units outstanding - M&E 1.25% 1,030,436.952 1,025,668.443 ================================ Accumulation unit value - M&E 1.25% $ 0.960536 $ 1.023247 ================================ Accumulation units outstanding - M&E 1.40% 20,554.161 6,184.517 ================================ Accumulation unit value - M&E 1.40% $ 0.960005 $ 1.022677 ================================
See accompanying notes. 5
BlackRock AIM V.I. Federated Federated Global Dent International Prime Science & AIM V.I. AIM V.I. Demographic Small Company Money Technology Balanced Value Trends Fund II Fund II Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------- $ 1,047,483 $ 7,072 $ 32,649 $ 5,693 $ 1,767 $ 23,082 ------------------------------------------------------------------------------------- $ 1,047,483 $ 7,072 $ 32,649 $ 5,693 $ 1,767 $ 23,082 ===================================================================================== 1,004,753.554 1,000.000 19,706.256 4,689.569 1,000.000 18,381.776 ===================================================================================== $ 1.040168 $ 0.990503 $ 0.988307 $ 1.000738 $ 0.883880 $ 1.004520 ===================================================================================== 2,280.812 6,143.123 13,336.421 1,000.000 1,000.000 4,598.645 ===================================================================================== $ 1.039589 $ 0.989951 $ 0.987756 $ 1.000187 $ 0.883392 $ 1.003966 =====================================================================================
6 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Assets and Liabilities (continued)
Federated Federated Small Cap Quality Bond Strategies Fund II Fund II Subaccount Subaccount ------------------------- Assets Investments in mutual funds, at current market value: AEGON/Transamerica Series Fund, Inc.: BlackRock Large Cap Value $ -- $ -- BlackRock Mid Cap Growth -- -- BlackRock Global Science & Technology -- -- AIM Variable Insurance Funds: AIM V.I. Balanced Fund -- -- AIM V.I. Value Fund -- -- AIM V.I. Dent Demographic Trends Fund -- -- Federated Insurance Series: Federated International Small Company Fund II -- -- Federated Prime Money Fund II -- -- Federated Quality Bond Fund II 102,072 -- Federated Small Cap Strategies Fund II -- 6,750 MFS Variable Insurance Trust - Service Shares: MFS Emerging Growth Series -- -- MFS Investors Growth Stock Series -- -- MFS Utilities Series -- -- Oppenheimer Variable Account Funds - Service Shares: Oppenheimer Global Securities Fund/VA -- -- Oppenheimer Main Street Growth & Income Fund/VA -- -- Oppenheimer Main Street Small Cap Fund/VA -- -- Putnam Variable Trust - IB Shares: Putnam VT Growth and Income Fund -- -- Putnam VT International Growth Fund -- -- Putnam VT Investors Fund -- -- Variable Insurance Products Fund (VIP) - Service Class 2: Fidelity - VIP Growth Portfolio -- -- Fidelity - VIP High Income Portfolio -- -- Variable Insurance Products Fund II (VIP II) - Service Class 2: Fidelity - VIP II Index 500 Portfolio -- -- ------------------------- Total investments in mutual funds 102,072 6,750 ------------------------- Total assets 102,072 6,750 Liabilities Contract terminations payable -- -- ------------------------- $102,072 $6,750 =========================
7
Oppenheimer MFS Investors Oppenheimer Main Street Oppenheimer MFS Emerging Growth Global Growth & Main Street Growth Stock MFS Utilities Securities Income Small Cap Series Series Series Fund/VA Fund/VA Fund/VA Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 3,283 -- -- -- -- -- -- 20,822 -- -- -- -- -- -- 46,706 -- -- -- -- -- -- 3,646 -- -- -- -- -- -- 44,969 -- -- -- -- -- -- 9,560 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ----------------------------------------------------------------------------------- 3,283 20,822 46,706 3,646 44,969 9,560 ----------------------------------------------------------------------------------- 3,283 20,822 46,706 3,646 44,969 9,560 -- -- 1 -- 1 1 ----------------------------------------------------------------------------------- $3,283 $20,822 $46,705 $3,646 $44,968 $9,559 ===================================================================================
8 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Assets and Liabilities (continued)
Federated Federated Small Cap Quality Bond Strategies Fund II Fund II Subaccount Subaccount ------------------------- Net assets: Deferred annuity contracts terminable by owners $ 102,072 $ 6,750 ------------------------- Total net assets $ 102,072 $ 6,750 ========================= Accumulation units outstanding - M&E 1.25% 81,965.915 5,694.945 ========================= Accumulation unit value - M&E 1.25% $ 1.005194 $ 1.008277 ========================= Accumulation units outstanding - M&E 1.40% 19,589.405 1,000.00 ========================= Accumulation unit value - M&E 1.40% $ 1.004642 $ 1.007714 =========================
See accompanying notes. 9
Oppenheimer MFS Investors Oppenheimer Main Street Oppenheimer MFS Emerging Growth Global Growth & Main Street Growth Stock MFS Utilities Securities Income Small Cap Series Series Series Fund/VA Fund/VA Fund/VA Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------- $ 3,283 $ 20,822 $ 46,705 $ 3,646 $ 44,968 $ 9,559 ------------------------------------------------------------------------------------- $ 3,283 $ 20,822 $ 46,705 $ 3,646 $ 44,968 $ 9,559 ===================================================================================== 999.000 19,767.570 42,008.279 1,000.000 44,511.024 5,324.606 ===================================================================================== $ 0.999830 $ 1.002633 $ 0.904363 $ 0.993627 $ 0.988069 $ 1.039592 ===================================================================================== 2,285.175 1,000.000 9,640.490 2,670.514 1,000.000 3,872.934 ===================================================================================== $ 0.999278 $ 1.002077 $ 0.903869 $ 0.993076 $ 0.987533 $ 1.039021 =====================================================================================
10 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Assets and Liabilities (continued) Putnam VT Growth and Income Subaccount ---------- Assets Investments in mutual funds, at current market value: AEGON/Transamerica Series Fund, Inc.: BlackRock Large Cap Value $ -- BlackRock Mid Cap Growth -- BlackRock Global Science & Technology -- AIM Variable Insurance Funds: AIM V.I. Balanced Fund -- AIM V.I. Value Fund -- AIM V.I. Dent Demographic Trends Fund -- Federated Insurance Series: Federated International Small Company Fund II -- Federated Prime Money Fund II -- Federated Quality Bond Fund II -- Federated Small Cap Strategies Fund II -- MFS Variable Insurance Trust - Service Shares: MFS Emerging Growth Series -- MFS Investors Growth Stock Series -- MFS Utilities Series -- Oppenheimer Variable Account Funds - Service Shares: Oppenheimer Global Securities Fund/VA -- Oppenheimer Main Street Growth & Income Fund/VA -- Oppenheimer Main Street Small Cap Fund/VA -- Putnam Variable Trust - IB Shares: Putnam VT Growth and Income Fund 26,441 Putnam VT International Growth Fund -- Putnam VT Investors Fund -- Variable Insurance Products Fund (VIP) - Service Class 2: Fidelity - VIP Growth Portfolio -- Fidelity - VIP High Income Portfolio -- Variable Insurance Products Fund II (VIP II) - Service Class 2: Fidelity - VIP II Index 500 Portfolio -- ------- Total investments in mutual funds 26,441 ------- Total assets 26,441 Liabilities Contract terminations payable -- ------- $26,441 ======= 11
Putnam VT International Putnam VT Fidelity - VIP Fidelity - VIP Fidelity - VIP Growth Investors Growth High Income II Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 26,342 -- -- -- -- -- 35,577 -- -- -- -- -- 68,457 -- -- -- -- -- 38,999 -- -- -- -- -- 14,982 ----------------------------------------------------------------------------- 26,342 35,577 68,457 38,999 14,982 ----------------------------------------------------------------------------- 26,342 35,577 68,457 38,999 14,982 -- -- -- -- -- ----------------------------------------------------------------------------- $26,342 $35,577 $68,457 $38,999 $14,982 =============================================================================
12 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Assets and Liabilities (continued) Putnam VT Growth and Income Fund Subaccount ----------- Net assets: Deferred annuity contracts terminable by owners $ 26,441 ----------- Total net assets $ 26,441 =========== Accumulation units outstanding - M&E 1.25% 26,267.075 =========== Accumulation unit value - M&E 1.25% $ 0.969728 =========== Accumulation units outstanding - M&E 1.40% 1,000.000 =========== Accumulation unit value - M&E 1.40% $ 0.969190 =========== See accompanying notes. 13 Putnam VT International Putnam VT Fidelity - VIP Fidelity - VIP Fidelity - VIP Growth Investors Growth High Income II Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------ $ 26,342 $ 35,577 $ 68,457 $ 38,999 $ 14,982 ------------------------------------------------------------------------------ $ 26,342 $ 35,577 $ 68,457 $ 38,999 $ 14,982 ============================================================================== 21,199.063 35,822.966 58,695.153 25,761.284 7,416.396 ============================================================================== $ 0.958155 $ 0.966158 $ 0.992692 $ 0.935091 $ 0.986761 ============================================================================== 6,296.545 1,000.000 10,271.805 15,954.197 7,771.330 ============================================================================== $ 0.957628 $ 0.965620 $ 0.992137 $ 0.934571 $ 0.986215 ============================================================================== 14 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Operations Period August 15, 2001 (Commencement of Operations) Through December 31, 2001
BlackRock BlackRock Large Cap Mid Cap Value Growth Subaccount Subaccount ----------------------- Net investment income (loss) Income: Dividends $ -- $ -- Expenses: Administrative, mortality and expense risk charge 4,355 4,412 ----------------------- Net investment income (loss) (4,355) (4,412) Net realized and unrealized capital gains (losses) on investments Net realized capital gains (losses) on investments: Realized gain distributions -- -- Proceeds from sales 4,355 4,492 Cost of investments sold 4,630 4,679 ----------------------- Net realized capital gains (losses) on investments (275) (187) Net change in unrealized appreciation/depreciation of investments: Beginning of the period -- -- End of the period (34,223) 31,019 ----------------------- Net change in unrealized appreciation/depreciation of investments (34,223) 31,019 ----------------------- Net realized and unrealized capital gains (losses) on investments (34,498) 30,832 ----------------------- Increase (decrease) in net assets from operations $(38,853) $ 26,420 =======================
See accompanying notes. 15 BlackRock AIM V.I. Federated Federated Global Dent International Prime Science & AIM V.I. AIM V.I. Demographic Small Company Money Technology Balanced Value Trends Fund II Fund II Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------- $ -- $ 122 $ 37 $ -- $ -- $98 4,272 21 84 12 8 50 ------------------------------------------------------------------------------- (4,272) 101 (47) (12) (8) 48 -- -- 564 -- -- -- 4,316 21 67 12 8 58 4,607 22 70 13 9 58 ------------------------------------------------------------------------------- (291) (1) 561 (1) (1) -- -- -- -- -- -- -- 44,974 18 916 (20) (197) -- ------------------------------------------------------------------------------- 44,974 18 916 (20) (197) -- ------------------------------------------------------------------------------- 44,683 17 1,477 (21) (198) -- ------------------------------------------------------------------------------- $40,411 $ 118 $1,430 $(33) $(206) $48 =============================================================================== 16 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Operations (continued)
Federated Federated Small Cap Quality Bond Strategies Fund II Fund II Subaccount Subaccount ------------------------- Net investment income (loss) Income: Dividends $ -- $ -- Expenses: Administrative, mortality and expense risk charge 166 17 ------------------- Net investment income (loss) (166) (17) Net realized and unrealized capital gains (losses) on investments Net realized capital gains (losses) on investments: Realized gain distributions -- -- Proceeds from sales 150 17 Cost of investments sold 148 18 ------------------- Net realized capital gains (losses) on investments 2 (1) Net change in unrealized appreciation/depreciation of investments: Beginning of the period -- -- End of the period (707) 420 ------------------- Net change in unrealized appreciation/depreciation of investments (707) 420 ------------------- Net realized and unrealized capital gains (losses) on investments (705) 419 ------------------- Increase (decrease) in net assets from operations $(871) $ 402 ===================
See accompanying notes. 17
Oppenheimer MFS Investors Oppenheimer Main Street Oppenheimer MFS Emerging Growth Global Growth & Main Street Growth Stock MFS Utilities Securities Income Small Cap Series Series Series Fund/VA Fund/VA Fund/VA Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- $ -- 11 26 66 13 74 26 -------------------------------------------------------------------------------------- (11) (26) (66) (13) (74) (26) -- -- -- -- -- -- 11 26 61 11 74 22 12 27 67 11 76 22 -------------------------------------------------------------------------------------- (1) (1) (6) -- (2) -- -- -- -- -- -- -- 42 51 (273) 160 905 612 -------------------------------------------------------------------------------------- 42 51 (273) 160 905 612 -------------------------------------------------------------------------------------- 41 50 (279) 160 903 612 -------------------------------------------------------------------------------------- $ 30 $ 24 $(345) $147 $829 $586 ======================================================================================
18 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Operations (continued) Putnam VT Growth and Income Subaccount ---------- Net investment income (loss) Income: Dividends $ -- Expenses: Administrative, mortality and expense risk charge 80 ------ Net investment income (loss) (80) Net realized and unrealized capital gains (losses) on investments Net realized capital gains (losses) on investments: Realized gain distributions -- Proceeds from sales 80 Cost of investments sold 85 ------ Net realized capital gains (losses) on investments (5) Net change in unrealized appreciation/depreciation of investments: Beginning of the period -- End of the period 1,743 ------ Net change in unrealized appreciation/depreciation of investments 1,743 ------ Net realized and unrealized capital gains (losses) on investments 1,738 ------ Increase (decrease) in net assets from operations $1,658 ====== See accompanying notes. 19 Putnam VT International Putnam VT Fidelity - VIP Fidelity - VIP Fidelity - VIP Growth Investors Growth High Income II Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- 60 92 134 86 49 ----------------------------------------------------------------------------- (60) (92) (134) (86) (49) -- -- -- -- -- 49 92 123 68 37 51 98 126 73 38 ----------------------------------------------------------------------------- (2) (6) (3) (5) (1) -- -- -- -- -- 550 2,391 1,641 70 991 ----------------------------------------------------------------------------- 550 2,391 1,641 70 991 ----------------------------------------------------------------------------- 548 2,385 1,638 65 990 ----------------------------------------------------------------------------- $488 $2,293 $1,504 $(21) $941 ============================================================================= 20 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Changes in Net Assets Period August 15, 2001 (Commencement of Operations) Through December 31, 2001
BlackRock BlackRock Large Cap Mid Cap Value Growth Subaccount Subaccount ------------------------ Operations: Net investment income (loss) $ (4,355) $ (4,412) Net realized capital gains (losses) on investments (275) (187) Net change in unrealized appreciation/depreciation of investments (34,223) 31,019 ------------------------ Increase (decrease) in net assets from operations (38,853) 26,420 Contract transactions: Net contract purchase payments 1,042,000 1,028,431 Transfer payments from (to) other subaccounts or general account 6,374 994 Contract terminations, withdrawals and other deductions (17) (8) ------------------------ Increase (decrease) in net assets from contract transactions 1,048,357 1,029,417 ------------------------ Net increase (decrease) in net assets 1,009,504 1,055,837 Net assets: Beginning of the period -- -- ------------------------ End of the period $1,009,504 $1,055,837 ========================
See accompanying notes. 21 BlackRock AIM V.I. Federated Federated Global Dent International Prime Science & AIM V.I. AIM V.I. Demographic Small Company Money Technology Balanced Value Trends Fund II Fund II Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------- $ (4,272) $ 101 $ (47) $ (12) $ (8) $ 48 (291) (1) 561 (1) (1) -- 44,974 18 916 (20) (197) -- ------------------------------------------------------------------------------- 40,411 118 1,430 (33) (206) 48 1,002,251 7,001 21,032 1,999 1,999 15,608 4,829 (47) 10,187 3,727 (26) 7,426 (8) -- -- -- -- -- ------------------------------------------------------------------------------- 1,007,072 6,954 31,219 5,726 1,973 23,034 ------------------------------------------------------------------------------- 1,047,483 7,072 32,649 5,693 1,767 23,082 -- -- -- -- -- -- ------------------------------------------------------------------------------- $1,047,483 $7,072 $32,649 $5,693 $ 1,767 $23,082 ================================================================================ 22 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Changes in Net Assets (continued)
Federated Federated Small Cap Quality Bond Strategies Fund II Fund II Subaccount Subaccount ------------------------- Operations: Net investment income (loss) $ (166) $ (17) Net realized capital gains (losses) on investments 2 (1) Net change in unrealized appreciation/depreciation of investments (707) 420 ------------------------- Increase (decrease) in net assets from operations (871) 402 Contract transactions: Net contract purchase payments 78,449 2,750 Transfer payments from (to) other subaccounts or general account 24,511 3,598 Contract terminations, withdrawals and other deductions (17) -- ------------------------- Increase (decrease) in net assets from contract transactions 102,943 6,348 ------------------------- Net increase (decrease) in net assets 102,072 6,750 Net assets: Beginning of the period -- -- ------------------------- End of the period $102,072 $6,750 =========================
See accompanying notes. 23
Oppenheimer MFS Investors Oppenheimer Main Street Oppenheimer MFS Emerging Growth Global Growth & Main Street Growth Stock MFS Utilities Securities Income Small Cap Series Series Series Fund/VA Fund/VA Fund/VA Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------- $ (11) $ (26) $ (66) $ (13) $ (74) $ (26) (1) (1) (6) -- (2) -- 42 51 (273) 160 905 612 -------------------------------------------------------------------------------------- 30 24 (345) 147 829 586 3,250 4,750 40,903 3,503 31,861 7,751 3 16,056 6,164 (4) 12,312 1,231 -- (8) (17) -- (34) (9) -------------------------------------------------------------------------------------- 3,253 20,798 47,050 3,499 44,139 8,973 -------------------------------------------------------------------------------------- 3,283 20,822 46,705 3,646 44,968 9,559 -- -- -- -- -- -- -------------------------------------------------------------------------------------- $3,283 $20,822 $46,705 $3,646 $44,968 $9,559 ======================================================================================
24 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Statements of Changes in Net Assets (continued)
Putnam VT Growth and Income Subaccount ---------- Operations: Net investment income (loss) $ (80) Net realized capital gains (losses) on investments (5) Net change in unrealized appreciation/depreciation of investments 1,743 ---------- Increase (decrease) in net assets from operations 1,658 Contract transactions: Net contract purchase payments 24,728 Transfer payments from (to) other subaccounts or general account 55 Contract terminations, withdrawals and other deductions -- ---------- Increase (decrease) in net assets from contract transactions 24,783 ---------- Net increase (decrease) in net assets 26,411 Net assets: Beginning of the period -- ---------- End of the period $26,441 ==========
See accompanying notes. 25 Putnam VT International Putnam VT Fidelity - VIP Fidelity - VIP Fidelity - VIP Growth Investors Growth High Income II Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- $ (60) $ (92) $ (134) $ (86) $ (49) (2) (6) (3) (5) (1) 550 2,391 1,641 70 991 ----------------------------------------------------------------------------- 488 2,293 1,504 (21) 941 25,758 25,675 66,939 32,085 14,025 96 7,609 14 6,984 16 -- -- -- (49) -- ----------------------------------------------------------------------------- 25,854 33,284 66,953 39,020 14,041 ----------------------------------------------------------------------------- 26,342 35,577 68,457 38,999 14,982 -- -- -- -- -- ----------------------------------------------------------------------------- $26,342 $35,577 $68,457 $38,999 $14,982 ============================================================================= 26 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements December 31, 2001 1. Organization and Summary of Significant Accounting Policies Organization Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity (the Mutual Fund Account) is a segregated investment account of Transamerica Occidental Life Insurance Company (Transamerica Life), an indirect wholly owned subsidiary of Transamerica Corporation. The Mutual Fund Account is registered with the Securities and Exchange Commission as a Unit Investment Trust pursuant to provisions of the Investment Company Act of 1940. The Mutual Fund Account consists of twenty-two investment subaccounts, including three in specified portfolios of the AEGON/Transamerica Series Funds Inc., three in specified portfolios of the AIM Variable Insurance Funds, four in specified portfolios of the Federated Insurance Series, three in specified portfolios of MFS Variable Insurance Trust, three in specified portfolios of the Oppenheimer Variable Account Funds, three in specified portfolios of the Putnam Variable Trust, two in specified portfolios of the Variable Insurance Products Fund, and one in the Index 500 Portfolio of the Variable Insurance Products Fund II (each a Series Fund and collectively the Series Funds). Activity in these twenty-two investment subaccounts is available to contract owners of Distinct Assets from Transamerica. Investments Net purchase payments received by the Mutual Fund Account are invested in the portfolios of the Series Funds, as selected by the contract owner. Investments are stated at the closing net asset values per share on December 31, 2001. Realized capital gains and losses from the sales of shares in the Series Funds are determined on the first-in, first-out basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Unrealized gains or losses on investments in the mutual funds are included in the Statements of Operations. 27 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 1. Organization and Summary of Significant Accounting Policies (continued) Dividend Income Dividends received from the Series Funds investments are reinvested to purchase additional mutual fund shares. 2. Investments A summary of the mutual fund investments at December 31, 2001 follows:
Net Asset Number of Value Per Shares Held Share Market Value Cost ---------------------------------------------------- AEGON/Transamerica Series Fund, Inc.: BlackRock Large Cap Value 104,613.033 $ 9.65 $1,009,516 $1,043,739 BlackRock Mid Cap Growth 102,709.744 10.28 1,055,856 1,024,837 BlackRock Global Science & Technology 100,240.410 10.45 1,047,512 1,002,538 AIM Variable Insurance Funds: AIM V.I. Balanced 651.803 10.85 7,072 7,054 AIM V.I. Value 1,398.246 23.35 32,649 31,733 AIM V.I. Dent Demographic Trends 1,018.445 5.59 5,693 5,713 Federated Insurance Series: Federated International Small Company Fund II 318.445 5.55 1,767 1,964 Federated Prime Money Fund II 23,081.520 1.00 23,082 23,082 Federated Quality Bond Fund II 9,057.009 11.27 102,072 102,779 Federated Small Cap Strategies Fund II 719.608 9.38 6,750 6,330 MFS Variable Insurance Trust - Service Shares: MFS Emerging Growth Series 183.126 17.93 3,283 3,241 MFS Investors Growth Stock Series 2,153.228 9.67 20,822 20,771 MFS Utilities Series 2,937.482 15.90 46,706 46,979
28 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 2. Investments (continued)
Net Asset Number of Value Per Shares Held Share Market Value Cost ------------------------------------------------ Oppenheimer Variable Account Funds - Service Shares: Oppenheimer Global Securities Fund/VA 160.046 $ 22.78 $ 3,646 $ 3,486 Oppenheimer Main Street Growth & Income Fund/VA 2,373.024 18.95 44,969 44,064 Oppenheimer Main Street Small Cap Fund/VA 865.159 11.05 9,560 8,948 Putnam Variable Trust - IB Shares: Putnam VT Growth and Income Fund 1,128.025 23.44 26,441 24,698 Putnam VT International Growth Fund 2,131.234 12.36 26,342 25,792 Putnam VT Investors Fund 3,842.025 9.26 35,577 33,186 Variable Insurance Products Fund (VIP) - Service Class 2: Fidelity - VIP Growth 2,053.302 33.34 68,457 66,816 Fidelity - VIP High Income 6,131.865 6.36 38,999 38,929 Variable Insurance Products Fund II (VIP II) Service Class 2: Fidelity - VIP II Index 500 115.765 129.42 14,982 13,991
29 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 2. Investments (continued) The aggregate cost of purchases and proceeds from sales of investments for the period ended December 31, 2001 were as follows:
Purchases Sales ------------------- AEGON/Transamerica Series Fund, Inc.: BlackRock Large Cap Value $1,048,369 $4,355 BlackRock Mid Cap Growth 1,029,516 4,492 BlackRock Global Science & Technology 1,007,145 4,316 AIM Variable Insurance Funds: AIM V.I. Balanced Fund 7,076 21 AIM V.I. Value Fund 31,803 67 AIM V.I. Dent Demographic Trends Fund 5,726 12 Federated Insurance Series: Federated International Small Company Fund II 1,973 8 Federated Prime Money Fund II 23,140 58 Federated Quality Bond Fund II 102,927 150 Federated Small Cap Strategies Fund II 6,348 17 MFS Variable Insurance Trust - Service Shares: MFS Emerging Growth Series 3,253 11 MFS Investors Growth Stock Series 20,798 26 MFS Utilities Series 47,046 61 Oppenheimer Variable Account Funds - Service Shares: Oppenheimer Global Securities Fund/VA 3,497 11 Oppenheimer Main Street Growth & Income Fund/VA 44,140 74 Oppenheimer Main Street Small Cap Fund/VA 8,970 22 Putnam Variable Trust - IB Shares: Putnam VT Growth and Income Fund 24,783 80 Putnam VT International Growth Fund 25,843 49 Putnam VT Investors Fund 33,284 92 Variable Insurance Products Fund (VIP) - Service Class 2: Fidelity - VIP Growth 66,942 123 Fidelity - VIP High Income 39,002 68 Variable Insurance Products Fund II (VIP II) - Service Class 2: Fidelity - VIP II Index 500 14,029 37
30 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 3. Accumulation Units Outstanding A summary of changes in accumulation units outstanding follows:
BlackRock BlackRock BlackRock Large Cap Mid Cap Global Science & AIM V.I. Value Growth Technology Balanced Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------- Units outstanding at August 15, 2001 -- -- -- -- Units purchased 1,043,974 1,030,709 1,002,282 7,145 Units redeemed and transferred 7,017 1,144 4,752 (2) ------------------------------------------------------- Units outstanding at December 31, 2001 1,050,991 1,031,853 1,007,034 7,143 =======================================================
Federated AIM V.I. Dent International Federated AIM V.I. Demographic Small Company Prime Money Value Trends Fund II Fund II Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------- Units outstanding at August 15, 2001 -- -- -- -- Units purchased 22,577 2,002 2,002 15,591 Units redeemed and transferred 10,466 3,688 (2) 7,389 -------------------------------------------------------- Units outstanding at December 31, 2001 33,043 5,690 2,000 22,980 ========================================================
Federated Federated Small MFS MFS Investors Quality Bond Cap Strategies Emerging Growth Stock Fund II Fund II Growth Series Series Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------- Units outstanding at August 15, 2001 -- -- -- -- Units purchased 77,289 2,934 3,286 4,791 Units redeemed and transferred 24,266 3,761 (2) 15,977 -------------------------------------------------------------- Units outstanding at December 31, 2001 101,555 6,695 3,284 20,768 ==============================================================
31 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 3. Accumulation Units Outstanding (continued)
Oppenheimer Oppenheimer Oppenheimer MFS Global Main Street Main Street Utilities Securities Growth & Small Cap Series Fund/VA Income Fund/VA Fund/VA Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------- Units outstanding at August 15, 2001 -- -- -- -- Units purchased 44,839 3,673 33,124 8,041 Units redeemed and transferred 6,810 (2) 12,387 1,157 ------------------------------------------------------- Units outstanding at December 31, 2001 51,649 3,671 45,511 9,198 =======================================================
Putnam VT Putnam VT Growth and International Putnam VT Fidelity - VIP Income Growth Investors Growth Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------- Units outstanding at August 15, 2001 -- -- -- -- Units purchased 27,269 27,498 29,201 68,969 Units redeemed and transferred (2) (2) 7,622 (2) -------------------------------------------------------- Units outstanding at December 31, 2001 27,267 27,496 36,823 68,967 ========================================================
Fidelity - VIP Fidelity - VIP High Income II Index 500 Subaccount Subaccount ------------------------------- Units outstanding at August 15, 2001 -- -- Units purchased 34,252 15,190 Units redeemed and transferred 7,463 (2) ------------------------------- Units outstanding at December 31, 2001 41,715 15,188 ===============================
32 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 4. Financial Highlights The Mutual Fund Account offers both a return of premium death benefit and an annual step up death benefit. These death benefit options have differing fees that are charged against the contract owner's account balance. These charges are discussed in more detail in Note 6 to the financial statements. Differences in the fee structure for these units result in different unit values, expense ratios, and total returns. Effective with these 2001 annual financial statements, the Mutual Fund Account has presented the following disclosures required by the AICPA Audit and Accounting Guide for Investment Companies.
Period August 15, 2001 (Commencement of At December 31, 2001 Operations) Through December 31, 2001 ------------------------------------- ------------------------------------------------ Unit Fair Value Investment Expense Ratio** Total Return*** Lowest to Net Income Lowest Lowest Subaccount Units Highest Assets Ratio* to Highest to Highest ------------------------------------------------------------ ------------------------------------------------ BlackRock Large Cap Value**** 1,050,991 $0.96 $1,009,504 0.00% 1.25% to 1.40% (4.00)% to (3.95)% BlackRock Mid Cap 1.02 Growth**** 1,031,853 1,055,837 0.00 1.25 to 1.40 2.27 to 2.32 BlackRock Global 1.04 Science & Technology 1,007,034 1,047,483 0.00 1.25 to 1.40 3.96 to 4.02 AIM V.I. Balanced 0.99 Fund**** 7,143 7,072 3.70 1.25 to 1.40 (1.00) to (0.95) AIM V.I. Value 0.99 Fund**** 33,043 32,649 0.23 1.25 to 1.40 (1.22) to (1.17) AIM V.I. Dent 1.00 Demographic Trends Fund**** 5,690 5,693 0.00 1.25 to 1.40 0.02 to 0.07 Federated Inter-national Small Company Fund II**** 2,000 0.88 1,767 0.00 1.25 to 1.40 (11.66) to (11.61) Federated Prime 1.00 Money Fund II**** 22,980 23,082 0.88 1.25 to 1.40 0.40 to 0.45 Federated Quality Bond Fund II**** 101,555 1.00 to 1.01 102,072 0.00 1.25 to 1.40 0.46 to 0.52
33 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 4. Financial Highlights (continued)
Period August 15, 2001 (Commencement of At December 31, 2001 Operations) Through December 31, 2001 -------------------------------- ----------------------------------------------- Unit Fair Value Investment Expense Ratio** Total Return*** Lowest to Net Income Lowest Lowest Subaccount Units Highest Assets Ratio* to Highest to Highest ------------------------------------------------------- ---------------------------------------------- Federated Small Cap Strategies Fund II**** 6,695 $1.01 $ 6,750 0.00% 1.25% to 1.40% 0.77% to 0.83% MFS Emerging Growth Series**** 3,284 1.00 3,283 0.00 1.25 to 1.40 (0.07) to (0.02) MFS Investors Growth Stock Series**** 20,768 1.00 20,822 0.00 1.25 to 1.40 0.21 to 0.26 MFS Utilities Series**** 51,649 0.90 46,705 0.00 1.25 to 1.40 (9.61) to (9.56) Oppenheimer Global Securities Fund/VA**** 3,671 0.99 3,646 0.00 1.25 to 1.40 (0.69) to (0.64) Oppenheimer Main Street Growth & Income Fund/VA**** 45,511 0.99 44,968 0.00 1.25 to 1.40 (1.25) to (1.19) Oppenheimer Main Street Small Cap Fund/VA**** 9,198 1.04 9,559 0.00 1.25 to 1.40 3.90 to 3.96 Putnam VT Growth and Income Fund**** 27,267 0.97 26,441 0.00 1.25 to 1.40 (3.08) to (3.03) Putnam VT International Growth Fund**** 27,496 0.96 26,342 0.00 1.25 to 1.40 (4.24) to (4.18) Putnam VT Investors Fund**** 36,823 0.97 35,577 0.00 1.25 to 1.40 (3.44) to (3.38) Fidelity - VIP Growth**** 68,967 0.99 68,457 0.00 1.25 to 1.40 (0.79) to (0.73) Fidelity - VIP High Income**** 41,715 0.93 to 0.94 38,999 0.00 1.25 to 1.40 (6.54) to (6.49)
34 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 4. Financial Highlights (continued)
Period August 15, 2001 (Commencement of At December 31, 2001 Operations) Through December 31, 2001 ---------------------------- ------------------------------------------------- Unit Fair Value Investment Expense Ratio** Total Return*** Lowest to Net Income Lowest Lowest Subaccount Units Highest Assets Ratio* to Highest to Highest ----------------------------------------------- ------------------------------------------------- Fidelity VIP II Index 500**** 15,188 $0.99 $14,982 0.00% 1.25% to 1.40% (1.38)% to (1.32)%
*These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying Series Fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying Series Fund in which the subaccounts invest. **These ratios represent the annualized contract expenses of the Mutual Fund Account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Series Fund are excluded. ***These amounts represent the total return for the period indicated, including changes in the value of the underlying Series Fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. ****Commencement of operations, August 15, 2001. Expense ratio has been annualized. 5. Assets Retained by Transamerica Life A summary of those subaccounts for which the market value of Transamerica Life's capital contributions exceed 5% of net assets follows: Market Subaccount Value ---------------------------------------------------------------------- BlackRock Large Cap Value $ 961,496 BlackRock Mid Cap Growth 1,024,270 BlackRock Global Science & Technology 1,041,208 AIM V.I. Balanced 1,980 AIM V.I. Value 1,976 AIM V.I. Dent Demographic Trends 2,001 Federated International Small Company Fund II 1,767 Federated Prime Money Fund II 2,008 Federated Small Cap Strategies Fund II 2,016 35 Separate Account VA F of Transamerica Life Insurance Company - Premier Asset Builder Variable Annuity Notes to Financial Statements (continued) 5. Assets Retained by Transamerica Life (continued) Market Subaccount Value --------------------------------------------------------------------- MFS Emerging Growth Series $1,999 MFS Investors Growth Stock Series 2,005 Oppenheimer Global Securities Fund/VA 1,987 Putnam VT Growth and Income 1,939 Putnam VT International Growth 1,916 Putnam VT Investors 1,932 Fidelity - VIP II Index 500 1,973 6. Administrative, Mortality, and Expense Risk Charges Administrative charges include an annual charge of the lesser of 2% of the policy value or $25 per contract. Charges for administrative fees to the variable annuity contracts are an expense of the Mutual Fund Account. Transamerica Life also deducts a daily charge equal to an annual rate of .15% of the contract owner's account for administrative expenses. Transamerica Life deducts a daily charge for assuming certain mortality and expense risks. For the 5% Annually Compounding Death Benefit and the Annual Step Up Death Benefit, this charge is equal to an effective annual rate of 1.25% of the value of the contract owners' individual account. For the Return of Premium Death Benefit, the corresponding charge is equal to an effective annual rate of 1.10% of the value of the contract owners' individual account. 7. Income Taxes Operations of the Mutual Fund Account form a part of Transamerica Life, which is taxed as a life insurance company under Subchapter L of the Internal Revenue Code of 1986, as amended (the Code). The operations of the Mutual Fund Account are accounted for separately from other operations of Transamerica Life for purposes of federal income taxation. The Mutual Fund Account is not separately taxable as a regulated investment company under Subchapter M of the Code and is not otherwise taxable as an entity separate from Transamerica Life. Under existing federal income tax laws, the income of the Mutual Fund Account is not taxable to Transamerica Life, as long as earnings are credited under the variable annuity contracts. 36 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements All required financial statements are included in Part B of this Registration Statement. (b) Exhibits: (1) (a) Resolution of the Board of Directors of Transamerica Life Insurance Company authorizing establishment of the Mutual Fund Account. Note 11. (2) Not Applicable. (3) (a) Principal Underwriting Agreement by and between Transamerica Life Insurance Company, on its own behalf and on the behalf of the Mutual Fund Account, and AFSG Securities Corporation. Note 11. (b) Form of Broker/Dealer Supervision and Sales Agreement by and between AFSG Securities Corporation and the Broker/Dealer. Note 11. (4) (a) Form of Policy. Note 1. (a)(1) Form of Policy. Note 16. (b) Form of Policy Endorsement. (Allocation of Premium Payment). Note 2. (c) Form of Policy Rider (GMIB). Note 3. (d) Form of Policy Endorsement (403(b)). Note 3. (e) Form of Policy Rider (Additional Death Benefit). Note 4. (f) Form of Policy Rider (Beneficiary Earnings Enhancement - Extra). Note 16 (g) Form of Policy Rider (Managed Annuity Program). Note 12 (h) Form of Policy Endorsement (Initial Payment Guarantee). Note 13 (5) (a) Form of Application. Note 14. (b) Form of Application. Note 16. (6) (a) Articles of Incorporation of Transamerica Life Insurance Company. Note 11. (b) ByLaws of Transamerica Life Insurance Company. Note 11. (7) Not Applicable. (8) (a)(1) Participation Agreement among among WRL Series Fund, Inc., Western Reserve Life Assurance Co. of Ohio, and PFL Life Insurance Company. Note 5. (a)(2) Amendment No. 16 to Participation Agreement among WRL Series Fund, Inc., PFL Life Insurance Company, AUSA Life Insurance Company, Inc., Peoples Benefit Life Insurance Company and Transamerica Occidental Life Insurance Company. Note 11. (a)(3) Amendment No. 17 to Participation Agreement among WRL Series Fund, Inc., Transamerica Life Insurance Company, AUSA Life Insurance Company, Inc., Peoples Benefit Life Insurance Company and Transamerica Occidental Life Insurance Company. Note 6. (a)(4) Amendment No. 18 to Participation Agreement among AEGON/Transamerica Series Fund, Inc., Transamerica Life Insurance Company, AUSA Life Insurance Company, Inc., Peoples Benefit Life Insurance Company and Transamerica Occidental Life Insurance Company. Note 14. (8)(a)(5) Form of Amendment No. 20 to Participation Agreement among AEGON/Transamerica Series Fund, Inc., Transamerica Life Insurance Company, AUSA Life Insurance Company, Inc., Peoples Benefit Life Insurance Company, Transamerica Occidental Life Insurance Company and Transamerica Life Insurance and Annuity Company. Note 15. (b)(1) Participation Agreement by and among AIM Variable Insurance Funds, Inc., A I M Distributors, Inc., PFL Life Insurance Company and AFSG Securities Corporation. Note 2. (b)(2) Amendment No. 5 to Participation Agreement among AIM Variable Insurance Funds, A I M Distributors, Inc., Transamerica Life Insurance Company and AFSG Securities Corporation. Note 14. (b)(3) Amendment No. 6 to Participation Agreement Among AIM Variable Insurance Funds, A I M Distributors, Inc., Transamerica Life Insurance Company and AFSG Securities Corporation. Note 14. (c)(1) Fund Participation Agreement by and between PFL Life Insurance Company, Federated Insurance Series and Federated Securities Corp. Note 7. (c)(2) Amended Exhibit A and B to Fund Participation Agreement by and between Transamerica Life Insurance Company, Federated Insurance Series and Federated Securities Corp. Note 14. (d)(1) Participation Agreement among MFS Variable Insurance Trust, PFL Life Insurance Company and Massachusetts Financial Services Company. Note 8. (d)(2) Partial Termination of Participation Agreement among MFS Variable Insurance Trust, PFL Life Insurance Company and Massachusetts Financial Services Company. Note 9. (d)(3) Amendment to Participation Agreement among MFS Variable Insurance Trust, Transamerica Life Insurance Company and Massachusetts Financial Services Company. Note 14. (e)(1) Participation Agreement among Oppenheimer Variable Account Funds, Oppenheimerfunds, Inc. and PFL Life Insurance Company. Note 8. (e)(2) Amendment No. 6 to Participation Agreement among Oppenheimer Variable Account Funds, Oppenheimerfunds, Inc. and Transamerica Life Insurance Company. Note 15. (f)(1) Participation Agreement among Putnam Variable Trust, Putnam Mutual Funds Corp. and PFL Life Insurance Company. Note 2. (f)(2) Amendment to Participation Agreement among Putnam Variable Trust, Putnam Mutual Funds Corp. and Transamerica Life Insurance Company. Note 14. (g)(1) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and PFL Life Insurance Company. Note 10. (g)(2) Amended Schedule A to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Transamerica Life Insurance Company. Note 14. (h)(1) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and PFL Life Insurance Company. Note 10. (h)(2) Amended Schedule A to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Transamerica Life Insurance Company. Note 14. (8)(i) Form of Participation Agreement among Liberty Variable Investment Trust, Liberty Funds Distributor, Inc., and Transamerica Life Insurance Company. Note 15. (8)(j) Form of Participation Agreement among Wanger Advisors Trust and Transamerica Life Insurance Company. Note 16. (9) Opinion and Consent of Counsel. Note 11. (10) (a) Consent of Independent Auditors. Note 15. (b) Opinion and Consent of Actuary. Note 15. (11) Not applicable. (12) Not applicable. (13) Performance Data Calculations. Note 16. (14) Powers of Attorney. (P.S. Baird, C.D. Vermie, L.N. Norman, B. Herbert, Jr., D.C. Kolsrud, R.J. Kontz, B.K. Clancy) Note 11. Note 1. Incorporated herein by reference to Pre-Effective Amendment No. 1 to form N-4 Registration Statement (File No. 333-7509) on December 6, 1996. Note 2. Incorporated herein by reference to Post-Effective Amendment No. 5 to Form N-4 Registration Statement (File No. 333-7509) on July 16, 1998. Note 3. Incorporated herein by reference to Post-Effective Amendment No. 6 to Form N-4 Registration Statement (File No. 333-7509) on January 22, 1999. Note 4. Incorporated herein by reference to Post-Effective Amendment No. 10 to Form N-4 Registration Statement (File No. 333-7509) on April 30, 2001. Note 5. Incorporated herein by reference to Post-Effective Amendment No. 1 to form N-4 Registration Statement (File No. 333-26209) on April 29, 1998. Note 6. Incorporated herein by reference to Post-Effective Amendment No. 25 to Form N-4 Registration Statement (File No. 33-33085) on April 27, 2001. Note 7. Incorporated herein by reference to Pre-Effective Amendment No. 1 on Form N-4 Registration Statement (File No. 333-26209) on July 28, 1997. Note 8. Incorporated herein by reference to Post-Effective Amendment No. 2 to Form N-4 Registration Statement (File No. 333-7509) on December 23, 1997. Note 9. Incorporated herein by reference to Post-Effective Amendment No. 8 to Form N-4 Registration Statement (File No. 333-7509) on April 29, 1999. Note 10. Incorporated by reference to Post-Effective Amendment No. 8 to Form N-4 registration Statement (File No. 33-37498) on April 28, 1999. Note 11. Filed with Initial Filing to this Form N-4 Registration Statement (File No. 333-62738) on June 11, 2001. Note 12. Incorporated herein by reference to Post-Effective Amendment No. 26 to Form N-4 Registration Statement (File No. 33-33085) on October 2, 2001. Note 13. Incorporated herein by reference to Post-Effective Amendment No. 25 to Form N-4 Registration Statement (File No. 33-33085) on April 27, 2001. Note 14. Filed with Post-Effective Amendment No. 2 to Form N-4 Registration Statement (File No. 333-62738) on January 18, 2002. Note 15. Filed herewith. Note 16. To be filed by Amendment. Item 25. Directors and Officers of the Depositor (Transamerica Life Insurance Company)
Name and Business Address Principal Positions and Offices with Depositor ------------------------- ---------------------------------------------- Larry N. Norman Director and President 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and Chief Operating 4333 Edgewood Road, N.E. Officer Cedar Rapids, Iowa 52499-0001 Craig D. Vermie 4333 Edgewood Road, N.E. Director, Vice President, Secretary and General Counsel Cedar Rapids, Iowa 52499-0001 Douglas C. Kolsrud Director, Senior Vice President, Chief Investment 4333 Edgewood Road, N.E. Officer and Corporate Actuary Cedar Rapids, Iowa 52499-0001 Robert J. Kontz Vice President and Corporate Controller 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499-0001 Brenda K. Clancy Director, Vice President, Treasurer and Chief Financial Officer 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499-0001
Item 26. Persons Controlled by or under Common Control With the Depositor or Registrant.
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business AEGON USA, Inc. Iowa AEGON U.S. Holding Corporation, Holding company AEGON U.S. Corporation RCC North America, L.L.C. Delaware 100% AEGON USA, Inc. Real estate Transamerica Holding Company, L.L.C. Delaware 100% AEGON USA, Inc. Holding Company AEGON Funding Corp. Delaware 100% Transamerica Holding Company, Issue debt L.L.C. securities-net proceeds used to make loans to affiliates First AUSA Life Insurance Company Maryland 100% Transamerica Holding Company, Insurance holding L.L.C. company AUSA Life Insurance Company, Inc. New York 100% First AUSA Life Insurance Insurance Company Life Investors Insurance Company of Iowa 100% First AUSA Life Ins. Co. Insurance America Apple Partners of Iowa, L.L.C. Iowa 100% LICCA Apple production, packing, storage and sales Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the equity interest of other entities Transamerica Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance AEGON Financial Services Group, Inc. Minnesota 100% Transamerica Life Insurance Marketing Co. AEGON Assignment Corporation of Kentucky 100% AEGON Financial Services Administrator of Kentucky Group, Inc. structured settlements AEGON Assignment Corporation Illinois 100% AEGON Financial Services Administrator of Group, Inc. structured settlements Transamerica Financial Minnesota 100% AEGON Financial Services Life insurance and Institutions, Inc. Group, Inc. underwriting services Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock First Insurance AUSA Life Ins. Co.
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock First Insurance AUSA Life Ins. Co. Western Reserve Life Assurance Co. Ohio 100% First AUSA Life Ins. Co. Insurance of Ohio WRL Insurance Agency, Inc. California 100% Western Reserve Life Insurance Agency Assurance Co. of Ohio WRL Insurance Agency of Alabama, Alabama 100% WRL Insurance Agency, Inc. Insurance Agency Inc. WRL Insurance Agency of Massachusetts 100% WRL Insurance Agency, Inc. Insurance Agency Massachusetts, Inc. WRL Insurance Agency of Nevada, Inc. Nevada 100% WRL Insurance Agency, Inc. Insurance Agency WRL Insurance Agency of Texas, Inc. Texas Record shareholder Daniel DeMarco Insurance Agency WRL Insurance Agency of Wyoming Wyoming 100% WRL Insurance Agency, Inc. Insurance Agency AEGON/Transamerica Series Fund, Inc. Maryland Various Mutual fund AEGON/Transamerica Fund Services, Florida 100% Western Reserve Life Provides administration Inc. Assurance Co. of Ohio for affiliated mutual fund AEGON/Transamerica Fund Advisors, Florida 100% Western Reserve Life Registered investment Inc. Assurance Co. of Ohio advisor World Financial Group Insurance California 100% Western Reserve Life Insurance agency Agency, Inc. Assurance Co. of Ohio World Financial Group Insurance Alabama 100% World Financial Group Insurance Agency Agency of Alabama, Inc. Insurance Agency, Inc. World Financial Group Insurance Ohio 100% World Financial Group Insurance agency Agency of Ohio, Inc. Insurance Agency, Inc. World Financial Group Insurance Massachusetts 100% World Financial Group Insurance Agency Agency of Massachusetts, Inc. Insurance Agency, Inc. WFG Insurance Agency of Texas, Inc. Texas Record Shareholder Jack Linder Insurance Agency World Financial Group Insurance Hawaii 100% World Financial Group Insurance Agency Agency of Hawaii, Inc. Insurance Agency, Inc.
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business World Financial Group Insurance Nevada 100% World Financial Group Insurance Agency Agency of Nevada, Inc. Insurance Agency, Inc. World Financial Group Insurance New Mexico 100% World Financial Group Insurance Agency Agency of New Mexico, Inc. Insurance Agency, Inc. World Financial Group Insurance Wyoming 100% World Financial Group Insurance Agency Agency of Wyoming Insurance Agency, Inc. AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency Assurance Co. of Ohio Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency Cadet Holding Corp. Iowa 100% First AUSA Life Insurance Holding company Company Monumental General Life Insurance Puerto Rico 51% First AUSA Life Insurance Insurance Company of Puerto Rico Company 49% Baldrich & Associates of Puerto Rico AUSA Holding Company Maryland 100% Transamerica Holding Company Holding company Monumental General Insurance Group, Maryland 100% AUSA Holding Co. Holding company Inc. Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Insurance Sale/admin. of travel Group, Inc. insurance Monumental General Administrators, Maryland 100% Monumental General Insurance Provides management Inc. Group, Inc. srvcs. to unaffiliated third party administrator National Association Management And Maryland 100% Monumental General Provides actuarial Consultant Services, Inc. Administrators, Inc. consulting services Monumental General Mass Marketing, Maryland 100% Monumental General Insurance Marketing arm for sale Inc. Group, Inc. of mass marketed insurance coverages Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator Investors Warranty of America, Inc. Iowa 100% AUSA Holding Co. Provider of automobile extended maintenance contracts Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling for employees and agents of affiliated companies ADB Corporation, L.L.C. Delaware 100% Money Services, Inc. Special purpose limited Liability company ORBA Insurance Services, Inc. California 26.91% Money Services, Inc. Insurance agency Great Companies L.L.C. Iowa 30% Money Services, Inc. Markets & sells mutual funds & individually managed accounts AEGON USA Travel and Conference Iowa 100% Money Services Travel and Conference Services, L.L.C. Services Roundit, Inc. Maryland 50% AUSA Holding Co. Financial services Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. Insurance agency AEGON Asset Management Services, Delaware 100% AUSA Holding Co. Registered investment Inc. advisor World Group Securities, Inc. Delaware 100% AEGON Asset Management Broker-Dealer Services, Inc. World Financial Group, Inc. Delaware 100% AEGON Asset Management Marketing Services, Inc. Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer Associated Mariner Financial Group, Michigan 100% Intersecurities, Inc. Holding co./management Inc. services
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Associated Mariner Ins. Agency of Massachusetts 100% Associated Mariner Agency, Insurance agency Massachusetts, Inc. Inc. Associated Mariner Agency Ohio, Inc. Ohio 100% Associated Mariner Agency, Insurance agency Inc. Associated Mariner Agency Texas, Texas 100% Associated Mariner Agency, Insurance agency Inc. Inc. PIA General Partner, Inc. Delaware 100% AUSA Holding Company General Partner to PIA 2001-A, L.P. PIA 2001-A, L.P. Delaware PIA General, Inc. is the General Private placement Partner investment limited partnership Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services Idex Management, Inc. Delaware 100% AUSA Holding Co. Investment advisor IDEX Mutual Funds Massachusetts Various Mutual fund Diversified Investment Advisors, Delaware 100% AUSA Holding Co. Registered investment Inc. advisor Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer Corp. Advisors, Inc. George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and Advisors, Inc. actuarial consulting Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance CRC Creditor Resources Canadian Canada 100% Creditor Resources, Inc. Insurance agency Dealer Network Inc. Premier Solutions Group, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency AEGON USA Investment Management, Iowa 100% Transamerica Holding Company, Investment advisor LLC. L.L.C. AEGON USA Realty Advisors, Inc. Iowa 100% AUSA Holding Co. Provides real estate administrative and real estate investment services AEGON USA Real Estate Services, Inc. Delaware 100% AEGON USA Realty Advisors, Real estate and Inc. mortgage holding company
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business QSC Holding, Inc. Delaware 100% AEGON USA Realty Advisors, Real estate and Inc. financial software production and sales Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Advisors, Inc Information Systems for real estate investment management USP Real Estate Investment Trust Iowa 12.89% First AUSA Life Ins. Co. Real estate investment 13.11% PFL Life Ins. Co. trust 4.86% Bankers United Life Assurance Co. RCC Properties Limited Partnership Iowa AEGON USA Realty Advisors, Inc. is Limited Partnership General Partner and 5% owner Commonwealth General Corporation Delaware 100% AEGON U.S. Corporation Holding company ("CGC") AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life Insurance Company AEGON Alliances, Inc. Virginia 100% Benefit Plans, Inc. General agent Capital 200 Block Corporation Delaware 100% CGC Real estate holdings AEGON Structured Settlements, Inc. Kentucky 100% CGC Administrator of structured settlements AEGON Institutional Markets, Inc. Delaware 100% CGC Provider of investment, marketing and admin. Services to ins. cos. Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management (EIN 23-1720755) support services Compass Rose Development Corporation Pennsylvania 100% Ampac Insurance Agency, Inc. Special-purpose subsidiary Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Agency, Inc. Special-purpose subsidiary Frazer Association Consultants, Inc. Illinois 100% Ampac Insurance Agency, Inc. TPA license-holder
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business National Home Life Corporation Pennsylvania 100% Ampac Insurance Agency, Inc. Special-purpose subsidiary Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Agency, Inc. Furniture & equipment lessor Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Agency, Inc. Administrator of group insurance programs Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Agency, Inc. Special-purpose subsidiary Academy Insurance Group, Inc. Delaware 100% CGC Holding company Academy Life Insurance Co. Missouri 100% Academy Insurance Group, Inc. Insurance company Pension Life Insurance Company of New Jersey 100% Academy Life Insurance Company Insurance company America FED Financial, Inc. Delaware 100% Academy Insurance Group, Inc. Special-purpose subsidiary Ammest Massachusetts Insurance Massachusetts 100% Academy Insurance Group, Inc. Special-purpose Agency, Inc. subsidiary Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Group, Inc. Special-purpose subsidiary Ampac, Inc. Texas 100% Academy Insurance Group, Inc. Managing general agent Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Group, Inc. Special-purpose (EIN 23-2364438) subsidiary Force Financial Group, Inc. Delaware 100% Academy Insurance Group, Inc. Special-purpose subsidiary Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary Military Associates, Inc. Pennsylvania 100% Academy Insurance Group, Inc. Special-purpose subsidiary NCOAA Management Company Texas 100% Academy Insurance Group, Inc. Special-purpose subsidiary NCOA Motor Club, Inc. Georgia 100% Academy Insurance Group, Inc. Automobile club Unicom Administrative Services, Inc. Pennsylvania 100% Academy Insurance Group, Inc. Provider of admin. services
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Unicom Administrative Services, GmbH Germany 100%Unicom Administrative Provider of admin. Services, Inc. services Capital General Development Delaware 100% CGC Holding company Corporation Monumental Life Insurance Company Maryland 73.23% Capital General Development Insurance company Company 26.77% First AUSA Life Insurance Company Exchange Management Services, Inc. Missouri 100% Monumental Life Insurance Management company Company AEGON Direct Marketing Services, Maryland 100% Monumental Life Insurance Marketing company Inc. Company Peoples Benefit Life Insurance Iowa 3.7% CGC Insurance company Company 20.0% Capital Liberty, L.P. 76.3% Monumental Life Insurance Company Veterans Life Insurance Co. Illinois 100% Transamerica Holding Company, Insurance company L.L.C. Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary Coverna Direct Insurance Insurance Maryland 100% Peoples Benefit Life Insurance agency Agency, Inc. Insurance Company Ammest Realty Corporation Texas 100% Monumental Life Insurance Special purpose Company subsidiary JMH Operating Company, Inc. Mississippi 100% Peoples Benefit Life Real estate holdings Insurance Company Capital Liberty, L.P. Delaware 99.0% Monumental Life Insurance Holding Company Company 1.0% CGC Consumer Membership Services, Inc. Delaware 100% Commonwealth General Credit Card Protection Corporation Global Premier Reinsurance Company, British Virgin 100% Commonwealth General Insurance and LTD. Islands Corporation Reinsurance company Health Benefits Services, Inc. Delaware 100% Commonwealth General Health discount plan Corporation Quest Membership Services, Inc. Delaware 100% Commonwealth General Travel discount plan Corporation
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Stonebridge Group, Inc. Delaware 100% Commonwealth General General purpose Corporation corporation J.C. Penney Life Insurance Vermont 100% Commonwealth General Insurance Corporation Corporation Stonebridge Insurance Company Wisconsin 100% J.C. Penney Life Insurance Insurance Company Insurance Consultants, Inc. Nebraska 100% Commonwealth General Brokerage Corporation ICON Partners Limited United Kingdom 100% Insurance Consultants, Inc. Marketing company J.C. Penney Casualty Insurance Ohio 100% Commonwealth General Insurance Company Corporation AEGON N.V. Netherlands 51.27% of Vereniging Holding Company AEGON Netherlands Membership Association Groninger Financieringen B.V. Netherlands Held through AEGON Nevak Holding Holding Company B.V. AEGON Nederland N.V. Netherlands 100% AEGON N.V. Holding Company AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding Company AEGON Derivatives Netherlands 100% AEGON N.V. Holding Company AEGON International N.V. Netherlands 100% AEGON N.V. Holding Company AEGON Trust Advisory Board Members: Delaware 100% AEGON International N.V. Manage assets of AEGON K.J.Storm U.S. Holding Corporation Donald J. Shepard Joseph Streppel Dennis Hersch AEGON U.S. Holding Corporation Delaware 100% AEGON Trust Holding company AEGON DMS Holding B.V. Netherlands 100% AEGON International N.V. Holding company JCPenney Financial & Marketing Korea 100% AEGON DMS Holding B.V. Marketing Services Group LTD JCPenney Direct Marketing Services Japan 100% AEGON DMS Holding B.V. Marketing Japan K.K. Canadian Premier Holdings LTD Canada 100% AEGON DMS Holding B.V. Holding company
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Canadian Premier Life Insurance Canada 100% Canadian Premier Holdings LTD Holding company Company Legacy General Insurance Company Canada 100% Canadian Premier Life Insurance Insurance Company Cornerstone International Holdings United Kingdom 100% AEGON DMS Holding B.V. Holding company LTD Cornerstone International Marketing United Kingdom 100% Cornerstone International Marketing company LTD Holdings, LTD Stonebridge International Insurance United Kingdom 100% Cornerstone International Insurance company LTD Marketing, LTD JCPenney Direct Asia Pacific Pty LTD Australia 100% AEGON DMS Holding B.V. Holding company JCPenney Direct Service Asia Australia 100% JCPenney Direct Asia Pacific Operations company Pacific Pty LTD Pty LTD JCPenney Insurance Marketing Asia Australia 100% JcPenney Direct Asia Pacific Marketing company Pacific Pty LTD Pty LTD Short Hills Management Company New Jersey 100% AEGON U.S. Holding Corporation Insurance Agent COPRA Reinsurance Company New York 100% AEGON U.S. Reinsurance Holding Corporation AEGON Management Company Indiana 100% AEGON U.S. Insurance holding Holding Corporation company AEGON U.S. Corporation Iowa 100% AEGON U.S. Holding Corporation Holding company Transamerica Corporation ("TAC") Delaware 100% AEGON NV Major interest in insurance and finance AEGON Funding Corp. II Delaware 100% TAC Commercial paper insurance Transamerica Pacific Insurance Hawaii 100% TAC Life insurance Company, Ltd. TREIC Enterprises, Inc. Delaware 100% TFC Investments Terrapoint, LLC Delaware 50% TREIC Enterprises, Inc. Data Processing ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty Insurance Inter-America Corporation California 100% Transamerica Corp. Insurance Broker
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Pyramid Insurance Company, Ltd. Hawaii 100% Transamerica Corp. Property & Casualty Insurance Transamerica Business Tech Corp. Delaware 100% Transamerica Corp. Telecommunications and data processing Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a pool of high-yield bonds Transamerica Corporation (Oregon) Oregon 100% Transamerica Corp. Name holding only - Inactive Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer Lending & equipment leasing Transamerica Public Finance, LLC Delaware 70% TCFCI, 30% TFC Finance TFC Properties, Inc. Delaware 100% Transamerica Finance Corp. Holding Company Transamerica Retirement Delaware 100% TFC Properties, Inc. Own property Communities, S.F., Inc. Transamerica Retirement Delaware 100% TFC Properties, Inc. Own property Communities, S.J., Inc. TA Leasing Holding Co., Inc. Delaware 100% Transamerica Finance Corp. Holding company Trans Ocean Ltd. Delaware 100% TA Leasing Holding Co. Inc. Holding company Trans Ocean Container Corp. ("TOCC") Delaware 100% Trans Ocean Ltd. Intermodal leasing SpaceWise Inc. Delaware 100% TOCC Intermodal leasing Trans Ocean Container Finance Corp. Delaware 100% TOL Intermodal leasing Trans Ocean Leasing Deutschland GmbH Germany 100% TOCC Intermodal leasing Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal leasing Trans Ocean Regional Corporate California 100% TOCC Holding company Holdings Trans Ocean Tank Services Corp. Delaware 100% TOCC Intermodal leasing
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services intermodal equipment Transamerica Leasing Holdings Inc. Delaware 100% Transamerica Leasing Inc. Holding company ("TLHI") Greybox Logistics Services Inc. Delaware 100% TLHI Intermodal leasing Greybox L.L.C. ("G") Delaware 100% TLHI Intermodal freight container interchange facilitation service Transamerica Trailer Leasing S.N.C. France 100% Greybox L.L.C. Leasing Greybox Services Limited U.K. 100% TLHI Intermodal leasing Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing Transamerica Leasing SRL Italy 100% Intermodal Equipment Inc. Leasing Transamerica Distribution Services, Delaware 100% TLHI Dormant Inc. Transamerica Leasing Coordination Belg. 100% TLHI Leasing Center Transamerica Leasing do Brasil Ltda. Braz. 100% TLHI Container Leasing Transamerica Leasing GmbH Germany 100% TLHI Leasing Transamerica Trailer Leasing Sp. Poland 100% TLHI Leasing z.o.o Transamerica Leasing Limited U.K. 100% TLHI Leasing ICS Terminals (UK) Limited U.K. 100% Transamerica Leasing Limited Leasing Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing Transamerica Leasing (Canada) Inc. Canada 100% TLHI Leasing Transamerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing Transamerica Leasing (Proprietary) S. Africa 100% TLHI In Liquidation - Limited Intermodal leasing Transamerica Trailer Holdings I Inc. Delaware 100% TLHI Holding company
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Trailer Holdings II Delaware 100% TLHI Holding company Inc. Transamerica Trailer Holdings III Delaware 100% TLHI Holding company Inc. Transamerica Trailer Leasing AB Swed. 100% TLHI Leasing Transamerica Trailer Leasing AG Switzerland 100% TLHI Leasing Transamerica Trailer Leasing A/S + Denmark 100% TLHI Leasing C66 Transamerica Trailer Leasing GmbH Germany 100% TLHI Leasing Transamerica Trailer Leasing Belgium 100% TLHI Leasing (Belgium) N.V. Transamerica Trailer Leasing Netherlands 100% TLHI Leasing (Netherlands) B.V. Transamerica Alquiler de Trailer Spain 100% TLHI Leasing Spain S.L. Transamerica Transport Inc. New Jersey 100% TLHI Dormant Transamerica Commercial Finance Delaware 100% Transamerica Finance Corp. Holding company Corporation, I ("TCFCI") Transamerica Equipment Financial Delaware 100% TCFCI Investment in Various Services Corporation equipment leases and loans BWAC Credit Corporation Delaware 100% TCFCI Inactive BWAC International Corporation Delaware 100% TCFCI Retail Appliance and furniture stores BWAC Twelve, Inc. Delaware 100% TCFCI Holding company TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing Transamerica Insurance Finance Maryland 100% BWAC Twelve, Inc. Insurance premium Corporation ("TIFC") financing Transamerica Insurance Finance California 100% TIFC Insurance premium Corporation, California Transamerica Insurance Finance Maryland 100% TIFC Insurance premium Company (Europe) Transamerica Insurance Finance Ontario 100% TIFC Insurance premium Corporation, Canada financing
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business T Holdings, Inc. DE 100% TCFCI Holding Company M Credit, Inc. Delaware 100% TCFCI Commercial lending Transamerica Mezzanine Financing, Delaware 100% T Holdings, Inc. Holding company Inc. Bay Capital Corporation Delaware 100% M Credit, Inc. Special purpose corporation Coast Funding Corporation Delaware 100% M Credit, Inc. Special purpose corporation Transamerica Small Business Delaware 100% M Credit, Inc. Holding company Capital, Inc. ("TSBC") Emergent Business Capital Holdings, Delaware 100% TSBC Dormant Inc. Gulf Capital Corporation Delaware 100% M Credit, Inc. Special purpose corporation Direct Capital Equity Investment, Delaware 100% M Credit, Inc. Small business loans Inc. TA Air East, Corp. Delaware 100% TEFSC Special purpose corporation TA Air I, Corp. Delaware 100% TEFS Special purpose corporation TA Air II, Corp. Delaware 100% TEFS Special purpose corporation TA Air III, Corp. Delaware 100% TEFS Special purpose corporation TA Air IV, Corp. Delaware 100% TEFS Special purpose corporation TA Air V, Corp. Delaware 100% TEFS Special purpose corporation TA Air VI, Corp. Delaware 100% TEFS Special purpose corporation TA Air VII, Corp. Delaware 100% TEFS Special purpose corporation TA Air VIII, Corp. Delaware 100% TEFS Special purpose corporation
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business TA Air IX, Corp. Delaware 100% TEFS Special purpose corporation TA Air X, Corp. Delaware 100% TEFS Special purpose corporation TA Air XI, Corp. Delaware 100% TEFS Special purpose corporation TA Air XII, Corp. Delaware 100% TEFS Special purpose corporation TA Air XIII, Corp. Delaware 100% TEFS Special purpose corporation TA Air XIV, Corp. Delaware 100% TEFS Special purpose corporation TA Air XV, Corp. Delaware 100% TEFS Special purpose corporation TA Air XVI, Corp. Delaware 100% TEFS Special purpose corporation TA Air XVII, Corp. Delaware 100% TEFS Special purpose corporation TA Air XVIII, Corp. Delaware 100% TEFS Special purpose corporation TA Air XIX, Corp. Delaware 100% TEFS Special purpose corporation Transamerica Aviation 803 Corp. Delaware 100% TEFS Special purpose corporation Transamerica Aviation 400 Corp. Delaware 100% TEFS Special purpose corporation Transamerica Aviation 429/448 Corp. Delaware 100% TEFS Special purpose corporation Transamerica Aviation 630 Corp. Delaware 100% TEFS Special purpose corporation TA Steel I, LLC Delaware 100% TEFS Special purpose corporation Transamerica Aviation 24245/24246 Delaware 100% TEFS Special purpose Corp. corporation TA Heli I, Inc. Delaware 100% TEFS Special purpose corporation
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business TA Marine I, Inc. Delaware 100% TEFS Special purpose corporation TA Marine II, Inc. Delaware 100% TEFS Special purpose corporation TA Marine IV, Inc. Delaware 100% TEFS Special purpose corporation TA Marine VI, Inc. Delaware 100% TEFS Special purpose corporation TA Marine V, Inc. Delaware 100% TEFS Special purpose corporation TA Marine III, Corp. Delaware 100% TEFS Special purpose corporation TA Public Finance Air I, Corp. Delaware 100% TEFS Special purpose corporation TBC I, Inc. Delaware 100% T Holdings, Inc. Special purpose corporation Facta, LLP Delaware 100% TBC I, Inc. Commercial finance TBC III, Inc. Delaware 100% T Holdings, Inc. Special purpose corporation Transcap Trade Finance Delaware 100% TBC III, Inc. Commercial finance TBC IV, Inc. Delaware 100% T Holdings, Inc. Special purpose corporation Transamerica Commercial Real Estate Delaware 100% T Holdings, Inc. Bridge financing Finance, LLC TBC V, Inc. Delaware 100% T Holdings, Inc. Special purpose corporation Breakthrough Funding LLP Delaware 100% TBC V, Inc. Commercial finance TBC Tax I, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax II, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax III, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax IV, Inc. Delaware 100% M Credit, Inc. Special purpose corporation
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business TBC Tax V, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax VI, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax VII, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax VIII, Inc. Delaware 100% M Credit, Inc. Special purpose corporation TBC Tax IX, Inc. Delaware 100% M Credit, Inc. Special purpose corporation The Plain Company Delaware 100% TEFS Special purpose corporation Transamerica Distribution Finance Delaware 100% TCFCI Holding company Corporation ("TDFC") Transamerica Accounts Holding Corp. Delaware 100% TDFC Holding company ARS Funding Corporation Delaware 100% Transamerica Accounts Holding Dormant Corporation Transamerica Commercial Finance Delaware 100% TIFC Finance company Corporation ("TCFC") Transamerica Acquisition Canada 100% TCFCC Holding company Corporation, Canada Transamerica Distribution Finance Delaware 100% TCFC Commercial Finance Corporation - Overseas, Inc. ("TDFOI") TDF Mauritius Limited Mauritius 100% TDFOI Mauritius holding company Transamerica Apple Distribution India 69.94% TDF-Mauritius, Limited Transamerica Finance Public Limited Distribution Finance Joint Venture Inventory Funding Trust Delaware 100% TCFC Delaware Business Trust Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust Holding company TCF Asset Management Corporation Colorado 100% TCFC A depository for foreclosed real and personal property
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Distribution Finance Illinois 100% TCFC Special purpose Insurance Services, Inc. corporation Transamerica Distribution Finance Mexico 99% TCFC Inactive Factorje S.A. DE C.V. Transamerica Joint Ventures, Inc. Delaware 100% TCFC Holding company Amana Finance Illinois 50% Transamerica Joint Ventures, Commercial finance Inc. American Standard Financial Services Illinois 50% Transamerica Joint Ventures, Finance Inc. Penske Financial Services LLC Delaware 50% Transamerica Joint Ventures, Commercial finance Inc. Polaris Acceptance Illinois 50% Transamerica Joint Ventures, Commercial finance Inc. Transamerica Inventory Finance Delaware 100% TDFC Holding company Corporation ("TIFC") Transamerica GmbH, Inc. Delaware 100% TIFC Holding company Transamerica Netherlands 100% Trans. GmbH, Inc. Commercial lending in Fincieringsmaatschappij B.V. Europe BWAC Seventeen, Inc. Delaware 100% TIFC Holding company Transamerica Commercial Finance Ontario 100% BWAC Seventeen, Inc. Dormant Canada, Limited Transamerica Commercial Finance Canada 100% BWAC Seventeen, Inc. Commercial finance Corporation, Canada Cantrex Group Inc. Quebec 76% TACC Buying group and retail merchant services 2953-9087 Quebec Inc. Quebec 100% Cantrex Group, Inc. Dormant Corbeil Electrique, Inc. Quebec 100% Cantrex Group, Inc. Dormant Prestex Marketing, Inc. Quebec 100% Cantrex Group, Inc. Dormant BWAC Twenty-One, Inc. Delaware 100% TIFC Holding company ODBH Ltd/Harley Davidson Acceptance United Kingdom 100% BWAC Twenty-One, Inc. Finance Transamerica Technology Services United Kingdom 100% TCFL Inactive Limited
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Commercial Finance U.K. 100% Transamerica Commercial Commercial lending Limited ("TCFL") Holdings Limited TDF Credit Insurance Services U.K. 100% TCFL Credit insurance Limited brokerage Whirlpool Financial Corporation Poland 100% TCFL Inactive - commercial Polska Spozoo finance Transamerica Commercial Holdings U.K. 33% BWAC Twenty-One Inc. Holding company Limited Transamerica Trailer Leasing Limited New York 100% Transamerica Commercial Special purpose Holdings Limited corporation Transamerica Distribution Capital Spain 100% Transamerica Commercial Inactive Services, Iberica Holdings Limited Transamerica Commercial Finance France 100% TIFC Factoring company France S.A. Transamerica GmbH Frankfurt, Germany 100% GmbH Commercial lending in Germany Transamerica Retail Financial Delaware 100% TDFC Provides retail Services Corporation ("TRFSC") financing Transamerica Bank, NA Delaware 100% TRFSC Bank Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance Holding Company ("TCFHC") holding company Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages Transamerica Consumer Mortgage Delaware 100% TCFHC Securitization company Receivables Company Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages First Florida Appraisal Services, Florida 100% Metropolitan Mtg. Co. Appraisal and Inc. inspection services First Georgia Appraisal Services, Georgia 100% First FL App. Srvc, Inc. Appraisal services Inc. Freedom Tax Services, Inc. Florida 100%. Metropolitan Mtg. Co. Property tax information services J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and marketing services J.J. & W. Realty Services, Inc. Florida 100% Metropolitan Mtg. Co. To hold problem REO properties
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Liberty Mortgage Company of Ft. Florida 100% Metropolitan Mtg. Co. No active business/Name Myers, Inc. holding only Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name holding only Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name holding only Transamerica Vendor Financial Delaware 100% TDFC Provides commercial Service Corporation leasing Transamerica Distribution Finance Mexico 99% TCFC Holding company in Corporation de Mexico S. de R.L. Mexican subsidiaries de C.V. TDF de Mexico S. de R.L. de C.V. Mexico 99% TDFC Mex Service company for Whirlpool receivables Transamerica Corporate Services De Mexico 99% TDFC Mex Holds employees Mexico S. de R.L. de CV Transamerica Distribution Finance Mexico 99% TCFC Finance company Factorje S.A. de C.V. Transamerica Distribution Finance Illinois 100% TCFC Finance company Insurance Services, Inc. Transamerica Flood Hazard Delaware 100% TFC Flood Zone Certification, Inc. certification service Transamerica Home Loan California 100% TFC Consumer mortgages Transamerica Lending Company Delaware 100% TFC In liquidation - lending Transamerica Public Finance, LLC Delaware 70% TFC Financial Services Transamerica Financial Products, California 100% Transamerica Corp. Investments Inc. Transamerica Insurance Corporation Iowa 100% TIHI Holding company ("TIC") Plaza Insurance Sales Inc. California 100% TIC Casualty insurance placement Transamerica Advisors, Inc. California 100% TIC Retail sale of investment advisory services
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Annuity Services Corp. New Mexico 100% TIC Performs services required for structured settlements Transamerica Financial Advisors, Delaware 100% TIC Retail sale of Inc. securities products Financial Resources Insurance Texas 100% Transamerica Fin. Adv. Retail sale of Agency of Texas securities products TBK Insurance Agency of Ohio, Inc. Ohio 100% Transamerica Fin Adv. Variable insurance contract sales in state of Ohio Transamerica Financial Resources Alabama 100% Transamerica Fin. Adv. Insurance agent & broker Agency of Alabama, Inc. Transamerica Financial Resources Massachusetts 100% Transamerica Fin. Adv. Insurance agent & broker Ins. Agency of Massachusetts, Inc. Transamerica International Delaware 100% TIC Holding & administering Insurance Services, Inc. ("TIISI") foreign operations AEGON Canada Inc. ("ACI") Canada 100% TIHI Holding company Transamerica Life Canada Canada 100% ACI Life insurance company Home Loans and Finance Ltd. U.K. 100% TIISI Inactive Transamerica Occidental Life Iowa 100% TIC Life insurance Insurance Company ("TOLIC") NEF Investment Company California 100% TOLIC Real estate development Transamerica China Investments Hong Kong 99% TOLIC Holding company Holdings Limited Transamerica Life Insurance and N. Carolina 100% TOLIC Life insurance Annuity Company ("TALIAC") Transamerica Assurance Company Missouri 100% TALIAC Life and disability insurance Gemini Investments, Inc. Delaware 100% TALIAC Investment subsidiary Transamerica Life Insurance Company New York 100% TOLIC Insurance sales of New York Transamerica South Park Resources, Delaware 100% TOLIC Market analysis Inc.
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Variable Insurance Fund Maryland 100% TOLIC Mutual Fund USA Administration Services, Inc. Kansas 100% TOLIC Third party administrator Transamerica Products, Inc. ("TPI") California 100% TIC Holding company Transamerica Products I, Inc. California 100% TPI Co-general partner Transamerica Securities Sales Corp. Maryland 100% TIC Life insurance sales Transamerica Service Company Delaware 100% TIC Passive loss tax service Transamerica International RE Bermuda 100% TAC Reinsurance (Bermuda) Ltd. Transamerica Intellitech, Inc. Delaware 100% TFC Real estate information and technology services Transamerica International Delaware 100% TAC Holding company Holdings, Inc. ("TIHI") Transamerica Investment Services, Delaware 100% TAC Investment adviser Inc. ("TISI") Transamerica Income Shares, Inc. Maryland 100% TISI Mutual fund Transamerica Real Estate Tax Delaware 100% TFC Real estate tax Service, Inc. reporting and processing services Transamerica Realty Services, Inc. Delaware 100% TAC Real estate investments ("TRS") Bankers Mortgage Company of CA California 100% TRS Investment management Pyramid Investment Corporation Delaware 100% TRS Real estate company The Gilwell Company California 100% TRS Ground lessee of 517 Washington Street, San Francisco Transamerica Affordable Housing, California 100% TRS General partner LHTC Inc. Partnership Transamerica Minerals Company California 100% TRS Owner and lessor of oil and gas properties
Name Jurisdiction of Percent of Voting Securities Incorporation Owned Business Transamerica Oakmont Corporation California 100% TRS General partner retirement properties Auto Funding Services, LLC Delaware 100% TBCC Commercial lending TBCC Funding II, L.L.C. Delaware 100% TBCC Funding Trust II Special purpose corporation Private Label Funding LLC Delaware 100% TBCC Funding Trust II Special purpose corporation TBCC Funding Trust II Delaware 100% TCFCI Trust TBCC Funding I, L.L.C. Delaware 100% TBCC Funding I, LLC Special purpose corporation TBCC Funding Trust I Delaware 100% TCFCI Trust Direct Capital Partners, LLC Delaware Various members Investment banking Inland Water Transportation LLC Delaware 100% Direct Capital Partners, L.P. Finance barges Direct Capital Partners, L.P. Delaware 100% Direct Capital Partners, LLC Investment banking Transamerica Business Capital Delaware 100% TCFCI Commercial lending Corporation Transamerica Technology Finance Delaware 100% TCFCI Commercial lending Corporation
Item 27. Number of Contract Owners As of December 31, 2001, there were 19 Contract owners. Item 28. Indemnification The Iowa Code (Sections 490.850 et. seq.) provides for permissive ------- indemnification in certain situations, mandatory indemnification in other situations, and prohibits indemnification in certain situations. The Code also specifies producers for determining when indemnification payments can be made. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Depositor of expenses incurred or paid by a director, officer or controlling person in connection with the securities being registered), the Depositor will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. Principal Underwriters AFSG Securities Corporation 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499-0001 The directors and officers of AFSG Securities Corporation are as follows: Larry N. Norman Thomas R. Moriarty Director and President Vice President Frank A. Camp Teresa L. Stolba Secretary Assistant Compliance Officer Lisa Wachendorf Linda Gilmer Director, Vice President and Controller and Treasurer Chief Compliance Officer Priscilla Hechler Anne M. Spaes Assistant Vice President and Assistant Director and Vice President Secretary Emily Bates Assistant Treasurer Clifton Flenniken Darin D. Smith Assistant Treasurer Vice President and Assistant Secretary The principal business address of each person listed is AFSG Securities Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001. Commissions and Other Compensation Received by Principal Underwriter. -------------------------------------------------------------------- AFSG Securities Corporation, the broker/ dealer, received $ 82,387.19 from the Registrant for the year ending December 31, 2001, for its services in distributing the Policies. No other commission or compensation was received by the principal underwriter, directly or indirectly, from the Registrant during the fiscal year. AFSG Securities Corporation serves as the principal underwriter for Separate Account VA B, the Retirement Builder Variable Annuity Account, Separate Account VA A, Separate Account VA C, Separate Account VA D, Separate Account VA E, Separate Account VA F, Separate Account VA I, Separate Account VA J, Separate Account VL A and Legacy Builder Variable Life Separate Account. These accounts are separate accounts of Transamerica Life Insurance Company. AFSG Securities Corporation serves as principal underwriter for Separate Account VA BNY, Separate Account C, AUSA Series Life Account, AUSA Series Annuity Account and AUSA Series Annuity Account B. These accounts are separate accounts of AUSA Life Insurance Company, Inc. AFSG Securities Corporation serves as principal underwriter for Separate Account I, Separate Account II and Separate Account V. These accounts are separate accounts of Peoples Benefit Life Insurance Company. AFSG Securities Corporation serves as principal underwriter for WRL Series Life Account, WRL Series Annuity Account and WRL Series Annuity Account B. These accounts are separate accounts of Western Reserve Life Assurance Company of Ohio. AFSG Securities Corporation also serves as principal underwriter for Separate Account VA G, Separate Account VA H, Separate Account VA-2L and Transamerica Occidental Life Separate Account VUL-3. These accounts are separate accounts of Transamerica Occidental Life Insurance Company. AFSG Securities Corporation also serves as principal underwriter for Separate Account VA-2LNY. This account is a separate account of Transamerica Life Insurance Company of New York. Item 30. Location of Accounts and Records The records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by Transamerica Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. Item 31. Management Services. All management Contracts are discussed in Part A or Part B. Item 32. Undertakings (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 Premiums under the Contract may be accepted. (b) Registrant undertakes that it will include either (i) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information or (ii) a space in the Policy application that an applicant can check to request 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 Life Insurance Company at the address or phone number listed in the Prospectus. (d) Transamerica Life Insurance Company hereby represents that the fees and charges deducted under the contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Transamerica Life Insurance Company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant hereby certifies that this Amendment to the Registration Statement meets the requirements for effectiveness pursuant to paragraph (b) of Rule 485 and has caused this Registration Statement to be signed on its behalf, in the City of Cedar Rapids and State of Iowa, on this 26 day of April, 2002. SEPARATE ACCOUNT VA F TRANSAMERICA LIFE INSURANCE COMPANY Depositor * ---------------------------------- Larry N. Norman President As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the duties indicated. Signatures Title Date ---------- ----- ---- * Director __________, 2002 ----------------------- Patrick S. Baird * Director __________, 2002 ----------------------- (Principal Executive Officer) Larry N. Norman /s/ Craig D. Vermie * Director April 26, 2002 ----------------------- Craid D. Vermie * Director __________, 2002 ----------------------- Douglas C. Kolsrud * Vice President and __________, 2002 ----------------------- Corporate Controller Robert J. Kontz * Director, Vice President, __________, 2002 ----------------------- Treasurer and Chief Brenda K. Clancy Financial Officer *By Craig D. Vermie, Attorney-in-Fact Registration No. 333-62738 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________ EXHIBITS TO FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR PREMIER ASSET BUILDER VARIABLE ANNUITY _______________ EXHIBIT INDEX -------------
Exhibit No. Description of Exhibit Page No.* ---------- ----------------------- ---------- (8)(a)(5) Form of Amendment No. 20 to Participation Agreement (8)(e)(2) Amendment No. 6 to Participation Agreement (8)(i) Form of Participation Agreement (Liberty) (10)(a) Consent of Independent Auditors (10)(b) Opinion and Consent of Actuary
_________________________________ * Page numbers included only in manually executed original.