485BPOS 1 d485bpos.htm 485BPOS 485BPOS

As filed with the Securities and Exchange Commission on April 28, 2005

Registration No. 333-110049

811-21461

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FLEXIBLE PREMIUM VARIABLE ANNUITY—B

 

FORM N-4

 

REGISTRATION STATEMENT UNDER THE

SECURITIES ACT OF 1933

Pre-Effective Amendment No.          

Post-Effective Amendment No. 2

 

and

 

REGISTRATION STATEMENT UNDER

THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 3

 

 

SEPARATE ACCOUNT VA Q

(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

 

Darin D. Smith, 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

 

 

 

It is proposed that this filing become effective:

 

¨ immediately upon filing pursuant to paragraph (b) of Rule 485

 

x on May, 1, 2005 pursuant to paragraph (b) of Rule 485

 

¨ 60 days after filing pursuant to paragraph (a)(1) of Rule 485

 

¨ on                      pursuant to paragraph (a)(1) 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

FLEXIBLE PREMIUM VARIABLE ANNUITY- B

 

Issued by

 

TRANSAMERICA LIFE INSURANCE COMPANY

 

Supplement Dated May 1, 2005

 

to the

 

Prospectus dated May 1, 2005

 

Effective immediately, we will not accept any premium payment that is allocated to the fixed account in excess of $5,000, except the dollar cost averaging fixed account option. We also will not accept any premium payment or transfer which would result in the policy value in the fixed account exceeding $5,000, except the dollar cost averaging fixed account option.

 

This Prospectus Supplement must be accompanied or preceded

by the Prospectus for the

Flexible Premium Variable Annuity - B dated May 1, 2005

FLEXIBLE PREMIUM VARIABLE ANNUITY – B

 

Issued by

 

TRANSAMERICA LIFE INSURANCE COMPANY

 

Supplement dated May 1, 2005

to the

Prospectus dated May 1, 2005

 

5 FOR LIFE RIDER

 

You may elect to purchase the optional 5 For Life rider which provides you with a guaranteed minimum withdrawal benefit. This rider is available during the accumulation phase but it will not be issued if the annuitant is age 91 or older. The maximum issue age may be lower if required by state law.

 

You should view this rider as a way to permit you to invest in variable investment options while still having your liquidity protected to the extent provided hereby.

 

The 5 For Life rider may vary for certain policies and may not be available for all policies. Please contact Transamerica at (800) 525-6205 for additional information regarding the availability of the 5 For Life rider.

 

This supplement hereby amends, and to the extent inconsistent replaces, the prospectus disclosure.

 

Fee Table

 

Optional Rider Fees:

       

5 For Life Rider(1)

    0.60 %
(1) The fee is a percentage of the total withdrawal base.

 

5 For Life Benefit

 

This benefit is intended to provide a level of cash withdrawals regardless of the performance of the variable investment options you select. If you elect this benefit, we will provide a maximum annual withdrawal amount regardless of your policy value (your ability to change the frequency or amount of your withdrawal ceases if your policy value reaches zero). Under this benefit, you can withdraw up to 5% of the total withdrawal base each calendar year starting with the calendar year immediately following the annuitant’s 59th birthday until the annuitant’s death (unless your minimum remaining withdrawal amount is reduced to zero because of “excess” withdrawals; see adjusted partial withdrawals, below). All withdrawals before age 59 are excess withdrawals.

 

This Prospectus Supplement must be accompanied or preceded

by the Prospectus for the

Flexible Premium Variable Annuity - B dated May 1, 2005

Example. Assume you are the owner and annuitant and you make a single premium payment of $100,000 when you are 55 years old. Further assume that you do not make any additional withdrawals or premium payments, but that after five years your policy value has declined to $70,000 solely because of negative investment performance. You could still withdraw up to $5,000 each calendar year for the rest of your life (assuming that you do not withdraw more than $5,000 in any one year.)

 

Of course, you can always withdraw an amount up to your cash value pursuant to your rights under the policy at your discretion. Please note, the amount of your gross partial withdrawal may impact the maximum annual withdrawal amount, total withdrawal base, and minimum remaining withdrawal amount and such impact may be on a greater than dollar-for-dollar basis.

 

Withdrawals under this benefit also:

 

•   reduce your policy value;

 

•   reduce your death benefit and other benefits;

 

•   may be subject to surrender charges and excess interest adjustments;

 

•   may be subject to income taxes and federal tax penalties; and

 

•   may be limited or restricted under certain qualified policies.

 

Rider Issue Requirements. The Company will not issue the 5 For Life Rider unless:

 

•   the annuitant is age 90 or younger;

 

•   the annuitant is also an owner (except in the case of non-natural owners);

 

•   there are no more than two owners.

 

Maximum Annual Withdrawal Amount. You can withdraw up to the maximum annual withdrawal amount in any calendar year without causing an excess withdrawal. See adjusted partial withdrawals.

 

The maximum annual withdrawal amount is zero if the annuitant is not 59 years old on the rider date. The maximum annual withdrawal amount remains zero until the first day of the calendar year after the annuitant’s 59th birthday. The maximum annual withdrawal amount for that calendar year and each subsequent calendar year is equal to 5% of the total withdrawal base.

 

If the annuitant is at least 59 years old on the rider date the maximum annual withdrawal amount in the year the rider is elected is equal to 5% of the total withdrawal base prorated based on the number of days from the rider date to the end of the calendar year. Thereafter, the maximum annual withdrawal amount for each calendar year is equal to 5% of the total withdrawal base.

 

For qualified policies:

 

If the annuitant is at least 70 1/2 years old, the maximum annual withdrawal amount for that calendar year (and each subsequent calendar year) is equal to the greater of:

 

•   the maximum annual withdrawal amount described above; or

 

•   an amount equal to a minimum required distribution amount calculated using only: (1) the living annuitant’s age, (2) the IRS Uniform Lifetime table or, if applicable, the Joint Life and Survivor Expectancy table, (3) the policy value of the base policy, and (4) amounts from the current calendar year (no carry-over from past years). An amount not calculated as set forth above cannot be used as the maximum annual withdrawal amount.

 

2

You can take withdrawals under this rider regardless of your policy value; however, once your policy value reaches zero you cannot make premium payments and all other policy features, benefits, and guarantees (except those provided by this rider) are terminated. In order to continue withdrawals under this rider after your policy value reaches zero, you must select an amount and frequency of future withdrawals. Once selected, the amount and frequency of future withdrawals after your policy value reaches zero cannot be changed.

 

Please note:

 

•   The maximum annual withdrawal amount described above is based on calendar years, not rider or policy years.

 

•   If the rider is added prior to the annuitant’s 59th birthday, the maximum annual withdrawal amount will be zero until the beginning of the calendar year (January 1st) after the annuitant’s 59th birthday, however, you will still be charged a rider fee prior to this time.

 

•   Since the total withdrawal base of the rider is equal to the policy value on the rider date, the maximum annual withdrawal amount may decrease if the policy value decreases prior to the rider date.

 

Total Withdrawal Base. We use the total withdrawal base to calculate the maximum annual withdrawal amount. The total withdrawal base on the rider date is the policy value (less any premium enhancement). After the rider date, the total withdrawal base is equal to the total withdrawal base on the rider date, plus subsequent premium payments, less subsequent adjusted partial withdrawals.

 

Minimum Remaining Withdrawal Amount. The minimum remaining withdrawal amount represents the total amount of guaranteed withdrawals still available under the rider. The minimum remaining withdrawal amount on the rider date is the policy value (less any premium enhancement if the rider is added in the first policy year). After the rider date, the minimum remaining withdrawal amount is equal to:

 

•   the minimum remaining withdrawal amount on the rider date; plus

 

•   subsequent premium payments; less

 

•   subsequent adjusted partial withdrawals (as described below).

 

Adjusted Partial Withdrawals. Each rider year, gross partial withdrawals up to the maximum annual withdrawal amount will reduce the minimum remaining withdrawal amount on a dollar-for-dollar basis but will not reduce the total withdrawal base. Gross partial withdrawals in excess of the maximum annual withdrawal amount will reduce the total withdrawal base and minimum remaining withdrawal amount by the greater of the dollar amount of the withdrawal or on a pro rata basis (possibly to zero). See the SAI for examples showing the effect of hypothetical withdrawals in more detail. Excess withdrawals may eliminate the guarantee offered by this rider.

 

Please note: Gross partial withdrawals of greater than the maximum annual withdrawal amount will result in an excess partial withdrawal as will any partial withdrawal before the January 1st following the annuitant’s 59th birthday and will reduce the maximum annual withdrawal amount, total withdrawal base, and minimum remaining withdrawal amount and such reduction may be on a greater than dollar-for-dollar basis.

 

5 For Life Rider Fee. A rider fee, 0.60% of the total withdrawal base on each rider anniversary, is charged annually prior to annuitization. We will also deduct the rider fee pro rata 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 from each investment choice in proportion to the amount of policy value in each investment option. Generally, the rider fee is deducted regardless of your values.

 

3

Designated Investment Options. If you elect the 5 For Life benefit, you must allocate 100% of your policy value to the following “designated funds:”

 

Asset Allocation – Conservative Portfolio

 

– Service Class

 

Asset Allocation – Moderate Portfolio

 

– Service Class

 

Asset Allocation – Moderate Growth Portfolio

 

– Service Class

 

Fixed Account

 

If you elect this rider, you may transfer amounts among the designated funds; however, you cannot transfer any amount to any other subaccount. After the third rider anniversary, you can terminate this rider. Terminating the rider will result in losing all your benefits under this rider. Starting the next business day you may transfer to a non-designated fund.

 

Upgrades. You can upgrade the total withdrawal base to the policy value after the third rider anniversary by sending us written notice (we reserve the right to limit your upgrade election to a 30-day period following a rider anniversary). At this time the minimum remaining withdrawal amount and maximum annual withdrawal amount will be recalculated. If an upgrade is elected, your current rider will terminate and a new rider will be issued with a new rider date and its own rider fee percentage (which may be higher than your current rider fee percentage). The new rider effective date will be the date the Company receives all necessary information.

 

Death Benefit. If you elect the 5 For Life benefit, upon the death of the annuitant we will add an additional amount to the death benefit payable. The additional amount will be equal to the excess, if any, of the minimum remaining withdrawal amount over the base policy death benefit.

 

If an owner who is not the annuitant dies and the surviving spouse continues the policy, no additional amount is payable. If the policy is not continued, the surviving owner may elect to annuitize the maximum annual withdrawal amount instead of receiving the cash value. If such an election is made, the policy is terminated and the cash value is forfeited.

 

Termination. The 5 For Life rider will terminate upon the earliest of the following:

 

•   the date we receive written notice from you requesting termination of the 5 For Life rider (you may not terminate the rider before the third rider anniversary);

 

•   the annuitant’s death;

 

•   annuitization; or

 

•   termination of your policy.

 

The 5 For Life rider may vary for certain optional features, certain policies and may not be available for all policies.

 

4

FLEXIBLE PREMIUM VARIABLE ANNUITY - B

 

Issued by

 

TRANSAMERICA LIFE INSURANCE COMPANY

 

Supplement dated May 1, 2005

to the

Prospectus dated May 1, 2005

 

LIVING BENEFITS RIDER

 

You may elect to purchase the optional living benefits rider which provides you with a guaranteed minimum accumulation benefit and a guaranteed minimum withdrawal benefit. The living benefits rider is available during the accumulation phase but it will not be issued if the annuitant is age 81 or older. The maximum issue age may be lower if required by state law.

 

You should view the living benefits rider as a way to permit you to invest in variable investment options while still having your policy value and liquidity protected to the extent provided by the living benefits rider. Please note: You cannot elect this rider if you have elected certain other optional benefits under the policy. Certain protections under the rider are available only if you hold the rider for ten years. In addition, if you elect the rider, we will monitor your policy value and may transfer amounts back and forth between specified investment options under the policy and the variable investment options you choose, according to a mathematical model that we will use to assist us in managing portfolio risk and supporting the guarantees under the rider.

 

The living benefits rider may vary for certain policies and may not be available for all policies. Please contact Transamerica at (800) 525-6205 for additional information regarding the availability of the living benefits rider.

 

This supplement hereby amends, and to the extent inconsistent replaces, the prospectus.

 

Fee Table

 

Optional Rider Fees:

       

Living Benefits Rider(1)

    0.60 %
(1) The fee is a percentage of the “principal back” total withdrawal base.

 

Guaranteed Minimum Accumulation Benefit

 

If you elect the living benefits rider, we will provide a guaranteed future value. This benefit is intended to provide a level of protection regardless of the performance of the variable investment options you select.

 

This Prospectus Supplement must be accompanied or preceded

by the Prospectus for the

Flexible Premium Variable Annuity – B dated May 1, 2005

Guaranteed Future Value. The guaranteed future value on the rider date (i.e., the date the rider is added to the policy) is the policy value (less premium enhancements if the rider is added in the first policy year). After the rider date and before the guaranteed future value date, which is the tenth rider anniversary, the guaranteed future value is equal to:

 

  •   the guaranteed future value on the rider date; plus

 

  •   a percentage of subsequent premium payments (as described below); less

 

  •   subsequent adjusted partial withdrawals (as described below).

 

After the guaranteed future value date the guaranteed future value equals zero.

 

Subsequent Premium Payments. The percentage of subsequent premium payments that will be added to the guaranteed future value are as follows:

 

Rider Year

   

Percent of subsequent

premium payments added to

guaranteed future value

  

1

    100 %

2

    90 %

3

    80 %

4

    70 %

5

    60 %

6

    50 %

7

    50 %

8

    50 %

9

    50 %

10

    0 %

 

Guaranteed Future Value Adjusted Partial Withdrawals. If you take a partial withdrawal, it will reduce your guaranteed future value. The amount of the reduction is referred to as the adjusted partial withdrawal amount, which will be equal to the greater of:

 

•   the guaranteed future value immediately prior to the withdrawal multiplied by the percentage reduction in the policy value resulting from the gross partial withdrawal; or

 

•   the gross partial withdrawal amount.

 

(The gross partial withdrawal amount is the amount you request, plus any surrender charges and excess interest adjustments that may be applicable.)

 

In other words, if your policy value is greater than the guaranteed future value at the time you make a partial withdrawal, then your guaranteed future value is reduced by the same amount we reduce your policy value. However, if your policy value is less than the guaranteed future value at the time you make a partial withdrawal, then your guaranteed future value will be reduced by more than the amount we reduce your policy value.

 

See the supplement to the SAI for examples showing the effect of hypothetical withdrawals in more detail.

 

Guaranteed Minimum Accumulation Benefit. On the guaranteed future value date (ten years after you elect the rider), if the policy value is less than the guaranteed future value, we will add an amount equal to the difference to your policy value. After the guaranteed future value date, the guaranteed minimum accumulation benefit will terminate.

 

2

Example. Assume you make a single premium payment of $100,000 and you do not make any withdrawals or additional premium payments. Assume that on the guaranteed future value date your policy value has declined to $90,000 because of negative investment performance. We will add $10,000 to your policy value.

 

Please note: You do not have any protection under the guaranteed minimum accumulation benefit unless you hold the rider for ten years. If you think that you may terminate the policy or elect to start receiving annuity payments before the guaranteed future value date, you should consider whether electing the rider is in your best interests.

 

Guaranteed Minimum Withdrawal Benefit

 

If you elect the living benefits rider, we will provide a maximum annual withdrawal amount regardless of your policy value. This benefit is intended to provide a level of liquidity regardless of the performance of the variable investment options you select.

 

Withdrawal Guarantees. There are two withdrawal guarantees under this benefit:

 

  •   “principal back;” and

 

  •   “for life.”

 

You can take withdrawals under either guarantee or alternate between the guarantees (your ability to change the frequency or amount of your withdrawals ceases if your policy value reaches zero). Of course, you can always withdraw an amount up to your cash value pursuant to your rights under the policy at your discretion. Please note, the amount of your gross partial withdrawal may impact the maximum annual withdrawal amount, total withdrawal base, and minimum remaining withdrawal amount under each guarantee and such impact may be on a greater than dollar-for-dollar basis.

 

Withdrawals under the guaranteed minimum withdrawal benefit also:

 

  •   reduce your policy value;

 

  •   reduce your death benefit and other benefits;

 

  •   may be subject to surrender charges and excess interest adjustments; and

 

  •   may be subject to income taxes and federal tax penalties.

 

Maximum Annual Withdrawal Amount. Under this benefit, you can withdraw up to:

 

  •   7% of your “principal back” total withdrawal base each rider year until your “principal back” minimum remaining withdrawal amount reaches zero; or

 

Example. Assume you make a single premium payment of $100,000 and that you do not make any withdrawals or additional premium payments. Assume that after five years, your policy value has declined to $70,000 solely because of negative investment performance. You could still withdraw up to $7,000 each rider year for the next fourteen years and $2,000 in the next year so you would get back your full $100,000 (assuming that you do not withdraw more than $7,000 in any one rider year).

 

  •   5% of your “for life” total withdrawal base each rider year starting with the rider anniversary immediately following the annuitant’s 59th birthday until the annuitant’s death unless your “for life” minimum remaining withdrawal amount reaches zero because of “excess” withdrawals (see adjusted partial withdrawals, below). All withdrawals before the annuitant’s 59th birthday are excess withdrawals for purposes of the “for life” guarantee.

 

3

Example. Assume you are the owner and annuitant and you make a single premium payment of $100,000 when you are 55 years old. Assume you do not make any withdrawals or additional premium payments. Assume that after five years, your policy value has declined to $70,000 solely because of negative investment performance. You could still withdraw up to $5,000 each rider year for the rest of your life (assuming that you do not withdraw more than $5,000 in any one rider year).

 

You can take withdrawals under this rider regardless of your policy value; however, once your policy value reaches zero you cannot make premium payments and all other policy features, benefits, and guarantees (except those provided by this rider) are terminated. In order to continue withdrawals under this rider after your policy value reaches zero, you must select an amount and frequency of future withdrawals. Once selected, the amount and frequency of future withdrawals after your policy value reaches zero cannot be changed.

 

Please note:

 

  •   Withdrawals under the 5% “for life” guarantee cannot be commenced until after the annuitant’s 59th birthday.

 

  •   Any withdrawal before the annuitant’s 59th birthday will reduce the benefits under the 5% “for life” guarantee.

 

  •   The maximum annual withdrawal amounts described above (the 7% “principal back” and 5% “for life”) are based on rider years, not calendar or policy years (if different from rider years).

 

Total Withdrawal Base. We use the total withdrawal base to calculate the maximum annual withdrawal amount. The total withdrawal base on the rider date is the policy value (less premium enhancements if the rider is added in the first policy year). After the rider date, the total withdrawal base is equal to:

 

  •   the total withdrawal base on the rider date; plus

 

  •   subsequent premium payments; less

 

  •   subsequent adjusted partial withdrawals (as described below).

 

We will calculate separate total withdrawal bases for the “principal back” and “for life” guarantees.

 

Minimum Remaining Withdrawal Amount. The minimum remaining withdrawal amount represents the total amount of guaranteed withdrawals still available under the rider. The minimum remaining withdrawal amount on the rider date is the policy value (less premium enhancements if the rider is added in the first policy year). After the rider date, the minimum remaining withdrawal amount is equal to:

 

  •   the minimum remaining withdrawal amount on the rider date; plus

 

  •   subsequent premium payments; less

 

  •   subsequent adjusted partial withdrawals (as described below).

 

We will calculate separate minimum remaining withdrawal amounts for the “principal back” and “for life” guarantees.

 

Adjusted Partial Withdrawals. Each rider year, gross partial withdrawals up to the maximum annual withdrawal amount for the “principal back” and “for life” guarantees will reduce the minimum remaining withdrawal amount on a dollar-for-dollar basis but will not reduce the total withdrawal base for the “principal back” and “for life” guarantees. Gross partial withdrawals in excess of the maximum annual withdrawal amount for the “principal back” and “for life” guarantees will reduce the total withdrawal base and minimum remaining withdrawal amount for the “principal back” and “for life” guarantees on a pro rata basis (possibly to zero). See the supplement to the SAI for examples showing the effect of hypothetical withdrawals in more detail. Excess withdrawals may eliminate the guarantees.

 

4

Please note: Gross partial withdrawals of the “principal back” maximum annual withdrawal amount will result in an excess partial withdrawal under the “for life” guarantee as will any partial withdrawal before the rider anniversary following the annuitant’s 59th birthday and will reduce the “for life” maximum annual withdrawal amount, “for life” total withdrawal base, and “for life” minimum remaining withdrawal amount and such reduction may be on a greater than dollar-for-dollar basis. The effect of a 7% “principal back” withdrawal is illustrated below.

 

               5% “For Life”

Date

   

Policy

Value

before the

Withdrawal

   

Gross

Withdrawal

   

Total

Withdrawal

Base

(TWB)

   

TWB

Adjustment

   

Minimum

Remaining

Withdrawal

Amount

(MRWA)

   

MRWA

Adjustment

   

Maximum

Annual

Withdrawal

Amount

11/01/03

    $ 100,000      —      $ 100,000.00      —      $ 100,000.00      —      $ 5,000.00

10/31/05

    $ 95,000    $ 7,000.00    $ 97,777.78    $ 2,222.22    $ 92,888.89    $ 7,111.11    $ 4,888.89

 

As this illustration shows, a 7% “principal back” withdrawal reduces the 5% “for life” total withdrawal base by $2,222.22, the 5% “for life” minimum remaining withdrawal amount by $7,111.11, and the 5% “for life” maximum annual withdrawal amount by $111.11.

 

Living Benefits Rider Fee

 

A rider fee, 0.60% of the “principal back” total withdrawal base on each rider anniversary, is charged annually prior to annuitization. We will also deduct the rider 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 from each investment choice in proportion to the amount of policy value in each investment option. Generally, the rider fee is deducted regardless of your values.

 

We will continue to calculate the rider fee using the “principal back” total withdrawal base even after the “principal back” minimum remaining withdrawal amount reaches zero. The “principal back” total withdrawal base is always greater than or equal to the “for life” total withdrawal base.

 

Portfolio Allocation Method

 

If you elect the living benefits rider, the Portfolio Allocation Method (“PAM”) will automatically be in effect. PAM is designed to help manage portfolio risk and support the guarantees under the living benefits rider. Using PAM, we will monitor your policy value and may transfer amounts back and forth between the PAM Transamerica U.S. Government Securities – Service Class subaccount (which invests in the Transamerica U.S. Government Securities – Service Class portfolio of the AEGON/Transamerica Series Fund, Inc.) or certain guaranteed period options of the fixed account (each a “PAM investment option” and collectively, the “PAM investment options”) and the variable investment options you choose. You should read the underlying fund prospectus for the variable PAM investment option(s) carefully before you elect the living benefits rider. We will transfer amounts from your variable investment options to the PAM investment options to the extent we deem, at our sole discretion, necessary to support the guarantees under the rider. We will transfer amounts to the PAM investment options proportionally from all your variable investment options. Currently, PAM transfers are being made to the PAM Transamerica U.S. Government Securities – Service Class subaccount.

 

5

PAM is designed to help reduce portfolio risk associated with negative performance. Using PAM, we will transfer amounts from your variable investment options to the PAM investment options to the extent we deem, in our sole discretion, necessary to help manage portfolio risk and support the guarantees under the living benefits rider. You should not view the living benefits rider nor PAM as a “market timing” or other type of investment program designed to enhance your policy value. If you choose this rider, it may result in a lower policy value in certain situations. If policy value is transferred from your chosen variable investment options to the PAM investment options, less of your policy value may be available to participate in any future positive investment performance of your variable investment options. This may potentially provide a lower policy value than if you did not select the living benefits rider.

 

We will use a mathematical model to compare your policy value and the guarantees to be provided in the future. Based upon this comparison, we may transfer some or all of your policy value to or from the PAM investment options.

 

You may not allocate premium payments to, nor transfer policy value into or out of, the PAM investment options. PAM transfers are not subject to any transfer fee and do not count against the number of any free transfers we allow. Transfers out of a fixed account PAM investment option are at our discretion and may be subject to an excess interest adjustment if the transfer occurs before the end of a guarantee period. Any transfer to your variable investment options will be allocated into your variable investment options in proportion to the amount of policy value in each variable investment option.

 

Generally, transfers to the PAM investment options first occur when the policy value drops by a cumulative amount of 3% to 5% over any period of time, although we may make transfers to the PAM investment options when the policy value drops by less than 3%. If the policy value continues to fall, more transfers to the PAM investment options will occur. When a transfer occurs, the transferred policy value is allocated to the PAM investment option(s) we deem appropriate. The policy value allocated to the PAM investment options will remain there unless the performance of your chosen investment options recovers sufficiently to enable us to transfer amounts back to your investment options while maintaining the guarantees under the living benefits rider. This generally occurs when the policy value increases by 5% to 10% in relation to the guarantees, although we may require a larger increase before transferring amounts back to your investment options.

 

Upgrades

 

Prior to the annuitants 86th birthday, you can upgrade the total withdrawal base and guaranteed future value to the policy value after the third rider anniversary by sending us written notice. At that time the minimum remaining withdrawal amounts will also be upgraded to the policy value and the maximum annual withdrawal amounts will be recalculated.

 

If an upgrade is elected, your current rider will terminate and a new rider will be issued with a new rider date, guaranteed future value date, and its own rider fee percentage (which may be higher than your current rider fee percentage). The principal back and for life withdrawal percentages will not change. The new rider effective date and guaranteed future value date will be the date the Company receives all necessary information.

 

6

Other

 

You cannot elect this rider if you have elected certain other optional benefits. Please contact us or your registered representative for more information.

 

Termination

 

The living benefits rider will terminate upon the earliest of the following:

 

  •   the date we receive written notice from you requesting termination of the living benefits rider (you may not terminate the rider before the third rider anniversary);

 

  •   annuitization; or

 

  •   termination of your policy.

 

The living benefits rider may vary for certain policies and may not be available for all policies.

 

7

FLEXIBLE PREMIUM VARIABLE ANNUITY - B

 

Issued Through

SEPARATE ACCOUNT VA Q

by

TRANSAMERICA LIFE INSURANCE COMPANY

 

Prospectus

May 1, 2005

 

This flexible premium deferred annuity policy has many investment choices. There is a separate account that currently offers various underlying fund portfolios. There is also a fixed account, which offers interest at rates that are guaranteed by Transamerica Life Insurance Company (Transamerica). You can choose any combination of these investment choices. You bear the entire investment risk for all amounts you put in the separate account.

 

This prospectus and the underlying fund portfolio prospectuses give you important information about the policies and the underlying fund portfolios. Please read them carefully before you invest and keep them for future reference.

 

If you would like more information about the Flexible Premium Variable Annuity - B, you can obtain a free copy of the Statement of Additional Information (SAI) dated May 1, 2005. Please call us at (800) 525-6205 or write us at: Transamerica Life Insurance Company, Attention: Customer Care Group, P. O. Box 3183, Cedar Rapids, Iowa, 52406-3183. A registration statement, including the SAI, has been filed with the Securities and Exchange Commission (SEC) and the SAI is incorporated herein by reference. More information about the variable annuity 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 separate account investment choices:

 

•   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.

PORTFOLIOS ASSOCIATED WITH THE SUBACCOUNTS

 

AEGON/Transamerica Series Trust

 

– Service Class

 

Subadvised by Banc One Investment Advisors Corporation

AEGON Bond

Portfolio Construction Manager: Morningstar Associates, LLC

Asset Allocation – Conservative Portfolio

Asset Allocation – Growth Portfolio

Asset Allocation – Moderate Portfolio

Asset Allocation – Moderate Growth Portfolio

Subadvised by Capital Guardian Trust Company

Capital Guardian Global

Capital Guardian Value

Subadvised by ING Clarion Real Estate Securities

Clarion Real Estate Securities

Subadvised by Federated Investment Counseling

Federated Growth & Income

Subadvised by J.P. Morgan Investment Management Inc.

J.P. Morgan Mid Cap Value

Subadvised by Janus Capital Management, LLC

Janus Growth

Subadvised by Jennison Associates, LLC

Jennison Growth

Subadvised by MFS® Investment Management

MFS High Yield

Subadvised by Pacific Investment Management Company LLC

PIMCO Total Return

Subadvised by T. Rowe Price Associates, Inc.

T. Rowe Price Equity Income

T. Rowe Price Small Cap

Subadvised by Third Avenue Management LLC

Third Avenue Value

Subadvised by Transamerica Investment Management, LLC

Transamerica Equity

Transamerica Growth Opportunities

Transamerica U.S. Government Securities

 

AIM Variable Insurance Funds – Series II

 

Managed by A I M Advisors, Inc.

AIM V.I. Blue Chip Fund

AIM V.I. Core Equity Fund

AIM V.I. Government Securities Fund

AIM V.I. International Growth Fund

 

AllianceBernstein Variable Products Series

 

Fund, Inc. – Class B

 

Managed by Alliance Capital Management L.P.

AllianceBernstein Large Cap Growth Portfolio

AllianceBernstein Global Technology Portfolio

 

Davis Variable Account Fund, Inc.

Managed by Davis Selected Advisers, L.P.

Davis Value Portfolio

 

Dreyfus Variable Investment

 

Fund – Service Class

Managed by The Dreyfus Corporation

Dreyfus VIF - Small Company Stock Portfolio

 

Federated Insurance Series

 

Managed by Federated Equity Management

Company of Pennsylvania

Federated American Leaders Fund II

Federated Capital Income Fund II

Managed by Federated Investment Management Company

Federated High Income Bond Fund II

Federated Quality Bond Fund II

 

Franklin Templeton Variable Insurance Products Trust – Class 2

 

Managed by Franklin Advisers, Inc.

Franklin Small-Midcap Growth Securities Fund

Managed by Franklin Mutual Advisers, LLC

Franklin Growth and Income Securities Fund

Mutual Shares Securities Fund

Managed by Templeton Asset Management Ltd.

Templeton Developing Markets Securities Fund

Managed by Templeton Investment Counsel LLC

Templeton Foreign Securities Fund

 

Huntington VA Funds

 

Managed by Huntington Asset Advisors, Inc.

Huntington VA Dividend Capture Fund

Huntington VA Growth Fund

Huntington VA Income Equity Fund

Huntington VA International Equity Fund

Huntington VA Macro 100 Fund

Huntington VA Mid Corp America Fund

Huntington VA Mortgage Securities Fund

Huntington VA New Economy Fund

Huntington VA Rotating Markets Fund

Huntington VA Situs Small Cap Fund

 

J.P. Morgan Series Trust II

 

J.P. Morgan Investment Management Inc.

JPMorgan Bond Portfolio

JPMorgan International Equity Portfolio

JPMorgan Mid Cap Value Portfolio

JPMorgan Small Company Portfolio

JPMorgan U.S. Large Cap Core Equity Portfolio

 

2

Janus Aspen Series – Service Shares

 

Managed by Janus Capital Management LLC

Janus Aspen – Forty Portfolio

Janus Aspen – International Growth Portfolio

Janus Aspen – Mid Cap Growth Portfolio

 

Liberty Variable Investment Trust

 

– Class A Shares

 

Managed by Columbia Management Advisors, Inc.

Colonial Small Cap Value Fund, Variable Series

Liberty Select Value Fund, Variable Series

 

MFS® Variable Insurance TrustSM – Service Class

 

Managed by MFS® Investment Management

MFS Investors Growth Stock Series

MFS New Discovery Series

MFS Research Series

MFS Research Bond Series

MFS Utilities Series

 

Nations Separate Account Trust

 

Managed by Banc of America Capital Management, LLC

and MacKay Shields LLC as Subadviser

Nations High Yield Bond Portfolio

Managed by Banc of America Capital Management, LLC and

Marsico Capital Management, LLC as Subadvisor

Nations Marsico Focused Equities Portfolio

Nations Marsico Growth Portfolio

Nations Marsico International Opportunities Portfolio

Nations Marsico MidCap Growth Portfolio

 

Oppenheimer Variable Account

 

Funds – Service Shares

 

Managed by Oppenheimer Funds, Inc.

Oppenheimer Capital Appreciation Fund/VA

Oppenheimer Global Securities Fund/VA

Oppenheimer High Income Fund/VA

Oppenheimer Main Street Fund/VA

Oppenheimer Main Street Small Cap Fund/VA

 

STI Classic Variable Trust

 

Managed by Trusco Capital Management, Inc.

STI Classic Capital Appreciation Fund

STI Classic Growth & Income Fund

STI Classic International Equity Fund

STI Classic Investment Grade Bond Fund

STI Classic Mid-Cap Equity Fund

STI Classic Value Income Stock Fund

 

Variable Insurance Products Fund

 

– Service Class 2

 

Managed by Fidelity Management & Research Company

Fidelity – VIP Contrafund® Portfolio

Fidelity – VIP Equity-Income Portfolio

Fidelity – VIP Growth Portfolio

Fidelity – VIP Growth & Income Portfolio

Fidelity – VIP High Income Portfolio

Fidelity – VIP Investment Grade Bond Portfolio

Fidelity – VIP Mid Cap Portfolio

Fidelity – VIP Overseas Portfolio

Fidelity – VIP Value Strategies Portfolio

Managed by Fidelity Management & Research Company and

Geode Capital Management, LLC as subadvisor

Fidelity – VIP Index 500 Portfolio

 

Wanger Advisors Trust

 

Managed by Columbia Wanger Asset Management, L.P.

Wanger U.S. Smaller Companies

 

3

TABLE OF CONTENTS

 

GLOSSARY OF TERMS    5
SUMMARY    6
ANNUITY POLICY FEE TABLE AND EXPENSE EXAMPLES    11

1.

    THE ANNUITY POLICY    13

2.

    PURCHASE    13
     Policy Issue Requirements    13
     Premium Payments    13
     Initial Premium Requirements    13
     Additional Premium Payments    14
     Maximum Total Premium Payments    14
     Allocation of Premium Payments    14
     Policy Value    14

3.

    INVESTMENT CHOICES    14
     The Separate Account    14
     Selection of Underlying Portfolios    16
     The Fixed Account    17
     Transfers    18
     Disruptive Trading and Market Timing    18

4.

    PERFORMANCE    21

5.

    EXPENSES    22
     Excess Interest Adjustment    22
     Mortality and Expense Risk Fees    22
     Administrative Charges    22
     Premium Taxes    22
     Federal, State and Local Taxes    22
     Transfer Fee    22
     Initial Payment Guarantee    23
     Beneficiary Earnings Enhancement    23
     Beneficiary Earnings Enhancement - Extra II    23
     Life with Emergency CashSM Surrender Charge    23
     Portfolio Fees and Expenses    23
     Revenue We Receive    23

6.

    ACCESS TO YOUR MONEY    25
     Surrenders    25
     Delay of Payment and Transfers    25
     Excess Interest Adjustment    26

7.

    ANNUITY PAYMENTS (THE INCOME PHASE)    26
     Annuity Payment Options    26

8.

    DEATH BENEFIT    28
     When We Pay A Death Benefit    28
     When We Do Not Pay A Death Benefit    29
     Deaths After the Annuity Commencement Date    29
     Succession of Ownership    29
     Amount of Death Benefit    29
     Guaranteed Minimum Death Benefit    29
     Adjusted Partial Surrender    30

9.

    TAXES    30
     Annuity Policies in General    30
     Qualified and Nonqualified Policies    31
     Surrenders – Qualified Policies    31
     Surrenders – 403(b) Policies    32
     Surrenders – Nonqualified Policies    32
     Taxation of Death Benefit Proceeds    32
     Annuity Payments    32
     Diversification and Distribution Requirements    33
     Federal Estate Taxes    33
     Generation-skipping transfer tax.    33
     Annuity purchases by residents of Puerto Rico    33
     Annuity Contracts Purchased by Nonresident Aliens and Foreign Corporations    33
     Transfers, Assignments or Exchanges of Policies    34
     Possible Tax Law Changes    34
     Separate Account Charges    34

10.

    ADDITIONAL FEATURES    34
     Systematic Payout Option    34
     Initial Payment Guarantee    34
     Beneficiary Earnings Enhancement    35
     Beneficiary Earnings Enhancement - Extra II    36
     Nursing Care and Terminal Condition Withdrawal Option    37
     Unemployment Waiver    37
     Telephone Transactions    38
     Dollar Cost Averaging Program    38
     Asset Rebalancing    39

11.

    OTHER INFORMATION    39
     Ownership    39
     Assignment    40
     Transamerica Life Insurance Company    40
     The Separate Account    40
     Mixed and Shared Funding    40
     Exchanges and Reinstatements    41
     Voting Rights    41
     Distributor of the Policies    41
     IMSA    43
     Legal Proceedings    43

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

   44

APPENDIX A

   45
     SUBACCOUNT NAME ABBREVIATIONS    45

 

4

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 on whose life any annuity payments involving life contingencies will be based.

 

Annuity Commencement Date—The date upon which annuity payments are to commence. This date may be any date at least thirty days after the policy date and may not be later than the last day of the policy month following the month after 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 decreased by any rider fees (imposed upon surrender).

 

Excess Interest Adjustment—A positive or negative adjustment to amounts surrendered (both partial and 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 or a successor owner in the information provided to us to issue a policy.

 

Policy Date—The date shown on the policy data page attached to the policy and the date on which the policy becomes effective.

 

Policy Value—On or before the annuity commencement date, the policy value is equal to the owner’s:

 

•   premium payments; minus

 

•   gross partial surrenders (partial surrenders minus excess interest adjustments); plus

 

•   interest credited in the fixed account; plus

 

•   accumulated gains in the separate account; minus

 

•   accumulated losses in the separate account; minus

 

•   service charges, rider fees, premium taxes, transfer fees, and other charges, if any.

 

Separate Account—Separate Account VA Q, 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 specified underlying fund portfolios.

 

You (Your)—the owner of the policy.

 

5

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: various subaccounts and the fixed account. The policy is intended to accumulate money for retirement or other long-term investment purposes.

 

This policy currently offers the subaccounts in the separate account that are listed in Section 3. Each subaccount invests exclusively in shares of one of the underlying fund portfolios. The policy value may depend 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.

 

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 begin receiving regular annuity payments from your policy. The money you can accumulate during the accumulation phase will largely determine the payments you receive during the income phase.

 

2. PURCHASE

 

You can buy a nonqualified policy with $5,000 or more, and a qualified policy with $1,000 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 underlying fund portfolios described in the underlying fund portfolio prospectuses:

 

AEGON Bond – Service Class

Asset Allocation – Conservative Portfolio

Asset Allocation – Growth Portfolio

Asset Allocation – Moderate Portfolio

Asset Allocation – Moderate Growth Portfolio

Capital Guardian Global – Service Class

Capital Guardian Value – Service Class

Clarion Real Estate Securities – Service Class

Federated Growth & Income – Service Class

J.P. Morgan Mid Cap Value – Service Class

Janus Growth – Service Class

Jennison Growth – Service Class

MFS High Yield – Service Class

PIMCO Total Return – Service Class

T. Rowe Price Equity Income – Service Class

T. Rowe Price Small Cap – Service Class

Third Avenue Value – Service Class

Transamerica Equity – Service Class

Transamerica Growth Opportunities

– Service Class

Transamerica U.S. Government Securities

– Service Class

AIM V.I. Blue Chip Fund – Series II

AIM V.I. Core Equity Fund – Series II

AIM V.I. Government Securities Fund – Series II

AIM V.I. International Growth Fund – Series II

AllianceBernstein Large Cap Growth Portfolio – Class B

AllianceBernstein Global Technology Portfolio – Class B

Davis Value Portfolio

Dreyfus VIF - Small Company Stock Portfolio

Federated American Leaders Fund II

Federated Capital Income Fund II

Federated High Income Bond Fund II

Federated Quality Bond Fund II

Franklin Small-Midcap Growth Securities Fund – Class 2

Franklin Growth and Income Securities Fund – Class 2

Mutual Shares Securities Fund – Class 2

 

6

Templeton Developing Markets Securities Fund

– Class 2

Templeton Foreign Securities Fund – Class 2

Huntington VA Dividend Capture Fund

Huntington VA Growth Fund

Huntington VA Income Equity Fund

Huntington VA International Equity Fund

Huntington VA Macro 100 Fund

Huntington VA Mid Corp America Fund

Huntington VA Mortgage Securities Fund

Huntington VA New Economy Fund

Huntington VA Rotating Markets Fund

Huntington VA Situs Small Cap Fund

JPMorgan Bond Portfolio

JPMorgan International Equity Portfolio

JPMorgan Mid Cap Value Portfolio

JPMorgan Small Company Portfolio

JPMorgan U.S. Large Cap Core Equity Portfolio

Janus Aspen – Forty Portfolio – Service Shares

Janus Aspen – International Growth Portfolio

– Service Shares

Janus Aspen – Mid Cap Growth Portfolio

– Service Shares

Colonial Small Cap Value Fund, Variable Series

– Class A Shares

Liberty Select Value Fund, Variable Series

– Class A Shares

MFS Investors Growth Stock Series – Service Class

MFS New Discovery Series – Service Class

MFS Research Series – Service Class

MFS Research Bond Series – Service Class

MFS Utilities Series – Service Class

Nations High Yield Bond Portfolio

Nations Marsico Focused Equities Portfolio

Nations Marsico Growth Portfolio

Nations Marsico International

Opportunities Portfolio

Nations Marsico MidCap Growth Portfolio

Oppenheimer Capital Appreciation Fund/VA

– Service Shares

Oppenheimer Global Securities Fund/VA

– Service Shares

Oppenheimer High Income Fund/VA

– Service Shares

Oppenheimer Main Street Fund/VA

– Service Shares

Oppenheimer Main Street Small Cap Fund/VA

– Service Shares

STI Classic Capital Appreciation Fund

STI Classic Growth & Income Fund

STI Classic International Equity Fund

STI Classic Investment Grade Bond Fund

STI Classic Mid-Cap Equity Fund

STI Classic Value Income Stock Fund

Fidelity – VIP Contrafund® Portfolio

– Service Class 2

Fidelity – VIP Equity-Income Portfolio

– Service Class 2

Fidelity – VIP Growth Portfolio – Service Class 2

Fidelity – VIP Growth & Income Portfolio

– Service Class 2

Fidelity – VIP High Income Portfolio

– Service Class 2

Fidelity – VIP Investment Grade Bond Portfolio

– Service Class 2

Fidelity – VIP Mid Cap Portfolio – Service Class 2

Fidelity – VIP Overseas Portfolio – Service Class 2

Fidelity – VIP Value Strategies Portfolio

– Service Class 2

Fidelity – VIP Index 500 Portfolio – Service Class 2

Wanger U.S. Smaller Companies

 

Depending upon their investment performance, you can make or lose money in any of the 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 during the accumulation phase. 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 past performance information 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 your investment choices.

 

Full surrenders, partial surrenders and transfers from a guaranteed period option of the fixed account may be subject to an excess interest adjustment, which may

 

7

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 at an annual rate of 0.40% (if you do not choose an optional death benefit) or 0.45% (if you choose the “Return of Premium Death Benefit”) or 0.55% (if you choose the “Annual Step-Up Death Benefit”) from the assets in each subaccount.

 

During the accumulation phase, we deduct an annual service charge of no more than $35 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 full surrender, payment of a death benefit, or when annuity payments begin, we will deduct state premium taxes, if applicable, which currently range from 0% to 3.50%.

 

If you elect the Initial Payment Guarantee when you annuitize, there is a daily fee currently equal to an annual rate of 1.25% of the daily net asset value in the subaccounts.

 

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 II, there is an annual fee equal to 0.55% of the policy value.

 

The value of the net assets of the 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 under certain qualified policies).

 

You may have to pay income tax and a tax penalty on any money you take out.

 

Access to amounts held in qualified policies may be restricted or prohibited.

 

If you have policy value in the fixed account, you may take out any cumulative interest credited free of excess interest adjustments.

 

Surrenders are not generally permitted during the income phase unless you elect the Life with Emergency CashSM annuity payment option.

 

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 Initial Payment Guarantee is available as an optional rider and it guarantees a minimum amount for each payment.

 

8. DEATH BENEFIT

 

If the sole owner and annuitant dies before the income phase begins, then the beneficiary will generally receive a death benefit. If an owner is not the annuitant, no death benefit is paid if the owner dies.

 

Naming different persons as owner and annuitant can affect whether the death benefit is payable and 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 a policy you generally may choose one of the following optional guaranteed minimum death benefits:

 

•   Annual Step-Up; or

 

•   Return of Premium.

 

8

Charges are lower if you do not choose an optional guaranteed minimum death benefit.

 

After the policy is issued, the guaranteed minimum death benefit cannot be changed.

 

9. TAXES

 

Earnings, if any, are generally not taxed until taken 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. If you are younger than 59 1/2 when you take money out, you may incur a 10% federal penalty tax on the taxable earnings. For nonqualified and certain 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. For qualified policies, payments during the income phase are, in many cases, considered as all taxable 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” or “SPO.” Amounts you receive may be included in your gross income, and in certain circumstances, may be subject to penalty taxes.

 

•   You can elect an optional rider at the time of annuitization that guarantees your variable annuity payments will never be less than a percentage of the initial payment. This feature is called the “Initial Payment Guarantee” “IPG”. 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 II” “BEE-Extra II”. There is an extra charge for these riders.

 

•   Under certain medically related circumstances, you may surrender all or part of the policy value without an excess interest adjustment. This feature is called the “Nursing Care and Terminal Condition Withdrawal Option.”

 

•   Under certain unemployment circumstances, you may surrender all or part of the policy value free of 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 choices 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 may not be available for all policies, may vary for certain policies, 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 at least 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 premiums paid and accumulated gains or losses in the separate account.

 

9

Please note we will not credit interest on amounts allocated to the fixed account if you return your policy for a refund during the right to cancel period. We will pay the refund within 7 days after we receive at our administrative and service office 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, are 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, unique to variable annuities, such as the opportunity for lifetime income payments, a guaranteed death benefit, the guaranteed level of certain charges, and the additional features, make this policy appropriate for your needs.

 

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 are in the SAI. The subaccounts of the separate account had not commenced operations as of December 31, 2004, therefore there are no separate account financial statements.

 

12. INQUIRIES

 

If you need more information, please contact us at our Administrative and Service Office:

 

Administrative and Service Office

Attention: Customer Care Group

Transamerica Life Insurance Company

P.O. Box 3183

Cedar Rapids, IA 52406-3183

 

Overnight Address:

 

4333 Edgewood Road NE

Cedar Rapids, IA 52499-0001

 

You may check your policy at www.transamericaservice.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 on-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.

 

10

ANNUITY POLICY FEE TABLE AND EXPENSE EXAMPLES(1)

 

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the policy during the accumulation phase. The first table describes the fees and expenses that you will pay at the time that you buy the policy, surrender the policy, or transfer cash value between investment choices. State premium taxes may also be deducted and excess interest adjustments may be made to amounts surrendered or applied to annuity payment options from cash value from the fixed account.

 

Policy Owner Transaction Expenses:

       

Sales Load On Purchase Payments

      0 %

Maximum Surrender Charge (as a % of premium payments surrendered)(2)

      0 %

Transfer Fee(3)

    $  0 - $10  

 

The next table describes the fees and expenses that you will pay periodically during the time that you own the policy, not including portfolio fees and expenses.

 

Annual Service Charge(4)    $ 0-$35 per policy  
Separate Account Annual Expenses (as a percentage of average account value):         

Base Separate Account Expenses:

         

Mortality and Expense Risk Fee(5)

      0.25 %

Administrative Charge

      0.15 %

Total Base Separate Account Annual Expenses

      0.40 %

Optional Separate Account Expenses:

         

Return of Premium Death Benefit(6)

      0.05 %

Annual Step-Up Death Benefit(7)

      0.15 %

Total Separate Account Annual Expenses with Highest Optional Separate Account Expenses(8)

      0.55 %

Annual Optional Rider Fees:

         

Beneficiary Earnings Enhancement(9)

      0.25 %

Beneficiary Earnings Enhancement – Extra II(10)

      0.55 %

 

The next item shows the minimum and maximum total operating expenses charged by the portfolio companies for the year ended December 31, 2004 (before any fee waiver or expense reimbursements). Expenses may be higher or lower in future years. More detail concerning each portfolio fees and expenses is contained in the prospectus for each portfolio.

 

Total Portfolio Annual Operating Expenses(11):

    Minimum
     Maximum
  

Expenses that are deducted from portfolio assets, including management fees, distribution and/or service (12b-1) fees, and other expenses.

    0.35 %   3.89 %

 

The following Example is intended to help you compare the costs of investing in the policy with the cost of investing in other variable annuity policies. These costs include policy owner transaction expenses, policy fees, separate account annual expenses, and portfolio’s fees and expenses.

 

The Example assumes that you invest $10,000 in the policy for the time periods indicated. The Example also assumes that your investment has a 5% return each year, the maximum fees and expenses of any of the portfolios, and the highest combination of separate account expenses and optional rider fees. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

 

Example(12)

    1 Year
    3 Years

If the policy is surrendered at the end of the applicable time period.

    $ 568    $ 1,693

If the policy is annuitized at the end of the applicable time period or if you do not surrender your policy.

    $ 568    $ 1,693

 

For information concerning compensation paid for the sale of the policies, see “Distributor of the Policies.”

 

11

(1) During the income phase the fees may be different than those described in the Fee Table. See Section 5, Expenses.
(2) If you select the Life with Emergency CashSM annuity payment option, you will be subject to a surrender charge after the annuity commencement date. See Section 5, Expenses.
(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 year. For additional transfers, Transamerica may charge a fee of $10 per transfer.
(4) The service charge applies to the fixed account and the separate account, and is assessed on a pro rata basis relative to each account’s policy value as a percentage of the policy’s total policy value. The service charge is deducted on each policy anniversary and at the time of surrender. We may waive the service charge in certain instances.
(5) The mortality and expense risk fee shown (0.25%) is for no optional guaranteed minimum death benefit.
(6) The fee for the “Return of Premium Death Benefit” (0.05%) is in addition to the mortality and expense risk fee for a total annual mortality and expense risk fee of 0.30%.
(7) The fee for the “Annual Step-Up Death Benefit” (0.15%) is in addition to the mortality and expense risk fee for a total annual mortality and expense risk fee of 0.40%.
(8) The Annual Step-Up Death Benefit fee is included herein.
(9) The annual Beneficiary Earnings Enhancement fee is 0.25% of the policy value and is deducted only during the accumulation phase.
(10) The annual Beneficiary Earnings Enhancement-Extra II fee is 0.55% of the policy value and is deducted only during the accumulation phase.
(11) The fee table information relating to the underlying fund portfolios is for the year ending December 31, 2004 (unless otherwise noted) and was provided to Transamerica by the underlying fund portfolios, their investment advisers or managers. 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.
(12) The Example does not reflect premium tax charges or transfer fees. Different fees and expenses not reflected in the Example may be assessed during the income phase of the policy.

 

Please remember that the Example is an illustration and does not represent past or future expenses. Your actual expenses may be lower or higher than those shown. Similarly, your rate of return may be more or less than the 5% assumed in the Example.

 

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1. THE ANNUITY POLICY

 

This prospectus describes the Flexible Premium Variable Annuity - B policy offered by Transamerica Life Insurance Company.

 

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 on your annuity until you take money out of your annuity. After you annuitize, your annuity switches to the income phase.

 

The policy is a flexible premium 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 that 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 Initial Payment Guarantee rider, then Transamerica will guarantee a minimum amount of your annuity payments. There is an extra charge for this rider.

 

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 at our administrative and service office all information needed to issue the policy;

 

•   Transamerica receives at our administrative and service office a minimum initial premium payment; and

 

•   The annuitant, owner, and any joint owner are age 90 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 nonqualified policies must be at least $5,000, and at least $1,000 for qualified policies. There generally is no minimum initial premium payment for policies issued under section 403(b) 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.

 

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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 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 the 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, cumulative premium payments above $500,000 require prior approval by Transamerica.

 

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 premium payments 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 written instructions to our administrative and service office or by telephone, subject to the limitations described 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.

 

Transamerica reserves the right to restrict or refuse any premium payment.

 

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

 

The following variable subaccounts are 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:

 

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AEGON/Transamerica Series Trust

 

– Service Class(1)

 

Subadvised by Banc One Investment Advisors Corporation

AEGON Bond

Portfolio Construction Manager: Morningstar Associates, LLC(2)

Asset Allocation – Conservative Portfolio

Asset Allocation – Growth Portfolio

Asset Allocation – Moderate Portfolio

Asset Allocation – Moderate Growth Portfolio

Subadvised by Capital Guardian Trust Company

Capital Guardian Global

Capital Guardian Value

Subadvised by ING Clarion Real Estate Securities

Clarion Real Estate Securities

Subadvised by Federated Investment Counseling

Federated Growth & Income

Subadvised by J.P. Morgan Investment Management Inc

J.P. Morgan Mid Cap Value

Subadvised by Janus Capital Management, LLC

Janus Growth

Subadvised by Jennison Associates, LLC

Jennison Growth

Subadvised by MFS® Investment Management

MFS High Yield

Subadvised by Pacific Investment Management Company LLC

PIMCO Total Return

Subadvised by T. Rowe Price Associates, Inc.

T. Rowe Price Equity Income

T. Rowe Price Small Cap

Subadvised by Third Avenue Management LLC

Third Avenue Value

Subadvised by Transamerica Investment Management, LLC

Transamerica Equity

Transamerica Growth Opportunities

Transamerica U.S. Government Securities

 

AIM Variable Insurance Funds – Series II

 

Managed by A I M Advisors, Inc.

AIM V.I. Blue Chip Fund

AIM V.I. Core Equity Fund

AIM V.I. Government Securities Fund

AIM V.I. International Growth Fund

 

AllianceBernstein Variable Products Series

 

Fund, Inc. – Class B

 

Managed by Alliance Capital Management L.P.

AllianceBernstein Large Growth Portfolio(3)

AllianceBernstein Global Technology Portfolio(4)

 

Davis Variable Account Fund, Inc.

 

Managed by Davis Selected Advisers, L.P.

Davis Value Portfolio

 

Dreyfus Variable Investment Fund

– Service Class

 

Managed by The Dreyfus Corporation

Dreyfus VIF - Small Company Stock Portfolio

 

Federated Insurance Series

 

Managed by Federated Equity Management

Company of Pennsylvania

Federated American Leaders Fund II

Federated Capital Income Fund II

Managed by Federated Investment Management Company

Federated High Income Bond Fund II

Federated Quality Bond Fund II

 

Franklin Templeton Variable Insurance Products Trust – Class 2

 

Managed by Franklin Advisers, Inc.

Franklin Small-Midcap Growth Securities Fund(5)

Managed by Franklin Mutual Advisers, LLC

Franklin Growth and Income Securities Fund

Mutual Shares Securities Fund

Managed by Templeton Asset Management Ltd.

Templeton Developing Markets Securities Fund

Managed by Templeton Investment Counsel LLC

Templeton Foreign Securities Fund

 

Huntington VA Funds

 

Managed by Huntington Asset Advisors, Inc.

Huntington VA Dividend Capture Fund

Huntington VA Growth Fund

Huntington VA Income Equity Fund

Huntington VA International Equity Fund

Huntington VA Macro 100 Fund

Huntington VA Mid Corp America Fund

Huntington VA Mortgage Securities Fund

Huntington VA New Economy Fund

Huntington VA Rotating Markets Fund

Huntington VA Situs Small Cap Fund

 

J.P. Morgan Series Trust II

 

J.P. Morgan Investment Management Inc.

JPMorgan Bond Portfolio

JPMorgan International Equity Portfolio

JPMorgan Mid Cap Value Portfolio

JPMorgan Small Company Portfolio

JPMorgan U.S. Large Cap Core Equity Portfolio

 

Janus Aspen Series – Service Shares

 

Managed by Janus Capital Management LLC

Janus Aspen – Forty Portfolio(6)

Janus Aspen – International Growth Portfolio

Janus Aspen – Mid Cap Growth Portfolio

 

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Liberty Variable Investment Trust

 

– Class A Shares

 

Managed by Columbia Management Advisors, Inc.

Colonial Small Cap Value Fund, Variable Series

Liberty Select Value Fund, Variable Series

 

MFS® Variable Insurance TrustSM – Service Class

 

Managed by MFS® Investment Management

MFS Investors Growth Stock Series

MFS New Discovery Series

MFS Research Series

MFS Research Bond Series(7)

MFS Utilities Series

 

Nations Separate Account Trust

 

Managed by Banc of America Capital Management, LLC and MacKay Shields LLC as Subadviser

Nations High Yield Bond Portfolio

Managed by Banc of America Capital Management, LLC and Marsico Capital Management, LLC as Subadviser

Nations Marsico Focused Equities Portfolio

Nations Marsico Growth Portfolio

Nations Marsico International Opportunities Portfolio

Nations Marsico MidCap Growth Portfolio(8)

 

Oppenheimer Variable Account Funds

 

– Service Shares

 

Managed by OppenheimerFunds, Inc.

Oppenheimer Capital Appreciation Fund/VA

Oppenheimer Global Securities Fund/VA

Oppenheimer High Income Fund/VA

Oppenheimer Main Street Fund/VA

Oppenheimer Main Street Small Cap Fund/VA

 

STI Classic Variable Trust

 

Managed by Trusco Capital Management, Inc:

STI Classic Capital Appreciation Fund

STI Classic Growth & Income Fund

STI Classic International Equity Fund

STI Classic Investment Grade Bond Fund

STI Classic Mid-Cap Equity Fund

STI Classic Value Income Stock Fund

 

Variable Insurance Products Fund

 

– Service Class 2

 

Managed by Fidelity Management & Research Company

Fidelity – VIP Contrafund® Portfolio

Fidelity – VIP Equity-Income Portfolio

Fidelity – VIP Growth Portfolio

Fidelity – VIP Growth & Income Portfolio

Fidelity – VIP High Income Portfolio

Fidelity – VIP Investment Grade Bond Portfolio

Fidelity – VIP Mid Cap Portfolio

Fidelity – VIP Overseas Portfolio

Fidelity – VIP Value Strategies Portfolio

Managed by Fidelity Management & Research Company and Geode Capital Management, LLC as subadviser

Fidelity – VIP Index 500 Portfolio

 

Wanger Advisors Trust

 

Managed by Columbia Wanger Asset Management, L.P

Wanger U.S. Smaller Companies

(1) Formerly known as AEGON/Transamerica Series Fund, Inc.
(2) Formerly subadvised by AEGON/Transamerica Fund Advisers, Inc.
(3) Formerly known as AllianceBernstein Premier Growth.
(4) Formerly known as AllianceBernstein Technology Portfolio.
(5) Formerly known as Franklin Small Cap Fund.
(6) Formerly known as Janus Aspen – Capital Appreciation Portfolio.
(7) Formerly known as MFS Bond Series.
(8) Prior to November 2, 2004, previously known as Nations MidCap Growth Portfolio and previously managed by Banc of America Capital Management, LLC.

 

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 managed by the same investment adviser or manager that are sold directly to the public. You should not expect that the investment results of the underlying fund portfolios to be the same as those of other portfolios.

 

More detailed information, including an explanation of the portfolio’s fees and investment objectives, may be found in the current prospectuses for the underlying funds portfolios, which accompany this prospectus. You should read the prospectuses for the underlying fund portfolios carefully before you invest.

 

Selection of Underlying Portfolios

 

The underlying fund portfolios offered through this product are selected by Transamerica, and Transamerica may consider various factors, including, but not limited to, asset class coverage, the strength of the adviser’s or sub-adviser’s reputation and tenure,

 

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brand recognition, performance, and the capability and qualification of each investment firm. Another factor that we may consider is whether the underlying fund portfolio or its service providers (e.g., the investment adviser or sub-advisers) or its affiliates will compensate us or our affiliates for providing certain administrative, marketing, and support services that would otherwise be provided by the underlying fund portfolio or its service providers, or whether affiliates of the underlying fund portfolio can provide marketing and distribution support for sales of the policies. (See “Revenue We Receive”.) We have included the ATST underlying fund portfolios at least in part because they are managed by one of our affiliates, Transamerica Fund Advisers.

 

We have developed this variable annuity product in cooperation with one or more distributors, and have included certain underlying fund portfolios based on their recommendations, whose selection criteria may differ from our selection criteria.

 

You are responsible for choosing the subaccounts which invest in the underlying fund portfolios, and the amounts allocated to each, that are appropriate for your own individual circumstances and your investment goals, financial situation, and risk tolerance. Since investment risk is borne by you, decisions regarding investment allocations should be carefully considered.

 

In making your investment selections, we encourage you to thoroughly investigate all of the information regarding the underlying fund portfolios that is available to you, including each underlying fund portfolio’s prospectus, statement of additional information and annual and semi/annual reports. Other sources such as the Fund’s website or newspapers and financial and other magazines provide more current information, including information about any regulatory actions or investigations relating to a Fund or underlying fund portfolio. After you select underlying fund portfolios for your initial premium, you should monitor and periodically re-evaluate your allocations to determine if they are still appropriate.

 

You bear the risk of any decline in the cash value of your policy resulting from the performance of the underlying fund portfolios you have chosen.

 

We do not recommend or endorse any particular underlying fund portfolio and we do not provide investment advice.

 

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.

 

We also reserve the right to limit the number of subaccounts you are invested in at any one time.

 

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.

 

While we do not guarantee that the fixed account will always be available for investment, we guarantee that the interest credited to the fixed account will not be less than the guaranteed minimum effective annual interest rate shown on your policy specification page (the “guaranteed minimum”). 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 the guaranteed minimum. At the end of a guaranteed period option, 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.

 

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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 the guaranteed minimum, however.

 

We also guarantee that upon full surrender your cash value attributable to the fixed account will not be less than the amount required by the applicable nonforfeiture law at the time the policy is issued.

 

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 annuity payments you receive during the income phase from the fixed portion of your policy will remain level for the entire income phase.

 

We reserve the right to refuse any premium payment to the fixed account.

 

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 transfer during the current policy year. If it 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.

 

We reserve the right to prohibit transfers to the fixed account.

 

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 made by telephone are subject to the limitations described below under “Telephone Transactions.”

 

Disruptive Trading and Market Timing

 

Statement of Policy. This variable insurance product was not designed for the use of market timers or other investors who make programmed, large, frequent, or short-term transfers. Such transfers may be disruptive to the underlying fund portfolios and increase transaction costs.

 

Market timing and other programmed, large, frequent, or short-term transfers among the subaccounts or

 

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between the subaccounts and the fixed account can cause risks with adverse effects for other policy owners (and beneficiaries and underlying fund portfolios). These risks and harmful effects include:

 

(1) dilution of the interests of long-term investors in a subaccount if purchases or transfers into or out of an underlying fund portfolio are made at prices that do not reflect an accurate value for the underlying fund portfolio’s investments (some market timers attempt to do this through methods known as “time-zone arbitrage” and “liquidity arbitrage”);

 

(2) an adverse effect on portfolio management, such as:

 

  (a) impeding a portfolio manager’s ability to sustain an investment objective;

 

  (b) causing the underlying fund portfolio to maintain a higher level of cash than would otherwise be the case; or

 

  (c) causing an underlying fund portfolio to liquidate investments prematurely (or otherwise at an inopportune time) in order to pay withdrawals or transfers out of the underlying fund portfolio; and

 

(3) increased brokerage and administrative expenses.

 

These costs are borne by all policy owners invested in those subaccounts, not just those making the transfers.

 

We have developed policies and procedures with respect to market timing and other transfers and we do not make special arrangements or grant exceptions to accommodate market timing or other potentially disruptive or harmful trading. As discussed herein, we cannot detect or deter all market timing or other potentially disruptive trading. Do not invest with us if you intend to conduct market timing or other potentially disruptive trading.

 

Detection. We employ various means in an attempt to detect and deter market timing and disruptive trading. However, despite our monitoring we may not be able to detect nor halt all harmful trading. In addition, because other insurance companies (and retirement plans) with different policies and procedures may invest in the underlying fund portfolios, we cannot guarantee that all harmful trading will be detected or that an underlying fund portfolio will not suffer harm from programmed, large, frequent, or short-term transfers among subaccounts of variable products issued by these other insurance companies or retirement plans.

 

Deterrence. If we determine you are engaged in market timing or other disruptive trading, we may take one or more actions in an attempt to halt such trading. Your ability to make transfers is subject to modification or restriction if we determine, in our sole opinion, that your exercise of the transfer privilege may disadvantage or potentially harm the rights or interests of other policy owners (or others having an interest in the variable insurance products). As described below, restrictions may take various forms, but under our current policies and procedures will include loss of expedited transfer privileges. We consider transfers by telephone, fax, overnight mail, or the Internet to be “expedited” transfers. This means that we would accept only written transfer requests with an original signature transmitted to us only by U.S. mail. We may also restrict the transfer privileges of others acting on your behalf, including your registered representative or an asset allocation or investment advisory service.

 

We reserve the right to reject any premium payment or transfer request from any person without prior notice, if, in our judgment, (1) the payment or transfer, or series of transfers, would have a negative impact on an underlying fund portfolio’s operations, or (2) if an underlying fund portfolio would reject or has rejected our purchase order, or (3) because of a history of large or frequent transfers. We may impose other restrictions on transfers, or even prohibit transfers for any owner who, in our view, has abused, or appears likely to abuse, the transfer privilege on a case-by-case basis. We may, at any time and without prior notice, discontinue transfer privileges, modify our procedures, impose holding period requirements or limit the number, size, frequency, manner, or timing of transfers we permit. We also reserve the right to reverse a potentially harmful transfer if an underlying fund

 

19

portfolio refuses or reverses our order; in such instances some policy owners may be treated differently than others in that some transfers may be reversed and others allowed. For all of these purposes, we may aggregate two or more variable insurance products that we believe are connected.

 

In addition to our internal policies and procedures, we will administer your variable insurance product to comply with any applicable state, federal, and other regulatory requirements concerning transfers. We reserve the right to implement, administer, and charge you for any fee or restriction, including redemption fees, imposed by any underlying fund portfolio. To the extent permitted by law, we also reserve the right to defer the transfer privilege at any time that we are unable to purchase or redeem shares of any of the underlying fund portfolios.

 

Under our current policies and procedures, we do not:

 

•   impose redemption fees on transfers;

 

•   expressly limit the number or size of transfers in a given period; or

 

•   provide a certain number of allowable transfers in a given period.

 

Redemption fees, transfer limits, and other procedures or restrictions may be more or less successful than ours in deterring market timing or other disruptive trading and in preventing or limiting harm from such trading.

 

In the absence of a prophylactic transfer restriction (e.g., expressly limiting the number of trades within a given period), it is likely that some level of market timing will occur before it is detected and steps taken to deter it (although some level of market timing can occur with a prophylactic transfer restriction). As noted above, we do not impose a prophylactic transfer restriction and, therefore, it is likely that, some level of market timing will occur before we are able to detect it and take steps in an attempt to deter it.

 

Please note that the limits and restrictions described herein are subject to our ability to monitor transfer activity. Our ability to detect market timing or other disruptive trading may be limited by operational and technological systems, as well as by our ability to predict strategies employed by policy owners (or those acting on their behalf) to avoid detection. As a result, despite our efforts to prevent harmful trading activity among the variable investment options available under this variable insurance product, there is no assurance that we will be able to detect or deter frequent or harmful transfers by such policy owners or intermediaries acting on their behalf. Moreover, our ability to discourage and restrict market timing or other disruptive trading may be limited by provisions of the variable insurance product.

 

Furthermore, we may revise our policies and procedures in our sole discretion at any time and without prior notice, as we deem necessary or appropriate (1) to better detect and deter market timing or other harmful trading that may adversely affect other policy owners, other persons with material rights under the variable insurance products, or underlying fund shareholders generally, (2) to comply with state or federal regulatory requirements, or (3) to impose additional or alternative restrictions on owners engaging in frequent transfer activity among the investment options under the variable insurance product. In addition, we may not honor transfer requests if any variable investment option that would be affected by the transfer is unable to purchase or redeem shares of its corresponding underlying fund portfolio.

 

Underlying Fund Portfolio Frequent Trading Policies. The underlying fund portfolios may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the underlying fund portfolios describe any such policies and procedures. The frequent trading policies and procedures of an underlying fund portfolio may be different, and more or less restrictive, than the frequent trading policies and procedures of other underlying fund portfolios and the policies and procedures we have adopted for our variable insurance products to discourage market timing and other programmed, large, frequent, or short-term transfers. Policy owners should be aware that we may not have the contractual ability or

 

20

the operational capacity to monitor policy owners’ transfer requests and apply the frequent trading policies and procedures of the respective underlying funds that would be affected by the transfers. Accordingly, policy owners and other persons who have material rights under our variable insurance products should assume that the sole protection they may have against potential harm from frequent transfers is the protection, if any, provided by the policies and procedures we have adopted for our variable insurance products to discourage market timing or other disruptive trading.

 

Omnibus Order. Policy owners and other persons with material rights under the variable insurance products also should be aware that the purchase and redemption orders received by the underlying fund portfolios generally are “omnibus” orders from intermediaries such as retirement plans and separate accounts funding variable insurance products. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and individual owners of variable insurance products. The omnibus nature of these orders may limit the underlying fund portfolios’ ability to apply their respective frequent trading policies and procedures. We cannot guarantee that the underlying fund portfolios will not be harmed by transfer activity relating to the retirement plans or other insurance companies that may invest in the underlying fund portfolios. These other insurance companies are responsible for their own policies and procedures regarding frequent transfer activity. If their policies and procedures fail to successfully discourage harmful transfer activity, it will affect other owners of underlying fund portfolio shares, as well as the owners of all of the variable annuity or life insurance policies, including ours, whose variable investment options correspond to the affected underlying fund portfolios. In addition, if an underlying fund portfolio believes that an omnibus order we submit may reflect one or more transfer requests from owners engaged in market timing and other programmed, large, frequent, or short-term transfers, the underlying fund portfolio may reject the entire omnibus order and thereby delay or prevent us from implementing your request.

 

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 or fees for any optional riders or endorsements. The deduction of any applicable premium taxes 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.

 

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.

 

All types of performance data may not reflect all of the fees and charges that may be deducted (such as fees for optional benefits) and performance figures.

 

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5. EXPENSES

 

There are charges and expenses associated with your policy that reduce the return on your investment in the policy.

 

Excess Interest Adjustment

 

Surrenders and transfers 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 or increase the amount credited. This adjustment may also apply to amounts applied to an annuity payment option.

 

Mortality and Expense Risk Fees

 

We charge a daily fee as compensation for bearing certain mortality and expense risks under the policy. 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 also may pay distribution expenses out of this charge. This fee is assessed daily based on the net asset value of each subaccount.

 

During the accumulation phase: the mortality and expense risk fee is at an annual rate of 0.25% if no optional guaranteed minimum death benefit is elected; for the Return of Premium Death Benefit, the daily mortality and expense risk fee is 0.05% higher, at an annual rate of 0.30%; and for the Annual-Step Up Death Benefit, the mortality and expense risk fee is 0.15% higher, at an annual rate of 0.40%. During the income phase, the mortality and expense risk fee 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 any profit for any proper purpose, including distribution expenses.

 

Administrative Charges

 

We deduct a daily administrative charge to cover the costs of administering the policy (including certain distribution- related expenses). This charge is at 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 $35 (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 generally 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 year. All transfer requests made at the same time are treated as a single request.

 

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Initial Payment Guarantee

 

If you elect the Initial Payment Guarantee at the time of annuitization, there is a rider fee currently at an annual rate of 1.25% of the daily net asset value. This fee may be higher or lower at the time you annuitize and elect the rider.

 

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 II

 

If you elect the Beneficiary Earnings Enhancement – Extra II, there is an annual rider fee during the accumulation phase of 0.55%. 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.

 

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

Since Annuity

Commencement Date

   

Surrender Charge

(as a percentage of

adjusted policy value)

  

0 – 1

    4 %

1 – 2

    3 %

2 – 3

    2 %

3 – 4

    1 %

more than 4

    0 %

 

Note carefully the following things about this surrender charge:

 

•   this surrender charge is measured from the annuity commencement; and

 

•   this surrender charge is a percentage of the adjusted policy value applied to the Life with Emergency CashSM annuity payment option.

 

Portfolio Fees and Expenses

 

The value of the assets in each subaccount will reflect the fees and expenses paid by the underlying fund portfolios. The minimum and maximum fund expenses for the previous calendar year are found in the “Annuity Policy Fee Table” section of this prospectus. See the prospectuses for the underlying fund portfolios for more information.

 

Revenue We Receive

 

We (and our affiliates) may directly or indirectly receive payments from the underlying fund portfolios, their advisers, subadvisers, distributors or affiliates thereof, in consideration of certain administrative, marketing and other services we (and our affiliates) provide and expenses we incur. We (and/or our affiliates) generally receive three types of payments:

 

  •   Rule 12b-1 Fees. We and our affiliate, AFSG Securities Corporation (“AFSG”), the principal underwriter for the policies, receive some or all of the 12b-1 fees from the funds. Any 12b-1 fees received by AFSG that are attributable to our variable insurance products are then credited to us. These fees range from 0.10% to 0.25% of the average daily assets of the certain underlying fund portfolios attributable to the policies and to certain other variable insurance products that we and our affiliates issue.

 

  •  

Administrative, Marketing and Support Service Fees (“Support Fees”). We and our affiliates, including AFSG, may receive compensation from the investment adviser, sub-adviser, administrators, and/or distributors (or affiliates thereof) of the underlying fund portfolios for administrative and other services related to separate account operations. The amount of this

 

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compensation is based on a percentage of the assets of the particular underlying fund portfolios attributable to the policy and to certain other variable insurance products that our affiliates and we issue. These percentages differ and may be significant. Some advisers or sub-advisers (or other affiliates) pay us more than others.

 

The chart below provides the maximum combined percentages of 12b-1 fees and Support Fees that we anticipate will be paid to us on an annual basis:

 

Incoming Payments to Transamerica and AFSG

 

Fund

   

Maximum Fee

% of assets(1)

  

AEGON/Transamerica Series Trust

    0.25 %(2)

AIM Variable Insurance Fund

    0.50 %

AllianceBernstein Variable Products Series Fund, Inc.

    0.45 %

Davis Variable Account Fund, Inc.

    0.25 %

Dreyfus Variable Investment Fund

    0.25 %

Federated Insurance Series

    0.50 %

Franklin Templeton Variable Insurance Products Trust

    0.35 %

J.P. Morgan Series Trust II

    0.25 %

Janus Aspen

    0.25 %

Liberty Variable Investment Trust

    0.35 %

MFS® Variable Insurance Trust

    0.45 %

Nations Separate Account Trust

    0.30 %(3)

Oppenheimer Variable Account Funds

    0.25 %(4)

STI Classic Variable Trust

    0.25 %

Variable Insurance Products Fund (Fidelity)

    0.50 %

Wanger Advisors Trust

    0.35 %
(1) Payments are based on a percentage of the average assets of each underlying fund portfolio owned by the subaccounts available under this policy and under certain other variable insurance products offered by our affiliates and us. We may continue to receive 12b-1 fees and administrative fees on subaccounts that are closed to new investments, depending on the terms of the agreements supporting those payments and on the services we provide.
(2) Since ATST is managed by an affiliate, there are additional benefits to us and our affiliates for amounts you allocate to the ATST portfolios, in terms of our and our affiliates’ overall profitability. These additional benefits may be significant.
(3) We receive this percentage once $100 million in fund shares are held by the subaccounts of Transamerica and its affiliates.
(4) We receive this percentage once $50 million in fund shares are held by the subaccounts of Transamerica and its affiliates.

 

•   Other Payments. Transamerica Capital, Inc. (“TCI”), the wholesale distributor for the policies, also directly or indirectly receives additional amounts or different percentages of assets under management from certain advisers and sub-advisers to the underlying fund portfolios (or their affiliates) with regard to variable insurance products or mutual funds that are issued by us and our affiliates. These amounts are paid out of the advisers’ or sub-advisers’ own resources and not out of underlying fund portfolio assets. Certain advisers and sub-advisers of the underlying fund portfolios (or their affiliates) (1) may pay TCI amounts up to $75,000 per year to participate in a “preferred sponsor” program that provides such advisers and sub-advisers with access to TCI’s wholesalers at TCI’s national and regional sales conferences that are attended by TCI’s wholesalers; (2) may provide our affiliates and/or selling firms with wholesaling services to assist us in the distribution of the policies; and (3) may provide us and/or certain affiliates and/or selling firms with occasional gifts, meals, tickets or other compensation as an incentive to market the underlying fund portfolios and to cooperate with their promotional efforts. The amounts may be significant and provide the adviser or subadviser (or other affiliates) with increased access to us and to our affiliates involved in the distribution of the policies.

 

For the calendar year ended December 31, 2004, TCI received revenue sharing payments ranging from $1,000 to $30,000 (for a total of $316,000) from the following Fund managers and/or sub-advisers to participate in TCI’s events: T. Rowe Price, Morgan Keegan, American Century,

 

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Transamerica Investment Management, Fidelity, Merrill Lynch, Pacific Investment Management LLC, Van Kampen Investments, Janus Capital Management, and ING Clarion CRA. Please note some of the aforementioned Fund managers and/or subadvisors may not be associated with underlying fund portfolios currently available in this product.

 

Proceeds from certain of these payments by the Funds, the advisers, the sub-advisers and/or their affiliates may be used for any corporate purpose, including payment of expenses that we and our affiliates incur in promoting, issuing, distributing and administering the policies.

 

For further details about the compensation payments we make in connection with the sale of the policies, see “Distributor of the Policies” in this prospectus.

 

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 full or partial surrender); or

 

•   by taking systematic payouts.

 

Surrenders

 

If you take a full 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.

 

Remember that any surrender you take will reduce the policy value and the amount of the death benefit. See Section 8, Death Benefit, for more details. A surrender may also reduce other benefits.

 

Surrenders from the fixed account may 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 not take any other surrenders, either full 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 days from the date we receive all required information at our administrative and service office. We may defer such payment 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; or

 

•   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. We may be required to provide information about you and your policy to government agencies or departments.

 

Pursuant to the requirements of certain state laws, we reserve the right to defer payment of the cash value

 

25

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.

 

Generally, all surrenders from a guaranteed period option in excess of the cumulative interest credited are 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 and 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 at the time of payment.

 

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 for certain policies and may not be applicable for all policies.

 

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 cannot be after 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 beneficiary may elect to receive the death benefit in a lump sum or under one of the annuity payment options (unless you become the new annuitant).

 

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. You may choose any combination of annuity payment options. We will use your cash value to provide these annuity payments. If the cash 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 payments. The dollar amount of the first variable payment will be determined in accordance with the annuity payment

 

26

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) you select. 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 annually under the 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 and 2 are fixed only. Options 3 and 4 can be fixed or variable.

 

Payment Option 1—Income for a Specified Period. We will make level payments only for a fixed period. No funds will remain at the end of the period.

 

Payment Option 2—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 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 made to you equals the amount applied to this option.

 

•   Life with Emergency CashSM (fixed only)—Payments will be made during 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 amount (see “Expenses” for the surrender charge schedule). You will be subject to whatever surrender schedule is in effect at the time you annuitize under this annuity payment option. 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 and is generally equal to the surrender value without any surrender charges. For qualified policies the death benefit ceases on the date the annuitant reaches the IRS age limitation.

 

Payment Option 4—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 only)—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

 

27

 

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 amount (see “Expenses” for the surrender charge schedule). You will be subject to whatever surrender schedule is in effect at the time you annuitize under this annuity payment option. The Life with Emergency CashSM benefit will continue through age 100 of the surviving joint annuitant.

 

The Life with Emergency CashSM benefit is also a death benefit that is paid upon the death of the surviving joint annuitant and is generally equal to the surrender value without any surrender charges. For qualified policies the death benefit ceases on the date the surviving joint annuitant reaches the IRS joint age limitation.

 

Other annuity payment options may be arranged by agreement with Transamerica. The default option will be Option 3 Life with 10 Years Certain. Some annuity payment options may not be available for all policies.

 

If your policy is a qualified policy, payment options 1 and 2 may not satisfy minimum required distributions rules. Consult a tax advisor before electing either of these options.

 

NOTE CAREFULLY:

 

IF:

 

•   you choose Life Income with No Period Certain or a Joint and Survivor Annuity with No Period Certain; and

 

•   the annuitant(s) 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 CashSM; and

 

•   the annuitant dies before age 101.

 

THEN:

 

•   a Life with Emergency CashSM death benefit will be paid.

 

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

 

28

•   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.

 

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, distribution requirements apply upon the death of any owner. Generally, the new owner (unless it is the deceased owner’s spouse) must surrender the policy within five years of your death for the adjusted policy value minus any applicable rider fees. 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;

 

THEN:

 

•   the remaining portion of such interest in the policy will continue to be distributed at least as rapidly as under the method of distribution being used as of the date of your death.

 

IF:

 

•   annuity payments are being made under the Life with Emergency CashSM; and

 

•   the annuitant dies before age 101 (or earlier, if a qualified policy);

 

THEN:

 

•   a Life with Emergency CashSM death benefit will be paid.

 

Succession of Ownership

 

If any owner dies during the accumulation phase, the person or entity first listed below who is alive or in existence on the date of that death will become the new owner:

 

•   any surviving owner;

 

•   primary beneficiary;

 

•   contingent beneficiary; or

 

•   owner’s estate.

 

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 generally be the greatest of:

 

•   policy value on the date we receive the required information at our administrative and service office; or

 

•   cash value on the date we receive the required information at our administrative and service office (this will be more than the policy value if there is a positive excess interest adjustment); or

 

•   guaranteed minimum death benefit (discussed below), if any, plus premium payments, less gross partial surrenders from the date of death to the date the death benefit is paid.

 

Guaranteed Minimum Death Benefit

 

On the policy application, you generally may choose one of the guaranteed minimum death benefit options listed below (age limitations may apply) for an additional fee.

 

After the policy is issued, you cannot make an election and the death benefit cannot be changed.

 

29

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 is not available if the annuitant is 91 or older on the policy date. There is an extra charge for this death benefit of 0.05% annually, for a total mortality and expense risk fee of 0.30%.

 

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 the annuitant’s death or the annuitant’s 81st birthday; plus

 

  •   any premium payments since that date; minus

 

  •   any adjusted partial surrenders since that date.

 

The Annual Step-Up Death Benefit is not available if the annuitant is 76 or older on the policy date. There is an extra charge for this death benefit of 0.15% annually, for a total mortality and expense risk fee of 0.40%.

 

You will not receive an optional guaranteed minimum death benefit if you do not choose one on the policy application.

 

The Guaranteed Minimum Death Benefit may vary for certain policies and may not be available for all policies.

 

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 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 the total premium payments. We have included a detailed explanation of this adjustment in the SAI. This is referred to as “adjusted partial surrender” in your policy.

 

9. TAXES

 

NOTE: We have 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. We have 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 individuals will not be taxed on the earnings, if any, on the money held in an annuity policy until taken out. This is referred to as tax deferral. 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.

 

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.

 

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).

 

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Qualified and Nonqualified Policies

 

If you purchase the policy under an individual retirement annuity, a 403(b) plan, 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:

 

 

•   Individual Retirement Annuity (IRA): A traditional IRA allows individuals to make contributions, which may be deductible, to the policy. A Roth IRA also allows individuals to make contributions to the policy, 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 policy on a pre-tax basis.

 

•   Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and self-employed individuals can establish pension or profit-sharing plans for their employees or themselves and make contributions to the policy 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 policy.

 

There is no additional tax deferral benefit derived from placing qualified funds into a variable annuity. Features other than tax deferral should be considered in the purchase of a qualified policy. There are limits on the amount of contributions you can make to a qualified policy. Other restrictions may apply including terms of the plan in which you participate. The policy may contain 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 policy for qualification as an IRA, and has not addressed in a ruling of general applicability whether the death benefit options and riders available, with the policy, if any, comport 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 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 policy; 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 59½, 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 policy. We have provided more information in the SAI.

 

If you are attempting to satisfy minimum required distribution rules through partial surrenders, the value of any enhanced death benefit or other optional rider may need to be included in calculating the amount required to be distributed. Consult a tax advisor.

 

You should consult your legal counsel or tax adviser if you are considering purchasing a policy for use with any qualified retirement plan or arrangement.

 

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Surrenders—403(b) Policies

 

The Internal Revenue Code limits surrenders from certain 403(b) policies. Surrenders can generally only be made when an owner:

 

•   reaches age 59½;

 

•   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.

 

Defaulted loans from Code Section 403(b) arrangements, and pledges and assignments of qualified policies generally are taxed in the same manner as surrenders from such policies. Please refer to the SAI for further information applicable to distributions from 403(b) policies.

 

Surrenders—Nonqualified Policies

 

If you take a partial withdrawal or surrender (including systematic payouts and payouts under an optional feature, if any) 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. If you make a 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 not taxable). Loans, pledges, and assignments are taxed in the same manner as partial withdrawals and surrenders. Pledges and assignments are taxed in the same manner as partial withdrawals. 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 59½;

 

•   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 nonqualified deferred annuity policies that are issued by us (or our 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 distribution 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 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 and certain qualified 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.

 

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•   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 and taxed as ordinary 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 in your tax return.

 

You should consult a tax advisor before electing the Initial Payment Guarantee or a feature with stabilized payments.

 

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. The policy must also meet certain distribution requirements at the death of an owner in order to be treated as an annuity. These diversification and distribution requirements are discussed in the SAI. We may modify the policy to attempt to maintain favorable tax treatment.

 

Federal Estate Taxes

 

While no attempt is being made to discuss the Federal estate tax implications of the Policy, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent’s gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Consult an estate planning advisor for more information.

 

Generation-skipping transfer tax.

 

Under certain circumstances, the Internal Revenue Code may impose a “generation skipping transfer tax” when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Owner. Regulations issued under the Internal Revenue Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS.

 

Annuity purchases by residents of Puerto Rico

 

In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal Revenue Service recently announced that income received by residents of Puerto Rico under life insurance or annuity contracts issued by a Puerto Rico branch of a United States life insurance company is U.S.-source income that is generally subject to United States Federal income tax.

 

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

 

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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.

 

We have the right to modify the policy to meet the regulations of any applicable laws or regulations, including legislative changes that could otherwise diminish the favorable tax treatment that annuity policy owners currently receive.

 

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 certain optional benefits as a taxable surrender, which might also be subject to a tax penalty if the surrender occurs prior to age 59½. Although we do not believe that the fees associated with any 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) or (2), divided by the number of payouts made per year, where:

 

(1) is up to 10% (annually) of your gross premium (reduced by prior withdrawals in that policy year); and

 

(2) is any gains in the policy.

 

Any payment in excess of the cumulative interest credited at the time of the payment may be subject to an excess interest adjustment.

 

Payments can be made monthly, quarterly, semi-annually, or annually and will not begin until one payment period from the date we receive your instructions. 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.

 

If you request an additional surrender while a Systematic Payout Option is in effect, the Systematic Payout Option will terminate.

 

There is no charge for this benefit.

 

Initial Payment Guarantee

 

You may only elect to purchase the Initial Payment Guarantee at the time you annuitize your policy. You cannot delete this payment guarantee (or eliminate the charge for it) after you have elected it. The guarantee only applies to variable annuity payments. There is an additional charge for this guarantee.

 

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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 to never be less than a percentage of the initial payment. The guaranteed percentage is subject to change from time to time; however once you annuitize and elect the rider, the guaranteed percentage will not change during the life of the rider. Contact us for the current guaranteed percentage.

 

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. You pay whatever the fee is when you annuitize.

 

Other. The Initial Payment Guarantee uses a 5% 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%. 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 for certain policies and may not be available for all policies.

 

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. The Beneficiary Earnings Enhancement is only 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 policy. The Beneficiary Earnings Enhancement is equal to:

 

•   the Beneficiary Earnings Enhancement factor (see below); multiplied by

 

•   the rider earnings.

 

Rider earnings equal:

 

•   the policy value on the date the death benefit is determined; 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.

 

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.

 

For purposes of computing taxable gains, both the death benefit payable under the policy and the Beneficiary Earnings Enhancement will be considered.

 

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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 will receive a one-time policy value increase equal to the Beneficiary Earnings Enhancement. At this time the rider will terminate. The spouse will have the option of immediately re-electing the rider as long as he or she is under the age of 80.

 

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 administrative and service office 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 for certain policies and may not be available for all policies.

 

Beneficiary Earnings Enhancement - Extra II

 

The optional “Beneficiary Earnings Enhancement – Extra II” pays an additional death benefit amount when a death benefit is payable under your policy, in certain circumstances. The Beneficiary Earnings Enhancement – Extra II is only available for issue ages through age 75.

 

Beneficiary Earnings Enhancement – Extra II Benefit Amount. An additional death benefit is only payable if a death benefit is paid on the base policy to which the rider is attached. The amount of the additional benefit is dependent on the amount of time that has passed since the rider date as follows:

 

•   If a death benefit is payable within the first five years after the rider date, the additional benefit amount will be equal to the sum of all rider fees paid since the rider date.

 

•   If a death benefit is payable after five years following the rider date, the additional benefit will be equal to the rider benefit base multiplied by the rider benefit percentage.

 

The rider benefit base at any time is equal to the policy value less any premiums added after the rider date.

 

The rider benefit percentage may vary but will currently be equal to 30% for issue ages 0 – 70 and 20% for issue ages 71 – 75.

 

No benefit is payable under the Beneficiary Earnings Enhancement - Extra II if the policy value on the date the death benefit is paid is less than the premium payments after the rider date.

 

For purposes of computing taxable gains, both the death benefit payable under the policy and the additional benefit will be considered.

 

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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 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 Beneficiary Earnings Enhancement – Extra II, the spouse will receive a one-time policy value increase equal to the Beneficiary Earnings Enhancement – Extra II. At this time the rider will terminate. The spouse will have the option of immediately re-electing the rider as long he or she is under the age of 76.

 

Rider Fee. A rider fee, currently 0.55% 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 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 administrative and service office 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.

 

Once terminated, the Beneficiary Earnings Enhancement - Extra II may not be re-elected for one year except in the situation of spousal continuation.

 

The tax consequences associated with this rider are not clear. This rider may violate the requirements of certain qualified plans and IRAs. Consult a tax adviser before electing this rider.

 

The Beneficiary Earnings Enhancement - Extra II may vary for certain policies and may not be available for all policies.

 

Nursing Care and Terminal Condition Withdrawal Option

 

No excess interest adjustment will apply if you make a surrender ($1,000 minimum), 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) and the confinement begins or diagnosis is made on or after the policy date.

 

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 for certain policies and may not be available for all policies.

 

Unemployment Waiver

 

No 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.

 

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You may select this benefit at any time (during the accumulation phase) and 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 for certain policies and may not be available for all policies.

 

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.

 

Dollar Cost Averaging Program

 

During the accumulation phase, you may instruct us to automatically make transfers into one or more variable subaccounts in accordance with your allocation instructions. This is known as Dollar Cost Averaging. While 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.

 

There are two Dollar Cost Averaging programs available under your policy:

 

•   Traditional—You may specify the dollar amount to be transferred or the number of transfers. Transfers will begin as soon as the program is started.

 

•   Special—You may elect either a six or twelve month program. Transfers will begin as soon as the program is started. You cannot transfer from another investment option into a Special Dollar Cost Averaging program.

 

A minimum of $500 per transfer is required. A minimum of $3,000 is required to start a 6-month program and $6,000 is required to start a 12-month program. The minimum number of transfers is 6 monthly and 4 quarterly, and the maximum is 24 monthly and 8 quarterly.

 

You can elect to transfer from one of the fixed or variable sources listed on the Dollar Cost Averaging election form (only fixed sources are available for special Dollar Cost Averaging programs).

 

A Dollar Cost Averaging program will begin once we receive the required premium. If we receive 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 Dollar Cost Averaging program will not.

 

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NOTE CAREFULLY:

 

IF:

 

•   we do not receive all necessary information to begin an initial Dollar Cost Averaging program within 30 days of allocating the minimum required amount to a Dollar Cost Averaging program; or

 

•   we do not receive the minimum required amount to begin an initial Dollar Cost Averaging program within 30 days of allocating an insufficient amount;

 

THEN:

 

•   any amount in a fixed source will be transferred to the Transamerica U.S. Government Securities investment option; and

 

•   any amount in a variable source will remain in that variable investment option; and

 

•   new instructions will be required to begin a Dollar Cost Averaging program.

 

IF:

 

•   we receive additional premium payments after a Dollar Cost Averaging program is completed and the additional premium meets the minimum requirements to start a new Dollar Cost Averaging program;

 

THEN:

 

•   we will, absent new instructions to the contrary, start a new Dollar Cost Averaging program using the previous instructions.

 

IF:

 

•   we receive additional premium payments after a Dollar Cost Averaging program is completed, and the additional premium does not meet the minimum requirements to start a Dollar Cost Averaging program;

 

THEN:

 

•   we will, absent new instructions to the contrary, allocate the additional premium as identified in the previous Dollar Cost Averaging program.

 

IF:

 

•   you discontinue a Dollar Cost Averaging program before its completion;

 

THEN:

 

•   we will, absent new instructions to the contrary, transfer any remaining balance directly into the subaccounts in the Dollar Cost Averaging instructions.

 

You should consider your ability to continue a Dollar Cost Averaging program during all economic conditions.

 

There is no charge for this benefit.

 

The Dollar Cost Averaging Program may vary for certain policies and may not be available for all policies. 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 you request a transfer, 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.

 

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Assignment

 

You can also generally assign the policy any time during your lifetime. We will not be bound by the assignment until we receive written notice of the assignment at our administrative and service office. 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 U.S. Corporation 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 U.S. Corporation 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 Separate Account VA Q, under the laws of the State of Iowa on November 26, 2001. 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 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 separate 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 may include removing their separate accounts from the underlying fund portfolios. See the underlying fund portfolios’ prospectuses for more details.

 

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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 there will be a new surrender charge period and other charges may be higher (or lower) and the benefits under this annuity 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. You may also ask us to reinstate your policy after such a transfer 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

 

Distribution and Principal Underwriting Agreement. We have entered into a principal underwriting agreement with our affiliate, AFSG, for the distribution and sale of the policies. We may reimburse AFSG for certain expenses it incurs in order to pay for the distribution of the policies (e.g., commissions payable to selling firms selling the Policies, as described below.) AFSG has an arrangement with Transamerica Capital, Inc. (“TCI”) (also an affiliate) to act as distributor for the policies. TCI markets the policies through the banking channel and serves as the wholesaler to national brokerage firms, regional and independent broker-dealers and independent financial planners.

 

Compensation to Broker-Dealers Selling the Policies. The policies are offered to the public through broker-dealers (“selling firms”) that are licensed under the federal securities laws; the selling firm and/or its affiliates are also licensed under state insurance laws. The selling firms have entered into written selling agreements with us and with AFSG as principal underwriter for the policies. We pay commissions through AFSG to the selling firms for their sales of the policies.

 

A limited number of affiliated and unaffiliated broker-dealers may also be paid commissions and overrides to “wholesale” the policies, that is, to provide sales support and training to sales representatives at the selling firms. We also provide compensation to a limited number of broker-dealers for providing ongoing service in relation to the policies that have already been purchased.

 

There are no commissions paid on premium payments, however, an annual continuing fee based on policy values will be paid to the selling firms. These commissions are not deducted from premium payments.

 

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To the extent permitted by NASD rules, TCI may pay (or allow other broker-dealers to provide) promotional incentives or payments in the form of cash or non-cash compensation to some, but not all, selling firms. These arrangements are sometimes referred to as “revenue sharing” arrangements and are described further below.

 

The registered representative who sells you the policy typically receives a portion of the compensation we (and our affiliates) pay to the selling firms, depending on the agreement between the selling firm and its registered representative and the firm’s internal compensation program. These programs may include other types of cash and non-cash compensation and other benefits. Ask your sales representative for further information about the compensation your sales representative, and the selling firm that employs your sales representative, may receive in connection with your purchase of a policy. Also inquire about any revenue sharing arrangements that we and our affiliates may have with the selling firm, including the conflicts of interests that such arrangements may create.

 

Special Compensation Paid to Affiliated Firms. We and/or our affiliates provide paid-in capital to AFSG and pays the cost of AFSG’s operating and other expenses, including costs for facilities, legal and accounting services, and other internal administrative functions. We and/or our affiliates also pay for a portion of TCI’s operating and others expenses by providing TCI with a percentage of total commissions paid on sales of our policies and by providing TCI with capital payments that are not contingent on sales.

 

TCI’s registered representatives and supervisors may receive non-cash compensation, such as attendance at conferences, seminars and trips (such as travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items.

 

Revenue Sharing Paid to Selected Selling Firms. TCI, in connection with the sales of the policies, may pay certain selling firms additional cash amounts for “preferred product” treatment of the policies in their marketing programs in order to receive enhanced marketing services and increased access to their sales representatives. In exchange for providing TCI with access to their distribution network, such selling firms may receive additional compensation or reimbursement for, among other things, the hiring and training of sales personnel, marketing, sponsoring of conferences and seminars, and/or other services they provide to us and our affiliates. To the extent permitted by applicable law, TCI and other parties may provide the selling firms with occasional gifts, meals, tickets or other non-cash compensation as an incentive to sell the policies. These special compensation arrangements are not offered to all selling firms and the terms of such arrangements may differ between selling firms.

 

Special compensation arrangements are calculated in different ways by different selling firms and may be based on past or anticipated sales of the policies and other criteria. For instance, in 2004, TCI, in connection with the sales of our policies, made flat fee payments to several selling firms ranging from $3,500 to $262,500, and payments of between .04% and .40% on new sales. TCI also paid selling firm’s special fees based on new sales and/or assets under management.

 

During 2004, we and/or TCI had entered into such “preferred product” arrangements with the following selling firms:

 

Atlas Securities

Cannex Financial Exchanges

Capital Financial Services

Centaurus Financial

Hanson McClain/Securities America

Harbour Investments

Huntington Investments

Leonard & Company

Lincoln Financial Advisers

LPL Financial

MacDonald Investments

Merrill Lynch

NFP Securities

Prospera Financial

Prudential Securities

Questar Financial

Raymond James Financial

 

42

Securities America

Smith Barney

Stanford Group

Stifel Nicholas

UBS Financial Services

US Bancorp Piper Jaffray

 

During 2004, in conjunction with TCI, we paid the following amounts (in addition to sales commissions) to the top 10 selling firms (in terms of amounts paid):

 

Name of Firm

   

Amount Paid

in 2004

Merrill Lynch

    $ 431,039.83

LPL Financial

    $ 155,290.00

Lincoln Financial Advisers

    $ 61,927.00

Securities America

    $ 50,199.53

Huntington Investments

    $ 50,000.00

Raymond James Financials

    $ 48,595.27

Atlas Securities

    $ 27,141.62

Centaurus Financial

    $ 26,853.68

Questar Financials

    $ 10,800.00

NFP Securities

    $ 5,441.50

 

Commissions and other incentives or payments described above are not charged directly to policy owners or the separate account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the policy and other corporate revenue.

 

You should be aware that a selling firm or its sales representatives may receive different compensation or incentives for selling one product over another. In some cases, these payments may create an incentive for the selling firm or its sales representatives to recommend or sell this policy to you. You may wish to take such payments into account when considering and evaluating any recommendation relating to the policies.

 

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 in the “Consumer” section or by contacting IMSA at: 202-624-2121.

 

Legal Proceedings

 

There are no legal proceedings to which the separate account is a party or to which the assets of the 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 the ability of AFSG Securities Corporation to perform under its principal underwriting agreement, or the ability of Transamerica to meet its obligations under the policy.

 

43

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

 

Glossary of Terms

The Policy – General Provisions

Certain Federal Income Tax Consequences

Investment Experience

Beneficiary Earnings Enhancement Rider – Additional Information

Beneficiary Earnings Enhancement – Extra II Rider – 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 Registered Public Accounting Firm

Other Information

Financial Statements

 

44

APPENDIX A

 

SUBACCOUNT NAME ABBREVIATIONS

 

LONG NAME

    SHORT NAME

AEGON Bond – Service Class

    AEGBD

Asset Allocation – Conservative Portfolio – Service Class

    CONSC

Asset Allocation – Growth Portfolio – Service Class

    GROSC

Asset Allocation – Moderate Portfolio – Service Class

    MODSC

Asset Allocation – Moderate Growth – Service Class

    MGRSC

Capital Guardian Global – Service Class

    CGGLB

Capital Guardian Value – Service Class

    CGVLE

Clarion Real Estate Securities – Service Class

    CLARE

Federated Growth & Income – Service Class

    FEDGI

J.P. Morgan Mid Cap Value – Service Class

    MDCVU

Janus Growth – Service Class

    JGRTH

Jennison Growth – Service Class

    JGRWP

MFS High Yield – Service Class

    HIYLD

PIMCO Total Return – Service Class

    PIMCO

T. Rowe Price Equity Income – Service Class

    TRPEQ

T. Rowe Price Small Cap – Service Class

    TRPSM

Third Avenue Value – Service Class

    THVAL

Transamerica Equity – Service Class

    TAEQT

Transamerica Growth Opportunities – Service Class

    TAOPP

Transamerica U.S. Government Securities – Service Class

    USGSP

AIM V.I. Blue Chip Fund – Series II

    BLUCP

AIM V.I. Core Equity Fund – Series II

    COREQ

AIM V.I. Government Securities Fund – Series II

    GVSEC

AIM V.I. International Growth Fund – Series II

    INTGR

AllianceBernstein Large Cap Growth Portfolio – Class B

    ALPRG

AllianceBernstein Global Technology Portfolio – Class B

    ALLTE

Davis Value Portfolio

    DAVIS

Dreyfus VIF – Small Company Stock Portfolio

    DSCSP

Federated American Leaders Fund II

    FEDAM

Federated Capital Income Fund II

    FCAPI

Federated High Income Bond Fund II

    FEDHI

Federated Quality Bond Fund II

    FQTBD

Franklin Small-Midcap Growth Securities Fund – Class 2

    SMCAP

Franklin Growth and Income Securities Fund – Class 2

    FGINS

Mutual Shares Securities Fund – Class 2

    SHSEC

Templeton Developing Markets Securities Fund – Class 2

    TMPDE

Templeton Foreign Securities Fund – Class 2

    FGNSC

 

45

SUBACCOUNT NAME ABBREVIATIONS - CONTINUED

 

LONG NAME

    SHORT NAME

Huntington VA Dividend Capture Fund

    HDVCP

Huntington VA Growth Fund

    HGRTH

Huntington VA Income Equity Fund

    HINEQ

Huntington VA International Equity Fund

    HITEQ

Huntington VA Macro 100 Fund

    HMACR

Huntington VA Mid Corp America Fund

    HMCAM

Huntington VA Mortgage Securities Fund

    HMORT

Huntington VA New Economy Fund

    HNECO

Huntington VA Rotating Markets Fund

    HROMK

Huntington Situs Small Cap Fund

    HSSMC

JPMorgan Bond Portfolio

    BNDPT

JPMorgan International Equity Portfolio

    INTOP

JPMorgan Mid Cap Value Portfolio

    MDCAP

JPMorgan Small Company Portfolio

    SMCOP

JPMorgan U.S. Large Cap Core Equity Portfolio

    USLGC

Janus Aspen – Forty Portfolio – Service Shares

    CAPPR

Janus Aspen – International Growth Portfolio – Service Shares

    JAINT

Janus Aspen – Mid Cap Growth Portfolio – Service Shares

    JACAP

Colonial Small Cap Value Fund, Variable Series – Class A Shares

    COLSC

Liberty Select Value Fund, Variable Series – Class A Shares

    SELVU

MFS Investors Growth Stock Series – Service Class

    MFSIG

MFS New Discovery Series – Service Class

    NWDIS

MFS Research Series – Service Class

    RSRCH

MFS Research Bond Series – Service Class

    MFSBS

MFS Utilities Series – Service Class

    UTILT

Nations High Yield Bond Portfolio

    NHYLB

Nations Marsico Growth Portfolio

    NMGPT

Nations Marsico Focused Equities Portfolio

    NMFEQ

Nations Marsico International Opportunities Portfolio

    NMIOP

Nations Marsico MidCap Growth Portfolio

    NMCGR

Oppenheimer Capital Appreciation Fund/VA – Service Shares

    OCAPR

Oppenheimer Global Securities Fund/VA – Service Shares

    GLSEC

Oppenheimer High Income Fund/VA – Service Shares

    HIINC

Oppenheimer Main Street Fund/VA – Service Shares

    OPMNS

Oppenheimer Main Street Small Cap Fund/VA – Service Shares

    OMSSC

STI Classic Capital Appreciation Fund

    STICA

STI Classic Growth & Income Fund

    STIGI

STI Classic International Equity Fund

    STIEQ

STI Classic Investment Grade Bond Fund

    STIIG

STI Classic Mid-Cap Equity Fund

    STIMC

STI Classic Value Income Stock Fund

    STIVI

 

46

SUBACCOUNT NAME ABBREVIATIONS - CONTINUED

 

LONG NAME

    SHORT NAME

Fidelity – VIP Contrafund® Portfolio – Service Class 2

    VPCTR

Fidelity – VIP Equity-Income Portfolio – Service Class 2

    VPEIN

Fidelity – VIP Growth Portfolio – Service Class 2

    VIPGR

Fidelity – VIP Growth & Income Portfolio – Service Class 2

    GRWTH

Fidelity – VIP High Income Portfolio – Service Class 2

    VPHIP

Fidelity – VIP Investment Grade Bond Portfolio – Service Class 2

    INVGB

Fidelity – VIP Mid Cap Portfolio – Service Class 2

    VPMCP

Fidelity – VIP Overseas Portfolio – Service Class 2

    OVSEA

Fidelity – VIP Value Strategies Portfolio – Service Class 2

    VLSTR

Fidelity – VIP Index 500 Portfolio – Service Class 2

    INDEX

Wanger U.S. Smaller Companies

    SMLCO

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

47

FLEXIBLE PREMIUM VARIABLE ANNUITY – B

 

Issued by

 

TRANSAMERICA LIFE INSURANCE COMPANY

 

Supplement dated May 1, 2005

to the

Statement of Additional Information dated May 1, 2005

 

5 FOR LIFE RIDER ADJUSTED PARTIAL SURRENDERS

 

Total Withdrawal Base. Gross partial withdrawals up to the maximum annual withdrawal amount will not reduce the total withdrawal base. Gross partial withdrawals in excess of the maximum annual withdrawal amount will reduce the total withdrawal base pro rata. The amount of the reduction due to the excess withdrawal is equal to the greater of:

 

1) the excess gross partial withdrawal amount; and

 

2) the result of (A / B) * C, where:

 

A is the excess gross partial withdrawal (the amount in excess of the guaranteed annual withdrawal amount remaining prior to the withdrawal);

 

B is the policy value after the maximum annual withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount; and

 

C is the total withdrawal base prior to the withdrawal of the excess amount.

 

Minimum Remaining Withdrawal Amount. Gross partial withdrawals up to the maximum annual withdrawal amount will reduce the minimum remaining withdrawal amount by the same amount (dollar-for-dollar). Gross partial withdrawals in excess of the maximum annual withdrawal amount will reduce the minimum remaining withdrawal amount pro rata. The amount of the reduction due to the excess withdrawal is equal to the greater of:

 

1) the excess gross partial withdrawal amount; and

 

2) the result of (A / B) * C, where:

 

A is the excess gross partial withdrawal (the amount in excess of the guaranteed annual withdrawal amount remaining prior to the withdrawal);

 

B is the policy value after the maximum annual withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount; and

 

C is the minimum remaining withdrawal amount after the maximum annual withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount.

 

This Supplement must be accompanied or preceded

by the Statement of Additional Information for the

Flexible Premium Variable Annuity – B dated May 1, 2005

The following demonstrates, on a purely hypothetical basis, the effects of partial withdrawals under the guaranteed minimum withdrawal benefit.

 

When a withdrawal is taken, three parts of the guaranteed minimum withdrawal benefit can be affected:

 

1. Minimum remaining withdrawal amount (“MRWA”)

 

2 Total withdrawal base (“TWB”)

 

3. Maximum annual withdrawal amount (“MAWA”)

 

Example 1 (5 For Life):

 

Assumptions:

 

TWB = $100,000

 

MRWA = $100,000

 

5% WD would be $5,000 (5% of the current $100,000 total withdrawal base)

 

WD = $5,000

 

Excess withdrawal (“EWD”) = None

 

PV = $100,000

 

You = Owner and Annuitant (Age 60)

 

Step One. Is any portion of the withdrawal greater than the maximum annual withdrawal amount?

 

No. There is no excess withdrawal under the guarantee if no more than $5,000 is withdrawn.

 

Step Two. What is the minimum remaining withdrawal amount after the withdrawal has been taken?

 

1. Total to deduct from the minimum remaining withdrawal amount is $5,000 (there is no excess to deduct)

 

2. $100,000 - $5,000 = $95,000.

 

Result. In this example, because no portion of the withdrawal was in excess of $5,000, the total withdrawal base does not change and the minimum remaining withdrawal amount is $95,000.00.

 

Example 2 (5 For Life):

 

Assumptions:

 

TWB = $100,000

 

MRWA = $100,000

 

5% WD would be $5,000 (5% of the current $100,000 total withdrawal base)

 

WD = $7,000

 

EWD = $2,000 ($7,000 - $5,000)

 

PV = $90,000

 

You = Owner and Annuitant (Age 60)

 

Step One. Is any portion of the total withdrawal greater than the maximum annual withdrawal amount?

 

Yes. $7,000 - $5,000 = $2,000 (the excess withdrawal amount)

 

Step Two. Calculate how much of the minimum remaining withdrawal amount is affected by the excess withdrawal.

 

1. Formula for pro rata amount is: (EWD / (PV – 5% WD)) * (MRWA – 5% WD)

 

2

2. ($2,000 / ($90,000 - $5,000)) * ($100,000 - $5,000) = $2,235.29

 

Step Three. Which is larger, the actual $2,000 excess withdrawal or the $2,235.29 pro rata amount?

 

$2,235.29 pro rata amount

 

Step Four. What is the minimum remaining withdrawal amount after the withdrawal has been taken?

 

1. Total to deduct from the minimum remaining withdrawal amount is $5,000 (MAWA) + $2,235.29 (pro rata excess) = $7,235.29

 

2. $100,000 - $7,235.29 = $92,764.71

 

Result. The minimum remaining withdrawal amount is $92,764.71.

 

NOTE. For the guaranteed minimum withdrawal benefit, because there was an excess withdrawal amount, the total withdrawal base needs to be adjusted as well as a new lower maximum annual withdrawal amount. Had the withdrawal for this example not been more than $5,000, the total withdrawal base would remain at $100,000 and the maximum annual withdrawal amount would be $5,000. However, because an excess withdrawal has been taken, the total withdrawal base is also changed (this is the amount the 5% is based on).

 

New total withdrawal base:

 

Step One. The total withdrawal base is only reduced by amount of the excess or the pro rata amount if greater.

 

Step Two. Calculate how much the total withdrawal base is affected by the excess withdrawal.

 

1. The formula is (EWD / (PV – 5% WD)) * TWB before any adjustments

 

2. ($2,000 / ($90,000 - $5,000)) * $100,000 = $2,352.94

 

Step Three. Which is larger, the actual $2,000 excess withdrawal or the $2,352.94 pro rata amount?

 

$2,352.94 pro rata amount.

 

Step Four. What is the new total withdrawal base upon which the maximum annual withdrawal amount is based?

 

$100,000 - $2,352.94 = $97,647.06

 

Result. The new total withdrawal base is $97,647.06

 

New maximum annual withdrawal amount:

 

Because the total withdrawal base was adjusted (due to the excess withdrawal) we have to calculate a new maximum annual withdrawal amount for the 5% guarantee that will be available starting on the next rider anniversary. This calculation assumes no more activity prior to the next rider anniversary.

 

Step One. What is the new maximum annual withdrawal amount?

 

$97,647.06 (the adjusted total withdrawal base) * 5% = $4,882.35

 

Result. Going forward, the maximum you can take out in a year is $4,882.35 without causing an excess withdrawal for the guarantee and further reduction of the total withdrawal base.

 

3

FLEXIBLE PREMIUM VARIABLE ANNUITY - B

 

Issued by

 

TRANSAMERICA LIFE INSURANCE COMPANY

 

Supplement dated May 1, 2005

to the

Statement of Additional Information dated May 1, 2005

 

LIVING BENEFITS RIDER ADJUSTED PARTIAL SURRENDERS

 

The following examples show the effect of withdrawals on the benefits under the living benefits rider.

 

Guaranteed Minimum Accumulation Benefit

 

Gross partial withdrawals will reduce the guaranteed future value pro rata. The amount of the reduction is equal to the greater of:

 

  1) the gross partial withdrawal amount; and

 

  2) the result of (A / B) * C, where:

 

  A is the amount of gross partial withdrawal;

 

  B is the policy value immediately prior to the gross partial withdrawal; and

 

  C is the guaranteed future value immediately prior to the gross partial withdrawal.

 

The following demonstrates, on a purely hypothetical basis, the effects of partial withdrawals under the guaranteed minimum accumulation benefit.

 

Example 1:

 

Assumptions:

 

Policy value prior to withdrawal (“PV”) = $90,000

 

Guaranteed future value prior to withdrawal (“GFV”) = $100,000

 

Gross withdrawal amount (“WD”) = $10,000

 

Step One. What is the pro rata value of the amount withdrawn?

 

  1. Formula is (WD / PV) * GFV = pro rata amount

 

  2. ($10,000 / $90,000) * $100,000 = $11,111.11

 

This Supplement must be accompanied or preceded

by the Statement of Additional Information for the

Flexible Premium Variable Annuity - B dated May 1, 2005

Step Two. Which is larger, the $10,000 withdrawal or the $11,111.11 pro rata amount?

 

$11,111.11 pro rata amount

 

Step Three. After the withdrawal is taken, what will be new guaranteed future value?

 

$100,000 - $11,111.11 = $88,888.89

 

Result. If no more withdrawals are taken, the guaranteed future value on the 10th rider anniversary is $88,888.89.

 

Example 2:

 

Assumptions:

 

PV = $120,000

 

GFV = $100,000

 

WD = $10,000

 

Step One. What is the pro rata value of the amount withdrawn?

 

  1. Formula is (WD / PV) * GFV = pro rata amount

 

  2. ($10,000 / $120,000) * $100,000 = $8,333.33

 

Step Two. Which is larger, the $10,000 withdrawal or the $8,333.33 pro rata amount?

 

$10,000 withdrawal

 

Step Three. After the withdrawal is taken, what will be new guaranteed future value?

 

$100,000 - $10,000 = $90,000

 

Result. If no more withdrawals are taken, the guaranteed future value on the 10th Rider Anniversary is $90,000.

 

Guaranteed Minimum Withdrawal Benefit

 

Total Withdrawal Base. Gross partial withdrawals up to the maximum annual withdrawal amount will not reduce the total withdrawal base. Gross partial withdrawals in excess of the maximum annual withdrawal amount will reduce the total withdrawal base pro rata. The amount of the reduction due to the excess withdrawal is equal to the greater of:

 

  1) the excess gross partial withdrawal amount; and

 

  2) the result of (A / B) * C, where:

 

  A is the excess gross partial withdrawal (the amount in excess of the guaranteed annual withdrawal amount remaining prior to the withdrawal);

 

  B is the policy value after the maximum annual withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount; and

 

  C is the total withdrawal base prior to the withdrawal of the excess amount.

 

Minimum Remaining Withdrawal Amount. Gross partial withdrawals up to the maximum annual withdrawal amount will reduce the minimum remaining withdrawal amount by the same amount (dollar-for-dollar). Gross partial withdrawals in excess of the maximum annual withdrawal amount will reduce the minimum remaining withdrawal amount pro rata. The amount of the reduction due to the excess withdrawal is equal to the greater of:

 

  1) the excess gross partial withdrawal amount; and

 

2

  2) the result of (A / B) * C, where:

 

  A is the excess gross partial withdrawal (the amount in excess of the guaranteed annual withdrawal amount remaining prior to the withdrawal);

 

  B is the policy value after the maximum annual withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount; and

 

  C is the minimum remaining withdrawal amount after the maximum annual withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount.

 

The following demonstrates, on a purely hypothetical basis, the effects of partial withdrawals under the guaranteed minimum withdrawal benefit.

 

When a withdrawal is taken, three parts of the guaranteed minimum withdrawal benefit can be affected:

 

  1. Minimum remaining withdrawal amount (“MRWA”)

 

  2 Total withdrawal base (“TWB”)

 

  3. Maximum annual withdrawal amount (“MAWA”)

 

Example 1 (7% “principal back”):

 

Assumptions:

 

TWB = $100,000

 

MRWA = $100,000

 

7% WD would be $7,000 (7% of the current $100,000 total withdrawal base)

 

WD = $7,000

 

Excess withdrawal (“EWD”) = None

 

PV = $100,000

 

You = Owner and Annuitant (Age 60)

 

Step One. Is any portion of the withdrawal greater than the “principal back” maximum annual withdrawal amount?

 

No. There is no excess withdrawal under the “principal back” guarantee if no more than $7,000 is withdrawn.

 

Step Two. What is the minimum remaining withdrawal amount after the withdrawal has been taken?

 

  1. Total to deduct from the minimum remaining withdrawal amount is $7,000 (there is no excess to deduct)

 

  2. $100,000 - $7,000 = $93,000.

 

Result. In this example, because no portion of the withdrawal was in excess of $7,000, the “principal back” total withdrawal base does not change and the “principal back” minimum remaining withdrawal amount is $93,000.00.

 

3

Example 2 (7% “principal back”):

 

Assumptions:

 

TWB = $100,000

 

MRWA = $100,000

 

7% WD would be $7,000 (7% of the current $100,000 total withdrawal base)

 

WD = $8,000

 

EWD = $1,000 ($8,000 - $7,000)

 

PV = $90,000

 

You = Owner and Annuitant (Age 60)

 

Step One. Is any portion of the total withdrawal greater than the maximum annual withdrawal amount?

 

Yes. $8,000 - $7,000 = $1,000 (the excess withdrawal amount)

 

Step Two. Calculate how much of the “principal back” minimum remaining withdrawal amount is affected by the excess withdrawal.

 

  1. Formula for pro rata amount is: (EWD / (PV – 7% WD)) * (MRWA – 7% WD)

 

  2. ($1,000 / ($90,000 - $7,000)) * ($100,000 - $7,000) = $1,120.48

 

Step Three. Which is larger, the actual $1,000 excess withdrawal or the $1,120.48 pro rata amount?

 

$1,120.48 pro rata amount

 

Step Four. What is the “principal back” minimum remaining withdrawal amount after the withdrawal has been taken?

 

  1. Total to deduct from the minimum remaining withdrawal amount is $7,000 (GAWA) + $1,120.48 (pro rata excess) = $8,120.48

 

  2. $100,000 - $8,120.48 = $91,879.52

 

Result. The “principal back” minimum remaining withdrawal amount is $91,879.52.

 

NOTE. For the guaranteed minimum withdrawal benefit, because there was an excess withdrawal amount, the total withdrawal base needs to be adjusted as well as a new lower maximum annual withdrawal amount. Had the withdrawal for this example not been more than $7,000, the “principal back” total withdrawal base would remain at $100,000 and the “principal back” maximum annual withdrawal amount would be $7,000. However, because an excess withdrawal has been taken, the total withdrawal base is also changed (this is the amount the 7% is based on).

 

New “principal back” total withdrawal base:

 

Step One. The total withdrawal base is only reduced by the amount of the excess or the pro rata amount if greater.

 

Step Two. Calculate how much the total withdrawal base is affected by the excess withdrawal.

 

  1. The formula is (EWD / (PV – 7% WD)) * TWB before any adjustments

 

  2. ($1,000 / ($90,000 - $7,000)) * $100,000 = $1,204.82

 

Step Three. Which is larger, the actual $1,000 excess withdrawal or the $1,204.82 pro rata amount?

 

$1,204.82 pro rata amount.

 

4

Step Four. What is the new total withdrawal base upon which the maximum annual withdrawal amount is based?

 

$100,000 - $1,204.82 = $98,795.18

 

Result. The new “principal back” total withdrawal base is $98,795.18

 

New “principal back” maximum annual withdrawal amount:

 

Because the “principal back” total withdrawal base was adjusted (due to the excess withdrawal) we have to calculate a new maximum annual withdrawal amount for the 7% “principal back” guarantee that will be available starting on the next rider anniversary. This calculation assumes no more activity prior to the next rider anniversary.

 

Step One. What is the new “principal back” maximum annual withdrawal amount?

 

$98,795.18 (the adjusted total withdrawal base) * 7% = $6,915.66

 

Result. Going forward, the maximum you can take out in a rider year is $6,915.66 without causing an excess withdrawal for the “principal back” guarantee and further reduction of the “principal back” total withdrawal base.

 

Example 3 (5% “for life”):

 

Assumptions:

 

TWB = $100,000

 

MRWA = $100,000

 

5% WD would be $5,000 (5% of the current $100,000 total withdrawal base)

 

WD = $5,000

 

Excess withdrawal (“EWD”) = None

 

PV = $100,000

 

You = Owner and Annuitant (Age 60)

 

Step One. Is any portion of the withdrawal greater than the “for life” maximum annual withdrawal amount?

 

No. There is no excess withdrawal under the “for life” guarantee if no more than $5,000 is withdrawn.

 

Step Two. What is the minimum remaining withdrawal amount after the withdrawal has been taken?

 

1. Total to deduct from the minimum remaining withdrawal amount is $5,000 (there is no excess to deduct)

 

2. $100,000 - $5,000 = $95,000.

 

Result. In this example, because no portion of the withdrawal was in excess of $5,000, the “for life” total withdrawal base does not change and the “for life” minimum remaining withdrawal amount is $95,000.00.

 

5

Example 4 (5% “for life”):

 

Assumptions:

 

TWB = $100,000

 

MRWA = $100,000

 

5% WD would be $5,000 (5% of the current $100,000 total withdrawal base)

 

WD = $7,000

 

EWD = $2,000 ($7,000 - $5,000)

 

PV = $90,000

 

You = Owner and Annuitant (Age 60)

 

Step One. Is any portion of the total withdrawal greater than the maximum annual withdrawal amount?

 

Yes. $7,000 - $5,000 = $2,000 (the excess withdrawal amount)

 

Step Two. Calculate how much of the “for life” minimum remaining withdrawal amount is affected by the excess withdrawal.

 

1. Formula for pro rata amount is: (EWD / (PV – 5% WD)) * (MRWA – 5% WD)

 

2. ($2,000 / ($90,000 - $5,000)) * ($100,000 - $5,000) = $2,235.29

 

Step Three. Which is larger, the actual $2,000 excess withdrawal or the $2,235.29 pro rata amount?

 

$2,235.29 pro rata amount

 

Step Four. What is the “for life” minimum remaining withdrawal amount after the withdrawal has been taken?

 

  1. Total to deduct from the minimum remaining withdrawal amount is $5,000 (GAWA) + $2,235.29 (pro rata excess) = $7,235.29

 

  2. $100,000 - $7,235.29 = $92,764.71

 

Result. The “for life” minimum remaining withdrawal amount is $92,764.71.

 

NOTE. For the guaranteed minimum withdrawal benefit, because there was an excess withdrawal amount, the total withdrawal base needs to be adjusted as well as a new lower maximum annual withdrawal amount. Had the withdrawal for this example not been more than $5,000, the “for life” total withdrawal base would remain at $100,000 and the “for life” maximum annual withdrawal amount would be $5,000. However, because an excess withdrawal has been taken, the total withdrawal base is also changed (this is the amount the 5% is based on).

 

New “for life” total withdrawal base:

 

Step One. The total withdrawal base is only reduced by amount of the excess or the pro rata amount if greater.

 

Step Two. Calculate how much the total withdrawal base is affected by the excess withdrawal.

 

  1. The formula is (EWD / (PV – 5% WD)) * TWB before any adjustments

 

  2. ($2,000 / ($90,000 - $5,000)) * $100,000 = $2,352.94

 

Step Three. Which is larger, the actual $2,000 excess withdrawal or the $2,352.94 pro rata amount?

 

$2,352.94 pro rata amount.

 

6

Step Four. What is the new total withdrawal base upon which the maximum annual withdrawal amount is based?

 

$100,000 - $2,352.94 = $97,647.06

 

Result. The new “for life” total withdrawal base is $97,647.06

 

New “for life” maximum annual withdrawal amount:

 

Because the “for life” total withdrawal base was adjusted (due to the excess withdrawal) we have to calculate a new maximum annual withdrawal amount for the 5% “for life” guarantee that will be available starting on the next rider anniversary. This calculation assumes no more activity prior to the next rider anniversary.

 

Step One. What is the new “for life” maximum annual withdrawal amount?

 

$97,647.06 (the adjusted total withdrawal base) * 5% = $4,882.35

 

Result. Going forward, the maximum you can take out in a rider year is $4,882.35 without causing an excess withdrawal for the “for life” guarantee and further reduction of the “for life” total withdrawal base.

 

7

STATEMENT OF ADDITIONAL INFORMATION

 

FLEXIBLE PREMIUM VARIABLE ANNUITY - B

 

Issued through

SEPARATE ACCOUNT VA Q

 

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 Flexible Premium Variable Annuity - B offered by Transamerica Life Insurance Company (“Transamerica”). You may obtain a copy of the prospectus dated May 1, 2005 by calling 1-800-525-6205, or by writing to the Administrative and Service Office, P. O. Box 3183, Cedar Rapids, Iowa 52406-3183. 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 prospectuses for the policy and the underlying fund portfolios.

 

Dated: May 1, 2005

TABLE OF CONTENTS

 

GLOSSARY OF TERMS

   3

THE POLICY—GENERAL PROVISIONS

    5

Owner

    5

Entire Policy

    5

Misstatement of Age or Sex

    6

Addition, Deletion, or Substitution of Investments

    6

Excess Interest Adjustment

    7

Reallocation of Annuity Units After the Annuity Commencement Date

    10

Annuity Payment Options

    11

Death Benefit

    12

Death of Owner

    14

Assignment

    14

Evidence of Survival

    14

Non-Participating

    14

Amendments

    15

Employee and Agent Purchases

    15

Present Value of Future Variable Payments

    15

Stabilized Payments

    15

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

    16

Tax Status of the Policy

    16

Taxation of Annuities

    17

Taxation of the Company

    20

INVESTMENT EXPERIENCE

    20

Accumulation Units

    20

Annuity Unit Value And Annuity Payment Rates

    22

BENEFICIARY EARNINGS ENHANCEMENT RIDER — ADDITIONAL INFORMATION

    24

BENEFICIARY EARNINGS ENHANCEMENT - EXTRA II RIDER — ADDITIONAL INFORMATION

    24

HISTORICAL PERFORMANCE DATA

    25

Subaccount Yields

    25

Total Returns

    26

Other Performance Data

    26

Adjusted Historical Performance Data

    27

PUBLISHED RATINGS

    27

STATE REGULATION OF TRANSAMERICA

    27

ADMINISTRATION

    27

RECORDS AND REPORTS

    27

DISTRIBUTION OF THE POLICIES

    28

VOTING RIGHTS

    28

OTHER PRODUCTS

    29

CUSTODY OF ASSETS

    29

LEGAL MATTERS

    29

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    29

OTHER INFORMATION

    29

FINANCIAL STATEMENTS

    30

 

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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 adjustments.

 

Administrative and Service Office—Transamerica Life Insurance Company, Attention: Customer Care Group, P.O. Box 3183, Cedar Rapids, IA 52406-3183. The street address is 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499-0001.

 

Annuitant—The person on whose life any annuity payments involving life contingencies will be based.

 

Annuity Commencement Date—The date upon which annuity payments are to commence. This date may be any date at least thirty days after the policy date and may not be later than the last day of the policy month following the month after the annuitant attains age 95. The annuity commencement date may have to be earlier for qualified policies and may be earlier if required by law.

 

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 policy value increased or decreased by any excess interest adjustment and less any rider fees (imposed upon surrender).

 

Code—The Internal Revenue Code of 1986, as amended.

 

Excess Interest Adjustment—A positive or negative adjustment to amounts surrendered (both partial and 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 which 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 premiums may be paid or amounts transferred.

 

Nonqualified Policy—A policy other than a qualified policy.

 

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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 provided to us to issue a policy.

 

Policy Date—The date shown on the policy data page attached to the policy and the date on which the policy becomes effective.

 

Policy Value—On or before the annuity commencement date, the policy value is equal to the owner’s:

 

•   premium payments; minus

 

•   gross partial surrenders (partial surrenders minus excess interest adjustments); plus

 

•   interest credited in the fixed account; plus

 

•   accumulated gains in the separate account; minus

 

•   accumulated losses in the separate account; minus

 

•   service charges, rider fees, premium taxes, transfer fees, and any other charges, if any.

 

Policy Year—A policy year begins on the date on 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 Q, 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—An annual 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 $35, but will not exceed 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.

 

Successor Owner—A person appointed by the owner to succeed to ownership of the policy in the event of the death of the owner who is not the annuitant before the annuity commencement date.

 

Valuation Period—The period of time from one determination of accumulation unit values and annuity unit values to the next subsequent determination of values. Such determination shall be made on each business day.

 

Variable Annuity Payments—Payments 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 you.

 

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 your 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.

 

A successor owner can be named in the application or in a written notice. The successor owner will become the new owner upon your death, if you predecease the annuitant. If no successor owner survives you and you predecease the annuitant, your estate will become the owner.

 

Note carefully. If the owner predeceases the annuitant and does not name a successor owner, 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 as a successor owner signed 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 if no contingent owner is named in a written notice received by Transamerica.

 

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 adverse tax consequences.

 

When there is a change of owner or successor 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 or naming a new successor owner cancels any prior choice of successor owner, but does not change the designation of the beneficiary or the annuitant.

 

If ownership is transferred (except to the owner’s spouse) because the owner dies before the annuitant, the cash value generally must be distributed to the successor 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 the owner’s death.

 

Entire Policy

 

The policy, any endorsements thereon and, the application constitute the entire contract 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.

 

-5-

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 fund portfolios, 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 the extent required by the 1940 Act, 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 affecting 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 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 (1) operated as a management company under the 1940 Act or any other form permitted by law, (2) deregistered under the 1940 Act in the event such registration is no longer required or (3) 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 fund portfolios, or substitute a new fund for an existing fund.

 

-6-

Excess Interest Adjustment

 

Money that you surrender, transfer out of, or apply to an annuity payment option, 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 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 cash value for a guaranteed period option below the premium payments and transfers to that 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. This is referred to as the excess interest adjustment floor.

 

The formula that will be used to determine the excess interest adjustment is:

 

S*(G-C)* (M/12)

 

S =   Gross amount being surrendered that is subject to the excess interest adjustment
G =   Guaranteed interest rate in effect for the policy
C =   Current guaranteed interest rate then being offered on new premiums for the next longer option period than “M”. If this policy form or such an option 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 option period, rounded up to the next higher whole number of months.
* =   multiplication
^ =   exponentiation

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

-7-

Example 1 (Full Surrender, rates increase by 4%):

 

Single premium:    $50,000
Guarantee period:    5 Years
Guarantee rate:    5.50% per annum
Surrender:    middle of contract year 3
Policy value at middle of contract year 3    = 50,000 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of contract 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 * (1.015) ^ 2.5 = 51,896.14
Excess interest adjustment     
G = .055     
C = .095     
M = 30     
Excess interest adjustment    = S * (G - C) * (M/12)
     = 50,000.00 * (.055 - .095) * (30/12)
    

= - 5,000.00, but excess interest adjustment cannot cause the adjusted policy value to fall below the excess interest adjustment floor, so the adjustment is limited to

51,896.14 - 57,161.18 = -5,265.03

Adjusted policy value    = net surrender value
    

= policy value + excess interest adjustment

= 57,161.18 + (-5,265.03)

     = 51,896.15
Cash value at middle of policy year 3    = policy value + excess interest adjustment
     = 57,161.18 + (-5,265.03)
     = 51,896.15

 

Upon full surrender of the policy, the minimum cash value will never be less than that required by the nonforfeiture laws of your state.

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

-8-

Example 2 (Full Surrender, rates decrease by 1%):

 

Single premium:    $50,000
Guarantee period:    5 Years
Guarantee rate:    5.50% per annum
Surrender:    middle of contract year 3
Policy value at middle of contract year 3    = 50,000 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of contract 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 * (1.015) ^ 2.5 = 51,896.14
Excess interest adjustment     
G = .055     
C =.045     
M = 30     
Excess interest adjustment    = S * (G - C) * (M/12)
     = 50,000.00 * (.055 - .045) * (30/12)
     = 1,250.00
Adjusted policy value    = net surrender value
     = 57,161.18 + 1,250.00 = 58,411.18
Cash value at middle of policy year 3    = policy value + excess interest adjustment
     = 57,161.18 + 1,250.00 = 58,411.18

 

Upon full surrender of the policy, the minimum cash value will never be less than that required by the nonforfeiture laws of your state.

 

On a partial surrender, Transamerica will pay the policyholder the full amount of surrender requested (as long as the policy value is sufficient). Amounts surrendered will reduce the policy value by an amount equal to:

 

R - E

 

where:

 

R = the requested partial surrender

E = the excess interest adjustment

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

-9-

Example 3 (partial surrender, rates increase by 1%):

 

Single premium:    $50,000
Guarantee period:    5 Years
Guarantee rate:    5.50% per annum
Partial surrender:    $20,000; middle of contract year 3
Policy value at middle of contract year 3    = 50,000 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of contract year 3    = 57,161.18 – 50,000 = 7,161.18
Excess interest adjustment     
S = 20,000 – 7,161.18 = 12,838.82     
G = .055     
C = .065     
M = 30     
Excess interest adjustment    = S * (G - C) * (M/12)
     = 12,838.82 * (.055 - .065) * (30/12)
     = -320.97
Remaining policy value at middle of contract year 3    = 57,161.18 - (R - E)
     = 57,161.18 - (20,000 - ( - 320.97))
     = 36,840.21

 

Example 4 (partial surrender, rates decrease by 1%):

 

Single premium:    $50,000
Guarantee period:    5 Years
Guarantee rate:    5.50% per annum
Partial surrender:    $20,000; middle of contract year 3
Policy value at middle of contract year 3    = 50,000 * (1.055) 2.5 = 57,161.18
Adjustment free amount at middle of contract year 3    = 57,161.18 – 50,000.00 = 7,161.18
Excess interest adjustment     
S = 20,000 – 7,161.18 = 12,838.82     
G = .055     
C = .045     
M = 30     
Excess interest adjustment    = 12,838.82 * (.055 - .045) * (30/12)
     = 320.97
Remaining policy value at middle of contract year 3    = 57,161.18 - (R - E)
     = 57,161.18 - (20,000 – 320.97)
     = 37,482.15

 

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.

 

-10-

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 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 using (1) life income with level payments for 10 years certain, using the existing adjusted policy value of the fixed account, or (2) life income with variable payments for 10 years certain using the existing policy value of the separate account, or (3) in a combination of (1) and (2).

 

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 (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 male, 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

2001-2010    Actual Age minus 1
2011-2020    Actual Age minus 2
2021-2030    Actual Age minus 3
2031-2040    Actual Age minus 4
After 2040    Actual Age minus 5

 

This adjustment assumes an increase in life expectancy, and therefore it results in lower payments than without such an adjustment.

 

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

 

-11-

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 by and amount called the adjusted partial surrender. The reduction amount depends on the relationship between your guaranteed minimum death benefit and policy value. The adjusted partial surrender is (1) multiplied by (2), where:

 

(1) is the gross partial surrender, where the gross partial surrender = requested partial surrender minus excess interest adjustment; and

 

(2) is the adjustment factor, which = current death proceeds prior to the partial surrender divided by the current policy value prior to the surrender, where death proceeds equal the maximum of policy value, cash value, and guaranteed minimum death benefit.

 

The following examples describe the effect of a surrender on the guaranteed minimum death benefit and policy value.

 

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 proceeds
$ 15,000    requested surrender
$ 5,000    excess interest adjustment-free amount (interest earned within the guaranteed period option)
$ 100    excess interest adjustment (assumes interest rates have decreased since initial guarantee)
$ 14,900    reduction in policy value = 15000 - 100
$ 22,350    adjusted partial surrender = 14,900 * (75,000/50,000)
$ 52,650    new guaranteed minimum death benefit (after surrender) = 75,000 - 22,350
$ 35,100    new policy value (after surrender) = 50,000 – 14,900

 

Summary:

 

Reduction in guaranteed minimum death benefit

    = $ 22,350

Reduction in policy value

    = $ 14,900

 

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.

 

-12-

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 proceeds
$ 15,000    requested surrender
$ 7,550    excess interest adjustment-free amount (interest earned within the guaranteed period option)
$ - 100    excess interest adjustment (assumes interest rates have increased since initial guarantee)
$ 15,100    reduction in policy value = $15,000 - (- 100) = 15,000 + 100
$ 15,100    adjusted partial surrender = $15,100 * (75,000/75,000)
$ 34,900    new guaranteed minimum death benefit (after surrender) = 50,000 - 15,100
$ 59,900    new policy value (after surrender) = 75,000 – 15,100

 

Summary:

 

Reduction in guaranteed minimum death benefit

    = $ 15,100

Reduction in policy value

    = $ 15,100

 

Note, 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 who is the owner 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 at our administrative and service office 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 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 dies prior to the annuity commencement date, (1) the death benefit must be distributed within five years of the date of the deceased’s death, or (2) payments under an annuity payment option must begin no later than one year after the deceased 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 deceased’s death. If the sole beneficiary is the deceased’s surviving spouse, however, such spouse may elect to continue the policy as the new annuitant and owner instead of receiving the death benefit.

 

If an owner is not an annuitant, and dies prior to the annuity commencement date, the new owner may surrender the policy at any time for the amount of the adjusted policy value. If the new owner is not the deceased owner’s spouse, however, (1) the adjusted policy value must be distributed within five years after the date of the deceased owner’s death, or (2) payments under an annuity payment option must begin no later than one year after the deceased owner’s death and must be made for the new owner’s lifetime or for a period certain (so long as any period certain does not exceed the new owner’s life expectancy). If the sole new owner is the deceased owner’s surviving spouse, such spouse may elect to continue the policy as the new owner instead of receiving the death benefit.

 

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Beneficiary. The beneficiary designation in the enrollment form 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 or any successor 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” 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.

 

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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.

 

Transamerica reserves the right to amend the policies 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 immediate family, or by an officer, director, trustee or bona-fide full-time employee of Transamerica or its affiliated companies or their immediate family. 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. 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 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.

 

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Hypothetical Changes in Annuity Units with Stabilized Payments*

 

AIR   5.0%                      
Life & 10 Year Certain                          
Male aged 65                          
First Variable Payment   $500                      
       

Beginning

Annuity

Units

  

Annuity

Unit

Values

  

Monthly

Payment

Without

Stabilization

  

Monthly

Stabilized

Payment

  

Adjustments

In

Annuity

Units

    

Cumulative

Adjusted

Annuity

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
* The total separate account expenses and portfolio expenses included in the calculations are 2.25% (2.25% 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 Code, 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 Regulations issued under Section 817(h) (Treas. Reg. §1.817-5) apply a diversification requirement to each of the subaccounts. The separate account, through its underlying fund portfolios and their portfolios, intends to comply with the diversification requirements of the Regulations. We have entered into agreements with each underlying fund portfolio company that require the portfolios to be operated in compliance with the Regulations.

 

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Owner Control. In some circumstances, owners of variable contracts who retain excessive control over the investment of the underlying separate account assets may be treated as the owners of those assets and may be subject to tax on income produced by those assets. Although there is little guidance in this area and published guidance does not address certain aspects of the policies, we believe that the owner of a policy should not be treated as the owner of the underlying assets. We reserve the right to modify the policies to bring them into conformity with applicable standards should such modification be necessary to prevent owners of the policies from being treated as the owners of the underlying separate account assets.

 

Distribution Requirements. The Code 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 provide payments to a designated beneficiary beginning within one year of such owner’s death and will be made for the life of the beneficiary or for a period not extending beyond the life expectancy of the beneficiary. 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. Under the policy, the beneficiary is the person(s) designated by an owner/annuitant and the surviving joint owner is the beneficiary of an owner who is not the annuitant. If any owner is not a natural person, then for purposes of these distribution requirements, the primary annuitant shall be treated as an owner and any death or change of such primary annuitant shall be treated as the death of an owner. The nonqualified policies contain 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.

 

Taxation of Annuities

 

In General. Code Section 72 governs taxation of annuities in general. We believe that an owner who is an individual will not be taxed on increases in the value of a policy until such amounts are surrendered or distributed. For this purpose, the assignment, pledge, or agreement to assign or pledge any portion of the policy value, and in the case of a qualified policy, any portion of an interest in the plan, generally will be treated as a distribution. The taxable portion of a distribution is taxable as ordinary income.

 

Non-Natural Persons. Pursuant to Section 72(u) of the Code, a nonqualified policy 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, if any, of the policy value over the “investment in the contract”. There are some exceptions to this rule and a prospective purchaser of the policy that is not a natural person should discuss these with a competent tax adviser.

 

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

 

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forms will be provided at the time distributions are requested or made. For certain qualified policies, the withholding rate varies according to the type of distribution and the owner’s tax status. For qualified policies, “taxable eligible rollover distributions” from Section 401(a) plans, Section 403(a) annuities, Section 403(b) tax-sheltered annuities, and governmental 457 plans are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is any distribution to an employee (or an employee’s spouse or former spouse as beneficiary or alternate payee) from such a plan, other than specified distributions such as distributions required by the Code, distributions in a specified annuity form or hardship distributions. The 20% withholding do 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 a participant in a Section 401(a) plan is a “5 percent owner” (as defined in the Code), or in the case of an IRA (other than a Roth IRA), distributions generally must begin no later than April 1 of the calendar year in which the owner (or plan participant) reaches age 70 1/2. Each owner is responsible for requesting distributions under the policy that satisfy applicable tax rules.

 

We do not 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.

 

Traditional 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 may not exceed the amount specified in the Code ($3,000 for 2004, $3,500 if age 50 or older), except in the case of a rollover amount or contribution under Section 402(c), 402(e)(6), 403(a)(4), 403(b)(8), 403(b)(10), 408(d)(3) or 457(e)(16) of the Code; (iv) annuity payments or partial 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.

 

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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 the death benefit options and riders available with the policies comport 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. 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 ($3,000 for 2004, $3,500 if age 50 or older). 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 ½, 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 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 as for traditional IRAs.

 

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). Therefore, 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, and (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 ½, severance from employment, 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 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 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 a pension or profit sharing plan. Therefore, 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,

 

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however, are owned by, and are subject to, the claims of the general creditors of the sponsoring employer. Depending on the terms of the particular plan, a non-government 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 non-governmental Section 457 plan are taxable and are subject to federal income tax withholding as wages.

 

Taxation of the Company

 

The Company 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 the Company and, accordingly, will not be taxed separately as a “regulated investment company” under Subchapter M of the Code. We do 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 us with respect to the separate account, we 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 fund portfolios 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 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. You bear this investment risk. The net investment performance of a subaccount and deduction of certain charges affect the accumulation unit value.

 

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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) is the net result of 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 Separate Account Accumulation Unit Value Calculations

 

Formula and Illustration for Determining the Net Investment Factor

 

Net Investment Factor =

   (A + B - C)   - E
    D    

 

Where:    A =    The net asset value of an underlying fund portfolio 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 portfolio share at the end of the immediately preceding valuation period.
          Assume                                                                                                                   D = $11.40
     E =    The daily deduction for the mortality and expense risk fee, the administrative charge and any optional benefit fees. Assume E totals 0.55% on an annual basis. On a daily basis, this equals .000015027.

 

Then, the net investment factor =

   (11.57 + 0 -0)   - .000015027 = Z = 1.014897254
    (11.40)    

 

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

 

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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 $1.00 on 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 the 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% of the daily net asset value of a fund share held in that subaccount. (For calculating or Initial Payment Guarantee annuity payments, the factor is 1.25% higher).

 

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.

 

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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 =   Net investment 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

 

Formula and Illustration for Determining

Amount of First Monthly Variable Annuity Payment

 

First monthly variable annuity payment =    A * B
     $1,000

 

Where:   A =   The adjusted policy value as of the annuity commencement date.
        Assume                                                                                                                   = $X
    B =  

The annuity purchase rate per $1,000 of adjusted policy value 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

 

-23-

BENEFICIARY EARNINGS ENHANCEMENT RIDER — 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. The client is less than age 71 on the Rider Date.

 

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

Policy value on date of surrender

    $ 150,000

Rider earnings on date of surrender (policy value on date of surrender – policy value on rider date – premiums paid after rider date + surrenders since rider date that exceeded rider earnings = $150,000 - $100,000 - $25,000 + 0):

    $ 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

Policy value on the date of death benefit calculations

    $ 175,000

Rider earnings (= policy value on date of death benefit calculations – policy value on rider date – premiums since rider date + surrenders since rider date that exceeded rider earnings = $175,000 - $100,000 - $25,000 + $5,000):

    $ 55,000

Additional death benefit amount (= additional death benefit factor * rider earnings = 40%* $55,000):

    $ 22,000

Total death benefit paid (=base policy death benefit plus additional death benefit amount):

    $ 222,000

 

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:

    $ 100,000

Policy value on the date of death benefit calculations

    $ 75,000

Rider earnings (= policy value on date of death benefit calculations – policy value on rider date – premiums since rider date + surrenders since rider date that exceeded rider earnings = $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):

    $ 100,000

 

BENEFICIARY EARNINGS ENHANCEMENT - EXTRA II RIDER — ADDITIONAL INFORMATION

 

Assume the Beneficiary Earnings Enhancement- Extra II is added to a new policy opened with $100,000 initial premium. The client is less than age 71 on the rider date. 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 policy value is equal to $115,000 and then takes a withdrawal of $35,000 during the 4th rider year when the policy value is equal to $145,000. After 5 years, the policy value is equal to $130,000 and the death proceeds is $145,000.

 

-24-

EXAMPLE

 

Account value 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 = 0.55% * $110,000)

    $ 605

Additional death benefit during 2nd rider year (= sum of total rider fees paid)

    $ 605

Rider fee on second rider anniversary (= rider fee * policy value = 0.55% * $95,000)

    $ 522.50

Additional death benefit during 3rd rider year (= sum of total rider fees paid = $605 + $522.50)

    $ 1,127.50

Rider benefit base in 3rd rider year prior to premium addition (= account value less premiums added since rider date = $115,000 – $0)

    $ 115,000

Rider benefit base in 3rd rider year after premium addition (= $140,000 - $25,000)

    $ 115,000

Rider benefit base in 4th rider year prior to withdrawal (= account value less premiums added since rider date = $145,000 - $25,000)

    $ 120,000

Rider benefit base in 4th rider year after withdrawal (account value less premiums added since rider date =$110,000 - $25,000)

    $ 85,000

Rider benefit base in 6th rider year (= $130,000 - $25,000)

    $ 105,000

Additional death benefit = rider benefit percentage * rider benefit base = 30% * $105,000

    $ 31,500

Total death proceeds (= base policy death proceeds + additional death benefit amount = $145,000 + $31,500)

    $ 176,500

 

HISTORICAL PERFORMANCE DATA

 

Subaccount Yields

 

Transamerica may from time to time advertise or disclose the current annualized yield of one or more of the subaccounts 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 charges; (ii) the mortality and expense risk fee; and (iii) the distribution financing charge. The 30-day yield is calculated according to the following formula:

 

Yield = 2 x ((((NI - ES)/(U x 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.

 

Because of the charges and deductions imposed by the separate account, the yield for a subaccount will be lower than the yield for its corresponding portfolio. The yield calculations do not reflect the effect of any premium taxes that may be applicable to a particular policy.

 

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. The types and quality of its investments and its operating expenses affect a subaccount’s actual yield.

 

-25-

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 separate account’s underlying portfolio and the deductions for the mortality and expense risk fee, and the administrative charges. 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.

 

Transamerica may from time to time also disclose cumulative total returns in conjunction with the standard format described above. The cumulative returns will be calculated using the following formula.

 

CTR = (ERV / P) - 1

 

Where:

 

CTR   =    The cumulative total return net of 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.

 

-26-

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 may 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.

 

-27-

DISTRIBUTION OF THE POLICIES

 

The policies are offered to the public through brokers licensed under the federal securities laws and, as necessary, state insurance laws. The offering of the policies is continuous and we do not anticipate discontinuing the offering of the policies, however, we reserve the right to do so.

 

Our affiliate, AFSG Securities Corporation (“AFSG”), serves as principal underwriter for the policies. AFSG was incorporated in Pennsylvania, and its home office is located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499-0001. AFSG, like us, is an indirect, wholly owned subsidiary of AEGON USA. AFSG is registered as broker-dealer with the Securities and Exchange Commission under the Securities and Exchange Act of 1934 and, as necessary, with the securities commissions in the states in which it operates, and is a member of NASD, Inc. The policies are offered to the public through broker-dealers (“selling firms”) licensed under the federal securities laws and state insurance laws that have entered into selling agreement with AFSG. The policies are sold through registered representatives of the selling firms who are appointed as our insurance agents. Commissions are paid to the selling firms under their respective agreements with AFSG.

 

As of December 31, 2004, no amount was paid to AFSG and/or the selling firms for their services regarding the policies because this separate account had not commenced. AFSG passes through commissions it receives to the selling firms for their respective sales, and does not retain any portion of those commissions in return for its services as principal underwriter of the policies. However, under the agreement between us and AFSG, we pay AFSG’s operating and other expenses.

 

We and/or AFSG may pay the selling firms additional amounts for: (1) “preferred product” treatment of the policies in their marketing programs, which may include marketing services and increased access to their sales representatives; (2) sales promotions relating to the policies; (3) costs associated with sales conferences and educational seminars for its sales representatives; and (4) other sales expenses incurred by a selling firm and its representatives. We and/or AFSG may make payments to a selling firm based on aggregate sales or persistency standards. These additional payments are not offered to all selling firms, and the terms of any particular agreement governing the payments may vary among selling firms.

 

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

 

-28-

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 portfolios for determining shareholders eligible to vote at the meeting of the underlying fund portfolios. 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 portfolios. 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.

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The statutory-basis financial statements and schedules of Transamerica have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, Suite 3400, 801 Grand Avenue, Des Moines, Iowa 50309. The financial statements audited by Ernst & Young LLP are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

 

The financial statements and schedules of Transamerica at December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, appearing herein, have been audited by Ernst & Young LLP, Suite 3400, 801 Grand Avenue, Des Moines, Iowa 50309, Independent Registered Public Accounting Firm, as set forth in their respective reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing.

 

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

 

-29-

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 and schedules 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.

 

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

-30-

FINANCIAL STATEMENTS AND SCHEDULES – STATUTORY BASIS

 

Transamerica Life Insurance Company

Years Ended December 31, 2004, 2003, and 2002

Transamerica Life Insurance Company

 

Financial Statements and Schedules– Statutory Basis

 

Years Ended December 31, 2004, 2003, and 2002

 

Contents

 

Report of Independent Registered Public Accounting Firm

   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

    8

Notes to Financial Statements – Statutory Basis

    10

Statutory-Basis Financial Statement Schedules

     

Summary of Investments – Other Than Investments in Related Parties

    52

Supplementary Insurance Information

    53

Reinsurance

    54

Report of Independent Registered Public Accounting Firm

 

The Board of Directors

Transamerica Life Insurance Company

 

We have audited the accompanying statutory-basis balance sheets of Transamerica Life Insurance Company (an indirect wholly-owned subsidiary of AEGON N.V.) as of December 31, 2004 and 2003, 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, 2004. Our audits also included the statutory-basis financial statement schedules required by Regulation S-X, Article 7. 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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, whose 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.

 

1

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, 2004 and 2003, or the results of its operations or its cash flow for each of the three years in the period ended December 31, 2004.

 

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, 2004 and 2003, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 2004, 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 2002 Transamerica Life Insurance Company changed various accounting policies to be in accordance with Actuarial Guideline 39. Also as described in Note 2 to the financial statements, in 2003 Transamerica Life Insurance Company changed its accounting policy for derivative instruments and changed various accounting policies to be in accordance with Actuarial Guideline 38.

 

/s/ Ernst & Young LLP

 

Des Moines, Iowa

February 18, 2005

 

2

Transamerica Life Insurance Company

 

Balance Sheets – Statutory Basis

(Dollars in Thousands, Except per Share Amounts)

 

     December 31
     2004
    2003
          Restated

Admitted assets

              

Cash and invested assets:

              

Cash and short-term investments

    $ 1,083,915    $ 180,965

Bonds

      23,378,296      21,237,543

Preferred stocks:

              

Affiliated entities

      1,102      944

Other

      120,241      98,178

Common stocks:

              

Affiliated entities (cost: 2004 - $24,063; 2003 - $24,063)

      884      881

Other (cost: 2004 - $153,940; 2003 - $125,365)

      164,778      127,048

Mortgage loans on real estate

      3,907,422      3,585,272

Real estate:

              

Home office properties

      6,692      6,919

Properties held for production of income

      5,538      23,303

Properties held for sale

      24,523      16,792

Policy loans

      79,894      76,455

Receivable for securities

      27,623      187,855

Other invested assets

      847,895      621,906
    
  

Total cash and invested assets

      29,648,803      26,164,061

Premiums deferred and uncollected

      21,015      19,154

Accrued investment income

      346,572      334,741

Reinsurance receivable

      1,170      1,862

Federal and foreign income tax recoverable

      —        5,086

Net deferred income tax asset

      68,033      76,844

Receivable from parent, subsidiaries, and affiliates

      47,800      —  

Other admitted assets

      73,130      27,415

Separate account assets

      13,878,229      12,262,847
    
  

Total admitted assets

    $ 44,084,752    $ 38,892,010
    
  

 

3

     December 31
  
     2004
     2003
  
           Restated  

Liabilities and capital and surplus

                 

Liabilities:

                 

Aggregate reserves for policies and contracts:

                 

Life

    $ 3,946,111     $ 3,540,615  

Annuity

      14,791,947       13,786,889  

Accident and health

      627,835       530,131  

Policy and contract claim reserves:

                 

Life

      28,606       20,918  

Accident and health

      36,691       26,686  

Liabilities for deposit-type contracts

      6,540,314       6,935,643  

Other policyholders’ funds

      2,592       2,984  

Remittances and items not allocated

      72,439       123,918  

Asset valuation reserve

      344,254       159,814  

Interest maintenance reserve

      91,286       57,984  

Other liabilities

      372,879       361,535  

Reinsurance in unauthorized companies

      253       117  

Funds held under coinsurance and other reinsurance treaties

      712,272       71,495  

Transfers from separate accounts due or accrued

      (476,452 )     (523,760 )

Federal and foreign income taxes payable

      8,068       —    

Payable for securities

      1,270,919       182,974  

Payable to affiliates

      12,193       21,093  

Separate account liabilities

      13,838,210       12,217,743  
    
 

Total liabilities

      42,220,417       37,516,779  

Capital and surplus:

                 

Common stock, $10 per share par value, 500,000 shares authorized, 257,795 issued and outstanding shares at December 31, 2004, 223,500 issued and outstanding at December 31, 2003

      2,578       2,235  

Preferred stock, $10 per share par value, 42,500 shares authorized, issued and outstanding (total liquidation value—$58,000)

      425       425  

Surplus notes

      575,000       575,000  

Paid-in surplus

      1,370,322       880,322  

Unassigned surplus (deficit)

      (83,990 )     (82,751 )
    
 

Total capital and surplus

      1,864,335       1,375,231  
    
 

Total liabilities and capital and surplus

    $ 44,084,752     $ 38,892,010  
    
 

 

See accompanying notes.

 

4

Transamerica Life Insurance Company

 

Statements of Operations – Statutory Basis

(Dollars in Thousands)

 

     Year Ended December 31
  
     2004
     2003
     2002
  
           Restated     Restated  

Revenues:

                         

Premiums and other considerations, net of reinsurance:

                         

Life

    $ 1,189,910     $ 618,734     $ 599,574  

Annuity

      2,317,755       5,058,195       8,304,910  

Accident and health

      175,639       187,118       161,306  

Net investment income

      1,375,482       1,307,877       1,143,069  

Amortization of interest maintenance reserve

      15,537       10,261       1,091  

Commissions and expense allowances on reinsurance ceded

      43,118       22,092       29,704  

Income from fees associated with investment management, administration and contract guarantees for separate accounts

      213,584       168,774       81,946  

Modco reinsurance reserve adjustment

      (97,348 )     1,580,949       174,818  

Coinsurance reserve recapture

      643,279       —         —    

Other income

      26,342       38,701       8,029  
    
 
 
       5,903,298       8,992,701       10,504,447  

Benefits and expenses:

                         

Benefits paid or provided for:

                         

Life and accident and health

      208,833       195,629       189,961  

Surrender benefits

      2,151,514       1,235,635       982,460  

Other benefits

      691,468       532,139       485,201  

Increase in aggregate reserves for policies and contracts:

                         

Life

      406,919       387,096       224,416  

Annuity

      1,005,058       1,933,314       4,297,149  

Accident and health

      97,704       63,113       82,784  
    
 
 
       4,561,658       4,346,926       6,261,971  

Insurance expenses:

                         

Commissions

      382,672       451,460       545,898  

General insurance expenses

      114,914       120,276       132,556  

Taxes, licenses and fees

      32,694       23,643       18,606  

Net transfers to separate accounts

      571,306       2,079,436       3,540,518  

Reinsurance transaction initial consideration

      –       1,587,431       –  

Other expenses

      133,017       108,747       24,468  
    
 
 
       1,234,603       4,370,993       4,262,046  
    
 
 

Total benefits and expenses

      5,796,261       8,717,919       10,524,017  
    
 
 

Gain (loss) from operations before dividends to policyholders, federal income tax expense and net realized capital gains (losses) on investments

      107,037       274,782       (19,570 )

Dividends to policyholders

      277       423       497  
    
 
 

Gain (loss) from operations before federal income tax expense and net realized capital gains (losses)

      106,760       274,359       (20,067 )

Federal income tax expense

      17,344       59,029       15,166  
    
 
 

Gain (loss) from operations before net realized capital gains (losses) on investments

      89,416       215,330       (35,233 )

Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to/from interest maintenance reserve)

      39,359       (48,181 )     (100,243 )
    
 
 

Net income (loss)

    $ 128,775     $ 167,149     $ (135,476 )
    
 
 

 

See accompanying notes.

 

5

Transamerica Life Insurance Company

 

Statements of Changes in Capital and Surplus – Statutory Basis

(Dollars in Thousands)

 

     Common
Stock
     Preferred
Stock
   

Surplus

Notes

   

Paid-in

Surplus

    

Unassigned
Surplus

(Deficit)

     Total
Capital and
Surplus
  

Balance at January 1, 2002

                                               

Transamerica Life Insurance Company

    $ 2,235     $ 425    $ —      $ 534,282     $ 212,296     $ 749,238  

Transamerica Assurance Company

      2,500       —        —        87,840       (50,909 )     39,431  

Merger adjustment

      (2,500 )     —        —        2,500       —         —    
    
 
  
  
 
 

As restated

      2,235       425      —        624,622       161,387       788,669  

Net loss

      —         —        —        —         (135,476 )     (135,476 )

Change in net unrealized capital gains/losses

      —         —        —        —         (76,803 )     (76,803 )

Change in non-admitted assets

      —         —        —        —         (43,027 )     (43,027 )

Change in asset valuation reserve

      —         —        —        —         (2,514 )     (2,514 )

Tax benefit on stock options exercised

      —         —        —        —         106       106  

Change in surplus in separate accounts

      —         —        —        —         (2,521 )     (2,521 )

Change in liability for reinsurance in unauthorized companies

      —         —        —        —         (1,848 )     (1,848 )

Change in net deferred income tax asset

      —         —        —        —         115,656       115,656  

Cumulative effect of changes in accounting principles

      —         —        —        —         (65,363 )     (65,363 )

Change in reserves on account of change in valuation basis

      —         —        —        —         (21,693 )     (21,693 )

Issuance of surplus notes

      —         —        575,000      —         —         575,000  

Reinsurance transactions

      —         —        —        —         (4,120 )     (4,120 )

Capital contribution

      —         —        —        430,000       —         430,000  
    
 
  
  
 
 

Balance at December 31, 2002

      2,235       425      575,000      1,054,622       (76,216 )     1,556,066  

Net income

      —         —        —        —         167,149       167,149  

Change in net unrealized capital gains/losses

      —         —        —        —         18,629       18,629  

Change in non-admitted assets

      —         —        —        —         48,229       48,229  

Change in asset valuation reserve

      —         —        —        —         (98,216 )     (98,216 )

Change in surplus in separate accounts

      —         —        —        —         (3,181 )     (3,181 )

Change in provision for reinsurance in unauthorized companies

      —         —        —        —         3,336       3,336  

Cumulative effect of change in accounting principles

      —         —        —        —         (31,957 )     (31,957 )

Change in net deferred income tax asset

      —         —        —        —         (78,803 )     (78,803 )

Dividend to stockholder

      —         —        —        —         (45,700 )     (45,700 )

Capital distribution

      —         —        —        (254,300 )     —         (254,300 )

Capital contribution

      —         —        —        80,000       —         80,000  

Change in reserves on account of change in valuation basis

      —         —        —        —         3,572       3,572  

Reinsurance transactions

      —         —        —        —         10,407       10,407  
    
 
  
  
 
 

Balance at December 31, 2003

    $ 2,235     $ 425    $ 575,000    $ 880,322     $ (82,751 )   $ 1,375,231  

 

6

Transamerica Life Insurance Company

 

Statements of Changes in Capital and Surplus – Statutory Basis (continued)

(Dollars in Thousands)

 

     Common
Stock
    Preferred
Stock
   

Surplus

Notes

   

Paid-in

Surplus

   

Unassigned
Surplus

(Deficit)

     Total
Capital and
Surplus
  

Balance at December 31, 2003

    $ 2,235    $ 425    $ 575,000    $ 880,322    $ (82,751 )   $ 1,375,231  

Net income

      —        —        —        —        128,775       128,775  

Change in net unrealized capital gains/losses

      —        —        —        —        26,751       26,751  

Change in non-admitted assets

      —        —        —        —        57,955       57,955  

Change in asset valuation reserve

      —        —        —        —        (184,440 )     (184,440 )

Change in surplus in separate accounts

      —        —        —        —        493       493  

Change in provision for reinsurance in unauthorized companies

      —        —        —        —        (136 )     (136 )

Change in net deferred income tax asset

      —        —        —        —        (21,322 )     (21,322 )

Issuance of common stock in connection with statutory merger

      343      —        —        —        (343 )     —    

Capital contribution

      —        —        —        490,000      —         490,000  

Change in reserves on account of change in valuation basis

      —        —        —        —        1,423       1,423  

Reinsurance transactions

      —        —        —        —        (11,008 )     (11,008 )

Contributed surplus related to stock appreciation rights plan of indirect parent

      —        —        —        —        613       613  
    
  
  
  
  
 

Balance at December 31, 2004

    $ 2,578    $ 425    $ 575,000    $ 1,370,322    $ (83,990 )   $ 1,864,335  
    
  
  
  
  
 

 

See accompanying notes.

 

7

Transamerica Life Insurance Company

 

Statements of Cash Flow – Statutory Basis

(Dollars in Thousands)

 

     Year Ended December 31
  
     2004
     2003
     2002
  
           Restated     Restated  

Operating activities

                         

Premiums collected, net of reinsurance

    $ 3,680,325     $ 5,817,320     $ 9,028,908  

Net investment income

      1,428,250       1,332,211       1,097,628  

Miscellaneous income

      813,730       250,324       325,125  

Benefit and loss related payments

      (3,452,717 )     (2,506,149 )     (1,795,692 )

Net transfers to separate accounts

      (525,852 )     (2,279,325 )     (3,717,876 )

Commissions, expenses paid and aggregate write-ins for deductions

      (671,161 )     (693,450 )     (722,612 )

Dividends paid to policyholders

      (354 )     (431 )     (566 )

Federal and foreign income taxes paid

      (34,146 )     (68,581 )     (53,330 )
    
 
 

Net cash provided by operating activities

      1,238,075       1,851,919       4,161,585  

Investing activities

                         

Proceeds from investments sold, matured or repaid:

                         

Bonds

      17,351,716       23,557,623       20,841,597  

Stocks

      146,455       35,838       66,237  

Mortgage loans

      484,773       340,310       142,956  

Real estate

      22,678       9,555       3,696  

Other invested assets

      324,408       89,066       70,148  

Receivable/payable for securities

      1,145,717       146,973       —    

Miscellaneous proceeds

      3,952       183,401       —    
    
 
 

Total investment proceeds

      19,479,699       24,362,766       21,124,634  

Cost of investments acquired:

                         

Bonds

      (19,431,796 )     (25,143,592 )     (26,832,908 )

Stocks

      (151,639 )     (63,612 )     (118,577 )

Mortgage loans

      (803,164 )     (1,289,721 )     (739,168 )

Real estate

      (34 )     1,760       (2,261 )

Other invested assets

      (500,361 )     (171,048 )     (199,836 )

Miscellaneous applications

      (37,463 )     (262,515 )     (176,501 )
    
 
 

Total cost of investments acquired

      (20,924,459 )     (26,928,728 )     (28,069,251 )

Net increase in policy loans

      (3,439 )     (2,458 )     (2,114 )
    
 
 

Net cost of investments acquired

      (20,927,896 )     (26,931,186 )     (28,071,365 )
    
 
 

Net cash used in investing activities

      (1,448,197 )     (2,568,420 )     (6,946,731 )

 

8

Transamerica Life Insurance Company

 

Statements of Cash Flow – Statutory Basis (continued)

(Dollars in Thousands)

 

     Year Ended December 31
     2004
     2003
     2002
           Restated     Restated

Financing and miscellaneous activities

                       

Other cash provided:

                       

Capital and surplus paid in

    $ 490,000     $ 280,000     $ 805,000

Net deposits and withdrawals on deposit-type contract funds and other liabilities without life or disability contingencies

      (2,167 )     (166,407 )     2,256,359

Other sources

      625,239       417,888       157,292
    
 
 

Total cash provided

      1,113,072       531,481       3,218,651

Other cash applied:

                       

Dividends paid to stockholder

      —         (45,700 )     —  

Capital distribution

      —         (254,300 )     —  
    
 
 

Total other cash applied

      —         (300,000 )     —  
    
 
 

Net cash provided by financing and miscellaneous activities

      1,113,072       231,481       3,218,651
    
 
 

Net increase (decrease) in cash and short-term investments

      902,950       (485,020 )     433,505

Cash and short-term investments:

                       

Beginning of year

      180,965       665,985       232,480
    
 
 

End of year

    $ 1,083,915     $ 180,965     $ 665,985
    
 
 

 

See accompanying notes.

 

9

Transamerica Life Insurance Company

 

Notes to Financial Statements - Statutory Basis

(Dollars in Thousands)

 

December 31, 2004

 

1. Organization and Summary of Significant Accounting Policies

 

Organization

 

Transamerica Life Insurance Company (the Company) is a stock life insurance company and is owned by AEGON USA, Inc. (86.7% of common shares) and Transamerica Life Insurance and Annuity Company (13.3% of common shares). AEGON USA, Inc. (AEGON) and Transamerica Life Insurance and Annuity Company are both indirect wholly-owned subsidiaries of AEGON N.V., a holding company organized under the laws of The Netherlands.

 

On October 1, 2004, the Company completed a merger with Transamerica Assurance Company (TAC), which was a wholly-owned subsidiary of an affiliate, Transamerica Life Insurance and Annuity Company (TALIAC). The merger was accounted for in accordance with SSAP No. 68 as a statutory merger. As such, financial statements for periods prior to the merger were combined and the recorded assets, liabilities, and surplus of TAC were carried forward to the merged company. As a result of the merger, TALIAC was issued 34,295 shares of the Company’s common stock. The accompanying financial information is not necessarily indicative of the results that would have been recorded had the merger actually occurred on January 1, 2002, nor is it indicative of future results.

 

Summarized financial information for the Company and TAC restated for periods prior to the merger are as follows:

 

    

Nine Months Ended

September 30
2004

     Year Ended December 31
  
       2003
     2002
  
     Unaudited              

Revenues:

                         

Company

    $ 3,953,781     $ 8,821,301     $ 10,355,326  

TAC

      152,450       171,400       149,121  
    
 
 

As restated

    $ 4,106,231     $ 8,992,701     $ 10,504,447  
    
 
 

Net income (loss):

                         

Company

    $ 85,793     $ 214,137     $ (121,152 )

TAC

      (12,013 )     (46,988 )     (14,324 )
    
 
 

As restated

    $ 73,780     $ 167,149     $ (135,476 )
    
 
 

 

10

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

     September 30
    December 31
     2004
    2003
     Unaudited     

Assets:

              

Company

    $ 40,290,163    $ 37,937,428

TAC

      988,669      954,582
    
  

As restated

    $ 41,278,832    $ 38,892,010
    
  

Liabilities:

              

Company

    $ 38,991,898    $ 36,615,299

TAC

      949,526      901,480
    
  

As restated

    $ 39,941,424    $ 37,516,779
    
  

Capital and surplus:

              

Company

    $ 1,298,265    $ 1,322,129

TAC

      39,143      53,102
    
  

As restated

    $ 1,337,408    $ 1,375,231
    
  

 

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.

 

11

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

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 rating by the National Association of Insurance Commissioners (NAIC); 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 capital and surplus 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. Under GAAP, all securities, purchased or retained, that represent beneficial interests in securitized assets, 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.

 

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 capital and surplus rather than to income as required for fair value hedges.

 

12

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

Derivative instruments are also used in replication transactions. In these transactions, the derivative is valued in a manner consistent with the cash investment and replicated asset. For GAAP, the derivative is reported at fair value with changes in fair value reported in income.

 

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 (deficit) 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. 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 are charged or credited directly to unassigned surplus, rather than being included as a component of earnings as would be required under GAAP.

 

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 statement of operations 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.

 

13

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

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 (deficit). Under GAAP, such assets are included in the balance sheet.

 

Universal Life and Annuity Policies: 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. 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.

 

14

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

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 (deficit). 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: 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 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, electronic data processing 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. Under GAAP, state 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.

 

Surplus Notes: Surplus notes are reported as capital and surplus rather than as liabilities as would be required under GAAP.

 

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.

 

15

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

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 and the related unrealized capital gains or losses are reported in unassigned surplus. Stocks of affiliated companies are carried at equity in the underlying net 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.

 

Single class and multi-class mortgage-backed/asset-backed securities are valued at amortized cost using the interest method including anticipated prepayments, except for those with an NAIC designation of 6, which are valued at the lower of amortized cost or fair value. Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities.

 

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.

 

16

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

The carrying values of all investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in fair value that is other than temporary, the carrying value of the investment is reduced to its fair value, and a specific writedown is taken. Such reductions in carrying value are recognized as realized losses on investments.

 

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. At December 31, 2004 and 2003, the Company excluded investment income due and accrued of $552 and $1,653, respectively, with respect to such practices.

 

Derivative Instruments

 

Interest rate swaps are the primary derivative financial instruments used in the overall asset/liability management process to modify the interest rate characteristics of the hedged asset or liability. These interest rate swaps generally provide for the exchange of the difference between fixed and floating rate amounts based on an underlying notional amount. Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally amortized cost, in the financial statements. If the 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 IMR or AVR if the hedged instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus.

 

Interest rate basis swaps are used in the overall asset/liability management process to modify the interest rate characteristics of the hedged liability to mitigate the basis risk of assets and liabilities resetting on different indices. These interest rate swaps generally provide for the exchange of the difference between a floating rate on one index to a floating rate of another index, based upon an underlying notional amount. Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged at each due date. Swaps meeting hedge accounting rules are carried in a manner consistent with the hedged item, generally amortized cost, in the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal

 

17

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus.

 

The Company may hold foreign denominated assets or liabilities and cross currency swaps are utilized to convert the asset or liability to a US denominated security. A cash payment is often exchanged at the outset of the swap contract to represent the present value of cash flows of the instrument. This payment occurs 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 at each due date as well as at the end of the contract. Each asset or liability is hedged individually and the terms of the swap must meet the terms of the underlying instrument. These swaps meet hedge accounting rules and are carried at amortized cost, consistent with the manner in which the hedged items are carried. 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 IMR or AVR if the hedged instrument receives that treatment.

 

The Company may invest in capped floating rate commercial mortgage loans and use interest rate caps to convert the commercial mortgage loan into a pure floating rate asset in order to meet its overall asset/liability strategy. Each mortgage loan is hedged individually and the relevant terms of the asset and derivative must be the same. These caps require a premium to be paid at the onset of the contract and the Company benefits from the receipt of payments should rates rise above the strike rate. These derivatives meet hedge accounting rules and are carried at amortized cost in the financial statements. A gain or loss upon early termination would be reflected in the IMR similar to the underlying instrument.

 

The Company may sell products with expected benefit payments extending beyond investment assets currently available in the market. Because assets will have to be purchased in the future to fund future liability cash flows, the Company is exposed to the risk of future investments made at lower yields than what is assumed at the time of pricing. Forward-starting interest rate swaps are utilized to lock-in the current interest rate environment for the future. These forward-starting swaps meet hedge accounting rules and are carried at cost in the financial statements. Gains and losses realized upon termination of the forward-starting swap are deferred and amortized into earnings over the life of the future, investment asset.

 

18

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

A replication transaction is a derivative transaction entered into in conjunction with a cash instrument that is used 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 which, in effect, converts the high quality asset to a lower rated investment grade asset. The benefits of using the swap market to replicate credit quality include possible enhanced relative values as well as ease of executing larger transactions in a shortened time frame. A premium is received by the Company on a periodic basis and recognized in investment income as earned. In the event the representative issuer defaults on its debt obligation referenced in the contract, a payment equal to the notional of the contract will be made by the Company and recognized as a capital loss. The Company complies with the specific rules established in AVR for replication transactions.

 

The Company is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit rating of ‘A’ or better. The credit exposure of interest rate swaps and currency swaps is represented by the fair value of contracts, aggregated at a counterparty level, with a positive fair value at the reporting date. The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets on the Company’s behalf. The posted amount is equal to the difference between the net positive fair value of the contracts and an agreed upon threshold that is based on the credit rating of the counterparty. Inversely, if the net fair value of all contracts with this counterparty is negative, the Company is required to post assets.

 

These derivative instruments are subject to market risk, which is the possibility that future changes in market prices may make the instruments less valuable. The Company uses derivatives as hedges, consequently, when the value of the derivative changes, the value of a corresponding hedged asset or liability will move in the opposite direction. Market risk is a consideration when changes in the value of the derivative and the hedged item do not completely offset (correlation or basis risk) which is mitigated by active measuring and monitoring.

 

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

 

19

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum required by law.

 

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 2.50 to 11.25 percent and mortality rates, where appropriate, from a variety of tables.

 

Annuity reserves also include guaranteed investment contracts (GICs) and funding agreements classified as life-type contracts as defined in 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.

 

20

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

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 mid-terminal reserves plus net unearned premiums and the present value of amounts not yet due on both reported and unreported claims.

 

Reinsurance

 

Coinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Gains associated with reinsurance of inforce blocks of business are included in unassigned surplus (deficit) and are amortized into income over the estimated life of the policies. Premiums ceded and recoverable losses have been reported as a reduction of premium income and benefits, respectively.

 

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 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 universal life and variable annuity contracts and the Company’s corresponding obligation to the contract owners are shown separately in the balance sheets. The assets in the separate accounts are valued at market. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the policyholders and, accordingly, the operations of the separate accounts are

 

21

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

1. Organization and Summary of Significant Accounting Policies (continued)

 

not included in the accompanying financial statements. The investment risks associated with market value changes of the separate accounts are borne entirely by the policyholders except in cases where minimum guarantees exist.

 

Premiums and Annuity Considerations

 

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. Revenues are recognized when due. Consideration 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 revenue or benefits paid.

 

Stock Option and Stock Appreciation Rights Plans

 

Beginning in 2003, the Company’s employees participate in various stock appreciation rights (SAR) plans issued by the Company’s indirect parent. In accordance with SSAP No. 13, the expense related to these plans for the Company’s employees has been charged to the Company, with an offsetting amount credited to capital and surplus. The Company recorded an expense of $613 for year ended December 31, 2004.

 

Reclassifications

 

Certain reclassifications have been made to the 2003 and 2002 financial statements to conform to the 2004 presentation.

 

2. Accounting Changes

 

On December 31, 2002, the Company adopted the provisions of Actuarial Guideline 39 (Guideline 39). The purpose of Guideline 39 is to interpret the standards for the valuation of reserves for guaranteed living benefits included in variable deferred and immediate annuity contracts. The Company had previously provided reserves for such guarantees based on the accumulation of the amount charged to policyholders for these benefits. The cumulative effect of adopting Guideline 39 on December 31, 2002, was to increase reserves by $65,363, which was charged directly to unassigned surplus (deficit) as a change in accounting principle.

 

22

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

2. Accounting Changes (continued)

 

Effective January 1, 2003, the Company adopted SSAP No. 86 Accounting for Derivative Instruments and Hedging Activities. In accordance with SSAP No. 86, derivative instruments that qualify for special hedge accounting are valued and reported in a manner consistent with the hedged asset or liability. To qualify for special hedge accounting, the Company must maintain specific documentation regarding the risk management objectives of the hedge and demonstrate on an ongoing basis that the hedging relationship remains highly effective. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value and the changes in the fair value are recorded as unrealized gains and losses. This change of accounting principle had no impact on capital and surplus as of January 1, 2003.

 

During 2003, the state of Missouri (the state of domicile for TAC prior to the merger into the Company) adopted Actuarial Guideline 38 through its adoption of the June 30, 2003 Accounting Practices and Procedures Manual. As such, the Company has adopted this guideline. Reserves as of January 1, 2003 under Actuarial Guideline 38, were increased by $31,957 and this amount has been recorded directly to unassigned surplus as the cumulative effect of a change in accounting principle.

 

3. Capital Structure

 

The Company has 42,500 shares of preferred stock outstanding that is owned by AEGON. 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. At both December 31, 2004 and 2003, there were no cumulative unpaid dividends relating to the preferred shares.

 

At December 31, 2002, the Company accrued $200,000 for a capital contribution receivable from its parent. This capital contribution was carried as an admitted asset based on approval from the Insurance Division, Department of Commerce, of the State of Iowa and receipt of the capital contribution prior to the filing of the annual statement, in accordance with SSAP No. 72.

 

23

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

3. Capital Structure (continued)

 

During 2002, the Company received $575,000 from Transamerica Holding Company, LLC, an affiliate, in exchange for surplus notes. These notes are due 20 years from the date of issuance and are subordinate and junior in right of payment to all obligations and liabilities of the Company. In the event of liquidation of the Company, the holders of the issued and outstanding preferred stock shall be entitled to priority only with respect to accumulated but unpaid dividends before the holder of the surplus notes and full payment of the surplus notes shall be made before the holders of common stock become entitled to any distribution of the remaining assets of the Company. Additional information related to the surplus notes at December 31, 2004 and 2003, are as follows:

 

December 31, 2004                               

Date Issued

    Interest
Rate
    

Original

Amount

of Notes

    Balance
Out-
standing
at End of
Year
    Interest
Paid
Current
Year
    Total
Interest
Paid
    Accrued
Interest

September 30, 2002

    6.0 %   $ 275,000    $ 275,000    $ 16,500    $ 33,000    $ 4,125

December 30, 2002

    6.0       300,000      300,000      18,000      31,550      4,500
          
  
  
  
  

Total

          $ 575,000    $ 575,000    $ 34,500    $ 64,550    $ 8,625
          
  
  
  
  

 

December 31, 2003                               

Date Issued

    Interest
Rate
    

Original

Amount

of Notes

    Balance
Out-
standing
at End of
Year
    Interest
Paid
Current
Year
    Total
Interest
Paid
    Accrued
Interest

September 30, 2002

    6.0 %   $ 275,000    $ 275,000    $ 16,500    $ 16,500    $ 4,125

December 30, 2002

    6.0       300,000      300,000      13,550      13,550      4,500
          
  
  
  
  

Total

          $ 575,000    $ 575,000    $ 30,050    $ 30,050    $ 8,625
          
  
  
  
  

 

24

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

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 statutory-basis balance sheet for these instruments approximate their fair values.

 

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.

 

Receivable from parents, subsidiaries, and affiliates: The fair values for short-term notes receivable from affiliates are assumed to equal their carrying amount.

 

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.

 

25

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

4. Fair Values of Financial Instruments (continued)

 

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.

 

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:

 

     December 31
     2004
    2003
     Carrying
Amount
     Fair Value
    Carrying
Amount
     Fair Value

Admitted assets

                              

Cash and short-term investments

    $ 1,083,915     $ 1,083,915    $ 180,965     $ 180,965

Bonds

      23,378,296       24,081,797      21,237,543       21,971,319

Preferred stocks, other than affiliates

      120,241       128,761      98,178       99,879

Common stocks, other than affiliates

      164,778       164,778      127,048       127,048

Mortgage loans on real estate

      3,907,422       4,118,224      3,585,272       3,782,857

Policy loans

      79,894       79,894      76,455       76,455

Interest rate caps

      24       30      43       82

Swaps

      (213,520 )     310,227      (180,628 )     170,896

Receivable from parents, subsidiaries, and affiliates

      47,800       47,800      —         —  

Separate account assets

      13,878,229       13,878,229      12,262,847       12,262,847

Liabilities

                              

Investment contract liabilities

      21,239,415       21,467,324      19,083,086       19,557,021

Separate account annuity liabilities

      11,170,132       11,170,132      10,251,990       10,251,990

 

26

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments

 

The carrying amounts and estimated fair values of investments in bonds and preferred stocks were as follows:

 

     Carrying
Amount
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
Less Than
12 Months
    Gross
Unrealized
Losses 12
Months or
More
   

Estimated
Fair

Value

December 31, 2004

                                   

Bonds:

                                   

United States Government and agencies

    $ 738,387    $ 4,044    $ 4,726    $ 1,539    $ 736,165

State, municipal, and other government

      619,802      66,575      5,834      2,699      677,844

Public utilities

      1,472,197      84,398      3,071      3,411      1,550,113

Industrial and miscellaneous

      12,769,172      588,991      31,508      28,191      13,298,464

Mortgage and other asset-backed securities

      7,778,738      94,190      13,581      40,136      7,819,211
    
  
  
  
  
       23,378,296      838,198      58,720      75,976      24,081,797

Affiliated preferred stocks

      1,102      —        —        —        1,102

Other preferred stocks

      120,241      8,655      135      —        128,761
    
  
  
  
  
     $ 23,499,639    $ 846,853    $ 58,855    $ 75,976    $ 24,211,660
    
  
  
  
  

 

     Carrying
Amount
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses Less
Than 12
Months
    Gross
Unrealized
Losses 12
Months or
More
   

Estimated
Fair

Value

December 31, 2003

                                   

Bonds:

                                   

United States Government and agencies

    $ 538,953    $ 2,901    $ 9,168    $ —      $ 532,686

State, municipal, and other government

      628,214      79,140      3,936      7,405      696,013

Public utilities

      1,319,612      76,439      8,597      3,624      1,383,830

Industrial and miscellaneous

      12,029,975      643,996      54,177      15,862      12,603,932

Mortgage and other asset-backed securities

      6,720,789      113,228      32,316      46,843      6,754,858
    
  
  
  
  
       21,237,543      915,704      108,194      73,734      21,971,319

Affiliated preferred stocks

      944      —        —        —        944

Other preferred stocks

      98,178      1,716      15      —        99,879
    
  
  
  
  
     $ 21,336,665    $ 917,420    $ 108,209    $ 73,734    $ 22,072,142
    
  
  
  
  

 

The Company held bonds and preferred stock at December 31, 2004 and 2003 with a carrying value of $52,103 and $17,581, respectively, and amortized cost of $64,868 and $39,700, respectively, that have an NAIC rating of 6 and which are not considered to be other than temporarily impaired. These securities are carried at the lower of amortized cost or fair value, and any write-down to fair value has been recorded directly to

 

27

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

unassigned surplus. The Company will record a charge to the statement of operations to the extent that these securities are subsequently determined to be other than temporarily impaired.

 

The estimated fair value of bonds and preferred stocks with gross unrealized losses at December 31, 2004 and 2003 is as follows:

 

    

Losses Less

than 12

Months

   

Losses 12

Months or

More

    Total

December 31, 2004

                     

Bonds:

                     

United States Government and agencies

    $ 330,302    $ 91,595    $ 421,897

State, municipal and other government

      21,981      35,514      57,495

Public utilities

      202,602      106,487      309,089

Industrial and miscellaneous

      2,112,226      674,599      2,786,825

Mortgage and other asset-backed securities

      2,600,155      478,939      3,079,094
    
  
  
       5,267,266      1,387,134      6,654,400

Other preferred stocks

      16,361      —        16,361
    
  
  
     $ 5,283,627    $ 1,387,134    $ 6,670,761
    
  
  

 

    

Losses Less

than 12

Months

   

Losses 12

Months or

More

    Total

December 31, 2003

                     

Bonds:

                     

United States Government and agencies

    $ 406,041    $ —      $ 406,041

State, municipal and other government

      56,448      3,448      59,896

Public utilities

      244,189      46,765      290,954

Industrial and miscellaneous

      2,005,249      287,411      2,292,660

Mortgage and other asset-backed securities

      2,030,407      699,701      2,730,108
    
  
  
       4,742,334      1,037,325      5,779,659

Other preferred stocks

      4,430      —        4,430
    
  
  
     $ 4,746,764    $ 1,037,325    $ 5,784,089
    
  
  

 

28

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

The carrying amounts and estimated fair values of bonds at December 31, 2004, 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
Amount
    Estimated
Fair Value

Due in one year or less

    $ 368,682    $ 374,858

Due after one year through five years

      5,638,591      5,805,902

Due after five years through ten years

      7,115,385      7,406,145

Due after ten years

      2,476,900      2,675,681
    
  
       15,599,558      16,262,586

Mortgage and other asset-backed securities

      7,778,738      7,819,211
    
  
     $ 23,378,296    $ 24,081,797
    
  

 

The Company regularly monitors industry sectors and individual debt securities for signs of impairment, including length of time and extent to which the market value of debt securities has been less than cost; industry risk factors; financial condition and near-term prospects of the issuer; and nationally recognized credit rating agency rating changes. Additionally for asset-backed securities, cash flow trends and underlying levels of collateral are monitored. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. Consideration is also given to management’s intent and ability to hold a security until maturity or until fair value will recover.

 

The Company’s investment in Transamerica Capital III, a long-term bond issued by an affiliate, is valued at amortized cost with a carrying value of $303 and $3,083 at December 31, 2004 and 2003, respectively.

 

29

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

A detail of net investment income is presented below:

 

     Year Ended December 31
  
     2004
     2003
     2002
  

Interest on bonds and preferred stocks

    $ 1,174,456     $ 1,154,385     $ 1,006,824  

Dividends on equity investments

      1,822       3,872       2,076  

Interest on mortgage loans

      233,847       203,996       162,311  

Rental income on real estate

      6,625       7,828       8,253  

Interest on policy loans

      5,608       5,399       4,902  

Derivatives

      (21,395 )     (22,920 )     (14,101 )

Other

      42,094       21,151       27,244  
    
 
 

Gross investment income

      1,443,057       1,373,711       1,197,509  

Less investment expenses

      67,575       65,834       54,440  
    
 
 

Net investment income

    $ 1,375,482     $ 1,307,877     $ 1,143,069  
    
 
 

 

Proceeds from sales and maturities of bonds and preferred stocks and related gross realized gains and losses were as follows:

 

     Year Ended December 31
  
     2004
     2003
     2002
  

Proceeds

    $ 17,446,609     $ 23,823,647     $ 21,228,877  
    
 
 

Gross realized gains

    $ 196,077     $ 317,148     $ 159,920  

Gross realized losses

      (75,123 )     (179,475 )     (258,972 )
    
 
 

Net realized gains (losses)

    $ 120,954     $ 137,673     $ (99,052 )
    
 
 

 

Gross realized losses for the years ended December 31, 2004, 2003 and 2002 include $24,495, $70,859 and $103,905, respectively, which relates to losses recognized on other than temporary declines in market value of debt securities.

 

At December 31, 2004, investments with an aggregate carrying value of $57,200 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.

 

30

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

Net realized capital gains (losses) on investments and change in net unrealized capital gains (losses) on investments are summarized below:

 

     Realized
  
     Year Ended December 31
  
     2004
     2003
     2002
  

Bonds and preferred stocks

    $ 120,954     $ 137,673     $ (99,052 )

Equity securities

      6,036       (1,544 )     6,464  

Mortgage loans on real estate

      (11,671 )     (78 )     374  

Real estate

      6,320       1,248       (3,193 )

Short-term investments

      2,113       —         —    

Derivatives

      (37,464 )     (74,660 )     (49,788 )

Other invested assets

      31,866       2,010       2,535  
    
 
 
       118,154       64,649       (142,660 )

Tax effect

      (29,956 )     (21,399 )     9,062  

Transfer from (to) interest maintenance reserve

      (48,839 )     (91,431 )     33,355  
    
 
 

Net realized capital gains (losses) on investments

    $ 39,359     $ (48,181 )   $ (100,243 )
    
 
 

 

     Change in Unrealized
  
     Year Ended December 31
  
     2004
     2003
     2002
  

Bonds

    $ 44,559     $ 83,127     $ 24,267  

Preferred stocks

      8,029       (319 )     (3,665 )

Common stocks

      9,116       2,953       (8,916 )

Affiliated entities

      161       (4,320 )     (129 )

Mortgage loans on real estate

      —         (27,421 )     452  

Other invested assets

      5,114       21,092       (28,463 )

Real estate

      —         —         298  

Derivative instruments

      (40,228 )     (56,483 )     (60,647 )
    
 
 

Change in net unrealized capital gains (losses)

    $ 26,751     $ 18,629     $ (76,803 )
    
 
 

 

31

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

Gross unrealized gains and gross unrealized losses on unaffiliated common stocks are as follows:

 

     December 31
  
     2004
     2003
  

Unrealized gains

    $ 13,394     $ 2,933  

Unrealized losses

      (2,556 )     (1,250 )
    
 

Net unrealized gains

    $ 10,838     $ 1,683  
    
 

 

During 2004, the Company issued mortgage loans with interest rates ranging from 2.28% to 7.04%. The maximum percentage of any one mortgage loan to the value of the underlying real estate at origination was 90%. Mortgage loans with a carrying value of $4,069 were non-income producing for the previous 180 days. Accrued interest of $371 related to these mortgage loans was excluded from investment income at December 31, 2004. The Company requires all mortgaged properties to carry fire insurance equal to the value of the underlying property.

 

At December 31, 2004 and 2003, the Company had recorded investment in restructured securities of $20,606 and $4,472, respectively. There were no capital losses taken as a result of such restructurings. The Company often has impaired a security prior to the restructure date. These impairments are not included in the calculation of restructure related losses and are accounted for as a realized loss, reducing the cost basis of the security involved.

 

At December 31, 2004 and 2003, the Company had loans of $63,827 and $0, respectively, for which impairments have been recognized in accordance with SSAP No. 36, Troubled Debt Restructuring. There were no realized losses during the years ended December 31, 2004, and 2003 related to such restructurings. There are no commitments to lend additional funds to debtors owing receivables.

 

32

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

At December 31, 2004 and 2003, the Company held a mortgage loan loss reserve in the AVR of $96,069 and $42,314, respectively. The mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:

 

Geographic Distribution  
     December 31
  
     2004
     2003
  

South Atlantic

    22 %   25 %

Pacific

    20     23  

Mountain

    17     14  

E. North Central

    16     13  

Middle Atlantic

    11     11  

W. North Central

    6     6  

W. South Central

    3     4  

E. South Central

    3     2  

New England

    2     2  
Property-Type Distribution  
     December 31
  
     2004
     2003
  

Office

    37 %   38 %

Industrial

    21     22  

Apartment

    20     18  

Retail

    16     16  

Other

    6     6  

 

The Company uses interest rate swaps to reduce market risk in interest rates and to alter interest rate exposures arising from mismatches between assets and liabilities. An interest rate swap is an arrangement whereby two parties (counterparties) enter into an agreement to exchange periodic interest payments. The dollar amount the counterparties pay each other is an agreed-upon period interest rate multiplied by an underlying notional amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. The Company also uses cross currency swaps to reduce market risk in foreign currencies and to alter exchange exposure arising from mismatches between assets and liabilities. A cash payment is often exchanged at the outset of the swap contract, representing the present value of cash flows of the instrument. All swap transactions are entered into pursuant to master agreements providing for a single net payment to be made by one counterparty at each due date.

 

The Company may invest in capped floating rate commercial mortgage loans and use interest rate caps to convert the commercial mortgage loan into a pure floating rate asset in order to meet its overall asset/liability strategy. Interest rate caps provide for the receipt of payments when interest rates rise above the strike rates in the contract. A single premium is paid by the Company at the beginning of the interest rate cap contracts.

 

33

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

The Company replicates investment grade corporate bonds by combining a AAA rated security with a credit default swap which, in effect, converts the high quality asset into a lower rated investment grade asset. Using the swap market to replicate credit enables the Company to enhance the relative values and ease the execution of larger transactions in a shortened time frame. A premium is received by the Company on a periodic basis and recognized in investment income. At December 31, 2004 and 2003, the Company had replicated assets with a fair value of $220,517 and $196,173, respectively, and credit default swaps with a fair value of $469 and $(841), respectively. During the three years ended December 31, 2004, 2003, and 2002, the Company did not recognize any capital losses related to replication transactions.

 

The Company is exposed to credit related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparty to fail to meet their obligations given their high credit rating of ‘A’ or better. As of December 31, 2004, the fair value of all contracts, aggregated at a counterparty level, with a positive fair value amounted to $557,055.

 

The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets on the Company’s behalf in an amount equal to the difference between the net positive fair value of the contracts and an agreed upon threshold based on the credit rating of the counterparty. If the net fair value of all contracts with this counterparty is negative, the Company is required to post assets.

 

At December 31, 2004 and 2003, the Company’s outstanding financial instruments with on and off-balance sheet risks, shown in notional amounts, are summarized as follows:

 

     Notional Amount
     2004
    2003

Derivative securities:

              

Interest rate and currency swaps:

              

Receive fixed – pay floating

    $ 4,764,603    $ 4,295,140

Receive floating – pay fixed

      4,894,349      4,884,879

Receive floating (uncapped) – pay floating (capped)

      2,806,196      2,901,587

Interest rate cap agreements

      30,854      32,446

 

The maximum term over which the Company is hedging its exposure to the variability of future cash flows for forecasted transactions is 19 years. If the forecasted asset purchase does not occur or is no longer highly probable of occurring, valuation at cost ceases and

 

34

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

5. Investments (continued)

 

the forward-starting swap would be valued at its current fair value with fair value adjustments recorded in unassigned surplus. For the years ended December 31, 2004 and 2003, none of the Company’s cash flow hedges have been discontinued because it was no longer probable that the original forecasted transactions would occur by the end of the originally specified time period documented at inception of the hedging relationship.

 

Derivative instruments that qualify for hedge accounting are valued and reported in a manner consistent with the hedged asset or liability. Derivatives used in hedging transactions that do not meet the criteria of an effective hedge are accounted for at fair value and the changes in fair value are recorded in surplus as unrealized gains and losses. For the years ended December 31, 2004 and 2003, the Company has recorded $69 and $(713), respectively, for the component of derivative instruments utilized for hedging purposes that did not qualify for hedge accounting. This has been recorded directly to unassigned surplus as an unrealized gain (loss).

 

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 treaties are transacted primarily with affiliates. Premiums earned reflect the following reinsurance assumed and ceded amounts:

 

     Year Ended December 31
  
     2004
     2003
     2002
  

Direct premiums

    $ 4,089,877     $ 5,934,444     $ 9,175,527  

Reinsurance assumed – non affiliates

      4,135       28,199       30,473  

Reinsurance assumed – affiliates

      457,885       145,114       218,537  

Reinsurance ceded – non affiliates

      (148,315 )     (199,327 )     (330,692 )

Reinsurance ceded – affiliates

      (720,278 )     (44,383 )     (28,055 )
    
 
 

Net premiums earned

    $ 3,683,304     $ 5,864,047     $ 9,065,790  
    
 
 

 

35

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

6. Reinsurance (continued)

 

The Company received reinsurance recoveries in the amount of $159,604, $229,100, and $175,489, during 2004, 2003, and 2002, respectively. At December 31, 2004 and 2003, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $15,175 and $17,152, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2004 and 2003 of $1,365,444 and $1,406,879, respectively.

 

At December 31, 2004, amounts recoverable from unauthorized reinsurers of $2,089 (2003–$2,153) and reserve credits for reinsurance ceded of $31,484 (2003– $34,928) were associated with a single reinsurer and its affiliates. The Company holds collateral under these reinsurance agreements in the form of trust agreements totaling $37,230 at December 31, 2004, that can be drawn on for amounts that remain unpaid for more than 120 days.

 

During 2003, the Company recaptured a block of business ceded to a non-affiliated company. The recapture resulted in no consideration received by or paid to the Company. This recapture resulted in a pre-tax loss of $3,323, which was recorded in the statement of operations. The loss was offset by the release of liability for unauthorized reinsurance and non-admitted assets related to the reinsurance treaty of $3,208, which were credited directly to unassigned surplus.

 

During 2003, the Company entered into a reinsurance transaction with Transamerica International Re (Bermuda) Ltd, an affiliate. Under the terms of this transaction, the Company ceded the obligations and benefits related to certain life insurance contracts. The difference between the consideration paid of $2,608 and the reserve credit taken of $6,188 was credited directly to unassigned surplus on a net of tax basis. Subsequent to the initial gain, the Company has amortized $266 and $275 into earnings during 2004 and 2003, respectively, with a corresponding charge to unassigned surplus. The Company holds collateral in the form of letters of credit of $9,400.

 

During 2003, the Company entered into an indemnity reinsurance agreement in which the Company agreed to cede the obligations and benefits related to certain fixed annuity contracts on a coinsurance and modified coinsurance basis. The Company received a ceding commission of $13,386 at the inception of the contract. In addition, the Company released the IMR liability of $12,906 related to the assets backing the ceded contracts because the future investment experience to be transferred to the assuming company will be without adjustment of the IMR that existed at the date of the initial transaction. The resulting gain from the ceding commission and the IMR release has been recorded

 

36

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

6. Reinsurance (continued)

 

directly to the unassigned surplus on a net of tax basis. The initial mod-co transaction of $1,587,431 is included separately in the revenue and expense sections of the Company’s statement of operations for 2003. During 2004 and 2003, the Company has amortized $6,979 and $9,473, respectively, of the initial gain into earnings with a corresponding charge to unassigned surplus.

 

The Company has historically been a party to various reinsurance transactions with MEGA Life and Health Insurance Co. and its affiliates (“MEGA”) related to certain accident and health business. During 2003, the Company entered into several reinsurance transactions and novations of certain underlying policies such that all risks associated with these treaties and policies have been ceded to MEGA. No gain or loss was recognized related to these transactions.

 

During 2004, the Company entered into another reinsurance transaction to cede the new production of certain fixed annuity contracts to Transamerica International Re (Ireland) Ltd (TIRe), an affiliate of the Company, on a funds withheld basis. The Company ceded premiums of $677,733 during 2004 and has taken a reserve credit of $650,613 at December 31, 2004. The Company has a liability for funds held under reinsurance of $620,934 at December 31, 2004. The consummation of this treaty caused no initial gain or loss.

 

On October 1, 2004 the Company recaptured the business it had ceded under a reinsurance treaty with First AUSA Life Insurance Company, an affiliate. The Company received $643,279 as consideration for this recapture, which has been included in the Company’s statement of operations. The change in reserves of $643,279 related to the recapture has been reported in the statement of operations as an increase in reserves.

 

37

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

7. Income Taxes

 

The main components of net deferred income taxes are as follows:

 

     December 31
     2004
    2003

Deferred income tax assets:

              

Guaranty funds

    $ 5,770    $ 5,477

Non-admitted assets

      788      22,010

807(f) assets

      4,606      4,294

Deferred acquisition costs

      179,494      160,643

Reserves

      71,710      66,726

Unrealized capital losses

      31,811      45,028

Other

      28,446      15,059
    
  

Total deferred income tax assets

    $ 322,625    $ 319,237
    
  

Deferred income tax assets – nonadmitted

    $ 146,140    $ 158,651
    
  

Deferred income tax liabilities:

              

Unrealized capital gains

    $ 94,585    $ 77,748

Other

      13,867      5,994
    
  

Total deferred income tax liabilities

    $ 108,452    $ 83,742
    
  

 

The change in net deferred income tax assets and deferred income tax assets – nonadmitted are as follows:

 

     Year Ended December 31
     2004
     2003
     2002

Change in net deferred income tax asset

    $ (21,322 )   $ (78,803 )   $ 115,655
    
 
 

Change in deferred income tax assets - nonadmitted

    $ (12,511 )   $ (36,917 )   $ 34,836
    
 
 

 

38

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

7. Income Taxes (continued)

 

Federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to gain/loss from operations before federal income tax expense and net realized capital gains/losses on investments for the following reasons:

 

     Year Ended December 31
  
     2004
     2003
     2002
  

Income tax computed at federal statutory rate (35%)

    $ 37,366     $ 96,026     $ (7,023 )

Deferred acquisition costs – tax basis

      18,744       15,408       30,911  

Depreciation

      53       (112 )     (148 )

Dividends received deduction

      (5,891 )     (2,597 )     (2,413 )

IMR amortization

      (5,438 )     (8,108 )     (382 )

Investment income items

      (6,060 )     (5,054 )     (4,934 )

Low income housing credits

      (5,215 )     (6,035 )     (6,051 )

Prior year under (over) accrual

      (15,214 )     (40,689 )     832  

Reinsurance transactions

      (3,853 )     3,643       (1,442 )

Tax reserve adjustment

      4,041       3,168       7,072  

Other

      (1,189 )     3,379       (1,256 )
    
 
 

Federal income tax expense

    $ 17,344     $ 59,029     $ 15,166  
    
 
 

 

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 on 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. In addition, any operating loss or capital loss carryforwards are calculated for the life and nonlife subgroups on a consolidated basis.

 

The Company’s federal income tax returns have been examined by the Internal Revenue Service and the statute is closed through 1995. The examination fieldwork for 1996 through 1997 has been completed and a protest of findings has been filed with the Appeals Office of the Internal Revenue Service. Management does not believe the

 

39

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

7. Income Taxes (continued)

 

outcome of the protest of findings will have a material effect on the Company’s financial position or results of operations. An examination is underway for 1998 through 2000.

 

Income taxes incurred during 2004, 2003 and 2002 for the consolidated group in which the Company is included that will be available for recoupment in the event of future net losses is $312,070, $199,850, and $1,319, respectively.

 

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, 2004). 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.

 

40

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

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
  
     2004
     2003
  
     Amount
    Percent
of Total
     Amount
    Percent
of Total
  

Subject to discretionary withdrawal with market value adjustment

    $ 1,799,699    5 %   $ 2,234,306    7 %

Subject to discretionary withdrawal at book value less surrender charge

      5,649,820    17       7,572,375    23  

Subject to discretionary withdrawal at market value

      10,753,638    32       9,772,559    30  

Subject to discretionary withdrawal at book value (minimal or no charges or adjustments)

      8,507,622    25       5,886,716    18  

Not subject to discretionary withdrawal provision

      7,269,599    21       6,994,416    22  
    
  
 
  
       33,980,378    100 %     32,460,372    100 %
           
        

Less reinsurance ceded

      1,254,582            1,295,797       
    
        
      

Total policy reserves on annuities and deposit-type liabilities

    $ 32,725,796          $ 31,164,575       
    
        
      

 

Included in the liability for deposit-type contracts at December 31, 2004 and 2003 are $4,236,873 and $4,381,000, respectively, of funding agreements issued to special purpose entities in conjunction with non-recourse medium-term note programs. Under these programs, the proceeds from each note series issuance is used to purchase a funding agreement from an affiliated Company which secures that particular series of notes. The funding agreement is reinsured to the Company. In general, the payment terms of the note series match the payment terms of the funding agreement that secures that series. Claims for principal and interest for these funding agreements are afforded equal priority as other policyholders. At December 31, 2004, the contractual maturities were: 2005 - $782,698; 2006 - $1,139,983; 2007 - $1,374,936; 2008 - $100,117; 2009 - $371,151 and thereafter - $467,988.

 

41

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

8. Policy and Contract Attributes (continued)

 

The Company’s liability for deposit-type contracts includes GIC’s and funding agreements assumed from Monumental Life Insurance Company, an affiliate. The liabilities assumed are $5,007,410 and $5,426,617 at December 31, 2004 and 2003, respectively.

 

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, 2004, 2003, and 2002 is as follows:

 

    

Nonindexed

Guaranteed
Separate
Account

Less Than
4%

    Nonguaranteed
Separate
Account
    Total

Premiums, deposits, and other considerations for the year ended December 31, 2004

    $ —      $ 1,462,914    $ 1,462,914
    
  
  

Reserves for separate accounts with assets at:

                     

Fair value

    $ —      $ 12,892,015    $ 12,892,015

Amortized cost

      418,070      —        418,070
    
  
  

Total at December 31, 2004

    $ 418,070    $ 12,892,015    $ 13,310,085
    
  
  

Premiums, deposits, and other considerations for the year ended December 31, 2003

    $ —      $ 1,895,800    $ 1,895,800
    
  
  

Reserves for separate accounts with assets at:

                     

Fair value

    $ —      $ 11,232,371    $ 11,232,371

Amortized cost

      388,149      —        388,149
    
  
  

Total at December 31, 2003

    $ 388,149    $ 11,232,371    $ 11,620,520
    
  
  

Premiums, deposits, and other considerations for the year ended December 31, 2002

    $ 175,000    $ 2,958,899    $ 3,133,899
    
  
  

Reserves for separate accounts with assets at:

                     

Fair value

    $ —      $ 6,953,417    $ 6,953,417

Amortized cost

      369,996      —        369,996
    
  
  

Total at December 31, 2002

    $ 369,996    $ 6,953,417    $ 7,323,413
    
  
  

 

42

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

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
     2004
     2003
    2002

Transfers as reported in the summary of operations of the separate accounts statement:

                      

Transfers to separate accounts

    $ 1,463,157     $ 1,897,576    $ 3,133,334

Transfers from separate accounts

      (897,510 )     177,729      402,618
    
 
  

Net transfers to separate accounts

      565,647       2,075,305      3,535,952

Miscellaneous reconciling adjustments

      5,659       4,131      4,566
    
 
  

Transfers as reported in the summary of operations of the life, accident and health annual statement

    $ 571,306     $ 2,079,436    $ 3,540,518
    
 
  

 

At December 31, 2004 and 2003, the Company had separate account annuities with guaranteed benefits as follows:

 

Benefit and Type of Risk

    Subjected
Account
Value
    Amount of
Reserve
Held
    Reinsurance
Reserve
Credit
  

December 31, 2004

                       

Minimum guaranteed death benefit

    $ 12,339,896    $ 118,545    $ 27,399  

Minimum guaranteed income benefit

      8,273,717      93,888      2,760  

Guaranteed premium accumulation fund

      79,525      8,066      —    

Minimum guaranteed withdrawal benefit

      448,821      1,612      (1,255 )

December 31, 2003

                       

Minimum guaranteed death benefit

    $ 11,168,817    $ 108,640    $ 33,703  

Minimum guaranteed income benefit

      7,812,085      70,780      569  

Guaranteed premium accumulation fund

      43,229      5,301      —    

Minimum guaranteed withdrawal benefit

      16,915      15      (19 )

 

43

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

8. Policy and Contract Attributes (continued)

 

For Variable Annuities with Guaranteed Living Benefits (“VAGLB”), which includes minimum guaranteed income, minimum guaranteed withdrawal, and guaranteed premium accumulation fund benefits, the Company complies with Actuarial Guideline 39. This guideline defines a two step process for the determination of VAGLB reserves. The first step is to establish a reserve equal to the accumulated VAGLB charges for the policies in question. The second step requires a standalone asset adequacy analysis to determine the sufficiency of these reserves. This step has been satisfied by projecting 30 years into the future along 1000 stochastic variable return paths using a variety of assumptions as to VAGLB charges, lapse, withdrawal, annuitization and death. The results of this analysis are discounted back to the valuation date and compared to the accumulation of fees reserve to determine if an additional reserve needs to be established.

 

For Variable Annuities with Minimum Guaranteed Death Benefits (“MGDB”), the Company complies with Actuarial Guideline 34. This guideline requires that MGDBs be projected by assuming an immediate drop in the values of the assets supporting the variable annuity contract, followed by a subsequent recovery at a net assumed return until the maturity of the contract. The immediate drop percentages and gross assumed returns vary by asset class and are defined in the guideline. Mortality is based on the 1994 Variable Annuity MGDB Mortality Table, which is also defined in the guideline.

 

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, 2004 and 2003, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loading, are as follows:

 

     Gross
    Loading
    Net

December 31, 2004

                     

Life and annuity:

                     

Ordinary direct first year business

    $ 3,703    $ 2,524    $ 1,179

Ordinary direct renewal business

      22,483      7,090      15,393

Group life direct business

      4,190      2,800      1,390
    
  
  

Total life and annuity

      30,376      12,414      17,962

Accident and health:

                     

Direct

      3,053      —        3,053
    
  
  

Total accident and health

      3,053      —        3,053
    
  
  
     $ 33,429    $ 12,414    $ 21,015
    
  
  

 

44

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

8. Policy and Contract Attributes (continued)

 

     Gross
    Loading
    Net

December 31, 2003

                     

Life and annuity:

                     

Ordinary direct first year business

    $ 6,443    $ 5,060    $ 1,383

Ordinary direct renewal business

      20,509      5,827      14,682

Group life direct business

      1,960      881      1,079
    
  
  

Total life and annuity

      28,912      11,768      17,144

Accident and health:

                     

Direct

      2,010      —        2,010
    
  
  

Total accident and health

      2,010      —        2,010
    
  
  
     $ 30,922    $ 11,768    $ 19,154
    
  
  

 

At December 31, 2004 and 2003, the Company had insurance in force aggregating $1,175,628 and $1,198,577, 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 $34,797 and $35,146 to cover these deficiencies at December 31, 2004 and 2003, respectively.

 

During 2004, the Company made a correction in the guaranteed nonforfeiture interest rate on certain universal life contracts. This caused a decrease in reserves of $1,423, which was credited to capital and surplus.

 

During 2003, the Company upgraded its reserve valuation system for fixed deferred annuities and variable annuities. The valuation system upgrade, which provides for more precise calculations, caused general account reserves to decrease by $3,572 and separate account reserves to increase by $4,681. The amounts relating to the general account were credited directly to unassigned surplus. The amounts related to the separate accounts are included in the change in surplus in separate accounts in the 2003 statement of changes in capital and surplus.

 

During 2002, the Company converted to a new reserve valuation system for fixed deferred annuities and variable annuities. The new valuation system, which provides for more precise calculations, caused general account reserves to increase by $18,990 and separate account reserves to increase by $914. The amounts relating to the general account were credited directly to unassigned surplus. The amounts related to the separate

 

45

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

8. Policy and Contract Attributes (continued)

 

accounts are included in the change in surplus in separate accounts in the 2002 statement of changes in capital and surplus.

 

During 2002, the Company changed the valuation interest rates assumption for a portion of its universal life business. This caused an increase in reserves of $2,703, which was charged directly to capital and surplus.

 

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 [which aggregates a deficit of $83,990 at December 31, 2004] at the time of such dividend, the maximum payment which may be made in 2005, without the prior approval of insurance regulatory authorities, is $186,434.

 

During 2003, upon approval of insurance regulatory authorities, the Company paid $300,000 to its parent company. This payment consisted of a dividend of $45,700 and a return of additional paid-in-capital of $254,300.

 

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 31, 2004, 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 Statement of Financial Accounting Standards No. 87 as a percent of salaries. The benefits are based on years of service and the employee’s compensation during the highest five

 

46

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

10. Retirement and Compensation Plans (continued)

 

consecutive years of employment. Pension expense aggregated $1,417, $1,658, and $784 for the years ended December 31, 2004, 2003, and 2002, 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 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 $620, $637, and $353 for the years ended December 31, 2004, 2003, and 2002, 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, 2004, 2003, and 2002 was negligible. AEGON also sponsors an employee stock option plan/stock appreciation rights for individuals employed 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 $172, $166, and $95 for the years ended December 31, 2004, 2003, and 2002, respectively.

 

47

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

11. Sales, Transfer, and Servicing of Financial Assets and Extinguishments of Liabilities

 

During 2004, 2003 and 2002, the Company sold $23,460, $22,970, and $11,172, respectively, of agent balances without recourse to Money Services, Inc., an affiliated company. The Company did not realize a gain or loss as a result of the sale.

 

12. 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 2004, 2003, and 2002, the Company paid $35,941, $72,287, and $61,826, respectively, for these services, which approximates their costs to the affiliates.

 

Payables to affiliates bear interest at the thirty-day commercial paper rate. During 2004, 2003, and 2002, the Company paid net interest of $1,042, $985, and $737, respectively, to affiliates.

 

During 2004, the Company received capital contributions from AEGON and TALIAC of $424,830 and $65,170, respectively. During 2003, the Company distributed a dividend to its parent consisting of $45,700 of common stock and $254,300 of cash, and received a cash capital contribution of $200,000 that was accrued in 2002. During 2003 and 2002, the Company received a capital contribution of $80,000 and $230,000, respectively, in cash from its parent. In addition, in 2002, the Company issued a surplus note of $575,000 in exchange for cash.

 

At December 31, 2004 the Company reported $47,800 short-term notes receivable from Monumental Life Insurance Company, an affiliate, which is due December 23, 2005. At December 31, 2003, the Company did not have any net short-term notes receivable from an affiliate outstanding. 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 $236,425 and $226,770 at December 31, 2004 and 2003, respectively.

 

48

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

13. Commitments and Contingencies

 

The Company has issued synthetic GIC contracts to benefit plan sponsors totaling $2,159,379 as of December 31, 2004. A synthetic GIC is an off-balance sheet fee-based product sold primarily to tax qualified plans. The plan sponsor retains ownership and control of the related plan assets. The Company provides book value benefit responsiveness in the event that qualified plan benefit requests exceed plan cash flows. In certain contracts, the Company agrees to make advances to meet benefit payment needs and earns a market interest rate on these advances. The periodically adjusted contract-crediting rate is the means by which investment and benefit responsive experience is passed through to participants. In return for the book value benefit responsive guarantee, the Company receives a premium that 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. Funding requirements to date have been minimal and management does not anticipate any future material funding requirements that would have a material impact on reported financial results.

 

The Company has also provided a guarantee for the obligations of non-insurance affiliates. These entities accept assignments of structured settlement payment obligations from other insurers and purchases structured settlement insurance policies from subsidiaries of the Company that match those obligations. There are no expected payments associated with this guarantee.

 

The Company may pledge assets as collateral for transactions involving funding agreements. At December 31, 2004, the Company has pledged invested assets with a carrying value and market value of $1,531,589 and $1,569,807, 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 at least equal to 102% of the fair value of the loaned securities as of the transaction date. The counterparty is obligated to deliver additional collateral if the fair value of the collateral is at any time less than 100% of the fair value of the loaned securities. The additional collateral along with the collateral already held in connection with the lending transaction is at least equal to 102% of the fair value of the loaned securities. The Company does not participate in securities lending in foreign securities. There are no restrictions as to the collateral. 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

 

49

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

13. Commitments and Contingencies (continued)

 

December 31, 2004 and 2003, the value of securities loaned amounted to $682,627 and $1,032,994, respectively.

 

The Company has contingent commitments for $238,735 at December 31, 2004 for joint ventures, partnerships, and limited liability companies.

 

At December 31, 2004, the Company has mortgage loan commitments of $137,175.

 

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 $16,615 and $16,584 and an offsetting premium tax benefit of $7,122 and $7,217 at December 31, 2004 and 2003, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (benefit) was $365, $56, and $(2) for the years ended December 31, 2004, 2003, and 2002, respectively.

 

50

Transamerica Life Insurance Company

 

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

 

14. Reconciliation of Capital and Surplus and Net Loss

 

The following table reconciles capital and surplus and net income (loss) as reported in the Annual Statement filed with the Insurance Division, Department of Commerce, of the State of Iowa to the amounts reported in the accompanying financial statements:

 

     December 31,
2003
    Year Ended
December 31,
2003
  
     Total Capital
and Surplus
    Net Income
  

Amounts reported in Annual Statement

    $ 1,375,231    $ 164,745  

Under accrual of life and annuity reserves

      —        3,733  

Adjustment for reinsurance recoverables

      —        199  

Other adjustments

      —        (233 )

Tax effect

      —        (1,295 )
    
  

Amounts reported herein

    $ 1,375,231    $ 167,149  
    
  

 

     December 31,
2002
     Year Ended
December 31,
2002
  
     Total Capital
and Surplus
     Net Loss
  

Amounts reported in Annual Statement

    $ 1,559,717     $ (133,072 )

Under accrual of life and annuity reserves

      (3,733 )     (3,733 )

Adjustment for reinsurance recoverables

      (1,446 )     (199 )

Other adjustments

      233       233  

Tax effect

      1,295       1,295  
    
 

Amounts reported herein

    $ 1,556,066     $ (135,476 )
    
 

 

There were no reconciling items at December 31, 2004 of for the year than ended.

 

51

 

Statutory-Basis Financial

Statement Schedules

 

Transamerica Life Insurance Company

 

Summary of Investments – Other Than

Investments in Related Parties

(Dollars in Thousands)

 

December 31, 2004

 

SCHEDULE I

 

Type of Investment

    Cost (1)
   

Market

Value

   

Amount at
Which Shown
in the

Balance Sheet

Fixed maturities

                     

Bonds:

                     

United States Government and government agencies and authorities

    $ 744,227    $ 742,178    $ 744,227

States, municipalities and political subdivisions

      1,718,193      1,718,213      1,718,193

Foreign governments

      579,846      638,453      579,846

Public utilities

      1,472,197      1,550,113      1,472,197

All other corporate bonds

      18,863,530      19,432,538      18,863,530

Redeemable preferred stocks

      120,241      128,761      120,241
    
  
  

Total fixed maturities

      23,498,234      24,210,256      23,498,234

Equity securities

                     

Common stocks:

                     

Banks, trust and insurance

      67,850      67,850      67,850

Industrial, miscellaneous and all other

      86,091      96,928      96,928
    
  
  

Total equity securities

      153,941      164,778      164,778

Mortgage loans on real estate

      3,907,422             3,907,422

Real estate

      36,753             36,753

Policy loans

      79,894             79,894

Other long-term investments

      847,895             847,895

Cash and short-term investments

      1,083,915             1,083,915
    
         

Total investments

    $ 29,608,054           $ 29,618,891
    
         

 

(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.

 

52

Transamerica Life Insurance Company

 

Supplementary Insurance Information

(Dollars in Thousands)

 

SCHEDULE III

 

     Future Policy
Benefits and
Expenses
    Unearned
Premiums
    Policy and
Contract
Liabilities
    Premium
Revenue
    Net
Investment
Income*
   

Benefits,
Claims

Losses and
Settlement
Expenses

    Other
Operating
Expenses*
    Premiums
Written

Year ended December 31, 2004

                                                        

Individual life

    $ 3,706,105    $ —      $ 18,815    $ 1,106,335    $ 201,726    $ 557,857    $ 767,054       

Individual health

      481,152      11,264      20,082      125,322      25,246      149,813      34,059    $ 126,384

Group life and health

      371,747      3,678      26,400      133,892      20,452      129,869      69,428      222,484

Annuity

      14,791,947      —        —        2,317,755      1,128,058      3,724,119      364,062       
    
  
  
  
  
  
  
      
     $ 19,350,951    $ 14,942    $ 65,297    $ 3,683,304    $ 1,375,482    $ 4,561,658    $ 1,234,603       
    
  
  
  
  
  
  
      

Year ended December 31, 2003

                                                        

Individual life

    $ 3,329,369    $ —      $ 14,877    $ 545,732    $ 187,047    $ 493,127    $ 267,289       

Individual health

      393,067      11,590      15,488      117,508      20,776      130,651      40,096    $ 117,509

Group life and health

      332,722      3,728      17,239      142,612      18,989      104,620      62,625      205,244

Annuity

      13,786,889      —        —        5,058,195      1,081,065      3,618,528      4,000,983       
    
  
  
  
  
  
  
      
     $ 17,842,317    $ 15,318    $ 47,604    $ 5,864,047    $ 1,307,877    $ 4,346,926    $ 4,370,993       
    
  
  
  
  
  
  
      

Year ended December 31, 2002

                                                        

Individual life

    $ 2,977,485    $ —      $ 17,934    $ 529,767    $ 187,122    $ 343,087    $ 386,306       

Individual health

      311,152      10,930      12,898      101,679      17,851      104,699      32,347    $ 101,581

Group life and health

      278,179      6,481      24,006      129,435      18,939      124,841      46,594      161,257

Annuity

      11,857,774      —        —        8,304,909      919,157      5,689,344      3,796,799       
    
  
  
  
  
  
  
      
     $ 15,424,590    $ 17,411    $ 54,838    $ 9,065,790    $ 1,143,069    $ 6,261,971    $ 4,262,046       
    
  
  
  
  
  
  
      

 

* 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.

 

53

Transamerica Life Insurance Company

 

Reinsurance

(Dollars in Thousands)

 

SCHEDULE IV

 

     Gross Amount
    Ceded to Other
Companies
    Assumed From
Other
Companies
   

Net

Amount

   

Percentage of
Amount
Assumed

to Net

  

Year ended December 31, 2004

                                   

Life insurance in force

    $ 39,895,407    $ 8,896,284    $ 88,961    $ 31,088,084    0 %
    
  
  
  
  

Premiums:

                                   

Individual life

    $ 1,110,524    $ 8,401    $ 4,212    $ 1,106,335    0 %

Individual health

      126,384      1,062      —        125,322    0  

Group life and health

      222,484      88,592      —        133,892    0  

Annuity

      2,630,485      770,538      457,808      2,317,755    20  
    
  
  
  
  
     $ 4,089,877    $ 868,593    $ 462,020    $ 3,683,304    13 %
    
  
  
  
  

Year ended December 31, 2003

                                   

Life insurance in force

    $ 38,955,851    $ 9,672,433    $ 90,171    $ 29,373,589    0 %
    
  
  
  
  

Premiums:

                                   

Individual life

    $ 547,646    $ 6,022    $ 4,108    $ 545,732    1 %

Individual health

      117,509      929      928      117,508    1  

Group life and health

      205,242      85,907      23,277      142,612    16  

Annuity

      5,064,047      150,852      145,000      5,058,195    3  
    
  
  
  
  
     $ 5,934,444    $ 243,710    $ 173,313    $ 5,864,047    3 %
    
  
  
  
  

Year ended December 31, 2002

                                   

Life insurance in force

    $ 31,110,497    $ 4,235,057    $ 99,989    $ 26,975,429    1 %
    
  
  
  
  

Premiums:

                                   

Individual life

    $ 581,642    $ 55,840    $ 3,965    $ 529,767    1 %

Individual health

      101,581      1,054      1,152      101,679    1  

Group life and health

      161,257      57,179      25,357      129,435    20  

Annuity

      8,331,047      244,674      218,536      8,304,909    3  
    
  
  
  
  
     $ 9,175,527    $ 358,747    $ 249,010    $ 9,065,790    3 %
    
  
  
  
  

 

54

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 5.
(2)        Not Applicable.
(3)    (a)   Amended and Restated 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 6.
     (a)(1)   Amendment No. 4 to Principal Underwriting Agreement. Note 25.
     (b)   Form of Broker/Dealer Supervision and Sales Agreement by and between AFSG Securities Corporation and the Broker/Dealer. Note 1.
(4)    (a)   Form of Policy. Note 5.
     (b)   Form of Policy Rider (Return of Premium). Note 5.
     (c)   Form of Policy Rider (Annual Step-Up). Note 5.
     (d)   Form of Policy Rider (Beneficiary Earnings Enhancement). Note 2.
     (e)   Form of Policy Rider (Beneficiary Earnings Enhancement – Extra). Note 3.
     (f)   Form of Policy Rider (GPS) Note 29.
     (g)   Form of Policy Rider (5 for Life) Note 29.
(5)        Form of Application. Note 25.
(6)    (a)   Articles of Incorporation of Transamerica Life Insurance Company. Note 4.
     (b)   ByLaws of Transamerica Life Insurance Company. Note 4.
(7)        Reinsurance Agreement. Note 27.
(8)    (a)   Participation Agreement among WRL Series Fund, Inc., Western Reserve Life Assurance Co. of Ohio, and PFL Life Insurance Company. Note 7.
(8)    (a)(1)   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 4.
(8)    (a)(2)   Amendment No. 17 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 8.
(8)    (a)(3)   Amendment No. 28 to Participation Agreement among AEGON/Transamerica Series Fund, Inc., Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Peoples Benefit Life Insurance Company, Transamerica Occidental Life Insurance Company and Transamerica Life Insurance and Annuity Company. Note 25.
     (a)(4)   Amendment No. 31 to Participation Agreement (AEGON/Transamerica). Note 27.
     (a)(5)   Amendment No.32 to Participation Agreement (AEGON/Transamerica) Note 29.
(8)    (b)   Participation Agreement by and among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., PFL Life Insurance Company and AFSG Securities Corporation. Note 9.
(8)    (b)(1)   Amendment No. 11 to Participation Agreement (AIM). Note 26
(8)    (c)   Participation Agreement by and among Alliance Variable Products Series Fund, Inc., PFL Life Insurance Company, AFSG Securities Corporation. Note 10.
(8)    (c)(1)   Amendment No. 1 to Participation Agreement by and among Alliance Variable Products Series Fund, Inc., PFL Life Insurance Company, AFSG Securities Corporation. Note 11.
     (c)(2)   Amendment No. 4 to Participation Agreement (ALLIANCE) Note 27.
(8)    (d)   Participation Agreement among Davis Variable Account Fund, Inc., Davis Distributors, LLC. and PFL Life Insurance Company. Note 12.
     (d)(1)   Addendum No. 1 to Participation Agreement (Davis) Note 29.
(8)    (e)   Fund Participation Agreement (Dreyfus). Note 22.
(8)    (e)(1)   Amendment No. 4 to Fund Participation Agreement (Dreyfus). Note 26.
(8)    (f)   Participation Agreement by and between PFL Life Insurance Company and Federated Insurance Series. Note 13.
(8)    (f)(1)   Amended Exhibit A and Exhibit B. Note 26
(8)    (g)   Revised Participation Agreement by and Among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. PFL Life Insurance Company. Note 14.
(8)    (g)(1)   Amendment No. 1 to the Participation Agreement by and Among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. PFL Life Insurance Company. Note 25.
     (g)(2)   Amendment No. 2 to Participation Agreement (Franklin/Templeton) Note 29.
     (g)(3)   Amendment No. 4 to Participation Agreement (Franklin/Templeton) Note 29.
(8)    (h)   Participation Agreement by and Among Huntington VA Funds and Transamerica Life Insurance Company. Note 26.
     (h)(1)   Amendment No. 1 to Participation Agreement (Huntington) Note 29.
(8)    (i)   Participation Agreement by and among J.P. Morgan Series Trust II and Transamerica Life Insurance Company. Note 29.
(8)    (j)   Participation Agreement by and between Janus Aspen Series and PFL Life Insurance Company. Note 10.
(8)    (j)(1)   Amendment No. 2 to Participation Agreement by and between Janus Aspen Series and PFL Life Insurance Company. Note 15.
     (j)(2)   Amendment No. 7 to Fund Participation Agreement (Janus). Note 27.
(8)    (k)   Participation Agreement among Liberty Variable Investment Trust, Liberty Funds Distributor, Inc., and Transamerica Life Insurance Company. Note 16.
(8)    (k)(1)   Amendment No. 2 to Participation Agreement (Liberty). Note 26
(8)    (l)   Amended and Restated Participation Agreement among MFS Variable Insurance Trust, Transamerica Life Insurance Company and Massachusetts Financial Services Company. Note 17.
(8)    (l)(1)   Amendment No. 7 to Participation Agreement (MFS). Note 26
(8)    (m)   Participation Agreement between Nations Separate Account Trust, Transamerica Life Insurance Company, Stephens Inc., and AFSG Securities Corporation. Note 11.
     (m)(1)  

Amendment No. 3 to the Fund Participation Agreement (Nations). Note 29.

(8)    (n)   Participation Agreement among Oppenheimer Variable Account Funds, Oppenheimer Funds Inc., and PFL Life Insurance Company. Note 18.
(8)    (n)(1)   Amendment No. 6 to Participation Agreement Among Oppenheimer Variable Account Funds, Oppenheimer Funds, Inc. and PFL Life Insurance Company. Note 19.
     (n)(2)   Amendment No. 9 to Participation Agreement (Oppenheimer). Note 29.
(8)    (o)   Participation Agreement by and between Putnam Variable Trust, Putnam Mutual Funds Corp. and PFL Life Insurance Company. Note 9.
(8)    (p)   Participation Agreement among SunTrust and PFL Life Insurance Company. Note 20.
     (p)(1)   Amendment No. 2 to Participation Agreement (STI). Note 29.
(8)    (q)   Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 21.
(8)    (q)(1)   Amendment No. 1 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (q)(2)   Amendment No. 2 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (q)(3)   Amendment No. 3 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (q)(4)   Amendment No. 4 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 22.
     (q)(5)   Amendment No. 10 to Participation Agreement (Fidelity). Note 27.
(8)    (r)   Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 21.
(8)    (r)(1)   Amendment No. 1 to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (r)(2)   Amendment No. 2 to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (r)(3)   Amendment No. 3 to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (r)(4)   Amendment No. 4 to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 22.
     (r)(5)   Amendment No. 10 to Participation Agreement (Fidelity). Note 27.
(8)    (s)   Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 23.
(8)    (s)(1)   Amendment to Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 25.
(8)    (s)(2)   Amendment No. 2 to Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation, and PFL Life Insurance Company. Note 22.
     (s)(3)   Amendment No. 7 to Participation Agreement (Fidelity). Note 27.
(8)    (t)   Participation Agreement among Wanger Advisors Trust and Transamerica Life Insurance Company. Note 24.
(8)    (t)(1)   Amendment No. 2 to Participation Agreement (Wanger). Note 26.
(9)    (a)   Opinion and Consent of Counsel. Note 29.
(9)    (b)   Consent of Counsel. Note 29.
(10)    (a)   Consent of Independent Registered Public Accounting Firm. Note 29.
     (b)   Opinion and Consent of Actuary. Note 29.
(11)        Not applicable.
(12)        Not applicable.
(13)        Not applicable.
(14)        Powers of Attorney. (L.N. Norman, C.H. Garrett, C.D. Vermie, A.C. Schneider, R.J. Kontz, B.K. Clancy) Note 5. (Ronald L. Ziegler) Note 28.

 

Note 1.    Incorporated herein by reference to Initial Filing to Form N-4 Registration Statement (File No. 333-87792) on May 8, 2002.

Note 2.    Incorporated herein by reference to Post-Effective Amendment No. 14 to Form N-4 Registration Statement (File No. 33-56908) on April 30, 2001.
Note 3.    Incorporated herein by reference to Pre-Effective Amendment No. 2 to Form N-4 Registration Statement (File No. 333-87792) on July 15, 2002.
Note 4.    Incorporated herein by reference to initial filing of form N-4 Registration Statement (File No. 333-62738) on June 11, 2001.
Note 5.    Filed with initial filing to form N-4 Registration Statement (File No. 333-110049) on October 29, 2003.
Note 6.    Incorporated herein by reference to initial filing to form N-4 Registration Statement (File No. 333-98891) on August 29, 2002.
Note 7.    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 8.    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 9.    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 10.    Incorporated herein by reference to Post-Effective Amendment No. 3 to Form N-4 Registration Statement (File No. 333-26209) on April 28, 2000.
Note 11.    Incorporated herein by reference to Post-Effective Amendment No. 11 to Form N-4 Registration Statement (File No. 333-7509) on January 18, 2002.
Note 12.    Incorporated herein by reference to Post-Effective Amendment No. 9 to Form N-4 Registration Statement (File No. 333-7509) on April 27, 2000.
Note 13.    Incorporated herein by reference to Pre-Effective Amendment No. 1 to Form N-4 (File No. 333-26209) on July 28,1997.
Note 14.    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 15.    Incorporated herein by reference to Post-Effective Amendment No. 22 to Form N-4 Registration Statement (File No. 33-33085) on October 3, 2000
Note 16.    Incorporated herein by reference to Post-Effective Amendment No. 5 to Form N-4 Registration Statement (File No. 333-62738) on October 11, 2002.
Note 17.    Incorporated herein by reference to Post-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-87792) on April 30, 2003.
Note 18.    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 19.    Incorporated herein by reference to Pre-effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-76230) on May 20, 2002.
Note 20.    Incorporated herein by reference to Pre-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-32110) on July 31, 2000.
Note 21.    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 22.    Incorporated herein by reference to Pre-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-63086) on September 13, 2001.
Note 23.    Incorporated herein by reference to Post-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-7509) on April 29, 1997.
Note 24.    Incorporated herein by reference to Post-Effective Amendment No. 5 to Form N-4 Registration Statement (File No. 333-87792) on October 11, 2002.
Note 25.    Filed with Pre-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-110049) on December 30, 2003.
Note 26.    Filed with Post-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-110049) on April 30, 2004.
Note 27.    Incorporated herein by reference to Post-Effective Amendment No.2. to Form N-4 Registration Statement (File No. 333-109580) on January 7, 2005.
Note 28.    Incorporated herein by reference to Initial Filing to N-4 Registration Statement (File No. 333-116562) on June 17, 2004.
Note 29.    Filed Herewith.

 

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

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

   Director, Chairman of the Board and President

Ronald L. Ziegler

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

   Director, Vice President, Actuary

Craig D. Vermie

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

   Director, Vice President, Secretary and General Counsel

Arthur C. Schneider

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

   Director, Vice President and Chief Tax Officer

Robert J. Kontz

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

   Vice President and Corporate Controller

Brenda K. Clancy

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

   Director, Vice President, Treasurer and Chief Financial Officer

Item 26.     Persons Controlled by or under Common Control With the Depositor or Registrant.

 

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Academy Alliance Holdings Inc.    Canada    100% Creditor Resources, Inc.    Holding company
Academy Alliance Insurance Inc.    Canada    100% Creditor Resources, Inc.    Insurance
Academy Insurance Group, Inc.    Delaware    100% Commonwealth General Corporation    Holding company
Academy Life Insurance Co.    Missouri    100% Academy Insurance Group, Inc.    Insurance company
ADB Corporation, L.L.C.    Delaware    100% Money Services, Inc.    Special purpose limited Liability company
AEGON Alliances, Inc.    Virginia    100% Benefit Plans, Inc.    General agent
AEGON Asset Management Services, Inc.    Delaware    100% AUSA Holding Co.    Registered investment advisor
AEGON Assignment Corporation    Illinois    100% AEGON Financial Services Group, Inc.    Administrator of structured settlements
AEGON Assignment Corporation of Kentucky    Kentucky    100% AEGON Financial Services Group, Inc.    Administrator of structured settlements
AEGON Canada Inc. (“ACI”)    Canada    100% TIHI    Holding company
AEGON Capital Management, Inc.    Canada    100% AEGON Canada Inc.    Investment counsel and portfolio manager
AEGON Dealer Services Canada, Inc.    Canada    100% 1490991 Ontario Limited    Mutual fund dealer
AEGON Derivatives N.V.    Netherlands    100% AEGON N.V.    Holding company
AEGON Direct Marketing Services, Inc.    Maryland    100% Monumental Life Insurance Company    Marketing company
AEGON DMS Holding B.V.    Netherlands    100% AEGON International N.V.    Holding company
AEGON Financial Services Group, Inc.    Minnesota    100% Transamerica Life Insurance Co.    Marketing
AEGON Fund Management, Inc.    Canada    100% AEGON Canada Inc.    Mutual fund issuer
AEGON Funding Corp.    Delaware    100% AEGON USA, Inc.    Issue debt securities-net proceeds used to make loans to affiliates
AEGON Funding Corp. II    Delaware    100% Transamerica Corp.    Issue debt securities-net proceeds used to make loans to affiliates
AEGON Institutional Markets, Inc.    Delaware    100% Commonwealth General Corporation    Provider of investment, marketing and admin. services to ins. cos.
AEGON International N.V.    Netherlands    100% AEGON N.V.    Holding company
AEGON Management Company    Indiana    100% AEGON U.S. Holding Corporation    Holding company
AEGON N.V.    Netherlands    22.72% of Vereniging AEGON Netherlands Membership Association    Holding company
AEGON Nederland N.V.    Netherlands    100% AEGON N.V.    Holding company
AEGON Nevak Holding B.V.    Netherlands    100% AEGON N.V.    Holding company
AEGON Structured Settlements, Inc.    Kentucky    100% Commonwealth General Corporation    Administers structured settlements of plaintiff’s physical injury claims against property and casualty insurance companies
AEGON U.S. Corporation    Iowa    AEGON U.S. Holding Corporation owns 10,024 shares (75.58%); AEGON USA, Inc. owns 3,238 shares (24.42%)    Holding company
AEGON U.S. Holding Corporation    Delaware    1046 shares of Common Stock owned by Transamerica Corp.; 225 shares of Series A Preferred Stock owned by Scottish Equitable Finance Limited    Holding company
AEGON USA Investment Management, Inc.    Iowa    100% AUSA Holding Co.    Investment advisor
AEGON USA Investment Management, LLC    Iowa    100% AEGON USA, Inc.    Investment advisor
AEGON USA Real Estate Services, Inc.    Delaware    100% AEGON USA Realty Advisors, Inc.    Real estate and mortgage holding company

 

C-3

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

AEGON USA Realty Advisors, Inc.    Iowa    100% AUSA Holding Co,    Administrative and investment services
AEGON USA Travel and Conference Services LLC    Iowa    100% Money Services, Inc.    Travel and conference services
AEGON USA, Inc.    Iowa    10 shares Series A Preferred Stock owned by AEGON U.S Holding Corporation; 150,000 shares of Class B Non-Voting Stock owned by AEGON U.S. Corporation; 100 shares Voting Common Stock owned by AEGON U.S Corporation    Holding company
AEGON/Transamerica Series Fund, Inc.    Maryland    100% AEGON/Transamerica Fund Advisors, Inc.    Investment advisor, transfer agent, administrator, sponsor, principal underwriter/distributor or general partner.
AFSG Securities Corporation    Pennsylvania    100% Commonwealth General Corporation    Broker-Dealer
ALH Properties Eight LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Eleven LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Fifteen LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Five LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Four LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Nine LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Seven LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Seventeen LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Sixteen LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Ten LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Twelve LLC    Delaware    100% FGH USA LLC    Real estate
ALH Properties Two LLC    Delaware    100% FGH USA LLC    Real estate
American Bond Services LLC    Iowa    100% Transamerica Life Insurance Company (sole member)    Limited liability company
Ammest Realty Corporation    Texas    100% Monumental Life Insurance Company    Special-purpose subsidiary
Ampac Insurance Agency, Inc. (EIN 23-2364438)    Pennsylvania    100% Academy Insurance Group, Inc.    Inactive
Ampac Insurance Agency, Inc. (EIN 23-1720755)    Pennsylvania    100% Commonwealth General Corporation    Provider of management support services
Ampac, Inc.    Texas    100% Academy Insurance Group, Inc.    Managing general agent
Apple Partners of Iowa LLC    Iowa    Members: 58.13% Monumental Life Insurance Company; 41.87% Peoples Benefit Life Insurance Company    Hold title on Trustee’s Deeds on secured property
ARC Reinsurance Corporation    Hawaii    100% Transamerica Corp,    Property & Casualty Insurance
ARV Pacific Villas, A California Limited Partnership    California    General Partners - Transamerica Affordable Housing, Inc. (0.5%); Non-Affiliate of AEGON, Jamboree Housing Corp. (0.5%). Limited Partner: TOLIC (99%)    Property
AUSA Holding Company    Maryland    100% AEGON USA, Inc.    Holding company
AUSACAN LP    Canada    General Partner - AUSA Holding Co. (1%); Limited Partner - First AUSA Life Insurance Company (99%)    Inter-company lending and general business

 

C-4

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Bankers Financial Life Ins. Co.    Arizona    100% Voting Common Stock - First AUSA Life Insurance Co. Class B Common stock is allocated 75% of total cumulative vote. Class A Common stock is allocated 25% of total cumulative vote.    Insurance
Bankers Mortgage Company of CA    California    100% TRS    Investment management
Bay Area Community Investments I, LLC    California    70% LIICA; 30% Monumental Life Insurance Company    Investments in low income housing tax credit properties
Bay State Community Investments I, LLC    Delaware    100% Monumental Life Insurance Company    Investments in low income housing tax credit properties
Bay State Community Investments II, LLC    Delaware    100% Monumental Life Insurance Company    Investments in low income housing tax credit properties
Benefit Plans, Inc.    Delaware    100% Commonwealth General Corporation    TPA for Peoples Security Life Insurance Company
BF Equity LLC    New York    100% RCC North America LLC    Real estate
Buena Sombra Insurance Agency, Inc.    Maryland    100% Peoples Benefit Life Insurance Company    Insurance agency
BWAC Credit Corporation    Delaware    100% TCFCII    Inactive
BWAC International Corporation    Delaware    100% TCFCII    Retail appliance and furniture stores
BWAC Seventeen, Inc.    Delaware    100% TCFC Asset Holdings, Inc.    Holding company
BWAC Twelve, Inc.    Delaware    100% TCFCII    Holding company
BWAC Twenty-One, Inc.    Delaware    100% TCFC Asset Holdings, Inc.    Holding company
Camden Asset Management, LP    CA    Partners are: Limited Partner -Monumental Life Insurance Company (47.136%); General Partner - non-affiliate of AEGON, Harpenden (38.114%). Various individuals own the balance of shares.    Investment advisor.
Canadian Premier Holdings Ltd.    Canada    100% AEGON DMS Holding B.V.    Holding company
Canadian Premier Life Insurance Company    Canada    100% Canadian Premier Holdings Ltd.    Insurance company
Capital 200 Block Corporation    Delaware    100% Commonwealth General Corporation    Real estate holdings
Capital General Development Corporation    Delaware    100% Commonwealth General Corporation    Holding company
Capital Liberty, L.P.    Delaware    99.0% Monumental Life Insurance Company (Limited Partner); 1.0% Commonwealth General Corporation (General Partner)    Holding company
Common Wealth Insurance Agency Inc.    Canada    100% Creditor Resources, Inc.    Insurance agency
Commonwealth General Corporation (“CGC”)    Delaware    100% AEGON U.S. Corporation    Holding company
Consumer Membership Services Canada Inc.    Canada    100% Canadian Premier Holdings Ltd.    Marketing of credit card protection membership services in Canada
Cornerstone International Holdings Ltd.    UK    100% AEGON DMS Holding B.V.    Holding company
CRC Creditor Resources Canadian Dealer Network Inc.    Canada    100% Creditor Resources, Inc.    Insurance agency
Creditor Resources, Inc.    Michigan    100% AUSA Holding Co.    Credit insurance
CRI Canada Inc.    Canada    100% Creditor Resources, Inc.    Holding company
CRI Credit Group Services Inc.    Canada    100% Creditor Resources, Inc.    Holding company
Diversified Actuarial Services, Inc.    Massachusetts    100% Diversified Investment Advisors, Inc.    Employee benefit and actuarial consulting
Diversified Investment Advisors, Inc.    Delaware    100% AUSA Holding Co.    Registered investment advisor
Diversified Investors Securities Corp.    Delaware    100% Diversified Investment Advisors, Inc.    Broker-Dealer

 

C-5

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Edgewood IP, LLC    Iowa    100% TOLIC    Limited liability company
FED Financial, Inc.    Delaware    100% Academy Insurance Group, Inc.    Special-purpose subsidiary
FGH Eastern Region LLC    Delaware    100% FGH USA LLC    Real estate
FGH Realty Credit LLC    Delaware    100% FGH Eastern Region LLC    Real estate
FGH USA LLC    Delaware    100% RCC North America LLC    Real estate
FGP 109th Street LLC    Delaware    100% FGH USA LLC    Real estate
FGP 90 West Street LLC    Delaware    100% FGH USA LLC    Real estate
FGP Burkewood, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP Bush Terminal, Inc.    Delaware    100% FGH Realty Credit LLC    Real estate
FGP Colonial Plaza, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP Franklin LLC.    Delaware    100% FGH USA LLC    Real estate
FGP Herald Center, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP Heritage Square, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP Islandia, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP Merrick, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP Rockbeach, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP West 32nd Street, Inc.    Delaware    100% FGH USA LLC    Real estate
FGP West Street LLC    Delaware    100% FGH USA LLC    Real estate
FGP West Street Two LLC    Delaware    100% FGH USA LLC    Real estate
Fifth FGP LLC    Delaware    100% FGH USA LLC    Real estate
Financial Planning Services, Inc.    District of Columbia    100% Ampac Insurance Agency, Inc. (EIN #27-1720755)    Special-purpose subsidiary
Financial Resources Insurance Agency of Texas    Texas    100% owned by Dan Trivers, VP & Director of Operations of Transamerica Financial Advisors, Inc., to comply with Texas insurance law    Retail sale of securities products
First FGP LLC    Delaware    100% FGH USA LLC    Real estate
Force Financial Group, Inc.    Delaware    100% Academy Insurance Group, Inc.    Special-purpose subsidiary
Fourth FGP LLC    Delaware    100% FGH USA LLC    Real estate
Garnet Assurance Corporation    Kentucky    100% Life Investors Insurance Company of America    Investments
Garnet Assurance Corporation II    Iowa    100% Monumental Life Insurance Company    Business investments
Garnet Assurance Corporation III    Iowa    100% Transamerica Occidental Life Insurance Company    Business investments
Garnet Community Investments I, LLC    Delaware    100% Life Investors Insurance Company of America    Securities
Garnet Community Investments II, LLC    Delaware    100% Monumental Life Insurance Company    Securities
Garnet Community Investments III, LLC    Delaware    100% Transamerica Occidental Life Insurance Company    Business investments
Garnet Community Investments IV, LLC    Delaware    100% Transamerica Occidental Life Insurance Company    Investments
Garnet Community Investments V, LLC    Delaware    100% Monumental Life Insurance Company    Investments
Garnet Community Investments VI, LLC    Delaware    100% Monumental Life Insurance Company    Investments
Garnet LIHTC Fund I, LLC    Delaware    100% Garnet Community Investments I, LLC    Investments
Garnet LIHTC Fund II, LLC    Delaware    100% Garnet Community Investments II, LLC    Investments
Garnet LIHTC Fund III, LLC    Delaware    100% Garnet Community Investments III, LLC    Investments
Garnet LIHTC Fund IV, LLC    Delaware    100% Garnet Community Investments IV, LLC    Investments
Garnet LIHTC Fund V, LLC    Delaware    100% Garnet Community Investments V, LLC    Investments
Garnet LIHTC Fund VI, LLC    Delaware    100% Garnet Community Investments VI, LLC    Investments

 

C-6

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Gemini Investments, Inc.    Delaware    100% TALIAC    Investment subsidiary
Global Premier Reinsurance Company, Ltd.    British Virgin    100% Commonwealth General Corporation    Reinsurance company
Great Companies, L.L.C.    Iowa    47.50% Money Services, Inc.    Markets & sells mutual funds & individually managed accounts
Greybox L.L.C.    Delaware    100% Transamerica Leasing Holdings, Inc.    Intermodal freight container interchange facilitation service
Home Loans and Finance Ltd.    U.K.    100% TIISI    Inactive — this entity is in the process of being liquidated
Innergy Lending, LLC    Delaware    50% World Financial Group, Inc.; 50% ComUnity Lending, Inc.(non-AEGON entity)    Lending
Insurance Consultants, Inc.    Nebraska    100% Commonwealth General Corporation    Brokerage
InterSecurities, Inc.    Delaware    100% AUSA Holding Co.    Broker-Dealer
Investors Warranty of America, Inc.    Iowa    100% AUSA Holding Co.    Leases business equipment
Iowa Fidelity Life Insurance Co.    Arizona    Ordinary common stock is allowed 60% of total cumulative vote. Participating common stock is allowed 40% of total cumulative vote. First AUSA Life Insurance Co.    Insurance
JMH Operating Company, Inc.    Mississippi    100% People’s Benefit Life Insurance Company    Real estate holdings
Legacy General Insurance Company    Canada    100% Canadian Premier Holdings Ltd.    Insurance company
Life Investors Alliance, LLC    Delaware    100% LIICA    Purchase, own, and hold the equity interest of other entities
Life Investors Insurance Company of America    Iowa    504,032 shares Common Stock owned by AEGON USA, Inc.; 504,033 shares Series A Preferred Stock owned by AEGON USA, Inc.    Insurance
Massachusetts Fidelity Trust Co.    Iowa    100% AUSA Holding Co.    Trust company
Money Concepts (Canada) Limited    Canada    100% National Financial Corporation    Financial services, marketing and distribution
Money Services, Inc.    Delaware    100% AUSA Holding Co.    Provides financial counseling for employees and agents of affiliated companies
Monumental General Administrators, Inc.    Maryland    100% Monumental General Insurance Group, Inc.    Provides management srvcs. to unaffiliated third party administrator
Monumental General Casualty Co.    Maryland    100% AEGON USA, Inc.    Insurance
Monumental General Insurance Group, Inc.    Maryland    100% AUSA Holding Co.    Holding company
Monumental Life Insurance Company    Maryland    73.23% Capital General Development Company; 26.77% First AUSA Life Insurance Company    Insurance Company
National Association Management and Consultant Services, Inc.    Maryland    100% Monumental General Administrators, Inc.    Provides actuarial consulting services
National Financial Corporation    Canada    100% AEGON Canada, Inc.    Holding company
National Financial Insurance Agency, Inc.    Canada    100% 1488207 Ontario Limited    Insurance agency
NEF Investment Company    Calfornia    100% TOLIC    Real estate development
Parkland Insurance Inc.    Canada    100% Creditor Resources, Inc.    Insurance company
Peoples Benefit Life Insurance Company    Iowa    76.3% Monumental Life Insurance Company; 20% Capital Liberty, L.P.; 3.7% CGC    Insurance Company
Peoples Benefit Services, Inc.    Pennsylvania    100% Veterans Life Insurance Company    Special-purpose subsidiary

 

C-7

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Primus Guaranty, Ltd.    Bermuda    Partners are: Transamerica Life Insurance Company (13.1%) and non-affiliates of AEGON: XL Capital, Ltd. (34.7%); CalPERS/PCG Corporate Partners Fund, LLC (13.0%); Radian Group (11.1%).    Provides protection from default risk of investment grade corporate and sovereign issues of financial obligations.
Prisma Holdings, Inc. I    Delaware    100% AUSA Holding Co.    Holding company
Prisma Holdings, Inc. II    Delaware    100% AUSA Holding Co.    Holding company
Professional Life & Annuity Insurance Company    Arizona    100% Transamerica Life Insurance Co.    Reinsurance
Pyramid Insurance Company, Ltd.    Hawaii    100% Transamerica Corp.    Property & Casualty Insurance
QSC Holding, Inc.    Delaware    100% AEGON USA Realty Advisors, Inc.    Real estate and financial software production and sales
Quantitative Data Solutions, LLC    Delaware    60% owned by TOLIC    Special purpose corporation
Quest Membership Services, Inc.    Delaware    100% Commonwealth General Corporation    Travel discount plan
RCC North America LLC    Delaware    100% AEGON USA, Inc.    Real estate
RCC Properties Limited Partnership    Iowa    AEGON USA Realty Advisors, Inc. is General Partner and 5% owner; all limited partners are RCC entities within the RCC group    Limited Partnership
Real Estate Alternatives Portfolio 1 LLC    Delaware    Members: 38.356% Transamerica Life Insurance Co.; 34.247% TOLIC; 18.356% LIICA; 6.301% Monumental Life Insurance Co.; 2.74% Transamerica Financial Life Insurance Co.    Real estate alternatives investment
Real Estate Alternatives Portfolio 2 LLC    Delaware    Members: 37.25% Transamerica Life Insurance Co.; 30.75% TOLIC; 22.25% TALIAC; 7.5% Transamerica Financial Life Insurance Co.; 2.25% Stonebridge Life Insurance Co.    Real estate alternatives investment
Real Estate Alternatives Portfolio 3 LLC    Delaware    Members: 27% Transamerica Life Insurance Co.; 23% TOLIC; 19% TALIAC; 1% Stonebridge Life Insurance Co.; 11% LIICA; 14% PBLIC; 5% MLIC    Real estate alternatives investment
Real Estate Alternatives Portfolio 3A LLC    Delaware    Members: 33.4% LIICA; 32% PBLIC; 10% TOLIC; 9.4% MLIC; 9.4% Transamerica Financial Life Insurance Company; 4.8% TALIAC; 1% Stonebridge Life Insurance Co.    Real estate alternatives investment
Realty Information Systems, Inc.    Iowa    100% AEGON USA Realty Advisors, Inc.    Information Systems for real estate investment management
Retirement Project Oakmont    CA    General Partners: Transamerica Products, Inc.; TOLIC; Transameirca Oakmont Retirement Associates, a CA limited partnership. Co-General Partners of Transamerica Oakmont Retirement Associates are Transamerica Oakmont Corp. and Transamerica Products I (Administrative General Partner).    Senior living apartment complex

 

C-8

Name

    Jurisdiction of
Incorporation
   

Percent of Voting

Securities Owned

   

Business

River Ridge Insurance Company    Vermont    100% AEGON Management Company    Captive insurance company
Roundit, Inc.    Maryland    50% AUSA Holding Co.    Financial services
Second FGP LLC    Delaware    100% FGH USA LLC    Real estate
Seventh FGP LLC    Delaware    100% FGH USA LLC    Real estate
Short Hills Management Company    New
Jersey		    100% AEGON U.S. Holding Corporation    Holding company
South Glen Apartments, LLC    Iowa    100% Transamerica Affordable Housing, Inc.    Limited liability company
Southwest Equity Life Ins. Co.    Arizona    100% of Common Voting Stock AEGON USA, Inc.    Insurance
Stonebridge Benefit Services, Inc.    Delaware    100% Commonwealth General Corporation    Health discount plan
Stonebridge Casualty Insurance Company    Ohio    197,920 shares of Common Stock owned by AEGON U.S. Corporation; 302,725 shares of Common Stock owned by AEGON USA, Inc.    Insurance company
Stonebridge Group, Inc.    Delaware    100% Commonwealth General Corporation    General purpose corporation
Stonebridge International Insurance Ltd.    UK    100% Cornerstone International Holdings Ltd.    General insurance company
Stonebridge International Marketing Ltd.    UK    100% Cornerstone International Holdings Ltd.    Marketing
Stonebridge Life Insurance Company    Vermont    100% Commonwealth General Corporation    Insurance company
TA Air X, Corp.    Delaware    100% TCFC Air Holdings, Inc.    Special purpose corporation
TA Air XI, Corp.    Delaware    100% TCFC Air Holdings, Inc.    Special purpose corporation
TA Leasing Holding Co., Inc.    Delaware    100% TFC    Holding company
TBC III, Inc.    Delaware    100% TFCFC Asset Holdings, Inc.    Special purpose corporation
TBK Insurance Agency of Ohio, Inc.    Ohio    500 shares non-voting common stock owned by Transamerica Financial Advisors, Inc.; 1 share voting common stock owned by James Krost    Variable insurance contract sales in state of Ohio
TCF Asset Management Corporation    Colorado    100% TCFC Asset Holdings, Inc.    A depository for foreclosed real and personal property
TCFC Air Holdings, Inc.    Delaware    100% Transamerica Commercial Finance Corporation, I    Holding company
TCFC Asset Holdings, Inc.    Delaware    100% Transamerica Commercial Finance Corporation, I    Holding company
TCFC Employment, Inc.    Delaware    100% Transamerica Commercial Finance Corporation, I    Used for payroll for employees at TFC
TCFC Tax Holdings, Inc.    Delaware    100% Transamerica Commercial Finance Corporation, I    Holding company
TFC Properties, Inc.    Delaware    100% Transamerica Corporation    Holding company
The AEGON Trust Advisory Board: Donald J. Shepard, Joseph B.M. Streppel, Alexander R. Wynaendts, and Craig D. Vermie    Delaware         Voting Trust
The Gilwell Company    California    100% TRS    Ground lessee of 517 Washington Street, San Francisco
The Insurance Agency for the American Working Family, Inc.    Maryland    100% Veterans Life Insurance Company    Insurance
The RCC Group, Inc.    Delaware    100% FGH USA LLC    Real estate
The Whitestone Corporation    Maryland    100% AEGON USA, Inc.    Insurance agency

 

C-9

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

TIHI Mexico, S. de R.L. de C.V.    Mexico    95% TIHI; 5% TOLIC    To render and receive all kind of administrative, accountant, mercantile and financial counsel and assistance to and from any other Mexican or foreign corporation, whether or not this company is a shareholder of them
Transamerica Accounts Holding Corporation    Delaware    100% TCFC Asset Holdings, Inc.    Holding company
Transamerica Affinity Services, Inc.    Maryland    100% AEGON Direct Marketing Services, Inc.    Marketing company
Transamerica Affordable Housing, Inc.    California    100% TRS    General partner LHTC Partnership
Transamerica Alquiler de Trailers, S.L.    Spain    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Annuity Service Corporation    New Mexico    100% TSC    Performs services required for structured settlements
Transamerica Aviation LLC    Delaware    100% TCFC Air Holdings, Inc.    Special purpose corporation
Transamerica Business Technologies Corporation.    Delaware    100% Transamerica Corp.    Telecommunications and data processing
Transamerica Capital, Inc.    California    100% AUSA Holding Co.    Broker/Dealer
Transamerica CBO I, Inc.    Delaware    100% Transamerica Corp.    Owns and manages a pool of high-yield bonds
Transamerica China Investments Holdings Limited    Hong Kong    99% TOLIC    Holding company
Transamerica Commercial Finance Canada, Limited    Ontario    100% BWAC Seventeen, Inc.    Dormant
Transamerica Commercial Finance Corporation, I    Delaware    100% TFC    Holding company
Transamerica Commercial Holdings Limited    U.K.    100% BWAC Twenty-One Inc.    Holding company
Transamerica Consultora Y Servicios Limitada    Chile    95% TOLIC; 5% Transamerica International Holdings, Inc.    Special purpose limited liability corporation
Transamerica Consumer Finance Holding Company    Delaware    100% TCFC Asset Holdings, Inc.    Consumer finance holding company
Transamerica Consumer Mortgage Receivables Corporation    Delaware    100% Transamerica Consumer Finance Holding Company    Securitization company
Transamerica Corporation    Delaware    100% The AEGON Trust    Major interest in insurance and finance
Transamerica Corporation (Oregon)    Oregon    100% Transamerica Corp.    Holding company
Transamerica Direct Marketing Asia Pacific Pty Ltd.    Australia    100% AEGON DMS Holding B.V.    Holding company
Transamerica Direct Marketing Australia Pty Ltd.    Australia    100% Transamerica Direct Marketing Asia Pacific Pty Ltd.    Marketing/operations company
Transamerica Direct Marketing Japan K.K.    Japan    100% AEGON DMS Holding B.V.    Marketing company
Transamerica Direct Marketing Korea Ltd.    Korea    99% AEGON DMS Holding B.V.: 1% AEGON International N.V.    Marketing company
Transamerica Direct Marketing Taiwan, Ltd.    Taiwan    100% AEGON DMS Holding B.V.    Authorized business: Enterprise management consultancy, credit investigation services, to engage in business not prohibited or restricted under any law of R.O.C., except business requiring special permission of government
Transamerica Distribution Finance - Overseas, Inc.    Delaware    100% TCFC Asset Holdings, Inc.    Commercial Finance
Transamerica Distribution Services, Inc.    Delaware    100% Transamerica Leasing Holdings, Inc.    Dormant
Transamerica Finance Corporation (“TFC”)    Delaware    100% Transamerica Corp.    Commercial & Consumer Lending & equipment leasing
Transamerica Financial Advisors, Inc.    Delaware    100% TSC    Broker/dealer

 

C-10

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Transamerica Financial Life Insurance Company    New York    87.40% AEGON USA, Inc.; 12.60% TOLIC    Insurance
Transamerica Financial Resources Ins. Agency of Alabama, Inc.    Alabama    100% Transamerica Financial Advisors, Inc.    Insurance agent & broker
Transamerica Financial Resources Ins. Agency of Massachusetts, Inc.    Massachusetts    100% Transamerica Financial Advisors, Inc    Insurance agent & broker
Transamerica Financial Resources Ins. Agency of Nevada, Inc.    Nevada    100% Transamerica Financial Advisors, Inc.    Insurance agent & broker
Transamerica Fund Advisors, Inc.    Florida    Western Reserve Life Assurance Company of Ohio owns 78%; AUSA Holding Co. owns 22%    Fund advisor
Transamerica Fund Services, Inc.    Florida    100% Western Reserve Life Assurance Co. of Ohio    Mutual fund
Transamerica Funding LP    U.K.    98% Transamerica Leasing Holdings, Inc.; 1% Transamerica Distribution Services, Inc.; 1% BWAC Twenty One, Inc.    Intermodal leasing
Transamerica GmbH, Inc.    Delaware    100% TCFC Asset Holdings, Inc.    Holding company
Transamerica Holding B.V.    Netherlands    100% AEGON International N.V.    Holding company
Transamerica Home Loan    California    100% TCFC Asset Holdings, Inc.    Consumer mortgages
Transamerica IDEX Mutual Funds    Massachusetts    100% AEGON/Transamerica Fund Advisers, Inc.    Mutual fund
Transamerica Income Shares, Inc.    Maryland    100% AEGON/Transamerica Fund Advisers, Inc.    Mutual fund
Transamerica Index Funds, Inc.    Maryland    100% Transamerica Investment Management, LLC    Mutual fund
Transamerica Insurance Marketing Asia Pacific Pty Ltd.    Australia    100% Transamerica Direct Marketing Asia Pacific Pty Ltd.    Insurance intermediary
Transamerica International Direct Marketing Group, Inc.    Maryland    100% Monumental General Insurance Group, Inc.    Marketing arm for sale of mass marketed insurance coverage
Transamerica International Holdings, Inc.    Delaware    100% Transamerica Corp.    Investments
Transamerica International Insurance Services, Inc. (“TIISI”)    Delaware    100% TSC    Holding & administering foreign operations
Transamerica International RE (Bermuda) Ltd.    Bermuda    100% Transamerica Corp.    Reinsurance
Transamerica Investment Management, LLC    Delaware    21% Transamerica Investment Services, Inc. as Original Member; 21% owned by Professional Members (employees of Transamerica Investment Services, Inc.)    Investment adviser
Transamerica Investment Services, Inc. (“TISI”)    Delaware    100% Transamerica Corp.    Investment adviser
Transamerica Investors, Inc.    Maryland    Maintains advisor status    Advisor
Transamerica Leasing Coordination Center    Belgium    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Leasing Holdings, Inc.    Delaware    100% TA Leasing Holding Company, Inc.    Holding company
Transamerica Life Canada    Canada    100% AEGON Canada Inc.    Life insurance company
Transamerica Life Insurance and Annuity Company (“TALIAC”)    N. Carolina    100% TOLIC    Life insurance

 

C-11

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Transamerica Life Insurance Company    Iowa    223,500 shares Common Stock owned by AEGON USA, Inc.; 34,295 shares Common Stock owned by Transamerica Life Insurance and Annuity Company; 42,500 shares Series A Preferred Stock owned by AEGON USA, Inc.    Insurance
Transamerica Mezzanine Financing Inc.    Delaware    100% TCFC Asset Holdings, Inc.    Holding company
Transamerica Minerals Company    California    100% TRS    Owner and lessor of oil and gas properties
Transamerica Oakmont Corporation    California    100% TRS    General partner retirement properties
Transamerica Oakmont Retirement Associates    California    Co-General Partners are Transamerica Oakmont Corporation and Transamerica Products I (Administrative General Partner)    Senior living apartments
Transamerica Occidental Life Insurance Company (“TOLIC”)    Iowa    100% TSC    Life Insurance
Transamerica Occidental’s Separate Account Fund C    California    100% TOLIC    Mutual fund
Transamerica Pacific Insurance Company, Ltd.    Hawaii    100% Transamerica Corp.    Life insurance
Transamerica Premier Funds    Maryland    100% Transamerica Investors, Inc.    Investments
Transamerica Products I, Inc.    California    100% TPI    Co-general partner
Transamerica Products, Inc. (“TPI”)    California    100% TSC    Holding company
Transamerica Pyramid Properties LLC    Iowa    100% TOLIC    Realty limited liability company
Transamerica Realty Investment Properties LLC    Delaware    100% TOLIC    Realty limited liability company
Transamerica Realty Services, LLC (“TRS”)    Delaware    100% Transamerica Corp.    Real estate investments
Transamerica Retirement Communities S.F., Inc.    Delaware    100% TFC Properties, Inc.    Owned property
Transamerica Retirement Communities S.J., Inc.    Delaware    100% TFC Properties, Inc.    Owned property
Transamerica Securities Sales Corp.    Maryland    100% TSC    Life insurance sales
Transamerica Service Company (“TSC”)    Delaware    100% TIHI    Passive loss tax service
Transamerica Small Business Capital, Inc.    Delaware    100% TCFC Asset Holdings, Inc.    Holding company
Transamerica Trailer Holdings I Inc.    Delaware    100% Transamerica Leasing Holdings, Inc.    Holding company
Transamerica Trailer Holdings II Inc.    Delaware    100% Transamerica Leasing Holdings, Inc.    Holding company
Transamerica Trailer Holdings III Inc.    Delaware    100% Transamerica Leasing Holdings, Inc.    Holding company
Transamerica Trailer Leasing (Belgium) N.V.    Belgium    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Trailer Leasing (Netherlands) B.V.    Netherlands    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Trailer Leasing A/S    Denmark    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Trailer Leasing AB    Sweden    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Trailer Leasing AG    Switzerland    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Trailer Leasing GmbH    Germany    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Trailer Leasing Limited    U.K.    100% Transamerica Commercial Holdings Limited    Leasing

 

C-12

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

Transamerica Trailer Leasing S.N.C.    France    99.99% owned by Greybox LLC; .01% owned by Transamerica Trailer Holdings III, Inc.    Leasing
Transamerica Trailer Leasing Sp. Z.O.O.    Poland    100% Transamerica Leasing Holdings, Inc.    Leasing
Transamerica Transport Inc.    New Jersey    100% Transamerica Leasing Holdings, Inc.    Dormant
Transamerica Vendor Financial Services Corporation    Delaware    100% TCFC Asset Holdings, Inc.    Provides commercial leasing
Unicom Administrative Services, GmbH    Germany    100% Unicom Administrative Services, Inc.    This entity is in the process of being liquidated
Unicom Administrative Services, Inc.    Pennsylvania    100% Academy Insurance Group, Inc.    Provider of admin. services
United Financial Services, Inc.    Maryland    100% AEGON USA, Inc.    General agency
Universal Benefits Corporation    Iowa    100% AUSA Holding Co.    Third party administrator
USA Administration Services, Inc.    Kansas    100% TOLIC    Third party administrator
Valley Forge Associates, Inc.    Pennsylvania    100% Ampac Insurance Agency, Inc. (EIN #27-1720755)    Furniture & equipment lessor
Veterans Insurance Services, Inc.    Delaware    100% Ampac Insurance Agency, Inc. (EIN #27-1720755)    Special-purpose subsidiary
Veterans Life Insurance Company    Illinois    100% AEGON USA, Inc.    Insurance company
Western Reserve Life Assurance Co. of Ohio    Ohio    100% AEGON USA, Inc.    Insurance
WFG Insurance Agency of Puerto Rico, Inc.    Puerto Rico    100% World Financial Group Insurance Agency, Inc.    Insurance agency
WFG Property & Casualty Insurance Agency of Alabama, Inc.    Alabama    100% WFG Property & Casualty Insurance Agency, Inc.    Insurance agency
WFG Property & Casualty Insurance Agency of California, Inc.    California    100% WFG Property & Casualty Insurance Agency, Inc.    Insurance agency
WFG Property & Casualty Insurance Agency of Mississippi, Inc.    Mississippi    100% WFG Property & Casualty Insurance Agency, Inc.    Insurance agency
WFG Property & Casualty Insurance Agency of Nevada, Inc.    Nevada    100% WFG Property & Casualty Insurance Agency, Inc.    Insurance agency
WFG Property & Casualty Insurance Agency, Inc.    Georgia    100% World Financial Group Insurance Agency, Inc.    Insurance agency
WFG Propreties Holdings, LLC    Georgia    100% World Financial Group, Inc.    Marketing
WFG Securities of Canada, Inc.    Canada    100% World Financial Group Holding Company of Canada, Inc.    Mutual fund dealer
Whirlpool Financial Corporation Polska SpoZOO    Poland    100% Transamerica Commercial Holdings Limited    Inactive - commercial finance
World Financial Group Holding Company of Canada Inc.    Canada    100% TIHI    Holding company
World Financial Group Insurance Agency of Canada Inc.    Ontario    50% World Financial Group Holding Co. of Canada Inc.; 50% World Financial Group Subholding Co. of Canada Inc.    Insurance agency
World Financial Group Insurance Agency of Hawaii, Inc.    Hawaii    100% World Financial Group Insurance Agency, Inc.    Insurance agency
World Financial Group Insurance Agency of Massachusetts, Inc.    Massachusetts    100% World Financial Group Insurance Agency, Inc.    Insurance agency
World Financial Group Insurance Agency of New Mexico, Inc.    New Mexico    100% World Financial Group Insurance Agency, Inc.    Insurance agency
World Financial Group Insurance Agency of Wyoming, Inc.    Wyoming    100% World Financial Group Insurance Agency, Inc.    Insurance agency
World Financial Group Insurance Agency, Inc.    California    100% Western Reserve Life Assurance Co. of Ohio    Insurance agency
World Financial Group Subholding Company of Canada Inc.    Canada    100% World Financial Group Holding Company of Canada, Inc.    Holding company

 

C-13

Name

   

Jurisdiction of
Incorporation

   

Percent of Voting

Securities Owned

   

Business

World Financial Group, Inc.    Delaware    100% AEGON Asset Management Services, Inc.    Marketing
World Group Securities, Inc.    Delaware    100% AEGON Asset Management Services, Inc.    Broker-dealer
WRL Insurance Agency of Massachusetts, Inc.    Massachusetts    100% WRL Insurance Agency, Inc.    Insurance agency
WRL Insurance Agency of Wyoming, Inc.    Wyoming    100% WRL Insurance Agency, Inc.    Insurance agency
WRL Insurance Agency, Inc.    California    100% Western Reserve Life Assurance Co. of Ohio    Insurance agency
Zahorik Company, Inc.    California    100% AUSA Holding Co.    Broker-Dealer
Zahorik Texas, Inc.    Texas    100% Zahorik Company, Inc.    Insurance agency
ZCI, Inc.    Alabama    100% Zahorik Company, Inc.    Insurance agency

 

C-14

Item 27. Number of Contract Owners

 

As of December 31, 2004, there were no 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

 

(a) AFSG Securities Corporation serves as the principal underwriter for:

 

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 VA K, Separate Account VA L, Separate Account VA P, Separate Account VA Q, Separate Account VA R, Separate Account VA S, Separate Account VA W, Transamerica Corporate Separate Account Sixteen, 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 VA QNY, Separate Account VA WNY, Separate Account C, Separate Account VA-2LNY, TFLIC Series Life Account, and TFLIC Series Annuity Account. These accounts are separate accounts of Transamerica Financial Life Insurance Company.

 

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 Separate Account VA U, Separate Account VA V, WRL Series Life Account, WRL Series Life Corporate Account, WRL Series Annuity Account and WRL Series Annuity Account B. These accounts are separate accounts of Western Reserve Life Assurance Co. of Ohio.

 

AFSG Securities Corporation also serves as principal underwriter for 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 AEGON/Transamerica Series Trust, Transamerica IDEX Mutual Funds and Transamerica Investors, Inc.

(b) Directors and Officers of AFSG Securities Corporation:

 

Name

   

Principal

Business Address

  

Position and Offices with Underwriter

Larry N. Norman

    (1)   Director and President

Lisa Wachendorf

    (1)   Director, Vice President and Chief Compliance Officer

Frank A. Camp

    (1)   Secretary

Darin D. Smith

    (1)   Vice President and Assistant Secretary

Linda Gilmer

    (1)   Assistant Treasurer

Teresa L. Stolba

    (1)   Assistant Compliance Officer

Kim D. Day

    (2)   Director and Vice President

John K. Carter

    (2)   Vice President

Kyle A. Kellan

    (2)   Vice President

Priscilla I. Hechler

    (2)   Assistant Secretary and Assistant Vice President

Thomas R. Moriarty

    (2)   Vice President

Clifton W. Flenniken, III

    (3)   Assistant Treasurer

Emily Monroe Bates

    (4)   Assistant Treasurer
(1) 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001
(2) 570 Carillon Parkway, St. Petersburg, FL 33716-1202
(3) 111 North Charles Street, Baltimore, MD 21201
(4) 400 West Market Street, Louisville, KY 40202

 

(c) Compensation to Principal Underwriter:

 

Name of Principal Underwriter

   

Net Underwriting

Discounts and

Commissions(1)

   

Compensation on

Redemption

   

Brokerage

Commissions

    Compensation

AFSG Securities Corporation

    $ 0.00    0    0    0
(1) Fiscal Year 2004
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 Manager Regulatory Filing Unit, 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.

SECTION 403(B) REPRESENTATIONS

 

Transamerica Life Insurance Company represents that it is relying on a no-action letter dated November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88), regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in connection with redeemability restrictions on Section 403(b) Policies, and that paragraphs numbered (1) through (4) of that letter will be complied with.

 

TEXAS ORP REPRESENTATION

 

The Registrant intends to offer policies to participants in the Texas Option Retirement Program. In connection with that offering, the Registrant is relying on Rule 6c-7 under the Investment Company Act of 1940 and is complying with, or shall comply with, paragraphs (a) – (d) of that Rule.

 

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 25th day of April, 2005.

 

SEPARATE ACCOUNT VA Q

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

*

Ronald L. Ziegler

    Director                       , 2005

/s/ Craig D. Vermie

Craig D. Vermie

    Director   April 25, 2005

*

Larry N. Norman

    Director (Principal Executive Officer)                       , 2005

*

Arthur C. Schneider

    Director                       , 2005

*

Robert J. Kontz

    Vice President and Corporate Controller                       , 2005

*

Brenda K. Clancy

    Director, Vice President, Treasurer and Chief Financial Officer                       , 2005

 

* By Craig D. Vermie, Attorney-in-Fact

 

Registration No. 333-110049

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

 

EXHIBITS

 

TO

 

FORM N-4

 

REGISTRATION STATEMENT

 

UNDER

 

THE SECURITIES ACT OF 1933

 

FOR

 

FLEXIBLE PREMIUM VARIABLE ANNUITY - B

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.
  

Description of Exhibit

    Page No.*
(4)(f)   Form of Rider (GPS)     
(4)(g)   Form of Rider (5 For Life)     
(8)(a)(5)   Amendment No.32 to Participation Agreement (AEGON/Transamerica)     
(8)(d)(1)   Addendum No. 1 to Participation Agreement (Davis)     
(8)(g)(2)   Amendment No. 2 to Participation Agreement ( Franklin/Templeton)     
(8)(g)(3)   Amendment No. 4 to Participation Agreement (Franklin/Templeton)     
(8)(h)(1)   Amendment No. 1 to Participation Agreement (Huntington)     
(8)(i)   Fund Participation Agreement (J.P. Morgan)     
(8)(m)(1)   Amendment No. 3 to Participation Agreement (Nations)     
(8)(n)(2)   Amendment No. 9 to Participation Agreement (Oppenheimer)     
(8)(p)(1)   Amendment No. 2 to Participation Agreement (STI)     
(9)(a)   Opinion and Consent of Counsel     
(9)(b)   Consent of Counsel     
(10)(a)   Consent of Independent Registered Public Accounting Firm     
(10)(b)   Opinion and Consent of Actuary     
* Page numbers included only in manually executed original.