As Filed With the Securities and Exchange Commission on May 1, 1996
--------------
REGISTRATION NO. 33-9651
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 13
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
LIFE OF VIRGINIA SEPARATE ACCOUNT II
(Exact Name of Registrant)
THE LIFE INSURANCE COMPANY OF VIRGINIA
(Name of Depositor)
6610 West Broad Street, Richmond, Virginia 23230
(Address of Principal Executive Office)
---------------------------------------
John J. Palmer, Senior Vice President
The Life Insurance Company of Virginia
6610 West Broad Street, Richmond, Virginia 23230
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth
Sutherland, Asbill & Brennan
1275 Pennsylvania Ave., N.W. Washington, D.C. 20004-2404
- ------------------------------------------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1996 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a) of Rule 485
on pursuant to paragraph (a) of Rule 485
- ------------------------------------------------------------------
* Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities. The Registrant
filed the 24f-2 Notice for the fiscal year ended December 31, 1995 on February
28, 1996.
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
Item No. of
Form N-8B-2 Caption in Prospectus
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of the Policies
5. Life of Virginia and Separate Account II
6. Separate Account II
7. Not Required
8. Not Required
9. Legal Proceedings
10. Introduction; Separate Account II; The Funds;
Charges and Deductions; The Policy; Policy
Benefits; Voting
Rights; General Provisions
11. Introduction; The Funds
12. Introduction; The Funds
13. Introduction; Charges and Deductions; The Funds
14. Introduction; The Policies
15. The Policies
16. The Policies; The Funds
17. Introduction; Charges and Deductions; Policy Rights;
The Funds
18. The Funds; The Policies
19. General Provisions; Voting Rights
20. Not Applicable
21. Policy Rights; General Provisions
22. Not Applicable
23. Safekeeping of the Assets of Separate Account II
24. General Provisions
25. The Life Insurance Company of Virginia
26. Not Applicable
27. The Life Insurance Company of Virginia
28. Executive Officers and Directors
29. The Life Insurance Company of Virginia
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Distribution of the Policies
36. Not Required
37. Not Applicable
38. Introduction; Distribution of the Policies
39. Distribution of the Policies; Introduction
40. Distribution of the Policies
41. The Life Insurance Company of Virginia;
Distribution of the Policies
42. Not Applicable
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43. Not Applicable
44. The Policy
45. Not Applicable
46. Policy Benefits; Charges and Deductions;
General Provisions
47. The Funds
48. Not Applicable
49. Not Applicable
50. Separate Account II
51. Cover Page; Introduction; The Policies;
Charges and Deductions
52. The Funds
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Financial Statements
<PAGE>
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 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
Life of Virginia Series Fund, Inc., the Oppenheimer Variable Account Funds, the
Janus Aspen Series, the Federated Insurance Series, and The Alger American Fund
(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 AN OTHER AGENCY.
Please read this prospectus carefully and retain it for future reference. The
date of this Prospectus is May 1, 1996.
1
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Variable Insurance Products Fund, which is managed by Fidelity Management &
Research Company, currently has five portfolios, three of which are available to
Policyowners through Separate Account II:
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.
Life of Virginia Series Fund, Inc., which is managed by Aon Advisors, Inc.,
currently has six portfolios which are available to Policyowners through
Separate Account II:
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 Funds,
Inc., currently has nine portfolios, five of which are available to Policyowners
through Separate Account II:
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 nine portfolios, six of which are available to Policyowners through Separate
Account II:
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
International Growth Portfolio (not available in
California)
Balanced Portfolio
Flexible Income Portfolio
Federated Insurance Series, which is managed by
Federated Advisers, currently has five portfolios,
three of which are available to Policyowners through
Separate Account II:
Federated Utility Fund II
Federated High Income Bond Fund II
(Same as Corporate Bond)
Federated American Leaders Fund II
(not available in California)
The Alger American Fund, which is managed by Fred Alger Management, Inc.,
currently has six portfolios, two of which, Alger American Growth Portfolio and
Alger American Small Capitalization Portfolio, 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.
2
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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
General Electric Company...........................11
Separate Account II................................11
Addition, Deletion, or Substitution of Investments.11
The Funds
Variable Insurance Products Fund...................13
Variable Insurance Products Fund II................13
Life of Virginia Series Fund, Inc..................14
Oppenheimer Variable Account Funds.................15
Janus Aspen Series.................................15
Federated Insurance Series.........................16
The Alger American Fund............................16
Resolving Material Conflicts.......................17
Termination of Participation Agreements............17
The Policy
Purpose of the Policy..............................18
Purchasing a Policy................................18
Premiums...........................................18
Policy Lapse and Reinstatement.....................20
Examination of Policy (Refund Privilege)...........20
Exchange Privilege.................................21
Policy Benefits
Cash Value Benefits................................21
Transfers..........................................23
Dollar-Cost Averaging..............................23
Powers of Attorney.................................24
Loan Benefits......................................24
Life Insurance Proceeds............................25
Benefits at Maturity...............................28
Optional Payment Plans.............................28
Charges and Deductions
Deductions From Premiums...........................29
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
3
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TABLE OF CONTENTS (Cont.)
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.........................................41
Legal Proceedings.....................................41
Experts...............................................41
Additional Information................................41
Financial Statements..................................41
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.
4
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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 and may be changed by filing the change in good
form with Life of Virginia. 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.
Effective Date - The date that coverage begins under the Policy.
Funds -- The mutual funds available under this Policy. Currently there are
seven: the Variable Insurance Products Fund, the Variable Insurance Products
Fund II, the Life of Virginia Series Fund, Inc., the Oppenheimer Variable
Account Funds, the Janus Aspen Series, the Federated Insurance Series, and The
Alger American Fund.
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 Effective Date
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 applicable.
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 Cash Value less any
applicable surrender charges.
5
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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.
6
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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 amount and frequency of premium
payments, and 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 to
which premiums and cash values may be allocated. 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 Life of Virginia Series Fund,
Inc., the Oppenheimer Variable Account Funds, the Janus Aspen Series, the
Insurance Management Series, and The Alger American Fund. The accompanying
prospectuses for the Funds describe the investment objectives and the risks of
each of the Funds' portfolios.
Separate Account II also has certain "closed" Investment Subdivisions no
longer available for allocation of premium payments and transfers of Cash Value.
Cash Value remaining in the closed Investment Subdivisions that are currently
available under the Policies. Further information about the shares of the Fund
portfolios in which the closed Investment Subdivisions are invested may be found
in the current prospectuses for those Fund Portfolios, and in a supplement to
this prospectus. Write or call Life of Virginia for more information if needed.
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. 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. In order to allocate money out of the
Money Market Portfolio of the Life of Virginia Series Fund, 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.
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.
7
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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 only, 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. 25.) 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.)
8
<PAGE>
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.
29.)
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. 29)
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 varies by
initial specified amount and 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.)
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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 latest. 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. 20)
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.
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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. Effective April 1,
1996, Life of Virginia is an indirectly, wholly-owned subsidiary of GNA
Corporation. Previously, Life of Virginia was an indirectly, wholly-owned
subsidiary of Aon Corporation, an affiliate of Aon Advisors. GNA Corporation is
a wholly-owned subsidiary of General Electric Capital Corporation ("GE
Capital"). GE Capital, a diversified financial services company, is a
wholly-owned subsidiary of General Electric Company. 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.
General Electric Company
General Electric Company ("GE") is a New York corporation founded more than
100 years ago by Thomas Edison. GE is the world's largest manufacturer of jet
engines, engineering plastics, medical diagnostic equipment and large-sized
electric power generation equipment. Its subsidiary, GE Capital, is a
diversified financial services company with subsidiaries engaged in commercial
and industrial specialized, mid-market and indirect consumer financing
businesses. The GE family of companies includes numerous insurance companies,
including Great Northern Insured Annuity Corporation, Life of Virginia, American
First Security Life Insurance Company, Federal Home Life Insurance Company, the
Harvest Life Insurance Company, Union Fidelity Life Insurance Company and
others.
The GE family of companies also includes Forth Financial Securities
Corporation (a broker/dealer registered with the Securities and Exchange
Commission) which acts as principal underwriter for the Policies.
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 available for allocation under the Policy,
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.
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.
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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.
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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. 17.) 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, three
of which, Equity-Income Portfolio, Growth Portfolio, and Overseas Portfolio, are
available to Policyowners through Separate Account II.
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 S&P 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 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.
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.
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Contrafund Portfolio seeks capital appreciation by investing mainly in equity
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.
Life of Virginia Series Fund, Inc.
Life of Virginia Series Fund, Inc. ("Life of Virginia Series Fund") currently
has six portfolios, all of which are currently available to Policyowners through
Separate Account II: Common Stock Index Portfolio, Government Securities
Portfolio, Money Market Portfolio, Total Return Portfolio, International Equity
Portfolio, and Real Estate Securities Portfolio.
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.
Government Securities Portfolio has the investment objective of seeking high
current income and protection of capital through investments in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
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, through
investment in common stocks traded on the New York Stock Exchange and the
American Stock Exchange, to a limited extent, in the over-the-counter markets.
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 adviser.
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 Life of Virginia Series
Fund. 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 effective annual 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 a portion of the
investment advisory fee for the first $100,000,000 of average daily net assets
of the Money Market Portfolio for 1996, resulting in a fee of .10%. There is no
guarantee that the fee waiver will continue after 1996.
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Oppenheimer Variable Account Funds
Oppenheimer Variable Account Funds ("OVAF") currently has nine portfolios,
five of which are available to Policyowners through Separate Account II:
Oppenheimer High Income Fund, Oppenheimer Bond Fund, Oppenheimer Capital
Appreciation Fund, Oppenheimer Growth Fund, and Oppenheimer Multiple Strategies
Fund.
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. This Fund may have substantial holdings of
lower-rated debt securities or "junk" bonds. The risks of investing in junk
bonds are described in the prospectus for the OVAF, which should be read
carefully before investing.
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 Funds Inc. ("OFI") serves as investment adviser to OVAF. OVAF pay
OFI a monthly management fee. The monthly fee payable to OFI is computed
separately on the net assets of each portfolio as of the close of business each
day. The management fee rates are as follows (i) 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
(ii) 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.
Janus Aspen Series
The Janus Aspen Series ("JAS") currently has nine portfolios, six of which are
currently available to Policyowners through Separate Account II: Growth
Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio,
International Growth Portfolio, Balanced Portfolio, and Flexible Income
Portfolio. THE INTERNATIONAL GROWTH PORTFOLIO IS NOT AVAILABLE IN CONNECTION
WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
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 companies of any size. Generally, this Portfolio emphasizes larger, more
established issuers.
Aggressive Growth Portfolio has the investment objective of long-term growth
of capital. The Aggressive Growth Portfolio is a non-diversified portfolio that
will seek to achieve its objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies.
Worldwide Growth Portfolio has the investment objective of long-term growth of
capital 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.
International Growth Portfolio has the investment objective of long-term
growth of capital. The International Growth Portfolio will seek to achieve its
objective primarily through investments in common stocks of issuers located
outside the United States. The Portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States.
Balanced Portfolio has the investment objective of seeking long-term growth of
capital, consistent with the preservation of capital and balanced by current
income. The Portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in
securities selected primarily for their income potential.
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Flexible Income Portfolio has the investment objective of seeking to obtain
maximum total return, consistent with preservation of capital. Total return is
expected to result from a combination of income and capital appreciation. The
Portfolio pursues its objective primarily by investing in any type of
income-producing securities. This Portfolio may have substantial holdings of
lower-rated debt securities or "junk" bonds. The risks of investing in junk
bonds are described in the prospectus for the JAS, which should be read
carefully before investing.
Janus Capital Corporation serves as Investment Adviser to the portfolios of
JAS. The portfolios pay a fee to the Investment Adviser. The Growth, Aggressive
Growth, Worldwide Growth, International Growth and Balanced 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. The Flexible Income Portfolio is subject to the following
advisory fee schedule: .65% of the first $300 million, and .55% of amounts over
$300 million. Janus Capital has agreed to reduce the advisory fee for the
Growth, Aggressive Growth, Worldwide Growth, International Growth, and Balanced
Portfolios to the extent that such fee exceeds the effective rate of the Janus
retail fund corresponding to such portfolios. 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 JAS.
Federated Insurance Series
The Federated Insurance Series ("FIS") currently has five portfolios, three of
which, Federated Utility Fund II, Federated High Income Bond Fund II and
Federated American Leaders Fund II, are available to Policyowners through
Separate Account II. THE FEDERATED AMERICAN LEADERS FUND II IS NOT AVAILABLE IN
CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
Federated Utility Fund II has the investment objective of high current income
and moderate capital appreciation. The Federated Utility Fund II will seek to
achieve its objective by investing primarily in equity and debt securities of
utility companies.
Federated High Income Bond Fund II has the investment objective of high
current income. The Federated High Income Bond Fund II 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 FIS, which should be read carefully before investing.
Federated American Leaders Fund II has the primary investment objective of
long-term growth of capital, and a secondary objective of providing income. The
Federated American Leaders Fund II will seek to achieve its objective by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue chip" companies.
Federated Advisers serves as investment adviser to the Federated Utility Fund
II, Federated High Income Bond Fund II and Federated American Leaders Fund II.
The maximum management fee is an annual investment advisory fee equal to .75% of
the Federated Utility Fund II's average daily net assets, .60% of the Federated
High Income Bond Fund II's average daily net assets, and .75% of the Federated
American Leaders Fund II'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 Federated Utility Fund II, Federated High Income Bond Fund II, and
Federated American Leaders Fund II would not exceed 0.85%, 0.80% and 0.85%,
respectively, of average net assets. Based on total expenses during 1995 of
3.09% for Federated Utility Fund II, 4.20% for Federated High Income Bond Fund
II, and 2.21% for Federated American Leaders Fund II, the adviser estimates that
during 1996 it will waive management fees of .75%, .60% and .75%, respectively.
The adviser can terminate this voluntary waiver at any time at its sole
discretion.
The Alger American Fund
The Alger American Fund ("AAF") currently has six portfolios, two of which are
currently available to Policyowners through Separate Account II: Alger American
Small Capitalization Portfolio and Alger American Growth Portfolio.
Alger American Small Capitalization Portfolio has the investment objective of
long-term capital appreciation. Except during temporary defensive periods, this
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase, have a total market capitalization
within the range of companies included in the Russell 2000 Growth Index, updated
quarterly. The Portfolio may invest up to 35% of its total assets in equity
securities of companies that, at the time of purchase, have total market
capitalization outside the range of companies included in the Russell 2000
Growth Index and in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
Alger American Growth Portfolio has the investment objective of long-term
capital appreciation. Except during temporary defensive periods, this Portfolio
invests at least 65% of its total assets in equity securities of companies that,
at the time of purchase, have a total market capitalization of $1 billion or
greater.
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Fred Alger Management, Inc. serves as the investment manager to the Alger
American Small Capitalization Portfolio and Alger American Growth Portfolio.
The manager receives an annual fee from each portfolio based on the average
daily net assets of the portfolio at the following rates: Small Capitalization
Portfolio, 0.85%; Growth Portfolio, 0.75%. Fred Alger Management, Inc. has
agreed to reimburse each of these portfolios to the extent that the annual
operating expenses (excluding interest, taxes, fees for brokerage services and
extraordinary expenses) exceed 1.50% of the average daily net assets of either
portfolio for any fiscal year.
THERE IS NO ASSURANCE THAT THE STATED
OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
Life of Virginia currently is compensated by an affiliate(s) of each of the
Funds based upon an annual percentage of the average assets held in the Fund by
Life of Virginia. These percentage amounts, which vary by Fund, are intended to
reflect administrative and other services provided by Life of Virginia to the
Fund and/or affiliate(s).
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, Janus Aspen Series, Life of Virginia Series Fund, Inc., and The
Alger American Fund 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.
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. Federated
Insurance Series. This agreement may be terminated by any of the parties on
180 days advance written notice to the other parties.
The Alger American Fund. This agreement may be terminated at the option of
any party upon six months' written notice to the other parties, unless a shorter
time is agreed to by the parties.
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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
become effective on the Effective Date, which is the date 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.
29).
If the first full premium is paid and a conditional receipt given to the
applicant, the premium is placed in Life of Virginia's General Account until the
Effective Date. On the Effective Date, the net premium is 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. until the end
of the Initial Investment Period. The Initial Investment Period ends either
on the date the Home Office receives a form satisfactory to Life of Virginia
and signed 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. For premiums received after the Policy is approved for issue, but
before the end of the Initial Investment Period, the net premiums will also be
placed in the Investment Subdivision that 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 until the end of the Initial
Investment Period.
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
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Subdivisions. Furthermore, the portion of each net premium allocated to any
particular Investment Subdivision must be at least 1%. 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. 20.)
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, as amended, 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.
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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. 29.). 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.
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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. 25), 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. 29.)
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. 25.)
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.)
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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 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 any 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.
29).
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.
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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
After the Initial Investment Period, 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 Subdivision designated for the purpose of
Dollar-Cost Averaging is the investment subdivision that invests in the Money
Market Portfolio of Life of Virginia Series Fund, Inc. 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.
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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 cash value at the end of the
valuation period during which the loan request is received, less any surrender
charges and less any previously outstanding loan.
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.
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<PAGE>
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.
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<PAGE>
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.
<TABLE>
<CAPTION>
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
<S> <C> <C> <C>
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
</TABLE>
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).
26
<PAGE>
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.29.)
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. 29. ) In addition, any change in the
Specified Amount would affect the maximum premium limitation (See Maximum
Premium Limitations, p. 19.). 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. 25.), 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.
27
<PAGE>
(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.
28
<PAGE>
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.)
Specialized Uses of the Policy
The Policy should be purchased as a long-term investment designed to provide a
death benefit. The Policy's Surrender Value, as well as its death benefit, may
be used to provide proceeds for various individual and business financial
planning purposes. However, loans and partial withdrawals will affect the
Surrender Value and death benefit proceeds, and may cause the Policy to lapse.
If the investment performance of Investment Subdivisions to which cash value is
allocated is not sufficient to provide funds for the specific planning purpose
contemplated, or if insufficient payments are made or cash value maintained,
then the Owner may not be able to utilize the Policy to achieve the purposes for
which it was purchased. Because the Policy is designed to provide benefits on a
long-term basis, before purchasing a Policy for a specialized purpose a
purchaser should consider whether the long-term nature of the Policy, and the
potential impact of any contemplated loans and partial withdrawals, are
consistent with the purpose for which the Policy is being considered.
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
29
<PAGE>
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.
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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. 29.) 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.
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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.
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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.
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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.
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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.
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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. The Internal Revenue Service (the "Service")
has 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. The Treasury Department has 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 Department 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 optional
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.
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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
includable 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.
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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.
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.
38
<PAGE>
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.
39
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF LIFE OF VIRGINIA
Name and Position(s)
With Life of Virginia* Principal Occupations Last Five Years
Patrick E. Welch*** Chairman of the Board of Directors of Life of
Virginia since April 1, 1996. Director, President and
Chief Executive Officer of Great Northern Insured
Annuity Corporation ("GNA") since 1992. Executive Vice
President and Chief Operating Officer of GNA 1991-1992.
Senior Vice President and Chief Financial Officer of
GNA Corporation and its subsidiaries 1983-1991.
President and CEO of GNA Investors Trust since 1992.
Senior Vice President and Treasurer of GNA Investors
Trust 1986-1992.
Paul E. Rutledge III** Director, President and Chief Operating Officer, Life of
Virginia, 5/91 to present; Executive Vice President and
Chief Operating Officer, United Investors Life Insurance
Company, Birmingham, Alabama, 9/87 to 4/91.
John J. Palmer** Director, Life of Virginia, since 1986; Senior Vice
President, Life of Virginia, since 1980; President,
Life of Virginia Series Fund, Inc., since 1986;
President, Forth Financial Securities Corporation,
since 2/92; President, Aon Asset Management Fund, Inc.,
since 1991.
H. Gaylord Hodges, Jr.** Director, Life of Virginia, since 1987; Senior
Vice President, Life of Virginia, since 1986.
William D. Baldwin** Director, Life of Virginia since 1987; Senior Vice
President, Life of Virginia, since 1985.
Selwyn L. Flournoy, Jr.** Director, Life of Virginia, since 5/89; Senior Vice
President, Life of Virginia, since 1980.
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.
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.
Robert D. Chinn Senior Vice President - Agency, Life of Virginia,
since 1/92; Vice President, Life of Virginia,
since 1985.
Thomas A. Barefield Senior Vice President - Special Markets, Life of
Virginia, since 1993; Vice President - Special
Markets, Life of Virginia, 1/91 to 12/93; Vice
President - Registered Products, Life of Virginia,
12/86 to 1/91.
Hans L. Carstensen*** Director, Life of Virginia, since April 1, 1996.
Director and Chief Marketing Officer of GNA since
April 1994. Senior Vice President of GNA since
1987.
Victor C. Moses*** Director, Life of Virginia, since April 1, 1996.
Director of GNA since April 1994. Senior Vice
President, Business Development, and Chief Actuary
of GNA since May 1993. Senior Vice President and
Chief Financial Officer of GNA 1991-1993. Vice
President and Chief Actuary of GNA 1983- 1991.
Senior Vice President, Controller and Treasurer GNA
Investors Trust 1992-1993.
Geoffrey S. Stiff*** Director, Life of Virginia, since April 1, 1996.
Director of GNA since April 1994. Senior Vice
President, Chief Financial Officer and Treasurer of
GNA since May 1993. Vice President, Chief Financial
Officer and Director of Employers Reinsurance
Corporation 1987-1993. Senior Vice President,
Controller and Treasurer of GNA Investors Trust
since 1993.
- -------------------------------------------------------------------------------
* 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 GNA Corporation, Two
Union Square, 601 Union Street, Seattle, WA 98101.
The composition of the Board of Directors of Life of Virginia changed following
the sale of Life of Virginia on April 1, 1996.
40
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on
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. 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, as set forth in their
reports thereon appearing elsewhere herein and in the registration statement,
and are included 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.
41
<PAGE>
Audited Financial Statements
Life of Virginia Separate Account II
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE>
Life of Virginia Separate Account II
Audited Financial Statements
Year ended December 31, 1995
TABLE OF CONTENTS
Report of Independent Auditors......................................1
Statements of Assets and Liabilities................................3
Statements of Operations............................................9
Statements of Changes in Net Assets.................................9
Notes to Financial Statements......................................26
<PAGE>
[ERNST & YOUNG LLP Letterhead]
1
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, Total Return,
International Equity and Real Estate Securities 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 and Contrafund portfolios; the
Advisers Management Trust--Balanced, Bond and Growth portfolios; the Insurance
Management Series--Corporate Bond and Utility portfolios; Janus
Aspen--Aggressive Growth, Growth, Worldwide Growth, Balanced and Flexible Income
portfolios; and Alger American--Small Cap and Growth portfolios) as of December
31, 1995, 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. Common Stock Index, Government Securities, Money Market and Total
Return portfolios, the Oppenheimer Variable Account Funds portfolios, the
Variable Insurance Products Fund portfolios, the Variable Insurance Products
Fund II Asset Manager portfolio, the Advisers Management Trust portfolios, and
for the period from August 25, 1995 (date of inception) to December 31, 1995 for
the Life of Virginia Series Fund, Inc. International Equity portfolio, for the
period from October 5, 1995 (date of inception) to December 31, 1995 for the
Life of Virginia Series Fund, Inc. Real Estate Securities portfolio, for the
period from February 7, 1995 (date of inception) to December 31, 1995 for the
Variable Insurance Products Fund II Contrafund portfolio, for the period from
October 31, 1995 (date of inception) to December 31, 1995 for the Insurance
Management Series Corporate Bond portfolio, for the period from March 22, 1995
(date of inception) to December 31, 1995 for the Insurance Management Series
Utility portfolio, for the year ended December 31, 1995 and for the period from
March 8, 1994 (date of inception) to December 31, 1994 for the Janus Aspen
Aggressive Growth, Growth, and Worldwide Growth portfolios, for the period from
November 14, 1995 (date of inception) to December 31, 1995 for the Janus Aspen
Balanced portfolio, for the period from December 20, 1995 (date of inception) to
December 31, 1995 for the Janus Aspen Flexible Income portfolio, for the period
<PAGE>
2
from October 11, 1995 (date of inception) to December 31, 1995 for the Alger
American Small Cap portfolio, and for the period from October 23, 1995 (date of
inception) to December 31, 1995 for the Alger American Growth portfolio. 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, 1995, 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.
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,
1995, 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 LLP
Ernst & Young LLP
Richmond, Virginia
February 8, 1996
<PAGE>
<TABLE>
<CAPTION>
3
Life of Virginia Separate Account II
Statements of Assets and Liabilities
December 31, 1995
LIFE OF VIRGINIA SERIES FUND, INC.
------------------------------------------------------------------------------------------
COMMON GOVERNMENT MONEY TOTAL INTERNATIONAL REAL ESTATE
STOCK INDEX SECURITIES MARKET RETURN EQUITY SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Life of
Virginia Series
Fund, Inc., at fair value
(Note 2):
Common Stock Index
Portfolio (51,195 shares;
cost-$872,844) $1,074,583
Government Securities
Portfolio (30,660 shares;
cost-$311,003) $321,318
Money Market Portfolio
(162,339 shares;
cost-$1,726,097) $1,681,833
Total Return Portfolio
(187,167 shares;
cost-$2,951,105) $2,981,577
International Equity
Portfolio (897 shares;
cost-$9,196) $9,389
Real Estate Securities
Portfolio (36 shares;
cost-$399) $403
Receivable from affiliate
(Note 3) 1,532 - - 104,439 - 1
Deposits in process - 36 130,935 - - -
------------------------------------------------------------------------------------------
1,076,115 321,354 1,812,768 3,086,016 9,389 404
LIABILITIES
Accrued expenses payable
to affiliate (Note 3) 41 641 108,415 118 6 -
Deposits pending policy
approval - - 301,401 - - -
Withdrawal in process 194 - - 231 - -
------------------------------------------------------------------------------------------
TOTAL LIABILITIES 235 641 409,816 349 6 -
------------------------------------------------------------------------------------------
NET ASSETS $1,075,880 $320,713 $1,402,952 $3,085,667 $9,383 $404
==========================================================================================
Outstanding units 41,652 17,289 94,411 129,923 884 35
==========================================================================================
Net asset value per unit $25.83 $18.55 $14.86 $23.75 $10.62 $11.65
==========================================================================================
</TABLE>
See accompanying notes.
<PAGE>
4
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1995
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>
ASSETS
Investment in Oppenheimer Variable
Account Funds, at fair value
(Note 2):
Money Portfolio (11,976
shares; cost-$11,976) $11,976
Bond Portfolio (16,175
shares; cost-$185,490) $191,516
Capital Appreciation Portfolio
(44,803 shares; cost-$1,229,540) $1,532,718
Growth Portfolio (34,519 shares;
cost-$671,932) $812,922
High Income Portfolio (58,266
shares; cost-$611,216) $619,363
Multiple Strategies Portfolio
(37,586 shares; cost-$506,011) $546,870
Receivable from affiliate (Note 3) 34 - - 4,831 418 -
Deposits in process - - - - 128 -
------------------------------------------------------------------------------------
12,010 191,516 1,532,718 817,753 619,909 546,870
LIABILITIES
Accrued expenses payable to
affiliate (Note 3) - 94 22,225 31 24 1,920
Withdrawal in process - 16 106 57 - 77
------------------------------------------------------------------------------------
TOTAL LIABILITIES - 110 22,331 88 24 1,997
------------------------------------------------------------------------------------
NET ASSETS $12,010 $191,406 $1,510,387 $817,665 $619,885 $544,873
====================================================================================
Outstanding units 806 9,633 49,118 30,329 23,001 24,621
====================================================================================
Net asset value per unit $14.90 $19.87 $30.75 $26.96 $26.95 $22.13
====================================================================================
</TABLE>
See accompanying notes.
<PAGE>
5
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1995
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 (439,154
shares; cost-$439,154) $439,154
High Income Portfolio
(23,689 shares; cost-$263,759) $285,447
Equity-Income Portfolio (93,729
shares; cost-$1,540,860) $1,806,166
Growth Portfolio (103,470 shares;
cost-$2,535,975) $3,021,321
Overseas Portfolio (83,625
shares; cost-$1,339,363) $1,425,809
Receivable from affiliate (Note 3) 5,998 371 3,657 - -
Deposits in process - - 878 - -
-----------------------------------------------------------------
445,152 285,818 1,810,701 3,021,321 1,425,809
LIABILITIES
Accrued expenses payable to affiliate
(Note 3) 17 11 69 24,230 4,936
Withdrawal in process 13 87 - 500 307
-----------------------------------------------------------------
TOTAL LIABILITIES 30 98 69 24,730 5,243
-----------------------------------------------------------------
NET ASSETS $445,122 $285,720 $1,810,632 $2,996,591 $1,420,566
==================================================================
Outstanding units 29,874 12,687 64,967 97,450 73,566
==================================================================
Net asset value per unit $14.90 $22.52 $27.87 $30.75 $19.31
==================================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
6
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1995
VARIABLE INSURANCE
PRODUCTS FUND II ADVISERS MANAGEMENT TRUST
--------------------------------- ------------------------------------------
ASSET MANAGER CONTRAFUND BALANCED BOND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Variable Insurance Products
Fund II, at fair value (Note 2):
Asset Manager Portfolio (174,929
shares; cost-$2,492,357) $2,762,127
Contrafund Portfolio (20,597 shares;
cost-$271,202) $283,829
Investment in Advisers Management Trust,
at fair value (Note 2):
Balanced Portfolio (16,725 shares;
cost-$249,130) $293,018
Bond Portfolio (6,246 shares;
cost-$88,157) $91,883
Growth Portfolio (6,235 shares;
cost-$136,361) $161,234
Receivable from affiliate (Note 3) - 3,255 - - 308
Deposits in process - 189 2 - -
--------------------------------- ------------------------------------------
2,762,127 287,273 293,020 91,883 161,542
LIABILITIES
Accrued expenses payable to affiliate
(Note 3) 9,652 11 937 17 6
Withdrawal in process 125 - - 11 14
--------------------------------- ------------------------------------------
TOTAL LIABILITIES 9,777 11 937 28 20
--------------------------------- ------------------------------------------
NET ASSETS $2,752,350 $287,262 $292,083 $91,855 $161,522
================================= ==========================================
Outstanding units 147,342 20,548 18,119 7,610 11,178
================================= ==========================================
Net asset value per unit $18.68 $13.98 $16.12 $12.07 $14.45
================================= ==========================================
</TABLE>
See accompanying notes.
<PAGE>
7
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1995
<TABLE>
<CAPTION>
INSURANCE
MANAGEMENT SERIES JANUS ASPEN
--------------------------- -----------------------------------------------------------------
CORPORATE AGGRESSIVE WORLDWIDE FLEXIBLE
BOND UTILITY GROWTH GROWTH GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Insurance Management
Series, at fair value (Note 2):
Corporate Bond Portfolio
(837 shares; cost-$8,156) $8,191
Utility Portfolio (5,579
shares; cost-$57,556) $61,537
Investment in Janus Aspen, at
fair value (Note 2):
Aggressive Growth Portfolio
(35,763 shares; cost-$531,862) $610,839
Growth Portfolio (26,501
shares; cost-$324,534) $356,444
Worldwide Growth Portfolio
(26,940 shares; cost-$358,378) $412,450
Balanced Portfolio (5,883
shares; cost-$74,186) $76,653
Flexible Income Portfolio
(4 shares; cost-$45) $45
Receivable from affiliate (Note 3) 60 36 12,734 1,933 3,048 - -
Deposits in process - - - - - 24 -
--------------------------- -----------------------------------------------------------------
8,251 61,573 623,573 358,377 415,498 76,677 45
LIABILITIES
Accrued expenses payable to
affiliate (Note 3) - 2 24 14 16 251 -
Withdrawal in process - 1 128 25 98 - -
TOTAL LIABILITIES - 3 152 39 114 251 -
--------------------------- -----------------------------------------------------------------
NET ASSETS $8,251 $61,570 $623,421 $358,338 $415,384 $76,426 $45
=========================== =================================================================
Outstanding units 691 5,014 43,113 28,327 33,799 7,183 4
=========================== =================================================================
Net asset value per unit $11.94 $12.28 $14.46 $12.65 $12.29 $10.64 $10.51
=========================== =================================================================
</TABLE>
See accompanying notes.
<PAGE>
8
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
Statements of Assets and Liabilities (continued)
December 31, 1995
ALGER AMERICAN
----------------------------------
SMALL
CAP GROWTH
PORTFOLIO PORTFOLIO
<S> <C> <C>
Investment in Alger American, at fair value (Note 2):
Small Cap Portfolio (921 shares; cost-$36,724) $36,287
Growth Portfolio (738 shares; cost-$22,850) $22,997
Receivable from affiliate (Note 3) 208 170
Deposits in process 62 88
----------------------------------
36,557 23,255
LIABILITIES
Accrued expenses payable to affiliate (Note 3) 1 1
----------------------------------
TOTAL LIABILITIES 1 1
----------------------------------
NET ASSETS $36,556 $23,254
==================================
Outstanding units 3,893 2,410
==================================
Net asset value per unit $9.39 $9.65
==================================
</TABLE>
See accompanying notes.
<PAGE>
9
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
LIFE OF VIRGINIA SERIES FUND, INC.
-------------------------------------------
COMMON
STOCK INDEX
PORTFOLIO
-------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
INVESTMENT INCOME
Income--Dividends $20,611 $10,993 $99,608
Expenses--Mortality and expense risk charges (Note 3) 5,975 4,467 3,568
-------------------------------------------
Net investment income 14,636 6,526 96,040
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 33,666 1,682 18,211
Unrealized appreciation (depreciation) on investments 203,288 (11,121) (50,439)
-------------------------------------------
Net realized and unrealized gain (loss) on investments 236,954 (9,439) (32,228)
-------------------------------------------
Increase (decrease) in net assets from operations $251,590 $(2,913) $63,812
===========================================
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE IN NET ASSETS
From Operations:
Net investment income $14,636 $6,526 $96,040
Net realized gain (loss) 33,666 1,682 18,211
Unrealized appreciation (depreciation) on investments 203,288 (11,121) (50,439)
-------------------------------------------
Increase (decrease) in net assets from operations 251,590 (2,913) 63,812
From Capital Transactions:
Net premiums 205,386 166,616 104,565
Loan interest (592) (365) 301
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (35,272) (34,647) (23,353)
Loans 33 (7,799) (9,371)
Cost of insurance and administrative expense (Note 3) (112,723) (96,243) (75,045)
Transfer gain (loss) and transfer fees (Note 3) 1,890 (560) 3,585
Interfund transfers 91,482 89,283 31,119
-------------------------------------------
Increase in net assets from capital transactions 150,204 116,285 31,801
-------------------------------------------
INCREASE IN NET ASSETS 401,794 113,372 95,613
NET ASSETS AT BEGINNING OF YEAR 674,086 560,714 465,101
-------------------------------------------
NET ASSETS AT END OF YEAR $1,075,880 $674,086 $560,714
==============================================
</TABLE>
See accompanying notes.
<PAGE>
10
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SERIES FUND, INC.
(CONTINUED)
-------------------------------------------
GOVERNMENT
SECURITIES
PORTFOLIO
------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
INVESTMENT INCOME
Income--Dividends $ 18,835 $ 10,652 $ 5,872
Expenses--Mortality and expense risk charges (Note 3) 1,930 762 356
------------------------------------------
Net investment income 16,905 9,890 5,516
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 2,130 (2,789) 760
Unrealized appreciation (depreciation) on investments 23,073 (11,441) (2,596)
------------------------------------------
Net realized and unrealized gain (loss) on investments 25,203 (14,230) (1,836)
------------------------------------------
Increase (decrease) in net assets from operations $ 42,108 $ (4,340) $ 3,680
==========================================
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 16,905 $ 9,890 $ 5,516
Net realized gain (loss) 2,130 (2,789) 760
Unrealized appreciation (depreciation) on investments 23,073 (11,441) (2,596)
------------------------------------------
Increase (decrease) in net assets from operations 42,108 (4,340) 3,680
From Capital Transactions:
Net premiums 37,525 43,467 20,840
Loan interest 244 - 10
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders - (8,360) (2,369)
Loans - (8,446) (437)
Cost of insurance and administrative expense (Note 3) (22,993) (15,063) (8,694)
Transfer gain (loss) and transfer fees (Note 3) (368) (292) 28
Interfund transfers 21,812 168,642 6,267
------------------------------------------
Increase in net assets from capital transactions 36,220 179,948 15,645
------------------------------------------
INCREASE IN NET ASSETS 78,328 175,608 19,325
NET ASSETS AT BEGINNING OF YEAR 242,385 66,777 47,452
------------------------------------------
NET ASSETS AT END OF YEAR $320,713 $ 242,385 $66,777
==========================================
</TABLE>
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SERIES FUND, INC.
(CONTINUED)
LIFE OF VIRGINIA SERIES FUND, INC.
(CONTINUED)
------------------------------------------
MONEY MARKET
PORTFOLIO
------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
INVESTMENT INCOME
Income--Dividends $64,373 $28,145 $ 20,941
Expenses--Mortality and expense risk charges (Note 3) 12,610 9,044 3,150
-------------------------------------------
Net investment income 51,763 19,101 17,791
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 68,408 110,539 (47,170)
Unrealized appreciation (depreciation) on investments (25,977) (2,317) (6,728)
-------------------------------------------
Net realized and unrealized gain (loss) on investments 42,431 108,222 (53,898)
-------------------------------------------
Increase (decrease) in net assets from operations $ 94,194 $127,323 $(36,107)
STATEMENTS OF CHANGES IN NET ASSETS ===========================================
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 51,763 $ 19,101 $ 17,791
Net realized gain (loss) 68,408 110,539 (47,170)
Unrealized appreciation (depreciation) on investments (25,977) (2,317) (6,728)
-------------------------------------------
Increase (decrease) in net assets from operations 94,194 127,323 (36,107)
From Capital Transactions:
Net premiums 5,903,130 4,343,151 1,168,846
Loan interest (33) (198) 150
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (25,025) (2,620) (1,361)
Loans 215 (686) (10,000)
Cost of insurance and administrative expense (Note 3) (201,089) (221,019) (77,211)
Transfer gain (loss) and transfer fees (Note 3) (164,726) (122,409) 39,808
Interfund transfers (5,222,614) (3,495,580) (871,424)
-------------------------------------------
Increase in net assets from capital transactions 289,858 500,639 248,808
-------------------------------------------
INCREASE IN NET ASSETS 384,052 627,962 212,701
NET ASSETS AT BEGINNING OF YEAR 1,018,900 390,938 178,237
-------------------------------------------
NET ASSETS AT END OF YEAR $1,402,952 $1,018,900 $390,938
===========================================
</TABLE>
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SERIES FUND, INC.
(CONTINUED)
LIFE OF VIRGINIA SERIES FUND, INC.
(CONTINUED)
-----------------------------------------
TOTAL RETURN
PORTFOLIO
-----------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
INVESTMENT INCOME
Income--Dividends $210,985 $ 17,248 $ 28,943
Expenses--Mortality and expense risk charges (Note 3) 9,371 2,872 2,293
-----------------------------------------
Net investment income 201,614 14,376 26,650
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 17,126 5,404 9,779
Unrealized appreciation (depreciation) on investments 18,487 (11,896) 1,518
----------------------------------------
Net realized and unrealized gain (loss) on investments 35,613 (6,492) 11,297
----------------------------------------
Increase (decrease) in net assets from operations $237,227 $ 7,884 $ 37,947
========================================
STATEMENTS OF CHANGES IN NET ASSETS
INCREASE IN NET ASSETS
From Operations:
Net investment income $201,614 $ 14,376 $ 26,650
Net realized gain (loss) 17,126 5,404 9,779
Unrealized appreciation (depreciation) on investments 18,487 (11,896) 1,518
----------------------------------------
Increase (decrease) in net assets from operations 237,227 7,884 37,947
From Capital Transactions:
Net premiums 180,914 116,553 91,152
Loan interest (130) (138) 235
Transfers (to) from the general account of Life of Virginia:
Death benefits - - (655)
Surrenders (22,038) (15,289) (10,341)
Loans (6,501) (6,316) (1,864)
Cost of insurance and administrative expense (Note (173,014) (70,159) (58,689)
Transfer gain (loss) and transfer fees (Note 3) 105,770 139 2,498
Interfund transfers 2,309,889 53,434 20,289
------------------------------------------
Increase in net assets from capital transactions 2,394,890 78,224 42,625
------------------------------------------
INCREASE IN NET ASSETS 2,632,117 86,108 80,572
NET ASSETS AT BEGINNING OF YEAR 453,550 367,442 286,870
------------------------------------------
NET ASSETS AT END OF YEAR $3,085,667 $ 453,550 $367,442
==========================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
LIFE OF VIRGINIA SERIES FUND,
INC. (CONTINUED)
----------------------------
INTERNATIONAL REAL ESTATE
EQUITY SECURITIES
PORTFOLIO PORTFOLIO
------------ ----------
PERIOD FROM PERIOD FROM
AUGUST 25, OCTOBER 5,
1995 TO 1995 TO
DECEMBER 31, DECEMBER 31,
1995 1995
------------ --------------
<S> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 176 $ 22
Expenses--Mortality and expense risk charges
(Note 3) 11 -
---------------- ----------------
Net investment income 165 22
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 4 -
Unrealized appreciation on investments 193 4
----------------- ------------------
Net realized and unrealized gain on investments 197 4
----------------- ------------------
Increase in net assets from operations $ 362 $ 26
===================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 165 $ 22
Net realized gain 4 -
Unrealized appreciation on investments 193 4
---------------- --------------
Increase in net assets from operations 362 26
---------------- --------------
From Capital Transactions:
Net premiums 3,961 143
Loan interest - -
Transfers (to) from the general account of
Life of Virginia:
Death benefits - -
Surrenders - -
Loans - -
Cost of insurance and administrative
expense (Note 3) (316) (31)
Transfer gain (loss) and transfer fees (Note 3) (5) 2
Interfund transfers 5,381 264
----------------- ------------
Increase in net assets from capital transactions 9,021 378
----------------- ------------
INCREASE IN NET ASSETS 9,383 404
NET ASSETS AT BEGINNING OF PERIOD - -
----------------- ------------
NET ASSETS AT END OF PERIOD $9,383 $404
================= ============
</TABLE>
See accompanying notes.
<PAGE>
12
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
OPPENHEIMER VARIABLE ACCOUNT FUNDS
---------------------------------------
MONEY
PORTFOLIO
-------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $ 662 $ 310 $ 55
Expenses--Mortality and expense risk charges (Note 3) 82 51 13
-------------------------------------
Net investment income (expense) 580 259 42
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 $ 580 $ 259 $ 42
=====================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (expense) $ 580 $ 259 $ 42
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
-------------------------------------
Increase (decrease) in net assets from operations 580 259 42
From Capital Transactions:
Net premiums 7,628 2,919 1,626
Loan interest - - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (954) - -
Loans - - -
Cost of insurance and administrative expense (Note 3) (1,976) (1,381) (1,065)
Transfer gain (loss) and transfer fees (Note 3) (12) 38 8
Interfund transfers (3,849) 7,234 (1,259)
------------------------------------
Increase (decrease) in net assets from capital transactions 837 8,810 (690)
------------------------------------
INCREASE (DECREASE) IN NET ASSETS 1,417 9,069 (648)
NET ASSETS AT BEGINNING OF YEAR 10,593 1,524 2,172
-------------------------------------
NET ASSETS AT END OF YEAR $12,010 $10,593 $ 1,524
=====================================
</TABLE>
See accompanying notes.
13
<PAGE>
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
---------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(CONTINUED)
---------------------------------------------------------
BOND CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
----------------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1993
----------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $8,365 $ 4,168 $ 2,221 $5,317 $ 42,513 $5,515
Expenses--Mortality and expense risk charges (Note 3) 844 430 227 10,098 4,255 1,293
-------------------------------- ----------------------------------
Net investment income (expense) 7,521 3,738 1,994 (4,781) 38,258 4,222
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 407 (60) 268 57,411 (5,894) 9,123
Unrealized appreciation (depreciation) on investments 9,889 (4,975) 1,364 281,347 (41,031) 38,146
-------------------------------- ----------------------------------
Net realized and unrealized gain (loss) on investments 10,296 (5,035) 1,632 338,758 (46,925) 47,269
-------------------------------- ----------------------------------
Increase (decrease) in net assets from operations 17,817 $ (1,297) $ 3,626 $333,977 $ (8,667) $51,491
============================== ====================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (expense) $7,521 $ 3,738 $ 1,994 $(4,781) $ 38,258 $4,222
Net realized gain (loss) 407 (60) 268 57,411 (5,894) 9,123
Unrealized appreciation (depreciation) on investments 9,889 (4,975) 1,364 281,347 (41,031) 38,146
-------------------------------- ----------------------------------
Increase (decrease) in net assets from operations 17,817 (1,297) 3,626 333,977 (8,667) 51,491
From Capital Transactions:
Net premiums 36,446 42,700 12,501 394,900 436,547 77,939
Loan interest 1 - - (114) (74) (22)
Transfers (to) from the general account of Life of Virginia:
Death benefits - - - (2,168) (134) -
Surrenders (1,208) (203) - (58,441) (11,508) (1,403)
Loans (134) - - (9,348) (10,450) (254)
Cost of insurance and administrative expense (Note 3) 15,526) (11,652) (6,718) (174,402) (99,843) (25,454)
Transfer gain (loss) and transfer fees (Note 3) (54) (44) (46) (5,711) (17,544) 770
Interfund transfers 63,844 20,767 3,185 151,112 295,377 80,081
-------------------------------- --------------------------------
Increase (decrease) in net assets from capital
transactions 83,369 51,568 8,922 295,828 592,371 131,657
-------------------------------- --------------------------------
INCREASE (DECREASE) IN NET ASSETS 101,186 50,271 12,548 629,805 583,704 183,148
NET ASSETS AT BEGINNING OF YEAR 90,220 39,949 27,401 880,582 296,878 113,730
-------------------------------- --------------------------------
NET ASSETS AT END OF YEAR $191,406 $ 90,220 $39,949 $1,510,387 $ 880,582 $296,878
================================ ================================
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(CONTINUED)
--------------------------------------
GROWTH
PORTFOLIO
-------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $10,459 $1,840 $2,781
Expenses--Mortality and expense risk charges (Note 3) 3,854 1,807 867
-------------------------------------
Net investment income (expense) 6,605 33 1,914
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 22,586 6,108 3,252
Unrealized appreciation (depreciation) on investments 125,878 (2,215) 4,168
-----------------------------------
Net realized and unrealized gain (loss) on investments 148,464 3,893 7,420
-----------------------------------
Increase (decrease) in net assets from operations $155,069 $3,926 $9,334
====================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (expense) $6,605 $33 $1,914
Net realized gain (loss) 22,586 6,108 3,252
Unrealized appreciation (depreciation) on investments 125,878 (2,215) 4,168
------------------------------------
Increase (decrease) in net assets from operations 155,069 3,926 9,334
From Capital Transactions:
Net premiums 175,911 135,634 49,489
Loan interest 12 (18) (6)
Transfers (to) from the general account of Life of Virginia:
Death benefits (2,519) - -
Surrenders (7,126) (18,961) (93)
Loans (5,542) (39) (393)
Cost of insurance and administrative expense (Note 3) (61,493) (38,468) (17,455)
Transfer gain (loss) and transfer fees (Note 3) 2,839 1,716 (105)
Interfund transfers 216,857 90,274 41,142
------------------------------------
Increase (decrease) in net assets from capital
transactions 318,939 170,138 72,579
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 474,008 174,064 81,913
NET ASSETS AT BEGINNING OF YEAR 343,657 169,593 87,680
-----------------------------------
NET ASSETS AT END OF YEAR 817,665 $343,657 $169,593
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(CONTINUED)
===================================
HIGH INCOME
PORTFOLIO
----------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $47,571 $ 19,850 $ 5,356
Expenses--Mortality and expense risk charges (Note 3) 3,622 1,474 322
----------------------------------------
Net investment income 43,949 18,376 5,034
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 1,112 (2,786) 1,283
Unrealized appreciation (depreciation) on investments 30,017 (25,264) 3,272
----------------------------------------
Net realized and unrealized gain (loss) on investments 31,129 (28,050) 4,555
----------------------------------------
Increase (decrease) in net assets from operations $75,078 $ (9,674) $ 9,589
========================================
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 43,949 $ 18,376 $ 5,034
Net realized gain (loss) 1,112 (2,786) 1,283
Unrealized appreciation (depreciation) on investments 30,017 (25,264) 3,272
----------------------------------------
Increase (decrease) in net assets from operations 75,078 (9,674) 9,589
From Capital Transactions:
Net premiums 225,228 205,911 28,674
Loan interest 179 (16) -
Transfers (to) from the general account of Life of Virginia:
Death benefits (386) (225) -
Surrenders (26,138) (3,726) (836)
Loans (3,839) (8,327) -
Cost of insurance and administrative expense (Note 3) (106,764) (70,347) (16,451)
Transfer gain (loss) and transfer fees (Note 3) 692 (422) 120
Interfund transfers 132,318 138,398 25,655
----------------------------------------
Increase in net assets from capital transactions 221,290 261,246 37,162
----------------------------------------
INCREASE IN NET ASSETS 296,368 251,572 46,751
NET ASSETS AT BEGINNING OF YEAR 323,517 71,945 25,194
----------------------------------------
NET ASSETS AT END OF YEAR $619,885 $ 323,517 $ 71,945
========================================
</TABLE>
See accompanying notes.
<PAGE>
15
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT
FUNDS (CONTINUED)
--------------------------------------
MULTIPLE STRATEGIES
PORTFOLIO
-------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $35,104 $13,754 $ 3,689
Expenses--Mortality and expense risk charges (Note 3) 3,322 1,636 568
-------------------------------------
Net investment income 31,782 12,118 3,121
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 5,112 1,058 1,297
Unrealized appreciation (depreciation) on investments 48,453 (16,980) 6,806
-------------------------------------
Net realized and unrealized gain (loss) on investments 53,565 (15,922) 8,103
-------------------------------------
Increase (decrease) in net assets from operations $85,347 $(3,804) $11,224
=====================================
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 31,782 $12,118 $ 3,121
Net realized gain (loss) 5,112 1,058 1,297
Unrealized appreciation (depreciation) on investments 48,453 (16,980) 6,806
-------------------------------------
Increase (decrease) in net assets from operations 85,347 (3,804) 11,224
From Capital Transactions:
Net premiums 183,632 98,195 42,685
Loan interest (48) (51) (50)
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (11,026) (6,329) -
Loans (617) (288) 45
Cost of insurance and administrative expense (Note 3) (67,361) (48,099) (13,831)
Transfer gain (loss) and transfer fees (Note 3) (572) (1,398) 216
Interfund transfers 52,156 137,152 37,605
------------------------------------
Increase in net assets from capital transactions 156,164 179,182 66,670
------------------------------------
INCREASE IN NET ASSETS 241,511 175,378 77,894
NET ASSETS AT BEGINNING OF YEAR $303,362 127,984 50,090
------------------------------------
NET ASSETS AT END OF YEAR 544,873 $303,362 $127,984
====================================
<PAGE>
16
Life of Virginia Separate Account II
</TABLE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
---------------------------------------
MONEY MARKET
PORTFOLIO
---------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $34,581 $5,417 $ 1,622
Expenses--Mortality and expense risk charges (Note 3) 4,231 711 309
---------------------------------------
Net investment income (expense) 30,350 4,706 1,313
NET REALIZED AND UNREALIZED GAIN 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 $30,350 $4,706 $ 1,313
=======================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (expense) $30,350 $4,706 $ 1,313
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
---------------------------------------
Increase (decrease) in net assets from operations 30,350 4,706 1,313
From Capital Transactions:
Net premiums 96,485 459,738 78,864
Loan interest 102 (32) (20)
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (2,975) - -
Loans - (3,125) (3,304)
Cost of insurance and administrative expense (Note 3) (65,636) (28,427) (4,223)
Transfer gain (loss) and transfer fees (Note 3) (991) 6,932 (210)
Interfund transfers (162,335) 93,040 (81,222)
---------------------------------------
Increase (decrease) in net assets from capital transactions (135,350) 528,126 (10,115)
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS (105,000) 532,832 (8,802)
NET ASSETS AT BEGINNING OF YEAR 550,122 17,290 26,092
---------------------------------------
NET ASSETS AT END OF YEAR $445,122 $550,122 $ 17,290
=======================================
</TABLE>
See accompanying notes.
<PAGE>
17
LIFE OF VIRGINIA SEPARATE ACCOUNT II
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND (CONTINUED)
HIGH INCOME PORTFOLIO EQUITY-INCOME PORTFOLIO
--------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1993
--------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $12,908 $ 9,861 $ 4,021 $72,375 $31,170 $5,558
Expenses--Mortality and expense risk charges (Note 3) 1,682 976 414 8,801 3,777 1,373
--------------------------------- ---------------------------------
Net investment income (expense) 11,226 8,885 3,607 63,574 27,393 4,185
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) 4,603 (69) 1,297 44,633 (8,219) 6,919
Unrealized appreciation (depreciation) on investments 25,411 (12,284) 5,609 255,114 (15,896) 15,268
------------------------------- ----------------------------------
Net realized and unrealized gain (loss) on investments 30,014 (12,353) 6,906 299,747 (24,115) 22,187
------------------------------- ----------------------------------
Increase (decrease) in net assets from operations $41,240 $ (3,468) $ 10,513 $363,321 $ 3,278 $26,372
================================ =================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (expense) $11,226 $ 8,885 $ 3,607 $ 63,574 $ 27,393 $ 4,185
Net realized gain (loss) 4,603 (69) 1,297 44,633 (8,219) 6,919
Unrealized appreciation (depreciation) on investments 25,411 (12,284) 5,609 255,114 (15,896) 15,268
------------------------------- ---------------------------------
Increase (decrease) in net assets from operations 41,240 (3,468) 10,513 363,321 3,278 26,372
From Capital Transactions:
Net premiums 91,883 83,545 25,360 487,170 213,828 89,586
Loan interest 245 1 - 34 (29) 21
Transfers (to) from the general account of Life of Virginia:
Death benefits (393) (143) - - - -
Surrenders (6,219) (13,554) (1,330) (19,474) (12,023) (4,931)
Loans - (8,677) - (4,694) 550 (271)
Cost of insurance and administrative expense (Note 3) (49,478) (33,264) (10,908) (199,167) (85,059) (24,964)
Transfer gain (loss) and transfer fees (Note 3) 373 (44) (242) 3,592 (459) 1,497
Interfund transfers 36,951 60,841 34,366 410,782 311,214 165,077
-------------------------------- --------------------------------
Increase (decrease) in net assets from capital transactions 73,362 88,705 47,246 678,243 428,022 226,015
------------------------------- ---------- ----------------------
INCREASE (DECREASE) IN NET ASSETS 114,602 85,237 57,759 1,041,564 431,300 252,387
NET ASSETS AT BEGINNING OF YEAR 171,118 85,881 28,122 769,068 337,768 85,381
------------------------------- ---------- ----------------------
NET ASSETS AT END OF YEAR $285,720 $171,118 $ 85,881 $1,810,632 $769,068 $337,768
================================= =================================
</TABLE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
(CONTINUED)
---------------------------------------
GROWTH
PORTFOLIO
---------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $ 9,023 $ 41,630 $6,368
Expenses--Mortality and expense risk charges (Note 3) 16,541 7,849 3,130
---------------------------------------
Net investment income (expense) (7,518) 33,781 3,238
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) 237,960 (6,352) 16,396
Unrealized appreciation (depreciation) on investments 415,406 (16,629) 49,435
--------------------------------------
Net realized and unrealized gain (loss) on investments 653,366 (22,981) 65,831
--------------------------------------
Increase (decrease) in net assets from operations $ 645,848 $ 10,800 $69,069
======================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (expense) $ (7,518) $ 33,781 $ 3,238
Net realized gain (loss) 237,960 (6,352) 16,396
Unrealized appreciation (depreciation) on investments 415,406 (16,629) 49,435
----------------------------------------
Increase (decrease) in net assets from operations 645,848 10,800 69,069
From Capital Transactions:
Net premiums 621,255 656,784 217,307
Loan interest (2,442) (55) (12)
Transfers (to) from the general account of Life of Virginia:
Death benefits (2,486) (219) -
Surrenders (78,450) (56,950) (9,251)
Loans 5,101 (935) (849)
Cost of insurance and administrative expense (Note 3) (324,187) (188,583) (84,345)
Transfer gain (loss) and transfer fees (Note 3) (20,621) (14,996) 2,745
Interfund transfers 590,049 478,565 213,953
----------------------------------------
Increase (decrease) in net assets from capital transactions 788,219 873,611 339,548
----------------------------------------
INCREASE (DECREASE) IN NET ASSETS 1,434,067 884,411 408,617
NET ASSETS AT BEGINNING OF YEAR 1,562,524 678,113 269,496
----------------------------------------
NET ASSETS AT END OF YEAR $2,996,591 $1,562,524 $678,113
========================================
</TABLE>
<PAGE>
18
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
(CONTINUED)
---------------------------------------
OVERSEAS
PORTFOLIO
---------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $ 6,739 $ 1,317 $1,599
Expenses--Mortality and expense risk charges (Note 3) 8,185 4,137 915
---------------------------------------
Net investment income (expense) (1,446) (2,820) 684
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 6,569 (16,479) 4,075
Unrealized appreciation (depreciation) on investments 107,430 (45,747) 29,965
---------------------------------------
Net realized and unrealized gain (loss) on investments 113,999 (62,226) 34,040
---------------------------------------
Increase (decrease) in net assets from operations $ 112,553 $ (65,046) $34,724
=======================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income (expense) $ (1,446) $ (2,820) $684
Net realized gain (loss) 6,569 (16,479) 4,075
Unrealized appreciation (depreciation) on investments 107,430 (45,747) 29,965
---------------------------------------
Increase (decrease) in net assets from operations 112,553 (65,046) 34,724
From Capital Transactions:
Net premiums 445,508 426,790 94,415
Loan interest (29) (113) (74)
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (19,836) (6,869) (1,077)
Loans (7,544) (5,299) (1,143)
Cost of insurance and administrative expense (Note 3) (190,510) (104,233) (22,441)
Transfer gain (loss) and transfer fees (Note 3) (13,025) (2,893) 2,959
Interfund transfers 233,172 359,446 86,409
---------------------------------------
Increase in net assets from capital transactions 447,736 666,829 159,048
---------------------------------------
INCREASE IN NET ASSETS 560,289 601,783 193,772
NET ASSETS AT BEGINNING OF YEAR 860,277 258,494 64,722
---------------------------------------
NET ASSETS AT END OF YEAR $1,420,566 $ 860,277 $258,494
=======================================
</TABLE>
See accompanying notes.
<PAGE>
19
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
---------------------------------------------------------
ASSET MANAGER CONTRAFUND
PORTFOLIO PORTFOLIO
---------------------------------------- ---------------
PERIOD FROM
FEBRUARY 7,
YEAR ENDED DECEMBER 31, 1995 TO
DECEMBER 31,
1995 1994 1993 1995
---------------------------------------- ---------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 38,074 $ 24,335 $ 4,369 $ 3,470
Expenses--Mortality and expense risk charges (Note 3) 16,293 8,441 1,444 700
-------------------------------------- -----------------
Net investment income 21,781 15,894 2,925 2,770
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 25,753 (2,448) 5,419 2,651
Unrealized appreciation (depreciation) on investments 313,566 (80,899) 31,817 12,626
-------------------------------------- -----------------
Net realized and unrealized gain (loss) on investments 339,319 (83,347) 37,236 15,277
-------------------------------------- -----------------
Increase (decrease) in net assets from operations $ 361,100 $ (67,453) $ 40,161 $ 18,047
======================================== ===============
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 21,781 $ 15,894 $ 2,925 $ 2,770
Net realized gain (loss) 25,753 (2,448) 5,419 2,651
Unrealized appreciation (depreciation) on investments 313,566 (80,899) 31,817 12,626
---------------------------------------- ---------------
Increase (decrease) in net assets from operations 361,100 (67,453) 40,161 18,047
From Capital Transactions:
Net premiums 756,041 858,361 150,445 104,232
Loan interest 209 (20) - 4
Transfers (to) from the general account of Life of Virginia:
Death benefits (1,919) - - -
Surrenders (51,751) (11,317) - -
Loans (20,572) (8,489) - (396)
Cost of insurance and administrative expense (Note 3) (352,049) (241,348) (43,141) (18,015)
Transfer gain (loss) and transfer fees (Note 3) (3,037) (7,230) 1,957 3,247
Interfund transfers 294,547 849,854 159,247 180,143
---------------------------------------- ---------------
Increase in net assets from capital transactions 621,469 1,439,811 268,508 269,215
---------------------------------------- ---------------
INCREASE IN NET ASSETS 982,569 1,372,358 308,669 287,262
NET ASSETS AT BEGINNING OF PERIOD 1,769,781 397,423 88,754 -
---------------------------------------- ---------------
NET ASSETS AT END OF PERIOD $2,752,350 $1,769,781 $397,423 $287,262
======================================== ===============
</TABLE>
See accompanying notes.
<PAGE>
20
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
ADVISERS MANAGEMENT TRUST
-------------------------------------
BALANCED
PORTFOLIO
-------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (EXPENSE)
Income--Dividends $ 5,568 $ 3,758 $ 974
Expenses--Mortality and expense risk charges (Note 3) 1,863 1,177 519
-------------------------------------
Net investment income (expense) 3,705 2,581 455
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 5,430 1,226 1,230
Unrealized appreciation (depreciation) on investments 43,147 (8,138) 2,858
-------------------------------------
Net realized and unrealized gain (loss) on investments 48,577 (6,912) 4,088
-------------------------------------
Increase (decrease) in net assets from operations $ 52,282 $ (4,331) $ 4,543
=====================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income (expense) $ 3,705 $ 2,581 $ 455
Net realized gain 5,430 1,226 1,230
Unrealized appreciation (depreciation) on investments 43,147 (8,138) 2,858
-------------------------------------
Increase (decrease) in net assets from operations 52,282 (4,331) 4,543
From Capital Transactions:
Net premiums 52,871 128,528 25,528
Loan interest 6 1 -
Transfers (to) from the general account of Life of Virginia:
Death benefits (1,989) - -
Surrenders (3,754) (6,026) (753)
Loans (305) (211) -
Cost of insurance and administrative expense (Note 3) (24,013) (17,394) (9,679)
Transfer gain (loss) and transfer fees (Note 3) 7 (936) (41)
Interfund transfers 5,186 16,186 22,214
-------------------------------------
Increase in net assets from capital transactions 28,009 120,148 37,269
-------------------------------------
INCREASE IN NET ASSETS 80,291 115,817 41,812
NET ASSETS AT BEGINNING OF YEAR 211,792 95,975 54,163
-------------------------------------
NET ASSETS AT END OF YEAR $292,083 $211,792 $95,975
=====================================
</TABLE>
See accompanying notes.
<PAGE>
21
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
ADVISERS MANAGEMENT TRUST (CONTINUED)
--------------------------------------------------------------------
BOND GROWTH
PORTFOLIO PORTFOLIO
---------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1993
---------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (EXPENSE)
Income--Dividends $ 2,839 $ 209 $ 67 $ 4,462 $ 3,932 $ 15
Expenses--Mortality and expense risk charges (Note 3) 491 259 26 1,076 512 89
---------------------------------- -------------------------------
Net investment income (expense) 2,348 (50) 41 3,386 3,420 (74)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 450 (50) 389 6,665 (362) 86
Unrealized appreciation (depreciation) on investments 3,567 461 (302) 29,994 (6,943) 1,818
---------------------------------- -------------------------------
Net realized and unrealized gain (loss) on investments 4,017 411 87 36,659 (7,305) 1,904
---------------------------------- -------------------------------
Increase (decrease) in net assets from operations $ 6,365 $ 361 $ 128 $ 40,045 $ (3,885) $ 1,830
================================== ===============================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income (expense) $ 2,348 $ (50) $ 41 $ 3,386 $ 3,420 $ (74)
Net realized gain 450 (50) 389 6,665 (362) 86
Unrealized appreciation (depreciation) on investments 3,567 461 (302) 29,994 (6,943) 1,818
---------------------------------- --------------------------------
Increase (decrease) in net assets from operations 6,365 361 128 40,045 (3,885) 1,830
From Capital Transactions:
Net premiums 37,211 17,926 2,572 43,607 72,306 6,851
Loan interest - - - - 2 7 -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - - - - -
Surrenders (3,175) - - (9,384) (2,502) -
Loans - - - (1,132) (487) -
Cost of insurance and administrative expense (Note 3) (6,373) (3,036) (690) (13,364) (8,077) (1,590)
Transfer gain (loss) and transfer fees (Note 3) (170) 111 28 (357) 650 (27)
Interfund transfers 5,181 31,747 3,388 (2,815) 15,771 23,908
---------------------------------- --------------------------------
Increase in net assets from capital transactions 32,674 46,748 5,298 16,557 77,668 29,142
---------------------------------- --------------------------------
INCREASE IN NET ASSETS 39,039 47,109 5,426 56,602 73,783 30,972
NET ASSETS AT BEGINNING OF YEAR 52,816 5,707 281 104,920 31,137 165
---------------------------------- --------------------------------
NET ASSETS AT END OF YEAR $91,855 $ 52,816 $5,707 $161,522 $ 104,920 $31,137
================================== ================================
</TABLE>
<PAGE>
22
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
INSURANCE
MANAGEMENT SERIES
-----------------------------------
CORPORATE
BOND UTILITY
PORTFOLIO PORTFOLIO
----------------- -----------------
PERIOD FROM PERIOD FROM
OCTOBER 31, MARCH 22, 1995
1995 TO TO DECEMBER 31,
DECEMBER 31, 1995
1995
----------------- -----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 7 $ 862
Expenses--Mortality and expense risk charges (Note 3) 1 132
----------------- -----------------
Net investment income 6 730
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain - 167
Unrealized appreciation on investments 35 3,982
----------------- -----------------
Net realized and unrealized gain on investments 35 4,149
----------------- -----------------
Increase in net assets from operations $ 41 $ 4,879
================= =================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 6 $ 730
Net realized gain - 167
Unrealized appreciation on investments 35 3,982
----------------- -----------------
Increase in net assets from operations 41 4,879
From Capital Transactions:
Net premiums 8 39,132
Transfers (to) from the general account of Life of Virginia:
Cost of insurance (Note 3) (74) (3,417)
Transfer gain (loss) and transfer fees (Note 3) 62 30
Interfund transfers 8,214 20,946
----------------- -----------------
Increase in net assets from capital transactions 8,210 56,691
----------------- -----------------
INCREASE IN NET ASSETS 8,251 61,570
NET ASSETS AT BEGINNING OF PERIOD - -
----------------- -----------------
NET ASSETS AT END OF PERIOD $8,251 $61,570
================= =================
</TABLE>
See accompanying notes.
<PAGE>
23
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
JANUS ASPEN
------------------------------------------------------------
AGGRESSIVE
GROWTH GROWTH
PORTFOLIO PORTFOLIO
----------------------------- ------------------------------
YEAR ENDED PERIOD FROM YEAR ENDED PERIOD FROM
DECEMBER MARCH 8, 1994 DECEMBER MARCH 8, 1994 TO
31, TO DECEMBER 31, 31, DECEMBER 31, 1994
1995 1994 1995
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 7,589 $ 844 $ 7,206 $ 227
Expenses--Mortality and expense risk charges (Note 3) 3,092 194 1,335 143
--------------------------- ------------------------------
Net investment income (expense) 4,497 650 5,871 84
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 24,104 688 8,766 1,024
Unrealized appreciation depreciation) on investments 74,041 4,935 33,088 (1,179)
--------------------------- ------------------------------
Net realized and unrealized gain (loss) on investments 98,145 5,623 41,854 (155)
--------------------------- ------------------------------
Increase (decrease) in net assets from operations $102,642 $ 6,273 $47,725 $ (71)
=========================== ==============================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income (expense) $ 4,497 $ 650 $ 5,871 $ 84
Net realized gain (loss) 24,104 688 8,766 1,024
Unrealized appreciation (depreciation) on investments 74,041 4,935 33,088 (1,179)
--------------------------- ------------------------------
Increase (decrease) in net assets from operations 102,642 6,273 47,725 (71)
From Capital Transactions:
Net premiums 272,031 20,533 130,419 20,151
Loan interest 101 4 - -
Transfers (to) from the general account of Life of Virginia:
Surrenders (6,433) - (364) -
Loans (590) (355) (28) -
Cost of insurance (Note 3) (69,676) (5,600) (39,647) (5,932)
Transfer gain (loss) and transfer fees (Note 3) 10,642 1,698 1,834 42
Interfund transfers 197,192 95,959 138,995 65,214
--------------------------- -------------------------
Increase in net assets from capital transactions 403,267 111,239 231,209 79,475
--------------------------- -------------------------
INCREASE IN NET ASSETS 505,909 117,512 278,934 79,404
NET ASSETS AT BEGINNING OF PERIOD 117,512 - 79,404 -
--------------------------- -------------------------
NET ASSETS AT END OF PERIOD $623,421 $117,512 $358,338 $79,404
============================ ========================
</TABLE>
See accompanying notes.
<PAGE>
24
<TABLE>
<CAPTION>
Life of Virginia Separate Account II
JANUS ASPEN (CONTINUED)
----------------------------------------------------------------------
WORLDWIDE FLEXIBLE
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------- ---------------- -----------------
YEAR PERIOD FROM PERIOD FROM PERIOD FROM
ENDED DECEMBER MARCH 8, NOVEMBER 14, DECEMBER 20, 1995
31, 1994 TO 1995 TO DECEMBER TO DECEMBER 31,
1995 DECEMBER 31, 31, 1995 1995
1994
--------------------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME
Income--Dividends $ 1,537 $ 2 $ 584 $ 1
Expenses--Mortality and expense risk charges (Note 3) 2,178 282 66 -
--------------------------------------------------- ----------
Net investment income (expense) (641) (280) 518 1
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 8,523 (232) 395 -
Unrealized appreciation (depreciation) on investments 56,274 (2,201) 2,467 (1)
------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments 64,797 (2,433) 2,862 (1)
------------------------------------------------- ----------
Increase (decrease) in net assets from operations $ 64,156 $ (2,713) $ 3,380 $ -
================================================= ==========
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment income (expense) $ (641) $ (280) $ 518 $ 1
Net realized gain (loss) 8,523 (232) 395 -
Unrealized appreciation (depreciation) on investments 56,274 (2,201) 2,467 (1)
------------------------------------------------- ----------
Increase (decrease) in net assets from operations 64,156 (2,713) 3,380 -
From Capital Transactions:
Net premiums 165,843 53,431 336 13
Loan interest - 4 - -
Transfers (to) from the general account of Life of Virginia:
Surrenders (6,089) - - -
Loans 5 (10,988) - -
Cost of insurance and administrative expense (Note 3) (55,173) (11,136) (792) (4)
Transfer gain (loss) and transfer fees (Note 3) 1,721 1,100 (248) 1
Interfund transfers 97,041 118,182 73,750 35
------------------------------------------------- ----------
Increase in net assets from capital transactions 203,348 150,593 73,046 45
------------------------------------------------- ----------
INCREASE IN NET ASSETS 267,504 147,880 76,426 45
NET ASSETS AT BEGINNING OF PERIOD 147,880 - - -
------------------------------------------------- ----------
NET ASSETS AT END OF PERIOD $415,384 $147,880 $76,426 $45
================================================= ==========
</TABLE>
<PAGE>
25
Life of Virginia Separate Account II
<TABLE>
<CAPTION>
ALGER AMERICAN
----------------------------------
SMALL
CAP GROWTH
PORTFOLIO PORTFOLIO
---------------- ----------------
PERIOD FROM PERIOD FROM
OCTOBER 11, OCTOBER 23,
1995 TO 1995 TO
DECEMBER 31, DECEMBER 31,
1995 1995
---------------- -----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT (EXPENSE)
Income--Dividends $ - $ -
Expenses--Mortality and expense risk charges (Note 3) 24 12
---------------- -----------------
Net investment (expense) (24) (12)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) (52) 7
Unrealized appreciation (depreciation) on investments (436) 147
---------------- -----------------
Net realized and unrealized gain (loss) on investments (488) 154
---------------- -----------------
Increase (decrease) in net assets from operations $ (512) $ 142
================ =================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE IN NET ASSETS
From Operations:
Net investment expense $ (24) $ (12)
Net realized (loss) gain (52) 7
Unrealized (depreciation) appreciation on investments (436) 147
---------------- -----------------
(Decrease) increase in net assets from operations (512) 142
From Capital Transactions:
Net premiums 4,392 2,473
Loan interest - 2
Transfers (to) from the general account of Life of Virginia:
Cost of insurance (Note 3) (879) (500)
Transfer gain (loss) and transfer fees (Note 3) 208 170
Interfund transfers 33,347 20,967
---------------- -----------------
Increase in net assets from capital transactions 37,068 23,112
---------------- -----------------
INCREASE IN NET ASSETS 36,556 23,254
NET ASSETS AT BEGINNING OF PERIOD - -
---------------- -----------------
NET ASSETS AT END OF PERIOD $36,556 $23,254
================ =================
</TABLE>
See accompanying notes.
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements
December 31, 1995
26
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). In December 1995, Aon signed a
definitive agreement with General Electric Capital Corporation for the sale of
Life of Virginia. Management does not expect the sale of Life of Virginia to
have a significant impact on the Account.
During 1995, nine new investment subdivisions were added to the Account. The
Utility and Corporate Bond each invests solely in a designated portfolio of the
Insurance Management Series (IMS), a series type mutual fund. The Contrafund
invests solely in a designated portfolio of the Variable Insurance Products Fund
II (VIP II), a series type mutual fund. The International Equity and the Real
Estate Securities each invests solely in a designated portfolio of Life of
Virginia Series Fund, Inc., a series type mutual fund. The Balanced and Flexible
Income each invests solely in a designated portfolio of Janus Aspen, a series
type mutual fund. The Growth and Small Capitalization each invests solely in a
designated portfolio of the Alger American Fund, a series type mutual fund.
In November 1995, six subdivisions were closed to new money. Three of these
subdivisions, the Balanced, Bond, and Growth each invests solely in a designated
portfolio of the Advisers Management Trust, a series type mutual fund. The
fourth and fifth closed subdivisions, the Money Market and High Income, each
invests solely in a designated portfolio of the Variable Insurance Products
Fund, a series type mutual fund. The sixth closed subdivision, the Money invests
solely in a designated portfolio of the Oppenheimer Variable Account Funds, a
series type mutual fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
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
December 31, 1995
27
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
The aggregate cost of the investments acquired and the aggregate proceeds of
investments sold, for the year ended December 31, 1995, were:
COST OF SHARES PROCEEDS FROM
FUND/PORTFOLIO ACQUIRED SHARES SOLD
- ----------------------------------------- -------------------------------------
Life of Virginia Series Fund, Inc.:
Common Stock Index $ 402,602 $ 239,491
Government Securities 118,900 65,436
Money Market 14,015,810 13,615,365
Total Return 2,743,697 252,393
International Equity 9,543 351
Real Estate 429 31
Oppenheimer Variable Account Funds:
Money 17,709 17,419
Bond 123,130 31,472
Capital Appreciation 783,939 485,924
Growth 477,086 154,537
High Income 459,675 192,382
Multiple Strategies 306,728 117,850
Variable Insurance Products Fund:
Money Market 539,373 644,561
High Income 213,376 128,452
Equity-Income 1,179,742 439,730
Growth 2,042,835 1,249,706
Overseas 962,277 512,516
Variable Insurance Products Fund II:
Asset Manager 1,504,231 856,209
Contrafund 303,418 34,866
Advisers Management Trust:
Balanced 80,735 48,950
Bond 102,161 65,809
Growth 74,321 54,030
Insurance Management Series:
Bond 8,230 75
Utility 61,020 3,632
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements (continued)
28
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
COST OF SHARES PROCEEDS FROM
FUND/PORTFOLIO ACQUIRED SHARES SOLD
- --------------------------------- -----------------------------------------
Janus Aspen:
Aggressive Growth $ 730,324 $ 333,080
Growth 334,500 99,212
Worldwide Growth 336,258 134,686
Balanced 74,645 854
Flexible Income 49 4
Frederick Alger:
Small Cap 38,851 2,075
Growth 24,484 1,641
NET ASSET VALUE PER UNIT
The net asset value per unit may not compute due to rounding.
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 with any remaining installments deducted at policy
lapse or surrender. 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.
<PAGE>
Life of Virginia Separate Account II
Notes to Financial Statements (continued)
29
3. RELATED PARTY TRANSACTIONS (CONTINUED)
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 specified amount of insurance, death benefit option,
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.
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, .50% for the
Government Securities, Money Market and Total Return portfolios, 1.00% for the
International Equity portfolio and .85% for the Real Estate Securities
portfolio. 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.
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
THE LIFE INSURANCE COMPANY OF VIRGINIA
AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1995
WITH REPORT OF INDEPENDENT AUDITORS
<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, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income for the years
ended December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
- ----------------------------------------------------------------------------
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
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, 1995 and 1994, 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, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Life Insurance
Company of Virginia and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 2, the Company changed its method of accounting for
certain investments in 1994.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
February 8, 1996
- 1 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) December 31
1995 1994
ASSETS
INVESTMENTS
Fixed maturities
Available for sale - at fair value;
(amortized cost: 1995 - $4,267.2;
1994- $2,065.4) $4,411.0 $1,910.5
Held to maturity - at amortized cost
(fair value: 1994 - $2,790.0) - 3,023.7
Equity securities - at fair value
Common stocks (cost: 1995 - $31.5;
1994 - $10.9) 35.4 13.4
Preferred stocks (cost: 1995 - $102.2;
1994 - $117.2) 121.5 111.8
Mortgage loans on real estate (net of reserve
for losses: 1995 - $23.6; 1994 - $27.3) 592.5 527.6
Real estate (net of accumulated depreciation:
1995 - $5.6; 1994 - $6.5) 36.6 35.4
Policy loans 151.7 165.3
Other long-term investments - 9.3
Short-term investments 81.7 106.9
-------- --------
Total investments 5,430.4 5,903.9
CASH 1.6 23.0
RECEIVABLES
Premiums and other 13.5 68.3
Accrued investment income 72.3 75.6
Receivable from affiliates 558.4 347.2
-------- --------
Total receivables 644.2 491.1
DEFERRED POLICY ACQUISITION COSTS 363.9 388.1
COST OF INSURANCE PURCHASED
(net of accumulated amortization: 1995 - $32.5;
1994 - $70.1) 32.6 48.6
PROPERTY AND EQUIPMENT AT COST
(net of accumulated depreciation: 1995 - $18.4;
1994 - $23.5) 3.7 7.5
ASSETS HELD UNDER SPECIAL CONTRACTS 2,019.6 1,429.7
OTHER ASSETS 65.9 57.9
-------- --------
TOTAL ASSETS $8,561.9 $8,349.8
======== ========
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- Continued
(millions)
December 31
1995 1994
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY LIABILITIES
Future policy benefits $ 472.4 $ 589.9
Policy and contract claims 31.7 83.8
Unearned and advance premiums .3 229.7
Other policyholder funds 5,013.9 5,019.8
-------- --------
Total policy liabilities 5,518.3 5,923.2
GENERAL LIABILITIES
Commissions and general expenses 12.8 46.9
Current income taxes 9.5 14.5
Deferred income taxes 75.5 21.0
Liabilities held under special contracts 2,019.6 1,429.7
Other liabilities 104.3 147.1
-------- --------
TOTAL LIABILITIES 7,740.0 7,582.4
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 749.1 704.1
Net unrealized investment gains (losses) 103.1 (97.5)
Net foreign exchange losses - (3.0)
Retained earnings (deficit) (34.3) 159.8
--------- --------
TOTAL STOCKHOLDER'S EQUITY 821.9 767.4
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $8,561.9 $8,349.8
======== ========
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(millions)
Years ended December 31
1995 1994 1993
REVENUE
Premiums and policy fees $197.0 $230.1 $256.5
Net investment income (Note 2) 402.1 490.6 513.5
Realized investment losses (76.5) (25.8) (1.6)
Other income 2.8 8.5 14.5
------ ------ ------
Total revenue earned 525.4 703.4 782.9
BENEFITS AND EXPENSES
Benefits to policyholders 372.9 477.1 491.0
Commissions and general expenses 43.7 75.7 92.4
Amortization of deferred policy acquisition costs 39.3 57.1 65.7
Amortization of cost of insurance purchased 3.2 5.1 5.4
------ ------ ------
Total benefits and expenses 459.1 615.0 654.5
INCOME BEFORE INCOME TAX 66.3 88.4 128.4
Provision for income tax (Note 3)
Current 37.9 21.0 52.9
Deferred - credit (10.8) (5.7) (6.7)
------ ------ ------
27.1 15.3 46.2
NET INCOME $ 39.2 $ 73.1 $ 82.2
====== ====== ======
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39.2 $ 73.1 $ 82.2
Adjustments to reconcile net income to
cash provided by (used by) operating
activities:
Policy liabilities 114.2 331.4 334.9
Accrued investment income (2.1) 1.8 (2.3)
Deferred policy acquisition costs (76.1) (91.8) (105.4)
Amortization of deferred policy
acquisition costs 39.3 57.1 65.7
Amortization of cost of insurance purchased 3.2 5.1 5.4
Other amortization and depreciation (1.2) 2.3 2.1
Premiums and operating receivables,
commissions and general expenses, income
taxes, other assets and other liabilities (65.7) (139.7) (161.1)
Realized investment losses 76.5 25.8 1.6
------- ------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 127.3 265.1 223.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments-net (18.8) (.3) (17.3)
Sale or maturity of investments
Fixed maturities - Held to maturity
Maturities 3.9 50.8 64.6
Calls and Prepayments 60.9 727.5 1,962.5
Sales - - 28.0
Fixed maturities - Available for sale
Maturities 35.0 50.4 -
Calls and Prepayments 58.6 269.1 480.9
Sales 1,700.3 444.7 209.0
All other investments 124.6 231.1 184.3
Purchase of investments
Fixed maturities - Held to maturity - (734.0)(2,142.7)
Fixed maturities - Available for sale (1,950.7)(1,018.5) (967.1)
All other investments (183.5) (357.1) (260.6)
Sale (purchase) of property and equipment (.8) (1.8) 22.7
-------- -------- --------
CASH USED BY INVESTING ACTIVITIES (170.5) (338.1) (435.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to stockholder (6.0) (20.0) (59.0)
Interest sensitive life, annuity and
investment contract deposits 1,059.5 1,455.5 1,376.0
Interest sensitive life, annuity and
investment contract withdrawals (1,031.7)(1,362.6)(1,089.9)
-------- -------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 21.8 72.9 227.1
INCREASE (DECREASE) IN CASH (21.4) (.1) 14.5
CASH AT BEGINNING OF YEAR 23.0 23.1 8.6
-------- -------- --------
CASH AT END OF YEAR $ 1.6 $ 23.0 $ 23.1
======== ======== ========
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(millions)
Years ended December 31
1995 1994 1993
COMMON STOCK
Balance at January 1 and December 31 $ 4.0 $ 4.0 $ 4.0
PAID-IN ADDITIONAL CAPITAL
Balance at January 1 704.1 704.1 704.1
Capital contribution from parent (Note 8) 45.0 - -
------ ------ ------
Balance at December 31 749.1 704.1 704.1
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance at January 1 (97.5) 23.6 17.0
Effect of change in accounting principles
at January 1 - 25.1 -
Net unrealized investment gains (losses) 200.6 (146.2) 6.6
------ ------ ------
Balance at December 31 103.1 (97.5) 23.6
NET FOREIGN EXCHANGE GAINS (LOSSES)
Balance at January 1 (3.0) (2.3) (2.4)
Net foreign exchange gains (losses) 3.0 (.7) .1
------ ------ ------
Balance at December 31 - (3.0) (2.3)
RETAINED EARNINGS (DEFICIT)
Balance at January 1 159.8 126.7 110.6
Net income 39.2 73.1 82.2
Dividends to stockholder (40.0) (40.0) (59.0)
Stock dividend to affiliate (Note 8) (193.3) - (7.1)
------ ------ ------
Balance at December 31 (34.3) 159.8 126.7
------ ------ ------
STOCKHOLDER'S EQUITY AT DECEMBER 31 $821.9 $767.4 $856.1
====== ====== ======
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 6 -
<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"). These statements
include informed estimates and assumptions that affect the amounts
reported. Actual results could differ from the amounts reported. 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.
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. Fixed maturities that are available for
sale are carried at 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
- 7 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
AND PRACTICES -- Continued
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.
Prepayment assumptions are obtained from dealer surveys. The
retrospective adjustment method is used to adjust for prepayment
activity. 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
and adjustments to amortization of deferred policy acquisition costs.
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 the change in 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 11.
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.
- 8 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
AND PRACTICES -- Continued
Property and Equipment
Property and equipment are generally depreciated using the
straight-line method over their estimated useful lives.
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.
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 9.3% to 7.5%. 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 6.8% to 5%.
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
- 9 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
AND PRACTICES -- Continued
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.
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
In 1995, Life of Virginia adopted Financial Accounting Standards Board
(FASB) Statement Nos. 114 and 118 which relate to accounting by
creditors for impairment of a loan. Implementation of these statements
did not have a material effect on Life of Virginia's consolidated
financial statements.
Life of Virginia adopted FASB Statement No. 115 in 1994 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. In accordance with Statement No. 115, prior period
financial statements have not been restated to reflect the change in
accounting principle.
In late 1995, the FASB issued a special report entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities." In accordance with the provisions in
that special report, Life of Virginia chose to reclassify all held to
maturity securities to available for sale (see Note 2).
In 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Life of Virginia anticipates adopting this statement in
its 1996 financial statements as required. Implementation of this
statement is not expected to have a material effect on Life of
Virginia's financial statements.
- 10 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS
The components of net investment income are as follows:
(millions) Years ended December 31
1995 1994 1993
Fixed maturities $332.8 $404.1 $426.8
Equity securities 10.8 25.2 19.7
Mortgage loans on real estate 49.8 49.9 50.0
Short-term investments 3.5 3.8 1.5
Other investments 13.2 18.0 23.9
------ ------ ------
Gross investment income 410.1 501.0 521.9
Investment expenses 8.0 10.4 8.4
------ ------ ------
Net investment income $402.1 $490.6 $513.5
====== ====== ======
Realized gains (losses) on investments are as follows:
Years ended December 31
1995 1994 1993
Fixed maturities available for sale:
Gross gains $ 12.9 $ 8.6 $ -
Gross losses (90.2) (39.2) -
Fixed maturities held to maturity:
Gross gains 1.1 11.3 49.8
Gross losses (13.8) (9.8) (33.5)
Equity Securities 5.6 (1.9) 2.2
Mortgage loans on real estate 2.3 9.6 (15.8)
Other 5.6 (4.4) (4.3)
------ ------ ------
Total before tax (76.5) (25.8) (1.6)
Less applicable tax 26.8 9.0 .5
------ ------ ------
Total $(49.7) $(16.8) $ (1.1)
====== ====== ======
The components of net unrealized investment gains (losses) are as
follows:
(millions) Year ended December 31
1995 1994 1993
Gross unrealized investment gains (losses)
Fixed maturities available for sale $143.8 $(154.9) $ -
Equity securities 23.2 (2.9) 35.9
Deferred tax credit (charge) (58.7) 40.1 (12.3)
Deferred policy acquisition costs -
net of tax (5.2) 20.2 -
------ ------- -----
Net unrealized investment gains (losses) $103.1 $ (97.5) $ 23.6
====== ======= ======
- 11 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS -- Continued
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
(millions) Years ended December 31
1995 1994 1993
Fixed maturities:
Available for sale $298.7 $(214.2) $ (.2)
Held to maturity 233.7 (351.0) 35.2
Equity securities 26.1 (38.8) 10.1
------ ------- -----
Total $558.5 $(604.0) $45.1
====== ======== =====
The cumulative effect on 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.
On November 30, 1995, Life of Virginia reclassified all held to
maturity securities to available for sale in accordance with the FASB
Statement 115 special report. The amortized cost and related unrealized
gains for the securities reclassified was $2,698.3 million and $50.9
million, respectively.
The amortized cost and fair values of investments in fixed maturities
are as follows:
(millions) December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U. S. government
and agencies $ 60.7 $ 1.5 $ - $ 62.2
States and political
subdivisions 2.2 .2 - 2.4
Foreign
governments 18.6 .6 - 19.2
Corporate
securities 2,478.6 140.2 (9.9) 2,608.9
Mortgage-backed
securities 1,596.3 19.6 (16.9) 1,599.0
Other fixed
maturities 110.8 8.5 - 119.3
-------- ------ ----- --------
Total fixed
maturities 4,267.2 170.6 (26.8) 4,411.0
Total equity
securities 133.7 26.2 (3.0) 156.9
-------- ------ ----- --------
Total available
for sale $4,400.9 $196.8 $(29.8) $4,567.9
======== ====== ====== ========
- 12 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS -- Continued
(millions) December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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
======== ====== ======= ========
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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
======== ===== ======= ========
- 13 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS -- Continued
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)
December 31, 1995
Amortized Fair
Cost Value
Due in one year or less $ 109.4 $ 110.8
Due after one year through five years 621.0 658.4
Due after five years through ten years 1,258.4 1,301.8
Due after ten years 682.1 741.0
Mortgage-backed securities 1,596.3 1,599.0
-------- -------
$ 4,267.2 $4,411.0
========= ========
Securities on deposit for regulatory authorities as required by law
amounted to $4.5 million and $31.1 million at December 31, 1995 and
1994, respectively.
At December 31, 1995 and 1994, respectively, Life of Virginia had $34.2
million and $5.9 million of non-income producing investments.
Commercial mortgage loans represent over 96% of total mortgage loans at
December 31, 1995 and 1994. Mortgage loans on real estate and real
estate in the South Atlantic region totaled $301.0 million and $24.1
million, respectively, at December 31, 1995 and $288.0 and $26.8
million, respectively, at December 31, 1994.
3. 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:
1995 1994 1993
------ ------ -----
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income deductions (0.1) (0.9) (0.6)
Increase in deferred taxes due to
enacted rate increase from 34% to 35% - - 1.8
Adjustment of prior year taxes 5.3 (13.3) -
Other - net .7 (3.5) (0.2)
---- ---- ----
Effective tax rate 40.9% 17.3% 36.0%
===== ===== =====
- 14 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INCOME TAX -- Continued
Significant components of Life of Virginia's deferred tax liabilities
and assets as of December 31 are as follows (in millions):
1995 1994
Deferred tax liabilities:
Policy acquisition costs $ 96.9 $116.2
Employee benefits 11.0 9.4
Unrealized investment gains 58.7 -
Other 35.2 38.4
------ ------
Total deferred tax liabilities 201.8 164.0
------ ------
Deferred tax assets:
Insurance reserve amounts 78.2 66.2
Unrealized investment losses - 40.1
Other 48.1 36.7
------ ------
Total deferred tax assets 126.3 143.0
------ ------
Net deferred tax liabilities $ 75.5 $ 21.0
====== ======
As of December 31, 1994, the deferred tax asset relating to unrealized
investment losses is net of a $15.0 valuation allowance that was
provided directly in stockholder's equity in 1994. In 1995, this
valuation allowance was reversed.
The amount of income taxes paid for 1995, 1994 and 1993 was $44.9
million, $56.7 million and $65.6 million, respectively.
4. REINSURANCE AND CLAIM RESERVES
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. In 1995, Life of Virginia's
reinsurance consists primarily of long-duration contracts that are
entered into with financial institutions and related party reinsurance
as described in Note 8. In 1994 and 1993, Life of Virginia's
reinsurance consisted primarily of short-duration contracts that were
entered into with numerous automobile dealerships, financial
institutions, and related party reinsurance as described in Note 8.
Life of Virginia would remain liable to the extent that the reinsuring
companies are unable to meet their obligations.
A summary of reinsurance activity is as follows:
(millions) Years ended December 31
1995 1994 1993
Ceded premiums earned $86.5 $193.7 $204.3
Ceded premiums written 86.5 196.3 214.2
Assumed premiums earned 4.3 8.3 13.7
Assumed premiums written 4.3 8.7 12.5
Ceded benefits to policyholders 63.1 102.1 113.5
5. 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.
Net income, as determined using statutory accounting practices,
amounted to $53.9 million, $58.2 million and $89.3 million for the
years ended December 31, 1995, 1994 and 1993, respectively. Statutory
stockholder's equity amounted to $364.2 million and $400.6 million at
December 31, 1995 and 1994, respectively.
- 15 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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 $.8 million, $1.2 million and $1.1 million for
1995, 1994 and 1993, 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 1995,
1994 and 1993 charged to Life of Virginia's operations amounted to $.5
million, $.6 million, and $.7 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 $3.8 million in 1995 and $3.1
million in both 1994 and 1993 were recorded.
During 1993, the Aon Pension Plan was amended to include certain
additional amounts of compensation in determining plan benefits and in
1994 to reduce the maximum amount of compensation that can be
considered under the plan as required by law. Further, the Pension Plan
was amended in 1994 to provide increases in benefits to current
pensioners.
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.
7. 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, 1995
are as follows:
(millions) Minimum Lease Payments
1996 $ 2.6
1997 2.1
1998 1.9
1999 1.6
2000 1.4
Later years 3.5
-----
Total minimum payments required $13.1
=====
- 16 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LEASE COMMITMENTS -- Continued
Rental expenses for all operating leases for the years ended December
31, 1995, 1994, and 1993 amounted to $3.6 million, $5.1 million, and
$4.5 million, respectively.
8. RELATED PARTY TRANSACTIONS
Life of Virginia pays investment advisory fees and other fees to
affiliates. Amounts incurred for these items aggregated $5.8 million,
$37.8 million and $33.5 million for 1995, 1994, and 1993, respectively.
Life of Virginia charges affiliates for certain services and for the
use of facilities and equipment which aggregated $10.0 million, $101.2
million and $88.8 million for 1995, 1994, and 1993, respectively.
At December 31, 1995 and 1994, Life of Virginia held investments in
securities of certain affiliates amounting to $12.6 million and $47.4
million, respectively. Amounts included in net investment income
related to these holdings totaled $1.0 million, $3.5 million and $4.0
million for 1995, 1994, and 1993, respectively.
In January 1995, Life of Virginia dividended 100% of its Globe Life
Insurance Company ("Globe") common stock to Combined Insurance Company
of America ("Combined"), a subsidiary of Aon. At December 31, 1994,
Globe had assets of $954.9 million, liabilities of $765.7 million and
stockholder's equity of $189.2 million.
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. This transaction resulted in a reinsurance gain of $77.0
million that will be recognized in income over the expected life of the
business (3 years). Additionally, Life of Virginia recognized a $79.0
million realized investment loss. See Note 12.
In 1995, Life of Virginia received from Combined, in the form of a
capital contribution, fixed maturities with a fair value of $45.0
million.
In January 1995, Life of Virginia transferred limited partnership
investments with a fair value of $8.0 million and cost of $7.5 million,
common stocks with a fair value of $5.6 million and cost of $3.4
million, and cash of $6.4 million to pay a $20.0 million dividend
declared but not paid in 1994. A $2.7 million realized investment gain
was recorded on this transfer.
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. See Note 12.
- 17 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS -- Continued
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 Fair Accrued
or Cost Value 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 premium ceded and $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 December 1993, Life of Virginia contributed 267,800 shares at cost
of Aon common stock to Combined. The fair value and cost of the Aon
shares were $12.6 million and $7.1 million, respectively.
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 investment loss of $3.0 million has been included
in the consolidated statement of income.
9. 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 coverage, 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 or
results of operations of Life of Virginia.
- 18 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SEGMENT INFORMATION
Life of Virginia primarily sells variable annuities and universal life
insurance to customers throughout most of the United States. Life of
Virginia distributes variable annuities primarily through stockbrokers
and universal life insurance primarily through career agents and
independent brokers. Life of Virginia is also engaged in the sale of
traditional individual and group life products and guaranteed
investment contracts. Approximately 43% of premium and annuity
consideration collected in 1995 came from customers residing in the
South Atlantic region of the United States.
Significant data concerning Life of Virginia's product segments are as
follows:
(millions) Years ended December 31
1995 1994 1993
-------- -------- ------
Revenues
Life and Annuity $ 550.0 $ 655.6 $ 666.8
Accident and Health 3.4 14.9 53.9
Corporate and Other (28.0) 32.9 62.2
-------- -------- --------
$ 525.4 $ 703.4 $ 782.9
======== ======== ========
Income (loss) Before Income Tax
Life and Annuity $ 98.4 $ 76.7 $ 73.1
Accident and Health .7 (11.5) 6.0
Corporate and Other (32.8) 23.2 49.3
-------- -------- --------
$ 66.3 $ 88.4 $ 128.4
======== ======== ========
Identifiable Assets
Life and Annuity $7,694.8 $7,182.7 $6,943.1
Accident and Health 4.8 241.1 251.3
Corporate and Other 862.3 926.0 1,035.0
-------- -------- --------
$8,561.9 $8,349.8 $8,229.4
======== ======== ========
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.
11. FINANCIAL INSTRUMENTS
Financial Risk Management
Life of Virginia is exposed to market risk from changes in interest
rates. To manage the volatility related to this exposure, Life of
Virginia enters into derivative transactions that have the effect of
minimizing this risk by creating offsetting market exposures. If Life
of Virginia did not use the derivative contracts, its exposure and
market risk would be higher. The derivative financial instruments held
by Life of Virginia are held for purposes other than trading.
Derivative transactions are governed by a uniform set of policies and
procedures covering areas such as authorization, counterparty exposure
and hedging practices. Positions are monitored using techniques such as
market value and sensitivity analyses.
In addition to creating market risks that offset the underlying
business exposures, derivative instruments also give rise to credit
risks due to possible non-performance by counterparties. The credit
risk is generally
- 19 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS -- Continued
Financial Risk Management -- Continued
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
investments in derivative contracts to a diverse group of highly rated
major financial institutions. Life of Virginia closely monitors the
credit worthiness of, and exposure to, its counterparties and considers
its credit risk to be minimal.
Interest Rate Risk Management
Life of Virginia uses interest rate swap agreements to manage asset and
liability durations relating to its capital accumulation annuity
business. As of December 31, 1995 and 1994, these swap agreements had
the net effect of lengthening liability durations. Variable rates
received on interest rate swap agreements correlate with crediting
rates paid on outstanding liabilities. The net effect of swap payments
is settled periodically and reported in income. There is no settlement
of underlying notional amounts.
Life of Virginia performs frequent analyses to measure the degree of
correlation associated with its derivative program. Life of Virginia
assesses the adequacy of the correlation analyses 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. The fair value of swap agreements hedging
liabilities are not recognized in the consolidated statements of
financial position.
Notional and Other Data
Life of Virginia had $250.0 million and $750.0 million notional amount
of interest rate swaps outstanding at December 31, 1995 and 1994,
respectively.
During 1995 Life of Virginia amortized $1.4 million of net deferred
losses relating to interest rate swaps into income.
The interest rates on Life of Virginia's principal outstanding swaps at
December 31, are presented below:
Pay Receive
Fixed Variable
1995 7.9 - 8.3% 5.4%
1994 7.7 - 8.3% 7.8%
As of December 31, 1995, the principal swaps have maturities ranging
from September 1999 to October 2000 and variable rates based on five
year treasury rates.
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, 1995 and 1994, totaled $21.7 million and $32.1 million,
respectively.
- 20 -
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS -- Continued
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 amount and fair value of certain of Life of Virginia's
financial instruments are as follows:
As of December 31
(millions) 1995 1994
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Fixed maturities and equity
securities (Note 2) $4,567.9 $4,567.9 $5,059.4 $4,825.7
Mortgage loans on real estate 592.5 638.2 527.6 530.8
Policy loans 151.7 150.2 165.3 162.0
Cash, short-term investments
and receivables 727.5 727.5 621.0 621.0
Liabilities:
Investment type insurance
contracts 2,769.7 2,796.9 3,380.3 3,295.5
Commissions and general
expenses 12.8 12.8 46.9 46.9
Derivatives - 24.1 - 3.7
See Note 1 regarding the method used to estimate fair values.
12. SUBSEQUENT EVENT
In the fourth quarter of 1995, Aon reached a definitive agreement to
sell Life of Virginia to General Electric Capital Corporation. Pending
the receipt of required regulatory consents, the sale is expected to
close during the first half of 1996. In connection with the sale, Life
of Virginia will recapture the guaranteed investment contract and the
single premium deferred annuity assets and liabilities ceded to
Combined in December 1994 and January 1995, respectively.
13. SUBSEQUENT EVENT (UNAUDITED)
The sale mentioned in footnote 12 closed on April 1, 1996.
- 21 -
<PAGE>
[ERNST & YOUNG LETTERHEAD]
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
The Life Insurance Company of Virginia
We have audited the consolidated financial statements of The Life Insurance
Company of Virginia and Subsidiaries as of December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, and have
issued our report thereon dated February 9, 1996 (included elsewhere in
this Registration Statement). Our audits also included the financial
statement schedules included in this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information
set forth therein.
ERNST & YOUNG LLP
Richmond, Virginia
February 9, 1996
<PAGE>
SCHEDULE I
LIFE OF VIRGINIA, SUBS AND AFFILIATES
CONSOLIDATED SUMMARY OF INVESTMENTS
AS OF DECEMBER 31, 1995
Amount Shown
in Statement
(MILLIONS) Amortized of Financial
Cost Value Position
----------------------------------
Fixed maturities available for sale:
Bonds:
United States Treasury securities and
obligations of other US government
agencies and corporations 60.7 62.2 62.2
Obligations of US states and
political subdivisions 2.2 2.4 2.4
Debt securities of foreign governments
not classified as loans 18.6 19.2 19.2
Corporate securities 2,100.2 2,215.5 2,215.5
Public utilities 378.4 393.4 393.4
Mortgage backed 1,596.3 1,599.0 1,599.0
Other fixed maturities 110.8 119.3 119.3
------- ------- -------
TOTAL FIXED MATURITIES TO BE HELD
FOR SALE 4,267.2 4,411.0 4,411.0
------- ======= -------
Equity securities:
Common stocks:
Banks, trusts, insurance companies 18.1 20.5 20.5
Industrial, miscellaneous, and all
other 13.4 14.9 14.9
Non-redeemable preferred stocks 102.2 121.5 121.5
------- ------- -------
TOTAL EQUITY SECURITIES 133.7 156.9 156.9
------- ======= -------
Mortgage loans on real estate 616.1* 592.5*
Real estate-net of depreciation 36.6 36.6
Policy loans 151.7 151.7
Short-term investments 81.7 81.7
------- -------
TOTAL INVESTMENTS 5,287.0 5,430.4
======= =======
*Differences between cost and carrying values result from certain
valuation allowances.
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION SCHEDULE III
<TABLE>
<CAPTION>
Future
policy Amortization
benefits, Benefits, of
Deferred losses, claims, deferred
policy claims, Net Commissions, losses and policy Other
acquisition and loss Unearned Premium investment fees settlement acquisition operating Premiums
costs expenses premiums revenue income and other expenses costs expenses written
(1) (2) (3) (1) (4)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(millions)
Year Ended
December 31, 1995:
Life Insurance $396.5 $500.4 $5,014.2 $194.0 $355.5 $ 0.5 $370.5 $42.5 $38.6 $ -
A&H Insurance - 3.7 - 3.0 0.4 - 2.4 - 0.3 2.8
Corporate and other - - - - 46.2 2.3 - - 4.8 -
-------------------------------------------------------------------------------------------------------------
$396.5 $504.1 $5,014.2 $197.0 $402.1 $ 2.8 $372.9 $42.5 $43.7 $ 2.8
=============================================================================================================
Year ended
December 31, 1994:
Life insurance $434.9 $618.9 $5,063.2 $225.7 $425.2 $ 4.7 $466.1 $51.3 $61.5 $ -
A&H insurance - 54.8 186.3 4.4 6.5 4.0 11.0 10.9 4.5 17.1
Corporate and other 1.8 - - - 58.9 -0.2 - - 9.7 -
-------------------------------------------------------------------------------------------------------------
$436.7 $673.7 $5,249.5 $230.1 $490.6 $ 8.5 $477.1 $62.2 $75.7 $17.1
=============================================================================================================
Year ended
December 31, 1993:
Life insurance $376.9 $644.3 $5,308.1 $222.3 $437.8 $ 6.7 $474.0 $52.1 $67.5 $ -
A&H insurance 88.1 60.2 173.6 34.2 12.2 7.5 17.0 19.0 12.0 61.7
Corporate and other 1.9 - - - 63.5 0.3 - - 12.9 -
-------------------------------------------------------------------------------------------------------------
$466.9 $704.5 $5,481.7 $256.5 $513.5 $14.5 $491.0 $71.1 $92.4 $61.7
=============================================================================================================
</TABLE>
- --------------
(1) Includes cost of insurance purchased.
(2) Includes other policyholders' funds
(3) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances.
(4) Net of reinsurance ceded.
THE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES SCHEDULE IV
REINSURANCE
Year ended December 31, 1995
-------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies Amount net
(millions) ------------------------------------------------
Life insurance inforce $53,775.3 $18,792.9 $842.3 $35,823.7 2.3%
=================================================
Premiums and Policy Fees
Life insurance $ 273.8 $ 84.1 $ 4.3 $ 194.0 2.2%
A&H insurance 5.4 2.4 -- 3.0 0.0%
-------------------------------------------------
Total $ 279.2 $ 86.5 $ 4.3 $ 197.0 2.2%
=================================================
Year ended December 31, 1994
-------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies Amount net
(millions) -------------------------------------------------
Life insurance inforce $55,516.0 $17,370.0 $901.0 $39,047.0 2.3%
=================================================
Premiums and Policy Fees
Life insurance $ 337.2 $ 117.0 $ 5.5 $ 225.7 2.4%
A&H insurance 78.3 76.7 2.8 4.4 63.6%
-------------------------------------------------
Total $415.5 $ 193.7 $ 8.3 $ 230.1 3.6%
=================================================
Year ended December 31, 1993
-------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies Amount net
(millions) -------------------------------------------------
Life insurance inforce $57,207.4 $20,639.3 $1,180.9 $37,749.0 3.1%
=================================================
Premiums and Policy Fees
Life insurance $ 342.2 $ 127.4 $ 7.5 $ 223.3 3.4%
A&H insurance 104.9 76.9 6.2 34.2 18.1%
-------------------------------------------------
Total $ 447.1 $ 204.3 $ 13.7 $ 256.5 5.3%
=================================================
<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. 29).
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:
<TABLE>
<CAPTION>
Rates of
Investment Underwriting Cost of Death
Return Risk Insurance Benefit
Illustrated Classification Rates Option Page
<S> <C> <C> <C> <C>
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
</TABLE>
*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.
A-1
<PAGE>
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 .30%, 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 1995. 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 -1.60%, 4.40% and 10.40%, 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.
The management fees and other expenses during 1995 for the portfolios of the
Variable Insurance Products Fund were 0.61% for Equity-Income Portfolio, 0.70%
for Growth Portfolio and 0.91% for Overseas Portfolio.
Absent reimbursements, the total annual expenses during 1995 for the
portfolios of the Variable Insurance Products Fund II were 0.81% for Asset
Manager Portfolio and 0.73% for Contrafund Portfolio.
Absent reimbursements, the management fees and other expenses during 1995 for
the portfolios of Life of Virginia Series Fund would have been 0.66% for Common
Stock Index Portfolio, 0.74% for Government Securities Portfolio, 0.63% for
Money Market Portfolio, 0.65% for Total Return Portfolio, 1.61% for Real Estate
Securities Portfolio, and 2.17% for International Equity Portfolio.
The management fees and other expenses during 1995 for the portfolios of the
Oppenheimer Variable Account Funds were .81% for Oppenheimer High Income Fund,
.80% for Oppenheimer Bond Fund, .78% for Oppenheimer Capital Appreciation Fund,
.77% for Oppenheimer Multiple Strategies Fund; and .79% for Oppenheimer Growth
Fund.
Absent certain fee waivers or reductions, the total annual expenses of the
portfolios of the Janus Aspen Series for the fiscal year ended December 31, 1995
would have been .98% for Growth Portfolio, .93% for Aggressive Growth Portfolio,
1.09% for Worldwide Growth Portfolio, 3.57% for International Growth Portfolio,
1.55% for Balanced Portfolio, and 1.07% for Flexible Income Portfolio.
The total annual expenses for Federated Utility Fund II, Federated High Income
Bond Fund II, and Federated American Leaders Fund II are 0.85%, 0.80% and 0.85%,
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 Federated Utility Fund II, 0.80% of average net
assets for Federated High Income Bond Fund II, and 0.85% of average net assets
for Federated American Leaders Fund II. The adviser can terminate this voluntary
waiver at any time at its sole discretion. Without this waiver and other
voluntary reimbursement of certain other operating expenses, the total operating
expenses were 3.09% for Federated Utility Fund II, 4.20% for Federated High
Income Bond Fund II, and 2.21% for Federated American Leaders Fund II.
The total annual expenses for the portfolios of The Alger American Fund for
the period ended December 31, 1995 were 0.92% for Alger American Small
Capitalization Portfolio and 0.85% for Alger American Growth Portfolio.
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 has not
independently verified 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).
A-2
<PAGE>
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.
A-3
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
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 50,615 358 688 50,688 435 765 50,765
3 1,986 548 855 50,855 684 992 50,992 834 1,141 51,141
4 2,715 796 1,081 51,081 1,013 1,298 51,298 1,260 1,545 51,545
5 3,481 1,031 1,293 51,293 1,344 1,606 51,606 1,717 1,980 51,980
6 4,285 1,279 1,489 51,489 1,706 1,916 51,916 2,237 2,447 52,447
7 5,129 1,512 1,669 51,669 2,068 2,225 52,225 2,790 2,948 52,948
8 6,016 1,727 1,832 51,832 2,428 2,533 52,533 3,381 3,486 53,486
9 6,947 1,924 1,976 51,976 2,787 2,839 52,839 4,011 4,064 54,064
10 7,924 2,101 2,101 52,101 3,141 3,141 53,141 4,683 4,683 54,683
15 13,594 2,465 2,465 52,465 4,611 4,611 54,611 8,625 8,625 58,625
20 20,832 1,919 1,919 51,919 5,421 5,421 55,421 13,928 13,928 63,928
25 30,068 * * * 4,732 4,732 54,732 20,684 20,684 70,684
30 41,856 * * * 929 929 50,929 28,381 28,381 78,381
35 56,902 * * * * * * 35,395 35,395 85,395
</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 -1.60%, 4.40% AND 10.40%. 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-4
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
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 Current Return with Current Return with Current
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 1,292 356 686 50,686 432 762 50,762 511 841 50,841
3 1,986 689 997 50,997 835 1,142 51,142 994 1,301 51,301
4 2,715 1,007 1,292 51,292 1,244 1,529 51,529 1,513 1,798 51,798
5 3,481 1,316 1,579 51,579 1,666 1,928 51,928 2,079 2,342 52,342
6 4,285 1,650 1,860 51,860 2,135 2,345 52,345 2,732 2,942 52,942
7 5,129 1,980 2,137 52,137 2,622 2,780 52,780 3,447 3,605 53,605
8 6,016 2,305 2,410 52,410 3,128 3,233 53,233 4,231 4,336 54,336
9 6,947 2,625 2,678 52,678 3,655 3,707 53,707 5,091 5,144 55,144
10 7,924 2,942 2,942 52,942 4,202 4,202 54,202 6,035 6,035 56,035
15 13,594 4,264 4,264 54,264 7,105 7,105 57,105 12,198 12,198 62,198
20 20,832 5,194 5,194 55,194 10,382 10,382 60,382 21,943 21,943 71,943
25 30,068 5,285 5,285 55,285 13,563 13,563 63,563 36,910 36,910 86,910
30 41,856 3,935 3,935 53,935 15,868 15,868 65,869 59,589 59,589 109,589
35 56,902 151 151 50,151 15,805 15,805 65,805 93,438 93,438 143,438
</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 -1.60%, 4.40% AND 10.40%. 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-5
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 50,000 117 417 50,000
2 1,292 300 618 50,000 373 691 50,000 451 769 50,000
3 1,986 553 861 50,000 691 998 50,000 841 1,148 50,000
4 2,715 805 1,090 50,000 1,023 1,308 50,000 1,273 1,558 50,000
5 3,481 1,044 1,306 50,000 1,361 1,623 50,000 1,738 2,001 50,000
6 4,285 1,298 1,508 50,000 1,730 1,940 50,000 2,269 2,479 50,000
7 5,129 1,536 1,694 50,000 2,102 2,259 50,000 2,837 2,994 50,000
8 6,016 1,759 1,864 50,000 2,475 2,580 50,000 3,447 3,552 50,000
9 6,947 1,965 2,017 50,000 2,848 2,900 50,000 4,102 4,154 50,000
10 7,924 2,152 2,152 50,000 3,220 3,220 50,000 4,805 4,805 50,000
15 13,594 2,589 2,589 50,000 4,852 4,852 50,000 9,093 9,093 50,000
20 20,832 2,161 2,161 50,000 6,029 6,029 50,000 15,446 15,446 50,000
25 30,068 284 284 50,000 6,050 6,050 50,000 25,191 25,191 50,000
30 41,856 * * * 3,333 3,333 50,000 41,251 41,251 50,000
35 56,902 * * * * * * 68,907 68,907 73,731
</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 -1.60%, 4.40% AND 10.40%. 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-6
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Preferred NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 Current Return with Current Return with Current
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 50,000 117 417 50,000
2 1,292 371 689 50,000 447 765 50,000 527 845 50,000
3 1,986 695 1,003 50,000 842 1,149 50,000 1,001 1,309 50,000
4 2,715 1,017 1,302 50,000 1,256 1,541 50,000 1,527 1,812 50,000
5 3,481 1,331 1,593 50,000 1,684 1,947 50,000 2,102 2,365 50,000
6 4,285 1,670 1,880 50,000 2,161 2,371 50,000 2,766 2,976 50,000
7 5,129 2,006 2,164 50,000 2,658 2,816 50,000 3,496 3,654 50,000
8 6,016 2,338 2,443 50,000 3,176 3,281 50,000 4,298 4,403 50,000
9 6,947 2,667 2,719 50,000 3,716 3,769 50,000 5,181 5,234 50,000
10 7,924 2,992 2,992 50,000 4,279 4,279 50,000 6,153 6,153 50,000
15 13,594 4,370 4,370 50,000 7,305 7,305 50,000 12,576 12,576 50,000
20 20,832 5,402 5,402 50,000 10,855 10,855 50,000 23,046 23,046 50,000
25 30,068 5,691 5,691 50,000 14,694 14,694 50,000 40,202 40,202 50,000
30 41,856 4,670 4,670 50,000 18,538 18,538 50,000 68,438 68,438 79,388
35 56,902 1,217 1,217 50,000 21,856 21,856 50,000 114,145 114,145 122,135
</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 -1.60%, 4.40% AND 10.40%. 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-7
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Preferred Smoker 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>
1 630 0 280 50,280 4 304 50,304 29 329 50,329
2 1,292 100 440 50,440 163 503 50,503 229 569 50,569
3 1,986 262 578 50,578 373 689 50,689 496 812 50,812
4 2,715 398 690 50,690 567 860 50,860 763 1,056 51,056
5 3,481 507 776 50,776 744 1,013 51,013 1,030 1,299 51,299
6 4,285 618 833 50,833 929 1,144 51,144 1,323 1,538 51,538
7 5,129 700 861 50,861 1,090 1,251 51,251 1,610 1,771 51,771
8 6,016 751 858 50,858 1,225 1,333 51,333 1,890 1,997 51,997
9 6,947 770 824 50,824 1,331 1,385 51,385 2,159 2,213 52,213
10 7,924 754 754 50,754 1,402 1,402 51,402 2,412 2,412 52,412
15 13,594 * * * 885 885 50,885 3,097 3,097 53,097
20 20,832 * * * * * * 2,074 2,074 52,074
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 -1.60%, 4.40% AND 10.40%. 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
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Preferred Smoker 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 Current Return with Current Return with Current
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>
1 630 0 280 50,280 4 304 50,304 29 329 50,329
2 1,292 172 512 50,512 237 577 50,577 305 645 50,645
3 1,986 409 725 50,725 530 846 50,846 662 978 50,978
4 2,715 642 935 50,935 834 1,126 51,126 1,053 1,345 51,345
5 3,481 873 1,141 51,141 1,151 1,419 51,419 1,482 1,751 51,751
6 4,285 1,129 1,344 51,344 1,510 1,725 51,725 1,984 2,199 52,199
7 5,129 1,383 1,544 51,544 1,883 2,045 52,045 2,532 2,693 52,693
8 6,016 1,634 1,741 51,741 2,270 2,378 52,378 3,131 3,239 53,239
9 6,947 1,881 1,935 51,935 2,672 2,726 52,726 3,787 3,841 53,841
10 7,924 2,125 2,125 52,125 3,089 3,089 53,089 4,506 4,506 54,506
15 13,594 2,835 2,835 52,835 4,954 4,954 54,954 8,810 8,810 58,810
20 20,832 2,685 2,685 52,685 6,342 6,342 56,342 14,808 14,808 64,808
25 30,068 1,287 1,287 51,287 6,606 6,606 56,606 22,965 22,965 72,965
30 41,856 * * * 4,503 4,503 54,503 33,564 33,564 83,564
35 56,902 * * * * * * 46,615 46,615 96,615
</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 -1.60%, 4.40% AND 10.40%. 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
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Preferred Smoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 0 281 50,000 6 306 50,000 31 331 50,000
2 1,292 105 445 50,000 168 508 50,000 234 574 50,000
3 1,986 270 586 50,000 382 699 50,000 507 823 50,000
4 2,715 410 703 50,000 583 875 50,000 782 1,074 50,000
5 3,481 526 794 50,000 767 1,036 50,000 1,060 1,328 50,000
6 4,285 643 858 50,000 962 1,177 50,000 1,366 1,581 50,000
7 5,129 732 893 50,000 1,135 1,297 50,000 1,673 1,834 50,000
8 6,016 791 898 50,000 1,285 1,392 50,000 1,977 2,084 50,000
9 6,947 819 872 50,000 1,407 1,461 50,000 2,276 2,330 50,000
10 7,924 811 811 50,000 1,497 1,497 50,000 2,567 2,567 50,000
15 13,594 * * * 1,112 1,112 50,000 3,603 3,603 50,000
20 20,832 * * * * * * 3,365 3,365 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 -1.60%, 4.40% AND 10.40%. 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-10
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Preferred Smoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 Current Return with Current Return with Current
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 0 281 50,000 6 306 50,000 31 331 50,000
2 1,292 177 517 50,000 242 582 50,000 311 651 50,000
3 1,986 417 734 50,000 539 856 50,000 673 989 50,000
4 2,715 656 948 50,000 850 1,143 50,000 1,073 1,365 50,000
5 3,481 892 1,161 50,000 1,175 1,444 50,000 1,513 1,782 50,000
6 4,285 1,156 1,371 50,000 1,545 1,760 50,000 2,029 2,244 50,000
7 5,129 1,417 1,578 50,000 1,930 2,091 50,000 2,595 2,756 50,000
8 6,016 1,676 1,783 50,000 2,331 2,439 50,000 3,217 3,325 50,000
9 6,947 1,932 1,986 50,000 2,749 2,803 50,000 3,901 3,955 50,000
10 7,924 2,186 2,186 50,000 3,185 3,185 50,000 4,655 4,655 50,000
15 13,594 2,976 2,976 50,000 5,222 5,222 50,000 9,321 9,321 50,000
20 20,832 2,965 2,965 50,000 7,007 7,007 50,000 16,404 16,404 50,000
25 30,068 1,734 1,734 50,000 8,069 8,069 50,000 27,589 27,589 50,000
30 41,856 * * * 7,380 7,380 50,000 46,496 46,496 53,936
35 56,902 * * * 2,893 2,893 50,000 78,081 78,081 83,546
</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 -1.60%, 4.40% AND 10.40%. 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-11
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
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 50,615 358 688 50,688 435 765 50,765
3 1,986 548 855 50,855 684 992 50,992 834 1,141 51,141
4 2,715 796 1,081 51,081 1,013 1,298 51,298 1,260 1,545 51,545
5 3,481 1,031 1,293 51,293 1,344 1,606 51,606 1,717 1,980 51,980
6 4,285 1,279 1,489 51,489 1,706 1,916 51,916 2,237 2,447 52,447
7 5,129 1,512 1,669 51,669 2,068 2,225 52,225 2,790 2,948 52,948
8 6,016 1,727 1,832 51,832 2,428 2,533 52,533 3,381 3,486 53,486
9 6,947 1,924 1,976 51,976 2,787 2,839 52,839 4,011 4,064 54,064
10 7,924 2,101 2,101 52,101 3,141 3,141 53,141 4,683 4,683 54,683
15 13,594 2,465 2,465 52,465 4,611 4,611 54,611 8,625 8,625 58,625
20 20,832 1,919 1,919 51,919 5,421 5,421 55,421 13,928 13,928 63,928
25 30,068 * * * 4,732 4,732 54,732 20,684 20,684 70,684
30 41,856 * * * 929 929 50,929 28,381 28,381 78,381
35 56,902 * * * * * * 35,395 35,395 85,395
</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 -1.60%, 4.40% AND 10.40%. 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-12
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
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 Current Return with Current Return with Current
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 1,292 356 686 50,686 432 762 50,762 511 841 50,841
3 1,986 689 997 50,997 835 1,142 51,142 994 1,301 51,301
4 2,715 1,007 1,292 51,292 1,244 1,529 51,529 1,513 1,798 51,798
5 3,481 1,310 1,573 51,573 1,660 1,922 51,922 2,073 2,336 52,336
6 4,285 1,626 1,836 51,836 2,109 2,319 52,319 2,705 2,915 52,915
7 5,129 1,924 2,082 52,082 2,563 2,721 52,721 3,384 3,542 53,542
8 6,016 2,204 2,309 52,309 3,019 3,124 53,124 4,113 4,218 54,218
9 6,947 2,467 2,519 52,519 3,479 3,532 53,532 4,897 4,949 54,949
10 7,924 2,726 2,726 52,726 3,957 3,957 53,957 5,757 5,757 55,757
15 13,594 3,807 3,807 53,807 6,498 6,498 56,498 11,386 11,386 61,386
20 20,832 4,579 4,579 54,579 9,407 9,407 59,407 20,357 20,357 70,357
25 30,068 4,377 4,377 54,377 11,962 11,962 61,962 33,859 33,859 83,859
30 41,856 2,466 2,466 52,466 13,160 13,160 63,160 53,760 53,760 103,760
35 56,902 * * * 11,105 11,105 61,105 82,343 82,343 132,343
</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 -1.60%, 4.40% AND 10.40%. 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-13
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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>
1 630 63 363 50,000 90 390 50,000 117 417 50,000
2 1,292 300 618 50,000 373 691 50,000 451 769 50,000
3 1,986 553 861 50,000 691 998 50,000 841 1,148 50,000
4 2,715 805 1,090 50,000 1,023 1,308 50,000 1,273 1,558 50,000
5 3,481 1,044 1,306 50,000 1,361 1,623 50,000 1,738 2,001 50,000
6 4,285 1,298 1,508 50,000 1,730 1,940 50,000 2,269 2,479 50,000
7 5,129 1,536 1,694 50,000 2,102 2,259 50,000 2,837 2,994 50,000
8 6,016 1,759 1,864 50,000 2,475 2,580 50,000 3,447 3,552 50,000
9 6,947 1,965 2,017 50,000 2,848 2,900 50,000 4,102 4,154 50,000
10 7,924 2,152 2,152 50,000 3,220 3,220 50,000 4,805 4,805 50,000
15 13,594 2,589 2,589 50,000 4,852 4,852 50,000 9,093 9,093 50,000
20 20,832 2,161 2,161 50,000 6,029 6,029 50,000 15,446 15,446 50,000
25 30,068 284 284 50,000 6,050 6,050 50,000 25,191 25,191 50,000
30 41,856 * * * 3,333 3,333 50,000 41,251 41,251 50,000
35 56,902 * * * * * * 68,907 68,907 73,731
</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 -1.60%, 4.40% AND 10.40%. 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-14
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
NonSmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 Current Return with Current Return with Current
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 50,000 117 417 50,000
2 1,292 371 689 50,000 447 765 50,000 527 845 50,000
3 1,986 695 1,003 50,000 842 1,149 50,000 1,001 1,309 50,000
4 2,715 1,017 1,302 50,000 1,256 1,541 50,000 1,527 1,812 50,000
5 3,481 1,325 1,587 50,000 1,678 1,941 50,000 2,096 2,359 50,000
6 4,285 1,647 1,857 50,000 2,137 2,347 50,000 2,741 2,951 50,000
7 5,129 1,953 2,111 50,000 2,602 2,760 50,000 3,437 3,595 50,000
8 6,016 2,242 2,347 50,000 3,073 3,178 50,000 4,188 4,293 50,000
9 6,947 2,515 2,568 50,000 3,551 3,603 50,000 5,001 5,054 50,000
10 7,924 2,786 2,786 50,000 4,049 4,049 50,000 5,898 5,898 50,000
15 13,594 3,936 3,936 50,000 6,743 6,743 50,000 11,852 11,852 50,000
20 20,832 4,816 4,816 50,000 9,957 9,957 50,000 21,662 21,662 50,000
25 30,068 4,818 4,818 50,000 13,234 13,234 50,000 37,654 37,654 50,000
30 41,856 3,216 3,216 50,000 16,080 16,080 50,000 64,125 64,125 74,385
35 56,902 * * * 17,486 17,486 50,000 106,897 106,897 114,380
</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 -1.60%, 4.40% AND 10.40%. 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-15
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Smoker 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 4 304 50,304 29 329 50,329
2 1,292 100 440 50,440 163 503 50,503 229 569 50,569
3 1,986 262 578 50,578 373 689 50,689 496 812 50,812
4 2,715 398 690 50,690 567 860 50,860 763 1,056 51,056
5 3,481 507 776 50,776 744 1,013 51,013 1,030 1,299 51,299
6 4,285 618 833 50,833 929 1,144 51,144 1,323 1,538 51,538
7 5,129 700 861 50,861 1,090 1,251 51,251 1,610 1,771 51,771
8 6,016 751 858 50,858 1,225 1,333 51,333 1,890 1,997 51,997
9 6,947 770 824 50,824 1,331 1,385 51,385 2,159 2,213 52,213
10 7,924 754 754 50,754 1,402 1,402 51,402 2,412 2,412 52,412
15 13,594 * * * 885 885 50,885 3,097 3,097 53,097
20 20,832 * * * * * * 2,074 2,074 52,074
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 -1.60%, 4.40% AND 10.40%. 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-16
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Smoker 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 Current Return with Current Return with Current
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 4 304 50,304 29 329 50,329
2 1,292 172 512 50,512 237 577 50,577 305 645 50,645
3 1,986 404 720 50,720 525 841 50,841 657 973 50,973
4 2,715 609 902 50,902 799 1,092 51,092 1,017 1,309 51,309
5 3,481 787 1,056 51,056 1,060 1,329 51,329 1,386 1,655 51,655
6 4,285 965 1,180 51,180 1,333 1,548 51,548 1,792 2,007 52,007
7 5,129 1,122 1,283 51,283 1,595 1,756 51,756 2,214 2,375 52,375
8 6,016 1,276 1,383 51,383 1,866 1,973 51,973 2,674 2,781 52,781
9 6,947 1,429 1,483 51,483 2,147 2,200 52,200 3,176 3,230 53,230
10 7,924 1,580 1,580 51,580 2,437 2,437 52,437 3,725 3,725 53,725
15 13,594 1,889 1,889 51,889 3,626 3,626 53,626 6,922 6,922 56,922
20 20,832 1,389 1,389 51,389 4,207 4,207 54,207 11,151 11,151 61,151
25 30,068 * * * 3,165 3,165 53,165 16,054 16,054 66,054
30 41,856 * * * * * * 20,681 20,681 70,681
35 56,902 * * * * * * 22,844 22,844 72,844
</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 -1.60%, 4.40% AND 10.40%. 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-17
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Smoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 0 281 50,000 6 306 50,000 31 331 50,000
2 1,292 105 445 50,000 168 508 50,000 234 574 50,000
3 1,986 270 586 50,000 382 699 50,000 507 823 50,000
4 2,715 410 703 50,000 583 875 50,000 782 1,074 50,000
5 3,481 526 794 50,000 767 1,036 50,000 1,060 1,328 50,000
6 4,285 643 858 50,000 962 1,177 50,000 1,366 1,581 50,000
7 5,129 732 893 50,000 1,135 1,297 50,000 1,673 1,834 50,000
8 6,016 791 898 50,000 1,285 1,392 50,000 1,977 2,084 50,000
9 6,947 819 872 50,000 1,407 1,461 50,000 2,276 2,330 50,000
10 7,924 811 811 50,000 1,497 1,497 50,000 2,567 2,567 50,000
15 13,594 * * * 1,112 1,112 50,000 3,603 3,603 50,000
20 20,832 * * * * * * 3,365 3,365 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 -1.60%, 4.40% AND 10.40%. 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-18
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $50,000
Smoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B 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 Current Return with Current Return with Current
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 0 281 50,000 6 306 50,000 31 331 50,000
2 1,292 177 517 50,000 242 582 50,000 311 651 50,000
3 1,986 413 729 50,000 535 851 50,000 668 985 50,000
4 2,715 623 916 50,000 817 1,109 50,000 1,038 1,330 50,000
5 3,481 808 1,077 50,000 1,087 1,356 50,000 1,420 1,689 50,000
6 4,285 994 1,209 50,000 1,372 1,587 50,000 1,843 2,058 50,000
7 5,129 1,161 1,322 50,000 1,649 1,810 50,000 2,288 2,450 50,000
8 6,016 1,326 1,433 50,000 1,938 2,045 50,000 2,776 2,884 50,000
9 6,947 1,489 1,543 50,000 2,238 2,292 50,000 3,313 3,367 50,000
10 7,924 1,652 1,652 50,000 2,551 2,551 50,000 3,903 3,903 50,000
15 13,594 2,038 2,038 50,000 3,920 3,920 50,000 7,504 7,504 50,000
20 20,832 1,644 1,644 50,000 4,865 4,865 50,000 12,827 12,827 50,000
25 30,068 * * * 4,473 4,473 50,000 20,649 20,649 50,000
30 41,856 * * * 1,035 1,035 50,000 32,973 32,973 50,000
35 56,902 * * * * * * 54,942 54,942 58,788
</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 -1.60%, 4.40% AND 10.40%. 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-19
<PAGE>
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The Life Insurance Company of Virginia's By-laws provide, in Article V,
Section 5, for indemnification of directors, officers and employees of the
Company.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise under circumstances
where the burden of proof set forth in Section 11(b) of the Act has not been
sustained, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO RULE 6e-3 (T)
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940, with respect to the Policy described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk charge is within the range of
industry practice for comparable flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood that the
distribution financing arrangement of Separate Account II will benefit the
separate account and policyowners and will keep and make available to the
Commission on request a Memorandum setting forth the basis for this
representation.
(4) Separate Account II will invest only in management investment companies
which have undertaken to have a board of directors, a majority of whom are not
interested persons of the company, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2) above
is based upon an analysis of the mortality and expense risk charges contained in
other variable life insurance policies, including scheduled and flexible premium
products. Registrant undertakes to keep and make available to the Commission on
request the documents used to support the representation in paragraph (2) above.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The prospectus consisting of _____ pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T)
The signatures.
Written consents of the following persons:
(a) William E. Daner, Jr.
(b) Messrs. Sutherland, Asbill & Brennan
(c) Bruce E. Booker, F.S.A.
(d) Ernst & Young LLP
The following exhibits:
See next page.
<PAGE>
EXHIBITS
(1)(a) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of Separate Account II. 1/
(1)(b) Resolution of Board of Directors of Life of Virginia authorizing
the addition of Investment Subdivisions to Separate Account II.
1/
(1)(c) Resolution of Board of Directors of Life of Virginia authorizing
the deletion of Investment Subdivisions of Separate Account II,
III and 4 which invest in shares of the American Life/Annuity
Series. 1/
(1)(d) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of Investment Subdivisions of Separate Account
II which invest in shares of Fidelity Variable Insurance Products
Fund II, Asset Manager Portfolio and Neuberger & Berman Advisers
Management Trust, Balanced Portfolio. 1/
(1)(e) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of Investment Subdivisions of Separate Account
II which invest in shares of Neuberger & Berman Advisers
Management Trust, Growth and Limited Maturity Bond Portfolios.1/
(1)(f) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of Investment Subdivisions of Separate Account
II which invest in shares of Janus Aspen Series, Growth
Portfolio, Aggressive Growth Portfolio, and Worldwide Growth
Portfolio. 3/
(1)(g) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of an Investment Subdivision of Separate
Account II which invests in shares of the Utility Fund of the
Investment Management Series. 4/
(1)(h) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of two additional Investment Subdivisions of
Separate Account II which invest in shares of the Corporate Bond
Fund of the Insurance Management Series and the Contrafund
Portfolio of the Variable Insurance Products Fund II. 4/
(1)(i) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of two additional Investment Subdivisions of
Separate Account II which invest in shares of the International
Equity Portfolio and the Real Estate Securities Portfolio of the
Life of Virginia Series Fund. 5/
(1)(j) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of four additional Investment Subdivisions of
Separate Account II which invest in shares of the Alger American
Growth Portfolio and the Alger American Small Capitalization
Portfolio of The Alger American Fund, and the Balanced Portfolio
and Flexible Income Portfolio of the Janus Aspen Series. 6/
(1)(k) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of two additional investment subdivisions of
Separate Account II, investing in shares of the Federated
American Leaders Fund II of the Federated Insurance Series, and
the International Growth Portfolio of the Janus Aspen Series.
1A(2) Not Applicable
1A(3)(a) Underwriting Agreement 1/
1A(3)(a)(i) Underwriting Agreement dated April 2, 1996 between The Life
Insurance Company of Virginia and Forth Financial Securities
Corporation
<PAGE>
1A(3)(b)(i) Selling Agreement 1/
1A(3)(b)(ii) Equity Sales Agreement for Producers of Forth Financial
Resources, Ltd. 1/
1A(3)(c) See Exhibit 1A(3)(a)
1A(4) Not Applicable
1A(5) Policy Form, Commonwealth Three 1/
1A(5)(a) Endorsement to policy 1/
1A(6)(a) Articles of Incorporation of The Life Insurance Company of
Virginia 1/
1A(6)(b) By-Laws of The Life Insurance Company of Virginia 1/
1A(7) Not Applicable
1A(8)(a) Stock Sale Agreement 1/
1A(8)(a)(i) Amendment to Stock Sale Agreement between The Life Insurance
Company of Virginia and Life of Virginia Series Fund, Inc.1/
1A(8)(b) Fund Participation Agreement between The Life Insurance Company
of Virginia and American Life/Annuity Series. 1/
1A(8)(b)(i) Amendment to Fund Participation Agreement between The Life
Insurance Company of Virginia and American Life/Annuity Series.1/
1A(8)(b)(ii) Amendment to Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia.
1A(8)(b)(iii) Amendment to Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia.
1A(8)(c) Participation Agreement among Variable Insurance Products Fund,
Fidelity Distributors Corporation, and The Life Insurance Company
of Virginia. 1/
1A(8)(d) Agreement between Oppenheimer Variable Account Funds, Oppenheimer
Management Corporation, and The Life Insurance Company of
Virginia. 1/
1A(8)(d)(i) Amendment to the Participation Agreement between Oppenheimer
Variable Account Funds, Oppenheimer Management Corporation, and
The Life Insurance Company of Virginia. 1/
<PAGE>
1A(8)(e) Participation Agreement Among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and The Life Insurance
Company of Virginia. 1/
1A(8)(f) Sales Agreement between Advisers Management Trust and The Life
Insurance Company of Virginia. 1/
1A(8)(g) Amendment to Sales Agreement between Advisers Management Trust
and The Life Insurance Company of Virginia. 1/
1A(8)(g)(i) Assignment and Modification between Neuberger and Berman Advisers
Management Trust and The Life Insurance Company of Virginia.
1A(8)(h) Fund Participation Agreement between Janus Aspen Series and The
Life Insurance Company of Virginia. 3/
1A(8)(i) Fund Participation Agreement between Insurance Management Series,
Federated Securities Corporation, and The Life Insurance Company
of Virginia. 4/
1A(8)(j) Fund Participation Agreement between The Alger American Fund,
Fred Alger and Company, Inc., and The Life Insurance Company of
Virginia. 6/
1A(9) Administrative Agreement 1/
1A(10) Application for Commonwealth Three Policy 1/
2 See Exhibit 1(A)5
3(a) Opinion and Consent of Counsel
3(b) Consent of Messrs. Sutherland, Asbill and Brennan
3(c) Consent of Ernst & Young LLP
4 Not Applicable
5 Not Applicable
6 Opinion and Consent of Bruce E. Booker, Actuary
7 Memorandum describing Life of Virginia's issuance, transfer,
redemption and exchange procedures for the Policy.
8 Undertaking to Guarantee performance of obligations of principal
underwriter.1/
9 Notice of Withdrawal Right 1/
10(a) Power of Attorney 2/
(b) Power of Attorney dated April 2, 1996
<PAGE>
1/ Filed April 24, 1992 with Post-Effective Amendment Number 7 to Form S-6 for
Life of Virginia Separate Account II, Registration Number 33-9651
2/ Filed April 30, 1993 with Post-Effective Amendment Number 8 to Form S-6 for
Life of Virginia Separate Account II, Registration Number 33-9651.
3/ Filed April 29, 1994 with Post-Effective Amendment Number 9 to Form S-6 for
Life of Virginia Separate Account II, Registration Number 33-9651.
4/ Filed January 3, 1995 with Post-Effective Amendment Number 10 to Form S-6 for
Life of Virginia Separate Account II, Registration Number 33-9651.
5/ Filed April 28, 1995 with Post-Effective Amendment Number 11 to Form S-6 for
Life of Virginia Separate Account II, Registration Number 33-9651.
6/ Filed September 28, 1995 with Post-Effective Amendment Number 12 to Form S-6
for Life of Virginia Separate Account II, Registration Number 33-9651.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Life of Virginia Separate Account II, certifies that it meets all the
requirements for effectiveness of this registration statement pursuant to Rule
485 under the Securities Act of 1933 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
County of Henrico in the Commonwealth of Virginia, on the 23rd day of April,
1996.
Life of Virginia Separate Account II
(Seal)The Life Insurance Company of Virginia
(Depositor)
Attest: _______________________________ By: ___________________________________
John J. Palmer
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, The Life Insurance
Company of Virginia certifies that it meets the requirements for effectiveness
of this registration statement pursuant to Rule 485 under the Securities Act of
1933 and has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the County of Henrico in the
Commonwealth of Virginia on the 23rd day of April, 1996.
(Seal)The Life Insurance Company of Virginia
Attest: ____________________________ By: ______________________________________
John J. Palmer
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/PATRICK E. WELCH*** Director 4/23/96
- ----------------------------------
Patrick E. Welch
/s/ PAUL E. RUTLEDGE III* Director, President and Chief Operating Officer 4/23/96
- ----------------------------------
Paul E. Rutledge III
- ----------------------------------
John J. Palmer Senior Vice President and Director 4/23/96
/s/ H. GAYLORD HODGES, JR.* Senior Vice President and Director 4/23/96
- ----------------------------------
H. Gaylord Hodges, Jr.
/s/ WILLIAM D. BALDWIN* Senior Vice President and Director 4/23/96
- ----------------------------------
William D.Baldwin
/s/ SELWYN L. FLOURNOY, JR.* Senior Vice President, Director (Principal 4/23/96
- ---------------------------------- Financial and Accounting
Selwyn L. Flournoy, Jr. Officer)
/s/ ROBERT A. BOWEN** Director 4/23/96
- ----------------------------------
Robert A. Bowen
<PAGE>
/s/ LINDA L. LANAM** Director 4/23/96
- ----------------------------------
Linda L. Lanam
/s/ HANS L. CARSTENSEN*** Director 4/23/96
- ----------------------------------
Hans L. Carstensen
/s/ VICTOR C. MOSES*** Director 4/23/96
- ----------------------------------
Victor C. Moses
/s/ GEOFFREY S. STIFF*** Director 4/23/96
- ----------------------------------
Geoffrey S. Stiff
</TABLE>
By _______________________________, pursuant to Power of Attorney executed on *
February 10, 1992, ** February 23, 1993, and ***April 2, 1996.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Page
(1)(k) Resolution of Board of Directors
1A(3)(a)(i) Underwriting Agreement
1A(8)(b)(ii) Amendment to Participation Agreement
1A(8)(b)(iii) Amendment to Participation Agreement
1A(8)(g)(i) Assignment and Modification Agreement
3(a) Opinion and Consent of Counsel
3(b) Consent of Messrs. Sutherland, Asbill
and Brennan
3(c) Consent of Ernst & Young LLP
6 Opinion and Consent of Bruce E. Booker, Actuary
The Life Insurance Company of Virginia
7 Memorandum describing Life of Virginia's issuance, transfer,
redemption and exchange procedures for the Policy.
10(b) Power of Attorney
EXHIBIT (1)(k)
Resolution of The Board of Directors of
The Life Insurance Company of Virginia
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of The Life Insurance Company of Virginia, a Virginia
corporation, in lieu of a meeting held for the purpose and pursuant to the
provisions of Section 13.1-685 of the Code of Virginia do hereby approve the
following resolutions:
WHEREAS, The Executive Committee of the Board of Directors of The Life Insurance
Company of Virginia ("Company"), pursuant to the provisions of Section 38.2-3113
of the Code of Virginia, adopted resolutions establishing Life of Virginia
Separate Account II ("Separate Account II") on August 21, 1986; and
WHEREAS, The Executive Committee of the Board of Directors of the Company,
pursuant to the provisions of Section 38.2-3113 of the Code of Virginia, adopted
resolutions establishing Life of Virginia Separate Account III ("Separate
Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish two additional investment subdivisions
of each of the aforesaid separate accounts which will invest in shares of the
Federated American Leaders Fund II of the Federated Insurance Series (formerly
known as the Insurance Management Series) and the International Growth Portfolio
of the Janus Aspen Series;
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create two additional
investment subdivisions of each of the aforementioned separate accounts. Each of
the new subdivisions shall invest in shares of a single mutual fund portfolio as
set forth below:
INVESTMENT SUBDIVISIONS: TO BE INVESTED IN:
FED American Leaders II Federated Insurance Series -
Federated American
Leaders Fund II
JAN International Growth Janus Aspen Series --
International Growth Portfolio
FURTHER RESOLVED, That the President, or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute whatever agreement or agreements may be necessary or appropriate to
enable such investments to be made, and the Executive Committee hereby ratifies
the action of any such officer in executing any such agreement prior to the date
of these resolutions; and
FURTHER RESOLVED, That the President or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute and deliver such other documents and do such acts and things as each
or any of them may deem necessary or desirable to carry out the foregoing
resolutions and the intent and purposes thereof.
- ------------------------------------ ----------------------------------
William D. Baldwin Date Robert Allen Bowen Date
- ------------------------------------ ----------------------------------
Daniel T. Cox Date Selwyn L. Flournoy, Jr. Date
<PAGE>
- ------------------------------------ ------------------------------------
H. Gaylord Hodges, Jr. Date Linda L. Lanam Date
- ------------------------------------ -----------------------------------
John J. Palmer Date Paul E. Rutledge III Date
EXHIBIT 1A(3)(a)(i)
Underwriting Agreement
UNDERWRITING AGREEMENT
AGREEMENT dated April 2, 1996, by and between THE LIFE INSURANCE COMPANY OF
VIRGINIA ("Life of Virginia"), a Virginia Corporation, on its own behalf and on
behalf of Life of Virginia Separate Accounts II, III and 4 (the "Separate
Accounts"), and FORTH FINANCIAL SECURITIES CORPORATION ("FFSC"), a Virginia
corporation.
WITNESSETH:
WHEREAS, the Separate Accounts are segregated asset accounts established and
maintained by Life of Virginia pursuant to the laws of the Commonwealth of
Virginia for certain flexible premium variable life insurance and variable
annuity policies (the "Policies") issued or to be issued by Life of Virginia,
under which income, gains and losses, whether or not realized, from assets
allocated to such Separate Accounts, are or will be, in accordance with the
Policies, credited to our charged against such Separate Accounts without regard
to other income, gains or losses of Life of Virginia;
WHEREAS, Life of Virginia has registered the Separate Accounts as unit
investment trust-type investment companies under the Investment Company Act of
1940 (the "1940 Act");
WHEREAS, FFSC has registered as a broker-dealer under the Securities and
Exchange Act of 1934 (the "1934 Act") and is a member firm of the National
Association of Securities Dealers, Inc. (the "NASD"); and
<PAGE>
WHEREAS, Life of Virginia has registered the Policies under the Securities Act
of 1933 (the "1933 Act") and proposes to issue and sell the Policies to the
public through FFSC, acting as the principal underwriter of the Policies;
NOW, THEREFORE, Life of Virginia and FFSC hereby mutually agree as follows:
1. Underwriter.
(a) Life of Virginia grants to FFSC the exclusive right, during the term of
this Agreement, subject to the registration requirements of the 1933
Act and the 1940 Act and the provisions of the 1934 Act, to be the
principal underwriter of the Policies. FFSC agrees to use its best
efforts to distribute the Policies, and to undertake to provide sales
and services relative to the Policies and otherwise to perform all
dudes and functions necessary and proper for the distribution of the
Polices.
(b) To the extent necessary to offer the Policies, FFSC shall be duly
registered or otherwise qualified under the securities laws of any
state or other jurisdiction. All registered representatives of FFSC
soliciting applications for the Polices shall be duly and appropriately
licensed, registered or otherwise qualified for the sale of such
Polices (and any riders offered in connection therewith) under the
federal securities laws, the state insurance laws and any applicable
state securities laws of each state or other jurisdiction in which such
Policies may lawfully be sold and in which Life of Virginia is licensed
to sell the Policies. FFSC shall be responsible for the training,
2
<PAGE>
supervision, and control of its own registered representatives for
purposes of the NASD Rules of Fair Practice and federal and state
securities law requirements applicable to them in connection with the
offer and sale of the Policies.
(c) FFSC agrees to offer the Policies for sale in accordance with the
prospectuses therefor then in effect. FFSC is not authorized to give
any information or to make any representations concerning the Policies
other than those contained in the current prospectuses therefor filed
with the Securities and Exchange Commission ("Commission") or in such
sales literature as may be authorized by Life of Virginia.
(d) Payments under the Policies shall be remitted by or on behalf of
Policyowners directly to Life of Virginia or its designated servicing
agent and shall become the exclusive property of Life of Virginia. Life
of Virginia will credit all payments made by or on behalf of
Policyowners to their respective accounts, and will allocate amounts to
the investment subdivisions of the Separate Accounts in accordance with
the instructions of Policyowners and the provisions of the Policies.
3
<PAGE>
2. Sales and Services Agreements.
FFSC is hereby authorized to enter into separate written sales or services
agreements, on such terms and conditions as FFSC may determine not
inconsistent with this Agreement, with broker-dealers that are registered as
such under the 1934 Act and are members of the NASD and that agree to
participate in the distribution of the Policies. All broker-dealers that
agree to participate in the distribution of the Policies shall act as
independent contractors and nothing herein contained shall constitute the
directors, officers, employees or agents of such broker-dealers as employees
of FFSC or Life of Virginia for any purpose whatsoever.
3. Suitability.
Life of Virginia and FFSC each wish to ensure that the Policies distributed
by FFSC will be issued to purchasers for whom the Policies will be suitable.
FFSC shall take reasonable steps to ensure that its own registered
representatives shall not make recommendations to an applicant to purchase a
Policy in the absence of reasonable grounds to believe that the purchase of
the Policy is suitable for such applicant. While not limited to the
following, a determination of suitability shall be based on information
furnished to a registered representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment objectives,
financial situation and needs, and the likelihood of whether the applicant
will persist with the Policy.
4
<PAGE>
4. Prospectuses and Promotional Material.
Life of Virginia shall furnish FFSC with copies of all prospectuses,
financial statements and other documents and materials which FFSC reasonably
requests for use in connection with the distribution of the Policies. Life of
Virginia shall have responsibility for the preparation, filing and printing
of all required prospectuses and/or registration statements in connection
with the Polices, and the payment of all related expense. FFSC and Life of
Virginia shall cooperate fully in the design, drafting and review of sales
promotion materials, and with respect to the preparation of individual sales
proposals related to the sale of the Policies. FFSC shall not use or
distribute any such materials not provided or approved by Life of Virginia.
5. Records and Reports.
FFSC shall have the responsibility for maintaining records relating to its
registered representatives licensed, registered and otherwise qualified to
sell the Policies and relating to broker-dealers engaged in the distribution
of the Policies, and shall provide periodic reports thereof to Life of
Virginia as requested.
6. Administrative Services.
Life of Virginia agrees to maintain all required books of account and related
financial records on behalf of FFSC. All such books of account and records
shall be maintained and preserved pursuant to Rule 17a-3 and 17a-4 under the
1934 Act (or corresponding provisions of any future Federal securities laws
or regulations). In addition, Life of Virginia will
<PAGE>
maintain records of all sales commissions paid to registered representatives
of FFSC in connection with the sale of the Policies. All such books and
records shall be maintained by Life of Virginia on behalf of and as agent for
FFSC, whose property they are and shall remain for all purposes, and shall at
all times be subject to reasonable periodic, special or other examination by
the Commission and all other regulatory bodies having jurisdiction. Life of
Virginia also agrees to send to FFSC's customers all required confirmations
on customer transactions relating to the Policies, and also to make
commission and such other disbursements as may be required, in connection
with the operations of FFSC, for the account and risk of FFSC.
7. Compensation.
For the services rendered by FFSC under this Agreement, no compensation shall
be paid by LOV to FFSC. In lieu of any such compensation, sales commissions
shall be paid to the registered representatives of FFSC in accordance with
and under the terms of their respective agent agreements in effect with Life
of Virginia for the sale of insurance products, including the Policies.
8. Investigation and Proceedings.
(a) FFSC and Life of Virginia agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Policies distributed under this Agreement. FFSC and
Life of Virginia further agree to cooperate fully in any securities
regulatory inspection, inquiry, investigation or
6
<PAGE>
proceeding or any judicial proceeding with respect to Life of Virginia or
FFSC to the extent that such inspection, inquiry, investigation or
proceeding is in connection with the Policies distributed under this
Agreement. Without limiting the foregoing:
(i) FFSC will be notified promptly of any customer complaint or notice
of any regulatory inspection, inquiry, investigation or proceeding
or judicial proceeding received by Life of Virginia with respect to
Life of Virginia or FFSC or any broker-dealer in connection with any
of the Policies distributed under this Agreement or any activity in
connection with any of the Policies.
(ii) FFSC will promptly notify Life of Virginia of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding received by FFSC with respect to Life
of Virginia or FFSC or any broker-dealer in connection with any of
the Policies distributed under this Agreement or any activity in
connection with any such Policies.
(b) In the case of any such customer complaint, FFSC and Life of Virginia
will cooperate in investigating such complaint and arrive at a mutually
satisfactory response.
9. Termination.
This Agreement shall be effective upon its execution and shall remain in
force for a term of one (1) year from the date hereof, and shall renew from
year to year thereafter, unless either
<PAGE>
7
party notifies the other in writing six (6) months prior to the expiration of
an annual period. This Agreement may not be assigned and shall automatically
terminate if it is assigned. Upon termination of this Agreement all
authorizations, rights and obligations shall cease except (i) the obligation
to settle accounts hereunder, including commissions due or to become due and
payable on the Policies in effect at the time of termination or issued
pursuant to applications received by Life of Virginia prior to termination
and (ii) the agreements contained in Paragraph 8 hereof.
10. Exclusivity.
The services of FFSC hereunder are not to be deemed exclusive and FFSC shall
be free to render similar services to others so long as its services
hereunder are not impaired or interfered with thereby.
11. Regulation.
This Agreement shall be subject to the provisions of the 1940 Act and the
1934 Act and the rules, regulations, and rulings thereunder and of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as
the Securities and Exchange Commission may grant.
FFSC shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of FFSC, Life of Virginia or the Separate
Accounts, any information, reports or other material which any such body by
reason of this Agreement may request or require
8
<PAGE>
pursuant to applicable laws or regulations. Without limiting the generality of
the foregoing, FFSC shall furnish the Virginia State Corporation Commission or
the Bureau of Insurance thereof with any information or reports which the
Commission or the Bureau of Insurance may request in order to ascertain whether
the variable life and/or variable annuity operations of Life of Virginia are
being conducted in a manner consistent with the Commission's variable life
insurance and variable annuity regulations and any other applicable law or
regulations.
Indemnities.
(a) Life of Virginia agrees to indemnify and hold harmless FFSC and each person
who controls or is associated with FFSC within the meaning of the 1933 Act
or the 1934 Act against any losses, claims, damages or liabilities, joint or
several, to which FFSC or such controlling or associated person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact, required to be stated therein or necessary to make the statements
therein not misleading, contained (i) in the 1933 Act Registration
Statements covering the Policies or in any related Prospectuses included
thereunder, or (ii) in any written information or sales material authorized
for, and supplied or furnished by Life of Virginia to FFSC and its sales
representatives, and Life of Virginia will reimburse FFSC and each such
controlling person, for any legal or other expenses reasonably incurred by
FFSC or such controlling person in connection with
9
investigating or defending any such loss, claim, damage, liability or
action; provided that Life of Virginia will not be liable in any such case
to the extent that such loss, claim, damage or liability arises out of, or
is based upon, an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon information (including, without
limitation, negative responses to inquiries) furnished to Life of Virginia
by or on behalf of FFSC or its affiliates specifically for use in the
preparation of the said Registration Statements or any related Prospectuses
included thereunder or any amendment thereto or supplement thereto. This
indemnity agreement will be in addition to any liability which Life of
Virginia may otherwise have, the premises considered.
(b) FFSC agrees to indemnify and hold harmless Life of Virginia and each of its
directors (including any person named in the 1933 Act Registration
Statements covering the Policies, with his consent, as nominees for
directorship), each of its officers who has signed the Registration
Statements and each person, if any, who controls Life of Virginia within the
meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages
or liabilities to which Life of Virginia and any such director or officer or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the
10
circumstances under which they were made, not misleading, contained in the
Registration Statements or in any related Prospectuses included thereunder;
or (ii) in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon information (including, without limitation, negative
responses to inquiries) furnished to Life of Virginia by or on behalf of
FFSC or its affiliates as the case may be, specifically for use in the
preparation of the Registration Statements or related Prospectuses included
thereunder or any amendment thereto or supplement thereto; or (iii) any
unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the Polices by
FFSC; and will reimburse Life of Virginia and any director or officer or
controlling person of Life of Virginia for any legal or other expenses
reasonably incurred by Life of Virginia or such director, officer or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action. This indemnity agreement will be
in addition to any liability which FFSC may otherwise have, the premises
considered.
(c) After receipt by a party entitled to indemnification ("indemnified party")
under this Section of notice of the commencement of any action, if a claim
in respect thereof is to be made against any person obligated to provide
indemnification under this Section ("indemnifying party"), such indemnified
party will notify the indemnifying party in writing of the commencement
thereof as soon as practicable thereafter, and the
11
<PAGE>
omission so to notify the indemnifying party will not relieve it from any
liability under this Section, except to the extent that the omission results
in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give such
notice. In case any such action is brought against any indemnified party and
it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled, to the extent it may wish, jointly with
any other indemnifying party similarly notified, to participate in the
defense thereof, with separate counsel. Such participation shall not relieve
such indemnifying party of the obligation to reimburse the indemnified party
for reasonable legal and other expenses incurred by such indemnified party
in defending itself or himself, except for such expenses incurred after the
indemnifying party has deposited funds sufficient to effect the settlement,
with prejudice, of the claim in respect of which indemnity is sought. Any
such indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the
consent of such indemnifying party.
The indemnity agreements contained in this Section shall remain operative
and in full force and effect, regardless of (i) any investigation made by or
on behalf of FFSC or any controlling person thereof or by or on behalf of
Life of Virginia, (ii) delivery of any of the Policies and payments
therefor, and (iii) any termination of this Agreement. A successor by law of
FFSC or of any of the parties to this Agreement,
12
<PAGE>
as the case may be, shall be entitled to the benefits of the indemnity
agreements contained in this Section.
13. Severability.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise the remainder of this Agreement shall
not be affected thereby.
14. Applicable Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Virginia.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have causes this Agreement to be duly
executed as of the day and year first above written.
Attest: THE LIFE INSURANCE COMPANY
OF VIRGINIA
/s/ LINDA L. LANAM By: /s/ WILLIAM D. BALDWIN
Secretary Senior Vice President
Attest: FORTH FINANCIAL SECURITIES
CORPORATION
/s/ LINDA L. LANAM By: /s/ JOHN J. PALMER
Secretary President
14
EXHIBIT 1A(8)(b)(ii)
Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distibutors Corporation
and The Life Insurance Company of Virginia
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY DISTRIBUTORS CORPORATION
and
THE LIFE INSURANCE COMPANY OF VIRGINIA
WHEREAS, THE LIFE INSURANCE COMPANY OF VIRGINIA (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: /s/ THOMAS A. BAREFIELD
Name: /s/ THOMAS A. BAREFIELD
Title: SENIOR VICE PRESIDENT
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/ J. GARY BURKHEAD By: /s/ KURT A. LANGE
Name: J. GARY BURKHEAD Name: KURT A. LANGE
Title: Senior Vice President Title: President
EXHIBIT 1A(8)(b)(iii)
Amendment to Participation Agreement among
Variable Insurance Products Fund Fidelity Distibutors Corporation
and The Life Insurance Company of Virginia
AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY DISTRIBUTORS CORPORATION
and
THE LIFE INSURANCE COMPANY OF VIRGINIA
WHEREAS, THE LIFE INSURANCE COMPANY OF VIRGINIA (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: /s/ THOMAS A. BAREFIELD
Name: /s/ THOMAS A. BAREFIELD
Title: SENIOR VICE PRESIDENT
VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS CORPORATION
By: /s/ J. GARY BURKHEAD By: /s/ KURT A. LANGE
Name: J. GARY BURKHEAD Name: KURT A. LANGE
Title: Senior Vice President Title: President
EXHIBIT 1A(8)(g)(i)
Assignment and Modification Agreement between
Neuberger and Berman Advisors Management Trust and
The Life Insurance Company of Virginia
ASSIGNMENT AND MODIFICATION AGREEMENT
This Agreement is made by and between Neuberger & Berman Advisers
Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation, Neuberger &
Berman Advisers Management Trust ("Successor Trust"), a Delaware business
trust, Advisers Managers Trust ("Managers Trust") and The Life Insurance Company
of Virginia ("Life Company"), a life insurance company organized under the laws
of the State of Virginia.
WHEREAS, the Life Company has previously entered into a Sales Agreement
dated September 20, 1989 (the "Sales Agreement") with the Trust regarding the
purchase of shares of the Trust by Life Company; and
WHEREAS, as part of the reorganization into a "master-feeder" fund
structure (the "Reorganization"), the Trust will be converted into the Successor
Trust, a Delaware business trust; and
WHEREAS, as part of the Reorganization, each Portfolio of the Trust will
transfer all of its assets to the corresponding Portfolio of the Successor Trust
("Successor Portfolio") and each Successor Portfolio will invest all of its net
investable assets in a corresponding series of Managers Trust; and
WHEREAS, as part of the Reorganization, an Order under Section 6(c) of the
Investment Company Act of 1940 ("'40 Act") is expected to be issued by the
Securities and Exchange Commission ("SEC") granting exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder; and
WHEREAS, the Order is expected to require that certain conditions (the
"Conditions") as set forth in the Notice (Investment Company Act Release No.
21003 (April 12, 1995)) be made a part of the Sales Agreement; and
WHEREAS, the parties hereto desire to assign the Sales Agreement from the
Trust to the Successor Trust, to modify the Sales Agreement to include the
Conditions and Indemnification and to rename the Sales Agreement; and
WHEREAS, N&B Management and Managers Trust will become a parties to the
Sales Agreement as modified hereby, due to and for purposes of their obligations
under the Conditions and N&B Management's obligations under the Indemnification
provision.
NOW THEREFORE, in consideration of their mutual promises, Trust, N&B
Management, Successor Trust, Managers Trust and Life Company agree as follows:
<PAGE>
1. The Sales Agreement is hereby assigned by the Trust to the Successor
Trust.
2. Pursuant to such assignment, the Successor Trust hereby accepts all
rights and benefits of the Trust under the Sales Agreement and agrees to perform
all duties and obligations of the Trust under the Sales Agreement. Upon the
effectiveness of this Assignment and Modification Agreement, the Trust will be
released from all obligations and duties under the Sales Agreement.
3. The Sales Agreement is hereby modified to include the Conditions as
follows:
Sections 10 and 11 of the Sales Agreement are replaced by the following:
10. a) The Board of Trustees of each of the Successor Trust and Managers
Trust (the "Boards") will monitor the Successor Trust and Managers Trust,
respectively, (collectively the "Funds") for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
insurance company separate accounts investing in the Funds. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) state
insurance regulatory authority action; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, or any similar action by insurance, tax, or securities
regulatory authorities; c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Funds are
being managed; (e) a difference in voting instructions given by variable annuity
and variable life insurance contract owners or by contract owners of different
participating insurance companies; or (f) a decision by a participating
insurance company to disregard voting instructions of contract owners.
b) Life Company, will report any potential or existing conflicts to
the Boards. Life Company will be responsible for assisting the appropriate Board
in carrying out its responsibilities under the Conditions set forth in the
notice issued by the SEC for the Funds on April 12, 1995 (the "Notice") by
providing the Board with all information reasonably necessary for it to consider
any issues raised. This responsibility includes, but is not limited to, an
obligation by Life Company to inform the Board whenever variable contract owner
voting instructions are disregarded by Life Company. These responsibilities will
be carried out with a view only to the interests of the contract owners.
c) If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, affecting the Life Company, Life Company, at its expense and to
the extent reasonably practicable (as determined by a majority of disinterested
trustees or directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the separate accounts from the Funds or any series
thereof and reinvesting those assets in a different investment medium, which
<PAGE>
may include another series of the Successor Trust or Managers Trust, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity Of variable life contract owners of one or more Participants) that votes
in favor of such segregation, or offering to the affected variable contract
owners the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account. If a material
irreconcilable conflict arises because of Life Company's decision to disregard
contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, the Life Company may be required, at
the election of the relevant Fund, to withdraw its separate account's investment
in such Fund, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take such remedial action shall be carried out
with a view only to the interests of the contract owners.
For the purposes of Section 10(c), a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the relevant Fund or N&B Management (or any other investment adviser of the
Funds) be required to establish a new funding medium for any variable contract.
Further, Life Company shall not be required by this Section 10(c) to establish a
new funding medium for any variable contract if any offer to do so has been
declined by a vote of a majority of contract owners materially affected by the
irreconcilable material conflict.
d) Any Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to all Participants.
11. a) Life Company will provide pass-through voting privileges to all
contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for variable contract owners. This
condition will apply to UIT-separate accounts investing in the Successor Trust
and to managed separate accounts investing in Managers Trust to the extent a
vote is required with respect to matters relating to Managers Trust.
Accordingly, Life Company, where applicable, will vote shares of a Fund held in
its separate accounts in a manner consistent with voting instructions timely
received from its variable contract owners. Life Company will be responsible for
assuring that each of its separate accounts that participates in the Funds
calculates voting privileges in a manner consistent with other Participants as
defined in the Conditions set forth in the Notice. Each Participant will vote
shares for which it has not received timely voting instructions, as well as
shares it owns, in the same proportion as its votes those shares for which it
has received voting instructions.
<PAGE>
b) If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the order,
then the Successor Trust, Managers Trust and/or the Participants, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
c) No less than annually, the Participants shall submit to the
Boards such reports, materials or data as such Boards may reasonably request so
that the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more frequently
if deemed appropriate by the applicable Boards.
4. The Sales Agreement is hereby modified to include Indemnification as
follows:
22. (a) Except as limited by and in accordance with the provisions
of Sections 22 (b) and 22 (c) hereof, N&B MANAGEMENT agrees to indemnify and
hold harmless LIFE COMPANY and each of its directors and officers and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the '33 Act (collectively, the "Indemnified Parties") against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of N&B MANAGEMENT, which consent shall not be unreasonably
withheld) or litigation expenses (including attorneys fees, legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of, or investment in,
TRUST's shares or the variable contracts or the exercise of any ownership
rights with respect to such shares or contracts, and arise as a result of a
failure by Trust or its successors to comply with the diversification
requirements of Section 817(h) of the Internal Revenue Code.
(b) N&B MANAGEMENT shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to LIFE COMPANY.
(c) N&B MANAGEMENT shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
party unless such Indemnified Party shall have notified N&B MANAGEMENT in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the
<PAGE>
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify N&B MANAGEMENT of any such claim shall not relieve
N&B MANAGEMENT from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, N&B MANAGEMENT shall be entitled to participate at its own
expense in the defense thereof. N&B MANAGEMENT also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from N&B MANAGEMENT to such party of N&B MANAGEMENT'S election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and N&B MANAGEMENT will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
5. The Sales Agreement shall be renamed Fund Participation Agreement.
6. This Assignment and Modification Agreement shall be effective on May 1,
1995, as of the closing date of the conversion. In the event of a conflict
between the terms of this Assignment and Modification Agreement and the terms of
the Sales Agreement, the terms of this Assignment and Modification Agreement
shall control.
7. All other terms and conditions of the Sales Agreement remain in full
force and effect.
Executed this 1st day of May, 1995.
Neuberger & Berman Advisers
Management Trust
(a Massachusetts business trust)
Attest: /s/ CLAUDIA A. BRANDON By: /s/ STANLEY EGENER
Stanley Egener, Chairman
<PAGE>
Neuberger & Berman Advisers
Management Trust
(a Delaware business trust)
Attest: /s/ CLAUDIA A. BRANDON By: /s/ STANLEY EGENER
Stanley Egener, Chairman
Advisers Managers Trust
Attest: /s/ CLAUDIA A. BRANDON By: /s/ STANLEY EGENER
Neuberger & Berman Management
Incorporated
Attest: /s/ ELLEN METZGER By: /s/ ALAN DYNNER
The Life Insurance Company of Virginia
Attest: /s/ WILLIAM E. DANER, JR. By: /s/ JOHN J. PALMER
EXHIBIT 3(a)
Opinion and Consent of Counsel
<PAGE>
April 30, 1996
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
With reference to Post-Effective Amendment No. 13 to Registration Statement
33-9651 on Form S-6, filed by The Life Insurance Company of Virginia and Life of
Virginia Separate Account II with the Securities and Exchange Commission
covering flexible premium variable life insurance policies, I have examined such
documents and such law as I considered necessary and appropriate, and on the
basis of such examination, it is my opinion that:
1. The Life Insurance Company of Virginia is duly organized and validly
existing under the laws of the Commonwealth of Virginia and has been duly
authorized to issue individual flexible premium variable life insurance
policies by the Bureau of Insurance of the State Corporation Commission of
the Commonwealth of Virginia.
2. Life of Virginia Separate Account II is a duly authorized and existing
separate account established pursuant to the provisions of Section
38.2-3113 of the Code of Virginia.
3. The flexible premium variable life insurance policies, when issued as
contemplated by said Form S-6 Registration Statement, will constitute
legal, validly issued and binding obligations of The Life Insurance
Company of Virginia.
I hereby consent to the filing of this opinion as an exhibit to said S-6
Registration Statement.
Sincerely,
William E. Daner, Jr.
Counsel
Law Department
<PAGE>
April 30, 1996
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
I hereby consent to the use of my name under the caption "Legal Matters" in the
prospectus contained in Post-Effective Amendment No. 13 to the Registration
Statement on Form S-6 (File Number 33-9651) filed by The Life Insurance Company
of Virginia and Life of Virginia Separate Account II with the Securities and
Exchange Commission.
Sincerely,
William E. Daner, Jr.
Counsel
Law Department
EXHIBIT 3(b)
Consent of Messrs. Sutherland, Asbill and Brennan
<PAGE>
April 18, 1996
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters" in
the Prospectus contained in Post-Effective Amendment No. 13 to the registration
statement on Form S-6 (File No. 33-9651) for Life of Virginia Separate Account
II filed with the Securities and Exchange Commission. In giving this consent, we
do not concede that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By
Stephen E. Roth
EXHIBIT 3(c)
Consent of Ernst & Young LLP
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 8, 1996, with respect to the consolidated
financial statements and the related financial statement schedules of The
Life Insurance Company of Virginia and subsidiaries and the Life of Virginia
Separate Account II, in Amendment No. 13 to the Registration Statement
(Form S-6 No. 33-9651) and related Prospectus of Life of Virginia
Separate Account II for the registration of an indefinite amount of securities.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Richmond, Virginia
April 25, 1996
EXHIBIT 6
Opinion and Consent of Bruce E. Booker, Actuary
The Life Insurance Company of Virginia
<PAGE>
April 30, 1996
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Gentlemen:
This opinion is furnished in connection with the registration by The Life
Insurance Company of Virginia of a flexible premium variable life insurance
policy ("Policies") under the Securities Act of 1933. The prospectus included in
Post-Effective Amendment No. 13 to Registration Statement No. 33-9651 on Form
S-6 describes the Policy. I have provided actuarial advice concerning the
preparation of the Registration Statement and the preparation of the Policy form
described in the Registration Statement and Exhibits thereto.
In my professional opinion, the illustration of death benefits and cash values
included in the Appendix of the prospectus, based on the assumptions stated in
the illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy for male age 40 than to
prospective purchasers of Policies for males at other ages or underwriting
classes or for females.
Additionally, the prospectus information contained in the examples of the death
benefit options, based on the assumptions stated in those examples, are
consistent with the provisions of the policy.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Sincerely,
Bruce E. Booker, FSA, MAAA
Vice President & Actuary
Description of Life of Virginia's Purchase,
Redemption, Transfer and Exchange Procedures for Policies
This document sets forth the administrative procedures that will be
followed by The Life Insurance Company of Virginia ("Life of Virginia") in
connection with the issuance of its Flexible Premium Variable Life Insurance
Policy ("Policy" or "Policies"), the transfer of assets held thereunder, and the
redemption or exchange by policyowners of their interests in the Policies.
1. "Public Offering Price": Purchase and Related Transactions
Set our below is a summary of the principal policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. The summary shows that, because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
contractual plans.
(a) Premium Schedules and Underwriting Standards
Premiums for the Policies will not be the same for all policyowners. The
full first premium is due on the policy date and cannot be less than the
continuation amount 1/ for the first policy month. The cost of insurance charge
deducted as part of the monthly deduction, is based on the insured's attained
age,
- --------------
1/ The continuation amount is 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.
<PAGE>
sex, risk classification and specified amount of the Policy.
Other than the first premium, Life of Virginia does not require the
payment of any specified amount. Policyowners will determine a periodic plan, a
plan under which a level premium may be paid at fixed intervals for a specified
period of time. Payment of premiums in accordance with this plan is not,
however, mandatory and failure to do so will not of itself cause the Policy to
lapse. Instead, so long as there is no outstanding policy debt (policy loans
plus accrued interest) 2/ policyowners may make premium payments in any amount
and at any frequency, subject only to the minimum premium requirements, 3/ and
the maximum, premium limitations. 4/ If at any time a premium is paid which
would result in total premiums exceeding the current maximum premium limitation
set forth in the Policy, Life of Virginia will accept only that portion of the
premium which will make the total premiums equal that amount. Any portion of the
premium in excess of the maximum premium limitation will be returned to the
- ------------------
2/ See Repayment of Policy Debt, infra p.7
3/ The minimum premium requirement for unscheduled premiums is currently
$250.00. For planned periodic premiums, the minimum premium is $20 unless
premiums are paid monthly by pre-authorized check in which case the minimum
amount is $15. Life of Virginia, in its sole discretion, may accept premium
payments of a lesser amount.
4/ The maximum premium limitation will be set forth in the Policy. This
limitation is imposed to conform the Policy to certain restrictions on premiums
contained in the Internal Revenue Code. In addition, Life of Virginia will not
accept an initial premium or additional premiums received during the "free look"
period that cause the aggregate premiums paid to exceed $100,000. (After the
free look period expires, only the Internal Revenue Code maximum premium
limitation will apply).
<PAGE>
policyowner and no further premiums will be accepted until allowed by the
current maximum set forth in the Policy.
The Policy will remain in force so long as the surrender value is
sufficient to pay the monthly deduction or 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. Thus, the amount of a premium, if any, that must be paid to keep
the Policy in force depends on the cash value of the Policy, which in turn
depends on the investment experience of Life of Virginia Separate Account II
("Separate Account II") and the cost of insurance charge. The cost of insurance
rate utilized in computing the cost of insurance charge will not be the same for
each policyowner. The chief reason is that the principle of pooling and
distribution of mortality risks is based on the assumption that the cost of
insuring each insured is commensurate with their mortality risk which is
actuarially determined based upon factors such as attained age, sex and risk
classification. Accordingly, while not all insureds will be subject to the same
cost of insurance rate, there will be a single "rate" for all insureds in a
given actuarial category.
The Policies will be offered and sold pursuant to established
underwriting standards and in accordance with state insurance laws. State
insurance laws prohibit unfair discrimination but recognize that premiums must
be based upon factors such as age, sex, health and occupation.
(b) Application and Initial Premium Processing
<PAGE>
Upon receipt of a completed application, Life of Virginia will follow
certain insurance underwriting (i.e., evaluation of risks) procedures designed
to determine whether the proposed insured is insurable. This process may involve
such verification procedures as medical examinations or tests and may require
that further information be provided by the applicant before a determination can
be made. A Policy will not be issued until this underwriting procedure has been
completed.
Insurance coverage under the Policy will begin on the later of the
policy date or the end of the valuation period 5/ during which the full first
premium is paid. Life of Virginia will allocate net premiums received during the
Initial Investment Period to the Money Market Investment Subdivision of Separate
Account II. The Initial Investment Period commences on the Effective Date. If
the first full premium is not paid with the application, (the Effective Date on
which insurance becomes effective will be the date that premium is paid and the
Policy is delivered while all persons proposed for insurance are insurable. If
the first full premium is paid and a conditional receipt is given to the
applicant, then, subject to a maximum limitation, insurance as provided for 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 in 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.
The Initial Investment Period ends either on the date the Home Office receives a
form satisfactory to Life of Virginia and signed 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.
- --------------------
5/ The valuation period is the period between two successive business days,
commencing at the close of business of each business day and ending at the close
of business of the next succeeding business day. A business day is each day that
the New York Stock Exchange is open for business and any other day in which
there is sufficient trading in the Portfolios of the Fund to materially affect
the value of the assets in the Investment Subdivisions of Separate Account II
that invest exclusively in those Portfolios.
<PAGE>
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 Money
Market Subdivision of Separate Account II 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 to the various Investment Subdivisions of Separate Account II in
accordance with the written instructions of the policyowner.
The policy date is also the date used to determine policy years and policy
months. 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. If the policy
date would otherwise fall on the 29th, 30th or 31st day of a month, the policy
date will be the 28th.
For purposes of the minimum premium payment requirement, 6/ a premium
payment is deemed a planned periodic premium if received within 30 days (before
or after) of the scheduled date for a planned periodic premium payment and the
percentage
- -------------------------
6/ See note 3, supra.
<PAGE>
difference between the planned premium amount and the actual payment amount is
not more than 10%. All other premiums will be deemed unscheduled premiums.
Payments of any amount other than a planned periodic premium 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.
(c) Reinstatement
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 the sum
of any partial surrenders to date where both policy debt and partial surrenders
are divided by the Net Premium Factor of 92.5 percent.
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 the 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 sum of any deferred sales
<PAGE>
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.
If the policy is reinstated, the surrender charge will be as though the
policy had been in effect continuously from its original policy date.
(d) Repayment of Policy Debt
A policy loan will be subject to a maximum interest rate set forth in the
Policy. Policy debt (policy loans plus accrued interest) may be repaid in whole
or in part at any time. While there is outstanding policy debt, any payment
other than a planned periodic premium will be treated as the repayment of that
debt. The portion of any payment in excess of outstanding policy debt will be
treated as an unscheduled premium payment. Upon the repayment, the Policy's cash
value in the general account securing policy debt will be transferred to
Separate Account II. Life of Virginia will allocate the repayment of policy debt
at the end of the valuation period during which the repayment is received.
(e) Correction of 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
<PAGE>
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.
2. "Redemption Procedures": Surrender and Related Transactions
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from redemption procedures for mutual funds and contractual plans.
(a) Surrender for Cash Values
As long as the Policy is in effect, the policyowner may partially or
totally surrender the Policy by sending a written request to Life of Virginia.
Upon complete surrender, the policyowner will receive the surrender value (cash
value reduced by any outstanding policy debt and less any applicable surrender
charges) of the Policy computed as of the end of the valuation period during
which the surrender request is received by Life of Virginia at its home office.
Cash value will be determined on a daily basis thereby enabling Life of Virginia
to pay a surrender value based on the next computed value after a request is
received. Surrenders will generally be paid within seven days of
<PAGE>
receipt of a written request. 7/ Under Life of Virginia's current procedures, if
the Policy is being totally surrendered, the Policy itself must be returned to
Life of Virginia along with the request.
The amount paid upon a partial surrender cannot exceed the lesser of (1)
the surrender value less $500 or (2) the maximum loan amount reduced by any
outstanding policy debt. If Option B is in effect, the specified amount will be
reduced by the amount paid upon partial surrender. Because decreases in
specified amount (other than decreases resulting from a change in death benefit
options) are not allowed during the first policy year and because, under Option
B, partial surrenders result in a reduction in the specified amount, no partial
surrender may occur until after the first policy anniversary if Option B is in
effect. In addition, a request for a partial surrender will not be implemented
if it would result in a specified amount less than the minimum specified amount
of $50,000. The amount of the partial
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7/ Payment 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 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 nor reasonably practicable to
determine the value of the net assets of Separate Account II. Payments under the
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.
<PAGE>
surrender will be deducted from the Policy's cash value as of the end of the
valuation period during which the request is received. A charge will be deducted
from the cash value upon a partial surrender of the Policy.
Payment upon complete surrender of a Policy may be made in a lump sum or in
accordance with one of the optional payment plans described in the Policy. The
optional payment plans are subject to the restrictions and limitations set forth
in the Policy.
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. This charge will be reduced for Policies which are surrendered
or lapsed after the fifth Policy year and will disappear entirely after the end
of the ninth Policy year.
There is an additional surrender charge in Policy years 1 through 9 equal to
the uncollected deferred sales charge. The deferred sales charge is 45% of
premiums paid during the first policy year up to a designated premium (which is
always less than the guideline annual premium). At the beginning of Policy years
2 through 10, 1/9 of the deferred sales charge will be collected. When the
policy is surrendered, the uncollected portion will be assessed as a surrender
charge. If the initial specified amount of the policy is greater than $250,000,
the deferred sales charge refected above will be 40% instead of 45%. However, if
the
<PAGE>
policy is surrendered in the first two Policy years, the uncollected deferred
sales charge assessed as a surrender charge will never exceed (a) plus (b) minus
(c) minus (d) where:
(a) is the lesser of 30 percent of the guideline annual premium (as
defined below) and 30 percent of the actual premium payments made during
the first policy year; and
(b) is the lesser of 10 percent of the guideline annual premium (as
defined below) and 10 percent of actual premium payments made during the
second policy year; and
(c) is 9 percent of any premium payments made during the first and
second policy years in excess of the guideline annual premiums (as
defined below); and (d) is the total sales charge previously deducted
from premiums and cash values.
The guideline annual premium is used to provide an assumption for purposes of
calculating 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
Commissioners' Standard Ordinary Mortality Table, net investment earnings are at
5 percent, and sales loading, administration and cost of insurance charges are
deducted at rates specified in the policy.
(b) Benefit Claim
As long as the Policy remains in force, Life of Virginia will normally
pay life insurance proceeds to the primary or contingent beneficiary in
accordance with the designated benefit option within seven days after receipt of
due proof of death of the insured. Payment of Life insurance proceeds may,
however, be postponed under certain circumstances. 8/ The amount of life
insurance proceeds payable under this Policy will be determined as of the end of
the valuation period during which the insured dies. The life insurance proceeds
will be reduced by any outstanding policy debt and any due and unpaid charges
and increased by any optional insurance benefits added by rider.
As long as there is no outstanding policy debt or any due and unpaid
charges, life insurance proceeds are guaranteed not to be less than the current
specified amount of the Policy. The life insurance proceeds may, however, exceed
the current specified amount. The amount by which life insurance proceeds exceed
the specified amount depends upon the benefit option in effect and the cash
value of the Policy. Under Benefit Option A ("Option A"), the life insurance
proceeds payable under the Policy equals the
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8/ See note 7, supra.
<PAGE>
specified amount plus the cash value. Under Benefit Option B ("Option B"), life
insurance proceeds will only vary whenever cash value multiplied by the corridor
percentage exceeds the specified amount of the Policy.
If the Policy is still in force on the maturity date, the policyowner
will receive maturity benefits equal to the cash value reduced by any
outstanding policy debt. These benefits will only be paid if the insured is
living on the Policy's maturity date. The maturity date is the date designated
as such in the Policy or as subsequently changed.
(c) Policy Loans
After the first policy anniversary, the policyowner may borrow money
from Life of Virginia using the Policy as the only security for the loan. Loans
have priority over the claims of any assignee or any other person. The maximum
amount that may be borrowed under the Policy at any time is the maximum loan
amount less any outstanding policy debt. The maximum loan amount equals 90% of
the surrender value. Policy debt equals the total of all policy loans and any
accrued interest on the loans. The maximum loan amount will be determined as of
the end of the valuation period during which the loan request is received. The
loan and any accrued interest may be repaid in whole or in part at any time
prior to the maturity date so long as the insured is living. Interest accrues
daily and is due and payable at the end of each
<PAGE>
policy year. Any interest not paid when due becomes part of the policy loan and
will bear interest.
When a policy loan is made, a portion of the Policy's cash value
sufficient to secure the loan is 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. Cash value in the general account will accrue
interest daily at an annual rate of 4%. This interest will be credited on each
monthly anniversary day and transferred to Separate Account II.
If policy debt exceeds cash value less any applicable surrender charge
on a monthly anniversary day, 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 the notice is sent,
otherwise the Policy will lapse and terminate without value. The Policy,
however, may later be reinstated.
(d) Policy Lapsation
Lapse will only occur where surrender value is insufficient to cover the
monthly deduction, and a grace period expires without a sufficient payment. If
surrender value is insufficient to cover the monthly deduction, 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 (the amount by which
policy debt exceeds surrender value) and any due and unpaid monthly deductions
in order to avoid lapse.
If surrender value is insufficient to cover the monthly
<PAGE>
deduction, Life of Virginia will notify the policyowner of the shortfall. The
policyowner will then have a grace period of 61 days, measured from the date
notice is sent to the policyowner, to make sufficient payment. 9/ Failure to
make a sufficient payment during the grace period will cause the Policy to lapse
and terminate without value. If the insured dies during the grace period, any
due and unpaid monthly deductions will be deducted from the life insurance
proceeds. So long as the maturity date has not yet occurred, a lapsed Policy
generally can be reinstated. For purposes of policy loans and surrenders, the
Policy will be deemed to have no surrender value or loan value during the grace
period.
(e) Exchange of Policy
If there is a material change in the investment policy of any Portfolio
in which a policyowner has an interest, the policyowner will be notified of the
change. If the policyowner objects to the change, the Policy may be exchanged
for a fixed benefit 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.
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9/ See Reinstatement, p. 6.
<PAGE>
During the first 24 months, the policyowner may convert this policy to a
permanent fixed benefit policy. The policyowner may elect 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.
<PAGE>
Exhibit 10(b)
Power of Attorney
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, an officer and/or
director of The Life Insurance Company of Virginia, a Virginia Corporation ("the
Company"), does hereby made, constitute and appoint John J. Palmer, Senior Vice
President, Selwyn L. Flournoy, Jr., Senior Vice President, and William E. Daner,
Jr., Counsel, respectively, of the Company, and each of them his true and lawful
attorneys or attorney and agents or agent with full power and authority on his
behalf to sign his name as such an officer and/or director to Registration
Statements of The Life Insurance Company of Virginia filed with the Securities
and Exchange Commission, Washington, D.C., on form N-4, S-6, any amendment or
amendments thereto (including any and all pre- and post-effective amendments)
for the purpose of registering Variable Annuity and Variable Life Insurance
Policies under the Securities Act of 1933, and each of the undersigned does
hereby ratify and confirm all the said attorneys or attorney and agents or agent
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this
day of April, 1996.
____________________ _______________________
PATRICK E. WELCH HANS L. CARSTENSEN, III
____________________ _______________________
VICTOR C. MOSES GEOFFREY S. STIFF
