LIFE OF VIRGINIA SEPARATE ACCOUNT II
COMMONWEALTH THREE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FORM P1096 1/87
Issued by
THE LIFE INSURANCE COMPANY OF VIRGINIA
6610 West Broad Street
Richmond, Virginia 23230
(804) 281-6000
This prospectus describes a flexible premium variable life insurance policy
("Policy") issued by The Life Insurance Company of Virginia ("Life of Virginia")
known as Commonwealth Three. This type of life insurance is also commonly
called variable universal life. The Policy permits the policyowner to vary
premium payments and adjust the life insurance proceeds payable under the
Policy; the Policy has been designed for maximum flexibility in meeting changing
insurance needs.
The Policy provides for the payment of the Life Insurance Proceeds upon the
death of the Insured, and for a cash value that can be obtained by completely or
partially surrendering the Policy. Life Insurance Proceeds may, and cash value
will, vary with the investment experience of Life of Virginia Separate Account
II ("Separate Account II"). The Policyowner bears the entire investment risk;
there is no guaranteed minimum cash value. Life of Virginia generally will not
issue a Policy to insure persons older than age 75. The minimum specified amount
for which a Policy will be issued is $50,000; however, Life of Virginia reserves
the right to increase or decrease this amount for a class of Policies issued
after some future date.
Under the Policy, net premiums are placed in Separate Account II. The
Policyowner selects the Investment Subdivision(s) of Separate Account II in
which to invest, and, after the Initial Investment Period, determines the
allocation of the net premiums among those Investment Subdivisions. Each
Investment Subdivision of Separate Account II will invest solely in a designated
portfolio which is part of a series type of mutual fund. Currently, there are
seven such funds available under this Policy: the Variable Insurance Products
Fund, the Variable Insurance Products Fund II, the Neuberger & Berman Advisers
Management Trust, the Life of Virginia Series Fund, Inc., the Oppenheimer
Variable Account Funds, the Janus Aspen Series, and the Insurance Management
Series (collectively referred to as the "Funds"). The Funds, their investment
managers and their currently available portfolios are listed on the following
page.
THIS PROSPECTUS MUST BE READ ALONG WITH CURRENT PROSPECTUSES FOR THE
FUNDS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES IN THE FUNDS AND INTERESTS IN THE POLICIES ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Please read this prospectus carefully and retain it for future reference.
The date of this Prospectus is May 1, 1995.
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Variable Insurance Products Fund, which is managed by Fidelity Management &
Research Company, currently has five portfolios:
Money Market Portfolio
High Income Portfolio
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
Variable Insurance Products Fund II, which is managed by Fidelity Management
& Research Company, currently has five portfolios, two of which, the Asset
Manager Portfolio and the Contrafund Portfolio, are available to Policyowners
through Separate Account II:
Neuberger & Berman Advisers Management Trust, which is managed by Neuberger &
Berman Management Incorporated, currently has seven portfolios, three of which
are available to Policyowners through Separate Account II:
Balanced Portfolio
Growth Portfolio
Limited Maturity Bond
Portfolio
Life of Virginia Series Fund, Inc., which is managed by Aon Advisors, Inc.,
currently has six portfolios:
Money Market Portfolio
Government Securities Portfolio
Common Stock Index Portfolio
Total Return Portfolio International
Equity Portfolio Real Estate Securities Portfolio
Oppenheimer Variable Account Funds, which is managed by Oppenheimer
Management Corporation, currently has nine portfolios, six of which are
available to Policyowners through Separate Account II:
Oppenheimer Money Fund
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
Janus Aspen Series, which is managed by Janus Capital Corporation, currently
has seven portfolios, three of which are available to Policyowners through
Separate Account II:
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
Insurance Management Series, which is managed by Federated Advisers,
currently has five portfolios, two of which, the Utility Fund and the Corporate
Bond Fund, are available to Policyowners through Separate Account II:
The accompanying prospectuses for the Funds describe the investment objectives
and the risks of each of the Funds' portfolios.
During the Initial Investment Period, all net premiums will be placed in the
Investment Subdivision of Separate Account II that invests exclusively in the
Money Market Portfolio of the Life of Virginia Series Fund, Inc. At the end of
that period, the cash value at that time and all subsequent net premiums will
be allocated in accordance with Policyowner instructions.
It may not be advantageous to purchase a Policy either as a replacement for
another type of life insurance policy, or to obtain additional insurance
protection if another flexible premium variable life insurance policy is owned.
<PAGE>
TABLE OF CONTENTS
Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Separate Account II . . . . . . . . . . . . . . . . . . . . . . . . . 7
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution of the Policy . . . . . . . . . . . . . . . . . . . . . 9
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Refund Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 10
Illustrations of Death Benefits, Cash Values and Surrender Values . . 10
Life of Virginia and Separate Account II
The Life Insurance Company of Virginia . . . . . . . . . . . . . . . 11
Aon Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Separate Account II . . . . . . . . . . . . . . . . . . . . . . . . . 11
Addition, Deletion, or Substitution of Investments . . . . . . . . . 11
The Funds
Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . 13
Variable Insurance Products Fund II . . . . . . . . . . . . . . . . . 14
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . 14
Life of Virginia Series Fund, Inc . . . . . . . . . . . . . . . . . . 15
Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . 16
Janus Aspen Series . . . . . . . . . . . . . . . . . . . . . . . . . 16
Insurance Management Series . . . . . . . . . . . . . . . . . . . . . 17
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . 17
Termination of Participation Agreements . . . . . . . . . . . . . . . 18
The Policy
Purpose of the Policy . . . . . . . . . . . . . . . . . . . . . . . . 18
Purchasing a Policy . . . . . . . . . . . . . . . . . . . . . . . . . 18
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . 20
Examination of Policy (Refund Privilege) . . . . . . . . . . . . . . 21
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 21
Policy Benefits
Cash Value Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 21
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Dollar-Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . 24
Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 24
Loan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Life Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . 26
Benefits at Maturity . . . . . . . . . . . . . . . . . . . . . . . . 28
Optional Payment Plans . . . . . . . . . . . . . . . . . . . . . . . 28
Charges and Deductions
Deductions From Premiums . . . . . . . . . . . . . . . . . . . . . . 30
Monthly Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Charges Against Separate Account II . . . . . . . . . . . . . . . . . 31
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reduction of Charges for Group Sales . . . . . . . . . . . . . . . . 32
General Provisions
Postponement of Payment . . . . . . . . . . . . . . . . . . . . . . . 33
Limits on Contesting the Policy . . . . . . . . . . . . . . . . . . . 33
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . 33
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
Annual Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Nonparticipating . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Written Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Changing the Owner or Beneficiary . . . . . . . . . . . . . . . . . . 34
Using the Policies as Collateral . . . . . . . . . . . . . . . . . . 34
Optional Insurance Benefits . . . . . . . . . . . . . . . . . . . . . 34
Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Distribution of the Policy . . . . . . . . . . . . . . . . . . . . . 35
Federal Tax Matters
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . 35
Tax Treatment of Policy Proceeds . . . . . . . . . . . . . . . . . . 36
Tax Treatment of Policy Loans and Other Distributions . . . . . . . . 37
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . 38
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . 38
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Developments Regarding Employment-Related Benefit Plans . . . . . 38
Safekeeping of the Assets of Separate Account II . . . . . . . . . . . 38
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
State Regulation of Life of Virginia . . . . . . . . . . . . . . . . . 39
Executive Officers and Directors of Life of Virginia . . . . . . . . . 40
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 42
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
This Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. LIFE INSURANCE IS A LONG TERM INVESTMENT. PROSPECTIVE POLICYOWNERS
SHOULD CONSIDER THEIR NEED FOR INSURANCE COVERAGE AND THE POLICY'S LONG TERM
INVESTMENT POTENTIAL. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
DEFINITIONS
Age - The Insured's age on his or her nearest birthday.
Attained Age - The Insured's age on the policy date plus the number of years
since the policy date.
Beneficiary - Primary and contingent beneficiaries are designated by the
Policyowner in the application. More than one primary and contingent
Beneficiary may be named. If changed, the primary Beneficiary or contingent
Beneficiary is as shown in the latest change filed with Life of Virginia. If no
Beneficiary survives the Insured, the Policyowner or the Policyowner's estate
will be the beneficiary. The interest of any Beneficiary may be subject to that
of any assignee.
Business Day - Any day on which the New York Stock Exchange is open for
business and any other day in which there is a change in the value of the shares
of a portfolio of any one of the funds sufficient to materially affect the value
of the assets in the Investment Subdivision of Separate Account II that invests
in that Portfolio.
Continuation Amount - An amount set forth in the Policy for each of the first
120 policy months. The Policy will not lapse during the first ten policy years
if the Net Total Premium is at least equal to the continuation amount for the
number of months that the Policy has been in force.
Due Proof of Death - Proof of death that is satisfactory to Life of Virginia.
Such proof may consist of the following if acceptable to Life of Virginia:
(a) A certified copy of the death certificate; or
(b) A certified copy of the decree of a court of competent jurisdiction as to
the finding of death.
Funds -- The mutual funds available under this Policy. Currently there are
seven: the Variable Insurance Products Fund, the Variable Insurance Products
Fund II, the Neuberger & Berman Advisers Management Trust, the Life of Virginia
Series Fund, Inc., the Oppenheimer Variable Account Funds, the Janus Aspen
Series, and the Insurance Management Series.
General Account - The assets of Life of Virginia that are not segregated in
any of the separate investment accounts of Life of Virginia.
Home Office - The principal offices of The Life Insurance Company of Virginia
at 6610 W. Broad Street, Richmond, Virginia, 23230.
Initial Investment Period - The period that commences on the date the first
premium for the Policy is received at the Home Office and ends on the date of
receipt at the Home Office of the Policy Delivery and Acceptance Letter, signed
and dated by the Policyowner, indicating that the Policyowner has received and
accepted the Policy, or, if the Policy is not accepted, when all amounts due are
refunded, whichever is earlier. During this period, all net premiums will be
placed in the Investment Subdivision of Separate Account II that invests
exclusively in the Money Market Portfolio of the Life of Virginia Series Fund,
Inc.
Insured - The person upon whose life a Policy is issued.
Investment Subdivision - A Subdivision of Separate Account II. After the
Initial Investment Period, premiums are allocated, in accordance with the
instructions of the Policyowner, among no more than seven of the twenty-seven
Investment Subdivisions of Separate Account II, each of which invests
exclusively in shares of a designated portfolio of one of the Funds. All
twenty-seven Investment Subdivisions may not be available in all states.
Life Insurance Proceeds - The amount payable under a Policy upon the death of
the Insured.
Maturity Date - The date on which a Policy's cash value becomes payable to
the Policyowner, if living. This date may be designated by the Policyowner. If
no designation is made, the maturity date will be the policy anniversary nearest
to the Insured's 95th birthday. The Policy terminates on the maturity date.
Maximum Loan Amount - The maximum amount that may be borrowed under a Policy.
The maximum loan amount equals 90% of the Policy's Surrender Value.
Monthly Anniversary Day - The same date in each month as the Policy Date.
Whenever the Monthly Anniversary Day falls on a date other than a Business Day,
the Monthly Anniversary Day will be deemed the next Business Day.
Net Total Premium - The total of all premiums paid less any partial
surrenders and outstanding Policy Debt where both partial surrenders and
outstanding policy debt are divided by the Net Premium Factor of 92.5%.
Periodic Plan - A premium schedule providing for the payment of level
premiums at fixed intervals over a specified period of time.
Policy - The flexible premium variable life insurance policy issued by Life
of Virginia that is described in this prospectus. The term "Policy" or
"Policies" includes the Policy described in this prospectus, the Policy
application, any supplemental applications and any endorsements.
Policy Date - The date set forth in a Policy that is used to determine policy
years and policy months. Policy anniversaries are measured from the Policy
Date.
Policy Debt - The total of all outstanding policy loans plus accrued
interest.
Policy Month - A one-month period beginning on a Monthly Anniversary Day and
ending on the day immediately preceding the next Monthly Anniversary Day.
Policyowner ("Owner") - The person who owns a Policy. The original
Policyowner is named in the application. Contingent Owners may also be named.
Separate Account II ("Account") - Life of Virginia Separate Account II, a
separate investment account established by Life of Virginia to receive and
invest net premiums paid under the Policies.
Specified Amount - The amount of insurance under a Policy. This amount may
or may not include the cash value, as selected by the policyowner. The current
Specified Amount is set forth on the data page in each Policy.
Surrender Value - A Policy's cash value, reduced by any outstanding Policy
Debt and reduced by any applicable surrender charges. This amount is payable to
the Policyowner if the Policy matures or is surrendered.
Valuation Period - The period between the close of business on a Business Day
and the close of business on the next succeeding Business Day.
SUMMARY
The Following Summary of Prospectus Information Should Be Read In Conjunction
With The Detailed Information Appearing Elsewhere In This Prospectus.
The Policy
Under the Policy, subject to certain limitations, the policyowner has
flexibility in determining the frequency and amount of premiums. (See Premiums,
p. 7.) Thus, unlike conventional fixed benefit life insurance, the Policy does
not require a Policyowner to adhere to a fixed premium schedule. Also unlike
conventional fixed benefit life insurance, the amount and/or duration of the
life insurance coverage and the cash values of this Policy are not guaranteed
and may increase or decrease, depending upon the investment experience of the
assets supporting the Policy. Accordingly, the Policyowner bears the investment
risk of any depreciation in value of the underlying assets, but reaps the
benefit of any appreciation in values. So long as a Policy has sufficient cash
value to remain in force, the Policy will provide Life Insurance Proceeds
payable to a Beneficiary upon the Insured's death, the accumulation of cash
value, surrender rights, and policy loan privileges. The minimum Specified
Amount for which a Policy will be issued is $50,000; however, Life of Virginia
reserves the right to increase or decrease this amount for a class of Policies
issued after some future date.
A prospective Policyowner who already has life insurance coverage should
consider whether or not changing or adding to existing coverage would be
advantageous. Generally, it is not advisable to purchase another policy as a
replacement for an existing policy.
Separate Account II
Separate Account II currently has twenty-seven Investment Subdivisions. Each
Investment Subdivision invests exclusively in the shares of a portfolio of one
of the Funds. (See The Funds, p. 13.) Currently, the Funds include the
Variable Insurance Products Fund, the Variable Insurance Products Fund II, the
Neuberger and Berman Advisers Management Trust, the Life of Virginia Series
Fund, Inc., the Oppenheimer Variable Account Funds, the Janus Aspen Series, and
the Insurance Management Series. Five of those Investment Subdivisions, those
investing in the shares of the Contrafund Portfolio of the Variable Insurance
Products Fund II, those investing in shares of the Utility Fund and Corporate
Bond Fund of the Insurance Management Series, and those investing in shares of
the International Equity Portfolio and the Real Estate Securities Portfolio of
Life of Virginia Series Fund, are not currently available to Policyowners in the
State of California. The accompanying prospectuses for the Funds describe the
investment objectives and the risks of each of the Funds' portfolios.
Net premiums will be allocated among the Investment Subdivisions in accordance
with the Policyowner's written instructions; however, during the Initial
Investment Period, all net premiums will be placed in the Investment Subdivision
of Separate Account II that invests exclusively in the Money Market Portfolio of
the Life of Virginia Series Fund, Inc. The Initial Investment Period commences
on the date the first premium for the policy is received at the Home Office and
ends on the date of receipt at the Home Office of the Policy Delivery and
Acceptance Letter, signed and dated by the Policyowner, indicating that the
Policyowner has received and accepted the Policy, or if the Policy is not
accepted by the Policyowner, when all amounts due are refunded, whichever is
earlier. Therefore, in order to allocate money out of the Money Market Portfolio
of the Life of Virginia Series Fund for purposes of ending the Initial
Investment Period, the Policyowner must have submitted to Life of Virginia the
signed and dated Delivery and Acceptance Letter. Thereafter, a Policy's cash
value may not be invested in more than seven Investment Subdivisions at any
given point in time.
Cash value will, and Life Insurance Proceeds may, vary with the investment
experience of the Investment Subdivisions, as well as with the frequency and
amount of premium payments, any partial surrenders, and any charges imposed in
connection with the Policy. (See Cash Value Benefits, p. 21.)
Premiums
The full first premium for a Policy is due on the policy date. The amount of
the full first premium must be sufficient to keep the Policy in force for at
least one policy month. Thereafter, if there are no outstanding policy loans
(See Loan Benefits, p. 24.), unscheduled premiums may be paid in any amount and
at any frequency, subject only to the maximum premium limitations and minimum
premium requirements specified in the Policy. (See Premiums, p. 19.) A
Policyowner may also choose a periodic plan, which is a plan under which a level
premium may be paid at fixed intervals over a specified period of time. Failure
to pay premiums in accordance with the schedule will not in itself cause the
Policy to lapse. (See Policy Lapse and Reinstatement, p. 20.) The timing of
premium payments may affect the amount of the deferred sales charge under a
Policy as the charge is based only on premiums actually paid during the first
policy year, up to the amount of the designated premium. (See Surrender Charge,
p. 31.) The Policyowner may wish to reduce the deferred sales charge that the
Policy is subject to by reducing the premiums paid in the first Policy year.
However, by reducing the premiums paid in the first year, values under the
Policy may decrease, cost of insurance charges may increase and the risk of the
Policy lapsing prematurely may increase.
A Policy will only lapse when the surrender value is insufficient to pay the
monthly deduction, (See Charges and Deductions - Monthly Deduction, p. 30), and
a grace period expires without a sufficient payment, and, during the first 10
years, the Net Total Premium is less than the continuation amount for the number
of months that the policy has been in force. (See Policy Lapse and
Reinstatement - Lapse, p. 20.) This Policy, therefore, differs in two important
respects from a conventional life insurance policy. First, the failure to pay a
planned periodic premium will not in itself automatically cause a Policy to
lapse. Second, under the circumstances described above, a Policy can lapse even
if planned periodic premiums or premiums in other amounts have been paid.
Policy Benefits
Cash Value Benefits. The Policy provides for a cash value. A Policy's cash
value in Separate Account II will reflect the amount and frequency of premium
payments, the investment experience of the Investment Subdivisions of Separate
Account II in which net premiums are placed, policy loans, transfers, any
partial surrenders, and any charges imposed in connection with the Policy. The
entire investment risk is borne by the Policyowner; Life of Virginia does not
guarantee a minimum cash value. (See Policy Benefits - Calculation of Cash
Value, p. 22.)
The Policyowner may at any time surrender a Policy and receive the Surrender
Value (cash value reduced by any outstanding policy debt and any applicable
surrender charges). Subject to certain limitations, the Policyowner may also
partially surrender the Policy and obtain a portion of the cash value at any
time prior to the Maturity Date. Partial surrenders will reduce both the cash
value and Life Insurance Proceeds payable under the Policy. (See Surrender
Privileges, p. 21.) A charge will be deducted from the cash value upon partial
surrender. (See Charges and Deductions - Other Charges, p. 32.)
Transfers. The Policyowner may transfer amounts among the Investment
Subdivisions that are available at the time the transfer is requested up to
twelve times each calendar year. According to the terms of the Policy, the first
such transfer in each calendar year is free, subsequent transfers in that year
will be assessed a charge of $10.00. (See Transfers, p. 23.) Life of
Virginia's current practice is to waive this policy limitation and allow one
free transfer each calendar month. Subsequent transfers in that month will be
assessed a charge of $10.00. However, Life of Virginia reserves the right to
enforce the policy limitation of one free transfer per calendar year at any time
in the future.
Life of Virginia may not honor transfers made by third parties holding
multiple powers of attorney. (See Powers of Attorney, p. 24.) Also, where
permitted by state law, Life of Virginia reserves the right to refuse to execute
any transfer if any of the Investment Subdivisions that would be affected by the
transfer are unable to purchase or redeem shares of the mutual funds in which
they invest.
Policy Loans. After the first policy anniversary, the Policyowner may
exercise certain loan privileges under a Policy. (See Loan Benefits, p. 24.)
Loans will accrue interest at a rate not more than the maximum rate set forth in
the Policy. When a loan is made, a portion of the Policy's cash value
sufficient to secure the loan will be transferred from Separate Account II to
Life of Virginia's general account as security for the loan and will earn
interest daily at a fixed annual rate of 4%. For policies issued on or after
May 1, 1993, a portion of the amount of cash value transferred to secure the
loan may earn interest at a higher rate after the tenth policy year. Interest
earned will be credited on each Monthly Anniversary Day and transferred at that
time to Separate Account II. Upon partial or full loan repayment, the portion
of cash value in the general account securing the repaid portion of the policy
debt will be transferred to Separate Account II. (See Loan Benefits - Repayment
of Policy Debt, p. 25.) Depending upon the investment performance of Surrender
Value and the amount of any Policy loan, such loans may cause a Policy to lapse.
If a Policy is not a Modified Endowment Contract, lapse of the Policy with
Policy loans outstanding may result in adverse tax consequences. (See Federal
Tax Matters, p. 35.)
Life Insurance Proceeds. The Policy provides for the payment of Life
Insurance Proceeds upon the death of the Insured. The Policy contains two
benefit options: Option A and Option B. Under Option A, the Life Insurance
Proceeds will be the greater of(i) the Specified Amount plus the Policy's cash
value on the date of the Insured's death or (ii) the cash value on the date of
the Insured's death multiplied by the corridor percentage. Under Option B, the
Life Insurance Proceeds will be the greater of (i) the Specified Amount or (ii)
the cash value on the date of the Insured's death multiplied by the applicable
corridor percentage as set forth in the Policy.
Under either benefit option, so long as a Policy remains in force, Life
Insurance Proceeds will not be less than the current specified amount of the
Policy. Life Insurance Proceeds may, however, exceed the specified amount. The
amount by which Life Insurance Proceeds exceed the Specified Amount depends upon
the benefit option chosen and the cash value of the Policy. (See Life Insurance
Proceeds, p. 26.) Life Insurance Proceeds will be reduced by any outstanding
policy debt and any due and unpaid charges. The proceeds may be paid in a lump
sum or in accordance with an optional payment plan.
Any time after the first policy year, the policyowner may, subject to certain
restrictions, adjust the Life Insurance Proceeds payable under a Policy by
increasing or decreasing the Specified Amount. (See Change in Existing
Coverage, p. 27.) In addition, the Policyowner may change the benefit option in
effect. (See Change in Benefit Option, p. 27.)
Benefits at Maturity. On the maturity date of a Policy, if the Insured is
still living, the Policyowner will be paid the cash value reduced by any
outstanding Policy Debt. This is the policy's maturity value.
Charges
The net premium equals the paid premium multiplied by the Net Premium Factor.
The Net Premium Factor equals 92.5%. The difference between the actual premium
payment and the net premium (a total charge of 7.5%) will be used to compensate
Life of Virginia for expenses incurred in connection with the distribution of
the Policies (5.0%) and for premium taxes imposed by various states and
subdivisions (2.5%). (See Charges and Deductions - Deductions from premiums, p.
30.)
In addition, there is a deferred sales charge of 45% of the first year's
premiums, up to the amount of the designated premium (which is always less than
the guideline annual premium), to compensate Life of Virginia for certain sales
and distribution expenses. No additional amount of deferred sales charge is
charged on premiums paid after the first policy year. The charge is deducted
from the cash value in equal amounts at the beginning of Policy years 2 through
10. Any uncollected deferred sales charge will be deducted from the cash value
if the Policy is surrendered during Policy years 1 through 9, with the exception
that during years 1 and 2 the amount that will be collected upon surrender may
be limited to less than the full amount of the uncollected deferred sales
charge. (See Surrender Charge, p. 31.) Thus, if the policyowner were to
surrender the Policy during its first two policy years, the total amount of
sales charge deducted may be less than if the surrender occurred after the
second year. If the initial specified amount is at least $250,000, the deferred
sales charges will be 40% rather than 45% of the first year premium paid up to
the designated premium. (See Charges and Deductions - Sales Charges, p. 30)
Cash value will be reduced each policy month by the monthly deduction. The
monthly deduction compensates Life of Virginia for the insurance benefits
provided under the Policy and for administrative costs. A charge equal to the
lesser of $25 or 2% of the amount requested will be deducted from the amount
paid to the Policyowner upon partial surrender of a Policy. (See Other Charges,
p. 32.) During each month, a $10 fee will be charged for the second and
subsequent transfers of assets among the Investment Subdivisions. (See
Transfers, p. 23.) If a policyowner increases the specified amount of his
policy, there will be a one-time charge per increase equal to the lesser of
$1.50 per $1,000 of increase or $300. This charge is to compensate Life of
Virginia for underwriting and administrative costs associated with the increase.
(See Other Charges, p. 32).
If a policy is surrendered or lapses during the first 9 policy years, a charge
is made to cover the expenses of issuing the policy. The charge is an amount
per $1,000 of initial specified amount and varies by age at issue, subject to a
maximum of $500 per policy. The charge will decrease after the fifth policy
year and disappear after the ninth policy year. (See Surrender Charge, p. 31)
A charge equal to .70% of the net assets of Separate Account II will be
imposed against those assets to compensate Life of Virginia for certain
mortality and expense risks incurred in connection with the Policy. (See
Charges Against Separate Account II, p. 31.)
Finally, the value of the net assets of Separate Account II will also reflect
the investment advisory fee and other expenses incurred by the Funds.
Distribution of the Policy
The Policy will be distributed by registered representatives of Forth
Financial Securities Corporation, which acts as the principal underwriter of the
Policy. Forth Financial Securities Corporation is registered as a broker-dealer
with the Securities and Exchange Commission and is a member of the National
Association of Securities Dealers, Inc. The Policy will also be distributed
through other registered broker-dealers that have entered into written sales
agreements with the principal underwriter.
Tax Treatment
Cash value under a Policy should be subject to the same federal income tax
treatment as cash value in a conventional fixed benefit policy. Under existing
tax law, the Policyowner is not deemed to be in constructive receipt of cash
values under a Policy until actual surrender. A change of Owners or a partial
or total surrender may have tax consequences depending upon the particular
circumstances.
Like death benefits payable under conventional life insurance policies, Life
Insurance Proceeds payable under a Policy should be excludable from the gross
income of the Beneficiary. As a result, the Beneficiary will not be taxed on
these proceeds. (See Federal Tax Matters, p. 35.)
Certain policies may be treated as Modified Endowment Contracts depending on
the amount of premium paid in relation to the death benefit. (See Federal Tax
Matters, p. 35.) If the policy is a Modified Endowment Contract, then certain
distributions including policy loans and surrenders may have tax consequences.
In addition, prior to age 59 1/2 or death, any income resulting from
distributions generally will be subject to a 10% penalty tax.
For a discussion of additional tax issues and related developments which may
affect the tax treatment of the Policy, see "Federal Tax Matters", p. 35.
Refund Privilege
The Policyowner is granted a period of time to examine a Policy and return it
for refund. The applicable period of time is 10 days after the Policy is
received, 45 days after Part I of the application is signed, or 10 days after
mailing or personal delivery of a notice of the right of withdrawal, whichever
is later. In certain states the Policyowner may have more than 10 days to
return the policy for a refund. (See Examination of Policy (Refund Privilege),
p. 21)
Exchange Privilege
During the first 24 months, the Policyowner may convert this Policy to a
permanent fixed benefit policy in accordance with Life of Virginia's procedures.
(See Exchange Privilege, p. 21)
Illustrations of Death Benefits, Cash Values and Surrender Values
Illustrations in the Appendix show how the Death Benefit, Cash Value, and
Surrender Value may vary based on certain rate of return assumptions and how
these benefits compare with amounts which would accumulate if premiums were
invested to earn interest (after taxes) at 5% compounded annually. Nonetheless,
the illustrations are based on the hypothetical investment rates of return and
are not guaranteed. They are illustrative only and are not a representation of
past or future performance. Actual rates of return may be more or less than
those reflected in the illustrations and, therefore, actual values will be
different than those illustrated. If the Policy is surrendered in the early
policy years, the Surrender Value will be low as compared with premiums
accumulated with interest, and consequently, the insurance protection provided
will be costly.
LIFE OF VIRGINIA AND SEPARATE ACCOUNT II
The Life Insurance Company of Virginia
Life of Virginia is a stock life insurance company operating under a charter
granted by the Commonwealth of Virginia on March 21, 1871. Life of Virginia
currently is a wholly-owned subsidiary of Combined Insurance Company of America,
which is a wholly-owned subsidiary of Aon Corporation ("Aon"). Life of Virginia
is principally engaged in the offering of life insurance and annuity policies
and ranks among the 25 largest stock life insurance companies in the United
States in terms of business in force. The Company is admitted to do business in
49 states and the District of Columbia. The principal offices of Life of
Virginia are at 6610 West Broad Street, Richmond, Virginia 23230.
Aon Corporation
Aon, a publicly owned Delaware corporation, is a holding corporation
principally engaged through subsidiaries in the insurance and insurance
brokerage business. Its principal executive offices are located at 123 North
Wacker Drive, Chicago, Illinois 60606. As of December 31, 1994, Mr. Patrick G.
Ryan, President and Chief Executive Officer of Aon, 123 North Wacker Drive,
Chicago, Illinois 60606, owned directly and beneficially, 12,886,408 shares
(12%) of the common stock of Aon.
Aon indirectly owns the stock of Forth Financial Securities Corporation (A
broker/dealer registered with the Securities and Exchange Commission (the
"Commission"), which acts as principal underwriter for the Policies) and
directly owns the stock of Aon Advisors, Inc. (an investment advisor registered
with the Commission which acts in that capacity for the Life of Virginia Series
Fund, Inc. and Aon Asset Management Fund, Inc.).
Aon also owns all outstanding capital stock of Ryan Insurance Group, Inc. (an
independent marketer of credit life and accident and health insurance and
automobile repair insurance), Rollins Hudig Hall Co. (an insurance broker),
Union Fidelity Life Insurance Company, and Godwins, Booke & Dickenson (an
employee benefits consulting firm).
Separate Account II
Separate Account II was established by Life of Virginia as a separate
investment account on August 21, 1986. Separate Account II currently has
twenty-seven Investment Subdivisions but that number may change in the future.
Each Investment Subdivision invests exclusively in shares representing an
interest in a separate corresponding portfolio of one of the seven Funds
described below. After the Initial Investment Period, net premiums are
allocated in accordance with the instructions of the Policyowner among up to
seven of the twenty-seven Investment Subdivisions available under this Policy.
The Investment Subdivisions that invest in shares of the Contrafund Portfolio of
the Variable Insurance Products Fund II, the Utility Fund and Corporate Bond
Fund of the Insurance Management Series, and the International Equity Portfolio
and the Real Estate Securities Portfolio of Life of Virginia Series Fund, are
not currently available to California policyowners.
Under the Code of Virginia, the assets of Separate Account II are the property
of Life of Virginia. Nonetheless, the assets in Separate Account II
attributable to the Policies are not chargeable with liabilities arising out of
any other business which Life of Virginia may conduct. The assets of Separate
Account II shall, however, be available to cover the liabilities of Life of
Virginia's general account to the extent that the assets of Separate Account II
exceed its liabilities arising under the Policies supported by it. Income and
both realized and unrealized gains or losses from the assets of Separate Account
II are credited to or charged against the Account without regard to the income,
gains or losses arising out of any other business Life of Virginia may conduct.
Separate Account II has been registered with the Securities and Exchange
Commission (the "Commission") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act") and meets the definition of a Separate
Account under the Federal Securities Laws. Registration with the Commission
does not involve supervision of the management or investment practices or
policies of Separate Account II by the Commission.
Addition, Deletion or Substitution of Investments
Life of Virginia reserves the right, subject to compliance with applicable
law, to make additions to, deletions from or substitutions for the shares of the
mutual fund portfolios that are held by Separate Account II or that Separate
Account II may purchase. If the shares of a Portfolio are no longer available
for investment or if in its judgment further investment in any Portfolio should
become inappropriate in view of the purposes of Separate Account II, Life of
Virginia reserves the right to eliminate the shares of any of the Portfolios of
the Funds and to substitute shares of another Portfolio of the Funds or of
another open-end, registered investment company. Life of Virginia will not
substitute any shares attributable to a policyowner's cash value in Separate
Account II without notice and prior approval of the SEC, to the extent required
by the Investment Company Act of 1940 or other applicable law. Nothing
contained herein shall prevent Separate Account II from purchasing other
securities for other series or classes of policies or from permitting a
conversion between Portfolios or classes of policies on the basis of requests
made by policyowners.
Life of Virginia also reserves the right to establish additional Investment
Subdivisions of Separate Account II, each of which would invest in a separate
Portfolio of the Funds, or in shares of another investment company, with a
specified investment objective. New Investment Subdivisions may be established
if, in the sole discretion of Life of Virginia, marketing, tax or investment
conditions warrant, and any new Investment Subdivisions may be made available to
existing policyowners on a basis to be determined by Life of Virginia. One or
more Investment Subdivisions may also be eliminated if, in the sole discretion
of Life of Virginia, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Life of Virginia may, by
appropriate endorsement, make such changes in these and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
Life of Virginia to be in the best interests of persons having voting rights
under the Policy, Separate Account II may be operated as a management company
under the Investment Company Act of 1940, may be deregistered under that Act in
the event such registration is no longer required, or may be combined with other
Life of Virginia separate accounts. To the extent permitted by applicable law,
Life of Virginia may also transfer the assets of Separate Account II associated
with the Policies to another separate account. In addition, Life of Virginia
may, when permitted by law, restrict or eliminate any voting rights of
Policyowners or other persons who have voting rights as to Separate Account II.
The policyowner will be notified of any material change in the investment
policy of any Portfolio in which the Owner has an interest. If the Policyowner
objects to the change, the Policy may be exchanged for a fixed benefit policy.
In addition, the Policyowner may exercise the right to surrender the Policy, in
whole or in part. (See Surrender Privileges, p. 21.) If the policyowner chooses
to exchange the Policy, no evidence of insurability will be required. The new
policy will be subject to normal exchange rules and other conditions determined
by Life of Virginia. The exchange must be made within 60 days after the change
in investment policy becomes effective. Life of Virginia will notify
Policyowners of the options available and procedures to follow if any material
change occurs.
THE FUNDS
Separate Account II currently invests in seven series-type mutual funds. All
of the Funds currently available under the Policy are registered with the
Commission as open-end, diversified investment companies. The Commission,
however, does not supervise the management or the investment practices and
policies of the Funds.
Each Investment Subdivision invests exclusively in a designated portfolio of
one of the Funds. The assets of each Fund portfolio are separate from other
portfolios of that Fund and each portfolio has separate investment objectives
and policies. As a result, each portfolio operates as a separate investment
portfolio and the investment performance of one portfolio has no effect on the
investment of any other portfolio. Some of the Funds may, in the future,
activate additional portfolios.
Each of the Funds sells its shares to Separate Account II in accordance with
the terms of a participation agreement between the Fund and Life of Virginia.
The termination provisions of those agreements vary. (See Termination of
Participation Agreements, p. 18.) Should an agreement between Life of Virginia
and a Fund terminate, the Separate Account will not be able to purchase
additional shares of that Fund. In that event, Policyowners will no longer be
able to allocate cash values or premium payments to Separate Account
Subdivisions investing in portfolios of that Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to the Separate Account
despite the fact that the participation agreement between the Fund and Life of
Virginia has not been terminated. Should a Fund or a portfolio of a Fund decide
not to sell its shares to Life of Virginia, Life of Virginia will be unable to
honor policyowner requests to allocate their cash values or premium payments to
Separate Account Subdivisions investing in shares of that Fund or portfolio.
Certain Investment Subdivisions of Separate Account II invest in Portfolios
that have similar investment objectives and/or policies; therefore, before
choosing Investment Subdivisions, carefully read the individual prospectuses for
the Funds, along with this prospectus.
Variable Insurance Products Fund
Variable Insurance Products Fund ("VIPF") currently has five portfolios:
Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth
Portfolio, and Overseas Portfolio.
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio will
invest only in high-quality U.S. dollar denominated money market securities of
domestic and foreign issuers.
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower rated fixed-income securities, while
also considering growth of capital.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Composite Index of 500 Stocks.
Growth Portfolio seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The Portfolio provides a means for investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
Fidelity Management & Research Company ("FMR") serves as investment adviser to
VIPF and VIPF II. For managing each portfolio's investments and business
affairs, each portfolio pays FMR a monthly fee.
VIPF Money Market Portfolio's fee is made up of two components: (a) a basic
fee rate and; (b) an income-based component. The basic fee rate is the sum of
the following two components:
1) A group fee rate based on the monthly average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets in all these funds rise.
2) An individual fund fee rate of .03%
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is the
fee for that month. If the fund's gross yield is 5% or less, the basic fee is
the total management fee. The income-based component is added to the basic fee
when the fund's yield is greater than 5%. The income-based fee is 6% of that
portion of the fund's yield that represents a gross yield of more than 5% per
year. The maximum income-based component is .24%.
VIPF High Income Portfolio's fee is made up of the sum of two components: a
group fee rate based on the monthly average net assets of all the funds advised
by FMR (on an annual basis this rate cannot rise above .37% and it drops as
total assets in all these funds rise) and an individual fund fee rate of .45%.
Therefore, the maximum total management fee that can be charged is .82% of the
average net assets of this portfolio. One twelfth of the annual management fee
rate is applied to the Portfolio's net assets averaged over the most recent
month, resulting in a dollar amount which is the management fee for that month.
VIPF Equity-Income, Growth, and Overseas Portfolios' fee rates are each made
up of two components: (i) a group fee rate based on the monthly average net
assets of all the mutual funds advised by FMR; and (ii) an individual portfolio
fee rate of .20% for the VIPF Equity-Income Portfolio, .30% for the VIPF Growth
Portfolio and .45% for the VIPF Overseas Portfolio. The group fee rate cannot
rise above .52% and it drops as total assets in all mutual funds rise.
Therefore, the maximum total management fees that can be charged is .97% of the
average net assets of these Portfolios. One-twelfth of the sum of the group fee
rate and the individual fee rate is applied to each portfolio's net assets
averaged over the most recent month, giving a dollar amount which is the
management fee for that month.
Variable Insurance Products Fund II
Variable Insurance Products Fund II ("VIPF-II"), which is managed by FMR,
currently has five portfolios, two of which, Asset Manager Portfolio and
Contrafund Portfolio, are available to policyowners through Separate Account II.
THE CONTRAFUND PORTFOLIO IS NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO
CALIFORNIA POLICYOWNERS.
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
Contrafund Portfolio seeks capital appreciation by investing in securities of
companies believed to be undervalued or out-of-favor.
FMR serves as investment advisor to VIPF-II's Asset Manager Portfolio and
Contrafund Portfolio. For managing the Portfolios' investments and business
affairs, the Portfolios pay a monthly fee to FMR. Asset Manager Portfolio's fee
rate is the sum of the following two components: (i) an individual fund fee
rate of .40% of the Portfolio's average net assets; and (ii) a group fee rate
based on the monthly average net assets of all the mutual funds advised by FMR.
This rate can not rise above .52% and it drops as total assets in all these
funds rise. Therefore, the maximum total management fee that can be charged is
.92% of the average net assets of this Portfolio. Contrafund Portfolio's fee
rate is the sum of the following two components: (i) an individual fund fee
rate of .30% of the Portfolio's average net assets; and (ii) a group fee rate
based on the monthly average net assets of all the mutual funds advised by FMR.
This rate can not rise above .52% and it drops as total assets in all these
funds rise. Therefore, the maximum total management fee that can be charged is
.82% of the average net assets of this Portfolio. One twelfth of the sum of the
group and individual fund fee rate is applied to the portfolio's net assets
averaged over the most recent month, giving a dollar amount which is the
management fee for that month. FMR has voluntarily agreed to reimburse the
Contrafund Portfolio to the extent that total expenses exceed 1.00%. The
adviser can terminate this voluntary reimbursement at any time.
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Advisers Management Trust ("AMT"), which is managed by
Neuberger & Berman Management Incorporated, currently has seven portfolios,
three of which, the Balanced Portfolio, the Growth Portfolio and the Limited
Maturity Bond Portfolio are available to Policyowners through Separate Account
II.
Balanced Portfolio has the investment objective of long term capital growth
and reasonable current income without undue risk to principal. The Balanced
Portfolio will seek to achieve its objective through investment of a portion of
its assets in common stocks and a portion of its assets in debt securities.
Growth Portfolio seeks capital growth through investments in common stocks of
companies that the Investment Adviser believes will have above average earnings
or otherwise provide investors with above average potential for capital
appreciation. To maximize this potential, the Investment Adviser may also
utilize, from time to time, securities convertible into such common stocks,
warrants and options to purchase such stocks.
Limited Maturity Bond Portfolio's primary investment objective is the highest
current income consistent with low risk to principal and liquidity. As a
secondary objective, the Limited Maturity Bond Portfolio also seeks to enhance
its total return through capital appreciation when market factors, such as
falling interest rates and rising bond prices, indicate that capital
appreciation may be available without significant risk to principal.
Neuberger & Berman Management Incorporated serves as Investment Adviser to
AMT. AMT pays fees to the Investment Adviser for administrative and investment
management services. The fees for each portfolio are based on the average daily
net assets of the portfolio or the series in which the portfolio invests. For
administrative services the Investment Adviser is paid a fee at the following
rates: Growth Portfolio 0.30%, Balanced Portfolio 0.30%, and Limited Maturity
Bond Portfolio 0.40% of the average daily net assets of the portfolio. For
investment management services, the Investment Adviser is paid a fee at the
following rates for Growth Portfolio and Balanced Portfolio: 0.55% of the first
$250 million of the average daily net assets, 0.525% of the next $250 million,
0.50% of the next $250 million, 0.475% of the next $250 million, 0.45% of the
next $500 million, and 0.425% of average daily net assets of the series over
$1.5 billion. For Limited Maturity Bond Portfolio, the Investment Adviser is
paid a fee of 0.25% of the first $500 million of average daily net assets,
0.225% of the next $500 million, 0.20% of the next $500 million, 0.175% of the
next $500 million, and 0.15% of average daily net assets of the series over $2
billion.
Life of Virginia Series Fund, Inc.
The Life of Virginia Series Fund, Inc. ("Life of Virginia Series Fund")
currently has six portfolios: the Common Stock Index Portfolio, the Government
Securities Portfolio, the Money Market Portfolio, the Total Return Portfolio,
the International Equity Portfolio, and the Real Estate Securities Portfolio.
THE INTERNATIONAL EQUITY PORTFOLIO AND THE REAL ESTATE SECURITIES PORTFOLIO ARE
NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
Common Stock Index Portfolio has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Index"), through investment in common stocks traded on the New York Stock
Exchange and the American Stock Exchange and, to a limited extent, in the
over-the-counter markets.
Government Securities Portfolio has the investment objective of seeking high
current income and protection of capital through investment in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Money Market Portfolio has the investment objective of providing the highest
level of current income as is consistent with high liquidity and safety of
principal by investing in high quality money market securities.
Total Return Portfolio has the investment objective of providing the highest
total return, composed of current income and capital appreciation, as is
consistent with prudent investment risk by investing in common stocks, bonds and
money market instruments, the proportion of each being continuously determined
by the investment advisor.
International Equity Portfolio has the investment objective of providing
long-term capital appreciation. The Portfolio seeks to achieve its objective by
investing primarily in equity and equity-related securities of companies that
are organized outside of the U.S. or whose securities are principally traded
outside of the U.S.
Real Estate Securities Portfolio has the investment objective of providing
maximum total return through current income and capital appreciation. The
Portfolio seeks to achieve its objective by investing primarily in securities of
U.S. issuers that are principally engaged in or related to the real estate
industry including those that own significant real estate assets. The Portfolio
will not invest directly in real estate.
Aon Advisors, Inc. serves as investment adviser to the Life of Virginia Series
Fund. The Life of Virginia Series Fund pays Aon Advisors, Inc. compensation in
the form of an investment advisory fee, computed and accrued daily, and paid
monthly. The investment advisory fee for each portfolio is based on the average
daily net assets of the portfolio at the following rates: for Common Stock
Index Portfolio .35%; Government Securities Portfolio, Money Market Portfolio,
and Total Return Portfolio .50% of the first $100,000,000, .45% of the next
$100,000,000, .40% of the next $100,000,000, .35% of the next $100,000,000, and
.30% of amounts in excess of $400,000,000; International Equity Portfolio 1.00%
on the first $100,000,00, .95% on the next $100,000,000, and .90% of the amounts
in excess of $200,000,000; Real Estate Securities Portfolio .85% of the first
$100,000,000, .80% on the next $100,000,000, and .75% of the amounts in excess
of $200,000,000. See the fund prospectus for further details. Aon Advisors,
Inc. has agreed to waive .80% of the investment advisory fee for the first
$100,000,000 of average daily net assets of the Money Market Portfolio for 1995,
resulting in a fee of .10%. There is no guarantee that the fee waiver will
continue after 1995.
Oppenheimer Variable Account Funds
The Oppenheimer Variable Account Funds ("OVAF") currently has nine portfolios,
six of which are currently available to Policyowners through Separate Account
II: Oppenheimer Money Fund, Oppenheimer High Income Fund, Oppenheimer Bond
Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund, and
Oppenheimer Multiple Strategies Fund.
Oppenheimer Money Fund seeks the maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity.
Oppenheimer High Income Fund seeks a high level of current income from
investment in high yield fixed income securities, including unrated securities
or high risk securities in the lower rating categories. These securities may be
considered to be speculative.
Oppenheimer Bond Fund primarily seeks a high level of current income from
investment in high yield fixed income securities rated "Baa" or better by
Moody's or "BBB" or better by Standard & Poor's. Secondarily, it seeks capital
growth when consistent with its primary objective.
Oppenheimer Capital Appreciation Fund seeks to achieve capital appreciation by
investing in "growth-type" companies.
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing in
securities of well-known established companies.
Oppenheimer Multiple Strategies Fund seeks a total investment return (which
includes current income and capital appreciation in the value of its shares)
from investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
Oppenheimer Management Corporation ("OMC") serves as investment adviser to the
Oppenheimer Variable Account Funds ("OVAF"). The OVAF pay OMC a monthly
management fee. Effective September 1, 1994, the monthly fee payable to OMC is
computed separately on the net assets of each portfolio as of the close of
business each day. The management fee rates that became effective on that day
are as follows (i) for Money Fund: 0.450% of the first $500 million of net
assets, 0.425% of the next $500 million, 0.400% of the next $500 million, and
0.375% of net assets over $1.5 billion; (ii) for Capital Appreciation Fund,
Growth Fund, and Multiple Strategies Fund: 0.75% of the first $200 million of
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, and 0.60% of net assets over $800 million; and
(iii) for High Income Fund and Bond Fund: 0.75% of the first $200 million of net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets
over $1 billion. The management fee rates in effect prior to that date are in
Note 6 to the financial statements included in the OVAF Statement of Additional
Information.
Janus Aspen Series
The Janus Aspen Series ("JAS") currently has seven portfolios, three of which
are currently available to Policyowners through Separate Account II: Growth
Portfolio, Aggressive Growth Portfolio, and Worldwide Growth Portfolio.
Growth Portfolio has the investment objective of long-term capital growth in a
manner consistent with the preservation of capital. The Growth Portfolio is a
diversified portfolio that pursues its objective by investing in common stocks
of issuers of all sizes. Generally, this Portfolio emphasizes issuers with
larger market capitalizations.
Aggressive Growth Portfolio has the investment objective of long-term capital
growth in a manner consistent with the preservation of capital. The Aggressive
Growth Portfolio will seek to achieve its objective by normally maintaining an
average market capitalization between $1 billion and $5 billion.
Worldwide Growth Portfolio has the investment objective of long-term capital
growth in a manner consistent with the preservation of capital. The Worldwide
Growth Portfolio will seek to achieve its objective by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of all
sizes. The Portfolio normally invests in issuers from at least five different
countries including the United States.
Janus Capital Corporation serves as Investment Adviser to the portfolios of
the Janus Aspen Series. The portfolios pay a fee to the Investment Adviser.
The Growth, Aggressive Growth and Worldwide Growth Portfolios are each subject
to the following advisory fee schedule: 1% of the first $30 million, 0.75% of
the next $270 million, 0.70% of the next $200 million, 0.65% of amounts over
$500 million. Janus Capital has agreed to reduce each portfolio's advisory fee
to the extent that such fee exceeds the effective rate of the Janus retail fund
corresponding to such portfolio. In addition, Janus Capital has agreed to
reimburse each portfolio for advisory fees and other expenses in excess of a
specified percentage of net assets. The expense limits of the portfolios differ
and are set forth in the Statement of Additional Information for the Janus Aspen
Series.
Insurance Management Series
The Insurance Management Series ("IMS") currently has five portfolios, two of
which, Utility Fund and Corporate Bond Fund, are available to Policyowners
through Separate Account II. THE UTILITY FUND AND THE CORPORATE BOND FUND ARE
NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
Utility Fund has the investment objective of high current income and moderate
capital appreciation. The Utility Fund will seek to achieve its objective by
investing primarily in equity and debt securities of utility companies.
Corporate Bond Fund has the investment objective of high current income. The
Corporate Bond Fund will seek to achieve its objective by investing primarily in
a diversified portfolio of professionally managed fixed-income securities. The
fixed-income securities in which the Fund intends to invest are lower-rated
corporate debt obligations, commonly referred to as "junk bonds". The risks of
these securities are described in the prospectus for the IMS, which should be
read carefully before investing.
Federated Advisers serves as investment adviser to the Utility Fund and the
Corporate Bond Fund. The adviser receives an annual investment advisory fee
equal to .75% of the Utility Fund's average daily net assets and .60% of the
Corporate Bond Fund's average daily net assets. The adviser has voluntarily
chosen to waive all or a portion of its fee in order that the total annual
expenses for the Utility Fund and the Corporate Bond Fund would not exceed 0.85%
and 0.80%, respectively, of average net assets. Based on total expenses of
1.60% for the Utility Fund and 1.40% for the Corporate Bond Fund, the adviser
estimates that during 1995 it will waive management fees of 0.75% and 0.60%,
respectively. The adviser can terminate this voluntary waiver at any time at its
sole discretion.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND
POLICIES OF ANY OF THE FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in the
current prospectuses for the Funds which accompany or precede this Prospectus.
A prospectus for each Fund can be obtained by writing or calling Life of
Virginia's Home Office. The prospectus for each Fund should be read carefully
before any decision is made concerning the allocation of premium payments or
transfers among the Investment Subdivisions of Separate Account II.
Resolving Material Conflicts
The Funds are used as investment vehicles for variable life insurance and
variable annuity policies issued by Life of Virginia. In addition, all of the
Funds other than the Life of Virginia Series Fund, Inc., are available to
separate accounts of insurance companies other than Life of Virginia offering
variable annuity and variable life products. As a result, there is a
possibility that a material conflict may arise between the interests of
policyowners owning Policies whose cash values are allocated to Separate Account
II and of policyowners owning policies whose cash values are allocated to one or
more other separate accounts investing in any one of the Funds.
In addition, Neuberger & Berman Advisers Management Trust, Janus Aspen Series
and Life of Virginia Series Fund, Inc. may sell shares to certain retirement
plans. As a result, there is a possibility that a material conflict may arise
between the interests of policyowners generally or certain classes of
policyowners, and such retirement plans or participants in such retirement
plans.
In the event of a material conflict, Life of Virginia will take any necessary
steps, including removing Separate Account II from that Fund, to resolve the
matter. See the individual Fund Prospectus for greater details.
Termination of Participation Agreements
The participation agreements pursuant to which the Funds sell their shares to
Separate Account II contain varying provisions regarding termination. The
following summarizes those provisions:
Fidelity Variable Insurance Products Fund and Variable Insurance Products
Fund II. (The "Fund") These agreements provide for termination (1) on one
year's advance notice by either party, (2) at Life of Virginia's option if
shares of the Fund are not reasonably available to meet requirements of the
policies, (3) at the option of either party if certain enforcement proceedings
are instituted against the other, (4) upon vote of the policyowners to
substitute shares of another mutual fund, (5) at Life of Virginia's option if
shares of the Fund are not registered, issued, or sold in accordance with
applicable laws or if the Fund ceases to qualify as regulated investment
companies under the Internal Revenue Code, (6) at the option of the Fund or its
principal underwriter if it determines that Life of Virginia has suffered
material adverse changes in its business or financial condition or is the
subject of material adverse publicity, (7) at the option of Life of Virginia if
the Fund has suffered material adverse changes in its business or financial
conditions or is the subject of material adverse publicity, or (8) at the option
of the Fund or its principal underwriter if Life of Virginia decides to make
another mutual fund available as a funding vehicle for its policies.
Neuberger & Berman Advisers Management Trust. This agreement may be terminated
by either party on six months' written notice to the other.
Life of Virginia Series Fund, Inc. This agreement may be terminated by either
party on 360 days' written notice to the other.
Oppenheimer Variable Account Funds. This agreement may be terminated by the
parties on six months' advance written notice.
Janus Aspen Series. This agreement may be terminated by the parties on six
months' advance written notice.
Insurance Management Series. This agreement may be terminated by any of the
parties on 180 days advance written notice to the other parties.
THE POLICY
This prospectus describes the basic Commonwealth Three policy. There may be
differences because of requirements of the state where your policy is issued.
Any such differences will be included in your policy.
Purpose of the Policy
The Policy is designed to provide the owner with both lifetime insurance
protection and significant flexibility in connection with the amount and
frequency of premium payments and the level of life insurance proceeds payable
under a Policy. Unlike conventional life insurance, the policyowner is not
required to pay scheduled premiums to keep a Policy in force, but may, subject
to certain limitations, vary the frequency and amount of premium payments.
Moreover, the Policy allows a policyowner to adjust the level of life insurance
proceeds payable under a Policy without having to purchase a new policy by
increasing or decreasing the specified amount. Thus, as insurance needs or
financial conditions change, the policyowner has the flexibility to adjust life
insurance proceeds and vary premium payments.
The Policy varies from conventional fixed benefit life insurance in a number
of additional respects. Because the life insurance proceeds may, and the cash
value will, vary with the investment experience of the chosen Investment
Subdivisions of Separate Account II, the policyowner bears the investment risk
of any depreciation in value, but reaps the benefit of any appreciation in
value, of the underlying assets. As a result, whether or not a Policy continues
in force may depend in part upon the investment experience of the chosen
Investment Subdivision of Separate Account II. The failure to pay a planned
periodic premium will not necessarily cause the Policy to lapse, but the Policy
could lapse even if planned periodic premiums have been paid, depending upon the
investment experience of Separate Account II.
Purchasing a Policy
To purchase a Policy, a completed application must be sent to Life of Virginia
at its Home Office at 6610 W. Broad Street, Richmond, Virginia 23230. Life of
Virginia generally will not issue Policies to insure persons older than age 75.
Nonsmoker rates are only available to Insureds age 21 and over. The minimum
specified amount for a Policy is $50,000; however, Life of Virginia reserves the
right to increase or decrease this amount for a class of Policies issued after
some future date. Acceptance is subject to Life of Virginia's underwriting
rules and Life of Virginia may, at its sole discretion, reject any application
or premium for any lawful reason and in a manner such that similarly-situated
risks are treated in a consistent manner and unfair discrimination is avoided.
If the full first premium is not paid with the application, insurance will not
become effective until that premium is paid and the policy is delivered while
all persons proposed for insurance are insurable. If the full first premium is
paid and a conditional receipt is given to the applicant, then, subject to a
maximum limitation, insurance as provided by the terms and conditions of the
policy applied for will become effective on the Effective Date specified by the
conditional receipt, provided the insured is found to be, on the Effective Date,
insurable at standard premium rates for the plan and amount of insurance
requested in the application. The Effective Date specified by the conditional
receipt is the latest of (i) the date of completion of the application, (ii) the
date of completion of all medical exams and tests required by Life of Virginia,
and (iii) the policy date requested by the applicant when that date is later
than the date the application is completed.
Premiums
Premiums must be paid to Life of Virginia at its Home Office. Net premiums
are premiums multiplied by the Net Premium Factor (See Charges and Deduction, p.
30).
Premiums will be placed in the Investment Subdivision of Separate Account II
which invests exclusively in the Money Market Portfolio of the Life of Virginia
Series Fund, Inc. during the Initial Investment Period. The Initial Investment
Period commences on the date the first premium is received at the Home Office.
The period ends on the date of receipt at the Home Office of the Policy Delivery
and Acceptance Letter, signed and dated by the Policyowner, indicating that the
Policyowner has received and accepted the Policy, or, if the Policy is not
accepted, when all amounts due are refunded, whichever is earlier.
When a Policy is approved for issuance, an amount equal to 7.5% of the
premiums received is deducted from the funds held in the Investment Subdivision
of Separate Account II which invests exclusively in the Money Market Portfolio
of the Life of Virginia Series Fund, Inc. and retained by Life of Virginia (See
Charges and Deduction, p. 30.). For premiums received after the Policy is
approved for issue, but before the end of the Initial Investment Period, the net
premiums will be placed in the Investment Subdivision of Separate Account II
which invests exclusively in the Money Market Portfolio of the Life of Virginia
Series Fund, Inc. at the end of the valuation period during which they were
received.
At the end of the Initial Investment Period, cash value at that time and the
net premiums subsequently received will be allocated among the Investment
Subdivisions of Separate Account II in accordance with the written instructions
of the Policyowner. The Policyowner may allocate premiums totally to one
Investment Subdivision of Separate Account II, or partially to any of these
Investment Subdivisions; however, at any point in time, the cash value may not
be invested in more than seven Investment Subdivisions. Furthermore, the portion
of each net premium allocated to any particular Investment Subdivision must be
at least 10%. The Policyowner may, by written notice to the Home Office, change
the allocation among the Investment Subdivisions of premium payments received on
or subsequent to the date of that written notice.
Premium Payments. The full first premium is due on the policy date. This
premium cannot be less than the continuation amount for the first policy month.
The continuation amounts for each of the first 120 policy months is set forth in
the Policy data pages. The total amount of premiums received by Life of Virginia
for a Policy through the end of the Policy's Refund Privilege period may not
exceed $100,000. (See Examination of Policy, p. 21.)
The Policy Date is assigned each Policy when the policy is issued. The Policy
Date will normally be a date between the date the application is signed and the
date the Policy is issued; however, the Policy Date may be any other date
mutually agreeable to Life of Virginia and the Policyowner. Policy months and
years are measured from the Policy Date. If the Policy Date would otherwise fall
on the 29th, 30th or 31st day of a month, the Policy Date will be the 28th.
If a Policy is issued as applied for, insurance coverage under the Policy
normally begins on the Policy Date or at the end of the valuation period during
which the full first premium is received at the Home Office, whichever is later.
If a Policy is issued on a basis other than as applied for the insurance
coverage will normally begin on the date the Policy is accepted by the
Policyowner or at the end of the valuation period during which the full first
premium is received at the Home Office, whichever is later.
The first premium is the only premium payment required under a Policy,
although additional premiums may be necessary to keep the Policy in effect.
Each Policyowner may determine a periodic plan, a plan under which a level
premium may be paid for a specified period of time on a quarterly, semi-annual
or annual basis. Premiums under a periodic plan ("planned periodic premiums")
may also be paid monthly if paid by pre-authorized check. The frequency or
amount of the planned periodic premium may be changed at any time by the
Policyowner by notifying Life of Virginia in writing at its home office.
Adherence to the periodic plan is not mandatory and the failure to pay planned
periodic premiums in accordance with a plan will not of itself cause a Policy to
lapse, nor will the payment of planned periodic premiums guarantee that the
Policy remains in effect, except that during the first 120 policy months, the
Policy will not lapse regardless of investment experience if the Net Total
Premium is at least equal to the continuation amount for the number of months
that the Policy has been in force. (See Policy Lapse and Reinstatement, p. 20.)
If there is no outstanding policy debt, a Policyowner may make unscheduled
premium payments of any amount and at any frequency, subject only to the minimum
premium requirement and maximum premium limitation set forth in the Policy and
described below. Payments made by the Policyowner other than planned periodic
premiums will be treated first as payment of any outstanding Policy Debt. The
portion of a payment in excess of any outstanding Policy Debt will be treated as
an unscheduled premium payment.
Maximum Premium Limitations. In order to conform to requirements of the
Internal Revenue Code of 1986, Life of Virginia will limit the total amount of
premiums, both unscheduled and planned periodic, that may be paid during each
policy year. The applicable maximum premium limitation will be set forth in
each Policy. Because the maximum premium limitation is in part dependent upon
the specified amount for each Policy, changes in the specified amount may affect
this limitation. In the event that a premium is paid that exceeds the maximum
premium limitation, Life of Virginia will accept only the portion of the premium
equal to the maximum premium limitation and return the excess to the
Policyowner. Thereafter, no additional premiums will be accepted until allowed
by the maximum premium limitation set forth in the Policy. In addition, Life of
Virginia will not accept any Commonwealth Three premiums prior to the end of the
Refund Privilege period that cause the aggregate premiums paid to date to exceed
$100,000.
Minimum Premium Payment. Premiums paid in connection with a periodic plan
generally must be at least $20. If, however, planned periodic premiums are paid
monthly by pre-authorized check, the minimum premium payment is $15. For
purposes of the minimum premium payment requirements, any payment is deemed a
planned periodic premium if it is received within 30 days (before or after) of
the scheduled date for a planned periodic premium payment and the percentage
difference between the planned premium amount and the actual payment amount is
not more than 10%. All other premiums will be deemed unscheduled premiums.
Under Life of Virginia's current administrative rules, all unscheduled premium
payments must be at least $250 except where state regulation specifies a smaller
amount.
Policy Lapse and Reinstatement
Lapse. Unlike conventional life insurance policies, the failure to make a
planned periodic premium payment will not itself cause a Policy to lapse. Lapse
will only occur when the surrender value is insufficient to cover the monthly
deduction and the grace period expires without a sufficient payment. Insurance
coverage will continue during the grace period, but the Policy will be deemed to
have no cash value for purposes of policy loans and surrenders. The Life
Insurance Proceeds payable during the grace period will equal the amount of the
death benefit in effect immediately prior to the commencement of the grace
period. These proceeds will be reduced by any due and unpaid deferred sales
charges and monthly deductions.
If the surrender value is insufficient to cover the monthly deduction (See
Charges and Deductions - Monthly Deduction, p. 30), the Policyowner must, during
the grace period, make a payment which, when multiplied by the Net Premium
Factor, is at least equal to any excess Policy Debt and any due and unpaid
monthly deductions. A grace period of 61 days will begin on the date Life of
Virginia sends a notice of any insufficiency to the Policyowner. Excess Policy
Debt is the amount by which policy debt exceeds cash value less any applicable
surrender charges. (See Loan Benefits - Policy Debt, p. 25.) Failure to make a
sufficient payment during the grace period will cause a Policy to lapse and
terminate without value. So long as there is outstanding Policy Debt, that
portion of any payment received during the grace period that exceeds the amount
necessary to keep the Policy in force will be treated as a repayment of Policy
Debt. A lapse of the Policy may result in adverse tax consequences. (See
Federal Tax Matters, p. 35.)
Notwithstanding the above, the Policy will not lapse during the first ten
policy years if the Net Total Premium is at least equal to the continuation
amount for the number of months that the policy has been in force. The Net
Total Premium is the total of all premiums paid to that date less any
outstanding Policy Debt and less any partial surrenders to date where both
Policy Debt and partial surrenders are divided by the Net Premium factor of
92.5%. (See Charges and Deductions, Deductions from Premiums, p. 30.). The
continuation amounts for each of the first 120 policy months are shown in the
Policy data pages. There are no continuation amounts after the 120th policy
month.
Reinstatement. Prior to the Maturity Date, a Policy may be reinstated any
time within 3 years after the date of lapse by submitting to Life of Virginia
evidence satisfactory to the Company that the Insured is insurable. In
addition, a premium must be paid, as described below. Life of Virginia will,
however, accept a premium larger than this amount. The Policy will be
reinstated on the date the reinstatement is approved. Any Policy Debt which
existed at the end of the grace period will be reinstated if not paid. Life of
Virginia will not reinstate a Policy surrendered for its cash value.
If the Policy terminates and is reinstated, a premium must be paid which
equals (1) the minimum premium to keep the policy in force from the first day of
the grace period to the date of reinstatement, plus (2) an amount sufficient to
keep the Policy in effect for two months after the date of reinstatement, minus
(3) the sum of monthly deductions that would have been made during the period
between termination and reinstatement, divided by the Net Premium Factor. On
the date of reinstatement, the cash value will equal (a) the cash value on the
first day of the grace period, plus (b) the premium paid to reinstate multiplied
by the Net Premium Factor minus (c) the total of any deferred sales charge
deductions which would have been made if the Policy had remained continuously in
effect, minus (d) any decrease in the contingent deferred underwriting charge
from the first day of the grace period to the date of reinstatement.
On the date of reinstatement, the cash value less any outstanding Policy Debt
will be allocated to the Investment Subdivisions of Separate Account II. Unless
instructions are received from the Policyowner to the contrary, the cash value
will be allocated in the same manner as net premiums.
If the Policy is reinstated, the surrender charge will be as though this
Policy had been in effect continuously from its original Policy Date.
Examination of Policy (Refund Privilege)
The Policyowner may examine the Policy and return it for refund within 10 days
after it is received, within 45 days after Part I of the application is signed,
or within 10 days after mailing or personal delivery of a notice of the right of
withdrawal, whichever is latest. The amount of refund will depend on the state
in which the Policy is issued. If authorized by state law, the amount of refund
will equal the sum of all charges deducted from premiums paid, plus the advisory
fee deducted from the Funds attributable to the Policy, plus the net premiums
allocated to Separate Account II adjusted by investment gains and losses.
Otherwise, the amount of the refund will equal the gross premiums paid. In
certain states the Policyowner may have more than 10 days to return the policy
for a refund. A Policyowner wanting a refund should return the Policy to either
Life of Virginia at its Home Office or to the registered agent who sold it.
Exchange Privilege
During the first 24 months, the Policyowner may convert this Policy to a
permanent fixed benefit policy. The Policyowner may elect either the same death
benefit or the same net amount at risk as the existing policy at the time of
conversion. Premiums will be based on the same issue age and risk
classification of the Insured as the existing Policy. The conversion will be
subject to an equitable adjustment in payments and cash values to reflect
variances, if any, in the payments and cash values under the existing Policy and
the new policy.
POLICY BENEFITS
While a Policy is in effect, it provides for certain benefits prior to the
maturity date. Subject to certain limitations, the Policyowner may at any time
obtain cash value by completely or partially surrendering the Policy. (See
Surrender Privileges, p. 21.) In addition, the Policyowner has certain policy
loan privileges under the Policy. (See Loan Benefits, p. 24.) The Policy also
provides for the payment of Life Insurance Proceeds upon the death of the
Insured under one of the two benefit options selected by the Policyowner (See
Life Insurance Proceeds, p. 26), and benefits upon the maturity of a Policy.
(See Benefits at Maturity, p. 28.)
Cash Value Benefits
Surrender Privileges. As long as a Policy is in effect, a Policyowner may
surrender the Policy in whole or in part at any time by sending a written
request in a form acceptable to Life of Virginia along with the Policy to Life
of Virginia at its Home Office. Surrender may be made at any time with the
exception of certain partial surrenders during the first policy year. (See
Partial Surrenders, p. 21.)
Complete Surrenders. The amount payable on complete surrender of the Policy
is the surrender value at the end of the valuation period during which the
request is received. The surrender value may be paid in a lump sum or under one
of the optional payment plans specified in the Policy. (See Optional Payment
Plans, p. 28.)
Partial Surrenders. A Policyowner may obtain a portion of the Policy's cash
value upon partial surrender of the Policy. A partial surrender must be at
least $500 and cannot exceed the lesser of (1) the surrender value less $500 or
(2) the maximum loan amount less outstanding Policy Debt. If Option B is in
effect, no partial surrender may occur during the first policy year. A charge
equal to the lesser of $25 or 2% of the amount requested will be deducted from
the cash value upon a partial surrender. (See Charges and Deductions, p. 30.)
The partial surrender will be allocated among the Investment Subdivisions in
accordance with the written instructions of the Policyowner. If no such
instructions are received with the request for partial surrender, the partial
surrender will be allocated among the Investment Subdivisions in the same
proportion that the cash value in each Investment Subdivision bears to the cash
value in all Investment Subdivisions on the date the request is received at the
Home Office.
Partial surrenders will affect both the Policy's cash value and the Life
Insurance Proceeds payable under the Policy. The Policy's cash value will be
reduced by the amount of the partial surrender. If the Life Insurance Proceeds
payable under either benefit option both before and after the partial surrender
are the cash value multiplied by the corridor percentage set forth in the
Policy, a partial surrender will result in a reduction in Life Insurance
Proceeds equal to the amount of the partial surrender, multiplied by the
corridor percentage then in effect. If the Life Insurance Proceeds are not so
affected by the corridor percentage the reduction in Life Insurance Proceeds
will be equal to the partial surrender. (See Life Insurance Proceeds - Benefit
Options, p. 26.)
The specified amount remaining in force after a partial surrender may not be
less than the minimum specified amount for the Policy established when it was
issued. As a result, Life of Virginia will not accomplish any partial surrender
that would reduce the specified amount below this minimum. If increases in the
specified amount previously have occurred, a partial surrender will first reduce
the specified amount of the most recent increase, then the next most recent
increases successively, then the coverage under the original application. Thus,
a partial surrender may affect the way in which the cost of insurance charge is
calculated. (See Monthly Deduction -- Cost of Insurance Charge, p. 30.)
Surrenders and partial surrenders may have federal tax consequences. (See
Federal Tax Matters, p. 35.)
Surrender Value. The Surrender Value equals the cash value less any
outstanding Policy Debt and less any applicable surrender charges (See Charges
and Deductions-- Surrender Charge, p. 31.). Surrender Value will be determined
at the end of the Valuation Period during which the request for a surrender is
received. Proceeds will generally be paid within seven days of receipt of a
request for a surrender. Postponement of payments may occur in certain
circumstances. (See Postponement of Payment, p. 33.)
Calculation of Cash Value. The Policy provides for the accumulation of cash
value. Cash value will be determined on a daily basis. A Policy's cash value
will reflect a number of factors, including net premiums paid, partial
surrenders, policy loans, charges assessed in connection with the Policy and the
investment performance of the Investment Subdivisions of Separate Account II to
which the cash value is allocated. There is no guaranteed minimum cash value.
The cash value of a Policy is equal to (1) the cash value in Separate Account
II, plus (2) any cash value held in the general account to secure Policy Debt.
On the later of the Policy Date or at the end of the valuation Period during
which the first premium is received, the cash value in each Investment
Subdivision is the portion of the net premium which has been paid and allocated
to the Investment Subdivision, less the portion of any due and unpaid monthly
deductions allocated to the cash value in that Investment Subdivision plus the
Policy's share of investment gains and losses in that Investment Subdivision.
At the end of each Valuation Period thereafter, the cash value in each
Investment Subdivision of Separate Account II is (1) plus (2) plus (3) minus (4)
minus (5), where:
(1) is the cash value allocated to the Investment Subdivision at the end of
the preceding Valuation Period, multiplied by the Investment Subdivision's
Net Investment Factor for the current period;
(2) is net premium payments (premiums multiplied by the Net Premium Factor)
received during the current Valuation Period and which are allocated to
the Investment Subdivision;
(3) is any other amount transferred into the Investment Subdivision during the
current Valuation Period;
(4) is any partial surrender made from the Investment Subdivision during the
current Valuation Period; and
(5) is cash value transferred out of the Investment Subdivision during the
current Valuation Period.
In addition, whenever a Valuation Period includes the monthly anniversary day,
the cash value at the end of such period is reduced by the monthly deduction
allocated to the cash value in the Investment Subdivision for that monthly
anniversary day. (See Charges and Deductions - Monthly Deduction, p. 30.) If
the Valuation Period includes the first monthly anniversary day in policy years
two through ten, the cash value at the end of such period is reduced by 1/9 of
the Deferred Sales Charge allocated to the cash value in the Investment
Subdivisions for that monthly anniversary day. (See Charges and Deductions -
Sales Charge, p. 30).
Unit Value. Each Investment Subdivision has a Unit Value. When premiums or
other amounts are transferred into an Investment Subdivision, a number of Units
are purchased based on the Unit Value of the Investment Subdivision as of the
end of the Valuation Period during which the transfer is made. Likewise, when
amounts are transferred out of an Investment Subdivision, Units are redeemed in
a similar manner.
For each Investment Subdivision, the Unit Value for the first Valuation Period
was $10.00. The Unit Value for each subsequent period is the Net Investment
Factor for that period, multiplied by the Unit Value for the immediately
preceding period. The Unit Value for a Valuation Period applies for each day in
the period.
Net Investment Factor. The Net Investment Factors measure investment
performance of the Investment Subdivisions of Separate Account II during a
Valuation Period. Each Investment Subdivision has its own Net Investment Factor
for a Valuation Period. The Net Investment Factor of an Investment Subdivision
for a Valuation Period is (a) divided by (b), minus (c), where:
(a) is (1) the value of the net assets of that Investment Subdivision at the
end of the preceding Valuation Period, plus (2) the investment income and
capital gains, realized or unrealized, credited to the net assets of that
Investment Subdivision during the Valuation Period for which the Net
Investment Factor is being determined, minus (3) the capital losses, realized
or unrealized, charged against those assets during the Valuation Period, minus
(4) any amount charged against that Investment Subdivision for taxes, or any
amount set aside during the Valuation Period by Life of Virginia as a
provision for taxes attributable to the operation or maintenance of that
Subdivision; and
(b) is the value of the net assets of that Investment Subdivision at the end
of the preceding Valuation Period; and
(c) is a charge no greater than .0019246% for each day in the Valuation
Period. This corresponds to .70% per year of the net assets of that
Investment Subdivision for mortality and expense risks.
The value of the assets in Separate Account II will be taken at their fair
market value in accordance with generally accepted accounting principles and
applicable laws and regulations.
How the Period of Coverage under a Policy Can Vary. The period of coverage
under a Policy depends upon the cash value. The Policy will remain in force as
long as the Surrender Value is sufficient to pay the monthly deduction. (See
Charges and Deductions - Monthly Deduction, p. 30.) When, however, the
Surrender Value is insufficient to pay the monthly deduction and the grace
period expires without an adequate payment by the policyowner, the Policy will
lapse and terminate without value. (See Policy Lapse and Reinstatement - Lapse,
p. 20.)
Transfers
Policyowners may transfer, up to twelve times each calendar year, amounts
among the Investment Subdivisions of Separate Account II that are available at
the time of the request, by written request to the Home Office. A transfer that
would cause cash value to be in more than seven Investment Subdivisions will not
be permitted. Also, where permitted by state law, Life of Virginia reserves the
right to refuse to execute any transfer if any of the Investment Subdivisions
that would be affected by the transfer are unable to purchase or redeem shares
of the mutual funds in which they invest.
The transfer will be effective as of the end of the Valuation Period during
which the request is received at the Home Office. According to the terms of the
Policy, the first such transfer in each calendar year is free, subsequent
transfers in that year will be assessed a charge of $10.00. Life of Virginia's
current practice is to waive this policy limitation and allow one free transfer
each calendar month. Subsequent transfers in that month will be assessed a
charge of $10.00. However, Life of Virginia reserves the right to enforce the
policy limitation of one free transfer per calendar year at any time in the
future. The $10.00 amount is Life of Virginia's estimate of the average actual
cost of present and future typical transfers; Life of Virginia does not expect
to make a profit from the process of executing transfers. The amount of the
transfer charge is, once a Policy is issued, guaranteed for the life of the
Policy.
Telephone Transfers
Life of Virginia permits telephone transfers and may be liable for losses
resulting from unauthorized or fraudulent telephone transfers if it fails to
employ reasonable procedures to confirm that the telephone instructions that it
receives are genuine. Therefore, Life of Virginia will employ means to prevent
unauthorized or fraudulent telephone requests, such as sending written
confirmation, recording telephone requests, and/or requesting other identifying
information. In addition, Life of Virginia may require written authorization
before allowing Policyowners to make telephone transfers.
To request a telephone transfer, Policyowners should call Life of Virginia's
Telephone Transfer Line at 800-772-3844. Life of Virginia will record all
telephone transfer requests. Transfer requests received at least one hour prior
to the close of the New York Stock Exchange will be executed that Business Day
at that day's prices. Requests received after that time will be executed on the
next Business Day at that day's prices.
Dollar-Cost Averaging
Policyowners may elect to have Life of Virginia automatically transfer
specified amounts from one of certain designated Investment Subdivisions of
Separate Account II to any other subdivision(s) on a monthly or quarterly basis.
This privilege is intended to permit policyowners to utilize "Dollar-Cost
Averaging," a long-term investment method that provides for regular investing
over a period of time. Life of Virginia makes no representations or guarantees
that Dollar-Cost Averaging will result in a profit or protect against loss.
Policyowners must select Dollar-Cost Averaging on the application or complete
a Dollar- Cost Averaging Agreement in order to begin the Dollar-Cost Averaging
program. Currently, the Investment Subdivisions available to allocate money for
the purpose of Dollar-Cost Averaging include each of the Money Market Investment
Subdivisions and the subdivision which invests in the Limited Maturity Bond
Portfolio of the Neuberger & Berman Advisers Management Trust. If Dollar-Cost
Averaging is elected on the application, all or a portion of initial premium
will be transferred, if necessary, to the Investment Subdivision designated for
Dollar-Cost Averaging following the Initial Investment Period. Cash value may
also be transferred to the designated Investment Subdivision from other
subdivisions within the Separate Account. Any amount allocated or transferred
must conform to the minimum percentage requirements. (See Premiums, p. 18.)
Transfers made for the purpose of Dollar-Cost Averaging will count toward the
free transfer each calendar month as well as the twelve maximum transfers
permitted each calendar year. Transfers made from an Investment Subdivision
for the purpose of Dollar-Cost Averaging must be at least $100. (See Transfers
p. 23.)
Dollar-Cost Averaging will continue until the entire cash value in the
designated Investment Subdivision is depleted. The policyowner has the option
of discontinuing Dollar-Cost Averaging by sending Life of Virginia a written
cancellation notice. Policyowners may make changes to their Dollar-Cost
Averaging program by calling Life of Virginia's Telephone Transfer Line at
800-772-3844. Also, Life of Virginia reserves the right to discontinue or
modify Dollar-Cost Averaging upon 30 days written notice to the policyowner.
Powers of Attorney
As a general rule and as a convenience to Policyowners, Life of Virginia
allows the use of powers of attorney whereby policyowners give third parties the
right to effect cash value transfers on behalf of the Policyowners. However,
when the same third party possesses powers of attorney executed by many
policyowners, the result can be simultaneous transfers involving large amounts
of cash value. Such transfers can disrupt the orderly management of the mutual
funds underlying the variable policy, can result in higher costs to
Policyowners, and are generally not compatible with the long-range goals of
purchasers of variable policies. Life of Virginia believes that such
simultaneous transfers effected by such third parties are not in the best
interests of all shareholders of the funds underlying its policies, and this
position is shared by the managements of those mutual funds.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, Life of Virginia may not honor such powers of attorney and has
instituted or will institute procedures to assure that the transfer requests
that it receives have, in fact, been made by the Policyowners in whose names
they are submitted. However, these procedures will not prevent Policyowners
from making their own cash value transfer requests.
Loan Benefits
Policy Loans. So long as a Policy remains in effect, a Policyowner may borrow
money from Life of Virginia at any time after the first policy anniversary using
the Policy as the only security for the loan. Life of Virginia's claim for
repayment of a policy loan has priority over the claims of any assignee or other
person. The maximum loan amount is 90% of the surrender value at the end of the
valuation period during which the loan request is received.
Policy loans ordinarily will be paid within seven days after Life of Virginia
receives a request for a loan at its home office, although payments may be
postponed under certain circumstances. (See Postponement of Payment, p. 33.)
When a policy loan is made, a portion of the Policy's cash value equal to the
loan is transferred out of Separate Account II and into Life of Virginia's
general account. Cash value equal to any loan interest that is due and unpaid
will also be transferred.
Even though the loan may be repaid in whole or in part at any time while the
Insured is living, policy loans will permanently affect the cash value of a
Policy and may permanently affect the Life Insurance Proceeds payable. The
effect could be favorable or unfavorable depending upon whether the investment
performance of the Investment Subdivision(s) from which the cash value was
transferred is less than or greater than the interest rate being credited to the
cash value in the general account while the loan is outstanding. In comparison
to a Policy under which no loan was made, Policy values will be lower where such
interest rate credited was less than the performance of the Investment
Subdivision(s), but will be greater where such interest rate was greater than
the performance of the Investment Subdivision(s). In addition, Life Insurance
Proceeds will be reduced by the amount of any outstanding Policy Debt.
When a policy loan is made, a portion of the Policy's cash value sufficient to
secure the loan will be transferred out of Separate Account II and into Life of
Virginia's general account. Any loan interest that is due and unpaid will also
be so transferred. The cash value will be transferred out of the Investment
Subdivisions in accordance with the written instruction of the Policyowner. If
no such written instruction is received with the loan request, the cash value
transferred out will automatically be allocated among the Investment
Subdivisions in the same proportion that the cash value in each Investment
Subdivision bears to the total cash value in all Investment Subdivisions on the
date the loan is made.
A portion of policy loans taken or existing on or after the Preferred Loan
Availability Date will be designated as Preferred Policy Debt. Preferred Policy
Debt will be that portion of Policy Debt which equals the surrender value under
the Policy less the sum of all premium payments made. Life of Virginia
currently intends to credit interest at an annual rate of 6% to that portion of
cash value transferred to the general account which is equal to Preferred Policy
Debt. An annual rate of 4% is and will be credited to that portion of cash
value transferred to the general account which exceeds Preferred Policy Debt.
Life of Virginia reserves the right to decrease, at its discretion, the rate of
interest credited to the amount of cash value transferred to the general account
to an effective annual rate of not less than 4%.
The Preferred Loan Availability Date is the later of:
(a) the tenth policy anniversary; and
(b) May 1, 2003
Preferred Policy Debt is currently only available to policies issued on or
after May 1, 1993, and may not be available in all states.
Policy loans may have federal tax consequences. (See Federal Tax Matters, p.
35.) In addition, a policy loan entails the risk that the Policy will lapse if
interest credited to the Cash Value in the general account while the loan is
outstanding plus earnings on Cash Value in the Investment Subdivisions is
insufficient to prevent policy debt from exceeding Cash Value less applicable
surrender charges. Adverse tax consequences may result from a lapse if policy
debt is outstanding. The risk of lapse due to a policy loan is greater where
interest charged on the loan is not paid when due.
Loan Interest. Life of Virginia will charge interest on any outstanding
policy loan. The maximum interest rate on policy loans is 8% per year. Life of
Virginia may, in its sole discretion, charge an interest rate lower than 8%. If
the loan interest rate is less than 8%, Life of Virginia can increase the rate
once each policy year but by not more than 1% per year. With respect to
outstanding policy loans, Life of Virginia will send notice of any change to the
policyowner and any assignee of record at the Company's home office at least 40
days before the increased rate is made effective for those existing loan
amounts. Interest accrues daily and is due and payable at the end of each
policy year. If interest is not paid when due, an amount equal to the amount
owed will be transferred out of Separate Account II to become part of the policy
loan and interest will be charged on that amount. Interest transferred out of
Separate Account II will be transferred from each Investment Subdivision in the
same proportion that the cash value in that Investment Subdivision bears to the
total cash value in all Investment Subdivisions at the time of interest
transfer.
Policy Debt. Policy Debt equals the total of all outstanding policy loans and
accrued interest on policy loans. If Policy Debt exceeds cash value less any
applicable surrender charges, Life of Virginia will notify the Policyowner and
any assignee of record. A payment at least equal to the excess Policy Debt must
be made to Life of Virginia within 61 days from the date notice is sent,
otherwise the Policy will lapse and terminate without value. (See Policy Lapse
and Reinstatement, p. 20.) The Policy may, however, later be reinstated.
Repayment of Policy Debt. Policy Debt may be repaid in whole or in part any
time during the Insured's life and before the Maturity Date so long as the
Policy is in effect. Any payments made by a Policyowner other than planned
periodic premiums will be treated first as the repayment of any outstanding
Policy Debt. The portion of a payment in excess of any outstanding Policy Debt
will be treated as an unscheduled premium payment. Upon the repayment, the cash
value of a Commonwealth Three Policy in the general account securing the repaid
portion of the Policy Debt will be transferred to Separate Account II and
allocated among the Investment Subdivisions in accordance with the written
instructions of the Policyowner. If no written instruction is received with the
repayment, the allocation among the Investment Subdivisions will be the same as
would be applied to net premiums received at that time.
Outstanding Policy Debt is subtracted from life insurance proceeds payable at
the Insured's death, from cash value upon complete surrender or from the
maturity value.
Life Insurance Proceeds
So long as a Policy remains in force, the Policy provides for the payment of
Life Insurance Proceeds upon the death of the Insured. Proceeds will be paid to
a named Beneficiary or contingent Beneficiary. One or more Beneficiaries or
contingent Beneficiaries may be named. Life Insurance Proceeds may be paid in a
lump sum or under an optional payment plan. (See Optional Payment Plans, p.
28.) Any Life Insurance Proceeds that are paid in one lump sum will include
interest from the date of death to the date of payment. Interest will be paid
at a rate set by Life of Virginia, or by law if greater. The minimum interest
rate which will be paid is 2.5%. Interest will not be paid beyond one year or
any longer time set by law. Life insurance proceeds will be reduced by any
outstanding Policy Debt and any due and unpaid charges and increased by any
benefits added by rider. The proceeds will ordinarily be paid within seven days
after Life of Virginia receives due proof of death. Payment may, however, be
postponed under certain circumstances. (See Postponement of Payment, p. 33.)
Benefit Options. Policyowners designate in the initial application one of two
benefit options offered under the Policy. The amount of Life Insurance Proceeds
payable under a Policy will depend upon the option in effect at the time of the
Insured's death. Under Option A, Life Insurance Proceeds will be based on the
larger of the Specified Amount plus the cash value or the cash value multiplied
by the corridor percentage. Accordingly, under Option A the Life Insurance
Proceeds will always vary as the cash value varies. The cash value and
Specified Amount will be determined at the end of the Valuation Period during
which the Insured dies. Policyowners who seek to have the favorable investment
performance reflected in increased insurance coverage should purchase Option A.
Under Option B, Life Insurance Proceeds will be based on the larger of the
current Specified Amount or the cash value multiplied by the corridor
percentage. Accordingly, under Option B the Life Insurance Proceeds will remain
level unless the cash value multiplied by the corridor percentage exceeds the
current Specified Amount, in which case the amount of insurance proceeds will
vary as the cash value varies. Thus, Policyowners who are not seeking to
increase the amount of insurance coverage, but wish to have favorable investment
performance reflected to the maximum extent in increasing cash values should
select Option B.
The corridor percentage depends upon the attained age of the Insured on the
date of death. The corridor percentage for each age is set forth in the table
below.
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
40 or younger 250% 54 157% 68 117%
4l 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75
48 197 62 126 through 105
49 191 63 124 90
50 185 64 122 91 104
51 178 65 120 92 103
52 171 66 119 93 102
53 164 67 118 94 101
Illustrations. For both illustrations, assume that the Insured is under the
age of 40 and that there is no outstanding policy debt.
Under Option A, a Policy with a specified amount of $50,000 will generally pay
Life Insurance Proceeds of $50,000 plus cash value. Thus, for example, a Policy
with a specified amount of $50,000 and cash value of $10,000 will yield Life
Insurance Proceeds equal to $60,000 ($50,000 + $10,000); cash value of $20,000
will yield Life Insurance Proceeds of $70,000 ($50,000 + $20,000). The Life
Insurance Proceeds cannot, however, be less than 250% (the applicable corridor
percentage) of cash value. As a result, if the cash value of the Policy exceeds
$33,333, the Life Insurance Proceeds will be greater than the Specified Amount
plus cash value. Each additional dollar added to cash value above $33,333 will
increase the Life Insurance Proceeds by $2.50. A Policy with a cash value of
$40,000 will, therefore, have Life Insurance Proceeds of $100,000 (250% x
$40,000); cash value of $100,000 will yield Life Insurance Proceeds of $250,000
(250% x $100,000); and a cash value of $200,000 will yield Life Insurance
Proceeds of $500,000 (250% x $200,000).
Similarly, any time cash value exceeds $33,333, each dollar taken out of cash
value will reduce the Life Insurance Proceeds by $2.50. If at any time,
however, cash value multiplied by the corridor percentage is less than the
Specified Amount plus cash value, then the Life Insurance Proceeds will be the
Specified Amount plus cash value.
Under Option B, a Policy with a Specified Amount of $50,000 will generally pay
$50,000 in Life Insurance Proceeds. However, because Life Insurance Proceeds
cannot be less than 250% (the applicable corridor percentage) of cash value, any
time the cash value of this Policy exceeds $20,000, Life Insurance Proceeds will
exceed the $50,000 specified amount. If the cash value equals or exceeds
$20,000, each additional dollar added to the cash value will increase the Life
Insurance Proceeds by $2.50. Thus, for a Policy with a Specified Amount of
$50,000 and a cash value of $40,000, the beneficiary will be entitled to Life
Insurance Proceeds of $100,000 (250% x $40,000); cash value of $60,000 will
yield Life Insurance Proceeds of $150,000 (250% x $60,000), and a cash value of
$100,000 will yield Life Insurance Proceeds of $250,000 (250% x $100,000).
Similarly, so long as cash value exceeds $20,000, each dollar taken out of cash
value will reduce the Life Insurance Proceeds by $2.50. If at any time the cash
value multiplied by the corridor percentage is less than the Specified Amount,
the Life Insurance Proceeds will equal the Specified Amount of the Policy.
The applicable corridor percentage becomes lower as the Insured's attained age
increases. If the attained age of the Insured in the illustration were, for
example, 50 (rather than 40), the applicable corridor percentage would be 185%.
Under Option A, the Life Insurance Proceeds payable would be the sum of the cash
value plus $50,000 unless the cash value exceeded $58,823 (rather than $33,333),
and each $1 then added to or taken from the cash value would change the Life
Insurance Proceeds by $1.85 (rather than $2.50). Under Option B, the Life
Insurance Proceeds payable would not exceed the $50,000 Specified Amount unless
the cash value exceeded approximately $27,027 (rather than $20,000), and each $1
then added to or taken from the cash value would change the Life Insurance
Proceeds by $1.85 (rather than $2.50).
Change In Benefit Option. The benefit option in effect may be changed by
sending Life of Virginia a written request for change. The effective date of a
change will be the monthly anniversary day following receipt of the request. If
the benefit option is changed from Option A to Option B, the Specified Amount
will be increased by the Policy's cash value on the effective date of the
change. If the benefit option is changed from Option B to Option A, the
Specified Amount will be decreased by an amount equal to the Policy's cash value
on the effective date of the change. A change in the benefit option may not be
made if it would result in a Specified Amount which is less than the minimum
Specified Amount for the Policy when issued. A change in benefit option will
affect the cost of insurance charges. (See Charges and Deductions, p.30.)
Change in Existing Coverage. After a Policy has been in effect for one year,
a Policyowner may adjust the existing insurance coverage by increasing or
decreasing the Specified Amount. To make a change, the Policyowner must send a
written request and the Policy to Life of Virginia at its home office. Any
change in the Specified Amount may affect the cost of insurance rate and the net
amount at risk, both of which will affect a Policyowner's cost of insurance
charge. (See Charges and Deductions, p. 30. ) In addition, any change in the
Specified Amount would affect the maximum premium limitation (See Maximum
Premium Limitations, p. 20.). If decreases in the Specified Amount cause the
premiums paid to exceed the new lower limitations required by federal tax law,
the excess will be withdrawn from cash value and refunded so that the Policy
will continue to meet these requirements. The cash value so withdrawn and
refunded will be withdrawn from each Investment Subdivision in the same
proportion that the cash value in that Investment Subdivision bears to the total
cash value in all Investment Subdivisions at the time of the withdrawal.
Any decrease in the Specified Amount will become effective on the monthly
anniversary day after the date the request is received. The decrease will first
apply to coverage provided by the most recent increase, then to the next most
recent increases successively, then to the coverage under the original
application. During the first five policy years, Life of Virginia can limit the
amount of any decrease. The Specified Amount following a decrease can never be
less than the minimum Specified Amount for the Policy when it was issued.
To apply for an increase, a supplemental application must be completed and
evidence of insurability satisfactory to Life of Virginia must be submitted.
Any approved increase will become effective on the date shown in the
supplemental policy data page. An increase will not become effective, however,
if the Policy's surrender value is insufficient to cover the deduction for the
cost of the increased insurance for the policy month following the increase.
If there is an increase in Specified Amount, there will be a one-time charge
(per increase) of $1.50 per $1,000 of increase to cover underwriting and
administrative costs associated with the increase. This charge will be included
in the monthly deduction for the month the increase becomes effective. This
charge will never exceed $300 per increase.
A change in the existing insurance coverage may have federal tax consequences.
(See Federal Tax Matters, p. 35.)
How Life Insurance Proceeds May Vary in Amount. As long as the Policy remains
in force, Life of Virginia guarantees that the Life Insurance Proceeds will
never be less than the current Specified Amount of the Policy. Proceeds will be
reduced by any outstanding policy debt and any due and unpaid charges. Life
Insurance Proceeds may, however, vary with the Policy's cash value. Life
Insurance Proceeds under Option A will always vary with the cash value since
life insurance proceeds equal the Specified Amount plus the cash value. Under
Option B, Life Insurance Proceeds will only vary whenever the cash value
multiplied by the corridor percentage exceeds the Specified Amount of the
Policy.
Insurance Protection. A Policyowner may increase or decrease the pure
insurance protection provided by a Policy -- the difference between the Life
Insurance Proceeds and the cash value -- in one of several ways as insurance
needs change. These ways include increasing or decreasing the Specified Amount
of insurance, changing the level of premium payments, and, to a lesser extent,
partially surrendering the Policy. Although the consequences of each of these
methods will depend upon the individual circumstances, they may be generally
summarized as follows:
(a) A decrease in the Specified Amount will, subject to the applicable
corridor percentage (See Benefit Options, p. 26.), decrease the life
insurance protection and the charges under the Policy without reducing the
cash value.
(b) If Option B is elected, an increased level of premium payments also will
reduce the pure insurance protection, until the applicable percentage of
cash value exceeds the Specified Amount. However, increased premiums
should increase the amount of funds available to keep the Policy in force.
(c) A partial surrender will reduce the Life Insurance Proceeds payable. (See
Surrender Privileges, p. 21.) However, a partial surrender has no effect
on the amount of pure insurance protection and charges under the Policy
unless the Life Insurance Proceeds payable are subject to the corridor
percentages.
(d) An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of cash value and the
resultant applicable corridor percentage. If the pure insurance
protection is increased, the charges for cost of insurance will increase
as well.
(e) A reduced level of premium payments also generally increases the amount of
pure insurance protection, again depending on the applicable corridor
percentage. Furthermore, it results in a reduced amount of cash value and
increases the possibility that the Policy will lapse.
In comparison, an increase in the Life Insurance Proceeds payable due to the
operation of the corridor percentage occurs automatically and is intended to
help assure that the Policy remains qualified as life insurance under federal
tax law. The calculation of Life Insurance Proceeds based upon the corridor
percentage occurs only when the cash value of a Policy reaches a certain
proportion of the Specified Amount, which is not guaranteed to occur.
Additional premium payments, favorable investment performance of Separate
Account II and large initial premiums tend to increase the likelihood of the
corridor percentages becoming operational after the first few policy years.
Such increases will be temporary, however, if the investment performance of
Separate Account II becomes unfavorable and/or premium payments are stopped or
decreased.
Benefits at Maturity
If the Policy is in effect on the Maturity Date, Life of Virginia will pay to
the Policyowner the Policy's cash value less outstanding Policy Debt. (See
Policy Debt, p. 25. ) This is the Policy's maturity value. Benefits at
maturity may be paid in a lump sum or under an optional payment plan. The
Maturity Date is the date shown in the Policy. To change the Maturity Date, a
written request and the Policy must be sent to Life of Virginia at its Home
Office. Any request must be received by Life of Virginia before the Maturity
Date then in effect. The requested Maturity Date must be: (1) on a Policy
anniversary; (2) at least one year from the date the request is received; (3)
after the 10th policy year; and (4) not after the Policy anniversary nearest to
the Insured's 95th birthday.
Optional Payment Plans
Life insurance proceeds and surrender value paid upon complete surrender of a
Policy or at maturity may be paid in whole or in part under an optional payment
plan. There are currently six optional payment plans available. A plan may be
designated in the application or by notifying Life of Virginia in writing at its
Home Office. Any amount left with Life of Virginia for payment under an
optional payment plan will be transferred to its general account. During the
life of the Insured, the Policyowner can select a plan. If a plan has not been
chosen at the Insured's death, a Beneficiary can choose a plan. If a
Beneficiary is changed, the plan selection will no longer be in effect unless
the Policyowner requests that it continue.
In selecting an optional payment plan: (1) the payee under a plan cannot be a
corporation, association or fiduciary, (2) the proceeds applied under a plan
must be at least $10,000, and (3) the amount of each payment under a plan must
be at least $50. Certain plans may be unavailable for Policies issued in
connection with qualified retirement plans. Payments under Plans 1, 2, 3 or 5
will begin on the date of the Insured's death, on surrender, or on the Policy's
maturity date. Payments under Plan 4 will begin at the end of the first
interest period after the date proceeds are otherwise payable.
Plan 1 - Income for a Fixed Period. Periodic payments will be made for a
fixed period not longer than 30 years. Payments can be annual, semi-annual,
quarterly or monthly. Guaranteed amounts payable under the plan will earn
interest at a minimum rate of 3% compounded yearly. If the payee dies, the
amount of the remaining guaranteed payments will be discounted to the date of
the payee's death at a yearly rate of 3%. The discounted amount will be paid in
one sum to the payee's estate unless otherwise provided.
Plan 2 - Life Income. Equal monthly payments will be made for a guaranteed
minimum period. If the payee lives longer than the minimum period, payments
will continue for his or her life. The minimum period can be 10, 15 or 20
years. Guaranteed amounts payable under this plan will earn interest at a
minimum rate of 3% compounded yearly. If the payee dies before the end of the
guaranteed period, the amount of remaining payments for the minimum period will
be discounted at a yearly rate of 3%. The discounted amount will be paid in one
sum to the payee's estate unless otherwise provided.
Plan 3 - Income of a Definite Amount. Equal periodic payments of a definite
amount will be paid. Payments can be annual, semi-annual, quarterly or monthly.
The amount paid each year must be at least $120 for each $1,000 of proceeds.
Payments will continue until the proceeds are exhausted. The last payment will
equal the amount of any unpaid proceeds. Unpaid proceeds will earn interest at a
minimum rate of 3% compounded yearly. If the payee dies, the amount of the
remaining proceeds with earned interest will be paid in one sum to his or her
estate unless otherwise provided. If the payee is age 80 or older, payments
under Plan 3 may not qualify for favorable tax treatment if the expected payment
period exceeds the life expectancy of the payee.
Plan 4 - Interest Income. Periodic payments of interest earned from the
proceeds will be paid. Payments can be annual, semi-annual, quarterly or
monthly and will begin at the end of the first period chosen. Proceeds left
under this plan will earn interest at a minimum rate of 3% compounded yearly.
If the payee dies, the amount of remaining proceeds and any earned but unpaid
interest will be paid in one sum to his or her estate unless otherwise provided.
Plan 5 - Joint Life and Survivor Income. Equal monthly payments will be made
to two payees for a guaranteed minimum of 10 years. Each payee must be at least
35 years old when payments begin. The guaranteed amount payable under this plan
will earn interest at a minimum rate of 3% compounded yearly. Payments will
continue as long as either payee is living. If both payees die before the end
of the minimum period, the amount of the remaining payments for the 10-year
period will be discounted at a yearly rate of 3%. The discounted amount will be
paid in one sum to the last surviving payee's estate unless otherwise provided.
Plan 6 - Single Premium Endowment at Age 95. This option may be elected only
while this policy is in force and during the lifetime of the Insured. Upon
request in writing, all or part of the Policy's surrender value will be applied
as the premium in an exchange towards the purchase of a Single Premium Endowment
at Age 95 policy on the life of the Insured. The endowment policy will provide
level death benefit protection until the policy anniversary nearest the
Insured's 95th birthday. On that policy anniversary, if the Insured is living,
the endowment policy will mature, the cash value (which is equal to the amount
of death benefit protection) will be paid to the policyowner, and the policy
will provide no further benefits. The maximum policy amount that can be
purchased without evidence of insurability is the life insurance proceeds that
would be payable upon the death of the Insured under the Policy on the date of
the exchange, less the cash value on the date of the exchange, plus the amount
applied as the premium for the new policy. An additional amount can be
purchased upon submission of evidence satisfactory to Life of Virginia that the
Insured is insurable. In all events, the most that can be applied as the
premium for the new policy is the Policy's surrender value. Depending upon
individual circumstances, this transaction may qualify for favorable tax
treatment under section 1035 of the Internal Revenue Code. Amounts distributed
to the policyowner incident to the election of this option generally will give
rise to taxable income. (See Federal Tax Matters, p. 35.)
CHARGES AND DEDUCTIONS
Deductions from Premiums
The net premium equals the premium paid multiplied by the Net Premium Factor
of 92.5%. The net premium is that portion of each premium paid that is allocated
to Separate Account II. The 7.5% charge deducted from each premium will be
used to compensate Life of Virginia for (i) sales and distribution expenses
incurred in connection with the Policies and for (ii) premium taxes imposed by
various states and subdivisions, both as described below. The charge is
guaranteed not to increase over the life of a Policy.
Sales Charge. A charge is made to the Policy to pay certain sales and
distribution expenses. Sales and distribution expenses include agent sales
commissions, the cost of printing prospectuses and sales literature and any
advertising costs. Part of the sales charge will be deducted from each premium
received in an amount equal to 5% of the premium. In addition, there is a
deferred sales charge of up to 45% of the first year's premiums. This charge
will be deducted from the Policy's cash value in equal installments (1/9 of the
total deferred sales charge) at the beginning of each of the policy years two
through ten. This charge is subject to a maximum of 45% of the designated
premium for the Insured's age, sex, rate class, and Specified Amount at issue.
This maximum is stated in the data pages of the policy. The designated premium
for a particular age, sex, rate class and Specified Amount is always less than
the corresponding guideline annual premium. The timing of premium payments may
affect the amount of the deferred sales charge under a Policy as the charge is
based only on premiums actually paid during the first policy year. The
Policyowner may wish to reduce the deferred sales charge that the Policy is
subject to by reducing the premiums paid in the first Policy year. However, by
reducing the premiums paid in the first year, values under the Policy may
decrease, cost of insurance charges may increase and the risk of the Policy
lapsing prematurely may increase. Any uncollected deferred sales charge will be
deducted from the cash value if the Policy is surrendered during Policy years 1
through 9. If the initial specified amount of the Policy is at least $250,000,
the deferred sales charge percentages in this paragraph will be 40% rather than
45%. When Policies are issued to Insureds with higher mortality risks or to
Insureds who have selected optional insurance benefits, a portion of the total
amount deducted is used to pay sales and distribution expenses associated with
these additional coverages.
The sales charge in any Policy year is not necessarily related to actual
distribution expenses incurred in that year. Instead, Life of Virginia expects
to incur the majority of distribution expenses in the first Policy year and to
recover any deficiency over the life of the Policy and from Life of Virginia's
general assets, including amounts derived from the mortality and expense risk
charges and from mortality gains. Life of Virginia has reviewed this
arrangement and concluded that the distribution financing arrangement will
benefit Separate Account II and the Policyowners.
Premium Tax Charge. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium taxes vary from state to state. A
charge of 2.5% of each premium will be deducted from each premium payment. The
charge represents an amount Life of Virginia considers necessary to pay all
typical premium taxes imposed by the states and any subdivision thereof.
Monthly Deduction. A deduction is made from cash value in Separate Account II
on each monthly anniversary day for the Monthly Administrative Charge and for
the cost of insurance and any optional benefits added by rider. Because these
costs can vary from month to month, the amount of each monthly deduction may
also vary.
Monthly Administrative Charge. The Monthly Administrative Charge is deducted
from the cash value on each Monthly Anniversary Day. This charge is to pay
certain administrative expenses including processing premiums and claims,
keeping records and communicating with the policyowners. The current Monthly
Administrative Charge for newly issued policies is $6. This charge may be
increased but is guaranteed in the Policy not to exceed two times the initial
administrative charge shown in the Policy. Life of Virginia has set this charge
at a level which is intended to recover no more than the actual costs associated
with administering the contract.
Life of Virginia may administer the Policy itself, or Life of Virginia may
purchase administrative services from such sources (including affiliates) as may
be available. Such services will be acquired on a basis which, in Life of
Virginia's sole discretion, affords the best services at the lowest cost. Life
of Virginia reserves the right to select a company to provide services which
Life of Virginia deems, in its sole discretion, is the best able to perform such
services in a satisfactory manner even though the costs for such services may be
higher than would prevail elsewhere.
Cost of Insurance Charge. The cost of insurance charge is calculated on each
Monthly Anniversary Day. If the monthly anniversary falls on a day other than a
Business Day, the charge will be determined on the next Business Day. To
determine the cost of insurance charge, Life Insurance Proceeds are divided by
1.0032737 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly earnings
at an annual rate of 4%) and then reduced by the cash value. The result, the
net amount at risk, is then divided by 1000 and multiplied by the cost of
insurance rate or rates.
The net amount at risk will be affected by changes in the Policy's cash value
and Specified Amount. In addition, the net amount at risk will be calculated
separately for each risk class. Under Option B, if the initial Specified Amount
is increased and the risk class applicable to the increase is different from the
risk class applicable to the initial Specified Amount, the cash value is first
considered part of the initial Specified Amount. If the cash value is more than
the initial Specified Amount, it will be considered part of any increase in the
order the increases became effective.
Changes in the benefit option may affect the total cost of insurance charge.
Because the cost of insurance charge varies with the specified amount, any
increase or decrease in specified amount, including those resulting from a
change in the benefit option and those resulting from partial surrenders, will
affect the monthly cost of insurance charge.
Cost of Insurance Rate. The monthly cost of insurance rate is based on the
Insured's sex, attained age, policy duration and risk class. The risk class
(and, therefore, the insurance rates) will be determined separately for the
initial Specified Amount and for any increase in the Specified Amount requiring
evidence of insurability. The maximum cost of insurance rates allowable under
the Policies are based on the Commissioners' 1980 Standard Ordinary Mortality
Table. The rates currently charged by Life of Virginia are, at most ages, lower
than the maximum permitted under the Policies and are determined by Life of
Virginia according to expectations of future experience. The rates may be
changed from time to time at the discretion of Life of Virginia, but will never
be more than the maximum rates shown in the Table of Guaranteed Maximum
Insurance Rates contained in the Policies. A change in rates will apply to all
persons of the same age, sex and risk class and whose Policies have been in
effect for the same length of time.
The cost of insurance rate generally increases as the Insured's attained age
increases. Therefore, the older the Insured, the higher the investment
experience necessary to achieve the same impact on death benefits and cash
values.
Risk Class. The risk class of an Insured will affect the cost of insurance
rate. Life of Virginia currently places Insureds into standard risk classes or
risk classes involving a higher mortality risk. In an otherwise identical
Policy, Insureds in standard risk classes will have lower costs of insurance
than those in the risk classes with higher mortality risks. The standard risk
classes consist of four categories: non-smokers, smokers, preferred non-smokers
and preferred smokers. The risk classes involving higher mortality risks are
also divided into two categories: smokers and non-smokers. Non-smoking Insureds
will generally incur a lower cost of insurance than similar Insureds who smoke.
Optional Insurance Benefits. At issue, certain optional additional benefits
may be obtained by rider. The monthly deduction will be increased to include
the cost of any optional insurance benefits which are added to the Policy by
rider. Examples of such optional benefits include term insurance on spouse or
children, additional death benefits if the Insured dies in an accident, or
waiver of monthly deductions if the Insured becomes disabled as defined in the
rider. Detailed information concerning available riders may be obtained from
the agent selling the Policy.
Charges Against Separate Account II
Mortality and Expense Risk Charge. A mortality and expense risk charge is
deducted from each Investment Subdivision of Separate Account II to compensate
Life of Virginia for certain risks assumed in connection with the Policies. The
charge is deducted daily and equals .0019246% for each day in the Valuation
Period. This corresponds to an annual rate of .70% of the net assets of the
Investment Subdivision. This rate is guaranteed not to increase for the
duration of a Policy. The mortality risk assumed is that Insureds may live for
a shorter period of time than estimated and, therefore, a greater amount of Life
Insurance Proceeds than expected will be payable. The expense risk assumed is
that expenses incurred in issuing and administering the Policies will be greater
than estimated and, therefore, will exceed the expense charge limits set by the
Policies. Life of Virginia has compared the mortality and expense risk charge
assessed under the Policies with charges under comparable contracts and
determined that its charge is within the range of industry practice for
comparable variable life insurance contracts. Nevertheless, the mortality and
expense risk charge may be a source of profit for Life of Virginia if it proves
to be more than sufficient to meet risk-related expenses over the long run.
Taxes. Currently no charge is made to Separate Account II for Federal income
taxes that may be attributable to the Account. Life of Virginia may, however,
make such a charge in the future. Charges for other taxes, if any, attributable
to Separate Account II may also be made. At present, state and local taxes,
other than premium taxes, are not significant and, therefore, Life of Virginia
is not currently making a charge against Separate Account II for such amounts.
(See Federal Tax Matters, p. 35.).
Surrender Charge
If the Policy is surrendered or lapses during the first 9 policy years, a
charge is made to cover the expenses of issuing the Policy. This includes the
costs of processing applications, underwriting the policy, and establishing
records relating to the Policy. This charge is an amount per $1,000 of initial
Specified Amount. It varies by age, ranging from $2.50 from issue ages 0
through 30 to $7.50 at issue ages above 60, subject to a maximum charge of $500.
This charge will be reduced for Policies which are surrendered or lapsed after
the fifth Policy year. At the beginning of each of Policy years six through
ten, the charge decreases by 20% of the initial amount and will disappear
entirely after the beginning of the tenth Policy year.
There is an additional surrender charge in Policy years 1 through 9 equal to
the uncollected deferred sales charge. (See Charges and Deductions - Sales
Charge, p. 30.) However, if the policy is surrendered during the first two
Policy years, the total sales charge assessed as a surrender charge will never
exceed (a) minus (b) where:
(a) is the lesser of 25% of the guideline annual premium (as defined below)
and 25% of the actual premium payments made up to the amount of a
guideline annual premium; and
(b) is the total deferred sales charges previously deducted from cash values.
The guideline annual premium is used to provide an assumption for purposes of
calculating permissible sales loading and is defined as the level amount that
would have to be paid each policy year, through age 95, to provide the future
benefits under the policy, on the assumption that the cost of insurance is based
on the 1980 Commissioners' Standard Ordinary Mortality Table, net investment
earnings are at 5%, and sales loading, administration and cost of insurance
charges are deducted at rates specified in the policy.
Other Charges
A charge equal to the lesser of $25 or 2% of the amount requested will be
deducted from amounts paid upon a partial surrender of the Policy. The charge
will compensate Life of Virginia for costs incurred in accomplishing the partial
surrender. During a calendar month, a $10 fee will be charged for the second
and subsequent transfers of assets among the Investment Subdivisions.
If a Policyowner requests a projection of illustrative future life insurance
and cash value proceeds from Life of Virginia, a service fee of $25 must be
paid. The fee will compensate Life of Virginia for the cost of preparing the
projection.
Because Separate Account II purchases shares of the Funds, the net assets of
each Investment Subdivision in the Account will reflect the investment advisory
fee and other expenses incurred by the portfolio of the Fund in which the
Investment Subdivision invests (See "The Funds" on page 13 for a discussion of
these charges). For more information concerning these charges, read the
individual Fund prospectus.
If there is an increase in Specified Amount, there will be a one-time charge
(per increase) of $1.50 per $1,000 of increase to cover underwriting and
administrative costs associated with the increase. This charge will be included
in the monthly deduction for the month the increase becomes effective. This
charge will never exceed $300 per increase.
Reduction of Charges for Group Sales
The sales charge or other charges or deductions may be reduced for sales of
the Policies to a trustee, employer or similar entity representing a group or to
members of the group where such sales result in savings of sales or
administrative expenses. The entitlement to such a reduction in sales charges
or other charges or deductions will be determined by Life of Virginia based on
the following factors:
(1) The size of the group. Generally, the sales expenses for each individual
policyowner for a larger group are less than for a smaller group because
more policies can be implemented with fewer sales contacts and less
administrative cost.
(2) The total amount of purchase payments to be received from a group. Per
policy sales and other expenses are generally proportionately less on
larger purchase payments than on smaller ones.
(3) The purpose for which the policies are purchased. Certain types of plans
are more likely to be stable than others. Such stability reduces the
number of sales contacts and administrative and other services required,
reduces sales administration and results in fewer policy terminations. As
a result, sales and other expenses can be reduced.
(4) The nature of the group for which the policies are being purchased.
Certain types of employee and professional groups are more likely to
continue policy participation for longer periods than are other groups
with more mobile membership. If fewer policies are terminated in a given
group, Life of Virginia's sales and other expenses are reduced.
(5) There may be other circumstances of which Life of Virginia is not
presently aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, Life of Virginia determines
that a group purchase would result in reduced sales expenses, such a group may
be entitled to a reduction in sales charges. Reductions in these charges will
not be unfairly discriminatory against any person including the affected owners
and all other owners of Policies funded by Separate Account II.
GENERAL PROVISIONS
Postponement of Payment
General. Payment of any amount upon complete or partial surrender, payment of
any policy loan and the payment of Life Insurance Proceeds or benefits at
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the net assets of Separate Account II.
Payment by Check. Payments under a Policy which are derived from any amount
paid to Life of Virginia by check or draft may be postponed until such time as
Life of Virginia is satisfied that the check or draft has cleared the bank upon
which it is drawn.
Limits on Contesting the Policies
Life of Virginia relies on statements in the Policy application. In the
absence of fraud, the statements are considered representations, not warranties.
Life of Virginia can contest a Policy or an increase in the specified amount if
any material misrepresentation of fact was made in the application or in a
supplemental application, and a copy of that application was attached to the
Policy when issued or was made a part of the Policy when a change in coverage
went into effect.
With respect to the original Specified Amount, a Policy will not be contested
after it has been in effect during the Insured's life for two years from the
Policy Date. With respect to increases in the Specified Amount, an increase in
the Specified Amount will not be contested after that increase has been in
effect for two years from the effective date of the increase. This provision
does not apply to riders that provide disability benefits.
The Contract
"Policy" means the flexible premium variable life policy (Commonwealth Three)
described in this prospectus, the Policy application, any supplemental
application and any endorsements. A Policy is a legal contract and constitutes
the entire contract between the Policyowner and Life of Virginia. An agent
cannot change this contract. Any change to a Policy must be in writing and
approved by the President or a Vice-President of Life of Virginia.
Misstatement of Age or Sex
If the Insured's age or sex was misstated in an application, Life Insurance
Proceeds and benefits will be adjusted. The adjusted Life Insurance Proceeds
will be (a) the cash value plus (b) the Life Insurance Proceeds reduced by the
cash value and multiplied by the ratio of (1) the monthly cost of insurance
actually applied, to (2) the monthly cost of insurance that should have been
applied at the true age or sex. All amounts are those in effect, with respect
to the Insured, in the Policy Month of the Insured's death.
Suicide
If the Insured commits suicide while sane or insane, within two years of the
Policy Date, Life Insurance Proceeds payable under a Policy will be limited to
all premiums paid, less outstanding Policy Debt and less amounts paid upon
partial surrender of the Policy.
If the Insured commits suicide while sane or insane, within two years after
the effective date of an increase in the Specified Amount, the proceeds payable
with respect to the increase will be limited to the total cost of insurance
applied to the increase.
Annual Statement
Within 30 days after each Policy anniversary, an annual statement will be sent
to each Policyowner. The statement will show the amount of Life Insurance
Proceeds payable under the Policy, the cash value for each Investment
Subdivision, the Surrender Value, and Policy Debt. The statement will also show
premiums paid and charges made during the policy year.
Nonparticipating
The Policies do not participate in the divisible surplus of Life of Virginia.
No dividends are payable.
Written Notice
Any written notice should be sent to Life of Virginia at its Home Office at
6610 West Broad Street, Richmond, Virginia 23230. The notice should include the
Policy number and the Insured's full name. Any notice sent by Life of Virginia
to a Policyowner will be sent to the address shown in the application unless an
appropriate address change form has been filed with the Company.
The Owner
The Policyowner is the person so designated in the application or as
subsequently changed. The Policyowner has rights in a Policy during the
Insured's lifetime. If the Policyowner dies before the Insured and there is no
contingent Owner, ownership passes to the Policyowner's estate. Unless an
optional payment plan is chosen, the proceeds payable on the Maturity Date or on
complete surrender of the Policy will be paid to the Policyowner in a lump sum.
The Beneficiary
The original Beneficiaries and Contingent Beneficiaries are designated by the
Policyowner in the application. If changed, the Primary Beneficiary or
Contingent Beneficiary is as shown in the latest change filed with Life of
Virginia. One or more Primary or Contingent Beneficiaries may be named in the
application. In such a case, the proceeds will be paid in equal shares to the
survivors in the appropriate Beneficiary class, unless requested otherwise by
the Policyowner.
Unless an optional payment plan is chosen, the proceeds payable at the
Insured's death will be paid in a lump sum to the primary Beneficiary. If the
primary Beneficiary dies before the Insured, the proceeds will be paid to the
Contingent Beneficiary. If no Beneficiary survives the Insured, the proceeds
will be paid to the Policyowner or the Policyowner's estate.
Changing the Owner or Beneficiary
During the Insured's life, the Policyowner may be changed. If the right is
reserved, the Beneficiary may also be changed during the Insured's life. To
make a change, written request must be sent to Life of Virginia at its Home
Office. The request and the change must be in a form satisfactory to Life of
Virginia and must actually be received by Life of Virginia. The change will
take effect as of the date the request is signed by the Policyowner. The change
will be subject to any payment made before the change is recorded by Life of
Virginia.
Using the Policies as Collateral
These Policies can be assigned as collateral security. Life of Virginia must
be notified in writing if a Policy is assigned. Any payment made before the
assignment is recorded at Life of Virginia's Home Office will not be affected.
Life of Virginia is not responsible for the validity of an assignment. A
Policyowner's rights and the rights of a Beneficiary may be affected by an
assignment.
Optional Insurance Benefits
Optional additional benefits may be obtained by rider. Examples of these
benefits include term insurance on spouse or children, additional death benefits
if the Insured dies in an accident, and waiver of either monthly deductions or a
stipulated amount if the Insured becomes disabled as defined in the rider.
Detailed information concerning available riders may be obtained from the agent
selling the Policy.
Reinsurance
Life of Virginia intends to reinsure a portion of the risks assumed under the
Policies.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by individuals who, in addition to being licensed as
life insurance agents for Life of Virginia, are also registered representatives
of Forth Financial Securities Corporation, the principal underwriter of the
Policies, or of broker-dealers who have entered into written sales agreements
with the principal underwriter. Forth Financial Securities Corporation, a
Virginia Corporation, located at 6610 W. Broad Street, Richmond, VA 23230, is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Forth Financial Securities Corporation
also serves as principal underwriter for other variable life insurance and
variable annuity policies issued by Life of Virginia. However, no amounts have
been retained by Forth Financial Securities Corporation for acting as principal
underwriter of the Life of Virginia policies.
Writing agents of Life of Virginia will receive commissions based on a
commission schedule and rules. First-year commissions depend on the Insured's
age, rating class, and the size of the policy. In the first Policy year, the
agent will receive a commission of up to 40% of the designated premium plus up
to 2.5% of premiums paid in excess of the designated premium. In renewal years,
the agent receives up to 2.5% of the premiums paid. The commission paid on an
increase in Specified Amount is an amount of up to 40% of the increase in the
cost of insurance in the year following the increase in Specified Amount.
Agents may also be eligible to receive certain bonuses and allowances, as well
as retirement plan credits, based on commissions earned. Field management of
Life of Virginia receives compensation which may be in part based on the level
of agent commissions in their management units. Broker-dealers and their
registered agents will receive first-year and renewal commissions equivalent to
the total commissions and benefits received by the field management and writing
agents of Life of Virginia.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
Tax Status of the Policy
The Internal Revenue Code of 1986, as amended, (the "Code"), in Section 7702,
establishes a statutory definition of life insurance for tax purposes. Life of
Virginia believes that the Policy meets the statutory definition of life
insurance, which places limitations on the amount of premiums that may be paid.
If the Specified Amount of a Policy is increased or decreased, the applicable
premium limitation may change. In the case of a decrease in the Specified
Amount, a partial surrender, a change from Option A to Option B, or any other
such change that reduces benefits under the Policy during the first 15 years
after a Policy is issued and that results in a cash distribution to the
Policyowner in order for the Policy to continue complying with section 7702
definitional limitations on premiums and cash values, certain amounts prescribed
in section 7702 which are so distributed will be includable in the Policyowner's
ordinary income (to the extent of any gain in the Policy). Such income
inclusion will also occur, in certain circumstances, with respect to cash
distributions made in anticipation of reductions in benefits under the Policy.
The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") places limits on
certain of the policy charges used in determining the maximum amount of premiums
that may be paid under section 7702 for Policies entered into on or after
October 21, 1988. There is some uncertainty as to the interpretation of these
limits. Nonetheless, Life of Virginia believes that the maximum amount of
premiums it has determined for the Policies will comply with the requirements of
section 7702 as amended by TAMRA. If it is determined that only a lower amount
of premiums may be paid for a Policy under the TAMRA limits, Life of Virginia
will refund any premiums paid which exceed that lower amount within 60 days
after each anniversary of the Policy, and will reflect interest or earnings
(which will be includable in income subject to tax) as required by law on the
amount refunded.
The Code (section 817(h)) also authorizes the Secretary of the Treasury (the
"Treasury") to set standards by regulation or otherwise for the investments of
Separate Account II to be "adequately diversified" in order for the Policy to be
treated as a life insurance contract for federal tax purposes. Separate Account
II, through the Funds, intends to comply with the diversification requirements
prescribed by the Treasury. Although Life of Virginia does not control the
Funds (other than Life of Virginia Series Fund) it has entered into agreements
regarding participation in the Funds, which require the Funds to be operated in
compliance with the requirements prescribed by the Treasury. Thus, Life of
Virginia believes that Separate Account II will be treated as adequately
diversified for federal tax purposes.
In certain circumstances, variable contract owners may be considered the
owners, for federal tax purposes, of the assets of the separate account used to
support such contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable contract owners'
gross income annually as earned. Several years ago, the Internal Revenue Service
(the "Service") stated in published rulings that a variable contract owner will
be considered the owner of separate account assets if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. More recently, the Treasury announced, in
connection with the issuance of temporary regulations concerning diversification
requirements, that those temporary regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated account may cause the investor, rather than the insurance company, to
be treated as the owner of the assets of the account." This announcement also
stated that guidance would be issued by the way of regulation or published
rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts [of a separate account] without being treated as owners
of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those present in situations addressed by the Service in rulings
in which it was determined that contract owners were not owners of separate
account assets. For example, the Owner of this Policy has the choice of more
funds to which to allocate premiums and cash values and may be able to
reallocate more frequently than in such rulings. These differences could result
in a Policyowner being considered, under the standard of those rulings, the
owner of the assets of Separate Account II. To ascertain the tax treatment of
its Policyowners, Life of Virginia has requested, with regard to a policy
similar to this Policy, a ruling from the Service that it, and not its
policyowners, is the owner of the assets of Separate Account II for federal
income tax purposes. The Service has informed Life of Virginia that it will not
rule on the request until issuance of the promised guidance referred to in the
preceding paragraph. Because Life of Virginia does not know what standards will
be set forth in the regulations or revenue rulings which the Treasury has stated
it expects to be issued, Life of Virginia has reserved the right to modify its
practices to attempt to prevent the Policyowner from being considered the owner
of the assets of Separate Account II.
Frequently, if the Service or the Treasury sets forth a new position which is
adverse to taxpayers, the position is applied on a prospective basis only.
Thus, if the Service or the Treasury were to issue regulations or a ruling which
treated a Policyowner as the owner of the assets of Separate Account II, that
treatment might only apply on a prospective basis. However, if the ruling or
regulations were not considered to set forth a new position, a Policyowner might
be retroactively determined to be the owner of the assets of Separate Account
II.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal tax purposes.
Tax Treatment of Policy Proceeds
The Policies should receive the same Federal income tax treatment as fixed
benefit life insurance. As a result, the Life Insurance Proceeds payable under
either benefit option are excludable from the gross income of the Beneficiary
under section 101 of the Code, and the Policyowner is not deemed to be in
constructive receipt of the cash values under a Policy until actual surrender.
If proceeds payable upon death of the Insured are paid under optional payment
plan 4 (interest income), the interest payments will be includable in the
Beneficiary's income. If proceeds payable on death are applied under option
payment plan 3 and the Beneficiary is at an advanced age at such time, such as
age 80 or older, it is possible that payments would be treated in a manner
similar to that under Plan 4. If the proceeds payable upon death of the Insured
are paid under one of the other optional payment plans, the payments will be
prorated between amounts attributable to the death benefit which will be
excludable from the Beneficiary's income and amounts attributable to interest
which will be includable in the Beneficiary's income. In the event of certain
cash distributions under the Policy resulting from any change which reduces
future benefits under the Policy, the distribution will be taxed in whole or in
part as ordinary income (to the extent of gain in the Policy). See discussion
above, "Tax Status of the Policy."
Except as noted below, a loan received under a Policy will be treated as
indebtedness of the Policyowner, so that no part of any loan under a Policy will
constitute income to the Owner so long as the Policy remains in force, and a
partial surrender under a Policy will not constitute income except to the extent
it exceeds the total premiums paid for the Policy (reduced by any amounts
previously withdrawn which were not treated as income). However, with respect to
the portion of any loan that is attributable to cash value in excess of the
total premium payments under the Policy, it is possible that the Service could
treat the Policyowner as being in receipt of certain amounts of income.
Generally, interest paid on any loans under a Policy owned by any individual
will not be tax deductible. In addition, interest on any loan under a Policy
owned by a taxpayer and covering the life of any individual who is an officer or
an employee or is financially interested in the business carried on by that
taxpayer will not be tax deductible to the extent that the aggregate amount of
such loans with respect to Policies covering such individuals exceeds $50,000.
Further, even as to interest on loans up to $50,000 per such individual, such
interest would not be deductible if the Policy were deemed for federal tax
purposes to be a single premium life insurance policy. Policyowners should
consult a tax advisor as to whether the Policy would be so deemed.
The right to exchange the Policy for a permanent fixed benefit policy (See
Exchange Privileges, p. 21), the right to change Owners (See p. 34), as well as
provision for surrenders, the right to change from one death benefit option to
another, and other changes reducing future death benefits may have tax
consequences depending on the circumstances of such exchange, change or
surrender. Upon complete surrender or when maturity benefits are paid, if the
amount received plus the Policy Debt exceeds the total premiums paid that are
not treated as previously withdrawn by the Policyowner, the excess generally
will be treated as ordinary income. If a distribution is made from the Policy
at the time amounts are applied under Plan 6, the amounts distributed will be
includible in income to the extent the surrender value of the policy, before
reduction by any loan, exceeds the total premiums paid less any previous untaxed
withdrawals.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary.
Tax Treatment of Policy Loans and Other Distributions Under Certain Policies
TAMRA includes the following provisions, which affect the taxation of
distributions (other than proceeds paid at the death of the insured) from life
insurance contracts:
1. If premiums are paid more rapidly than the rate defined by a "7-Pay Test,"
the contract will be classified as a "modified endowment contract." This
test applies a cumulative limit on the amount of payments that can be made
into a policy in order to avoid Modified Endowment Contract treatment.
2. Any contract received in exchange for a policy classified as a modified
endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-Pay Test.
3. Loans from a modified endowment contract will be considered distributions.
4. Distributions (including partial surrenders, loans, assignments and
pledges) from a modified endowment contract will be taxed first as
distributions of income from the contract (to the extent that the cash
value of the contract, before reduction by any surrender charge or loan,
exceeds the total premiums paid less any previous untaxed withdrawals), and
then as non-taxable recovery of premium.
5. A penalty tax of 10% will be imposed on distributions (including complete
and partial surrenders, loans, assignments and pledges) from a modified
endowment contract includable in income, unless such distributions are made
(1) after the Policyowner attains age 59 1/2, (2) because the Policyowner
has become disabled, or (3) as substantially equal annuity payments over
the life or life expectancy of the Policyowner (or over the joint lives or
life expectancies of the Policyowner and his or her Beneficiary).
Policies entered into prior to June 21, 1988, will not be classified as
modified endowment contracts unless the Policyowner increases benefits or adds
additional benefits after June 20, 1988. If a Policy is not classified as a
modified endowment contract, loans and other distributions will be treated as
described under "Tax Status of the Policy" and "Tax Treatment of Policy
Proceeds." However, with respect to the portion of any loan that is
attributable to cash value in excess of the total premium payments under the
Policy, it is possible that the Service could treat the Owner as being in
receipt of certain amounts of income. In the event that benefits are increased
or added, if subsequent premium payments are made more rapidly than the 7-Pay
Test allows, the Policy will be classified as a modified endowment contract and
loans and other distributions will be treated as described immediately above.
Policies entered into on or after June 21, 1988, in order to avoid
classification as modified endowment contracts, must not have been issued in
exchange for a modified endowment contract, and premiums paid under the Policies
must not be paid more rapidly than the 7-Pay Test allows. Life of Virginia will
provide Policyowners guidance as to the amount of premium payments that may be
paid if the Policyowner wishes to avoid treatment of the Policies as modified
endowment contracts.
Additionally, all life insurance contracts which are treated as modified
endowment contracts and which are issued by Life of Virginia or any of its
affiliates with the same person designated as the Policyowner within the same
calendar year will be aggregated and treated as one contract for purposes of
determining any tax on distributions.
The provisions of TAMRA are complex and are open to considerable variation in
interpretation. Policyowners should consult their tax advisors before making
any decisions regarding increases or decreases in or additions to coverage or
distributions from their Policies.
Taxation of the Company
Because of its current status under the Code, Life of Virginia does not expect
to incur any Federal income tax liability that would be chargeable to Separate
Account II. Based upon this expectation, no charge is being made currently to
Separate Account II for Federal income taxes. If, however, Life of Virginia
determines that such taxes may be incurred, it may assess a charge for those
taxes from Separate Account II.
Life of Virginia may also incur state and local taxes (in addition to premium
taxes for which a deduction from premiums is currently made) in several states.
At present, these taxes are not significant. If there is a material change in
state or local tax laws, charges for such taxes attributable to Separate Account
II may be made.
Income Tax Withholding
Generally, unless the Policyowner provides Life of Virginia a written election
to the contrary before a distribution is made, Life of Virginia is required to
withhold income taxes from any portion of the money received by the Policyowner
upon surrender of the Policy or if the Policy matures (and if the Policy is a
modified endowment contract, upon a partial surrender or a Policy loan). If the
Policyowner requests that no taxes be withheld, or if Life of Virginia does not
withhold a sufficient amount of taxes, the Policyowner will be responsible for
the payment of any taxes and early distribution penalties that may be due on the
amounts received. The Policyowner may also be required to pay penalties under
the estimated tax rules, if the Policyowner's withholding and estimated tax
payments are insufficient to satisfy the Policyowner's total tax liability. The
Policyowner may, therefore, want to consult a tax advisor.
Other Considerations
The foregoing discussion is general and is not intended as tax advice. Any
person concerned about these tax implications should consult a competent tax
advisor. This discussion is based on Life of Virginia's understanding of the
present federal income tax laws as they are currently interpreted by the
Service. No representation is made as to the likelihood of continuation of
these current laws and interpretations. It should be further understood that
the foregoing discussion is not exhaustive and that special rules not described
in this prospectus may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
In 1983, the Supreme Court held in Arizona Governing Committee v. Norris, that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. The Policy described in this prospectus
contains guaranteed cost of insurance rates and guaranteed purchase rates for
certain settlement options that distinguish between men and women. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of Norris, and Title VII generally, on any
employment-related insurance or benefit program for which a Policy may be
purchased.
SAFEKEEPING OF THE ASSETS OF SEPARATE ACCOUNT II
Life of Virginia holds the assets of Separate Account II. The assets are kept
segregated and held separate and apart from the general account. Life of
Virginia maintains records of all Separate Account II purchases and redemptions
of the shares of each Portfolio of the Funds. A blanket fidelity bond issued by
Aetna Casualty and Surety Company of Illinois, in the amount of $15 million
covers all of the officers and employees of Life of Virginia.
VOTING RIGHTS
To the extent required by law, Life of Virginia will vote the Funds' shares
held in Separate Account II at regular and special shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in Separate Account II. If, however, the Investment Company Act of
1940 or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Life of Virginia
determines that it is permitted to vote Fund shares in its own right, it may
elect to do so.
The number of votes which each Policyowner has the right to instruct will be
determined by dividing a Policy's cash value in an Investment Subdivision of
Separate Account II by the net asset value per share of the corresponding
portfolio in which the Subdivision invests. Fractional shares will be counted.
The number of votes which the Policyowner has the right to instruct will be
determined as of dates coincident with the dates established by a particular
Fund for determining shareholders eligible to vote at the meeting of that Fund.
Voting instructions will be solicited by written communications prior to such
meeting in accordance with procedures established by that Fund.
Life of Virginia will vote Fund shares held in Separate Account II as to which
no timely instructions are received and Fund shares held in Separate Account II
that it owns as a consequence of accrued charges under the Policies, in
proportion to the voting instructions which are received with respect to all
Policies funded through Separate Account II. Each person having a voting
interest will receive proxy materials, reports, and other materials relating to
the appropriate portfolio.
Disregard of Voting Instructions. Life of Virginia may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of a Fund or one or more of its
portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of a Fund. In addition, Life of Virginia itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment advisor of a Portfolio of a Fund if Life of Virginia
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Life of Virginia determined that the change would have an adverse
effect on its general account in that the proposed investment policy for the
portfolio may result in overly speculative or unsound investments. In the event
Life of Virginia does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next semi-annual report
to Policyowners.
STATE REGULATION OF LIFE OF VIRGINIA
Life of Virginia, a stock life insurance company organized under the laws of
Virginia, is subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. An annual statement is filed with the Virginia
Commissioner of Insurance on or before March 1 of each year covering the
operations and reporting on the financial condition of Life of Virginia as of
December 31 of the preceding year. Periodically, the Commissioner of Insurance
examines the liabilities and reserves of Life of Virginia and Separate Account
II and certifies their adequacy, and a full examination of Life of Virginia's
operations is conducted by the State Corporation Commission, Bureau of Insurance
of the Commonwealth of Virginia at least once every five years.
In addition, Life of Virginia is subject to the insurance laws and regulations
of other states within which it is licensed to operate. Generally, the
Insurance Department of any other state applies the laws of the state of
domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF LIFE OF VIRGINIA
Name and Position(s)
With Life of Virginia* Principal Occupations Last Five Years
Daniel T. Cox*** Chairman and Chief Executive Officer, Life of Virginia
since 12/89; President and Chief Operating Officer, Life
of Virginia, 10/90 to 5/91, and 8/88 to 12/89; Director,
Life of Virginia, since 1987; President, Chief Executive
Officer and Director, Miller, Mason & Dickenson,
Chicago, Illinois, 1987 to 1993; Chairman and Director,
Brookfield, Inc., Chicago, Illinois since 1987;
Chairman, Godwins, Booke and Dickenson, Chicago,
Illinois, since 1993; Executive Vice President, Aon
Corporation, since 1991.
Paul E. Rutledge III* Director, President and Chief Operating Officer,
Life of Virginia, since 5/91; Director, Life of
Virginia, since 5/91; Executive Vice President and Chief
Operating Officer, United Investors Life Insurance
Company, Birmingham, Alabama, 9/87 to 4/91; Vice
President, Torchmark Corporation, Birmingham, Alabama,
4/83 to 9/87.
H. Gaylord Hodges, Jr. Director, Life of Virginia since 1987; Senior Vice
President, Life of Virginia, since 1986.
John J. Palmer** President Aon Asset Management Fund since 1991;
Director, Aon Advisors, Inc. since 1987; Director, Life
of Virginia since 1986; Senior Vice President, Life of
Virginia, since 1980; President, Life of Virginia Series
Fund, Inc., since 1986; Director, Forth Financial
Securities Corporation since 1986; President, Forth
Financial Securities Corporation, since 1992; President,
Aon Asset Management Fund, Inc. (formerly known as Aon
Money Market Fund), since 1991.
Harvey N. Medvin*** Director, Life of Virginia, since 1986; Executive Vice
President, Chief Financial Officer and Treasurer, Aon
Corporation, Chicago, Illinois, since 1982.
Arthur F. Quern*** Director, Life of Virginia since 1986; Chairman & Chief
Executive Officer, Rollins Hudig Hall Co., Chicago,
Illinois, since 1984.
Michael A. Conway*** Director, Life of Virginia, since 1990; Director and
President, Aon Advisors, since 1990; Director, Senior
Vice President and Senior Investment Officer, Combined
Insurance Company of America, since 1990; Senior Vice
President and Senior Investment Officer, Aon
Corporation, since 1990; President and Chief Executive
Officer, Manhattan National Corporation from 1985 to
1990
Patrick G. Ryan*** Director, Life of Virginia, since 1986; Chairman, Aon
Corporation, since 1991, Director, President & Chief
Executive Officer, Aon Corporation, Chicago, Illinois,
since 1982.
William D. Baldwin** Director, Life of Virginia since 1987; Senior Vice
President since 1985.
Raymond I. Skilling*** Director, Life of Virginia, since 1988; Director,
Executive Vice President and Chief Counsel, Aon
Corporation, since 1979.
Robert A. Bowen Director, Life of Virginia, since 2/93; Senior Vice
President, Life of Virginia, since 1986; Systems
Manager, Life of Virginia, since 1986.
Selwyn L. Flournoy, Director, Life of Virginia, since 5/89; Senior Vice
Jr.** President, Life of Virginia, since 1980.
Ray M. Perisho**** Director, Life of Virginia, since 1/90; President, Union
Fidelity Life Insurance Company, since 1/90; Employed by
Connecticut Mutual Life Insurance Company from 1981 to
1990 in the following positions: Director of Group
Insurance, 1981 to 1982; Chief Operating Officer of a
Stock Subsidiary, 1982 to 1985, Corporate Actuary, 1985
to 1987, Chief Financial Officer - Individual Lines,
1987 to 1990
Linda L. Lanam** Director, Life of Virginia, since 2/93; Vice President
and Senior Counsel, Life of Virginia, since 1989;
Corporate Secretary for Life of Virginia and for a
number of Life of Virginia affiliates since 1992; Vice
President and Senior Counsel, Union Fidelity Life
Insurance Company, from 1986 to 1989.
Robert D. Chinn Senior Vice President - Agency, Life of Virginia, since
1/92; Vice President, Life of Virginia, from 1985 to
1992.
Thomas A. Barefield Senior Vice President - Special Markets, Life of
Virginia, since 1993; Vice President - Special Markets,
Life of Virginia, from 1/91 to 12/93; Vice President -
Registered Products, Life of Virginia, from 12/86 to
1/91.
* The principal business address of each person listed, unless otherwise
indicated, is The Life Insurance Company of Virginia, 6610 W. Broad Street,
Richmond, VA 23230.
** Messrs. Baldwin, Bowen, Hodges, Palmer, Cox, Rutledge, Flournoy and Ms. Lanam
are members of the Executive Committee of the Board of Directors of Life of
Virginia.
*** The principal business address of these individuals is Aon Corporation, 123
North Wacker Drive, Chicago, Illinois 60606.
**** Principal business address of this individual is Union Fidelity Life
Insurance Company, 4850 Street Road, Trevose, Pennsylvania
LEGAL MATTERS
Certain legal matters relating to Federal securities laws applicable to the
issue and sale of the flexible premium variable life insurance Policies
described in this prospectus have been passed upon by Sutherland, Asbill &
Brennan of Washington, D.C. All matters of Virginia law pertaining to the
Policy, including the validity of the Policies and Life of Virginia's right to
issue the Policies under Virginia insurance law, have been passed upon by
William E. Daner, Jr., Counsel of Life of Virginia.
LEGAL PROCEEDINGS
There are no legal proceedings to which Separate Account II is a party or to
which the assets of the Account are subject. Neither Life of Virginia nor Forth
Financial Securities Corporation is involved in any litigation that is of
material importance in relation to its total assets or that relates to Separate
Account II.
EXPERTS
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries and the financial statements of Life of Virginia
Separate Account II appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein and in the
registration statement. Such financial statements have been included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
Actuarial matters included in this prospectus have been examined by Bruce E.
Booker, F.S.A., Vice President and Actuary, Life of Virginia, as stated in the
opinion filed as an exhibit to the registration statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement to all of which reference is made for further information
concerning Separate Account II, Life of Virginia and the Policies offered
hereby. Statements contained in this prospectus as to the contents of the
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries included herein should be distinguished from the
financial statements of Separate Account II and should be considered only as
bearing on the ability of Life of Virginia to meet its obligations under the
Policies. Such consolidated financial statements of The Life Insurance Company
of Virginia and subsidiaries should not be considered as bearing on the
investment performance of the assets held in Separate Account II.
<PAGE>
AUDITED FINANCIAL STATEMENTS
LIFE OF VIRGINIA SEPARATE ACCOUNT II
YEAR ENDED DECEMBER 31, 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Life of Virginia Separate Account II
Audited Financial Statements
Year Ended December 31, 1994
TABLE OF CONTENTS
Report of Independent Auditors.....................................1
Statements of Assets and Liabilities...............................3
Statements of Operations...........................................8
Statements of Changes in Net Assets................................8
Notes to Financial Statements.....................................22
<PAGE>
Report of Independent Auditors
Policyholders
Life of Virginia Separate Account II
and
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of assets and liabilities of Life of
Virginia Separate Account II (comprising, the Life of Virginia Series Fund,
Inc.--Common Stock Index, Government Securities, Money Market and Total Return
portfolios; the Oppenheimer Variable Account Funds--Money, Bond, Capital
Appreciation, Growth, High Income and Multiple Strategies portfolios, Variable
Insurance Products Fund-- Money Market, High Income, Equity-Income, Growth and
Overseas portfolios; the Variable Insurance Products Fund II--Asset Manager
portfolio; the Advisers Management Trust--Balanced, Bond and Growth portfolios;
and the Janus Aspen--Aggressive Growth, Growth and Worldwide Growth portfolios)
as of December 31, 1994, and the related statements of operations and changes in
net assets for each of the three years in the period then ended for the Life of
Virginia Series Fund, Inc. portfolios, the Oppenheimer Variable Account Funds
portfolios, the Variable Insurance Products Fund portfolios, the Variable
Insurance Products Fund II portfolio, the Advisers Management Trust Balanced
portfolio and for the years ended December 31, 1994 and 1993 and for the period
from May 1, 1992 (date of inception) to December 31, 1992 for the Advisers
Management Trust Bond and Growth portfolios and for the period from May 11, 1994
(date of inception) to December 31, 1994 for the Janus Aspen portfolios. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1994, by
correspondence with the custodians. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
<PAGE>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting Life of Virginia Separate Account II at December 31,
1994, and the results of their operations and changes in their net assets for
the periods described in the first paragraph, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG
Richmond, Virginia
February 9, 1995
<PAGE>
Life of Virginia Separate Account II
Statements of Assets and Liabilities
December 31, 1994
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SERIES FUND, INC.
COMMON GOVERNMENT MONEY TOTAL
STOCK INDEX SECURITIES MARKET RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ASSETS
Investment in Life of Virginia Series Fund,
Inc., at fair value (NOTE 2):
Common Stock Index Portfolio (42,908
shares; cost-$676,067) $674,517
Government Securities Portfolio (25,515
shares; cost-$255,409) $242,651
Money Market Portfolio (121,825 shares;
cost-$1,257,244) $1,238,957
Total Return Portfolio (33,930 shares;
cost-$442,675) $454,660
Receivable from affiliate (NOTE 3) -- -- -- 83
Deposits in process 170 11 3,186 --
674,687 242,662 1,242,143 454,743
LIABILITIES
Accrued expenses payable to affiliate (NOTE 3) 601 277 83,224 17
Deposits pending policy approval -- -- 140,019 --
Withdrawal in process -- -- -- 1,176
TOTAL LIABILITIES 601 277 223,243 1,193
NET ASSETS $674,086 $242,385 $1,018,900 $453,550
Outstanding units 35,274 15,187 72,058 24,280
Net asset value per unit $ 19.11 $ 15.96 $ 14.14 $ 18.68
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
CAPITAL HIGH MULTIPLE
MONEY BOND APPRECIATION GROWTH INCOME STRATEGIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Oppenheimer
Variable Account Funds, at
fair value (NOTE 2):
Money Portfolio (11,685 shares;
cost-$11,685) $11,685
Bond Portfolio (8,308 shares;
cost-$93,425) $89,562
Capital Appreciation Portfolio
(34,526 shares; cost-$874,114) $895,945
Growth Portfolio (19,339 shares;
cost-$326,797) $341,908
High Income Portfolio (32,783
shares; cost-$342,812) $320,942
Multiple Strategies Portfolio
(23,581 shares; cost-$312,021) $304,426
Receivable from affiliate (NOTE 3) 47 - - 1,706 - -
Deposits in process - 702 2,179 56 3,008 313
11,732 90,264 898,124 343,670 323,950 304,739
LIABILITIES
Accrued expenses payable to
affiliate (NOTE 3) - 44 17,542 13 433 1,377
Withdrawal in process 1,139 - - - - -
TOTAL LIABILITIES 1,139 44 17,542 13 433 1,377
NET ASSETS $10,593 $90,220 $880,582 $343,657 $323,517 $303,362
Outstanding units 746 5,276 37,680 17,304 14,353 16,523
Net asset value per unit $ 14.20 $ 17.10 $ 23.37 $ 19.86 $ 22.54 $ 18.36
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
MONEY HIGH EQUITY-
MARKET INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Variable Insurance
Products Fund, at fair value
(NOTE 2):
Money Market Portfolio (544,341
shares; cost-$544,341) $544,341
High Income Portfolio
(15,847 shares; cost-$174,231) $170,508
Equity-Income Portfolio (49,929
shares; cost-$756,214) $766,407
Growth Portfolio (72,606 shares;
cost-$1,504,886) $1,574,825
Overseas Portfolio (55,013 shares;
cost-$883,033) $862,049
Receivable from affiliate (NOTE 3) 6,957 - - - -
Deposits in process - 662 3,171 2,763 1,155
551,298 171,170 769,578 1,577,588 863,204
LIABILITIES
Accrued expenses payable to affiliate
(NOTE 3) 21 52 510 15,064 2,927
Withdrawal in process 1,155 - - - -
TOTAL LIABILITIES 1,176 52 510 15,064 2,927
NET ASSETS $550,122 $171,118 $769,068 $1,562,524 $860,277
Outstanding units 38,823 9,102 37,010 68,322 48,521
Net asset value per unit $ 14.17 $ 18.80 $ 20.78 $ 22.87 $ 17.73
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II ADVISERS MANAGEMENT TRUST
ASSET MANAGER BALANCED BOND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ASSETS
Investment in Variable Insurance Products
Fund II, at fair value (NOTE 2):
Asset Manager Portfolio (128,701 shares;
cost-$1,818,582) $1,774,786
Investment in Advisers Management Trust, at
fair value (NOTE 2):
Balanced Portfolio (14,656 shares;
cost-$211,916) $212,656
Bond Portfolio (3,674 shares;
cost-$51,355) $51,515
Growth Portfolio (5,135 shares;
cost-$109,404) $104,283
Receivable from affiliate (NOTE 3) - - 116 641
Deposits in process 2,202 116 1,187 -
1,776,988 212,772 52,818 104,924
LIABILITIES
Accrued expenses payable to affiliate (NOTE 3) 7,207 980 2 4
TOTAL LIABILITIES 7,207 980 2 4
NET ASSETS $1,769,781 $211,792 $52,816 $104,920
Outstanding units 110,061 16,155 4,819 9,495
Net asset value per unit $ 16.08 $ 13.11 $ 10.96 $ 11.05
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
JANUS ASPEN
AGGRESSIVE WORLDWIDE
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
ASSETS
Investment in Janus Aspen, at fair value (NOTE 2):
Aggressive Growth Portfolio (8,477 shares;
cost-$110,515) $115,450
Growth Portfolio (7,503 shares; cost-$80,480) $79,301
Worldwide Portfolio (12,103 shares;
cost-$148,283) $146,082
Receivable from affiliate (NOTE 3) 1,698 42 1,100
Deposits in process 368 64 704
117,516 79,407 147,886
LIABILITIES
Accrued expenses payable to affiliate (NOTE 3) 4 3 6
TOTAL LIABILITIES 4 3 6
NET ASSETS $117,512 $79,404 $147,880
Outstanding units 10,290 8,119 15,214
Net asset value per unit $ 11.42 $ 9.78 $ 9.72
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
COMMON COMMON
STOCK INDEX STOCK
PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
INVESTMENT INCOME
Income--Dividends $ 10,993 $ 99,608 $ 14,017
Expenses--Mortality and expense risk charges (NOTE 3) 4,467 3,568 3,083
Net investment income 6,526 96,040 10,934
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 1,682 18,211 15,910
Unrealized appreciation (depreciation) on investments (11,121) (50,439) 5,930
Net realized and unrealized gain (loss) on investments (9,439) (32,228) 21,840
Increase (decrease) in net assets from operations $ (2,913) $ 63,812 $ 32,774
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 6,526 $ 96,040 $ 10,934
Net realized gain (loss) 1,682 18,211 15,910
Unrealized appreciation (depreciation) on investments (11,121) (50,439) 5,930
Increase (decrease) in net assets from operations (2,913) 63,812 32,774
From Capital Transactions:
Net premiums 166,616 104,565 97,484
Loan interest (365) 301 (2,341)
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - -
Surrenders (34,647) (23,353) (20,784)
Loans (7,799) (9,371) (14,896)
Cost of insurance and administrative expense
(NOTE 3) (96,243) (75,045) (74,134)
Transfer gain (loss) and transfer fees (NOTE 3) (560) 3,585 18
Interfund transfers 89,283 31,119 5,466
Increase (decrease) in net assets from capital
transactions 116,285 31,801 (9,187)
INCREASE IN NET ASSETS 113,372 95,613 23,587
NET ASSETS AT BEGINNING OF YEAR 560,714 465,101 441,514
NET ASSETS AT END OF YEAR $ 674,086 $560,714 $ 465,101
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SERIES FUND, INC.
GOVERNMENT
SECURITIES BOND MONEY MARKET TOTAL RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10,652 $ 5,872 $ 3,180 $ 28,145 $ 20,941 $ 10,525 $ 17,248 $ 28,943 $ 11,953
762 356 301 9,044 3,150 783 2,872 2,293 1,959
9,890 5,516 2,879 19,101 17,791 9,742 14,376 26,650 9,994
(2,789) 760 484 110,539 (47,170) (5,472) 5,404 9,779 10,465
(11,441) (2,596) (194) (2,317) (6,728) (1,549) (11,896) 1,518 (1,897)
(14,230) (1,836) 290 108,222 (53,898) (7,021) (6,492) 11,297 8,568
$ (4,340) $ 3,680 $ 3,169 $ 127,323 $(36,107) $ 2,721 $ 7,884 $ 37,947 $ 18,562
$ 9,890 $ 5,516 $ 2,879 $ 19,101 $ 17,791 $ 9,742 $ 14,376 $ 26,650 $ 9,994
(2,789) 760 484 110,539 (47,170) (5,472) 5,404 9,779 10,465
(11,441) (2,596) (194) (2,317) (6,728) (1,549) (11,896) 1,518 (1,897)
(4,340) 3,680 3,169 127,323 (36,107) 2,721 7,884 37,947 18,562
43,467 20,840 7,262 4,343,151 1,168,846 371,595 116,553 91,152 73,930
- 10 33 (198) 150 (111) (138) 235 (1,692)
- - - - - - - (655) -
(8,360) (2,369) (2,661) (2,620) (1,361) (11,571) (15,289) (10,341) (22,439)
(8,446) (437) 2,599 (686) (10,000) - (6,316) (1,864) (8,549)
(15,063) (8,694) (5,947) (221,019) (77,211) (24,786) (70,159) (58,689) (56,800)
(292) 28 (53) (122,409) 39,808 (698) 139 2,498 (168)
168,642 6,267 13,314 (3,495,580) (871,424) (232,734) 53,434 20,289 7,798
179,948 15,645 14,547 500,639 248,808 101,695 78,224 42,625 (7,920)
175,608 19,325 17,716 627,962 212,701 104,416 86,108 80,572 10,642
66,777 47,452 29,736 390,938 178,237 73,821 367,442 286,870 276,228
$242,385 $66,777 $47,452 $ 1,018,900 $ 390,938 $ 178,237 $453,550 $367,442 $286,870
</TABLE>
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
MONEY
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 310 $ 55 $ 80
Expenses--Mortality and expense risk charges (NOTE 3) 51 13 14
Net investment income 259 42 66
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
Net realized and unrealized gain (loss) on investments - - -
Increase (decrease) in net assets from operations $ 259 $ 42 $ 66
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 259 $ 42 $ 66
Net realized gain (loss) - - -
Unrealized appreciation (depreciation)
on investments - - -
Increase (decrease) in net assets from operations 259 42 66
From Capital Transactions:
Net premiums 2,919 1,626 535
Loan interest - - -
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - -
Surrenders - - -
Loans - - -
Cost of insurance and administrative expense (NOTE 3) (1,381) (1,065) (718)
Transfer gain (loss) and transfer fees (NOTE 3) 38 8 (2)
Interfund transfers 7,234 (1,259) 1,395
Increase (decrease) in net assets from capital
transactions 8,810 (690) 1,210
INCREASE (DECREASE) IN NET ASSETS 9,069 (648) 1,276
NET ASSETS AT BEGINNING OF YEAR 1,524 2,172 896
NET ASSETS AT END OF YEAR $10,593 $ 1,524 $2,172
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
BOND CAPITAL APPRECIATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 4,168 $ 2,221 $ 1,657 $ 42,513 $ 5,515 $ 1,999 $ 1,840 $ 2,781 $ 1,537
430 227 125 4,255 1,293 557 1,807 867 479
3,738 1,994 1,532 38,258 4,222 1,442 33 1,914 1,058
(60) 268 139 (5,894) 9,123 3,314 6,108 3,252 1,286
(4,975) 1,364 (528) (41,031) 38,146 10,902 (2,215) 4,168 7,452
(5,035) 1,632 (389) (46,925) 47,269 14,216 3,893 7,420 8,738
$(1,297) $ 3,626 $ 1,143 $ (8,667) $ 51,491 $ 15,658 $ 3,926 $ 9,334 $ 9,796
$ 3,738 $ 1,994 $ 1,532 $ 38,258 $ 4,222 $ 1,442 $ 33 $ 1,914 $ 1,058
(60) 268 139 (5,894) 9,123 3,314 6,108 3,252 1,286
(4,975) 1,364 (528) (41,031) 38,146 10,902 (2,215) 4,168 7,452
(1,297) 3,626 1,143 (8,667) 51,491 15,658 3,926 9,334 9,796
42,700 12,501 5,455 436,547 77,939 43,897 135,634 49,489 33,809
- - - (74) (22) (17) (18) (6) (10)
- - (197) (134) - - - - -
(203) - (28) (11,508) (1,403) (4,251) (18,961) (93) (3,787)
- - - (10,450) (254) (1,914) (39) (393) (315)
(11,652) (6,718) (3,520) (99,843) (25,454) (13,861) (38,468) (17,455) (10,549)
(44) (46) (16) (17,544) 770 86 1,716 (105) 190
20,767 3,185 19,669 295,377 80,081 7,662 90,274 41,142 7,730
51,568 8,922 21,363 592,371 131,657 31,602 170,138 72,579 27,068
50,271 12,548 22,506 583,704 183,148 47,260 174,064 81,913 36,864
39,949 27,401 4,895 296,878 113,730 66,470 169,593 87,680 50,816
$90,220 $39,949 $27,401 $ 880,582 $296,878 $113,730 $343,657 $169,593 $ 87,680
</TABLE>
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT
HIGH INCOME
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 19,850 $ 5,356 $ 2,672
Expenses--Mortality and expense risk charges (NOTE 3) 1,474 322 141
Net investment income 18,376 5,034 2,531
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) (2,786) 1,283 192
Unrealized appreciation (depreciation) on investments (25,264) 3,272 156
Net realized and unrealized gain (loss) on investments (28,050) 4,555 348
Increase (decrease) in net assets from operations $ (9,674) $ 9,589 $ 2,879
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 18,376 $ 5,034 $ 2,531
Net realized gain (loss) (2,786) 1,283 192
Unrealized appreciation (depreciation) on investments (25,264) 3,272 156
Increase (decrease) in net assets from operations (9,674) 9,589 2,879
From Capital Transactions:
Net premiums 205,911 28,674 4,547
Loan interest (16) - -
Transfers (to) from the general account of Life of
Virginia:
Death benefits (225) - (439)
Surrenders (3,726) (836) (253)
Loans (8,327) - -
Cost of insurance and administrative expense
(NOTE 3) (70,347) (16,451) (3,059)
Transfer gain (loss) and transfer fees (NOTE 3) (422) 120 (35)
Interfund transfers 138,398 25,655 6,047
Increase in net assets from capital transactions 261,246 37,162 6,808
INCREASE IN NET ASSETS 251,572 46,751 9,687
NET ASSETS AT BEGINNING OF YEAR 71,945 25,194 15,507
NET ASSETS AT END OF YEAR $323,517 $ 71,945 $25,194
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
FUNDS (CONTINUED)
MULTIPLE STRATEGIES
PORTFOLIO
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C>
$ 13,754 $ 3,689 $ 1,926
1,636 568 284
12,118 3,121 1,642
1,058 1,297 806
(16,980) 6,806 1,046
(15,922) 8,103 1,852
$ (3,804) $ 11,224 $ 3,494
$ 12,118 $ 3,121 $ 1,642
1,058 1,297 806
(16,980) 6,806 1,046
(3,804) 11,224 3,494
98,195 42,685 23,160
(51) (50) (48)
- -
(6,329) - (3,997)
(288) 45 (1,114)
(48,099) (13,831) (9,112)
(1,398) 216 (117)
137,152 37,605 4,440
179,182 66,670 13,212
175,378 77,894 16,706
127,984 50,090 33,384
$ 303,362 $127,984 $50,090
</TABLE>
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 5,417 $ 1,622 $ 735
Expenses--Mortality and expense risk charges (NOTE 3) 711 309 78
Net investment income 4,706 1,313 657
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
Net realized and unrealized gain (loss) on investments - - -
Increase (decrease) in net assets from operations $ 4,706 $ 1,313 $ 657
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 4,706 $ 1,313 $ 657
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
Increase (decrease) in net assets from operations 4,706 1,313 657
From Capital Transactions:
Net premiums 459,738 78,864 1,444
Loan interest (32) (20) -
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - -
Surrenders - - (4,175)
Loans (3,125) (3,304) -
Cost of insurance and administrative expense
(NOTE 3) (28,427) (4,223) (834)
Transfer gain (loss) and transfer fees (NOTE 3) 6,932 (210) (509)
Interfund transfers 93,040 (81,222) 22,684
Increase (decrease) in net assets from capital
transactions 528,126 (10,115) 18,610
INCREASE (DECREASE) IN NET ASSETS 532,832 (8,802) 19,267
NET ASSETS AT BEGINNING OF YEAR 17,290 26,092 6,825
NET ASSETS AT END OF YEAR $ 550,122 $ 17,290 $26,092
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
HIGH INCOME EQUITY-INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,861 $ 4,021 $ 1,788 $ 31,170 $ 5,558 $ 2,378 $ 41,630 $ 6,368 $ 3,283
976 414 167 3,777 1,373 498 7,849 3,130 1,264
8,885 3,607 1,621 27,393 4,185 1,880 33,781 3,238 2,019
(69) 1,297 1,322 (8,219) 6,919 2,165 (6,352) 16,396 4,613
(12,284) 5,609 1,751 (15,896) 15,268 7,219 (16,629) 49,435 15,756
(12,353) 6,906 3,073 (24,115) 22,187 9,384 (22,981) 65,831 20,369
$ (3,468) $ 10,513 $ 4,694 $ 3,278 $ 26,372 $11,264 $ 10,800 $ 69,069 $ 22,388
$ 8,885 $ 3,607 $ 1,621 $ 27,393 $ 4,185 $ 1,880 $ 33,781 $ 3,238 $ 2,019
(69) 1,297 1,322 (8,219) 6,919 2,165 (6,352) 16,396 4,613
(12,284) 5,609 1,751 (15,896) 15,268 7,219 (16,629) 49,435 15,756
(3,468) 10,513 4,694 3,278 26,372 11,264 10,800 69,069 22,388
83,545 25,360 10,638 213,828 89,586 17,343 656,784 217,307 107,603
1 - 34 (29) 21 58 (55) (12) (6)
(143) - - - - - (219) - (972)
(13,554) (1,330) (2,719) (12,023) (4,931) (3,573) (56,950) (9,251) (2,238)
(8,677) - 2,599 550 (271) (366) (935) (849) (1,428)
(33,264) (10,908) (3,529) (85,059) (24,964) (9,342) (188,583) (84,345) (37,312)
(44) (242) (424) (459) 1,497 138 (14,996) 2,745 685
60,841 34,366 536 311,214 165,077 3,110 478,565 213,953 61,692
88,705 47,246 7,135 428,022 226,015 7,368 873,611 339,548 128,024
85,237 57,759 11,829 431,300 252,387 18,632 884,411 408,617 150,412
85,881 28,122 16,293 337,768 85,381 66,749 678,113 269,496 119,084
$ 171,118 $ 85,881 $28,122 $769,068 $337,768 $85,381 $1,562,524 $678,113 $269,496
</TABLE>
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
(CONTINUED)
OVERSEAS
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (LOSS)
Income--Dividends $ 1,317 $ 1,599 $ 690
Expenses--Mortality and expense risk charges (NOTE 3) 4,137 915 404
Net investment income (loss) (2,820) 684 286
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) (16,479) 4,075 (246)
Unrealized appreciation (depreciation) on investments (45,747) 29,965 (7,340)
Net realized and unrealized gain (loss) on investments (62,226) 34,040 (7,586)
Increase (decrease) in net assets from operations $ (65,046) $ 34,724 $ (7,300)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ (2,820) $ 684 $ 286
Net realized gain (loss) (16,479) 4,075 (246)
Unrealized appreciation (depreciation) on investments (45,747) 29,965 (7,340)
Increase (decrease) in net assets from operations (65,046) 34,724 (7,300)
From Capital Transactions:
Net premiums 426,790 94,415 23,971
Loan interest (113) (74) (95)
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - (362)
Surrenders (6,869) (1,077) (283)
Loans (5,299) (1,143) (311)
Cost of insurance and administrative expense (NOTE 3) (104,233) (22,441) (10,987)
Transfer gain (loss) and transfer fees (NOTE 3) (2,893) 2,959 (356)
Interfund transfers 359,446 86,409 11,435
Increase in net assets from capital transactions 666,829 159,048 23,012
INCREASE IN NET ASSETS 601,783 193,772 15,712
NET ASSETS AT BEGINNING OF YEAR 258,494 64,722 49,010
NET ASSETS AT END OF YEAR $ 860,277 $258,494 $ 64,722
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
<TABLE>
VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 24,335 $ 4,369 $ 916
Expenses--Mortality and expense risk charges (NOTE 3) 8,441 1,444 326
Net investment income 15,894 2,925 590
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) (2,448) 5,419 380
Unrealized appreciation (depreciation) on investments (80,899) 31,817 4,048
Net realized and unrealized gain (loss) on investments (83,347) 37,236 4,428
Increase (decrease) in net assets from operations $ (67,453) $ 40,161 $ 5,018
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 15,894 $ 2,925 $ 590
Net realized gain (loss) (2,448) 5,419 380
Unrealized appreciation (depreciation) on investments (80,899) 31,817 4,048
Increase (decrease) in net assets from operations (67,453) 40,161 5,018
From Capital Transactions:
Net premiums 858,361 150,445 22,160
Loan interest (20) - -
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - -
Surrenders (11,317) - (28)
Loans (8,489) - -
Cost of insurance and administrative expense (NOTE 3) (241,348) (43,141) (8,002)
Transfer gain (loss) and transfer fees (NOTE 3) (7,230) 1,957 1
Interfund transfers 849,854 159,247 52,034
Increase in net assets from capital transactions 1,439,811 268,508 66,165
INCREASE IN NET ASSETS 1,372,358 308,669 71,183
NET ASSETS AT BEGINNING OF YEAR 397,423 88,754 17,571
NET ASSETS AT END OF YEAR $1,769,781 $397,423 $88,754
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
ADVISERS MANAGEMENT TRUST
BALANCED
PORTFOLIO
YEAR ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS (CONTINUED) 1994 1993 1992
<S> <C> <C> <C>
INVESTMENT INCOME
Income--Dividends $ 3,758 $ 974 $ 1,168
Expenses--Mortality and expense risk charges (NOTE 3) 1,177 519 333
Net investment income 2,581 455 835
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 1,226 1,230 1,013
Unrealized appreciation (depreciation) on investments (8,138) 2,858 1,654
Net realized and unrealized gain (loss) on investments (6,912) 4,088 2,667
Increase (decrease) in net assets from operations $ (4,331) $ 4,543 $ 3,502
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 2,581 $ 455 $ 835
Net realized gain 1,226 1,230 1,013
Unrealized appreciation (depreciation) on investments (8,138) 2,858 1,654
Increase (decrease) in net assets from operations (4,331) 4,543 3,502
From Capital Transactions:
Net premiums 128,528 25,528 13,836
Loan interest 1 - -
Transfers (to) from the general account of Life of
Virginia:
Surrenders (6,026) (753) -
Loans (211) - -
Cost of insurance and administrative expense
(NOTE 3) (17,394) (9,679) (7,723)
Transfer gain (loss) and transfer fees (NOTE 3) (936) (41) 178
Interfund transfers 16,186 22,214 7,401
Increase in net assets from capital transactions 120,148 37,269 13,692
INCREASE IN NET ASSETS 115,817 41,812 17,194
NET ASSETS AT BEGINNING OF YEAR 95,975 54,163 36,969
NET ASSETS AT END OF YEAR $ 211,792 $95,975 $54,163
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
</TABLE>
<TABLE>
<CAPTION>
ADVISERS MANAGEMENT
BOND
PORTFOLIO
PERIOD FROM
MAY 1, 1992 TO
YEAR ENDED DECEMBER 31,
DECEMBER 31,
STATEMENTS OF OPERATIONS (CONTINUED) 1994 1993 1992
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income--Dividends $ 209 $ 67 $ -
Expenses--Mortality and expense risk charges (NOTE 3) 259 26 -
Net investment income (loss) (50) 41 -
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) (50) 389 1
Unrealized appreciation (depreciation) on investments 461 (302) 1
Net realized and unrealized gain (loss) on investments 411 87 2
Increase (decrease) in net assets from operations $ 361 $ 128 $ 2
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ (50) $ 41 $ -
Net realized gain (loss) (50) 389 1
Unrealized appreciation (depreciation) on investments 461 (302) 1
Increase (decrease) in net assets from operations 361 128 2
From Capital Transactions:
Net premiums 17,926 2,572 143
Loan interest - - -
Transfers (to) from the general account of Life of
Virginia:
Surrenders - - -
Loans - - -
Cost of insurance and administrative expense
(NOTE 3) (3,036) (690) (37)
Transfer gain (loss) and transfer fees (NOTE 3) 111 28 (2)
Interfund transfers 31,747 3,388 175
Increase in net assets from capital transactions 46,748 5,298 279
INCREASE IN NET ASSETS 47,109 5,426 281
NET ASSETS AT BEGINNING OF PERIOD 5,707 281 -
NET ASSETS AT END OF PERIOD $52,816 $5,707 $ 281
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
TRUST (CONTINUED)
<TABLE>
<CAPTION>
GROWTH
PORTFOLIO
YEAR ENDED
DECEMBER 31, MAY 1, 1992 TO
DECEMBER 31,
1994 1993 1992
<S> <C> <C>
$ 3,932 $ 15 $ -
512 89 -
3,420 (74) -
(362) 86 1
(6,943) 1,818 4
(7,305) 1,904 5
$ (3,885) $ 1,830 $ 5
$ 3,420 $ (74) $ -
(362) 86 1
(6,943) 1,818 4
(3,885) 1,830 5
72,306 6,851 44
7 - -
(2,502) - -
(487) - -
(8,077) (1,590) (38)
650 (27) 8
15,771 23,908 146
77,668 29,142 160
73,783 30,972 165
31,137 165 -
$104,920 $31,137 $165
</TABLE>
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
JANUS ASPEN
AGGRESSIVE WORLDWIDE
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
PERIOD FROM MARCH 8, 1994
TO DECEMBER 31, 1994
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (LOSS)
Income--Dividends $ 844 $ 227 $ 2
Expenses--Mortality and expense risk charges (NOTE 3) 194 143 282
Net investment income (loss) 650 84 (280)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized (loss) 688 1,024 (232)
Unrealized appreciation (depreciation) on investments 4,935 (1,179) (2,201)
Net realized and unrealized gain (loss) on investments 5,623 (155) (2,433)
Increase (decrease) in net assets from operations $ 6,273 $ (71) $ (2,713)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ 650 $ 84 $ (280)
Net realized gain (loss) 688 1,024 (232)
Unrealized appreciation (depreciation) on investments 4,935 (1,179) (2,201)
Increase (decrease) in net assets from operations 6,273 (71) (2,713)
From Capital Transactions:
Net premiums 20,533 20,151 53,431
Loan interest 4 - 4
Loans (355) - (10,988)
Transfers (to) from the general account of Life of
Virginia:
Cost of insurance and administrative expense (NOTE 3) (5,600) (5,932) (11,136)
Transfer gain and transfer fees (NOTE 3) 1,698 42 1,100
Interfund transfers 94,959 65,214 118,182
Increase in net assets from capital transactions 111,239 79,475 150,593
INCREASE IN NET ASSETS 117,512 79,404 147,880
NET ASSETS AT BEGINNING OF PERIOD - - -
NET ASSETS AT END OF PERIOD $117,512 $ 79,404 $147,880
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements
December 31, 1994
1. DESCRIPTION OF ENTITY
Life of Virginia Separate Account II (the Account) is a separate investment
account established in 1986 by The Life Insurance Company of Virginia (Life of
Virginia) under the laws of the Commonwealth of Virginia. The Account operates
as a unit investment trust under the Investment Company Act of 1940. The
Account is used to fund certain benefits for flexible premium variable life
insurance policies issued by Life of Virginia. Life of Virginia is an indirect
wholly-owned subsidiary of Aon Corporation (Aon).
During 1994, the Janus Aspen portfolios were made available to policyholders.
Policyholders may invest in either the Aggressive Growth, Growth or Worldwide
Growth portfolios.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Effective May 1, 1993, the names of the Life of Virginia Series Fund, Inc.
Common Stock and Bond portfolios were changed to the Common Stock Index and
Government Securities portfolios, respectively, in conjunction with changing the
portfolios' underlying investment strategies.
Investments are stated at fair value which is based on the percentage owned by
the Account of the net asset value of the respective portfolios or funds.
Purchases and sales of investments are recorded on the trade date. Realized
gains and losses on investments are determined on the average cost basis. The
units and unit values are disclosed as of the last business day in the
applicable year or period.
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The aggregate cost of the investments acquired and the aggregate proceeds of
investments sold, for the year ended December 31, 1994, were:
<TABLE>
<CAPTION>
COST OF SHARES PROCEEDS FROM
FUND/PORTFOLIO ACQUIRED SHARES SOLD
<S> <C> <C>
Life of Virginia Series Fund, Inc.:
Common Stock Index $ 316,346 $ 193,162
Government Securities 253,650 63,528
Money Market 6,085,794 6,106,802
Total Return 210,489 116,863
Oppenheimer Variable Account Funds:
Money 41,649 31,480
Bond 67,570 12,922
Capital Appreciation 1,056,425 410,420
Growth 267,626 99,227
High Income 411,702 134,659
Multiple Strategies 264,495 72,108
Variable Insurance Products Fund:
Money Market 644,158 117,099
High Income 168,597 71,625
Equity-Income 616,067 163,361
Growth 1,560,228 640,596
Overseas 1,097,857 432,097
Variable Insurance Products Fund II:
Asset Manager 2,050,427 589,657
Advisers Management Trust:
Balanced 157,112 33,562
Bond 84,503 39,102
Growth 119,918 39,479
Janus Aspen
Aggressive Growth 128,940 19,113
Growth 102,362 22,906
Worldwide Growth 177,037 28,522
</TABLE>
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Account is not taxed separately because the operations of the Account are
part of the total operations of Life of Virginia. Life of Virginia is taxed as
a life insurance company under the Internal Revenue Code (the Code). Life of
Virginia is included in the Aon life- nonlife consolidated federal income tax
return. The Account will not be taxed as a regulated investment company under
subchapter M of the Code. Under existing federal income tax law, no taxes are
payable on the investment income or on the capital gains of the Account.
3. RELATED PARTY TRANSACTIONS
Net premiums transferred from Life of Virginia to the Account represent gross
premiums recorded by Life of Virginia on its flexible premium variable life
insurance policies, less deductions of 7.5% retained as compensation for certain
distribution expenses and premium taxes. In addition, there is a deferred sales
charge of up to 45% of the first year's premiums. This charge will be deducted
from policy's cash value in equal installments at the beginning of each of the
policy years two through ten. If a policy is surrendered or lapses during the
first nine years, a charge is made by Life of Virginia to cover the expenses of
issuing the policy. The charge is a stated percentage of the insurance amount
and varies by the age of the policyholder when issued and period of time that
the policy has been in force. A charge equal to the lesser of $25 or 2% of the
amount paid on a partial surrender will be made to compensate Life of Virginia
for the costs incurred in connection with the partial surrender.
A charge based on policy cash values, duration, the insured's sex, attained age
and risk class, is deducted from policy cash values each month to compensate
Life of Virginia for the cost of insurance and any benefits added by rider. In
addition, Life of Virginia charges the Account for the mortality and expense
risk that Life of Virginia assumes. This charge is deducted daily and equals
the effective annual rate of .70% of the net assets of the Account. For
policies issued on or after May 1, 1993, Life of Virginia will deduct a monthly
administrative charge of $6 from the policy cash value and for policies issued
prior to May 1, 1993, Life of Virginia will deduct a monthly administrative
charge of $5 from the policy cash value.
Gains or losses resulting from the processing time between the receipt of an
initial net premium and the investment of that premium are charged to Life of
Virginia. In addition, any such gain or loss resulting from the processing time
between a request for policy surrender and the payment is also charged to Life
of Virginia.
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Life of Virginia Series Fund, Inc. (the Fund) is an open-end diversified
management investment company whose shares are sold to Life of Virginia's
Separate Accounts.
Forth Financial Securities Corporation (FFSC), an indirect wholly-owned
subsidiary of Aon, acts as principal underwriter (as defined in The Investment
Company Act of 1940) of the Account's policies pursuant to an agreement with
Life of Virginia.
Aon Advisors, Inc. (Investment Advisor), a wholly-owned subsidiary of Aon,
serves as investment advisor to the Fund and provides portfolio management,
investment advice, and related administrative services for the Fund. As
compensation for its services, the Investment Advisor is paid an investment
advisory fee by the Fund based on the average daily net assets at an effective
annual rate of .35% for the Common Stock Index portfolio and .50% for the
Government Securities, Money Market and Total Return portfolios. Effective July
1, 1994, the investment advisor agreed to waive a portion of the advisory fee
for the Money Market portfolio such that the effective annual rate is .10%.
Prior to May 1, 1993, the effective annual rate for the Common Stock Index
Portfolio was .50%.
Certain officers and directors of Life of Virginia are also officers and
directors of FFSC, the Fund, the Investment Advisor or Aon.
4. SUBSEQUENT EVENTS
In January 1995, three new investment subdivisions were added to the Account.
Two of these subdivisions, the Utility and Corporate Bond invest solely in a
designated portfolio of the Insurance Management Series (IMS), a series type
mutual fund. The third new subdivision, the Contrafund, invests solely in a
designated portfolio of the Variable Insurance Product Fund II (VIP II), a
series type mutual fund. These investment subdivisions are not available in
connection with policies issued to California policyholders.
25
<PAGE>
Audited Consolidated Financial Statements
The Life Insurance Company of Virginia
and Subsidiaries
Year Ended December 31, 1994
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
____________________________________________________________________________
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Financial Statements
Consolidated Statements of Financial Position
as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
____________________________________________________________________________
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statements of financial
position of The Life Insurance Company of Virginia (an indirect wholly-
owned subsidiary of Aon Corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income,
stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Life
Insurance Company of Virginia and subsidiaries at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 1, 4 and 7, the Company changed its method of
accounting for certain investments in 1994 and income taxes and
postretirement benefits other than pensions in 1992.
Richmond, Virginia
February 9, 1995
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) December 31
1994 1993
Assets
Investments
Fixed maturities
Held to maturity - at amortized cost
(fair value: 1994 - $2,790.0;
1993 - $4,008.5) $3,023.7 $3,865.1
Available for sale - 1994 at fair value;
1993 at amortized cost
(1994 amortized cost: $2,065.4;
1993 fair value: $1,527.8) 1,910.5 1,494.6
Equity securities - at fair value
Common stocks (cost: 1994 - $10.9;
1993 - $39.1) 13.4 45.5
Preferred stocks (cost: 1994 - $117.2;
1993 - $241.4) 111.8 270.9
Mortgage loans on real estate (net of reserve
for losses: 1994 - $27.3; 1993 - $38.6) 527.6 508.1
Real estate (net of accumulated depreciation:
1994 - $6.5; 1993 - $6.1) 35.4 34.0
Policy loans 165.3 156.9
Other long-term investments 9.3 11.1
Short-term investments 106.9 105.2
Total investments 5,903.9 6,491.4
Cash 23.0 23.1
Receivables
Premiums and other 68.3 168.8
Accrued investment income 75.6 84.0
Receivable from affiliates 347.2 35.2
Total receivables 491.1 288.0
Deferred Policy Acquisition Costs 388.1 413.2
Cost of Insurance Purchased
(net of accumulated amortization: 1994 - $70.1;
1993 - $65.0) 48.6 53.7
Property and Equipment at Cost
(net of accumulated depreciation: 1994 - $23.5;
1993 - $20.3) 7.5 7.0
Assets Held Under Special Contracts 1,429.7 898.2
Other Assets 57.9 54.8
Total Assets $8,349.8 $8,229.4
======== ========
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- Continued
(millions)
December 31
1994 1993
Liabilities and Stockholder's Equity
Policy Liabilities
Future policy benefits $ 589.9 $ 594.6
Policy and contract claims 83.8 109.9
Unearned and advance premiums 229.7 318.5
Other policyholder funds 5,019.8 5,163.2
Total policy liabilities 5,923.2 6,186.2
General Liabilities
Commissions and general expenses 46.9 38.4
Current income taxes 14.5 50.2
Deferred income taxes 21.0 69.5
Liabilities held under special contracts 1,429.7 898.2
Other liabilities 147.1 130.8
Total Liabilities 7,582.4 7,373.3
Commitments and Contingent Liabilities
Stockholder's Equity
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Paid-in additional capital 704.1 704.1
Net unrealized investment gains (losses) (97.5) 23.6
Net foreign exchange losses (3.0) (2.3)
Retained earnings 159.8 126.7
Total Stockholder's Equity 767.4 856.1
Total Liabilities and Stockholder's Equity $8,349.8 $8,229.4
======== ========
_____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(millions)
Years ended December 31
1994 1993 1992
Revenue
Premiums and policy fees $230.1 $256.5 $248.5
Net investment income (Note 3) 490.6 513.5 507.2
Realized investment losses (25.8) (1.6) (16.3)
Other income 8.5 14.5 12.1
Total revenue earned 703.4 782.9 751.5
Benefits and Expenses
Benefits to policyholders 477.1 491.0 497.1
Commissions and general expenses 75.7 92.4 100.7
Amortization of deferred policy acquisition costs 57.1 65.7 61.5
Amortization of cost of insurance purchased 5.1 5.4 5.4
Total benefits and expenses 615.0 654.5 664.7
Income Before Income Tax and Cumulative Effect
of Changes in Accounting Principles 88.4 128.4 86.8
Provision for income tax (Note 4)
Current 21.0 52.9 46.7
Deferred - credit (5.7) (6.7) (13.7)
Income Before Cumulative Effect of Changes in
Accounting Principles 73.1 82.2 53.8
Cumulative effect of changes in accounting
principles - - 16.4
Net Income $ 73.1 $ 82.2 $ 70.2
====== ====== ======
_____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31
1994 1993 1992
Cash Flows from Operating Activities:
Net income $ 73.1 $ 82.2 $ 70.2
Adjustments to reconcile net income to
cash provided by (used by) operating
activities:
Policy liabilities 331.4 334.9 206.7
Accrued investment income 1.8 (2.3) 5.9
Deferred policy acquisition costs (91.8) (105.4) (94.7)
Amortization of deferred policy
acquisition costs 57.1 65.7 61.5
Amortization of cost of insurance purchased 5.1 5.4 5.4
Other amortization and depreciation 2.3 2.1 1.3
Premiums and operating receivables,
commissions and general expenses, income
taxes, other assets and other liabilities (139.7) (161.1) (16.9)
Realized investment losses 25.8 1.6 16.3
Cash Provided by Operating Activities 265.1 223.1 255.7
Cash Flows from Investing Activities:
Sale (purchase) of short-term investments-net (.3) (17.3) 36.4
Sale or maturity of investments
Fixed maturities - Held to maturity
Maturities 50.8 64.6 52.2
Calls and Prepayments 727.5 1,962.5 1,460.7
Sales - 28.0 188.5
Fixed maturities - Available for sale
Maturities 50.4 - 0.1
Calls and Prepayments 269.1 480.9 20.6
Sales 444.7 209.0 64.0
All other investments 231.1 184.3 154.1
Purchase of investments
Fixed maturities - Held to maturity (734.0) (2,142.7) (2,089.7)
Fixed maturities - Available for sale (1,018.5) (967.1) (163.8)
All other investments (357.1) (260.6) (111.5)
Property and equipment (1.8) 22.7 (1.9)
Cash Used by Investing Activities (338.1) (435.7) (390.3)
Cash Flows from Financing Activities:
Cash dividends to stockholder (20.0) (59.0) (56.0)
Interest sensitive life, annuity and
investment contract deposits 1,455.5 1,376.0 955.6
Interest sensitive life, annuity and
investment contract withdrawals (1,362.6) (1,089.9) (761.4)
Cash Provided by Financing Activities 72.9 227.1 138.2
Increase (Decrease) in Cash (.1) 14.5 3.6
Cash at Beginning of Year 23.1 8.6 5.0
Cash at End of Year $ 23.0 $ 23.1 $ 8.6
======== ======== ========
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(millions)
Years ended December 31
1994 1993 1992
Common Stock
Balance at January 1 and December 31 $ 4.0 $ 4.0 $ 4.0
Paid-in Additional Capital
Balance at January 1 and December 31 704.1 704.1 704.1
Net Unrealized Investment Gains (Losses)
Balance at January 1 23.6 17.0 9.9
Effect of change in accounting principles
at January 1 25.1 - -
Net unrealized investment gains (losses) (146.2) 6.6 7.1
Balance at December 31 (97.5) 23.6 17.0
Net Foreign Exchange Gains (Losses)
Balance at January 1 (2.3) (2.4) .4
Net foreign exchange gains (losses) (.7) .1 (2.8)
Balance at December 31 (3.0) (2.3) (2.4)
Retained Earnings
Balance at January 1 126.7 110.6 99.5
Net income 73.1 82.2 70.2
Dividends to stockholder (40.0) (59.0) (56.0)
Stock dividend to affiliate (Note 2) - (7.1) (3.1)
Balance at December 31 159.8 126.7 110.6
Stockholder's Equity at December 31 $767.4 $856.1 $833.3
====== ====== ======
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles and Practices
Principles of Consolidation
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and
include the accounts of The Life Insurance Company of Virginia and
its subsidiaries ("Life of Virginia"). Life of Virginia is an
indirect wholly owned subsidiary of Aon Corporation ("Aon"). All
material intercompany accounts and transactions have been eliminated.
Recognition of Premium Revenue and Related Expenses
For universal life-type and investment products, generally there is no
requirement for payment of premium other than to maintain account
values at a level sufficient to pay mortality and expense charges.
Consequently, premiums for universal life-type policies and investment
products are not reported as revenue, but as deposits. Policy fee
revenue for universal life-type policies and investment products
consists of charges for the cost of insurance, policy administration,
and surrenders assessed during the period. Expenses include interest
credited to policy account balances and benefit claims incurred in
excess of policy account balances.
In general, for accident and health products, premiums collected are
reported as earned proportionately over the period covered by the
policies. For all other life products, premiums are recognized as
revenue when due. Benefits and related expenses associated with the
premium revenues are charged to expense proportionately over the lives
of the policies through a provision for future policy benefit
liabilities and through deferral and amortization of deferred policy
acquisition costs.
Reinsurance
Reinsurance premiums, commissions, and expense reimbursements on
reinsured business are accounted for on a basis consistent with those
used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums and benefits ceded to other
companies have been reported as a reduction of premium revenue and
benefits. Expense reimbursements received in connection with
reinsurance ceded have been accounted for as a reduction of the
related policy acquisition costs or, to the extent such reimbursements
exceed the related acquisition costs, as other revenue. All
reinsurance receivables and prepaid reinsurance premium amounts are
reported as assets.
Special Charges
In 1992, Life of Virginia recorded special charges for employee
reductions, which included an early retirement program and a reserve
for insurance industry insolvencies. The above charges aggregated
$11.4 million before income taxes and are reported in commissions and
general expenses.
Income Tax
Deferred income taxes have been provided for the effects of temporary
differences between financial reporting and tax bases of assets and
liabilities and have been measured using the enacted marginal tax
rates and laws that are currently in effect.
Investments
Fixed maturities, where the intent is to hold to maturity, are carried
generally at amortized cost. As a result of adopting Statement of
Financial Accounting Standards ("Statement") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" on January 1, 1994,
fixed maturities that are available for sale are carried at fair value
at December 31, 1994. At December 31, 1993, fixed maturities
available for sale were carried, on an aggregate basis, at the lower
of amortized cost or fair value. The amortized cost of fixed
maturities is adjusted for amortization of premiums and accretion of
discounts to maturity that are included in net investment income.
Included in fixed maturities are investments in collateralized
mortgage obligations ("CMOs"). Premiums and discounts arising from
the purchase of CMOs are treated as yield adjustments and included in
net investment income. Equity securities are valued at fair value.
Unrealized gains and temporary unrealized losses on fixed maturities
available for sale and equity securities are excluded from income and
are recorded directly to stockholder's equity, net of related deferred
income taxes. Mortgage loans are carried at amortized cost, net of
reserves. Real estate is carried generally at cost less accumulated
depreciation. Policy loans are carried at unpaid principal balance.
Other long-term investments are carried generally at cost. Realized
investment gains or losses are computed using specific costs of
securities sold.
Investments that have declines in fair value below cost, that are
judged to be other than temporary, are written down to estimated fair
values and reported as realized investment losses. Additionally,
reserves for mortgage loans and certain other long-term investments
are established based on an evaluation of the respective investment
portfolio, past credit loss experience, and current economic
conditions. Writedowns and reserves are included in realized
investment gains and losses in the statements of income. In general,
Life of Virginia ceases to accrue investment income where interest or
dividend payments are in arrears.
Accounting policies relating to derivative financial instruments are
discussed in Note 12.
Deferred Policy Acquisition Costs
Costs of acquiring new business, principally the excess of new
commissions over renewal commissions, underwriting and sales expenses
that vary with and are primarily related to the production of new
business, are deferred. For non-universal life-type products,
amortization of deferred acquisition costs and the cost of insurance
purchased is related to and based on the expected premium revenues on
the policies. In general, such amortization is adjusted to reflect
current withdrawal experience. Expected premium revenues are
estimated by using the same assumptions used in estimating future
policy benefits.
In general, deferred policy acquisition costs and cost of insurance
purchased related to universal life-type policies and investment
products are amortized in relation to the present value of expected
gross profits on the policies. Such amortization is adjusted
periodically to reflect differences in actual and assumed gross
profits.
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment of deferred policy
acquisition costs had those gains or losses actually been realized,
the related deferred policy acquisition cost adjustments are recorded
along with the unrealized gains or losses included in stockholder's
equity with no effect on net income.
Other Intangible Assets
The excess of cost over net assets purchased relating to business
acquisitions and the cost of insurance purchased are being amortized
into income on a straight-line basis over a range of seven to forty
years.
Property and Equipment
Property and equipment are generally depreciated using the straight-
line method over their estimated useful lives.
Assets and Liabilities Held Under Special Contracts
Assets held under special contracts principally represent designated
funds of group pension, variable life and annuity policyholders.
These assets are offset by liabilities that represent such
policyholders' equity in those assets. The net investment income
generated from these assets is not included in the consolidated
statements of income.
Future Policy Benefit Liabilities and Unearned Premiums and Policy and
Contract Claims
Future policy benefit liabilities on non-universal life-type and
accident and health products have been provided on the net level
premium method. The liabilities are calculated based on assumptions
as to investment yield, mortality, morbidity and withdrawal rates that
were determined at the date of issue or acquisition of Life of
Virginia by Aon, and provide for possible adverse deviations.
Interest assumptions are graded and range from 9% to 4.5%. Withdrawal
assumptions are based principally on experience and vary by plan, year
of issue, and duration.
Policyholder liabilities on universal life-type and investment
products are generally based on policy account values. Interest
credit rates for these products range from 7.8% to 5.6%.
Unearned premiums generally are calculated using the pro rata method
based on gross premiums. However, in the case of credit life and
credit accident and health, the unearned premiums are calculated such
that the premiums are earned over the period of risk in a reasonable
relationship to anticipated claims.
Policy and contract claim liabilities represent estimates for reported
claims, as well as provisions for losses incurred, but not yet
reported. These claim liabilities are based on historical experience
and are estimates of the ultimate amount to be paid when the claims
are settled. Changes in the estimated liability are reflected in
income as the estimates are revised.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair
values for financial instruments. The carrying amounts in the
consolidated statements of financial position for cash and short-term
investments approximate their fair values. Fair values for fixed
maturity securities and equity securities are based on quoted market
prices or, if they are not actively traded, on estimated values
obtained from independent pricing services. The fair values for
mortgage loans and policy loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Fair values
of derivatives are based on quoted prices for exchange-traded
instruments or the cost to terminate or offset with other contracts.
In general, other long-term investments are comprised of real estate
joint ventures and limited partnerships. It was not practicable to
estimate the fair value of other long-term investments because of the
lack of quoted market prices and the inability to estimate fair value
without incurring excessive costs. In addition, the determination of
the fair value of investment commitments was deemed impracticable due
to the inability to estimate future cash flows.
Fair values for liabilities for investment-type contracts 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.
Foreign Currency Translation
Foreign revenues and expenses are translated at average exchange
rates. Foreign assets and liabilities are translated at year-end
exchange rates. Unrealized foreign exchange gains or losses on
translation are generally reported in stockholder's equity. No tax
effect was taken into consideration for unrealized losses.
Accounting Changes
On January 1, 1994, Life of Virginia adopted Statement No. 115 which
requires categorization of fixed maturities either as held to
maturity, available for sale or trading and equity securities as
available for sale or trading. Investments in fixed maturities and
equity investments, that are categorized as available for sale, are
carried at fair value, with unrealized gains and losses (net of
applicable tax and adjustment to amortization of deferred policy
acquisition costs) excluded from income and recorded directly as a
separate component of stockholder's equity. Life of Virginia does not
categorize any fixed maturities or equity securities as trading.
The adoption of Statement No. 115 had no effect on Life of Virginia's
accounting for equity securities. In accordance with Statement No.
115, prior period financial statements have not been restated to
reflect the change in accounting principle.
In addition, Life of Virginia adopted Statement No. 112, "Employers'
Accounting for Postemployment Benefits" in 1994. Implementation of
this Statement did not have a material effect on Life of Virginia's
financial statements. Life of Virginia adopted Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (Note 7) and Statement No. 109, "Accounting for Income
Taxes" (Note 4) in 1992.
The Financial Accounting Standards Board has issued Statements No. 114
and 118 which relate to accounting by creditors for impairment of a
loan. The Statements require that impaired loans are to be valued at
the present value of expected future cash flows, at the loan's
observable market price, or at the fair value of the collateral if the
loan is collateral dependent. Life of Virginia anticipates adopting
these Statements in its 1995 financial statements as required.
Implementation of these Statements is not expected to have a material
effect on Life of Virginia's financial statements.
2. Business Combinations and Disposals
In December 1993, Life of Virginia contributed 267,800 shares at cost
of Aon common stock to Combined Insurance Company of America
("Combined"). The fair value and cost of the Aon shares were $12.6
million and $7.1 million, respectively.
In September 1992, Life of Virginia contributed, in the form of a
stock dividend, all outstanding shares of common stock of its wholly-
owned subsidiary, Associated Home Life Insurance Company, to Combined.
Total assets of Associated Home Life Insurance Company transferred by
the stock dividend were $3.1 million.
3. Investments
The components of net investment income are as follows:
(millions)
Years ended December 31
1994 1993 1992
Fixed maturities $404.1 $426.8 $420.6
Equity securities 25.2 19.7 17.7
Mortgage loans on real estate 49.9 50.0 54.8
Short-term investments 3.8 1.5 4.2
Other investments 18.0 23.9 20.6
Gross investment income 501.0 521.9 517.9
Investment expenses 10.4 8.4 10.7
Net investment income $490.6 $513.5 507.2
====== ====== ======
Realized gains (losses) on investments are as follows:
Years ended December 31
1994 1993 1992
Fixed maturities:
Held to maturity $ 1.5 $ 16.3 $ 3.9
Available for sale (30.6) - -
Equity securities (1.9) 2.2 5.7
Mortgage loans on real estate 9.6 (15.8) (18.5)
Other investments (4.4) (4.3) (7.4)
Total before tax (25.8) (1.6) (16.3)
Less applicable tax 9.0 .5 6.1
Total $(16.8) $ (1.1) $(10.2)
====== ====== ======
Gross gains of $24.0 million, and gross losses of $56.5 million, were
realized on available for sale fixed maturities and equity sales
during 1994. Gross gains of $11.3 million and gross losses of $9.8
million were realized on calls and prepayments of held to maturity
fixed maturities during 1994. Gross gains of $49.8 million and $27.9
million and gross losses of $33.5 million and $24.0 million were
realized on fixed maturity sales during 1993 and 1992, respectively.
The cumulative effect as of January 1, 1994 of adopting Statement No.
115 increased stockholder's equity by $25.1 million (net of
adjustments to deferred policy acquisition costs of $14.0 million and
deferred income taxes of $20.2 million) to reflect the net unrealized
fixed maturities holding gains on securities previously carried at
amortized cost; there was no effect on net income as a result of the
adoption of Statement No. 115. As of December 31, 1994, those holding
gains decreased by $120.6 million (net of adjustments to deferred
policy acquisition costs of $44.2 million and deferred income taxes of
$49.4 million) to a net unrealized loss of $95.5 million.
In connection with the adoption of Statement No. 115, Life of Virginia
reclassified certain fixed maturity investments with an amortized cost
of $785.5 million and fair value of $811.6 million from held to
maturity to available for sale. Subsequent to January 1, 1994 there
were no additional reclassifications between available for sale and
held to maturity.
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
Years ended December 31
1994 1993 1992
Fixed maturities:
Held to maturity $(351.0) $35.2 $(87.9)
Available for sale (214.2) (.2) 33.4
Equity securities (38.8) 10.1 10.9
Total $(604.0) $45.1 $(43.6)
======= ===== ======
The amortized cost and fair values of investments in fixed maturities
are as follows:
<TABLE>
<CAPTION>
(millions)
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
U. S. government
and agencies $ 3.2 $ .1 $ - $ 3.3
States and
political subdivisions 2.3 .1 - 2.4
Foreign governments .1 - - .1
Corporate securities 1,428.3 14.8 (96.5) 1,346.6
Mortgage-backed
securities 1,589.8 1.0 (153.2) 1,437.6
Total held to
maturity $3,023.7 $16.0 $(249.7) $2,790.0
======== ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
(millions)
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. government
and agencies $ 26.2 $ .1 $ (.4) $ 25.9
States and political
subdivisions .4 - - .4
Foreign governments 43.7 .8 (1.0) 43.5
Corporate securities 869.9 6.3 (47.1) 829.1
Mortgage-backed
securities 1,118.3 .8 (113.7) 1,005.4
Other fixed
maturities 6.9 .1 (.8) 6.2
Total fixed
maturities 2,065.4 8.1 (163.0) 1,910.5
Total equity
securities 128.1 5.6 (8.5) 125.2
Total available
for sale $2,193.5 $13.7 $(171.5) $2,035.7
======== ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
U. S. government
and agencies $ 28.1 $ 2.5 $ - $ 30.6
States and political
subdivisions 3.3 .4 - 3.7
Foreign governments 12.7 1.8 - 14.5
Corporate securities 1,843.4 134.7 (5.6) 1,972.5
Mortgage-backed
securities 1,977.6 24.6 (15.0) 1,987.2
Total held to
maturity $3,865.1 $164.0 $(20.6) $4,008.5
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
(millions)
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. government
and agencies $ 44.2 $ .4 $ (.1) $ 44.5
Foreign governments 8.8 .5 - 9.3
Corporate securities 834.6 35.9 (3.6) 866.9
Mortgage-backed
securities 596.7 5.7 (6.0) 596.4
Other fixed
maturities 10.3 .6 (.2) 10.7
Total fixed
maturities 1,494.6 43.1 (9.9) 1,527.8
Total equity
securities 280.5 37.0 (1.1) 316.4
Total available
for sale $1,775.1 $80.1 $(11.0) $1,844.2
======== ===== ====== ========
</TABLE>
Net unrealized investment losses at December 31, 1994 of $97.5 million
are net of deferred income tax credit of $40.1 million and a $20.2
after-tax deferred policy acquisition cost adjustment. Net unrealized
investment gains at December 31, 1993 of $23.6 million are net of a
deferred income tax charge of $12.3 million.
The amortized cost and fair value of fixed maturities, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
(millions)
Held to maturity: December 31, 1994
Amortized Fair
Cost Value
Due in one year or less $ 14.1 $ 14.3
Due after one year through five years 135.2 134.8
Due after five years through ten years 753.4 692.5
Due after ten years 531.2 510.8
Mortgage-backed securities 1,589.8 1,437.6
Total held to maturity $3,023.7 $2,790.0
======== ========
Available for sale: December 31, 1994
Amortized Fair
Cost Value
Due in one year or less $ 52.1 $ 52.5
Due after one year through five years 344.2 340.2
Due after five years through ten years 475.1 441.7
Due after ten years 75.7 70.7
Mortgage-backed securities 1,118.3 1,005.4
Total available for sale $2,065.4 $1,910.5
======== ========
Securities on deposit for regulatory authorities as required by law
amounted to $31.1 million and $31.5 million at December 31, 1994 and
1993, respectively.
At December 31, 1994 and 1993, respectively, Life of Virginia had $5.9
million and $10.0 million of non-income producing investments.
Commercial mortgage loans represent over 96% of total mortgage loans
at December 31, 1994 and 1993. Mortgage loans on real estate and real
estate in the South Atlantic region totaled $288.0 million and $26.8
million, respectively, at December 31, 1994 and $269.1 and $27.9
million, respectively, at December 31, 1993.
4. Income Tax
Beginning in 1992, Life of Virginia was included in the consolidated
life-nonlife federal income tax return of Aon Corporation and its
principal domestic subsidiaries. In accordance with intercompany
policy, Life of Virginia provides taxes on income based on a separate
company basis.
The Omnibus Budget Reconciliation Act of 1993 changed Life of
Virginia's prevailing federal income tax rate from 34% to 35%
effective January 1, 1993. The application of the 35% tax rate to the
December 31, 1992 deferred income tax liability balance resulted in a
$2.3 million increase in federal income tax expense for 1993. A
reconciliation of the income tax provisions based on the statutory
corporate tax rate to the provisions reflected in the consolidated
financial statements is as follows:
1994 1993 1992
Statutory tax rate 35.0% 35.0% 34.0%
Tax-exempt investment income deductions (0.9) (0.6) (1.0)
Increase in deferred taxes due to
enacted rate increase from 34% to 35% - 1.8 -
Reversal of overaccrual of prior taxes (13.3) - -
Other - net (3.5) (0.2) 5.0
Effective tax rate 17.3% 36.0% 38.0%
===== ===== =====
Significant components of Life of Virginia's deferred tax liabilities
and assets as of December 31 are as follows (in millions):
1994 1993
Deferred tax liabilities:
Policy acquisition costs $116.2 $119.3
Employee benefits 9.4 9.9
Other 38.4 44.4
Total deferred tax liabilities 164.0 173.6
Deferred tax assets:
Insurance reserve amounts 66.2 86.7
Unrealized investment losses 40.1 -
Other 36.7 17.4
Total deferred tax assets 143.0 104.1
Net deferred tax liabilities $ 21.0 $ 69.5
====== ======
As of December 31, 1994 the deferred tax asset relating to unrealized
investment losses is net of a $15 million valuation allowance that was
provided directly in stockholders' equity in 1994. No valuation
allowance was provided at December 31, 1993.
Prior to 1984, life insurance companies were required to accumulate
certain untaxed amounts in a memorandum "policyholders' surplus
account." Under the Tax Reform Act of 1984, the "policyholders'
surplus account" balances were "capped" at December 31, 1983 and the
balances will be taxed only to the extent distributed to stockholders
or when they exceed certain prescribed limits. As of December 31,
1994, the "policyholders' surplus account" of Life of Virginia's life
insurance subsidiary approximates $13.5 million. Life of Virginia's
life insurance subsidiary does not intend to make any taxable
distributions or exceed the prescribed limits in the foreseeable
future; therefore, no income tax provision has been made for those
purposes. However, if such taxes were assessed, the amount of tax
payable would be $4.7 million.
The amount of income taxes paid for 1994, 1993 and 1992 was $56.7
million, $65.6 million and $38.1 million, respectively.
Effective January 1, 1992, Life of Virginia changed its method of
accounting for income taxes from the deferred method to the liability
method required by Statement No. 109, "Accounting for Income Taxes."
The cumulative effect of adopting Statement 109 for periods prior to
January 1, 1992 was to increase 1992 net income by $20.2 million.
5. Reinsurance amd Claim Reserves
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. Life of Virginia's reinsurance
consists primarily of short-duration contracts that are entered into
with numerous automobile dealerships, financial institutions, and
related party reinsurance as described in Note 9. Life of Virginia
would remain liable to the extent that the reinsuring companies are
unable to meet their obligations. Ceded premiums earned were $193.7
million, $204.3 million and $180.2 million for 1994, 1993, and 1992,
respectively, while ceded premiums written were $196.3 million and
$214.2 million for 1994 and 1993, respectively. Assumed premiums
earned were $8.3 million, $13.7 million and $16.4 million for 1994,
1993 and 1992, respectively, while assumed premiums written were $8.7
million and $12.5 million for 1994 and 1993, respectively. Benefits
to policyholders are net of reinsurance recoveries of $102.1 million
and $113.5 million during 1994 and 1993, respectively.
Activity in the liability for policy and contract claims is summarized
as follows:
(millions) Years ended December 31
1994 1993 1992
Liabilities at beginning of year $ 92.9 $ 78.9 $ 76.8
Incurred losses 147.9 160.2 163.7
Deduct payment of claims:
Current year claims (107.2) (97.2) (109.4)
Prior years claims (52.5) (49.0) (52.2)
Liability released through reinsurance (51.7) - -
Liabilities at end of year
(net of insurance recoverables:
1994 - 54.4, 1993 - 17.0) $ 29.4 $ 92.9 $ 78.9
======= ====== =======
6. Stockholder's Equity
Generally, the capital and surplus of Life of Virginia available for
transfer to Aon are limited to the amounts that the statutory capital
and surplus exceed minimum statutory capital requirements; however,
payments of the amounts as dividends may be subject to approval by
regulatory authorities. Non-cash dividends paid in 1993 and 1992 were
recorded at Life of Virginia's basis in the underlying assets.
Net income, as determined using statutory accounting practices,
amounted to $58.2 million, $89.3 million and $75.4 million for the
years ended December 31, 1994, 1993 and 1992, respectively. Statutory
stockholder's equity amounted to $400.6 million and $377.9 million at
December 31, 1994 and 1993, respectively.
7. Employee Benefits
Savings Plan
Life of Virginia participates in Aon's contributory savings plan for
the benefit of salaried and commissioned employees. Provisions made
for the savings plan were $1.2 million, $1.1 million and $1.0 million
for 1994, 1993 and 1992, respectively.
Employee Stock Ownership Plan
Aon maintains a leveraged ESOP for the benefit of salaried and certain
commissioned employees. Shares are allocated to eligible employees
over a period of ten years through 1998. Contributions to the ESOP
for 1994, 1993 and 1992 charged to Life of Virginia's operations
amounted to $.6 million, $.7 million, and $.8 million, respectively.
Pension Plan
Life of Virginia participates in Aon's non-contributory defined benefit
pension plan providing retirement benefits for salaried employees and
certain commissioned employees based on years of service and salary. Aon's
funding policy is to contribute amounts to the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as Aon determines to be
appropriate from time to time. The components of net periodic pension cost
and benefit obligations of the Aon defined benefit plan are not separately
available for Life of Virginia. In connection with Life of Virginia's
participation in the Aon defined benefit plan, net pension credits of $3.1
million were recorded in 1994 and 1993, and $2.2 million in 1992.
Postretirement Benefits Other Than Pensions
Aon sponsors two defined benefit postretirement health and welfare
plans in which Life of Virginia participates that cover both salaried
and nonsalaried employees. One plan provides medical benefits, prior
to and subsequent to Medicare eligibility, and the other provides life
insurance benefits. The postretirement health care plan is
contributory, with retiree contributions adjusted annually; the life
insurance plan is noncontributory. Both plans are funded on a pay-as-
you-go basis.
In 1993, the accounting for the health care plan reflects changes in
the future cost-sharing provisions of the plan. These changes limit
the employer's liability for future plan cost increases in any year to
5% per annum. In prior years, Aon anticipated that the retiree's
share of future cost would increase at the same rate as the employer's
share.
In 1992, Aon and Life of Virginia adopted Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." The effect of adopting the new rules increased Life of
Virginia's 1992 net periodic postretirement benefit cost by $2.2
million to $2.4 million. The net periodic postretirement benefit cost
for 1994 and 1993 were $1.3 million and $2.0 million, respectively.
Life of Virginia's share of the cumulative effect of adopting
Statement No. 106 is $3.8 million, which is net of income taxes of
$2.0 million, and is recorded in the 1992 statement of income. The
cumulative effect recorded represents Life of Virginia's share of
Aon's postretirement benefit cost, less the January 1, 1992 amount of
the postretirement health care and life benefit liability previously
recorded. The total recorded amount represents the cumulative
postretirement benefit obligation for periods prior to January 1,
1992.
8. Lease Commitments
Life of Virginia has noncancelable operating leases for certain office
space, equipment and automobiles. Future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1994
are as follows:
(millions) Minimum Lease Payments
1995 $ 3.6
1996 2.7
1997 2.1
1998 1.8
1999 1.4
Later years 4.7
Total minimum payments required $16.3
=====
Rental expenses for all operating leases for the years ended December
31, 1994, 1993, and 1992 amounted to $5.1 million, $4.5 million, and
$3.3 million, respectively.
9. Related Party Transactions
Life of Virginia pays investment advisory fees and other fees to
affiliates. Amounts incurred for these items aggregated $37.8
million, $33.5 million and $26.7 million for 1994, 1993, and 1992,
respectively. Life of Virginia charges affiliates for certain
services and for the use of facilities and equipment which aggregated
$101.2 million, $88.8 million and $54.8 million for 1994, 1993, and
1992, respectively.
Life of Virginia deposits excess cash in an intercompany cash
management fund maintained by Aon. The amount deposited at December
31, 1994 and 1993 was $61.0 million and $64.5 million, respectively.
Interest earned on the fund for 1994, 1993, and 1992 was $1.4 million,
$.8 million, and $1.5 million, respectively.
At December 31, 1994 and 1993, Life of Virginia held investments in
securities of certain affiliates amounting to $47.4 million and $49.7
million, respectively. Amounts included in net investment income related
to these holdings totalled $3.5 million, $4.0 million and $4.2 million for
1994, 1993, and 1992, respectively.
In December 1994, Life of Virginia exchanged common stocks with a fair
value of $61.4 million and cost of $67.1 million for Combined's
available for sale fixed maturities and related accrued income with
fair values of $60.9 million and $.5 million, respectively. Life of
Virginia recorded the fixed maturity securities at Combined's fair
value of $60.9 million resulting in a $5.7 million realized loss that
is reflected in the statement of income.
In December 1994, Life of Virginia ceded to Combined $406.6 million of
its Guaranteed Investment Contract liabilities. In conjunction with
the liability cession, Life of Virginia transferred to Combined
available for sale fixed maturities with a fair value of $278.1
million and a cost of $287.2 million and preferred stock with a fair
value of $110.5 million and a cost of $119.7 million. There was no
effect on net income.
In July 1994, Life of Virginia ceded to Union Fidelity Life Insurance
Company ("UFLIC") $280.7 million of its credit life and health
reserves and associated acquisition costs of $107.0 million. In
conjunction with the liability cession, Life of Virginia transferred
to UFLIC the following invested assets in November 1994:
(millions)
Amortized
Cost Accrued
or Cost Market Interest
Fixed maturities:
Held to maturity $ 22.3 $ 19.6 $ .5
Available for sale 212.3 203.7 4.0
Preferred stock 66.9 66.0 -
Common stock 3.8 7.7 -
Totals $305.3 $297.0 $4.5
====== ====== ====
Included in receivable from affiliate is $107.0 million from UFLIC
related to the acquisition costs.
This transaction resulted in a $29.1 million loss which is reflected
as a $20.8 million reduction in premiums ceded and an $8.3 million
realized loss on investments.
Premiums, benefits to policyholders, and commissions and general
expenses ceded to UFLIC during the second six months of 1994 amounted
to $35.0 million, $14.4 million, and $14.2 million, respectively.
These amounts have been classified as a receivable from affiliate.
In 1993, Life of Virginia formed and then purchased all 100
outstanding shares of Newco for $100. Life of Virginia then
transferred to Newco, in the form of a capital contribution, certain
properties, including all company-occupied properties, which had a
book value of $24.5 million. The Newco common stock was then sold to
Combined for $21.5 million. A realized loss of $3.0 million has been
included in the consolidated statement of income.
10. Litigation
Life of Virginia is subject to numerous claims and lawsuits that arise
in the ordinary course of business. In some of these cases the
remedies that may be sought or damages claimed are substantial,
including cases that seek punitive or extraordinary damages. Accruals
for these lawsuits have been provided to the extent that losses are
deemed probable and are estimable. Although the ultimate outcome of
these suits cannot be ascertained and liabilities in indeterminate
amounts may be imposed on Life of Virginia, on the basis of present
information, availability of insurance coverages, and advice received
from counsel, it is the opinion of management that the disposition or
ultimate determination of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position of Life
of Virginia.
11. Segment Information
Life of Virginia operates primarily in the life insurance industry
offering life and annuity, and accident and health products.
Significant data concerning these segments are as follows:
(millions) Years ended December 31
1994 1993 1992
Revenues
Life and Annuity $ 655.6 $ 666.8 $ 649.5
Accident and Health 14.9 53.9 52.5
Corporate and Other 32.9 62.2 49.5
$ 703.4 $ 782.9 $ 751.5
======== ======== ========
Income (loss) Before Income Tax
Life and Annuity $ 76.7 $ 73.1 $ 60.0
Accident and Health (11.5) 6.0 3.4
Corporate and Other 23.2 49.3 23.4
$ 88.4 $ 128.4 $ 86.8
======== ======== ========
Identifiable Assets
Life and Annuity $7,182.7 $6,943.1 $5,862.6
Accident and Health 241.1 251.3 228.6
Corporate and Other 926.0 1,035.0 1,035.3
$8,349.8 $8,229.4 $7,126.5
======== ======== ========
The above results include allocations of investment income and certain
expense elements considered reasonable under the circumstances. Other
acceptable methods of allocation might produce different results.
12. Financial Instruments
Derivative Financial Instruments
Life of Virginia uses derivative financial instruments ("derivatives")
for purposes other than trading. Interest rate swap agreements are
used primarily to manage asset and liability durations relating to
capital accumulation life and annuity business. As of December 31,
1994, Life of Virginia was paying fixed rates and receiving variable
rates on interest rate swap contracts, with a notional amount of
$750.0 million, with the effect of lengthening liability durations.
As of December 31, 1993, Life of Virginia was paying variable rates
and receiving fixed rates on interest rate swap contracts with a
notional amount of $200.0 million. The net effect of interest rate
swap payments is settled periodically and reported in investment
income. There is no settlement of underlying notional amounts.
The interest rates on Life of Virginia's principal outstanding swaps
at December 31 are presented below:
Pay Receive Receive Pay
Fixed Variable Fixed Variable
1994 7.7 - 8.3% 7.8% - -
1993 - - 6.1 - 6.3% 3.4 - 3.5%
Life of Virginia performs frequent analysis to measure the degree of
correlation associated with its derivative programs. Life of Virginia
assesses the adequacy of the correlation analysis results in
determining whether the derivatives qualify for hedge accounting.
Realized gains and losses on derivatives that qualify as hedges are
deferred and reported as an adjustment of the cost basis of the hedged
item. Deferred gains and losses are amortized into income over the
life of the hedged item. Outstanding derivatives that are hedges of
items carried at fair value are reflected in the financial statements
with the derivatives' fair value reported as unrealized gains and
losses directly in stockholder's equity.
As of December 31, 1994, the principal swaps have maturities ranging
from October 1998 to October 2000 and variable rates based on the
five-year treasury rate. As of December 31, 1993, Life of Virginia
paid variable rates based on the three and six month LIBOR index.
Life of Virginia is exposed to credit risk of derivative contracts in
the event of nonperformance by the counterparties to the financial
instruments. The credit risk is generally limited to the fair value
of those contracts that are favorable to Life of Virginia. Life of
Virginia has limited its credit risk by restricting its investments in
derivative contracts to a diverse group of highly rated major
financial institutions. See Note 1 regarding the methods and
assumptions used to estimate fair market value for financial
instruments.
Other Financial Instruments
Life of Virginia has certain investment commitments to provide capital and
fixed-rate loans as well as certain forward contract purchase commitments.
The investment commitments, which would be collateralized by related
properties of the underlying investments, involve varying elements of
credit and market risk. Investment commitments outstanding at December 31,
1994 and 1993, totaled $32.1 million and $447.2 million, respectively.
Fair Value of Financial Instruments
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of policy liabilities, various other non-
financial instruments, or other intangible items related to Life of
Virginia's business. Accordingly, care should be exercised in
deriving conclusions about Life of Virginia's business or financial
condition based on the fair value disclosures.
The carrying value and fair value of certain of Life of Virginia's
financial instruments are as follows:
(millions) As of December 31
1994 1993
Carrying Fair Carrying Fair
Value Value Value Value
Assets:
Fixed maturities and equity
securities (Note 3) $5,059.4 $4,825.7 $5,676.1 $5,852.7
Mortgage loans on real estate 527.6 530.8 508.1 576.2
Policy loans 165.3 162.0 156.9 154.5
Cash, short-term investments,
and receivables 621.0 621.0 416.3 416.3
Derivatives - - - 5.8
Liabilities:
Investment type insurance
contracts 3,380.3 3,295.5 3,721.1 3,736.4
Commissions and general
expenses 46.9 46.9 38.4 38.4
Derivatives - 3.7 - -
13. Subsequent Events
In January 1995, Life of Virginia ceded to Combined $600 million of
its Single Premium Deferred Annuity liabilities. In conjunction with
the liability cession, Life of Virginia transferred to Combined
available for sale fixed maturities with a fair value of $436.1
million and cost of $501.4 million and held to maturity fixed
maturities with a fair value of $81.4 million and a cost of $95.1
million. In addition, $5.5 million of accrued income related to the
assets above was transferred to Combined.
In January 1995, Life of Virginia dividended 100% of its Globe Life
Insurance Company ("Globe") common stock to Combined. At December 31,
1994, Globe had total assets of $954.9 million, total liabilities of
$765.7 million and total stockholder's equity of $189.2 million.
In January 1995, Life of Virginia received from Combined, in the form
of a capital contribution, $39.9 million of fixed maturities that will
be classified as held to maturity.
<PAGE>
APPENDIX
Illustrations of Death Benefits, Cash Values and Surrender Values
The following tables illustrate how the Surrender Value, Cash Value and Death
Benefit of a Policy change with the investment experience of Separate Account II
and with changes in the cost of insurance rates and administrative charges. The
tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated. The
tables are also based on the assumption that the Policyowner has not requested
an increase or decrease in the Specified Amount of the Policy, and that no
policy loans or partial surrenders have been made. Upon request, Life of
Virginia will provide an illustration based upon the proposed Insured's age, sex
and underwriting classification, the proposed Specified Amount of insurance, and
the frequency and amount of proposed premium payments.
The tables on the following pages illustrate a Policy issued to a male, age 40,
with an initial Specified Amount of $50,000 (of insurance) and premium payments
of $600 per year. The second column of the illustrations shows the accumulated
value of the premiums paid at the stated interest rate. The remaining columns
illustrate the Surrender Value, Cash Value and Death Benefit of a Policy over
the designated period under varying assumptions of investment rates of return,
underwriting risk classification, cost of insurance and death benefit option.
Policy values also take into account the charges deducted from premium payments
and Cash Value (See Charges and Deductions, p. 30).
The maximum cost of insurance rates allowable under the Policy (shown in the
illustrations as "guaranteed") are based upon the 1980 Commissioners' Standard
Ordinary Mortality Table. At most ages, Life of Virginia currently charges
lower cost of insurance rates (shown in the illustrations as "current") and
anticipates charging these rates for the foreseeable future.
The tables differ as shown below:
Rates of
Investment Underwriting Cost of Death
Return Risk Insurance Benefit
Illustrated Classification Rates Option Page
0,6 & 12% PNS Guaranteed A A-4
0,6 & 12% PNS Guaranteed B A-6
0,6 & 12% PNS Current A A-5
0,6 & 12% PNS Current B A-7
0,6 & 12% NS Guaranteed A A-12
0,6 & 12% NS Guaranteed B A-14
0,6 & 12% NS Current A A-13
0,6 & 12% NS Current B A-15
0,6 & 12% PS Guaranteed A A-8
0,6 & 12% PS Guaranteed B A-10
0,6 & 12% PS Current A A-9
0,6 & 12% PS Current B A-11
0,6 & 12% S Guaranteed A A-16
0,6 & 12% S Guaranteed B A-18
0,6 & 12% S Current A A-17
0,6 & 12% S Current B A-19
*Underwriting risk classification "PNS" means Preferred Nonsmoker, "NS" means
nonsmoker, "PS" means preferred smoker, and "S" means smoker.
The illustrations using the maximum cost of insurance rates will show the
minimum values that would be available under the Policy's terms based on assumed
investment rates of return of 0, 6 or 12%. The surrender values, cash values
and death benefits would be different from those shown if the gross annual
investment rates of return averaged 0, 6 or 12%, over a period of years, but
fluctuated above and below those averages during that period. Illustrations
using these rates also use the maximum monthly administrative charge after the
first policy year.
The illustrations using the cost of insurance rates currently charged by Life
of Virginia assume those current cost of insurance rates are continued for the
entire period indicated. Although Life of Virginia currently makes deductions
for cost of insurance based upon the current rates, and anticipates continuing
such practice for the foreseeable future, THERE IS NO GUARANTEE THAT SUCH RATES
WILL BE CONTINUED. At the discretion of Life of Virginia, the rates could be
increased or decreased, based upon its estimate of expected mortality. Thus,
the values in the third through the eleventh columns of those illustrations
using current cost of insurance rates indicate values that would be available,
assuming the stated investment rates of return, if the current rate of cost of
insurance and monthly administrative charges were continued. THOSE COLUMNS DO
NOT ILLUSTRATE VALUES THAT WOULD BE GUARANTEED IF THE HYPOTHETICAL INVESTMENT
RATES OF RETURN WERE EARNED.
The amounts shown for the Surrender Value, Cash Value, and Death Benefit
reflect the fact that the net investment return of the Subdivision is lower than
the gross return on the assets held in the particular Fund as a result of
expenses paid by it and charges levied against the Investment Subdivision. The
illustrations take into account a charge of 0.60%, which represents the average
investment advisory fee of the Funds, and a charge of .25%, which represents the
average annual expenses of the Funds. Assumed charges for fees and expenses, as
an annual percentage of the average daily net assets of the Funds, are based on
the actual fees and expenses incurred by the funds in 1994, or on estimates as
described below. Actual fees and expenses charged to a policy will depend on
the Investment Subdivisions chosen by the Policyowner. The illustrations also
take into account the charge by Life of Virginia to an Investment Subdivision
for assuming mortality and expense risks, made daily at an annual rate of .70%
of the net assets of the Investment Subdivision. After deduction of these
amounts, the illustrated gross annual investment rates of return of 0%, 6% and
12%, correspond to approximate net annual rates of -1.55%, 4.45% and 10.45%,
respectively.
The annual fees and expenses used for all the funds in these illustrations are
net of certain reimbursements and fee waivers by the Funds' investment advisors.
Life of Virginia cannot guarantee that the reimbursements will continue.
Absent reimbursements, the total annual expenses during 1994 for the
portfolios of the Variable Insurance Products Fund were 0.27% for Money Market
Portfolio, 0.71% for High Income Portfolio, 0.60% for Equity-Income Portfolio,
0.70% for Growth Portfolio, and 0.92% for Overseas Portfolio.
Absent reimbursements, the total annual expenses during 1994 for the Asset
Manager Portfolio of Variable Insurance Products Fund II were 0.81%.
The Contrafund Portfolio was recently organized and has no operating history.
Based on the Group Management Fees for October 1994 as described in the VIPF II
prospectus, the total management fee for 1994 would have been 0.62% of the
portfolio's average net assets. The VIPF II has provided an estimate for 1995 of
0.27% for other expenses. The adviser has voluntarily agreed to reimburse the
portfolio to the extent that total expenses exceed 1.00%. The adviser can
terminate this voluntary reimbursement at any time. Life of Virginia does not
represent that this estimate is true and complete, and disclaims all
responsibility for such figures. Actual expenses may be greater or less than
those shown.
The anticipated annual management fees and other expenses for the portfolios
of the Neuberger & Berman Advisers Management Trust are .97% for the Balanced
Portfolio, .91% for the Growth Portfolio, and .73% for the Limited Maturity Bond
Portfolio.
Until May 1, 1995, the Portfolios of the Advisers Management Trust had a
Distribution Plan pursuant to Rule 12b-1 which provided for the reimbursement of
Neuberger & Berman Management for certain Trust distribution expenses up to a
maximum of 0.25% on an annual basis of each Portfolio's average daily net
assets. The anticipated annual expenses shown above would be increased by the
following percentages if the 12b-1 fees for the months of January through April,
1995 were taken into account: 0.02% for the Balanced Portfolio; 0.02% for the
Growth Portfolio; and 0.02% for the Limited Maturity Bond Portfolio.
Absent reimbursements, the management fees and other expenses during 1994 for
the portfolios of Life of Virginia Series Fund would have been 1.16% for Common
Stock Index Portfolio, .81% for Government Securities Portfolio, .71% for Money
Market Portfolio, and .77% for Total Return Portfolio.
Since the International Equity Portfolio and the Real Estate Securities
Portfolio were recently organized and have no operating history, the expenses
for these portfolios are estimates provided by the Fund. The estimated total
annual expenses are 1.75% for International Equity Portfolio, and 1.50% for Real
Estate Securities Portfolio. Actual expenses may be different than those shown.
The management fees and other expenses during 1994 for the portfolios of
Oppenheimer Variable Account Funds were .50% for Oppenheimer Money Fund, .81%
for Oppenheimer High Income Fund, .81% for Oppenheimer Bond Fund, .80% for
Oppenheimer Capital Appreciation Fund, .79% for Oppenheimer Multiple Strategies
Fund; and .81% for Oppenheimer Growth Fund.
Absent certain expense waivers, the total annual expenses for the portfolios
of the Janus Aspen Series would have been 1.22% for Growth Portfolio, 1.28% for
Aggressive Growth Portfolio, and 1.49% for Worldwide Growth Portfolio for the
fiscal year ended December 31, 1994.
The total annual expenses for the Utility Fund and the Corporate Bond Fund are
0.85% and 0.80%, respectively, of the average daily net assets. The adviser has
agreed to waive all or a portion of its fee so that the total annual expenses
would not exceed 0.85% of average net assets for the Utility Fund and 0.80% of
average net assets for the Corporate Bond Fund. The adviser can terminate this
voluntary waiver at any time at its sole discretion. Without this waiver, the
advisory fee would be 0.75% of average annual net assets for the Utility Fund
and 0.60% of average annual net assets for the Corporate Bond Fund, and the
total annual expenses for the Utility Fund and the Corporate Bond Fund would be
1.60% and 1.40%, respectively, of average net assets.
All of the information used to determine average fees and expenses for the
illustrations was provided by the Funds. In some cases, estimates were
substituted by the Funds for the actual fees and expenses. Life of Virginia
does not represent that such estimates are true and complete, and disclaims all
responsibility for these figures.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes against Separate Account II, since Life of Virginia is not
currently making such charges. However, such charges may be made in the future
and, in that event, the gross annual investment rate of return would have to
exceed 0%, 6% or 12%, by an amount sufficient to cover the tax charges in order
to produce the surrender values, cash values, and death benefits illustrated
(See Federal Tax Matters, p. 35).
The tables do not reflect the increased premium required for underwriting risk
classes with anticipated mortality in excess of non-smoker (standard); if such
tables were shown they would indicate for otherwise identical Polices higher
cost of insurance charges and lower cash values and surrender values. The
tables also do not reflect any reduction in sales charges available to certain
groups (See Reduction of Charges for Group Sales, p. 32); if the reduced charges
were illustrated they would show increased cash values and surrender values.
The cost of insurance could be reduced, and/or the death benefit increased
(under Option A) depending on how the reductions in administrative charges and
mortality costs were applied.
[CAPTION]
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 62 362 50,362 89 389 50,389 116 416 50,416
2 1,292 285 615 50,615 359 689 50,689 436 766 50,766
3 1,986 549 856 50,856 685 993 50,993 835 1,142 51,142
4 2,715 798 1,083 51,083 1,015 1,300 51,300 1,262 1,547 51,547
5 3,481 1,033 1,296 51,296 1,347 1,609 51,609 1,721 1,983 51,983
6 4,285 1,283 1,493 51,493 1,710 1,920 51,920 2,242 2,452 52,452
7 5,129 1,516 1,673 51,673 2,073 2,231 52,231 2,797 2,955 52,955
8 6,016 1,732 1,837 51,837 2,435 2,540 52,540 3,390 3,495 53,495
9 6,947 1,930 1,982 51,982 2,795 2,848 52,848 4,023 4,076 54,076
10 7,924 2,108 2,108 52,108 3,151 3,151 53,151 4,698 4,698 54,698
15 13,594 2,477 2,477 52,477 4,635 4,635 54,635 8,670 8,670 58,670
20 20,832 1,938 1,938 51,938 5,466 5,466 55,466 14,035 14,035 64,035
25 30,068 * * * 4,802 4,802 54,802 20,910 20,910 70,910
30 41,856 * * * 1,025 1,025 51,025 28,824 28,824 78,824
35 56,902 * * * * * * 36,218 36,218 86,218
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 62 362 50,362 89 389 50,389 116 416 50,416
2 1,292 357 687 50,687 433 763 50,763 512 842 50,842
3 1,986 690 998 50,998 836 1,144 51,144 995 1,303 51,303
4 2,715 1,009 1,294 51,294 1,246 1,531 51,531 1,516 1,801 51,801
5 3,481 1,319 1,581 51,581 1,669 1,931 51,931 2,083 2,346 52,346
6 4,285 1,654 1,864 51,864 2,139 2,349 52,349 2,738 2,948 52,948
7 5,129 1,984 2,142 52,142 2,628 2,786 52,786 3,455 3,612 53,612
8 6,016 2,311 2,416 52,416 3,136 3,241 53,241 4,242 4,347 54,347
9 6,947 2,633 2,685 52,685 3,665 3,718 53,718 5,105 5,158 55,158
10 7,924 2,951 2,951 52,951 4,215 4,215 54,215 6,054 6,054 56,054
15 13,594 4,281 4,281 54,281 7,137 7,137 57,137 12,254 12,254 62,254
20 20,832 5,223 5,223 55,223 10,445 10,445 60,445 22,084 22,084 72,084
25 30,068 5,325 5,325 55,325 13,673 13,673 63,673 37,225 37,225 87,225
30 41,856 3,984 3,984 53,984 16,047 16,047 66,047 60,245 60,245 110,245
35 56,902 203 203 50,203 16,070 16,070 66,070 94,735 94,735 144,735
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost ofInsurance Rates (2) (3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 300 618 50,000 374 692 50,000 451 769 50,000
3 1,986 554 862 50,000 692 999 50,000 842 1,150 50,000
4 2,715 807 1,092 50,000 1,025 1,310 50,000 1,275 1,560 50,000
5 3,481 1,046 1,309 50,000 1,364 1,626 50,000 1,742 2,004 50,000
6 4,285 1,301 1,511 50,000 1,734 1,944 50,000 2,274 2,484 50,000
7 5,129 1,541 1,698 50,000 2,107 2,265 50,000 2,844 3,001 50,000
8 6,016 1,764 1,869 50,000 2,482 2,587 50,000 3,456 3,561 50,000
9 6,947 1,971 2,023 50,000 2,857 2,909 50,000 4,114 4,167 50,000
10 7,924 2,159 2,159 50,000 3,231 3,231 50,000 4,821 4,821 50,000
15 13,594 2,603 2,603 50,000 4,878 4,878 50,000 9,141 9,141 50,000
20 20,832 2,181 2,181 50,000 6,078 6,078 50,000 15,565 15,565 50,000
25 30,068 311 311 50,000 6,134 6,134 50,000 25,462 25,462 50,000
30 41,856 * * * 3,467 3,467 50,000 41,860 41,860 50,000
35 56,902 * * * * * * 70,057 70,057 74,961
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 372 690 50,000 448 766 50,000 528 846 50,000
3 1,986 696 1,004 50,000 843 1,151 50,000 1,003 1,310 50,000
4 2,715 1,019 1,304 50,000 1,258 1,543 50,000 1,530 1,815 50,000
5 3,481 1,333 1,596 50,000 1,687 1,950 50,000 2,106 2,368 50,000
6 4,285 1,674 1,884 50,000 2,166 2,376 50,000 2,772 2,982 50,000
7 5,129 2,011 2,168 50,000 2,664 2,822 50,000 3,504 3,661 50,000
8 6,016 2,344 2,449 50,000 3,184 3,289 50,000 4,309 4,414 50,000
9 6,947 2,674 2,727 50,000 3,727 3,779 50,000 5,196 5,248 50,000
10 7,924 3,001 3,001 50,000 4,292 4,292 50,000 6,172 6,172 50,000
15 13,594 4,388 4,388 50,000 7,338 7,338 50,000 12,634 12,634 50,000
20 20,832 5,432 5,432 50,000 10,921 10,921 50,000 23,195 23,195 50,000
25 30,068 5,734 5,734 50,000 14,815 14,815 50,000 40,547 40,547 50,000
30 41,856 4,727 4,727 50,000 18,745 18,745 50,000 69,153 69,153 80,217
35 56,902 1,285 1,285 50,000 22,205 22,205 50,000 115,562 115,562 123,652
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 101 441 50,441 164 504 50,504 230 570 50,570
3 1,986 263 579 50,579 374 690 50,690 497 813 50,813
4 2,715 399 691 50,691 569 861 50,861 765 1,058 51,058
5 3,481 509 778 50,778 746 1,015 51,015 1,033 1,301 51,301
6 4,285 620 835 50,835 932 1,147 51,147 1,326 1,541 51,541
7 5,129 703 864 50,864 1,094 1,255 51,255 1,615 1,776 51,776
8 6,016 754 861 50,861 1,230 1,337 51,337 1,896 2,004 52,004
9 6,947 774 827 50,827 1,336 1,390 51,390 2,167 2,221 52,221
10 7,924 758 758 50,758 1,408 1,408 51,408 2,423 2,423 52,423
15 13,594 * * * 897 897 50,897 3,123 3,123 53,123
20 20,832 * * * * * * 2,126 2,126 52,126
25 30,068 * * * * * * * * *
30 41,856 * * * * * * * * *
35 56,902 * * * * * * * * *
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1)
The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2)
The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3)
The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-8
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1)
$600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 173 513 50,513 238 578 50,578 306 646 50,646
3 1,986 410 726 50,726 531 847 50,847 663 979 50,979
4 2,715 644 936 50,936 836 1,128 51,128 1,055 1,347 51,347
5 3,481 875 1,143 51,143 1,153 1,422 51,422 1,485 1,754 51,754
6 4,285 1,132 1,347 51,347 1,514 1,729 51,729 1,988 2,203 52,203
7 5,129 1,387 1,548 51,548 1,888 2,049 52,049 2,538 2,699 52,699
8 6,016 1,638 1,746 51,746 2,277 2,384 52,384 3,139 3,247 53,247
9 6,947 1,886 1,940 51,940 2,680 2,734 52,734 3,798 3,852 53,852
10 7,924 2,132 2,132 52,132 3,099 3,099 53,099 4,520 4,520 54,520
15 13,594 2,848 2,848 52,848 4,978 4,978 54,978 8,853 8,853 58,853
20 20,832 2,705 2,705 52,705 6,387 6,387 56,387 14,913 14,913 64,913
25 30,068 1,310 1,310 51,310 6,681 6,681 56,681 23,192 23,192 73,192
30 41,856 * * * 4,612 4,612 54,612 34,019 34,019 84,019
35 56,902 * * * * * * 47,478 47,478 97,479
* In the absence of an additional premium, the Policy would lapse.
(1)
The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2)
The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3)
The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-9
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
</TABLE>
<TABLE>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1)
$600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 105 445 50,000 168 508 50,000 235 575 50,000
3 1,986 271 587 50,000 383 700 50,000 508 824 50,000
4 2,715 412 704 50,000 584 877 50,000 784 1,076 50,000
5 3,481 527 796 50,000 769 1,038 50,000 1,062 1,331 50,000
6 4,285 645 860 50,000 965 1,180 50,000 1,370 1,585 50,000
7 5,129 735 896 50,000 1,139 1,300 50,000 1,678 1,839 50,000
8 6,016 794 902 50,000 1,289 1,397 50,000 1,983 2,091 50,000
9 6,947 823 876 50,000 1,413 1,467 50,000 2,285 2,338 50,000
10 7,924 816 816 50,000 1,504 1,504 50,000 2,578 2,578 50,000
15 13,594 * * * 1,127 1,127 50,000 3,632 3,632 50,000
20 20,832 * * * * * * 3,430 3,430 50,000
25 30,068 * * * * * * * * *
30 41,856 * * * * * * * * *
35 56,902 * * * * * * * * *
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1)
$600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 177 517 50,000 243 583 50,000 311 651 50,000
3 1,986 418 735 50,000 541 857 50,000 674 991 50,000
4 2,715 657 950 50,000 852 1,145 50,000 1,075 1,367 50,000
5 3,481 894 1,163 50,000 1,178 1,447 50,000 1,516 1,785 50,000
6 4,285 1,159 1,374 50,000 1,548 1,763 50,000 2,033 2,248 50,000
7 5,129 1,421 1,582 50,000 1,935 2,096 50,000 2,601 2,763 50,000
8 6,016 1,680 1,788 50,000 2,337 2,445 50,000 3,226 3,333 50,000
9 6,947 1,938 1,992 50,000 2,757 2,811 50,000 3,913 3,967 50,000
10 7,924 2,193 2,193 50,000 3,195 3,195 50,000 4,669 4,669 50,000
15 13,594 2,990 2,990 50,000 5,247 5,247 50,000 9,367 9,367 50,000
20 20,832 2,987 2,987 50,000 7,057 7,057 50,000 16,520 16,520 50,000
25 30,068 1,764 1,764 50,000 8,157 8,157 50,000 27,860 27,860 50,000
30 41,856 * * * 7,527 7,527 50,000 47,091 47,091 54,626
35 56,902 * * * 3,130 3,130 50,000 79,214 79,214 84,759
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
</TABLE>
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 62 362 50,362 89 389 50,389 116 416 50,416
2 1,292 285 615 50,615 359 689 50,689 436 766 50,766
3 1,986 549 856 50,856 685 993 50,993 835 1,142 51,142
4 2,715 798 1,083 51,083 1,015 1,300 51,300 1,262 1,547 51,547
5 3,481 1,033 1,296 51,296 1,347 1,609 51,609 1,721 1,983 51,983
6 4,285 1,283 1,493 51,493 1,710 1,920 51,920 2,242 2,452 52,452
7 5,129 1,516 1,673 51,673 2,073 2,231 52,231 2,797 2,955 52,955
8 6,016 1,732 1,837 51,837 2,435 2,540 52,540 3,390 3,495 53,495
9 6,947 1,930 1,982 51,982 2,795 2,848 52,848 4,023 4,076 54,076
10 7,924 2,108 2,108 52,108 3,151 3,151 53,151 4,698 4,698 54,698
15 13,594 2,477 2,477 52,477 4,635 4,635 54,635 8,670 8,670 58,670
20 20,832 1,938 1,938 51,938 5,466 5,466 55,466 14,035 14,035 64,035
25 30,068 * * * 4,802 4,802 54,802 20,910 20,910 70,910
30 41,856 * * * 1,025 1,025 51,025 28,824 28,824 78,824
35 56,902 * * * * * * 36,218 36,218 86,218
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 62 362 50,362 89 389 50,389 116 416 50,416
2 1,292 357 687 50,687 433 763 50,763 512 842 50,842
3 1,986 690 998 50,998 836 1,144 51,144 995 1,303 51,303
4 2,715 1,009 1,294 51,294 1,246 1,531 51,531 1,516 1,801 51,801
5 3,481 1,313 1,575 51,575 1,663 1,925 51,925 2,077 2,339 52,339
6 4,285 1,629 1,839 51,839 2,114 2,324 52,324 2,711 2,921 52,921
7 5,129 1,929 2,087 52,087 2,569 2,727 52,727 3,392 3,550 53,550
8 6,016 2,210 2,315 52,315 3,027 3,132 53,132 4,123 4,228 54,228
9 6,947 2,474 2,526 52,526 3,489 3,541 53,541 4,911 4,963 54,963
10 7,924 2,734 2,734 52,734 3,969 3,969 53,969 5,775 5,775 55,775
15 13,594 3,823 3,823 53,823 6,528 6,528 56,528 11,440 11,440 61,440
20 20,832 4,606 4,606 54,606 9,466 9,466 59,466 20,491 20,491 70,491
25 30,068 4,413 4,413 54,413 12,064 12,064 62,064 34,158 34,158 84,158
30 41,856 2,509 2,509 52,509 13,322 13,322 63,322 54,375 54,375 104,375
35 56,902 * * * 11,341 11,341 61,341 83,549 83,549 133,549
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1)
$600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 300 618 50,000 374 692 50,000 451 769 50,000
3 1,986 554 862 50,000 692 999 50,000 842 1,150 50,000
4 2,715 807 1,092 50,000 1,025 1,310 50,000 1,275 1,560 50,000
5 3,481 1,046 1,309 50,000 1,364 1,626 50,000 1,742 2,004 50,000
6 4,285 1,301 1,511 50,000 1,734 1,944 50,000 2,274 2,484 50,000
7 5,129 1,541 1,698 50,000 2,107 2,265 50,000 2,844 3,001 50,000
8 6,016 1,764 1,869 50,000 2,482 2,587 50,000 3,456 3,561 50,000
9 6,947 1,971 2,023 50,000 2,857 2,909 50,000 4,114 4,167 50,000
10 7,924 2,159 2,159 50,000 3,231 3,231 50,000 4,821 4,821 50,000
15 13,594 2,603 2,603 50,000 4,878 4,878 50,000 9,141 9,141 50,000
20 20,832 2,181 2,181 50,000 6,078 6,078 50,000 15,565 15,565 50,000
25 30,068 311 311 50,000 6,134 6,134 50,000 25,462 25,462 50,000
30 41,856 * * * 3,467 3,467 50,000 41,860 41,860 50,000
35 56,902 * * * * * * 70,057 70,057 74,961
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 372 690 50,000 448 766 50,000 528 846 50,000
3 1,986 696 1,004 50,000 843 1,151 50,000 1,003 1,310 50,000
4 2,715 1,019 1,304 50,000 1,258 1,543 50,000 1,530 1,815 50,000
5 3,481 1,328 1,590 50,000 1,681 1,944 50,000 2,100 2,362 50,000
6 4,285 1,651 1,861 50,000 2,141 2,351 50,000 2,747 2,957 50,000
7 5,129 1,958 2,115 50,000 2,608 2,766 50,000 3,445 3,602 50,000
8 6,016 2,248 2,353 50,000 3,081 3,186 50,000 4,199 4,304 50,000
9 6,947 2,522 2,575 50,000 3,561 3,613 50,000 5,016 5,068 50,000
10 7,924 2,794 2,794 50,000 4,062 4,062 50,000 5,916 5,916 50,000
15 13,594 3,953 3,953 50,000 6,774 6,774 50,000 11,909 11,909 50,000
20 20,832 4,844 4,844 50,000 10,020 10,020 50,000 21,806 21,806 50,000
25 30,068 4,858 4,858 50,000 13,348 13,348 50,000 37,987 37,987 50,000
30 41,856 3,268 3,268 50,000 16,275 16,275 50,000 64,816 64,816 75,186
35 56,902 * * * 17,817 17,817 50,000 108,255 108,255 115,833
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 101 441 50,441 164 504 50,504 230 570 50,570
3 1,986 263 579 50,579 374 690 50,690 497 813 50,813
4 2,715 399 691 50,691 569 861 50,861 765 1,058 51,058
5 3,481 509 778 50,778 746 1,015 51,015 1,033 1,301 51,301
6 4,285 620 835 50,835 932 1,147 51,147 1,326 1,541 51,541
7 5,129 703 864 50,864 1,094 1,255 51,255 1,615 1,776 51,776
8 6,016 754 861 50,861 1,230 1,337 51,337 1,896 2,004 52,004
9 6,947 774 827 50,827 1,336 1,390 51,390 2,167 2,221 52,221
10 7,924 758 758 50,758 1,408 1,408 51,408 2,423 2,423 52,423
15 13,594 * * * 897 897 50,897 3,123 3,123 53,123
20 20,832 * * * * * * 2,126 2,126 52,126
25 30,068 * * * * * * * * *
30 41,856 * * * * * * * * *
35 56,902 * * * * * * * * *
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 173 513 50,513 238 578 50,578 306 646 50,646
3 1,986 405 721 50,721 526 842 50,842 658 974 50,974
4 2,715 611 903 50,903 801 1,094 51,094 1,019 1,311 51,311
5 3,481 789 1,058 51,058 1,063 1,331 51,331 1,389 1,658 51,658
6 4,285 968 1,183 51,183 1,336 1,551 51,551 1,796 2,011 52,011
7 5,129 1,125 1,286 51,286 1,599 1,761 51,761 2,220 2,381 52,381
8 6,016 1,280 1,388 51,388 1,872 1,979 51,979 2,682 2,789 52,789
9 6,947 1,434 1,487 51,487 2,154 2,207 52,207 3,186 3,240 53,240
10 7,924 1,586 1,586 51,586 2,446 2,446 52,446 3,738 3,738 53,738
15 13,594 1,900 1,900 51,900 3,646 3,646 53,646 6,959 6,959 56,959
20 20,832 1,403 1,403 51,403 4,243 4,243 54,243 11,239 11,239 61,239
25 30,068 * * * 3,220 3,220 53,220 16,238 16,238 66,238
30 41,856 * * * * * * 21,038 21,038 71,038
35 56,902 * * * * * * 23,496 23,496 73,496
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 105 445 50,000 168 508 50,000 235 575 50,000
3 1,986 271 587 50,000 383 700 50,000 508 824 50,000
4 2,715 412 704 50,000 584 877 50,000 784 1,076 50,000
5 3,481 527 796 50,000 769 1,038 50,000 1,062 1,331 50,000
6 4,285 645 860 50,000 965 1,180 50,000 1,370 1,585 50,000
7 5,129 735 896 50,000 1,139 1,300 50,000 1,678 1,839 50,000
8 6,016 794 902 50,000 1,289 1,397 50,000 1,983 2,091 50,000
9 6,947 823 876 50,000 1,413 1,467 50,000 2,285 2,338 50,000
10 7,924 816 816 50,000 1,504 1,504 50,000 2,578 2,578 50,000
15 13,594 * * * 1,127 1,127 50,000 3,632 3,632 50,000
20 20,832 * * * * * * 3,430 3,430 50,000
25 30,068 * * * * * * * * *
30 41,856 * * * * * * * * *
35 56,902 * * * * * * * * *
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the maximum cost of insurance rates
allowable under the Policy. Accordingly, if the assumed hypothetical gross
annual investment return were earned, the values and benefits of an actual
Policy with the listed specifications could never be less than those shown,
and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<CAPTION>
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Guaranteed
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 177 517 50,000 243 583 50,000 311 651 50,000
3 1,986 414 730 50,000 536 852 50,000 669 986 50,000
4 2,715 625 917 50,000 818 1,111 50,000 1,040 1,332 50,000
5 3,481 810 1,079 50,000 1,089 1,358 50,000 1,423 1,692 50,000
6 4,285 997 1,212 50,000 1,375 1,590 50,000 1,848 2,063 50,000
7 5,129 1,164 1,326 50,000 1,654 1,815 50,000 2,294 2,456 50,000
8 6,016 1,330 1,437 50,000 1,944 2,051 50,000 2,785 2,892 50,000
9 6,947 1,494 1,548 50,000 2,245 2,299 50,000 3,324 3,377 50,000
10 7,924 1,658 1,658 50,000 2,560 2,560 50,000 3,917 3,917 50,000
15 13,594 2,049 2,049 50,000 3,942 3,942 50,000 7,544 7,544 50,000
20 20,832 1,660 1,660 50,000 4,906 4,906 50,000 12,927 12,927 50,000
25 30,068 * * * 4,543 4,543 50,000 20,880 20,880 50,000
30 41,856 * * * 1,145 1,145 50,000 33,493 33,493 50,000
35 56,902 * * * * * * 56,037 56,037 59,959
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $600 premium is paid at the beginning of
each policy year. Values would be different if premiums are paid with a
different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient cash
value.
(3) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -1.55%, 4.45% AND 10.45%. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATE OF RETURN AVERAGES 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
May 30, 1995
Supplement to Prospectuses Dated May 1, 1995 for
Life of Virginia Separate Accounts II, III, and 4
As of the date of this supplement, Policyowners in the State of California may
invest in three Investment Subdivisions of Separate Account II, III or 4 that
were previously unavailable to them. These are the ones investing in shares of
the Utility Fund and the Corporate Bond Fund of the Insurance Management Series,
and the one investing in shares of the Contrafund Portfolio of the Variable
Insurance Products Fund II.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
May 1, 1995
Supplement to Prospectuses for
Life of Virginia Separate Accounts II, III, and 4
In August 1994 the shareholders of the Neuberger & Berman Advisers Management
Trust (the "AMT") approved a plan to convert the AMT into a "master-feeder" fund
structure. Life of Virginia has recently learned that the AMT and the new
master fund have applied to the Internal Revenue Service for a private letter
ruling with respect to certain tax issues that relate to the "master-feeder"
fund structure. One of those issues relates to the applicability of the
"look-through" rule of Section 817 of the Internal Revenue Code to the new fund
structure. The ruling request seeks assurance that the "look-through" rule will
be applied in a manner that will treat separate accounts investing in the new
fund structure as owners of the underlying assets of the new master fund for tax
purposes. If the "look-through" rule is not applied in this manner, variable
life insurance and variable annuity policies whose cash/account values are
invested in the new fund structure will not be treated as life insurance and
annuity policies for tax purposes. (See "SPECIAL CONSIDERATIONS", page 16 of
the AMT Balanced Portfolio prospectus, page 15 of the AMT Growth Portfolio
prospectus and page 14 of the AMT Limited Maturity Bond Portfolio prospectus,
all dated May 1, 1995.)
<PAGE>
May 30, 1995
Supplement to Prospectuses Dated May 1, 1995 for
Life of Virginia Separate Accounts II, III and 4
As of the date of this supplement, Policyowners in the State of California may
invest in three Investment Subdivisions of Separate Account II, III or 4 that
were previously unavailable to them. These are the ones investing in shares of
the Utility Fund and the Corporate Bond Fund of the Insurance Management Series,
and the one investing in shares of the Contrafund Portfolio of the Variable
Insurance Products Fund II.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
<PAGE>
Supplement Dated September 8, 1995
to Prospectus Dated May 1, 1995
Life of Virginia Separate Account II
Effective October 2, 1995, premium payments and account value transfers may no
longer be allocated to the investment subdivisions of Separate Account II that
invest in shares of the following Portfolios of the Funds:
Variable Insurance Products Fund:
-- Money Market Portfolio
-- High Income Portfolio
Neuberger & Berman Advisers Management Trust
-- Balanced Portfolio
-- Growth Portfolio
-- Limited Maturity Bond Portfolio
Oppenheimer Variable Account Funds
-- Oppenheimer Money Fund
Although premium payments and account value transfers may not be allocated to
the investment subdivisions listed above as of October 2, 1995, cash values
that are allocated to those subdivisions as of October 1, 1995 may remain in
those subdivisions.
Policyowners currently allocating premium payments to any of the six investment
subdivisions mentioned above may, by written notice to the Home Office,
re-allocate those payments to other investment subdivisions prior to October 2,
1995. If a Policyowner does not do so, the portions of any premiums received on
or after October 2, 1995 that would have been allocated to any of the six
investment subdivisions will be refunded to the Policyowner. Similarly,
transfer requests to any of the six investment subdivisions received on or after
October 2, 1995 will not be implemented.
If a Policyowner has a Dollar Cost Averaging program in effect which
automatically transfers account values into any of the six investment
subdivisions mentioned above, the transfers into those subdivisions will cease
as of October 2, 1995. Policyowners in this situation should, by written notice
to the Home Office, re-allocate those Dollar Cost Averaging transfers to other
investment subdivisions prior to October 2, 1995. If they do not re-allocate
their Dollar Cost Averaging transfers prior to that date, the transfers which
would have been allocated to the six investment subdivisions mentioned above
will remain in the investment subdivision that is being used to fund the
Policyowner's Dollar Cost Averaging transfers.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
