As Filed With the Securities and Exchange Commission on May 1, 1997
REGISTRATION NO. 33-9651
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 14
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)
---------------------------------------
J. Neil McMurdie
Associate Counsel and Assistant 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, L.L.P.
1275 Pennsylvania Ave., N.W. Washington, D.C. 20004-2404
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 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
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* 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, 1996 on February
28, 1997.
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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
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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
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
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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 investment portfolio which is part of a series
type investment company ("Fund"). Currently, there are nine such Funds available
under this Policy: the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Variable Insurance Products Fund III, the GE Investments
Funds, Inc., the Oppenheimer Variable Account Funds, the Janus Aspen Series, the
Federated Insurance Series, the Alger American Fund, and the PBHG Insurance
Series Fund, Inc. (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 WITH OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Please read this prospectus carefully and retain it for future reference.
The date of this Prospectus is May 1, 1997.
1
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VARIABLE INSURANCE PRODUCTS FUND, which is managed by Fidelity Management &
Research Company, has three portfolios that are currently available to
Policyowners through Separate Account II:
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VARIABLE INSURANCE PRODUCTS FUND II, which is managed by Fidelity Management &
Research Company, has two portfolios that are currently available to
Policyowners through Separate Account II: VIP Asset Manager Portfolio and VIP
Contrafund Portfolio.
VARIABLE INSURANCE PRODUCTS FUND III, which is managed by Fidelity Management
& Research Company, has two portfolios that are currently available to
Policyowners through Separate Account II: VIP Growth & Income Portfolio (not
available in California) and VIP Growth Opportunities Portfolio (not available
in California), are available to Policyowners through Separate Account II.
GE INVESTMENTS FUNDS, INC, which is managed by GE Investment Management, Inc.
has eight portfolios that are currently available to Policyowners through
Separate Account II:
Money Market Fund
Government Securities Fund
S&P 500 Index Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Global Income Fund (not available in California)
Value Equity Fund (not available in California)
OPPENHEIMER VARIABLE ACCOUNT FUNDS, which is managed by Oppenheimer Funds
Inc., has five portfolios that are currently 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, has seven
portfolios that are currently available to Policyowners through Separate Account
II:
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
International Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Capital Appreciation Portfolio (not available in
California)
FEDERATED INSURANCE SERIES, which is managed by Federated Advisers, has three
portfolios that are currently available to Policyowners through Separate Account
II:
Federated Utility Fund II
Federated High Income Bond Fund II
Federated American Leaders Fund II
THE ALGER AMERICAN FUND, which is managed by Fred Alger Management, Inc., has
two portfolios that are currently available to Policyowners through Separate
Account II: Alger American Growth Portfolio and Alger American Small
Capitalization Portfolio.
PBHG INSURANCE SERIES FUND, INC. which is managed by Pilgrim Baxter &
Associates, Ltd., has two portfolios that are currently available to
Policyowners through Separate Account II: Growth II Portfolio (not available in
California) and Large Cap Growth Portfolio (not available in California).
2
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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 Fund of the GE Investments Funds, 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.
3
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TABLE OF CONTENTS
Page
Definitions.............................................. 6
Summary
The Policy............................................. 8
Separate Account II.................................... 8
Premiums............................................... 8
Policy Benefits........................................ 9
Charges............................................... 10
Distribution of the Policy............................ 10
Tax Treatment......................................... 10
Refund Privilege.......................................11
Exchange Privilege.....................................11
Illustrations of Death Benefits,
Cash Values and Surrender Values.....................11
Fund Annual Expenses.................................. 11
Life of Virginia and Separate Account II
The Life Insurance Company of Virginia.................14
General Electric Company...............................14
Separate Account II....................................14
Addition, Deletion, or Substitution
of Investments.......................................14
The Funds
Variable Insurance Products Fund.......................15
Variable Insurance Products Fund II....................16
Variable Insurance Products Fund III...................16
GE Investments Funds ..................................17
Oppenheimer Variable Account Funds.....................18
Janus Aspen Series.....................................18
Federated Insurance Series.............................19
The Alger American Fund................................20
PBHG Insurance Series Fund.............................20
Resolving Material Conflicts...........................21
Termination of Participation Agreements................21
The Policy
Purpose of the Policy..................................21
Purchasing a Policy....................................22
Premiums...............................................22
Policy Lapse and Reinstatement.........................23
Examination of Policy (Refund Privilege)...............24
Exchange Privilege.....................................24
Policy Benefits
Cash Value Benefits....................................24
Transfers..............................................26
Telephone Transfers....................................26
Dollar-Cost Averaging..................................27
Portfolio Rebalancing..................................27
Powers of Attorney.....................................27
Loan Benefits..........................................28
Life Insurance Proceeds................................29
Benefits at Maturity...................................32
Optional Payment Plans.................................32
Specialized Uses of the Policy.........................33
Charges and Deductions
Deductions From Premiums...............................33
Charges Against Separate Account II....................35
Surrender Charge.......................................35
Other Charges..........................................35
Reduction of Charges for Group Sales...................36
General Provisions
Postponement of Payment................................36
Limits on Contesting the Policy........................36
4
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TABLE OF CONTENTS (CONT.)
Page
The Contract...........................................36
Misstatement of Age or Sex.............................37
Suicide................................................37
Annual Statement.......................................37
Nonparticipating.......................................37
Written Notice.........................................37
The Owner..............................................37
The Beneficiary........................................37
Changing the Owner or Beneficiary......................37
Using the Policies as Collateral.......................38
Optional Insurance Benefits............................38
Reinsurance............................................38
Distribution of the Policy...............................38
Federal Tax Matters
Tax Status of the Policy...............................38
Tax Treatment of Policy Proceeds.......................39
Tax Treatment of Policy Loans and
Other Distributions..................................40
Taxation of the Company................................41
Income Tax Withholding.................................41
Other Considerations...................................41
Legal Developments Regarding Employment-
Related Benefit Plans..................................41
Voting Rights............................................41
State Regulation of Life of Virginia.....................42
Executive Officers and Directors of
Life of Virginia.......................................43
Legal Matters............................................44
Legal Proceedings........................................44
Experts..................................................44
Additional Information...................................44
Financial Statements.....................................45
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.
5
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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 designated as eligible investments for Separate
Account II.
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, each of which
invests exclusively in shares of a designated portfolio of one of the Funds. All
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.
6
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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, any endorsements and riders.
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.
7
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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.)
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 thirty-four 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.)
Currently, the Funds include the Variable Insurance Products Fund, the Variable
Insurance Products Fund II, the Variable Insurance Products Fund III, the GE
Investments Funds, Inc., the Oppenheimer Variable Account Funds, the Janus Aspen
Series, the Federated Insurance Series, The Alger American Fund and the PBHG
Insurance Series Fund, Inc. 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.)
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 Fund of the GE
Investments Funds, Inc. In order to allocate money out of the Money Market Fund
of the GE Investments Funds, 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.), 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.) 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.) 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.) 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.
8
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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), 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.) 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.)
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.) A charge will be deducted from the cash value upon partial
surrender. (SEE Charges and Deductions - Other Charges.)
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.) 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.) 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.) 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.) 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.)
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.) 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.) In addition, the Policyowner may change the benefit option in effect.
(SEE Change in Benefit Option.)
9
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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.)
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.) 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)
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.)
During each month, a $10 fee will be charged for the second and subsequent
transfers of assets among the Investment Subdivisions. (SEE Transfers.) 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).
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)
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.)
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.)
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.) 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
10
<PAGE>
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".
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 or 45 days after Part I of the application is signed, whichever is
later. In certain states the Policyowner may have more than 10 days to return
the policy for a refund. (SEE Examination of Policy (Refund Privilege))
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)
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.
FUND ANNUAL EXPENSES
FEE TABLE
VARIABLE INSURANCE PRODUCTS FUND ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Equity-
Income Growth Overseas
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C>
Management Fees 0.51% 0.61% 0.76%
Other Expenses (after any expense reimbursement) 0.07% 0.08% 0.13%
----- ----- -----
Total Fund Annual Expenses 0.58% 0.69% 0.93%
===== ===== =====
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Asset
Manager Contrafund
Portfolio Portfolio
--------- ---------
<S> <C>
Management Fees 0.64% 0.61%
Other Expenses (after any expense reimbursement) 0.10% 0.13%
----- -----
Total Fund Annual Expenses 0.74% 0.74%
===== =====
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND III ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Growth & Growth
Income Opportunities
Portfolio Portfolio
--------- ---------
<S> <C>
Management Fees 0.50% 0.61%
Other Expenses (after any expense reimbursement) 0.20% 0.16%
----- -----
Total Fund Annual Expenses 0.70% 0.77%
===== =====
</TABLE>
11
<PAGE>
GE INVESTMENTS FUNDS, INC. ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Real
Money Government S&P 500 Total International Estate
Market Securities Index Return Equity Securities
Fund Fund Fund Fund Fund Fund
------ ---------- ------- ------- ------------- ----------
<S> <C>
Management Fees (after fee waiver) .10% .50% .35% .50% 1.00% .85%
Other Expenses (after any expense reimbursements) .05% .17% .13% .10% .50% .22%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses .15% .67% .48% .60% 1.50% 1.07%
==== ==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Global Value
Income Equity
Fund * Fund *
------ ------
<S> <C>
Management Fees (after fee waiver) .60% .65%
Other Expenses (after any expense reimbursements) .30% .26%
---- ----
Total Fund Annual Expenses .90% .91%
==== ====
</TABLE>
*Global Income Fund and Value Equity Fund had not yet commenced operations as of
December 31, 1997.
OPPENHEIMER VARIABLE ACCOUNT FUNDS ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Opp. Opp. Opp.
High Opp. Capital Multiple Opp.
Income Bond Appreciation Strategies Growth
Fund Fund Fund Fund Fund
------ ---- ------------ ---------- -------
<S> <C>
Management Fees .75% .74% .72% .73% .75%
Other Expenses .06% .04% .03% .04% .04%
---- ---- ---- ---- ----
Total Fund Annual Expenses .81% .78% .75% .77% .79%
==== ==== ==== ==== ====
</TABLE>
JANUS ASPEN SERIES ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Aggressive Worldwide International
Growth Growth Growth Growth Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C>
Management Fees(after any fee waivers/reductions) .65% .72% .66% .05% .79%
Other Expenses (after any expense reimbursements) .04% .04% .14% 1.21% .15%
---- ---- ---- ----- ----
Total Fund Annual Expenses .69% .76% .80% 1.26% .94%
==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Flexible Capital
Income Appreciation
Portfolio Portfolio *
--------- -----------
<S> <C>
Management Fees(after any fee waivers/reductions) .65% .75 %
Other Expenses (after any expense reimbursements) .19% .30 %
---- ------
Total Fund Annual Expenses .84% 1.05 %
==== =======
</TABLE>
*Capital Appreciation Portfolio had not yet commenced operations as of December
31, 1996.
FEDERATED INSURANCE SERIES ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Federated
Federated Federated American
Utility High Income Leaders
Fund II Bond Fund II Fund II
------- ------------ ---------
<S> <C>
Management Fees (after fee waiver) 0.24% 0.00% 0.53%
Other Expenses (after any expense reimbursement) 0.61% 0.80% 0.32%
----- ----- -----
Total Fund Annual Expenses 0.85% 0.80% 0.85%
===== ===== =====
</TABLE>
12
<PAGE>
THE ALGER AMERICAN FUND ANNUAL EXPENSES
(as a % of average net assets)
Alger Alger
American American
Growth Small Capitalization
Portfolio Portfolio
--------- --------------------
Management Fees 0.75% 0.85%
Other Expenses 0.04% 0.03%
----- -----
Total Expenses 0.79% 0.88%
===== =====
PBHG INSURANCE SERIES FUND, INC. ANNUAL EXPENSES
(as a % of average net assets)
Growth II Large Cap Growth
Portfolio * Portfolio *
----------- ----------------
Management Fees 0.85% 0.72%
Other Expenses 0.30% 0.38%
----- -----
Total Expenses 1.15% 1.10%
===== =====
* Growth II Portfolio and Large Cap Growth Portfolio has not yet commenced
operations as of December 31, 1996.
The purpose of these tables is to assist the Owner in understanding the
various costs and expenses that an Owner will bear, directly and indirectly.
Except as noted below, the Tables reflect charges and expenses of Account II as
well as the underlying Funds for the most recent fiscal year. For more
information on the charges described in these Tables see Charges and Deductions
and the Prospectuses for the underlying Funds which accompany this Prospectus.
In addition to the expenses listed above, premium taxes varying from 0 to 3.5%
may be applicable.
The expense information regarding the Funds was provided by those Funds. The
Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable
Insurance Products Fund III, Oppenheimer Variable Account Funds, Janus Aspen
Series, Federated Insurance Series, The Alger American Fund, PBHG Insurance
Series Fund, Inc. and their investment advisers are not affiliated with Life of
Virginia. While Life of Virginia has no reason to doubt the accuracy of these
figures provided by these non-affiliated Funds, Life of Virginia has not
independently verified such information. The annual expenses listed for all the
Funds are net of certain reimbursements by the Funds' investment advisers. Life
of Virginia cannot guarantee that the reimbursements will continue.
Absent certain reimbursements and reductions that are reflected in the table,
the total annual expenses of the portfolios of the Variable Insurance Products
Fund during 1996 would have been 0.56% for VIP Equity-Income Portfolio, 0.67%
for VIP Growth Portfolio and O.92% for VIP Overseas Portfolio.
Absent certain reimbursements and reductions that are reflected in the table,
the total annual expenses of the portfolios of the Variable Insurance Products
Fund II during 1996 would have been 0.73 for VIP Asset Manager Portfolio and
0.71% for VIP Contrafund Portfolio.
Absent certain reimbursements and reductions that are reflected in the table,
the total annual expenses of the portfolios of the Variable Insurance Products
Fund III during 1996 would have been 0.77% for VIP Growth Opportunities
Portfolio.
GE Investment Management Incorporated currently serves as investment adviser
to GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.).
Prior to May 1, 1997, Aon Advisors, Inc. served as investment adviser to this
Fund and had agreed to reimburse the Fund for certain expenses of each of the
Fund's portfolios. Absent certain fee waivers or reimbursements, the total
annual expenses of the portfolios of GE Investments Funds, Inc. during 1996
would have been 0.55% for Money Market Fund, 0.67% for Government Securities
Fund, 0.48% for S&P 500 Index Fund, 0.60% for Total Return Fund, 1.07% for Real
Estate Securities Fund, 1.56% for International Equity Fund. The Other Expenses
for the Global Income Fund and the Value Equity Fund are estimates by the Fund
since these portfolios were recently organized and have no operating history,
and actual expenses may be greater or less than those shown.
Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1996 would have been .83% for Growth Portfolio, .83%
for Aggressive Growth Portfolio, 0.91% for Worldwide Growth Portfolio, 2.21% for
International Growth Portfolio, and 1.07% for Balanced Portfolio. The Other
Expenses listed for the Capital Appreciation Portfolio of Janus Aspen
13
<PAGE>
Series are estimates provided by the Fund because the portfolio had not yet
commenced operations as of December 31, 1996. The total expenses absent fee
waivers are estimated to be 1.30%.
Absent certain fee waivers or reimbursements, the total annual expenses of the
portfolios of the Federated Insurance Series during 1996 would have been 1.36%
for Federated Utility Fund II, 1.39% for Federated High Income Bond Fund II, and
1.07% for Federated American Leaders Fund II.
The Other Expenses listed for the Growth II Portfolio and Large Cap Growth
Portfolio of PBHG Insurance Series Fund, Inc. are estimates provided by the Fund
because the portfolios were recently organized and have a brief operating
history. Actual expenses may be greater or less than those shown.
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. Eighty percent of the
capital stock of Life of Virginia is owned by General Electric Capital Assurance
Corporation ("GE Capital Assurance"). The remaining 20% is owned by GE Life
Insurance Group, Inc. GE Capital Assurance and GE Life Insurance Group, Inc. are
indirectly wholly-owned subsidiaries 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 GE Capital Assurance, Great Northern Insured Annuity Corporation, GE
Capital Life Assurance Company of New York, Life of Virginia, First Colony 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
thirty-four 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 nine 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 thirty-four Investment Subdivisions
available under this Policy.
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
Fund portfolios that are held by Separate Account II or that Separate Account II
may purchase. If the shares
14
<PAGE>
of a portfolio are no longer available for investment or if in its judgment
further investment in any portfolio should become inappropriate in view of the
purposes of Separate Account II, Life of Virginia reserves the right to
eliminate the shares of any of the portfolios of the Funds and to substitute
shares of another portfolio of the Funds or of another open-end, registered
investment company. Life of Virginia will not substitute any shares attributable
to a policyowner's cash value in Separate Account II without notice and prior
approval of the SEC, to the extent required by the Investment Company Act of
1940 or other applicable law. Nothing contained herein shall prevent Separate
Account II from purchasing other securities for other series or classes of
policies or from permitting a conversion between portfolios or classes of
policies on the basis of requests made by policyowners.
Life of Virginia also reserves the right to establish additional Investment
Subdivisions of Separate Account II, each of which would invest in a separate
portfolio of the Funds, or in shares of another investment company, with a
specified investment objective. New Investment Subdivisions may be established
if, in the sole discretion of Life of Virginia, marketing, tax or investment
conditions warrant, and any new Investment Subdivisions may be made available to
existing policyowners on a basis to be determined by Life of Virginia. One or
more Investment Subdivisions may also be eliminated if, in the sole discretion
of Life of Virginia, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Life of Virginia may, by
appropriate endorsement, make such changes in these and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
Life of Virginia to be in the best interests of persons having voting rights
under the Policy, Separate Account II may be operated as a management company
under the Investment Company Act of 1940, may be deregistered under that Act in
the event such registration is no longer required, or may be combined with other
Life of Virginia separate accounts. To the extent permitted by applicable law,
Life of Virginia may also transfer the assets of Separate Account II associated
with the Policies to another separate account. In addition, Life of Virginia
may, when permitted by law, restrict or eliminate any voting rights of
Policyowners or other persons who have voting rights as to Separate Account II.
The Policyowner will be notified of any material change in the investment
policy of any portfolio in which the Owner has an interest. If the Policyowner
objects to the change, the Policy may be exchanged for a fixed benefit policy.
In addition, the Policyowner may exercise the right to surrender the Policy, in
whole or in part. (SEE Surrender Privileges.) If the Policyowner chooses to
exchange the Policy, no evidence of insurability will be required. The new
policy will be subject to normal exchange rules and other conditions determined
by Life of Virginia. The exchange must be made within 60 days after the change
in investment policy becomes effective. Life of Virginia will notify
Policyowners of the options available and procedures to follow if any material
change occurs.
THE FUNDS
Separate Account II currently invests in nine series-type mutual funds. Each
of the Funds currently available under the Policy is a registered open-end,
diversified investment company of the series-type.
Each Investment Subdivision invests exclusively in a designated investment
portfolio of one of the Funds. The assets of each 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.) Should an agreement between Life of Virginia and a
Fund terminate, Separate Account II 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 Investment 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
Investment 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 has three portfolios that are currently
available to Policyowners through Separate Account III: VIP Equity-Income
Portfolio, VIP Growth Portfolio, and VIP Overseas Portfolio.
15
<PAGE>
VIP 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 Standard & Poor's Composite Index of 500 Stocks.
VIP 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.
VIP 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 serves as investment adviser to the
Variable Insurance Products Fund. For managing each portfolio's investments and
business affairs, each portfolio pays Fidelity Management & Research Company a
monthly fee.
Variable Insurance Products Fund VIP Equity-Income, VIP Growth, and VIP
Overseas Portfolios' fee rates are each made up of two components: (1) a group
fee rate based on the monthly average net assets of all the mutual funds advised
by Fidelity Management & Research Company; and (2) an individual portfolio fee
rate of .20% for the Variable Insurance Products Fund Equity-Income Portfolio,
.30% for the Variable Insurance Products Fund Growth Portfolio and .45% for the
Variable Insurance Products Fund Overseas Portfolio. The group fee rate cannot
rise above .52% and it drops as total assets in all these portfolios. Therefore,
the maximum total management fees that can be charged for the VIP Equity-Income
Portfolio is .72%, for the VIP Growth Portfolio is .82%, and for the VIP
Overseas Portfolio 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, which is managed by Fidelity Management &
Research Company, has two portfolios that are currently available to
Policyowners through Separate Account III: VIP Asset Manager Portfolio and VIP
Contrafund Portfolio.
VIP 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.
VIP CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in
equity securities of companies believed to be undervalued or out-of-favor.
Fidelity Management & Research Company serves as investment adviser to the
Variable Insurance Products Fund II. For managing each portfolio's investments
and business affairs, each portfolio pays Fidelity Management & Research Company
a monthly fee.
Variable Insurance Products Fund II VIP Asset-Manager and VIP Contrafund
Portfolios' fee rates are each made up of two components: (1) a group fee rate
based on the monthly average net assets of all the mutual funds advised by
Fidelity Management & Research Company; and (2) an individual portfolio fee rate
of .25% for the VIP Asset Manager Portfolio and .30% for Contrafund 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 for the VIP Asset-Manager Portfolio is .77% and for the VIP Contrafund
Portfolio is .82% 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 III
Variable Insurance Products Fund III, which is managed by Fidelity Management
& Research Company, has two portfolios that are currently available to
Policyowners through Separate Account III: VIP Growth & Income Portfolio and VIP
Growth Opportunities Portfolio. VIP GROWTH & INCOME PORTFOLIO AND VIP GROWTH
OPPORTUNITIES PORTFOLIO ARE NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO
CALIFORNIA POLICYOWNERS.
VIP GROWTH & INCOME PORTFOLIO seeks high total return through a combination of
current income and capital appreciation by investing mainly in equity
securities.
VIP GROWTH OPPORTUNITIES seeks capital growth by investing primarily in common
stock and securities convertible to common stock.
Fidelity Management & Research Company serves as investment adviser to the
Variable Insurance Products Fund III. For managing each portfolio's investments
and business affairs, each portfolio pays Fidelity Management & Research Company
a monthly fee.
16
<PAGE>
Variable Insurance Products Fund III VIP Growth and Income Portfolio and VIP
Growth Opportunities Portfolio's fee rates are each made up of two components:
(1) a group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management & Research Company; and (2) an individual
portfolio fee rate of .20% for Growth and Income Portfolio and .30% for Growth
Opportunities 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 for the VIP Growth and Income Portfolio is
.72% and for the Growth Opportunities Portfolio is .82% 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.
GE INVESTMENTS FUNDS, INC.
GE Investments Funds, Inc. ("GE Investments Funds") has eight portfolios that
are currently available to Policyowners through Separate Account II: Money
Market Fund, Government Securities Fund, S&P 500 Index Fund, Total Return Fund,
International Equity Fund, Real Estate Securities Fund, Global Income Fund and
Value Equity Fund are available to Policyowners through Separate Account II.
GLOBAL INCOME FUND AND VALUE EQUITY FUND ARE NOT CURRENTLY AVAILABLE IN
CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
MONEY MARKET FUND 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 FUND 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.
S&P 500 INDEX FUND(1) 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 FUND 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 FUND 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 FUND 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.
----------------------
(1)"Standard and Poor's", "S&P", and "S&P 500" are trademarks of McGraw-Hill
Companies, Inc. and have been licensed for use by GE Investment Management
Incorporated. The S&P 500 Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
or warranty, express or implied, to the investors in this Fund or any member
of the public regarding the advisability of investing in this Fund or in
securites generally or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund or the investors in the Fund into
consideration in determining, composing or calculating the S&P 500 Index. S&P
is not responsible for and has not participated in the determination of the
prices or composition of the Fund or the timing of the issuance or sale of the
shares of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to the results to be obtained by the Fund, investors in the Fund, or any
other person or entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect or consequential damages (including lost profits), even if
notified of the possibility of such damages.
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GLOBAL INCOME FUND has the investment objective of high total return,
emphasizing current income and, to a lesser extent, capital appreciation. The
portfolio seeks to achieve these objectives by investing primarily in
income-bearing debt securities and other income-bearing instruments of U.S. and
foreign issuers.
VALUE EQUITY FUND has the investment objective of providing long-term capital
appreciation. The portfolio seeks to achieve this objective by investing
primarily in common stock and other equity securities that are undervalued by
the market and offer above-average capital appreciation potential.
GE Investment Management, Incorporated serves as investment adviser to GE
Investments Funds. GE Investments Funds pays GE Investment Management,
Incorporated 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 S&P 500 Index Fund .35%; Government
Securities Fund, Money Market Fund, and Total Return Fund .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 Fund 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 Fund .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; Global Income Fund .60% of
the fund's average daily net assets for the previous month; Value Equity Fund
.65% of the fund's average daily net assets for the previous month. See the fund
prospectus for further details. GE Investment Management, 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 Fund for 1997, resulting in a fee
of .10%. There is no guarantee that the fee waiver will continue after 1997.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds has five portfolios that are currently
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 Oppenheimer Variable Account
Funds, 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. serves as investment adviser to Oppenheimer Variable
Account Funds. Oppenheimer Variable Account Funds pay Oppenheimer Funds, Inc. a
monthly management fee. The monthly fee payable to Oppenheimer Funds, Inc. 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 has seven portfolios that are currently available to
Policyowners through Separate Account II: Growth Portfolio, Aggressive Growth
Portfolio, Worldwide Growth Portfolio, International Growth Portfolio, Balanced
Portfolio, Flexible Income Portfolio and Capital Appreciation Portfolio. THE
CAPITAL APPRECIATION PORTFOLIO IS NOT AVAILABLE IN CONNECTION WITH POLICIES
ISSUED TO CALIFORNIA POLICYOWNERS.
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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.
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 Janus Aspen Series, which should
be read carefully before investing.
CAPITAL APPRECIATION PORTFOLIO is a nondiversified portfolio that has the
investment objective of seeking long-term growth of capital. It pursues its
objective by investing primarily in common stocks of issuers of any size.
Janus Capital Corporation serves as investment adviser to the portfolios of
Janus Aspen Series. 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, Balanced and Capital Appreciation 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 Janus Aspen Series.
FEDERATED INSURANCE SERIES
The Federated Insurance Series has three portfolios that are currently
available to Policyowners through Separate Account II: Federated Utility Fund
II, Federated High Income Bond Fund II and Federated American Leaders Fund II.
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 FEDERATED INSURANCE SERIES, 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.
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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 1996 of
1.36% for Federated Utility Fund II, 1.39% for Federated High Income Bond Fund
II, and 1.07% for Federated American Leaders Fund II, the adviser estimates that
during 1997 it will waive management fees of .51%, .60% and .22%, respectively.
The adviser can terminate this voluntary waiver at any time at its sole
discretion.
THE ALGER AMERICAN FUND
The Alger American Fund has two portfolios that are currently available to
Policyowners through Separate Account II: Alger American Small Capitalization
Portfolio and Alger American Growth Portfolio.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital
appreciation. Except during temporary defensive periods, the portfolio invests
at least 65 % of its total assets in equity securities of companies that, at the
time of purchase of the securities, have total market capitalization within the
range of companies included in the Russell 2000 Growth Index or the S&P Small
Cap 600 Index, updated quarterly. Both indexes are broad indexes of small
capitalization stocks. 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 this combine range 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.
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.
PBHG INSURANCE SERIES FUND, INC.
PBHG Insurance Series Fund, Inc. (PBHG Insurance Series Fund) has two
portfolios that are currently available to Policyowners through Separate Account
II: Growth II Portfolio and Large Cap Growth Portfolio. THE GROWTH II PORTFOLIO
AND THE LARGE CAP GROWTH PORTFOLIO ARE NOT CURRENTLY AVAILABLE IN CONNECTION
WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
GROWTH II PORTFOLIO seeks long-term capital appreciation by investing in
equity securities of small and medium sized companies (market capitalization of
up to $4 billion) which have an outlook for strong earnings growth and
significant capital appreciation.
LARGE CAP GROWTH PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of larger capitalization companies (market
capitalization of greater than $1 billion) which have an outlook for strong
growth in earnings and potential for capital appreciation.
Pilgrim Baxter & Associates serves as investment manager to the Growth II
Portfolio and Large Cap Growth Portfolio. The manager receives an annual fee
from each portfolio.
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.
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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 GE Investments Funds, 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, GE Investments Funds, 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 assets 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:
VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II AND
VARIABLE INSURANCE PRODUCTS FUND III. (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.
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.
PBHG INSURANCE SERIES FUND, INC. 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.
GE INVESTMENTS FUNDS, INC. has entered into a Stock Sale Agreement with Life
of Virginia pursuant to which the Fund sells is shares to Separate Account II.
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,
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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 that does not unfairly
discriminate against similarly-situated purchasers.
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).
The initial premium will be allocated to the Investment Subdivision investing
in the Money Market Fund of GE Investments Funds on the Effective Date. Once
allocated, the policy's cash value will remain there 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 Fund of the
GE Investments Funds 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 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.)
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
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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.)
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.
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 outstanding loan balance and 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), 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.) 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.)
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). 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
23
<PAGE>
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 or within 45 days after Part I of the application is
signed, whichever is later. The amount of refund will depend on the state in
which the Policy is issued. If authorized by state law, the amount of refund
will equal the sum of all charges deducted from premiums paid, plus the advisory
fee deducted from the Funds attributable to the Policy, plus the net premiums
allocated to Separate Account II adjusted by investment gains and losses.
Otherwise, the amount of the refund will equal the gross premiums paid. In
certain states the Policyowner may have more than 10 days to return the policy
for a refund. A Policyowner wanting a refund should return the Policy to either
Life of Virginia at its Home Office or to the registered agent who sold it.
EXCHANGE PRIVILEGE
During the first 24 months, the Policyowner may convert this Policy to a
permanent fixed benefit policy. The Policyowner may elect either the same death
benefit or the same net amount at risk as the existing policy at the time of
conversion. Premiums will be based on the same issue age and risk classification
of the Insured as the existing Policy. The conversion will be subject to an
equitable adjustment in payments and cash values to reflect variances, if any,
in the payments and cash values under the existing Policy and the new policy.
POLICY BENEFITS
While a Policy is in effect, it provides for certain benefits prior to the
maturity date. Subject to certain limitations, the Policyowner may at any time
obtain cash value by completely or partially surrendering the Policy. (SEE
Surrender Privileges.) In addition, the Policyowner has certain policy loan
privileges under the Policy. (SEE Loan Benefits.) 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), and benefits upon the maturity of a Policy. (SEE Benefits at
Maturity.)
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.)
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.)
PARTIAL SURRENDERS. A Policyowner may obtain a portion of the Policy's cash
value upon partial surrender of the Policy. A partial
24
<PAGE>
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.)
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.)
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.)
Surrenders and partial surrenders may have federal tax consequences. (SEE
Federal Tax Matters.)
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). 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.)
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.) 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.)
25
<PAGE>
UNIT VALUE. Each Investment Subdivision has a Unit Value. When premiums or
other amounts are transferred into an Investment Subdivision, a number of Units
are purchased based on the Unit Value of the Investment Subdivision as of the
end of the Valuation Period during which the transfer is made. Likewise, when
amounts are transferred out of an Investment Subdivision, Units are redeemed in
a similar manner.
For each Investment Subdivision, the Unit Value for the first Valuation Period
was $10.00. The Unit Value for each subsequent period is the Net Investment
Factor for that period, multiplied by the Unit Value for the immediately
preceding period. The Unit Value for a Valuation Period applies for each day in
the period.
NET INVESTMENT FACTOR. The Net Investment Factors measure investment
performance of the Investment Subdivisions of Separate Account II during a
Valuation Period. Each Investment Subdivision has its own Net Investment Factor
for a Valuation Period. The Net Investment Factor of an Investment Subdivision
for a Valuation Period is (a) divided by (b), minus (c), where:
(a) is (1) the value of the net assets of that Investment Subdivision at the
end of the preceding Valuation Period, plus (2) the investment income and
capital gains, realized or unrealized, credited to the net assets of that
Investment Subdivision during the Valuation Period for which the Net
Investment Factor is being determined, minus (3) the capital losses, realized
or unrealized, charged against those assets during the Valuation Period, minus
(4) any amount charged against that Investment Subdivision for taxes, or any
amount set aside during the Valuation Period by Life of Virginia as a
provision for taxes attributable to the operation or maintenance of that
Subdivision; and
(b) is the value of the net assets of that Investment Subdivision at the end
of the preceding Valuation Period; and
(c) is a charge no greater than .0019246% for each day in the Valuation
Period. This corresponds to .70% per year of the net assets of that Investment
Subdivision for mortality and expense risks.
The value of the assets in Separate Account II will be taken at their fair
market value in accordance with generally accepted accounting principles and
applicable laws and regulations.
HOW THE PERIOD OF COVERAGE UNDER A POLICY CAN VARY. The period of coverage
under a Policy depends upon the cash value. The Policy will remain in force as
long as the Surrender Value is sufficient to pay the monthly deduction. (SEE
Charges and Deductions - Monthly Deduction.) 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.)
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 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 prior to the close of
the New York Stock Exchange
26
<PAGE>
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 or call the Telephone Transfer Line at
800-772-3844 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 Fund of GE
Investments Funds. 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.) 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.)
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.
PORTFOLIO REBALANCING
Owners may elect to have Life of Virginia automatically transfer amounts on a
quarterly, semi-annual or annual basis to maintain a specified percentage of
Cash Value in each of two or more Investment Subdivisions designated by the
Owner. This privilege is intended to permit owners to use "Portfolio
Rebalancing," a strategy that maintains over time the Owner's desired allocation
percentage in the designated Investment Subdivisions. The percentage of Cash
Value in each of the Investment Subdivisions may shift from the Premium Payment
allocation percentage due to the performance of the Investment Subdivisions.
Life of Virginia makes no representations or guarantees that Portfolio
Rebalancing will result in a profit or protect against loss.
Owners must complete the Portfolio Rebalancing agreement to participate in the
Portfolio Rebalancing program. Owners may designate the Investment Subdivisions
and specify the rebalancing percentages in the agreement. The specified
percentages must be in whole percentages and must be at least 1%. The date that
a rebalancing transfer is effected is measured from the Policy Date, or other
date selected at the sole discretion of Life of Virginia, based on the
rebalancing frequency chosen by an Owner. Cash Value must be allocated to each
of the designated Investment Subdivisions for rebalancing to become effective.
Portfolio Rebalancing is offered free of charge and will continue as long as
there is Cash Value in each of the designated Investment Subdivisions. Prior to
that time, Owners may discontinue rebalancing by sending Life of Virginia a
written cancellation notice. Owners may make changes to their Portfolio
Rebalancing program by calling Life of Virginia's Telephone Transfer Line at
800-772-3844. Portfolio Rebalancing transfers are not included for the purpose
of determining any transfer charge. Owners should consider the possible effects
of electing other automatic programs such as Dollar-Cost Averaging concurrent
with Portfolio Rebalancing. Life of Virginia reserves the right to exclude
investment subdivisions from Portfolio Rebalancing. Life of Virginia also
reserves the right to discontinue Portfolio Rebalancing upon 30 days written
notice to the Owner.
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.
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<PAGE>
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.) When a
policy loan is made, a portion of the Policy's cash value equal to the loan is
transferred out of Separate Account II and into Life of Virginia's general
account. Cash value equal to any loan interest that is due and unpaid will also
be transferred.
Even though the loan may be repaid in whole or in part at any time while the
Insured is living, policy loans will permanently affect the cash value of a
Policy and may permanently affect the Life Insurance Proceeds payable. The
effect could be favorable or unfavorable depending upon whether the investment
performance of the Investment Subdivision(s) from which the cash value was
transferred is less than or greater than the interest rate being credited to the
cash value in the general account while the loan is outstanding. In comparison
to a Policy under which no loan was made, Policy values will be lower where such
interest rate credited was less than the performance of the Investment
Subdivision(s), but will be greater where such interest rate was greater than
the performance of the Investment Subdivision(s). In addition, Life Insurance
Proceeds will be reduced by the amount of any outstanding Policy Debt.
When a policy loan is made, a portion of the Policy's cash value sufficient to
secure the loan will be transferred out of Separate Account II and into Life of
Virginia's general account. Any loan interest that is due and unpaid will also
be so transferred. The cash value will be transferred out of the Investment
Subdivisions in accordance with the written instruction of the Policyowner. If
no such written instruction is received with the loan request, the cash value
transferred out will automatically be allocated among the Investment
Subdivisions in the same proportion that the cash value in each Investment
Subdivision bears to the total cash value in all Investment Subdivisions on the
date the loan is made.
A portion of policy loans taken or existing on or after the Preferred Loan
Availability Date will be designated as Preferred Policy Debt. Preferred Policy
Debt will be that portion of Policy Debt which equals the surrender value under
the Policy less the sum of all premium payments made. Life of Virginia currently
intends to credit interest at an annual rate of 6% to that portion of cash value
transferred to the general account which is equal to Preferred Policy Debt. An
annual rate of 4% is and will be credited to that portion of cash value
transferred to the general account which exceeds Preferred Policy Debt. Life of
Virginia reserves the right to decrease, at its discretion, the rate of interest
credited to the amount of cash value transferred to the general account to an
effective annual rate of not less than 4%.
The Preferred Loan Availability Date is the later of:
(a) the tenth policy anniversary; and
(b) May 1, 2003
Preferred Policy Debt is currently only available to policies issued on or
after May 1, 1993, and may not be available in all states.
Policy loans may have federal tax consequences. (SEE Federal Tax Matters.) 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
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<PAGE>
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.) 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.) 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.)
BENEFIT OPTIONS. Policyowners designate in the initial application one of two
benefit options offered under the Policy. The amount of Life Insurance Proceeds
payable under a Policy will depend upon the option in effect at the time of the
Insured's death. Under Option A, Life Insurance Proceeds will be based on the
larger of the Specified Amount PLUS the cash value or the cash value multiplied
by the corridor percentage. Accordingly, under Option A the Life Insurance
Proceeds will always vary as the cash value varies. The cash value and Specified
Amount will be determined at the end of the Valuation Period during which the
Insured dies. Policyowners who seek to have the favorable investment performance
reflected in increased insurance coverage should purchase Option A.
Under Option B, Life Insurance Proceeds will be based on the larger of the
current Specified Amount or the cash value multiplied by the corridor
percentage. Accordingly, under Option B the Life Insurance Proceeds will remain
level unless the cash value multiplied by the corridor percentage exceeds the
current Specified Amount, in which case the amount of insurance proceeds will
vary as the cash value varies. Thus, Policyowners who are not seeking to
increase the amount of insurance coverage, but wish to have favorable investment
performance reflected to the maximum extent in increasing cash values should
select Option B.
The corridor percentage depends upon the attained age of the Insured on the
date of death. The corridor percentage for each age is set forth in the table
below.
29
<PAGE>
<TABLE>
<CAPTION>
ATTAINED CORRIDOR Attained Corridor Attained Corridor
AGE PERCENTAGE Age Percentage Age Percentage
<S> <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).
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
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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.)
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.) In addition, any change in the Specified
Amount would affect the maximum premium limitation. (SEE Maximum Premium
Limitations.) 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.)
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.), 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.) However, a partial surrender has no effect on the
amount of pure insurance protection and charges under the Policy unless
the Life Insurance Proceeds payable are subject to the corridor
percentages.
(d) An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of cash value and the
resultant applicable corridor percentage. If the pure insurance protection
is increased, the charges for cost of insurance will increase as well.
(e) A reduced level of premium payments also generally increases the amount of
pure insurance protection, again depending on
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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.) This is the Policy's maturity value. Benefits at maturity may be
paid in a lump sum or under an optional payment plan. The Maturity Date is the
date shown in the Policy. To change the Maturity Date, a written request and the
Policy must be sent to Life of Virginia at its Home Office. Any request must be
received by Life of Virginia before the Maturity Date then in effect. The
requested Maturity Date must be: (1) on a Policy anniversary; (2) at least one
year from the date the request is received; (3) after the 10th policy year; and
(4) not after the Policy anniversary nearest to the Insured's 95th birthday.
OPTIONAL PAYMENT PLANS
Life insurance proceeds and surrender value paid upon complete surrender of a
Policy or at maturity may be paid in whole or in part under an optional payment
plan. There are currently six optional payment plans available. A plan may be
designated in the application or by notifying Life of Virginia in writing at its
Home Office. Any amount left with Life of Virginia for payment under an optional
payment plan will be transferred to its general account. During the life of the
Insured, the Policyowner can select a plan. If a plan has not been chosen at the
Insured's death, a Beneficiary can choose a plan. If a Beneficiary is changed,
the plan selection will no longer be in effect unless the Policyowner requests
that it continue.
In selecting an optional payment plan: (1) the payee under a plan cannot be a
corporation, association or fiduciary, (2) the proceeds applied under a plan
must be at least $10,000, and (3) the amount of each payment under a plan must
be at least $50. Certain plans may be unavailable for Policies issued in
connection with qualified retirement plans. Payments under Plans 1, 2, 3 or 5
will begin on the date of the Insured's death, on surrender, or on the Policy's
maturity date. Payments under Plan 4 will begin at the end of the first interest
period after the date proceeds are otherwise payable.
PLAN 1 - INCOME FOR A FIXED PERIOD. Periodic payments will be made for a fixed
period not longer than 30 years. Payments can be annual, semi-annual, quarterly
or monthly. Guaranteed amounts payable under the plan will earn interest at a
minimum rate of 3% compounded yearly. If the payee dies, the amount of the
remaining guaranteed payments will be discounted to the date of the payee's
death at a yearly rate of 3%. The discounted amount will be paid in one sum to
the payee's estate unless otherwise provided.
PLAN 2 - LIFE INCOME. Equal monthly payments will be made for a guaranteed
minimum period. If the payee lives longer than the minimum period, payments will
continue for his or her life. The minimum period can be 10, 15 or 20 years.
Guaranteed amounts payable under this plan will earn interest at a minimum rate
of 3% compounded yearly. If the payee dies before the end of the guaranteed
period, the amount of remaining payments for the minimum period will be
discounted at a yearly rate of 3%. The discounted amount will be paid in one sum
to the payee's estate unless otherwise provided.
PLAN 3 - INCOME OF A DEFINITE AMOUNT. Equal periodic payments of a definite
amount will be paid. Payments can be annual, semi-annual, quarterly or monthly.
The amount paid each year must be at least $120 for each $1,000 of proceeds.
Payments will continue until the proceeds are exhausted. The last payment will
equal the amount of any unpaid proceeds. Unpaid proceeds will earn interest at a
minimum rate of 3% compounded yearly. If the payee dies, the amount of the
remaining proceeds with earned interest will be paid in one sum to his or her
estate unless otherwise provided. If the payee is age 80 or older, payments
under Plan 3 may not qualify for favorable tax treatment if the expected payment
period exceeds the life expectancy of the payee.
PLAN 4 - INTEREST INCOME. Periodic payments of interest earned from the
proceeds will be paid. Payments can be annual, semi-annual, quarterly or monthly
and will begin at the end of the first period chosen. Proceeds left under this
plan will earn interest at a minimum rate of 3% compounded yearly. If the payee
dies, the amount of remaining proceeds and any earned but unpaid interest will
be paid in one sum to his or her estate unless otherwise provided.
PLAN 5 - JOINT LIFE AND SURVIVOR INCOME. Equal monthly payments will be made
to two payees for a guaranteed minimum of 10 years. Each payee must be at least
35 years old when payments begin. The guaranteed amount payable under this plan
will earn
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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.)
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 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
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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 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 (where appropriate), 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 (where appropriate), and risk
class and whose Policies have been in effect for the same length of time.
The cost of insurance rate generally increases as the Insured's attained age
increases. Therefore, the older the Insured, the higher the investment
experience necessary to achieve the same impact on death benefits and cash
values.
RISK CLASS. The risk class of an Insured will affect the cost of insurance
rate. Life of Virginia currently places Insureds into standard risk classes or
risk classes involving a higher mortality risk. In an otherwise identical
Policy, Insureds in standard risk classes will have lower costs of insurance
than those in the risk classes with higher mortality risks. The standard risk
classes consist of four categories: non-smokers, smokers, preferred non-smokers
and preferred smokers. The risk classes involving higher mortality risks are
also divided into two categories: smokers and non-smokers. Non-smoking Insureds
will generally incur a lower cost of insurance than similar Insureds who smoke.
OPTIONAL INSURANCE BENEFITS. At issue, certain optional additional benefits
may be obtained by rider. The monthly deduction will
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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.
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.).
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.) However, if the policy is surrendered during the first two Policy
years, the total sales charge assessed as a surrender charge will never exceed
(a) minus (b) where:
(a) is the lesser of 25% of the guideline annual premium (as defined below)
and 25% of the actual premium payments made up to the amount of a
guideline annual premium; and
(b) is the total deferred sales charges previously deducted from cash values.
The guideline annual premium is used to provide an assumption for purposes of
calculating permissible sales loading and is defined as the level amount that
would have to be paid each policy year, through age 95, to provide the future
benefits under the policy, on the assumption that the cost of insurance is based
on the 1980 Commissioners' Standard Ordinary Mortality Table, net investment
earnings are at 5%, and sales loading, administration and cost of insurance
charges are deducted at rates specified in the policy.
OTHER CHARGES
A charge equal to the lesser of $25 or 2% of the amount requested will be
deducted from amounts paid upon a partial surrender of the Policy. The charge
will compensate Life of Virginia for costs incurred in accomplishing the partial
surrender. During a calendar month, a $10 fee will be charged for the second and
subsequent transfers of assets among the Investment Subdivisions.
If a Policyowner requests a projection of illustrative future life insurance
and cash value proceeds from Life of Virginia, a service fee of $25 must be
paid. The fee will compensate Life of Virginia for the cost of preparing the
projection.
Because Separate Account II purchases shares of the Funds, the net assets of
each Investment Subdivision in the Account will reflect the investment advisory
fee and other expenses incurred by the portfolio of the Fund in which the
Investment Subdivision invests (SEE "The Funds" on page 13 for a discussion of
these charges). For more information concerning these charges, read the
individual Fund prospectus.
If there is an increase in Specified Amount, there will be a one-time charge
(per increase) of $1.50 per $1,000 of increase to cover underwriting and
administrative costs associated with the increase. This charge will be included
in the monthly deduction for the month the increase becomes effective. This
charge will never exceed $300 per increase.
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REDUCTION OF CHARGES FOR GROUP SALES
The sales charge or other charges or deductions may be reduced for sales of
the Policies to a trustee, employer or similar entity representing a group or to
members of the group where such sales result in savings of sales or
administrative expenses. The entitlement to such a reduction in sales charges or
other charges or deductions will be determined by Life of Virginia based on the
following factors:
(1) The size of the group. Generally, the sales expenses for each individual
policyowner for a larger group are less than for a smaller group because
more policies can be implemented with fewer sales contacts and less
administrative cost.
(2) The total amount of purchase payments to be received from a group. Per
policy sales and other expenses are generally proportionately less on
larger purchase payments than on smaller ones.
(3) The purpose for which the policies are purchased. Certain types of plans
are more likely to be stable than others. Such stability reduces the
number of sales contacts and administrative and other services required,
reduces sales administration and results in fewer policy terminations. As
a result, sales and other expenses can be reduced.
(4) The nature of the group for which the policies are being purchased.
Certain types of employee and professional groups are more likely to
continue policy participation for longer periods than are other groups
with more mobile membership. If fewer policies are terminated in a given
group, Life of Virginia's sales and other expenses are reduced.
(5) There may be other circumstances of which Life of Virginia is not
presently aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, Life of Virginia determines
that a group purchase would result in reduced sales expenses, such a group may
be entitled to a reduction in sales charges. Reductions in these charges will
not be unfairly discriminatory against any person including the affected owners
and all other owners of Policies funded by Separate Account II.
GENERAL PROVISIONS
POSTPONEMENT OF PAYMENT
GENERAL. Payment of any amount upon complete or partial surrender, payment of
any policy loan and the payment of Life Insurance Proceeds or benefits at
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the net assets of Separate Account II.
PAYMENT BY CHECK. Payments under a Policy which are derived from any amount
paid to Life of Virginia by check or draft may be postponed until such time as
Life of Virginia is satisfied that the check or draft has cleared the bank upon
which it is drawn.
LIMITS ON CONTESTING THE POLICIES
Life of Virginia relies on statements in the Policy application. In the
absence of fraud, the statements are considered representations, not warranties.
Life of Virginia can contest a Policy or an increase in the specified amount if
any material misrepresentation of fact was made in the application or in a
supplemental application, and a copy of that application was attached to the
Policy when issued or was made a part of the Policy when a change in coverage
went into effect.
With respect to the original Specified Amount, a Policy will not be contested
after it has been in effect during the Insured's life for two years from the
Policy Date. With respect to increases in the Specified Amount, an increase in
the Specified Amount will not be contested after that increase has been in
effect for two years from the effective date of the increase. This provision
does not apply to riders that provide disability benefits.
THE CONTRACT
"Policy" means the flexible premium variable life policy (Commonwealth Three)
described in this prospectus, the Policy application, any supplemental
application and any endorsements. A Policy is a legal contract and constitutes
the entire contract between the Policyowner and Life of Virginia. An agent
cannot change this contract. Any change to a Policy must be in writing and
approved
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by the President or a Vice-President of Life of Virginia.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex (where appropriate) 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 (where appropriate). All
amounts are those in effect, with respect to the Insured, in the Policy Month of
the Insured's death.
SUICIDE
If the Insured commits suicide while sane or insane, within two years of the
Policy Date, Life Insurance Proceeds payable under a Policy will be limited to
all premiums paid, less outstanding Policy Debt and less amounts paid upon
partial surrender of the Policy.
If the Insured commits suicide while sane or insane, within two years after
the effective date of an increase in the Specified Amount, the proceeds payable
with respect to the increase will be limited to the total cost of insurance
applied to the increase.
ANNUAL STATEMENT
Within 30 days after each Policy anniversary, an annual statement will be sent
to each Policyowner. The statement will show the amount of Life Insurance
Proceeds payable under the Policy, the cash value for each Investment
Subdivision, the Surrender Value, and Policy Debt. The statement will also show
premiums paid and charges made during the policy year.
NONPARTICIPATING
The Policies do not participate in the divisible surplus of Life of Virginia.
No dividends are payable.
WRITTEN NOTICE
Any written notice should be sent to Life of Virginia at its Home Office at
6610 West Broad Street, Richmond, Virginia 23230. The notice should include the
Policy number and the Insured's full name. Any notice sent by Life of Virginia
to a Policyowner will be sent to the address shown in the application unless an
appropriate address change form has been filed with the Company.
THE OWNER
The Policyowner is the person so designated in the application or as
subsequently changed. The Policyowner has rights in a Policy during the
Insured's lifetime. If the Policyowner dies before the Insured and there is no
contingent Owner, ownership passes to the Policyowner's estate. Unless an
optional payment plan is chosen, the proceeds payable on the Maturity Date or on
complete surrender of the Policy will be paid to the Policyowner in a lump sum.
THE BENEFICIARY
The original Beneficiaries and Contingent Beneficiaries are designated by the
Policyowner in the application. If changed, the Primary Beneficiary or
Contingent Beneficiary is as shown in the latest change filed with Life of
Virginia. One or more Primary or Contingent Beneficiaries may be named in the
application. In such a case, the proceeds will be paid in equal shares to the
survivors in the appropriate Beneficiary class, unless requested otherwise by
the Policyowner.
Unless an optional payment plan is chosen, the proceeds payable at the
Insured's death will be paid in a lump sum to the primary Beneficiary. If the
primary Beneficiary dies before the Insured, the proceeds will be paid to the
Contingent Beneficiary. If no Beneficiary survives the Insured, the proceeds
will be paid to the Policyowner or the Policyowner's estate.
CHANGING THE OWNER OR BENEFICIARY
During the Insured's life, the Policyowner may be changed. If the right is
reserved, the Beneficiary may also be changed during the Insured's life. To make
a change, written request must be sent to Life of Virginia at its Home Office.
The request and the change must be in a form satisfactory to Life of Virginia
and must actually be received by Life of Virginia. The change will take effect
as of the date the request is signed by the Policyowner. The change will be
subject to any payment made before the change is recorded by Life of Virginia.
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<PAGE>
USING THE POLICIES AS COLLATERAL
These Policies can be assigned as collateral security. Life of Virginia must
be notified in writing if a Policy is assigned. Any payment made before the
assignment is recorded at Life of Virginia's Home Office will not be affected.
Life of Virginia is not responsible for the validity of an assignment. A
Policyowner's rights and the rights of a Beneficiary may be affected by an
assignment.
OPTIONAL INSURANCE BENEFITS
Optional additional benefits may be obtained by rider. Examples of these
benefits include term insurance on spouse or children, additional death benefits
if the Insured dies in an accident, and waiver of either monthly deductions or a
stipulated amount if the Insured becomes disabled as defined in the rider.
Detailed information concerning available riders may be obtained from the agent
selling the Policy.
REINSURANCE
Life of Virginia intends to reinsure a portion of the risks assumed under the
Policies.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by individuals who, in addition to being licensed as
life insurance agents for Life of Virginia, are also registered representatives
of Forth Financial Securities Corporation, the principal underwriter of the
Policies, or of broker-dealers who have entered into written sales agreements
with the principal underwriter. Forth Financial Securities Corporation, a
Virginia Corporation, located at 6610 W. Broad Street, Richmond, VA 23230, is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Forth Financial Securities Corporation
also serves as principal underwriter for other variable life insurance and
variable annuity policies issued by Life of Virginia. However, no amounts have
been retained by Forth Financial Securities Corporation for acting as principal
underwriter of the Life of Virginia policies.
Writing agents of Life of Virginia will receive commissions based on a
commission schedule and rules. First-year commissions depend on the Insured's
age, rating class, and the size of the policy. In the first Policy year, the
agent will receive a commission of up to 40% of the designated premium plus up
to 2.5% of premiums paid in excess of the designated premium. In renewal years,
the agent receives up to 2.5% of the premiums paid. The commission paid on an
increase in Specified Amount is an amount of up to 40% of the increase in the
cost of insurance in the year following the increase in Specified Amount.
Agents may also be eligible to receive certain bonuses and allowances, as well
as retirement plan credits, based on commissions earned. Field management of
Life of Virginia receives compensation which may be in part based on the level
of agent commissions in their management units. Broker-dealers and their
registered agents will receive first-year and renewal commissions equivalent to
the total commissions and benefits received by the field management and writing
agents of Life of Virginia.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
TAX STATUS OF THE POLICY
The Internal Revenue Code of 1986, as amended, (the "Code"), in Section 7702,
establishes a statutory definition of life insurance for tax purposes. Life of
Virginia believes that the Policy meets the statutory definition of life
insurance, which places limitations on the amount of premiums that may be paid.
If the Specified Amount of a Policy is increased or decreased, the applicable
premium limitation may change. In the case of a decrease in the Specified
Amount, a partial surrender, a change from Option A to Option B, or any other
such change that reduces benefits under the Policy during the first 15 years
after a Policy is issued and that results in a cash distribution to the
Policyowner in order for the Policy to continue complying with section 7702
definitional limitations on premiums and cash values, certain amounts prescribed
in section 7702 which are so distributed will be includable in the Policyowner's
ordinary income (to the extent of any gain in the Policy). Such income inclusion
will also occur, in certain circumstances, with respect to cash distributions
made in anticipation of reductions in benefits under the Policy.
The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") places limits on
certain of the policy charges used in determining the maximum amount of premiums
that may be paid under section 7702 for Policies entered into on or after
October 21,
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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)) and regulations promulgated thereunder by the
Secretary of the Treasury (the "Treasury") prescribe diversification standards
for the investments of Separate Account II which must be met 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 GE Investments Funds) it has
entered into agreements regarding participation in the Funds, which require the
Funds to be operated in compliance with the requirements prescribed by the
Treasury. Thus, Life of Virginia believes that Separate Account II will be
treated as adequately diversified for federal tax purposes.
In certain circumstances, variable contract owners may be considered the
owners, for federal tax purposes, of the assets of the separate account used to
support such contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable contract owners'
gross income annually as earned. 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 the separate account there involved
for federal income tax purposes. The Service 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
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loan under a Policy will constitute income to the Owner so long as the Policy
remains in force, and a partial surrender under a Policy will not constitute
income except to the extent it exceeds the total premiums paid for the Policy
(reduced by any amounts previously withdrawn which were not treated as income).
However, with respect to the portion of any loan that is attributable to cash
value in excess of the total premium payments under the Policy, it is possible
that the Service could treat the Policyowner as being in receipt of certain
amounts of income.
Generally, interest paid on any loans under a Policy owned by any individual
will not be tax deductible. In addition, interest on any loan under a Policy
owned by a taxpayer and covering the life of any individual who is an officer or
an employee or is financially interested in the business carried on by that
taxpayer will not be tax deductible to the extent that the aggregate amount of
such loans with respect to Policies covering such individuals exceeds $50,000.
Further, even as to interest on loans up to $50,000 per such individual, such
interest would not be deductible if the Policy were deemed for federal tax
purposes to be a single premium life insurance policy. Policyowners should
consult a tax advisor as to whether the Policy would be so deemed.
The right to exchange the Policy for a permanent fixed benefit policy (SEE
Exchange Privileges), the right to change Owners (SEE Changing the Owner or
Beneficiary), 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 (including upaid interest thereon) from a modified endowment contract
will be considered distributions.
4. Distributions (including partial surrenders, loans and loan interest,
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 and loan interest, 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
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be paid if the Policyowner wishes to avoid treatment of the Policies as modified
endowment contracts.
Additionally, all life insurance contracts which are treated as modified
endowment contracts and which are issued by Life of Virginia or any of its
affiliates with the same person designated as the Policyowner within the same
calendar year will be aggregated and treated as one contract for purposes of
determining any tax on distributions.
The provisions of TAMRA are complex and are open to considerable variation in
interpretation. Policyowners should consult their tax advisors before making any
decisions regarding increases or decreases in or additions to coverage or
distributions from their Policies.
TAXATION OF THE COMPANY
Because of its current status under the Code, Life of Virginia does not expect
to incur any Federal income tax liability that would be chargeable to Separate
Account II. Based upon this expectation, no charge is being made currently to
Separate Account II for Federal income taxes. If, however, Life of Virginia
determines that such taxes may be incurred, it may assess a charge for those
taxes from Separate Account II.
Life of Virginia may also incur state and local taxes (in addition to premium
taxes for which a deduction from premiums is currently made) in several states.
At present, these taxes are not significant. If there is a material change in
state or local tax laws, charges for such taxes attributable to Separate Account
II may be made.
INCOME TAX WITHHOLDING
Generally, unless the Policyowner provides Life of Virginia a written election
to the contrary before a distribution is made, Life of Virginia is required to
withhold income taxes from any portion of the money received by the Policyowner
upon surrender of the Policy or if the Policy matures (and if the Policy is a
modified endowment contract, upon a partial surrender or a Policy loan). If the
Policyowner requests that no taxes be withheld, or if Life of Virginia does not
withhold a sufficient amount of taxes, the Policyowner will be responsible for
the payment of any taxes and early distribution penalties that may be due on the
amounts received. The Policyowner may also be required to pay penalties under
the estimated tax rules, if the Policyowner's withholding and estimated tax
payments are insufficient to satisfy the Policyowner's total tax liability. The
Policyowner may, therefore, want to consult a tax advisor.
OTHER CONSIDERATIONS
THE FOREGOING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. Any
person concerned about these tax implications should consult a competent tax
advisor. This discussion is based on Life of Virginia's understanding of the
present federal income tax laws as they are currently interpreted by the
Service. No representation is made as to the likelihood of continuation of these
current laws and interpretations. It should be further understood that the
foregoing discussion is not exhaustive and that special rules not described in
this prospectus may be applicable in certain situations. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
In 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS, that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. The Policy described in this prospectus
contains guaranteed cost of insurance rates and guaranteed purchase rates for
certain settlement options that distinguish between men and women. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of NORRIS, and Title VII generally, on any
employment-related insurance or benefit program for which a Policy may be
purchased.
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
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as of dates coincident with the dates established by a particular Fund for
determining shareholders eligible to vote at the meeting of that Fund. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by that Fund.
Life of Virginia will vote Fund shares held in Separate Account II as to which
no timely instructions are received and Fund shares held in Separate Account II
that it owns as a consequence of accrued charges under the Policies, in
proportion to the voting instructions which are received with respect to all
Policies funded through Separate Account II. Each person having a voting
interest will receive proxy materials, reports, and other materials relating to
the appropriate portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Life of Virginia may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of a Fund or one or more of its
portfolios or to approve or disapprove an investment advisory contract for a
portfolio of a Fund. In addition, Life of Virginia itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment advisor of a portfolio of a Fund if Life of Virginia
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Life of Virginia determined that the change would have an adverse
effect on its general account in that the proposed investment policy for the
portfolio may result in overly speculative or unsound investments. In the event
Life of Virginia does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next semi-annual report
to Policyowners.
STATE REGULATION OF LIFE OF VIRGINIA
Life of Virginia, a stock life insurance company organized under the laws of
Virginia, is subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. An annual statement is filed with the Virginia
Commissioner of Insurance on or before March 1 of each year covering the
operations and reporting on the financial condition of Life of Virginia as of
December 31 of the preceding year. Periodically, the Commissioner of Insurance
examines the liabilities and reserves of Life of Virginia and Separate Account
II and certifies their adequacy, and a full examination of Life of Virginia's
operations is conducted by the State Corporation Commission, Bureau of Insurance
of the Commonwealth of Virginia at least once every five years.
In addition, Life of Virginia is subject to the insurance laws and regulations
of other states within which it is licensed to operate. Generally, the Insurance
Department of any other state applies the laws of the state of domicile in
determining permissible investments.
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EXECUTIVE OFFICERS AND DIRECTORS OF LIFE OF VIRGINIA
<TABLE>
<CAPTION>
NAME AND POSITION(S)
WITH LIFE OF VIRGINIA* PRINCIPAL OCCUPATIONS LAST FIVE YEARS
<S> <C>
Ronald V. Dolan* Director, Chairman of the Board, Life of Virginia since 1997; President and Chief Executive Officer
of First Colony Life Insurance Company since 1992; President, First Colony Corporation since 1985
Paul E. Rutledge III* Director, President and Chief
Executive Officer since 1997; President and
Chief Operating Officer, Life of Virginia, 5/91
to 4/97; Executive Vice President and Chief
Operating Officer, United Investors Life
Insurance Company, Birmingham, Alabama, 9/87 to
4/91.
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, Senior Vice President since 1997, 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* Director, Life of Virginia since 1997, Senior Vice President - Agency, Life of Virginia, since
1/92; Vice President, Life of Virginia, since 1985.
Thomas A. Barefield* Director, Life of Virginia since 1997, 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.
Michael Weitz Senior Vice President- Brokerage since 1995
Elliott Rosenthal Senior Vice President - Investment Products 1997; Vice President and Senior Investment Actuary
1/95-4/97; Investment Actuary 1/82-2/95
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.
</TABLE>
- --------------------------------------------------------------------------------
* Messrs. Dolan, Rutledge, Baldwin, Bowen, Flournoy, Chinn, Barefield and Ms.
Lanam are members of the Executive Committee of the Board of Directors of Life
of Virginia.
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.
The principal business address for Mr. Dolan is First Colony Life Insurance
Company 700 Main Street, Post Office 1280, Lynchburg, VA 24505-1280
**The principal business address for Mr. Moses and Mr. Stiff 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.
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<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P. 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 J.
Neil McMurdie, Associate Counsel and Assistant Vice President 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
KPMG Peat Marwick LLP
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries as of December 31, 1996 and for the nine month period
ended December 31, 1996 and the preacquisition three month period ended March
31, 1996 and the financial statements of Life of Virginia Separate Account II as
of December 31, 1996 and for the year or periods then ended have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent auditors, appearing elsewhere herein, and upon the
authority of said form as experts in account and auditing.
Ernst & Young LLP
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries at December 31, 1995 and for each of the two years in
the period ended December 31, 1995 and statements of operations and statements
of changes in net assets of Life of Virginia Separate Account II for each of
the two years or period ended December 31, 1995, appearing in this Prospectus
and Registration Statament have been audited by Ernst & Young LLP, independent
auditors, to the extent indicated in their reports thereon also appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
CHANGE IN AUDITORS
Subsequent to the acquisition of Life of Virginia by GNA Corporation on April
1, 1996, Life of Virginia selected KPMG Peat Marwick LLP to be its auditor.
Accordingly, Life of Virginia's principal auditor has changed for the year
ending December 31, 1996, from Ernst & Young LLP, to KPMG Peat Marwick LLP. The
former auditors were dismissed and KPMG Peat Marwick LLP was retained because
KPMG Peat Marwick LLP is the auditor for GE Capital, GNA Corporation's parent.
This change of auditors was approved by the members of Life of Virginia's Board
of Directors.
Neither KPMG Peat Marwick LLP nor Ernst & Young LLP's reports on the financial
statements contains any adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
Furthermore, there were no disagreements with either on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure which would have caused them to make reference to the subject matter
of the disagreement in connection with their reports.
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.
44
<PAGE>
SUPPLEMENT DATED MAY 1, 1997
TO PROSPECTUS DATED MAY 1, 1997
LIFE OF VIRGINIA SEPARATE ACCOUNTS II AND III
Prior to November 23, 1995, Policyowners could allocate premiums (or net
premiums, as applicable) and policy cash (or account) values to six Investment
Subdivisions which are now closed to new investment (the "Closed Investment
Subdivisions"). Although no new allocations can be made to these Closed
Investment Subdivisions, existing allocations of policy value will be permitted
to remain there. Alternatively, Policyowners may transfer amounts from the
Closed Investment Subdivisions to the other Investment Subdivisions currently
available under the Policy.
This supplement contains information regarding the investment objectives and
advisory fees of the portfolios in which the Closed Investment Subdivisions
invest. It is being provided for the benefit of Policyowners who have policy
value allocated to one or more of those Closed Investment Subdivisions.
THE FUNDS
Oppenheimer Variable Account Funds ("OVAF")
Oppenheimer Money Fund seeks the maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity.
OppenheimerFunds, Inc. ("OFI") serves as investment adviser to the OVAF. The
OVAF pays OFI a monthly management fee. Effective September 1, 1994, 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 rate for the Oppenheimer
Money Fund is 0.450% of the first $500 million of net assets, 0.425% of the next
$500 million, 0.400% of the next $500 million, and 0.375% of net assets over
$1.5 billion.
Variable Insurance Products Fund ("VIPF")
Money Market Portfolio seeks high current income while maintaining a stable
share price by investing in a broad range of money market securities.
High Income Portfolio seeks high current income by investing mainly in
high-yielding, high-risk debt securities, with an emphasis on lower-quality
securities.
Fidelity Management & Research Company ("FMR") serves as investment advisor to
the VIPF. For managing each portfolio's investments and business affairs, each
portfolio pays FMR a monthly fee.
VIPF Money Market and High Income Portfolios' fee rates are each made up of two
components: (1) a group fee rate based on the monthly average net assets of all
the mutual funds advised by FMR; and (2) an individual portfolio fee rate of
.03% for the Money Market Portfolio and .45% for the High Income 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 fee that can be charged for
the VIP Money Market Portfolio is .55% and for the VIP High Income Portfolio is
.97%. 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.
Neuberger & Berman Advisers Management Trust
Each portfolio of the Advisers Management Trust invests all of its net
investable assets in its corresponding series of Advisers Managers Trust.
<PAGE>
Balanced Portfolio has the investment objective of providing long-term capital
growth and reasonable current income without undue risk to principal. Its
corresponding series, AMT Balanced Investments, has the same investment
objective.
Limited Maturity Bond Portfolio has the investment objective of providing the
highest current income consistent with low risk to principal and liquidity; and
secondarily, total return. Its corresponding series, AMT Limited Maturity Bond
Investments, has the same investment objective.
Growth Portfolio has the investment objective of seeking capital appreciation
without regard to income. Its corresponding series, AMT Growth Investments, has
the same investment objective.
Neuberger & Berman Management Incorporated (N&B Management) serves as the
investment manager of the series. N&B Management Incorporated provides
investment management services to AMT Limited Maturity Bond Investments, AMT
Growth Investments and AMT Balanced Investments that include, among other
things, making and implementing investment decisions and providing facilities
and personnel necessary to operate the corresponding series of Advisers Managers
Trust. N&B Management provides administrative services to the three Portfolios
that include furnishing similar facilities and personnel for the portfolios.
With the consent of each of the Portfolios, N&B Management is authorized to
subcontract some of its responsibilities under its administration agreement with
the Portfolios to third parties. For such administrative and investment
services, N&B Management is paid the following fees (as a percentage of average
daily net assets):
<TABLE>
<CAPTION>
Management Administration
(Series) (Portfolio)
<S> <C>
Limited Maturity Bond 0.25% of first $500 million 0.40%
0.225% of next $500 million
0.20% of next $500 million
0.175% of next $500 million
0.15% of over $2 billion
Balanced 0.55% of first $250 million 0.30%
0.525% of next $250 million
0.50% of next $250 million
0.475% of next $250 million
0.45% of next $500 million
0.425% of over $1.5 billion
Growth 0.55% of first $250 million 0.30%
0.525% of next $250 million
0.50% of next $250 million
0.475% of next $250 million
0.45% of next $500 million
0.425% of over $1.5 billion
</TABLE>
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in the
current prospectuses for the Funds. 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 transfers
among the investment subdivisions.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
(804) 281-6000
<PAGE>
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.
45
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Table of Contents
Year ended December 31, 1996
=============================================================================
PAGE
Independent Auditors' Report............................................. 1
Financial Statements:
Statements of Assets and Liabilities..............................3
Statements of Operations..........................................9
Statements of Changes in Net Assets..............................19
Notes to Financial Statements............................................29
=============================================================================
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD]
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 (the Account) (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 Fund--Money, Bond, Capital Appreciation, Growth,
High Income and Multiple Strategies Funds; the 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 Federated Investors Insurance Series--American Leaders, High Income Bond and
Utility Funds II; the Alger American--Small Cap and Growth Portfolios; and the
Janus Aspen Series--Aggressive Growth, Growth, Worldwide Growth, Balanced,
Flexible Income and International Growth Portfolios) as of December 31, 1996 and
the related statements of operations and changes in net assets for the year or
periods then ended. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying statements of
operations and changes in net assets of Life of Virginia Separate Account II for
the years or periods ended December 31, 1995 and 1994, were audited by other
auditor, whose report thereon dated February 8, 1996 expressed an unqualified
opinion on those statements.
We conducted our audit 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, 1996, by correspondence with
the underlying mutual funds. 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
audit provides a reasonable basis for our opinion.
<PAGE>
In our opinion, the 1996 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 as of December 31,
1996 and the results of their operations and changes in their net assets for the
year or period then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
February 11, 1997
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
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 operations and changes in net
assets for each of the two years in the period ended December 31, 1995 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 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.
<PAGE>
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 results of operations and changes in their assets for
the periods described in the first paragraph of each of the respective
portfolios constituting Life of Virginia Separate Account II, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
February 8, 1996
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Life of Virginia Series Fund, Inc.
------------------------------------------------------------------------
Common Government Money Total International Real Estate
Stock Index Securities Market Return Equity Securities
Assets Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Life of Virginia Series
Fund, Inc., at fair value (note 2):
Common Stock Index Portfolio (68,343
shares; cost - $1,331,677) $ 1,034,719 -- -- -- -- --
Government Securities Portfolio (29,405
shares; cost - $299,180) -- 281,116 -- -- -- --
Money Market Portfolio (179,920 shares;
cost - $1,566,610) -- -- 1,867,568 -- -- --
Total Return Portfolio (173,098 shares;
cost - $2,881,113) -- -- -- 2,203,532 -- --
International Equity Portfolio
(2,779 shares; cost - $30,739) -- -- -- -- 30,093 --
Real Estate Securities Portfolio
(1,775 shares; cost - $22,575) -- -- -- -- -- 25,047
Dividend receivable 751,436 31,170 97,157 846,101 1,884 1,678
Receivable from affiliate (note 3) 2,016 -- -- 230,368 82 194
Receivable for units sold 1,915 103 573,514 -- 3,168 3,296
- --------------------------------------------------------------------------------------------------------------------------------
Total assets 1,790,086 312,389 2,538,239 3,280,001 35,227 30,215
================================================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 197 745 132,634 389 4 3
Payable for units withdrawn -- -- -- 311 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 197 745 132,634 700 4 3
- --------------------------------------------------------------------------------------------------------------------------------
Net assets $ 1,789,889 311,644 2,405,605 3,279,301 35,223 30,212
================================================================================================================================
Outstanding units 56,039 16,683 154,701 125,692 3,036 1,918
================================================================================================================================
Net asset value per unit $ 31.94 18.68 15.55 26.09 11.60 15.75
================================================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund
----------------------------------------------------------------------
Capital High Multiple
Money Bond Appreciation Growth Income Strategies
Assets Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Oppenheimer Variable
Account Funds, at fair value (note 2):
Money Fund (679 shares;
cost - $679) $ 679 -- -- -- -- --
Bond Fund (23,209 shares;
cost - $267,811) -- 269,921 -- -- -- --
Capital Appreciation Fund
(60,836 shares; cost - $1,948,268) -- -- 2,354,955 -- -- --
Growth Fund (54,019 shares;
cost - $1,217,173) -- -- -- 1,471,477 -- --
High Income Fund (89,027
shares; cost - $954,579) -- -- -- -- 990,865 --
Multiple Strategies Fund
(36,491 shares; cost - $515,454) -- -- -- -- -- 570,359
Receivable from affiliate (note 3) 28 -- -- 6,688 995 4,486
Receivable for units sold -- 49 1,988 1,907 1,021 --
- ----------------------------------------------------------------------------------------------------------------------
Total assets 707 269,970 2,356,943 1,480,072 992,881 574,845
======================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) -- 130 14,879 199 134 77
Payable for units withdrawn -- -- -- -- -- 107
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities -- 130 14,879 199 134 184
- ----------------------------------------------------------------------------------------------------------------------
Net assets $ 707 269,840 2,342,064 1,479,873 992,747 574,661
======================================================================================================================
Outstanding units 45 13,055 63,799 44,162 32,190 22,651
======================================================================================================================
Net asset value per unit $ 15.56 20.67 36.71 33.51 30.84 25.37
======================================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
-----------------------------------------------------------
Money High Equity--
Market Income Income Growth Overseas
Assets Portfolio Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Variable Insurance Products
Fund, at fair value (note 2):
Money Market Portfolio (307,072 shares;
cost - $307,072) $ 307,072 -- -- -- --
High Income Portfolio (17,047 shares;
cost - $190,113) -- 213,433 -- -- --
Equity--Income Portfolio (150,449 shares;
cost - $2,748,697) -- -- 3,163,937 -- --
Growth Portfolio (115,732 shares;
cost - $3,222,777) -- -- -- 3,603,899 --
Overseas Portfolio (93,445 shares;
cost - $1,547,392) -- -- -- -- 1,760,500
Accrued investment income 1,430 -- -- -- --
Receivable from affiliate (note 3) 7,194 -- 22,564 7,570 1,069
Receivable for units sold -- -- 34,746 -- --
- -------------------------------------------------------------------------------------------------------------
Total assets 315,696 213,433 3,221,247 3,611,469 1,761,569
=============================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 43 178 429 486 237
Payable for units withdrawn -- 43 -- 337 702
- -------------------------------------------------------------------------------------------------------------
Total liabilities 43 221 429 823 939
- -------------------------------------------------------------------------------------------------------------
Net assets $ 315,653 213,212 3,220,818 3,610,646 1,760,630
=============================================================================================================
Outstanding units 20,234 8,361 101,828 103,102 81,098
=============================================================================================================
Net asset value per unit $ 15.60 25.50 31.63 35.02 21.71
=============================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Variable Insurance
Products Fund II Advisers Management Trust
---------------------- ---------------------------------------
Asset
Manager Contrafund Balanced Bond Growth
Assets Portfolio Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Variable Insurance Products
Fund II, at fair value (note 2):
Asset Manager Portfolio (170,823 shares;
cost - $2,524,202) $2,892,037 -- -- -- --
Contrafund Portfolio (62,852 shares;
cost - $908,315) -- 1,040,837 -- -- --
Investment in Advisers Management Trust,
at fair value (note 2):
Balanced Portfolio (15,397 shares;
cost - $230,220) -- -- 245,118 -- --
Bond Portfolio (5,668 shares;
cost - $79,581) -- -- -- 79,630 --
Growth Portfolio (5,197 shares;
cost - $115,124) -- -- -- -- 133,972
Receivable from affiliate (note 3) -- 4,567 -- -- 569
Receivable for units sold -- 203 16 -- 26
- -------------------------------------------------------------------------------------------------------------------
Total assets 2,892,037 1,045,607 245,134 79,630 134,567
===================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 9,568 140 1,120 86 18
Payable for units withdrawn 1,717 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 11,285 140 1,120 86 18
- -------------------------------------------------------------------------------------------------------------------
Net assets $2,880,752 1,045,467 244,014 79,544 134,549
===================================================================================================================
Outstanding units 135,501 62,082 14,270 6,358 8,592
===================================================================================================================
Net asset value per unit $ 21.26 16.84 17.10 12.51 15.66
===================================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Federated Investors
Insurance Series Alger American
------------------------------------- ------------------------
American High Small
Leaders Income Bond Utility Cap Growth
Assets Fund II Fund II Fund II Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in Federated Investors Insurance Series,
at fair value (note 2):
American Leaders Fund II
(149 shares; cost - $2,241) $ 2,270 -- -- -- --
High Income Bond Fund II
(3,428 shares; cost - $34,029) -- 35,102 -- -- --
Utility Fund II (7,400 shares -
cost - $82,709) -- -- 87,390 -- --
Investment in Alger American,
at fair value (note 2):
Small Cap Portfolio (10,065 shares;
cost - $416,945) -- -- -- 411,764 --
Growth Portfolio (39,772 shares;
cost - $1,367,186) -- -- -- -- 1,365,377
Receivable from affiliate (note 3) -- 422 -- 9,418 6,449
Receivable for units sold -- 78 292 649 34,943
- --------------------------------------------------------------------------------------------------------------------
Total assets 2,270 35,602 87,682 421,831 1,406,769
====================================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) -- 4 331 56 185
Payable for units withdrawn -- -- 11 -- --
- --------------------------------------------------------------------------------------------------------------------
Total liabilities -- 4 342 56 185
====================================================================================================================
Net assets $ 2,270 35,598 87,340 421,775 1,406,584
====================================================================================================================
Oustanding units 205 2,627 6,422 43,392 129,520
====================================================================================================================
Net asset value per unit $ 11.10 13.55 13.60 9.72 10.86
====================================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series
----------------------------------------------------------------------------
Aggressive Worldwide Flexible International
Growth Growth Growth Balanced Income Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Janus Aspen Series,
at fair value (note 2):
Aggressive Growth Portfolio
(58,294 shares;
cost - $990,897) $1,063,290 -- -- -- -- --
Growth Portfolio (69,183
shares; cost - $973,515) -- 1,073,027 -- -- -- --
Worldwide Growth Portfolio
(72,385 shares; cost -
$1,286,124) -- -- 1,407,171 -- -- --
Balanced Portfolio (11,361
shares; cost - $150,765) -- -- -- 167,808 -- --
Flexible Income Portfolio
(790 shares; cost -
$8,800) -- -- -- -- 8,883 --
International Growth Portfolio
(3,421 shares; cost -
$52,735) -- -- -- -- -- 53,775
Receivable from affiliate (note 3) 18,322 7,645 11,808 969 1 --
Receivable for units sold 1,593 33,083 2,498 21 -- 213
- -----------------------------------------------------------------------------------------------------------------------------
Total assets 1,083,205 1,113,755 1,421,477 168,798 8,884 53,988
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 146 145 190 22 1 50
Payable for units withdrawn -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 146 145 190 22 1 50
=============================================================================================================================
Net assets $1,083,059 1,113,610 1,421,287 168,776 8,883 53,938
=============================================================================================================================
Outstanding units 69,875 74,890 90,240 13,755 780 4,602
=============================================================================================================================
Net asset value per unit $ 15.50 14.87 15.75 12.27 11.39 11.72
=============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
------------------------------------------------------
Common Government
Stock Index Securities
Portfolio Portfolio
--------------------------- -----------------------
Year ended December 31 Year ended December 31,
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 751,436 20,611 10,993 31,170 18,835 10,652
Expenses--Mortality and expense risk charges (note 3) 9,854 5,975 4,467 2,175 1,930 762
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 741,582 14,636 6,526 28,995 16,905 9,890
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 65,600 33,666 1,682 289 2,130 (2,789)
Unrealized appreciation (depreciation) on investments (498,697) 203,288 (11,121) (28,379) 23,073 (11,441)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (433,097) 236,954 (9,439) (28,090) 25,203 (14,230)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 308,485 251,590 (2,913) 905 42,108 (4,340)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
----------------------------------
Money Market
Portfolio
-------------------------------
Year ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 97,157 64,373 28,145
Expenses--Mortality and expense risk charges (note 3) 15,476 12,610 9,044
- ------------------------------------------------------------------------------------------------------------
Net investment income 81,681 51,763 19,101
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) (325,593) 68,408 110,539
Unrealized appreciation (depreciation) on investments 345,223 (25,977) (2,317)
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 19,630 42,431 108,222
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 101,311 94,194 127,323
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
----------------------------------
Total Return
Portfolio
----------------------------
Year ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 846,101 210,985 17,248
Expenses--Mortality and expense risk charges (note 3) 20,200 9,371 2,872
- ---------------------------------------------------------------------------------------------------------
Net investment income 825,901 201,614 14,376
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 68,427 17,126 5,404
Unrealized appreciation (depreciation) on investments (708,053) 18,487 (11,896)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (639,626) 35,613 (6,492)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 186,275 237,227 7,884
- ---------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc. (continued)
------------------------------------------------------
International Real Estate
Equity Portfolio Securities Portfolio
------------------------ --------------------------
Period from Period from
August 25, October 5,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 1,884 176 1,678 22
Expenses - Mortality and expense risk charges (note 3) 152 11 57 --
- --------------------------------------------------------------------------------------------------------------------
Net investment income 1,732 165 1,621 22
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) gain on investments:
Net realized gain 510 4 381 --
Unrealized appreciation (depreciation) on investments (839) 193 2,468 4
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) gain on investments (329) 197 2,849 4
- --------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 1,403 362 4,470 26
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund
---------------------------------------------------
Money Bond
Fund Fund
---------------------- --------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 224 662 310 16,705 8,365 4,168
Expenses--Mortality and expense risk charges (note 3) 31 82 51 1,790 844 430
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 193 580 259 14,915 7,521 3,738
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) -- -- -- 128 407 (60)
Unrealized appreciation (depreciation) on investments -- -- -- (3,916) 9,889 (4,975)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments -- -- -- (3,788) 10,296 (5,035)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 193 580 259 11,127 17,817 (1,297)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
---------------------------------------------
Capital
Appreciation
Fund
-------------------------------
Year ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 99,449 5,317 42,513
Expenses--Mortality and expense risk charges (note 3) 13,659 10,098 4,255
- ------------------------------------------------------------------------------------------------------------
Net investment income (expense) 85,790 (4,781) 38,258
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 128,677 57,411 (5,894)
Unrealized appreciation (depreciation) on investments 103,509 281,347 (41,031)
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 232,186 338,758 (46,925)
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 317,976 333,977 (8,667)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund
--------------------------------------------------------
Growth
Fund
----------------------------
Year ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 72,782 10,459 1,840
Expenses--Mortality and expense risk charges (note 3) 7,950 3,854 1,807
- ---------------------------------------------------------------------------------------------------------
Net investment income (expense) 64,832 6,605 33
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 59,611 22,586 6,108
Unrealized appreciation (depreciation) on investments 113,315 125,878 (2,215)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 172,926 148,464 3,893
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 237,758 155,069 3,926
- ---------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund
----------------------------------------------------
High Multiple
Income Strategies
Fund Fund
----------------------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 78,385 47,571 19,850 33,554 35,104 13,754
Expenses--Mortality and expense risk charges (note 3) 5,650 3,622 1,474 3,353 3,322 1,636
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 72,735 43,949 18,376 30,201 31,782 12,118
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 8,045 1,112 (2,786) 22,006 5,112 1,058
Unrealized appreciation (depreciation) on investments 28,139 30,017 (25,264) 14,047 48,453 (16,980)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 36,184 31,129 (28,050) 36,053 53,565 (15,922)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $108,919 75,078 (9,674) 66,254 85,347 (3,804)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
-----------------------------------------------------
High
Money Market Income
Portfolio Portfolio
---------------------------- -----------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income--Dividends $17,813 34,581 5,417 24,435 12,908 9,861
Expenses--Mortality and expense risk
charges (note 3) 2,449 4,231 711 1,779 1,682 976
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 15,364 30,350 4,706 22,656 11,226 8,885
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) -- -- -- 7,114 4,603 (69)
Unrealized appreciation (depreciation) on investments -- -- -- 1,632 25,411 (12,284)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments -- -- -- 8,746 30,014 (12,353)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $15,364 30,350 4,706 31,402 41,240 (3,468)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-----------------------------------------------------
Equity-
Income
Portfolio
-----------------------------
Year ended December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income--Dividends 85,939 72,375 31,170
Expenses--Mortality and expense risk
charges (note 3) 17,180 8,801 3,777
- ----------------------------------------------------------------------------------------------------------
Net investment income (expense) 68,759 63,574 27,393
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 98,124 44,633 (8,219)
Unrealized appreciation (depreciation) on investments 149,934 255,114 (15,896)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 248,058 299,747 (24,115)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 316,817 363,321 3,278
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
----------------------------------------------------
Growth
Portfolio
--------------------------------
Year ended December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income--Dividends 213,091 9,023 41,630
Expenses--Mortality and expense risk
charges (note 3) 25,014 16,541 7,849
- ----------------------------------------------------------------------------------------------------------
Net investment income (expense) 188,077 (7,518) 33,781
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 342,839 237,960 (6,352)
Unrealized appreciation (depreciation) on investments (104,224) 415,406 (16,629)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 238,615 653,366 (22,981)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 426,692 645,848 10,800
- ----------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
Variable Insurance Variable Insurance
Products Fund Products Fund II
-----------------------------------------------------
Asset
Overseas Manager
Portfolio Portfolio
------------------------ ---------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 36,638 6,739 1,317 183,395 38,074 24,335
Expenses--Mortality and expense risk charges (note 3) 11,528 8,185 4,137 19,647 16,293 8,441
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 25,110 (1,446) (2,820) 163,748 21,781 15,894
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 39,291 6,569 (16,479) 105,006 25,753 (2,448)
Unrealized appreciation (depreciation) on investments 126,664 107,430 (45,747) 98,064 313,566 (80,899)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 165,955 113,999 (62,226) 203,070 339,319 (83,347)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $191,065 112,553 (65,046) 366,818 361,100 (67,453)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund II
--------------------------------------------
Contrafund
Portfolio
-----------------------------
Period from
February 7,
Year ended 1995 to
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 2,964 3,470
Expenses--Mortality and expense risk charges (note 3) 4,608 700
- ----------------------------------------------------------------------------------------------------------
Net investment income (expense) (1,644) 2,770
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 14,028 2,651
Unrealized appreciation (depreciation) on investments 119,895 12,626
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 133,923 15,277
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 132,279 18,047
- ----------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Advisers Management Trust
--------------------------------------------------------
Balanced Bond
Portfolio Portfolio
------------------------ ----------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 41,530 5,568 3,758 7,068 2,839 209
Expenses--Mortality and expense risk charges (note 3) 1,799 1,863 1,177 581 491 259
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 39,731 3,705 2,581 6,487 2,348 (50)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 4,564 5,430 1,226 38 450 (50)
Unrealized appreciation (depreciation) on investments (28,989) 43,147 (8,138) (3,678) 3,567 461
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (24,425) 48,577 (6,912) (3,640) 4,017 411
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 15,306 52,282 (4,331) 2,847 6,365 361
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Advisers Management Trust
-----------------------------------------------
Growth
Portfolio
-----------------------------------------------
Year ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 13,580 4,462 3,932
Expenses--Mortality and expense risk charges (note 3) 1,005 1,076 512
- -------------------------------------------------------------------------------------------------------
Net investment income (expense) 12,575 3,386 3,420
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 4,264 6,665 (362)
Unrealized appreciation (depreciation) on investments (6,024) 29,994 (6,943)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1,760) 36,659 (7,305)
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 10,815 40,045 (3,885)
- -------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Federated Investors
Insurance Series
-----------------------------------------------------------------
High
American Income
Leaders Bond Utility
Fund II Fund II Fund II
-------------- ----------------------- ------------------------
Period from Period from Period from
August 14, October 31, Year ended March 22,
1996 to Year ended 1995 to 1995 to 1995 to
December 31, December 31, December 31, December 31, December 31,
1996 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 9 1,592 7 2,283 862
Expenses--Mortality and expense risk charges (note 3) 2 127 1 364 132
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 7 1,465 6 1,919 730
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 4 51 -- 2,332 167
Unrealized appreciation (depreciation) on investments 29 1,038 35 700 3,982
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 33 1,089 35 3,032 4,149
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 40 2,554 41 4,951 4,879
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Alger American
-----------------------------------------------------------
Small
Cap Growth
Portfolio Portfolio
-------------------------------- ------------------------
Period from Period from
October 11, October 23,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 502 -- 3,815 --
Expenses--Mortality and expense risk charges (note 3) 1,659 24 2,350 12
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) (1,157) (24) 1,465 (12)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 4,156 (52) 1,107 7
Unrealized appreciation (depreciation) on investments (4,745) (436) (1,956) 147
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (589) (488) (849) 154
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (1,746) (512) 616 142
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series
------------------------------------------------------------------------------------
Aggressive Growth
Growth Portfolio Portfolio
--------------------------------------- ------------------------------------
Period from Period from
March 8, March 8,
Year ended Year ended 1994 to Year ended Year ended 1994 to
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends $ 9,052 7,589 844 21,456 7,206 227
Expenses--Mortality and expense
risk charges (note 3) 6,061 3,092 194 5,068 1,335 143
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 2,991 4,497 650 16,388 5,871 84
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 49,684 24,104 688 21,606 8,766 1,024
Unrealized appreciation
(depreciation) on investments (6,584) 74,041 4,935 67,602 33,088 (1,179)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 43,100 98,145 5,623 89,208 41,854 (155)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 46,091 102,642 6,273 105,596 47,725 (71)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series
----------------------------------------------------------------------
Worldwide
Growth
Portfolio
----------------------------------------------------------------------
Period from
March 8,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income--Dividends 17,129 1,537 2
Expenses--Mortality and expense 6,046 2,178 282
risk charges (note 3)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 11,083 (641) (280)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments: 102,324 8,523 (232)
Net realized gain (loss) 66,974 56,274 (2,201)
Unrealized appreciation
(depreciation) on investments 169,298 64,797 (2,433)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 180,381 64,156 (2,713)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
-----------------------------------------------------------------
Flexible International
Balanced Income Growth
Portfolio Portfolio Portfolio
------------------------- ------------------------ ------------
Period from Period from Period from
November 14, December 20, July 9,
Year ended 1995 to Year ended 1995 to 1996 to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
- --------------------------------------------------------------------------------------------------------- ------------ -----------
<S> <C>
Investment income:
Income-Dividends $ 3,497 584 541 1 136
Expenses-Mortality and expense risk charges (note 3) 931 66 34 -- 40
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 2,566 518 507 1 96
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain 2,098 395 13 -- 152
Unrealized appreciation (depreciation) on investments 14,575 2,467 83 (1) 1,040
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 16,673 2,862 96 (1) 1,192
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $19,239 3,380 603 -- 1,288
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
===================================================================================================================================
Life of Virginia Series Fund, Inc.
--------------------------------------------------------------------------------
Common Government
Stock Index Securities
Portfolio Portfolio
--------------------------------------------------------------------------------
Year ended December 31, Year ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 741,582 14,636 6,526 28,995 16,905 9,890
Net realized gain (loss) 65,600 33,666 1,682 289 2,130 (2,789)
Unrealized appreciation
(depreciation) on investments (498,697) 203,288 (11,121) (28,379) 23,073 (11,441)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets from operations 308,485 251,590 (2,913) 905 42,108 (4,340)
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 308,147 205,386 166,616 37,229 37,525 43,467
Loan interest (455) (592) (365) 878 244 --
Transfers (to) from the general account
of Life of Virginia:
Death benefits (1,955) -- -- -- -- --
Surrenders (15,204) (35,272) (34,647) (3,155) -- (8,360)
Loans (16,280) 33 (7,799) (2,302) -- (8,446)
Cost of insurance and
administrative expense (note 3) (158,228) (112,723) (96,243) (23,586) (22,993) (15,063)
Transfer gain (loss)
and transfer fees (note 3) 109 1,890 (560) (75) (368) (292)
Interfund transfers 289,390 91,482 89,283 (18,963) 21,812 168,642
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 405,524 150,204 116,285 (9,974) 36,220 179,948
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 714,009 401,794 113,372 (9,069) 78,328 175,608
Net assets at beginning of year 1,075,880 674,086 560,714 320,713 242,385 66,777
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 1,789,889 1,075,880 674,086 311,644 320,713 242,385
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================================
Life of Virginia Series Fund, Inc.
----------------------------------------------------------------------------
Money Market Total Return
Portfolio Portfolio
---------------------------------------------------------------------------
Year ended December 31, Year ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income 81,681 51,763 19,101 825,901 201,614 14,376
Net realized gain (loss) (325,593) 68,408 110,539 68,427 17,126 5,404
Unrealized appreciation
(depreciation) on investments 345,223 (25,977) (2,317) (708,053) 18,487 (11,896)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets from operations 101,311 94,194 127,323 186,275 237,227 7,884
- ------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 5,619,954 5,903,130 4,343,151 143,160 180,914 116,553
Loan interest (1,840) (33) (198) (178) (130) (138)
Transfers (to) from the general account
of Life of Virginia:
Death benefits (1,302) -- -- (25,232) -- --
Surrenders (7,042) (25,025) (2,620) (14,027) (22,038) (15,289)
Loans (59,410) 215 (686) (6,948) (6,501) (6,316)
Cost of insurance and
administrative expense (note 3) (257,113) (201,089) (221,019) (339,757) (173,014) (70,159)
Transfer gain (loss)
and transfer fees (note 3) (28,760) (164,726) (122,409) 125,446 105,770 139
Interfund transfers (4,363,145) (5,222,614) (3,495,580) 124,895 2,309,889 53,434
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 901,342 289,858 500,639 7,359 2,394,890 78,224
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,002,653 384,052 627,962 193,634 2,632,117 86,108
Net assets at beginning of year 1,402,952 1,018,900 390,938 3,085,667 453,550 367,442
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 2,405,605 1,402,952 1,018,900 3,279,301 3,085,667 453,550
===============================================================================================================================
</TABLE>
19
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
===================================================================================================================================
Life of Virginia Series Fund, Inc. (continued)
-------------------------------------------------------------
International Real Estate
Equity Portfolio Securities Portfolio
-------------------------------------------------------------
Period from Period from
August 25, October 5,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
From operations:
Net investment income $ 1,732 165 1,621 22
Net realized gain 510 4 381 --
Unrealized appreciation
(depreciation) on investments (839) 193 2,468 4
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 1,403 362 4,470 26
From capital transactions:
Net premiums 18,822 3,961 15,327 143
Loan interest 7 -- -- --
Transfers (to) from the general account
of Life of Virginia:
Death benefits -- -- -- --
Surrenders (1,403) -- (347) --
Loans (229) -- -- --
Cost of insurance and
administrative expense (note 3) (3,119) (316) (1,892) (31)
Transfer gain (loss)
and transfer fees (note 3) 86 (5) 190 2
Interfund transfers 10,273 5,381 12,060 264
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 24,437 9,021 25,338 378
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 25,840 9,383 29,808 404
Net assets at beginning of period 9,383 -- 404 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 35,223 9,383 30,212 404
==================================================================================================================================
</TABLE>
20
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
========================================================================================================================
Oppenheimer Variable Account Fund
-------------------------------------------------------------------
Money Bond
Fund Fund
------------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 193 580 259 14,915 7,521 3,738
Net realized gain (loss) -- -- -- 128 407 (60)
Unrealized appreciation
(depreciation) on investments -- -- -- (3,916) 9,889 (4,975)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from operations 193 580 259 11,127 17,817 (1,297)
From capital transactions:
Net premiums -- 7,628 2,919 41,062 36,446 42,700
Loan interest -- -- -- (2) 1 --
Transfers (to) from the general account
of Life of Virginia:
Death benefits -- -- -- -- -- --
Surrenders -- (954) -- (3,478) (1,208) (203)
Loans -- -- -- -- (134) --
Cost of insurance and
administrative expense (note 3) (997) (1,976) (1,381) (21,145) (15,526) (11,652)
Transfer gain (loss)
and transfer fees (note 3) (8) (12) 38 6 (54) (44)
Interfund transfers (10,491) (3,849) 7,234 50,864 63,844 20,767
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (11,496) 837 8,810 67,307 83,369 51,568
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (11,303) 1,417 9,069 78,434 101,186 50,271
Net assets at beginning of year 12,010 10,593 1,524 191,406 90,220 39,949
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 707 12,010 10,593 269,840 191,406 90,220
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
Oppenheimer Variable Account Fund
--------------------------------------------------------------------------------
Capital
Appreciation Growth
Fund Fund
--------------------------------- -----------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 85,790 (4,781) 38,258 64,832 6,605 33
Net realized gain (loss) 128,677 57,411 (5,894) 59,611 22,586 6,108
Unrealized appreciation
(depreciation) on investments 103,509 281,347 (41,031) 113,315 125,878 (2,215)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from operations 317,976 333,977 (8,667) 237,758 155,069 3,926
From capital transactions:
Net premiums 615,934 394,900 436,547 310,615 175,911 135,634
Loan interest (174) (114) (74) (155) 12 (18)
Transfers (to) from the general account
of Life of Virginia:
Death benefits -- (2,168) (134) (3,934) (2,519) --
Surrenders (128,744) (58,441) (11,508) (18,216) (7,126) (18,961)
Loans (8,425) (9,348) (10,450) (21,680) (5,542) (39)
Cost of insurance and
administrative expense (note 3) (242,592) (174,402) (99,843) (107,526) (61,493) (38,468)
Transfer gain (loss)
and transfer fees (note 3) 6,908 (5,711) (17,544) (1,119) 2,839 1,716
Interfund transfers 270,794 151,112 295,377 266,465 216,857 90,274
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 513,701 295,828 592,371 424,450 318,939 170,138
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 831,677 629,805 583,704 662,208 474,008 174,064
Net assets at beginning of year 1,510,387 880,582 296,878 817,665 343,657 169,593
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 2,342,064 1,510,387 880,582 1,479,873 817,665 343,657
==================================================================================================================================
</TABLE>
21
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
===================================================================================================================================
Oppenheimer Variable Account Fund
----------------------------------------------------------
High Multiple
Income Strategies
Fund Fund
------------------------------ --------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 72,735 43,949 18,376 30,201 31,782 12,118
Net realized gain (loss) 8,045 1,112 (2,786) 22,006 5,112 1,058
Unrealized appreciation
(depreciation) on investments 28,139 30,017 (25,264) 14,047 48,453 (16,980)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 108,919 75,078 (9,674) 66,254 85,347 (3,804)
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 311,435 225,228 205,911 122,291 183,632 98,195
Loan interest 16 179 (16) (18) (48) (51)
Transfers (to) from the general account of
Life of Virginia:
Death benefits (18,532) (386) (225) (17,498) -- --
Surrenders (7,723) (26,138) (3,726) (183,972) (11,026) (6,329)
Loans (133,614) (3,839) (8,327) (729) (617) (288)
Cost of insurance and
administrative expense (note 3) 559 (106,764) (70,347) (50,034) (67,361) (48,099)
Transfer gain (loss)
and transfer fees (note 3) 111,802 692 (422) 6,336 (572) (1,398)
Interfund transfers -- 132,318 138,398 87,158 52,156 137,152
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 263,943 221,290 261,246 (36,466) 156,164 179,182
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 372,862 296,368 251,572 29,788 241,511 175,378
Net assets at beginning of year 619,885 323,517 71,945 544,873 303,362 127,984
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 992,747 619,885 323,517 574,661 544,873 303,362
===================================================================================================================================
</TABLE>
22
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
=======================================================================================================================
Variable Insurance Products Fund
-----------------------------------------------------------------------------
High
Money Market Income
Portfolio Portfolio
----------------------------- -----------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 15,364 30,350 4,706 22,656 11,226 8,885
Net realized gain (loss) -- -- -- 7,114 4,603 (69)
Unrealized appreciation
(depreciation) on investments -- -- -- 1,632 25,411 (12,284)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 15,364 30,350 4,706 31,402 41,240 (3,468)
- -----------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 1,850 96,485 459,738 -- 91,883 83,545
Loan interest (14) 102 (32) (22) 245 1
Transfers (to) from the general account
of Life of Virginia:
Death benefits -- -- -- -- (393) (143)
Surrenders (19,871) (2,975) -- (36,177) (6,219) (13,554)
Loans (1,250) -- (3,125) (2,449) -- (8,677)
Cost of insurance and
administrative expense (note 3) (30,816) (65,636) (28,427) (30,421) (49,478) (33,264)
Transfer gain (loss)
and transfer fees (note 3) (5,041) (991) 6,932 (553) 373 (44)
Interfund transfers (89,691) (162,335) 93,040 (34,288) 36,951 60,841
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (144,833) (135,350) 528,126 (103,910) 73,362 88,705
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (129,469) (105,000) 532,832 (72,508) 114,602 85,237
Net assets at beginning of year 445,122 550,122 17,290 285,720 171,118 85,881
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 315,653 445,122 550,122 213,212 285,720 171,118
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
========================================================================================================================
Variable Insurance Products Fund
------------------------------------------------------------------------
Equity-
Income Growth
Portfolio Portfolio
------------------------------ ------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 68,759 63,574 27,393 188,077 (7,518) 33,781
Net realized gain (loss) 98,124 44,633 (8,219) 342,839 237,960 (6,352)
Unrealized appreciation
(depreciation) on investments 149,934 255,114 (15,896) (104,224) 415,406 (16,629)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 316,817 363,321 3,278 426,692 645,848 10,800
- ------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 923,240 487,170 213,828 928,744 621,255 656,784
Loan interest (54) 34 (29) (476) (2,442) (55)
Transfers (to) from the general account
of Life of Virginia:
Death benefits (22,109) -- -- (24,929) (2,486) (219)
Surrenders (120,408) (19,474) (12,023) (179,684) (78,450) (56,950)
Loans (12,984) (4,694) 550 (72,457) 5,101 (935)
Cost of insurance and
administrative expense (note 3) (336,646) (199,167) (85,059) (419,528) (324,187) (188,583)
Transfer gain (loss)
and transfer fees (note 3) 18,395 3,592 (459) 34,069 (20,621) (14,996)
Interfund transfers 643,935 410,782 311,214 (78,376) 590,049 478,565
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 1,093,369 678,243 428,022 187,363 788,219 873,611
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,410,186 1,041,564 431,300 614,055 1,434,067 884,411
Net assets at beginning of year 1,810,632 769,068 337,768 2,996,591 1,562,524 678,113
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of year 3,220,818 1,810,632 769,068 3,610,646 2,996,591 1,562,524
========================================================================================================================
</TABLE>
23
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
===================================================================================================================================
Variable Insurance Products Fund Variable Insurance Products Fund II
---------------------------------------- ------------------------------------------
Asset
Overseas Manager
Portfolio Portfolio
---------------------------------------- ------------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 25,110 (1,446) (2,820) 163,748 21,781 15,894
Net realized gain (loss) 39,291 6,569 (16,479) 105,006 25,753 (2,448)
Unrealized appreciation
(depreciation) on investments 126,664 107,430 (45,747) 98,064 313,566 (80,899)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 191,065 112,553 (65,046) 366,818 361,100 (67,453)
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 455,202 445,508 426,790 695,446 756,041 858,361
Loan interest (10) (29) (113) (44) 209 (20)
Transfers (to) from the general account
of Life of Virginia:
Death benefits (3,636) -- -- (22,120) (1,919) --
Surrenders (76,054) (19,836) (6,869) (107,389) (51,751) (11,317)
Loans (29,577) (7,544) (5,299) 70 (20,572) (8,489)
Cost of insurance and
administrative expense (note 3)(199,651) (190,510) (104,233) (341,676) (352,049) (241,348)
Transfer gain (loss) and
transfer fees (note 3) 5,668 (13,025) (2,893) (36) (3,037) (7,230)
Interfund transfers (2,943) 233,172 359,446 (462,667) 294,547 849,854
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 148,999 447,736 666,829 (238,416) 621,469 1,439,811
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 340,064 560,289 601,783 128,402 982,569 1,372,358
Net assets at beginning of period 1,420,566 860,277 258,494 2,752,350 1,769,781 397,423
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 1,760,630 1,420,566 860,277 2,880,752 2,752,350 1,769,781
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================
Variable Insurance Products Fund II
-----------------------------------------
Contrafund
Portfolio
----------------------------------------
Period from
February 7,
Year ended 1995 to
December 31, December 31,
1996 1995
- --------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) (1,644) 2,770
Net realized gain (loss) 14,028 2,651
Unrealized appreciation
(depreciation) on investments 119,895 12,626
- --------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 132,279 18,047
- --------------------------------------------------------------------------------------
From capital transactions:
Net premiums 331,802 104,232
Loan interest 107 4
Transfers (to) from the general account
of Life of Virginia:
Death benefits -- --
Surrenders (8,625) --
Loans (4,921) (396)
Cost of insurance and
administrative expense (note 3) (91,674) (18,015)
Transfer gain (loss) and
transfer fees (note 3) 1,153 3,247
Interfund transfers 398,084 180,143
- --------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 625,926 269,215
- --------------------------------------------------------------------------------------
Increase in net assets 758,205 287,262
Net assets at beginning of period 287,262 --
- --------------------------------------------------------------------------------------
Net assets at end of period $ 1,045,467 287,262
======================================================================================
</TABLE>
24
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
===================================================================================================================================
Advisers Management Trust
-------------------------------------------------------------------------
Balanced Bond
Portfolio Portfolio
--------------------------------- -------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 39,731 3,705 2,581 6,487 2,348 (50)
Net realized gain (loss) 4,564 5,430 1,226 38 450 (50)
Unrealized appreciation
(depreciation) on investments (28,989) 43,147 (8,138) (3,678) 3,567 461
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 15,306 52,282 (4,331) 2,847 6,365 361
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums -- 52,871 128,528 -- 37,211 17,926
Loan interest (7) 6 1 -- -- --
Transfers (to) from the general account
of Life of Virginia:
Death benefits (16,809) (1,989) -- -- -- --
Surrenders (3,543) (3,754) (6,026) -- (3,175) --
Loans -- (305) (211) -- -- --
Cost of insurance
and administrative expense (note 3) (16,515) (24,013) (17,394) (3,975) (6,373) (3,036)
Transfer gain (loss) and
transfer fees (note 3) (143) 7 (936) (55) (170) 111
Interfund transfers (26,358) 5,186 16,186 (11,128) 5,181 31,747
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (63,375) 28,009 120,148 (15,158) 32,674 46,748
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (48,069) 80,291 115,817 (12,311) 39,039 47,109
Net assets at beginning of year 292,083 211,792 95,975 91,855 52,816 5,707
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 244,014 292,083 211,792 79,544 91,855 52,816
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================
Advisers Management Trust
--------------------------------------------
Growth
Portfolio
Year ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 12,575 3,386 3,420
Net realized gain (loss) 4,264 6,665 (362)
Unrealized appreciation
(depreciation) on investments (6,024) 29,994 (6,943)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 10,815 40,045 (3,885)
- -------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 30 43,607 72,306
Loan interest (118) 2 7
Transfers (to) from the general account
of Life of Virginia:
Death benefits -- -- --
Surrenders -- (9,384) (2,502)
Loans (4,361) (1,132) (487)
Cost of insurance
and administrative expense (note 3) (8,829) (13,364) (8,077)
Transfer gain (loss) and
transfer fees (note 3) 273 (357) 650
Interfund transfers (24,783) (2,815) 15,771
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (37,788) 16,557 77,668
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (26,973) 56,602 73,783
Net assets at beginning of year 161,522 104,920 31,137
- -------------------------------------------------------------------------------------------------
Net assets at end of year 134,549 161,522 104,920
=================================================================================================
</TABLE>
25
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
===================================================================================================================================
Federated Investors
Insurance Series
---------------------------------------------------------------------------
High
American Income
Leaders Bond Utility
Fund II Fund II Fund II
------------- -------------------------------- -------------------------
Period from Period from Period from
August 14, October 31, March 22,
1996 to Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31, December 31
1996 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 7 1,465 6 1,919 730
Net realized gain (loss) 4 51 -- 2,332 167
Unrealized appreciation
(depreciation) on investments 29 1,038 35 700 3,982
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 40 2,554 41 4,951 4,879
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 941 18,547 8 27,264 39,132
Loan interest -- -- -- -- --
Transfers (to) from the general account
of Life of Virginia:
Surrenders -- -- -- (60) --
Loans -- -- -- -- --
Cost of insurance (note 3) (101) (3,746) (74) (6,249) (3,417)
Transfer gain (loss) and
transfer fees (note 3) (1) 362 62 (372) 30
Interfund transfers 1,391 9,630 8,214 236 20,946
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 2,230 24,793 8,210 20,819 56,691
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 2,270 27,347 8,251 25,770 61,570
Net assets at beginning of period -- 8,251 -- 61,570 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 2,270 35,598 8,251 87,340 61,570
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
-------------------------------------------------------------------------
Alger American
Small
Cap Growth
Portfolio Portfolio
--------------------------------------------------------------------------
Period from Period from
October 11, October 23,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) (1,157) (24) 1,465 (12)
Net realized gain (loss) 4,156 (52) 1,107 7
Unrealized appreciation
(depreciation) on investments (4,745) (436) (1,956) 147
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (1,746) (512) 616 142
- -------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 151,593 4,392 180,079 2,473
Loan interest (3,345) -- 31 2
Transfers (to) from the general account
of Life of Virginia:
Surrenders (1,160) -- (1,243) --
Loans (13,496) -- (956) --
Cost of insurance (note 3) (37,209) (879) (34,162) (500)
Transfer gain (loss) and
transfer fees (note 3) 9,170 208 6,248 170
Interfund transfers 281,412 33,347 1,232,717 20,967
- ------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 386,965 37,068 1,382,714 23,112
- ------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 385,219 36,556 1,383,330 23,254
Net assets at beginning of period 36,556 -- 23,254 --
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 421,775 36,556 1,406,584 23,254
==============================================================================================================================
</TABLE>
26
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Janus Aspen Series
-----------------------------------------------------------
Aggressive
Growth Portfolio
-------------------------------------------
Period from
March 8,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 2,991 4,497 650
Net realized gain (loss) 49,684 24,104 688
Unrealized appreciation (depreciation)
on investments (6,584) 74,041 4,935
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 46,091 102,642 6,273
- ----------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 440,252 272,031 20,533
Loan interest 50 101 4
Transfers (to) from the general account of
Life of Virginia:
Death benefits (155) -- --
Surrenders (55,525) (6,433)
Loans (9,797) (590) (355)
Cost of insurance and administrative
expense (note 3) (128,435) (69,676) (5,600)
Transfer gain (loss) and transfer
fees (note 3) 5,450 10,642 1,698
Interfund transfers 161,707 197,192 94,959
- ----------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 413,547 403,267 111,239
Increase in net assets 459,638 505,909 117,512
- ----------------------------------------------------------------------------------------------------------
Net assets at beginning of period 623,421 117,512 --
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period $ 1,083,059 623,421 117,512
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Janus Aspen Series
-----------------------------------------------------------
Growth Portfolio
-------------------------------------------
Period from
March 8,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 16,388 5,871 84
Net realized gain (loss) 21,606 8,766 1,024
Unrealized appreciation (depreciation)
on investments 67,602 33,088 (1,179)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 105,596 47,725 (71)
- ----------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 350,437 130,419 20,151
Loan interest 59 -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits (151) -- --
Surrenders (67,362) (364) --
Loans (5,035) (28) --
Cost of insurance and administrative
expense (note 3) (88,814) (39,647) (5,932)
Transfer gain (loss) and transfer
fees (note 3) 5,548 1,834 42
Interfund transfers 454,994 138,995 65,214
- ----------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 649,676 231,209 79,475
Increase in net assets 755,272 278,934 79,404
- ----------------------------------------------------------------------------------------------------------
Net assets at beginning of period 358,338 79,404 --
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period 1,113,610 358,338 79,404
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series
-----------------------------------------------------------
Worldwide
Growth Portfolio
-------------------------------------------
Period from
March 8,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 11,083 (641) (280)
Net realized gain (loss) 102,324 8,523 (232)
Unrealized appreciation (depreciation)
on investments 66,974 56,274 (2,201)
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 180,381 64,156 (2,713)
- ----------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 381,650 165,843 53,431
Loan interest 270 -- 4
Transfers (to) from the general account of
Life of Virginia:
Death benefits -- -- --
Surrenders (40,322) (6,089) --
Loans (19,483) 5 (10,988)
Cost of insurance and administrative
expense (note 3) (115,529) (55,173) (11,136)
Transfer gain (loss) and transfer
fees (note 3) 8,504 1,721 1,100
Interfund transfers 610,432 97,041 118,182
- ----------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 825,522 203,348 150,593
Increase in net assets 1,005,903 267,504 147,880
- ----------------------------------------------------------------------------------------------------
Net assets at beginning of period 415,384 147,880 --
- ----------------------------------------------------------------------------------------------------
Net assets at end of period 1,421,287 415,384 147,880
- ----------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
-----------------------------------------------------------------
Flexible International
Balanced Income Growth
Portfolio Portfolio Portfolio
------------------------- ------------------------ ------------
Period from Period from Period from
November 14, December 20, July 9,
Year ended 1995 to Year ended 1995 to 1996 to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 2,566 518 507 1 96
Net realized gain 2,098 395 13 -- 152
Unrealized appreciation (depreciation) on investments 14,575 2,467 83 (1) 1,040
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 19,239 3,380 603 -- 1,288
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 19,054 336 3,048 13 19,750
Loan interest -- -- -- -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits -- -- -- -- --
Surrenders -- -- -- -- --
Loans -- -- -- -- --
Cost of insurance (note 3) (11,055) (792) (840) (4) (1,705)
Transfer gain (loss) and transfer fees
note 3) 1,193 (248) 1 1 (43)
Interfund transfers 63,919 73,750 6,026 35 34,648
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 73,111 73,046 8,235 45 52,650
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 92,350 76,426 8,838 45 53,938
Net assets at beginning of period 76,426 -- 45 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 168,776 76,426 8,883 45 53,938
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Notes to Financial Statements
December 31, 1996
==============================================================================
(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. As of April 1, 1996, Life of Virginia is a
wholly-owned subsidiary of GNA Corporation, which is a wholly-owned
subsidiary of General Electric Capital Corporation. Prior to April 1,
1996, Life of Virginia was an indirect wholly-owned subsidiary of Aon
Corporation (Aon).
In May 1996, two new investment subdivisions were added to the Account.
One of these subdivisions, the International Growth Portfolio, invests
solely in a designated portfolio of the Janus Aspen Series, a series
type mutual fund. The other new subdivision, the American Leaders Fund
II, invests solely in a designated portfolio of the Federated Investors
Insurance Series, a series type mutual fund.
During 1995, nine new investment subdivisions were added to the
Account. The Utility Fund II and High Income Bond Fund II each invests
solely in a designated portfolio of the Federated Investors Insurance
Series, a series type mutual fund. The Contrafund Portfolio invests
solely in a designated portfolio of the Variable Insurance Products
Fund II Portfolio, a series type mutual fund. The International Equity
Portfolio and the Real Estate Securities Portfolio each invests solely
in a designated portfolio of Life of Virginia Series Fund, Inc., a
series type mutual fund. The Balanced Portfolio and Flexible Income
Portfolio each invests solely in a designated portfolio of the Janus
Aspen Series, a series type mutual fund. The Growth Portfolio and Small
Cap Portfolio 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 Portfolio, Bond Portfolio, and Growth
Portfolio 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 Portfolio and High Income
Portfolio, each invested solely in a designated portfolio of the
Variable Insurance Products Fund, a series type mutual fund. The sixth
closed subdivision, the Money Fund invests solely in a designated
portfolio of the Oppenheimer Variable Account Fund, a series type
mutual fund.
(2) Summary of Significant Accounting Policies
Investments
Investments are stated at fair value which is based on the underlying
net asset value per share 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>
(2) Continued
The aggregate cost of the investments acquired and the aggregate
proceeds of investments sold, for the year or period ended December 31,
1996, were:
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
----------------------------------------------------------------------
Life of Virginia Series Fund, Inc.:
Common Stock Index $ 725,624 332,391
Government Securities 52,192 64,304
Money Market 25,454,726 25,288,621
Total Return 2,985,814 3,124,233
International Equity 35,558 14,525
Real Estate 28,637 6,842
Oppenheimer Variable Account Funds:
Money 1,755 13,052
Bond 154,561 72,368
Capital Appreciation 1,228,941 638,890
Growth 840,978 355,349
High Income 652,963 317,645
Multiple Strategies 279,145 291,709
Variable Insurance Products Fund:
Money Market 451,799 583,881
High Income 27,321 108,081
Equity-Income 2,013,619 903,906
Growth 3,600,702 3,256,739
Overseas 693,475 524,739
Variable Insurance Products Fund II:
Asset Manager 1,216,913 1,290,073
Contrafund 803,124 180,039
Advisers Management Trust:
Balanced 42,743 66,218
Bond 10,674 19,287
Growth 15,040 40,542
Federated Investors Insurance Series:
American Leaders 2,340 103
High Income Bond 29,690 3,868
Utility 105,641 82,820
Alger American:
Small Cap 811,109 435,043
Growth 1,559,296 216,067
Janus Aspen Series:
Aggressive Growth 790,861 381,510
Growth 841,915 214,540
Worldwide Growth 1,742,273 916,850
Balanced 167,848 93,366
Flexible Income 9,615 873
International Growth 65,883 13,300
----------------------------------------------------------------------
<PAGE>
(2) Continued
Federal Income Taxes
The Account is not taxed separately because the operations of the
Account are part of the total operations of Life of Virginia. Life of
Virginia is taxed as a life insurance company under the Internal
Revenue Code (the Code). Life of Virginia is included in the General
Electric Capital Assurance Company 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
(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 the 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.
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 the policy specified amount of insurance, death
benefit option, cash values, duration, the insured's sex, issue age and
risk class, is deducted from the 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 at an 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.
<PAGE>
(3) Continued
Gains or losses resulting from the processing time between the
crediting 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 sale of the underlying shares 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), a wholly-owned
subsidiary of GNA Corporation, 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%.
Certain officers and directors of Life of Virginia are also officers
and directors of FFSC and the Fund.
===============================================================================
<PAGE>
[logo]
THE LIFE INSURANCE COMPANY OF
VIRGINIA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
[KPMG PEAT MARWICK LETTERHEAD]
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated balance sheets of The Life
Insurance Company of Virginia (an indirect wholly-owned subsidiary of General
Electric Capital Corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the nine months ended December 31, 1996. We have also audited the
preacquisition statements of income, stockholders' equity and cash flows for the
three months ended March 31, 1996. 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. The accompanying
financial statements of the Life Insurance Company of Virginia as of and for the
years ended December 31, 1995 and 1994, were audited by other auditors whose
report, dated February 8, 1996 on those financial statements included an
explanatory paragraph that described the change in the company's method of
accounting for certain investments.
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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Life
Insurance Company of Virginia and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the nine month period ended
December 31, 1996 and the preacquisition three month period ended March 31, 1996
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1996, General Electric Capital Corporation acquired all of the outstanding
stock of The Life Insurance Company of Virginia in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable.
/s/ KPMG PEAT MARWICK LLP
January 15, 1997
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statement of financial position of
The Life Insurance Company of Virginia and subsidiaries as of December 31, 1995,
and the related consolidated statements of income, stockholder's equity, and
cash flows for each of the two 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 the consolidated
results of their operations and their cash flows for each of the two 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
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Preacquisition
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments:
Fixed maturities:
Available for sale - at fair value; (amortized cost:
December 31, 1996 - $5,102.2; 1995 - $4,267.2) $ 5,142.7 4,411.0
Equity securities - at fair value
Common stocks (cost: December 31, 1996 - $31.6; 1995 - $31.5) 34.7 35.4
Preferred stocks (cost: December 31, 1996 - $123.5; 1995 - $102.2) 130.8 121.5
Mortgage loans on real estate (net of reserve for losses:
December 31, 1996 - $20.8; 1995 - $23.6) 585.4 592.5
Real estate (net of accumulated depreciation: December 31, 1996 -
$4.4; 1995 - $5.6) 19.4 36.6
Policy loans 179.5 151.7
Short-term investments 42.4 81.7
- --------------------------------------------------------------------------------------------------------------------
Total investments 6,134.9 5,430.4
- --------------------------------------------------------------------------------------------------------------------
Cash 6.4 1.6
Receivables:
Premiums and other 21.0 13.5
Accrued investment income 116.6 72.3
Receivable from affiliates, net - 558.4
- --------------------------------------------------------------------------------------------------------------------
Total receivables 137.6 644.2
Deferred policy acquisition costs 70.3 363.9
Goodwill (net of accumulated amortization: December 31, 1996 - $5.0) 125.4 -
Present value of future profits
(net of accumulated amortization: December 31, 1996 - $45.2; 419.2 32.6
1995 - $32.5)
Property and equipment at cost
(net of accumulated depreciation: December 31, 1996 - $1.7; 1.7 3.7
1995 - $18.4)
Deferred income tax benefit 72.9 -
Other assets 12.3 65.9
Assets held in separate accounts 2,762.7 2,019.6
- --------------------------------------------------------------------------------------------------------------------
Total assets 9,743.4 8,561.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1996 and 1995
(in millions, except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Preacquisition
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Policy liabilities:
Future policy benefits $ 518.3 472.4
Policy and contract claims 69.1 31.7
Unearned and advance premiums 0.1 0.3
Other policyholder funds 5,094.4 5,013.9
- --------------------------------------------------------------------------------------------------------------------
Total policy liabilities 5,681.9 5,518.3
General liabilities:
Payable to affiliate, net 8.8 -
Commissions and general expenses 46.8 12.8
Current income taxes 45.4 9.5
Deferred income taxes - 75.5
Other liabilities 192.2 104.3
Liabilities related to separate accounts 2,762.7 2,019.6
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 8,737.8 7,740.0
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Paid-in additional capital 928.1 749.1
Net unrealized investment gains 19.4 103.1
Retained earnings (deficit) 54.1 (34.3)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,005.6 821.9
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 9,743.4 8,561.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Income
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Preacquisition
-----------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUE
Premiums and policy fees $ 154.7 92.4 179.3 218.8
Separate account fees 23.1 5.9 17.7 11.3
Net investment income (note 2) 334.4 112.0 402.1 490.6
Realized investment gains (losses) (note 2) 6.0 9.0 (76.5) (25.8)
Other income 0.6 1.0 2.8 8.5
- -----------------------------------------------------------------------------------------------------------------------------
Total revenue earned 518.8 220.3 525.4 703.4
- -----------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits to policyholders 326.4 166.0 372.9 477.1
Commissions and general expenses 53.2 28.8 43.7 75.7
Amortization of intangibles 50.1 0.6 3.2 5.1
Amortization of deferred policy acquisition costs 3.2 6.0 39.3 57.1
- -----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 432.9 201.4 459.1 615.0
INCOME BEFORE INCOME TAX 85.9 18.9 66.3 88.4
Provision for income tax (note 3)
Current expense (benefit) 39.7 (3.8) 37.9 21.0
Deferred expense (benefit) (7.9) 10.8 (10.8) (5.7)
- -----------------------------------------------------------------------------------------------------------------------------
31.8 7.0 27.1 15.3
NET INCOME (LOSS) $ 54.1 11.9 39.2 73.1
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Preacquisition
----------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK
$1,000 par value common stock, authorized,
issued and outstanding 4,000 in 1996,
1995 and 1994)
Balance at beginning and end of period $ 4.0 4.0 4.0 4.0
PAID-IN ADDITIONAL CAPITAL
Balance at beginning of period 818.4 749.1 704.1 704.1
Adjustment to reflect purchase method (note 1) 109.7 - - -
Capital contribution from parent (notes 4, 7) - 69.3 45.0 -
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 928.1 818.4 749.1 704.1
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance at beginning of period 11.9 103.1 (97.5) 23.6
Adjustment to reflect purchase method
(note 1) (11.9) - - -
Effect of change in accounting principles
at January 1 (note 2) - - - 25.1
Net unrealized investment gains (losses) 19.4 (91.2) 200.6 (146.2)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 19.4 11.9 103.1 (97.5)
NET FOREIGN EXCHANGE GAINS (LOSSES)
Balance at beginning of period - - (3.0) (2.3)
Net foreign exchange gains (losses) - - 3.0 (0.7)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period - - - (3.0)
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period (22.4) (34.3) 159.8 126.7
Adjustment to reflect purchase method
(note 1) 22.4 - - -
Net income 54.1 11.9 39.2 73.1
Dividends to stockholder - - (40.0) (40.0)
Stock dividend to affiliate (note 7) - - (193.3) -
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 54.1 (22.4) (34.3) 159.8
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity at end of period $ 1,005.6 811.9 821.9 767.4
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Preacquisition
-------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 54.1 11.9 39.2 73.1
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Change in policy liabilities 53.5 (32.8) 114.2 331.4
Change in accrued investment income (37.6) 4.1 (2.1) 1.8
Deferred policy acquisition costs (74.9) (22.2) (76.1) (91.8)
Amortization of deferred policy acquisition costs 3.2 6.0 39.3 57.1
Amortization of intangibles 50.1 0.6 3.2 5.1
Other amortization and depreciation 7.3 1.4 (1.2) 2.3
Premiums and operating receivables, commissions and general
expenses, income taxes, other assets and other liabilities 77.8 22.9 (65.7) (139.7)
Realized investment (gains) losses (6.0) (9.0) 76.5 25.8
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 127.5 (17.1) 127.3 265.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale (purchase) of short-term investments - net 49.4 (10.1) (18.8) (0.3)
Sale or maturity of investments
Fixed maturities - held to maturity:
Maturities - - 3.9 50.8
Calls and prepayments - - 60.9 727.5
Sales - - - -
Fixed maturities - available for sale
Maturities 201.5 46.1 35.0 50.4
Calls and prepayments 353.5 101.0 58.6 269.1
Sales 452.0 115.8 1,700.3 444.7
All other investments 177.3 44.9 124.6 231.1
Purchase of investments:
Fixed maturities - held to maturity - - - (734.0)
Fixed maturities - available for sale (1,279.5) (144.1) (1,950.7) (1,018.5)
All other investments (39.5) (65.5) (183.5) (357.1)
Sale (purchase) of property and equipment - (0.2) (0.8) (1.8)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (85.3) 87.9 (170.5) (338.1)
Cash flows from financing activities:
Capital contribution - 2.8 - -
Cash dividends to stockholder - (40.0) (6.0) (20.0)
Change in cash overdrafts (12.7) 28.8 - -
Interest sensitive life, annuity and investment contract deposits 1,275.4 301.9 1,059.5 1,455.5
Interest sensitive life, annuity and investment contract withdrawals (1,305.6) (358.8) (1,031.7) (1,362.6)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (42.9) (65.3) 21.8 72.9
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (0.7) 5.5 (21.4) (0.1)
Cash at beginning of period 7.1 1.6 23.0 23.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 6.4 7.1 1.6 23.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
===============================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
(GAAP) and include the accounts of The Life Insurance Company of
Virginia and its subsidiaries ("Life of Virginia" or "Company").
Subsidiaries include Globe Life Insurance Company and Assigned
Settlements Inc. at December 31, 1994 and only Assigned Settlements
Inc. at December 31, 1996 and 1995. All material intercompany
accounts and transactions have been eliminated.
Prior to April 1, 1996 Combined Insurance Company of America
("CICA") owned 100% or 4,000 shares of Life of Virginia. CICA is a
wholly-owned subsidiary of AON Corporation (AON). On April 1, 1996,
CICA sold 100% of the issued and outstanding shares of Life of
Virginia to General Electric Capital Corporation ("GE Capital").
Immediately thereafter, 80% was contributed to General Electric
Capital Assurance Company (the "Parent"). On December 31, 1996, the
remaining 20% was contributed to General Electric Life Insurance
Group, Inc. ("GELIC").
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 34%, 43% and 46% of
premium and annuity consideration collected, in 1996, 1995, and
1994, respectively, came from customers residing in the South
Atlantic region of the United States.
Although the Company markets its products through numerous
distributors, approximately 21.2% and 13.8% of the Company's sales
in 1996 and 1995, respectively, have been through two specific
national stockbrokers. Loss of all or a substantial portion of the
business provided by these stockbrokers could have a material
adverse effect on the business and operations of the Company. The
Company does not believe, however, that the loss of such business
would have a long-term adverse effect because of the Company's
competitive position in the marketplace and the availability of
business from other distributors.
Certain 1995 and 1994 amounts have been reclassified to conform to
1996 presentation.
PURCHASE ACCOUNTING METHOD
Upon acquisition of Life of Virginia by GE Capital, Life of Virginia
restated its financial statements in accordance with the purchase
method of accounting which allocates the net purchase price for Life
of Virginia and its subsidiaries of $932.1 million according to the
fair values of the acquired assets and liabilities, including the
estimated present value of future profits. These allocated values
were dependent upon policies in force and market conditions at the
time of closing.
(Continued)
7
<PAGE>
<TABLE>
<CAPTION>
============================================================================
(1) CONTINUED
These allocations are summarized below:
(In millions) April 1, 1996
- ----------------------------------------------------------------------------
<S> <C>
Assets acquired:
Cash and investments (including mortgages) $ 6,006.2
Goodwill 130.3
Present value of future profits 484.1
Assets held in separate accounts 2,096.6
Other assets 194.2
- ---------------------------------------------------------------------------------------------------------------
Total $ 8,911.4
- ---------------------------------------------------------------------------------------------------------------
Liabilities assumed:
Policyholder liabilities $ 5,658.7
Other liabilities 224.0
Liabilities related to separate accounts 2,096.6
- ---------------------------------------------------------------------------------------------------------------
Total 7,979.3
- ---------------------------------------------------------------------------------------------------------------
Adjusted purchase price $ 932.1
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to revaluing all material tangible assets and liabilities to
their respective estimated market values as of the closing date of the
sale, Life of Virginia also recorded in its financial statements the
excess of cost over fair value of net assets acquired (goodwill) as well
as the present value of future profits to be derived from the purchased
business. These amounts were determined in accordance with the purchase
method of accounting. This new basis of accounting resulted in an
increase in stockholders' equity of $120.2 million in 1996 reflecting the
application of the purchase method of accounting. The Company's
consolidated financial statements subsequent to April 1, 1996 reflect
this new basis of accounting.
All amounts for periods ended before April 1, 1996 are labeled
"Preacquisition" and are based on the preacquisition historical costs in
accordance with generally accepted accounting principles. The periods
ending after such date are based on fair values at April 1, 1996 and
subsequent costs in accordance with the purchase method of accounting.
PRESENT VALUE OF FUTURE PROFITS
As of April 1, 1996 Life of Virginia established an intangible asset
which represents the "present value of future profits" (PVFP). PVFP
reflects the estimated fair value of the Company's life insurance
business in-force and represents the portion of the cost to acquire the
Company that is allocated to the value of the right to receive future
cash flows from insurance contracts existing at the date of acquisition.
Such value is the present value of the actuarially determined projected
cash flows for the acquired policies discounted at a rate of 15%, the
rate of return required by the Parent to invest in the business being
acquired.
(Continued)
8
<PAGE>
(1) CONTINUED
PVFP is amortized over the estimated contract life of the business
acquired in relation to the present value of estimated gross profits. The
estimated gross profit streams are periodically reevaluated and the
unamortized balance of PVFP adjusted to the amount that would have
existed had the actual experience and revised estimates been known and
applied since inception. The amortization period is the remaining life of
the policies, which ranges from 10 to 30 years from the date of original
policy issue. Based on current assumptions, net amortization of the PVFP
asset, expressed as a percentage, is projected to be 13.3%, 12.1%, 10.9%,
9.7% and 8.3% for the years ended December 31, 1997 through 2001,
respectively. Actual amortization incurred during these years may vary as
assumptions are modified to incorporate actual results.
Prior to April 1, 1996, Life of Virginia's PVFP was calculated in a
similar manner as the PVFP discussed above and related to policies
in-force on April 30, 1986, the date the Company was acquired by Aon.
Under purchase accounting this PVFP was removed.
The projected ending balance of PVFP will be further adjusted to
reflect the impact of unrealized gains or losses on fixed maturities
held as available for sale in the investment portfolios. Such
adjustments are not recorded in the Company's net income but rather as
a credit or charge to stockholders' equity, net of income tax. The
components of PVFP are as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------------------------------
Nine months Three months
ended ended Year ended, Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S><C>
PVFP - beginning of period $ - 32.6 48.6 53.7
Adjustment related to the purchase
method of accounting 484.0 - - -
Interest added 22.4 0.5 2.1 3.2
Gross amortization, excluding interest (67.5) (1.1) (5.3) (8.3)
Dividend of Globe Life Insurance
Company (note 7) - - (12.8) -
PVFP attributable to unrealized gains (19.7) - - -
- -----------------------------------------------------------------------------------------------------------------
PVFP - end of period $ 419.2 32.0 32.6 48.6
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
GOODWILL
Under the purchase method of accounting, the excess of purchase price
over the fair value of assets and liabilities acquired and PVFP is
established as an asset and referred to as "goodwill." The Company has
elected to amortize goodwill on the straight line basis over a 20 year
period.
(Continued)
9
<PAGE>
(1) CONTINUED
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding
goodwill as of each reporting period. In the event that the Company
determined that goodwill was not recoverable it would amortize such
amounts as additional goodwill expense in the accompanying financial
statements. As of December 31, 1996, the Company believes that no such
adjustment is necessary.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and
liabilities as well as the disclosure of contingent assets or liabilities
at the date of the financial statements. As a result, actual results
reported as revenue and expenses could differ from the estimates reported
in the accompanying financial statements. As further discussed in the
accompanying notes to the consolidated financial statements, significant
estimates and assumptions affect deferred acquisition costs, PVFP, future
life policy benefits, provisions for real estate-related losses and
related reserves, other-than-temporary declines in values for fixed
maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.
DEFERRED TAX ASSETS AND LIABILITIES
Pursuant to the acquisition on April 1, 1996, GE Capital, the Company's
ultimate parent, and Aon Corporation, the Company's previous ultimate
parent, agreed to file an election to treat the acquisition of Life of
Virginia as an asset acquisition under the provisions of Internal Revenue
Code Section 338(h)(10). As a result of that election, the tax basis of
the Company's assets as of the date of acquisition were revalued based
upon fair market values. The principal effect of the election was to
establish a tax basis of intangibles of approximately $348 million for
the value of the business acquired that is amortizable for tax purposes
over 10-15 years.
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.
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.
(Continued)
10
<PAGE>
(1) CONTINUED
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.
INVESTMENTS
Fixed maturities 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 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.
Short-term investments are carried at amortized cost which approximates
market value. Equity securities are valued at fair value. Mortgage loans
are carried at their unpaid balance, net of unamortized discounts and
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. Unrealized gains and temporary unrealized losses on
fixed maturities available for sale and equity securities are excluded
from income and are recorded directly to stockholders' equity, net of
related deferred income taxes and adjustments to amortization of deferred
policy acquisition costs and present value of future profits.
(Continued)
11
<PAGE>
(1) CONTINUED
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, the Company ceases to
accrue investment income when interest or dividend payments are in
arrears.
Life of Virginia measures "impaired" loans at the present value of the
loans discounted cash flow using the effective interest rate of the
original loan as the discount rate. Impaired loans are loans for which it
is probable that the Company will be unable to collect all amounts due
according to terms of the original contractual terms of the loan
agreement. This definition includes, among other things, leases, or
larger groups of small-homogenous loans, and therefore applies
principally to the Company's commercial loans.
Accounting policies relating to interest rate swaps are discussed in
Note 9.
DEFERRED POLICY ACQUISITION COSTS
Costs of acquiring new business, principally 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 are related to and
based on the present value of expected premium revenues on the policies.
Periodically amortization is adjusted to reflect current withdrawal
experience. Expected premium revenues are estimated by using the same
assumptions used in estimating future policy benefits.
Deferred policy acquisition costs 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 to deferred policy acquisition
costs amortization, 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 stockholders' equity with
no effect on net income.
(Continued)
12
<PAGE>
(1) CONTINUED
The components of deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred acquisition costs - $ - 363.9 388.1 413.2
beginning of period
Commissions and expenses deferred 74.9 22.2 76.1 108.8
Amortization (3.2) (6.0) (39.3) (57.1)
Credit Life and Health cession (note 4) - - - (107.0)
Dividend of Globe Life Insurance
Company (note 7) - - (22.8) -
Deferred acquisition costs attributable
to unrealized gains (losses) (1.4) 17.9 (38.2) 30.2
- --------------------------------------------------------------------------------------------------------------------
Deferred acquisition costs - end of period $ 70.3 398.0 363.9 388.1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are generally depreciated using the straight- line
method over their estimated useful lives. As a result of purchase
accounting fully depreciated property and equipment were removed.
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 or in the case of private placements, are estimated by
discounted expected future cash flows using a current market rate
applicable to the yield credit quality, call features and maturity of the
investments, as applicable. 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.
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.
(Continued)
13
<PAGE>
(1) CONTINUED
SEPARATE ACCOUNT BUSINESS
The assets and liabilities of the separate accounts represent designated
funds of group pension, variable life and annuity policyholders and are
not guaranteed or supported by other general investments of the Company.
The Company earns mortality and expense risk fees from the separate
accounts and assesses withdrawal charges in the event of early
withdrawals. The assets are carried at fair value and 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.
The Company has periodically transferred capital to the separate accounts
to provide for the initial purchase of investments in the new portfolios.
As of December 31, 1996, approximately $29.3 million of the Company's
common stock investment related to its capital investments in the
separate accounts.
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 the Parent, and
provide for possible adverse deviations. Interest assumptions are graded
and range from 7.4% to 6.5%.
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 crediting rates
for these products range from 8.6% to 4.5%.
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
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.
(Continued)
14
<PAGE>
(1) CONTINUED
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 stockholders' equity. No tax effect was taken into
consideration for unrealized losses.
(2) INVESTED ASSETS AND RELATED INCOME
Under purchase accounting, the market value of Life of Virginia's fixed
maturity investments as of April 1, 1996, became Life of Virginia's new
cost basis in such investments. The difference between the new cost basis
and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result
of the interest rate environment as of April 1, 1996, the market value of
Life of Virginia's fixed maturity investments was approximately $37.4
million lower than original amortized cost.
The Company's investments in debt and equity securities are considered
available for sale and are carried at estimated fair value, with the
aggregate unrealized appreciation or depreciation being recorded as a
separate component of stockholders' equity. The carrying value and
amortized cost of investments at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------- --------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Available for sale:
U.S. government and agencies $ 65.5 2.1 - 67.6
States and political subdivisions 2.1 - - 2.1
Foreign governments 178.2 5.6 - 183.8
Corporate securities 3,092.1 29.0 (19.6) 3,101.5
Mortgage-backed securities 1,764.3 29.7 (6.3) 1,787.7
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 5,102.2 66.4 (25.9) 5,142.7
Total equity securities 155.1 11.2 (0.8) 165.5
- ---------------------------------------------------------------------------------------------------------------------
Total available for sale $ 5,257.3 77.6 (26.7) 5,308.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
15
<PAGE>
(2) CONTINUED
<TABLE>
<CAPTION>
Preacquisition
----------------- --------------------------------------------------
December 31, 1995
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Available for sale:
U.S. government and agencies $ 60.7 1.5 - 62.2
States and political subdivisions 2.2 0.2 - 2.4
Foreign governments 18.6 0.6 - 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
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Amortized Fair
(millions) Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Due in one year or less $ 82.1 82.5
Due after one year through five years 961.8 902.8
Due after five years through ten years 1,626.5 1,671.5
Due after ten years 667.5 698.2
Mortgage-backed securities 1,764.3 1,787.7
- ----------------------------------------------------------------------------------------------------------------------
$ 5,102.2 5,142.7
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The cumulative effect on January 1, 1994 of adopting Statement No. 115
increased stockholders 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.
(Continued)
16
<PAGE>
(2) CONTINUED
On November 30, 1995, Life of Virginia reclassified all held to maturity
securities to available for sale. The amortized cost and related
unrealized gains for the securities reclassified was $2,698.3 million and
$50.9 million, respectively.
Securities on deposit for regulatory authorities as required by law
amounted to $4.5 million at December 31, 1996 and 1995.
Life of Virginia had $12.6 million and $34.2 million of non-income
producing investments on December 31, 1996 and December 31, 1995,
respectively.
Life of Virginia's "impaired" loans consist of loans requiring allowances
for loan losses of .2 and 12.2 as of December 31, 1996 and 1995,
respectively. Interest income earned on these loans while they were
considered impaired was 1.2 and 5.5 as of December 31, 1996 and 1995,
respectively.
Life of Virginia's mortgage and real estate portfolio is distributed by
geographic location and type. However, Life of Virginia has concentration
exposures in certain regions and in certain types as shown in the
following two tables.
Geographic distribution as of December 31, 1996:
<TABLE>
<CAPTION>
Mortgage Real estate
- -------------------------------------------------------------------------- ----------------------------------------
<S><C>
South Atlantic 48.3% 75.2%
East North Central 14.6% 1.4%
Mountain 12.7% -
West South Central 11.2% -
Pacific 7.3% 8.1%
Middle Atlantic 4.5% 15.3%
East South Central 1.4% -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
17
<PAGE>
(2) CONTINUED
Type distribution as of December 31, 1996:
<TABLE>
<CAPTION>
Mortgage Real estate
- -------------------------------------------------------------------------- ----------------------------------------
<S><C>
Office building 23.7% 66.4%
Retail 22.8% 18.4%
Industrial 21.9% -
Apartments 19.2% -
Other commercial 8.2% 15.2%
Hotel/motel 4.2% -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of net unrealized investment gains (losses) are as
follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Gross unrealized investment gains (losses)
Fixed maturities available for sale $ 40.5 2.8 143.8 (154.9)
Equity securities 10.4 5.8 23.2 (2.9)
PVFP (19.7) - - -
Deferred policy acquisition costs (1.4) 9.9 (8.0) 30.2
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized before deferred tax $ 29.8 18.5 159.0 (127.6)
Unrealized income tax benefit (expense) (10.4) (6.6) (55.9) 30.1
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized $ 19.4 11.9 103.1 (97.5)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
18
<PAGE>
(2) CONTINUED
The components of net investment income are as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities $ 276.8 93.1 332.8 404.1
Equity securities 8.7 4.2 10.8 25.2
Mortgage loans on real estate 41.3 13.5 49.8 49.9
Short-term investments 3.1 0.5 3.5 3.8
Other investments 9.9 3.0 13.2 18.0
- -----------------------------------------------------------------------------------------------------------------------
Gross investment income 339.8 114.3 410.1 501.0
Investment expenses (5.4) (2.3) (8.0) (10.4)
- -----------------------------------------------------------------------------------------------------------------------
Net investment income $ 334.4 112.0 402.1 490.6
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities:
Gross gains $ 0.6 0.5 12.9 8.6
Gross losses (0.7) (1.4) (90.2) (39.2)
Fixed maturities held to maturity:
Gross gains - - 1.1 11.3
Gross losses - - (13.8) (9.8)
Equity securities 6.0 10.3 5.6 (1.9)
Mortgage loans on real estate - (0.4) 2.3 9.6
Other 0.1 - 5.6 (4.4)
- -----------------------------------------------------------------------------------------------------------------------
Total before tax 6.0 9.0 (76.5) (25.8)
Less applicable tax (2.3) (1.9) 26.8 9.0
- -----------------------------------------------------------------------------------------------------------------------
Total $ 3.7 7.1 (49.7) (16.8)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
19
<PAGE>
(2) CONTINUED
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities:
Available for sale $ 40.5 (141.0) 298.7 (214.2)
Held to maturity - - 233.7 (351.0)
Equity securities 10.4 (17.4) 26.1 (38.8)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ 50.9 (158.4) 558.5 (604.0)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) INCOME TAX
Beginning April 1, 1996, Life of Virginia and its subsidiary will be
included in the life insurance company consolidated Federal income tax
return of GECA. Prior to the April 1, 1996, Life of Virginia was included
in the consolidated federal income tax return of Aon and its principal
domestic subsidiaries and in accordance with intercompany policy,
provided taxes on income based on a separate company basis. Amounts
payable or recoverable related to periods before April 1, 1996, are
subject to an indemnification agreement with Aon. As such the Company is
not at risk for any income taxes nor entitled to recoveries related to
those periods.
Income taxes are recorded in the statements of income and directly in
stockholders' equity accounts. Income tax expense (benefit) for the years
ending December 31 was allocated as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Statement of income:
Operating income (excluding
realized investment gains
and losses) $ 29.5 5.1 53.9 24.3
Realized investment gains/losses 2.3 1.9 (26.8) (9.0)
Income tax expense/(benefit)
included in the statement of
income 31.8 7.0 27.1 15.3
Stockholders' equity:
Unrealized gains/(losses) on
securities available for sale 10.4 (49.3) 86.0 (42.4)
- ---------------------------------------------------------------------------------------------------------------------
Total income tax expense/(benefit) $ 42.2 (42.3) 113.1 (27.1)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
20
<PAGE>
(3) CONTINUED
The actual Federal income tax expense differed from the expected tax
expense computed by applying the U.S. Federal statutory rate to income
before income tax expense. 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:
<TABLE>
<CAPTION>
Preacquisition
-------- -------------------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S><C>
Statutory tax rate $ 30.1 35.0% $ 6.6 35.0% $ 23.2 35.0% $ 31.0 35.0%
Tax-exempt
investment
income
deductions (1.0) (1.2) - (0.1) (0.1) (0.1) (0.8) (0.9)
Adjustment of prior
year taxes - - - - 3.5 5.3 (11.8) (13.3)
Other - net 2.7 3.2 0.4 2.1 0.5 0.7 (3.1) (3.5)
- -------------------------------------------------------------------------------------------------------------------------
Effective tax rate $ 31.8 37.0% $ 7.0 37.0% $ 27.1 40.9% $ 15.3 17.3%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
21
<PAGE>
(3) CONTINUED
Significant components of Life of Virginia's deferred tax liabilities and
assets are as follows (in millions):
<TABLE>
<CAPTION>
Preacquisition
------------------
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred tax liabilities:
Present value of future profits $ 89.8 -
Policy acquisition costs - 96.9
Employee benefits - 11.0
Unrealized investment gains 10.4 58.7
Other 6.5 35.2
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 106.7 201.8
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts 120.4 78.2
Policy acquisition costs 34.3 -
Guaranty fund amounts 10.8 -
Other 14.1 48.1
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 179.6 126.3
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities (assets) $ (72.9) 75.5
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes the deferred tax assets will be fully realized in the future
based on the expectation of the reversal of existing temporary
differences, anticipated future earnings, and consideration of all other
available evidence. Accordingly, no valuation allowance is established.
The amount of income taxes paid (refund) for nine months ended December
31, 1996, three months ended March 31, 1996, the years ended December 31,
1995 and 1994 was $38.6 million, $(2.4) million, $44.9 million, and $56.7
million, respectively.
(Continued)
22
<PAGE>
(4) REINSURANCE AND CLAIM RESERVES
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. In 1996 and 1995, Life of Virginia's
reinsurance consists primarily of long-duration contracts that are
entered into with financial institutions and related party reinsurance.
In 1994, 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.
Although these reinsurance agreements contractually obligate the
reinsurers to reimburse the Company, they do not discharge the Company
from its primary liabilities and the Company remains liable to the extent
that the reinsuring companies are unable to meet their obligations.
A summary of reinsurance activity is as follows:
<TABLE>
<CAPTION>
Preacquisition
--------------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
---------------- ---------------- ---------------- ------------------
Earned Earned Earned Earned
---------------- ---------------- ---------------- ------------------
<S><C>
Direct $ 210.5 77.2 261.5 404.2
Assumed 6.6 35.0 4.3 8.3
Ceded 62.4 19.8 86.5 193.7
- -------------------------------------------------------------------------------------------------------------------
Net premiums 154.7 92.4 179.3 218.8
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to the nature of the Company's reinsurance contracts, premiums earned
approximate premiums written.
A significant portion of Life of Virginia's ceded premiums relates to
group life and health premiums. Life of Virginia is the primary carrier
for the State of Virginia employees group life and health plan. By
statute, Life of Virginia must reinsure these risks with other Virginia
domiciled companies who wish to participate.
Incurred losses and loss adjustment expenses are net of reinsurance of
$60.5 million, $17.2 million, $63.1 million and $102.1 million for the
nine months ended December 31, 1996, three months ended March 31, 1996
and the years ended December 31, 1995 and 1994, respectively.
In December 1994, Life of Virginia ceded to CICA $406.6 million of its
guaranteed investment contract liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA 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. Included in receivable from affiliates at
December 31, 1995 is $212.6 million which represents the remaining ceded
guaranty investment contract liability.
(Continued)
23
<PAGE>
(4) 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 recognized 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.
In January 1995, Life of Virginia ceded to CICA $600 million of its
single premium deferred annuity liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA 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 CICA. This
transaction resulted in a deferred reinsurance gain of $77.0 million, $24
million of which was recognized in 1995. Additionally, Life of Virginia
recognized a $79.0 million realized investment loss. Included in
receivable from affiliates at December 31, 1995 is $357.5 million which
represents the ceded single premium deferred annuity liability of $410.5
million less a deferred reinsurance gain of $53 million.
In connection with the sale of the Company, the following transactions
occurred effective January 1, 1996: single premium deferred annuity
liabilities reinsured with CICA in 1995 were recaptured, guaranteed
investment contract liabilities reinsured with CICA in 1994 were
recaptured, other lines of CICA insurance business inforce were assumed,
and other related liabilities of CICA were assumed. In conjunction with
the recapture and assumption, CICA transferred to Life of Virginia assets
with a fair market value totaling $842.6 million. For the three months
ended March 31, 1996, premiums of $33.9 million, benefits of $46.7
million, commission expense of $10.2 million and a capital contribution
of $69.3 million as a result of various reinsurance transactions. The $53
million deferred reinsurance gain remaining at December 31, 1995 from the
January 1995 single premium deferred annuity cession to CICA was
recognized as a capital contribution. The tables below summarize the
assets and liabilities transferred from CICA to the Company.
(Continued)
24
<PAGE>
(4) CONTINUED
<TABLE>
<CAPTION>
Millions Fair Market Value
- ---------------------------------------------------------------------------------
<S><C>
Assets transferred:
Fixed maturity $ 727.4
Preferred stock 88.2
Policy loans 14.2
Accrued investment income 10.0
Cash 2.8
- ---------------------------------------------------------------------------------
Total 842.6
- ---------------------------------------------------------------------------------
Liabilities recaptured and assumed:
Single premium deferred annuity 410.5
Guaranteed investment contracts 212.6
Universal life contracts 156.6
Individual traditional contracts 33.2
Other lines of business inforce 19.9
Other liabilities 16.5
- ---------------------------------------------------------------------------------
Total 849.3
- ---------------------------------------------------------------------------------
</TABLE>
(5) EMPLOYEE BENEFITS
SAVINGS PLAN
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric contributory savings plan.
Provisions made for the savings plan were $.6 million for the nine months
ended December 31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's contributory savings plan for the benefit of salaried and
commissioned employees. Provisions made for the savings plan were $.3
million, $.8 million and $1.2 million for the three months ended March
31, 1996, and the years ended December 31, 1995 and 1994, respectively.
This plan terminated upon the acquisition of Life of Virginia by GE
Capital.
EMPLOYEE STOCK OWNERSHIP PLAN
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's leveraged ESOP for the benefit of salaried and certain
commissioned employees. Contributions to the ESOP for the three months
ended March 31, 1996 and the years ended December 31, 1995 and 1994
charged to Life of Virginia's operations amounted to $.1 million, $.5
million and $.6 million, respectively. This plan terminated upon the
acquisition of Life of Virginia by GE Capital.
(Continued)
25
<PAGE>
(5) CONTINUED
PENSION PLAN
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric contributory defined
benefit pension plan. Generally, benefits are based on the greater of a
formula recognizing career earnings or a formula recognizing length of
service and final average earnings. Benefit provisions are subject to
collective bargaining. General Electric's funding policy is to contribute
amounts sufficient to meet minimum funding requirements as set forth in
employee benefit and tax laws plus such additional amounts as determined
appropriate. The components of net periodic pension cost and benefit
obligations of the General Electric defined benefit plan are not
separately available for Life of Virginia. In connection with Life of
Virginia's participation in the General Electric contributory defined
benefit pension plan a $.4 million expense was incurred for the nine
months ended December 31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia participated
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 was
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 were 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
$1.2 million, $3.8 million and $3.1 million in the three months ended
March 31, 1996 and the years ended December 31, 1995 and 1994. This plan
terminated upon the acquisition of Life of Virginia by GE Capital.
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
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric retiree health and life
insurance benefit plan. The plan's principally provide health and life
insurance benefits to employees who retire under the General Electric
pension plan with 10 or more years of service. Retirees share in the cost
of their health care benefits. The funding policy for retiree health
benefits is generally to pay covered expenses as they are incurred.
Expenses incurred by Life of Virginia for the nine months ended December
31, 1996 for the retiree health and life insurance benefit plan were $1.3
million.
(Continued)
26
<PAGE>
(5) CONTINUED
Prior to the acquisition on April 1, 1996, Aon sponsored two defined
benefit postretirement health and welfare plans in which Life of Virginia
participated 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. These
plans terminated upon the acquisition of Life of Virginia by GE Capital.
(6) 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, 1996 are as follows:
<TABLE>
<CAPTION>
(millions) Minimum lease payments
-------------------------------------------------------------------
<S> <C>
1997 $ 1.1
1998 0.8
1999 0.4
2000 0.2
2001 0.1
Later years -
-------------------------------------------------------------------
Total minimum payments required $ 2.6
-------------------------------------------------------------------
</TABLE>
MINIMUM LEASE PAYMENTS
Rental expenses for all operating leases for the nine months ended
December 31, 1996, the three months ended March 31, 1996 and the years
ended December 31, 1995 and 1994 amounted to $2.5 million, $.8 million,
$3.6 million and $5.1 million, respectively.
(7) RELATED PARTY TRANSACTIONS
Life of Virginia pays investment advisory fees and other fees to
affiliates; Parent after April 1, 1996 and Aon previous to that date.
Amounts incurred for these items aggregated $3.2 million, $3.5 million,
$5.8 million and $37.8 million for nine months ended December 31, 1996,
the three months ended March 31, 1996 and the years ended December 31,
1995 and 1994, respectively. Life of Virginia charges affiliates for
certain services and for the use of facilities and equipment which
aggregated $2.0 million, $1.0 million, $10.0 million and $101.2 million
for the nine months ended December 31, 1996, the three months ended March
31, 1996 and the years ended December 31, 1995, and 1994, respectively.
(Continued)
27
<PAGE>
(7) CONTINUED
At December 31, 1996 and 1995, Life of Virginia held investments in
securities of certain affiliates amounting to $2.6 million and $12.6
million, respectively. Amounts included in net investment income related
to these holdings totaled $0.1 million, $0.2 million, $1.0 million and
$3.5 million for the nine months ended December 31, 1996, the three
months ended March 31, 1996 and the years ended December 31, 1995 and
1994, respectively.
In January 1995, Life of Virginia dividended 100% of its Globe Life
Insurance Company ("Globe") common stock to CICA, a subsidiary of Aon. At
December 31, 1994, Globe had assets of $954.9 million, liabilities of
$765.7 million and stockholders' equity of $189.2 million. The fair
market value of this dividend was $193.3 million.
In 1995, Life of Virginia received from CICA, 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 CICA'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 CICA's fair value of $60.9 million
resulting in a $5.7 million realized loss that is reflected in the
statement of income.
(8) 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.
(Continued)
28
<PAGE>
(9) FINANCIAL INSTRUMENTS
INTEREST RATE RISK MANAGEMENT
Life of Virginia used 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 was no settlement of
underlying notional amounts.
Life of Virginia performed frequent analyses to measure the degree of
correlation associated with its derivative program. Life of Virginia
assessed 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 were deferred and reported
as an adjustment of the cost basis of the hedged item. Deferred gains and
losses were amortized into income over the life of the hedged item. The
fair value of swap agreements hedging liabilities were not recognized in
the consolidated statements of financial position.
These interest rate swaps gave rise to credit risks due to possible
non-performance by counterparties. The credit risk was generally limited
to the fair value of those contracts that were favorable to Life of
Virginia. Life of Virginia limited its credit risk by restricting
investments in derivative contracts to a diverse group of highly rated
major financial institutions. Life of Virginia closely monitored the
credit worthiness of, and exposure to, its counterparties and considered
its credit risk to be minimal.
Life of Virginia had $0.0 million and $250.0 million notional
amount of interest rate swaps outstanding at December 31, 1996 and
1995, respectively.
During the three months ended March 31, 1996 and the year ended
December 31, 1995 Life of Virginia amortized $.6 million and $1.4
million, respectively, 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% 5.40%
------------------------------------------------------------------
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. These swaps were terminated prior to March 31, 1996
resulting in a $1.1 million gain which was deferred.
(Continued)
29
<PAGE>
(9) CONTINUED
OTHER FINANCIAL INSTRUMENTS
Life of Virginia has certain investment commitments to provide fixed-rate
loans. 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, 1996 and December 31, 1995, totaled $1.7 million and $21.7
million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of policy liabilities, various other non-financial
instruments, or other intangible items related to Life of Virginia's
business. Accordingly, care should be exercised in deriving conclusions
about Life of Virginia's business or financial condition based on the
fair value disclosures.
The carrying amount and fair value of certain of Life of Virginia's
financial instruments are as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------
December 31, 1996 December 31, 1995
-------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Fixed maturities and
equity securities
(note 2) $ 5,308.2 5,308.2 4,567.9 4,567.9
Mortgage loans on
real estate 585.4 622.6 592.5 638.2
Policy loans 179.5 179.5 151.7 150.2
Cash, short-term
investments and
receivables 186.4 186.4 727.5 727.5
Assets held in separate accounts 2,762.7 2,762.7 2,019.6 2,019.6
- ------------------------------------------------------------------------------------------------------
Liabilities:
Investment type
insurance contracts 3,055.0 3,027.6 2,769.7 2,796.9
Commissions and
general expenses 46.8 46.8 12.8 12.8
Interest rate swaps - - - 24.1
Liabilities related to separate accounts 2,762.7 2,762.7 2,019.6 2,019.6
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Note 1 regarding the method used to estimate fair values.
(Continued)
30
<PAGE>
(10) STOCKHOLDERS' EQUITY
Generally, the capital and surplus of Life of Virginia available for
transfer to the Parent 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. The maximum amount of dividends which can be
paid by the Company without prior approval at December 31, 1996, is $41.9
million.
Statutory net income (loss) and stockholders' equity is summarized below:
<TABLE>
<CAPTION>
Preacquisition
------------------------------------------------------
Nine months Three months
ended ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S><C>
Statutory net income $ 69.7 (8.3) 53.9 58.2
Statutory stockholders equity 419.1 360.5 364.2 400.6
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The National Association of Insurance Commissioners has developed certain
Risk Based Capital (RBC) requirements for life insurers. If prescribed
levels of RBC are not maintained, certain actions may be required on the
part of the Company or its regulators. At December 31, 1996 the Company's
Total Adjusted Capital and Authoritized Control Level - RBC were, $504.6
million and $78.6 million, respectively. This level of adjusted capital
qualifies under all tests.
================================================================================
31
<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
(where appropriate), 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).
The maximum cost of insurance rates allowable under the Policy (shown
in the illustrations as "guaranteed") are based upon the 1980 Commissioners'
Standard Ordinary Mortality Table. At most ages, Life of Virginia currently
charges lower cost of insurance rates (shown in the illustrations as "current")
and anticipates charging these rates for the foreseeable future.
The tables differ as shown below:
Rates of
Investment Underwriting Cost of Death
Return Risk Insurance Benefit
Illustrated Classification Rates Option Page
----------- -------------- --------- ------- ----
0,6 & 12% PNS Guaranteed A A-3
0,6 & 12% PNS Current A A-4
0,6 & 12% PNS Guaranteed B A-5
0,6 & 12% PNS Current B A-6
0,6 & 12% NS Guaranteed A A-7
0,6 & 12% NS Current A A-8
0,6 & 12% NS Guaranteed B A-9
0,6 & 12% NS Current B A-10
0,6 & 12% PS Guaranteed A A-11
0,6 & 12% PS Current A A-12
0,6 & 12% PS Guaranteed B A-13
0,6 & 12% PS Current B A-14
0,6 & 12% S Guaranteed A A-15
0,6 & 12% S Current A A-16
0,6 & 12% S Guaranteed B A-17
0,6 & 12% S Current B A-18
*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.
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).
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); 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-2
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 62 362 50,362 89 389 50,389 117 417 50,417
2 1,292 286 616 50,616 359 689 50,689 436 766 50,766
3 1,986 549 857 50,857 686 994 50,994 836 1,143 51,143
4 2,715 799 1,084 51,084 1,016 1,301 51,301 1,264 1,549 51,549
5 3,481 1,034 1,297 51,297 1,349 1,611 51,611 1,723 1,985 51,985
6 4,285 1,284 1,494 51,494 1,712 1,922 51,922 2,245 2,455 52,455
7 5,129 1,518 1,676 51,676 2,076 2,234 52,234 2,801 2,959 52,959
8 6,016 1,735 1,840 51,840 2,439 2,544 52,544 3,396 3,501 53,501
9 6,947 1,933 1,986 51,986 2,800 2,853 52,853 4,030 4,083 54,083
10 7,924 2,112 2,112 52,112 3,157 3,157 53,157 4,708 4,708 54,708
15 13,594 2,485 2,485 52,485 4,649 4,649 54,649 8,698 8,698 58,698
20 20,832 1,949 1,949 51,949 5,492 5,492 55,492 14,100 14,100 64,100
25 30,068 * * * 4,844 4,844 54,844 21,047 21,047 71,047
30 41,856 * * * 1,083 1,083 51,083 29,094 29,094 79,094
30 56,902 * * * * * * 36,719 36,719 86,719
</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-3
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 62 362 50,362 89 389 50,389 117 417 50,417
2 1,292 357 687 50,687 433 763 50,763 512 842 50,842
3 1,986 691 999 50,999 837 1,145 51,145 996 1,303 51,303
4 2,715 1,010 1,295 51,295 1,248 1,533 51,533 1,517 1,802 51,802
5 3,481 1,320 1,583 51,583 1,671 1,933 51,933 2,085 2,348 52,348
6 4,285 1,656 1,866 51,866 2,142 2,352 52,352 2,741 2,951 52,951
7 5,129 1,987 2,145 52,145 2,632 2,789 52,789 3,460 3,617 53,617
8 6,016 2,314 2,419 52,419 3,141 3,246 53,246 4,248 4,353 54,353
9 6,947 2,637 2,689 52,689 3,671 3,724 53,724 5,114 5,166 55,166
10 7,924 2,956 2,956 52,956 4,222 4,222 54,222 6,065 6,065 56,065
15 13,594 4,292 4,292 54,292 7,156 7,156 57,156 12,288 12,288 62,288
20 20,832 5,240 5,240 55,240 10,483 10,483 60,483 22,169 22,169 72,169
25 30,068 5,349 5,349 55,349 13,740 13,740 63,740 37,417 37,417 87,417
30 41,856 4,014 4,014 54,014 16,154 16,154 66,154 60,644 60,644 110,644
35 56,902 234 234 50,234 16,231 16,231 66,231 95,523 95,523 145,523
</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-4
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ------------------------------ ------------------------------
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>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 301 619 50,000 375 692 50,000 452 770 50,000
3 1,986 555 862 50,000 692 1,000 50,000 843 1,151 50,000
4 2,715 808 1,093 50,000 1,027 1,312 50,000 1,277 1,562 50,000
5 3,481 1,048 1,310 50,000 1,365 1,628 50,000 1,744 2,006 50,000
6 4,285 1,303 1,513 50,000 1,737 1,947 50,000 2,277 2,487 50,000
7 5,129 1,543 1,701 50,000 2,111 2,268 50,000 2,848 3,005 50,000
8 6,016 1,767 1,872 50,000 2,486 2,591 50,000 3,462 3,567 50,000
9 6,947 1,974 2,027 50,000 2,862 2,914 50,000 4,121 4,174 50,000
10 7,924 2,163 2,163 50,000 3,237 3,237 50,000 4,831 4,831 50,000
15 13,594 2,611 2,611 50,000 4,893 4,893 50,000 9,170 9,170 50,000
20 20,832 2,193 2,193 50,000 6,108 6,108 50,000 15,636 15,636 50,000
25 30,068 323 323 50,000 6,185 6,185 50,000 25,627 25,627 50,000
30 41,856 * * * 3,548 3,548 50,000 42,231 42,231 50,000
35 56,902 * * * * * * 70,754 70,754 75,707
</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-5
<PAGE>
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
<TABLE>
<CAPTION>
% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 372 690 50,000 448 766 50,000 528 846 50,000
3 1,986 697 1,005 50,000 844 1,151 50,000 1,004 1,311 50,000
4 2,715 1,020 1,305 50,000 1,259 1,544 50,000 1,531 1,816 50,000
5 3,481 1,335 1,597 50,000 1,689 1,952 50,000 2,108 2,371 50,000
6 4,285 1,676 1,886 50,000 2,168 2,378 50,000 2,775 2,985 50,000
7 5,129 2,014 2,171 50,000 2,668 2,826 50,000 3,509 3,666 50,000
8 6,016 2,348 2,453 50,000 3,189 3,294 50,000 4,316 4,421 50,000
9 6,947 2,679 2,731 50,000 3,733 3,785 50,000 5,204 5,257 50,000
10 7,924 3,006 3,006 50,000 4,300 4,300 50,000 6,183 6,183 50,000
15 13,594 4,399 4,399 50,000 7,357 7,357 50,000 12,669 12,669 50,000
20 20,832 5,450 5,450 50,000 10,961 10,961 50,000 23,285 23,285 50,000
25 30,068 5,760 5,760 50,000 14,887 14,887 50,000 40,757 40,757 50,000
30 41,856 4,762 4,762 50,000 18,870 18,870 50,000 69,587 69,587 80,721
35 56,902 1,327 1,327 50,000 22,416 22,416 50,000 116,423 116,423 124,573
</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-6
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 62 362 50,362 89 389 50,389 117 417 50,417
2 1,292 286 616 50,616 359 689 50,689 436 766 50,766
3 1,986 549 857 50,857 686 994 50,994 836 1,143 51,143
4 2,715 799 1,084 51,084 1,016 1,301 51,301 1,264 1,549 51,549
5 3,481 1,034 1,297 51,297 1,349 1,611 51,611 1,723 1,985 51,985
6 4,285 1,284 1,494 51,494 1,712 1,922 51,922 2,245 2,455 52,455
7 5,129 1,518 1,676 51,676 2,076 2,234 52,234 2,801 2,959 52,959
8 6,016 1,735 1,840 51,840 2,439 2,544 52,544 3,396 3,501 53,501
9 6,947 1,933 1,986 51,986 2,800 2,853 52,853 4,030 4,083 54,083
10 7,924 2,112 2,112 52,112 3,157 3,157 53,157 4,708 4,708 54,708
15 13,594 2,485 2,485 52,485 4,649 4,649 54,649 8,698 8,698 58,698
20 20,832 1,949 1,949 51,949 5,492 5,492 55,492 14,100 14,100 64,100
25 30,068 * * * 4,844 4,844 54,844 21,047 21,047 71,047
30 41,856 * * * 1,083 1,083 51,083 29,094 29,094 79,094
35 56,902 * * * * * * 36,719 36,719 86,719
</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-7
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 62 362 50,362 89 389 50,389 117 417 50,417
2 1,292 357 687 50,687 433 763 50,763 512 842 50,842
3 1,986 691 999 50,999 837 1,145 51,145 996 1,303 51,303
4 2,715 1,010 1,295 51,295 1,248 1,533 51,533 1,517 1,802 51,802
5 3,481 1,314 1,577 51,577 1,665 1,927 51,927 2,079 2,342 52,342
6 4,285 1,632 1,842 51,842 2,117 2,327 52,327 2,714 2,924 52,924
7 5,129 1,932 2,089 52,089 2,573 2,730 52,730 3,397 3,554 53,554
8 6,016 2,213 2,318 52,318 3,032 3,137 53,137 4,130 4,235 54,235
9 6,947 2,478 2,530 52,530 3,495 3,547 53,547 4,919 4,972 54,972
10 7,924 2,739 2,739 52,739 3,977 3,977 53,977 5,786 5,786 55,786
15 13,594 3,833 3,833 53,833 6,546 6,546 56,546 11,473 11,473 61,473
20 20,832 4,622 4,622 54,622 9,502 9,502 59,502 20,573 20,573 70,573
25 30,068 4,435 4,435 54,435 12,126 12,126 62,126 34,338 34,338 84,338
30 41,856 2,535 2,535 52,535 13,420 13,420 63,420 54,749 54,749 104,749
35 56,902 * * * 11,484 11,484 61,484 84,283 84,283 134,283
</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-8
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 301 619 50,000 375 692 50,000 452 770 50,000
3 1,986 555 862 50,000 692 1,000 50,000 843 1,151 50,000
4 2,715 808 1,093 50,000 1,027 1,312 50,000 1,277 1,562 50,000
5 3,481 1,048 1,310 50,000 1,365 1,628 50,000 1,744 2,006 50,000
6 4,285 1,303 1,513 50,000 1,737 1,947 50,000 2,277 2,487 50,000
7 5,129 1,543 1,701 50,000 2,111 2,268 50,000 2,848 3,005 50,000
8 6,016 1,767 1,872 50,000 2,486 2,591 50,000 3,462 3,567 50,000
9 6,947 1,974 2,027 50,000 2,862 2,914 50,000 4,121 4,174 50,000
10 7,924 2,163 2,163 50,000 3,237 3,237 50,000 4,831 4,831 50,000
15 13,594 2,611 2,611 50,000 4,893 4,893 50,000 9,170 9,170 50,000
20 20,832 2,193 2,193 50,000 6,108 6,108 50,000 15,636 15,636 50,000
25 30,068 323 323 50,000 6,185 6,185 50,000 25,627 25,627 50,000
30 41,856 * * * 3,548 3,548 50,000 42,231 42,231 50,000
35 56,902 * * * * * * 70,754 70,754 75,707
</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-9
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 63 363 50,000 90 390 50,000 118 418 50,000
2 1,292 372 690 50,000 448 766 50,000 528 846 50,000
3 1,986 697 1,005 50,000 844 1,151 50,000 1,004 1,311 50,000
4 2,715 1,020 1,305 50,000 1,259 1,544 50,000 1,531 1,816 50,000
5 3,481 1,329 1,592 50,000 1,683 1,946 50,000 2,102 2,365 50,000
6 4,285 1,653 1,863 50,000 2,144 2,354 50,000 2,750 2,960 50,000
7 5,129 1,961 2,118 50,000 2,612 2,769 50,000 3,450 3,607 50,000
8 6,016 2,252 2,357 50,000 3,086 3,191 50,000 4,205 4,310 50,000
9 6,947 2,527 2,579 50,000 3,567 3,619 50,000 5,024 5,077 50,000
10 7,924 2,799 2,799 50,000 4,069 4,069 50,000 5,927 5,927 50,000
15 13,594 3,963 3,963 50,000 6,793 6,793 50,000 11,943 11,943 50,000
20 20,832 4,861 4,861 50,000 10,058 10,058 50,000 21,893 21,893 50,000
25 30,068 4,882 4,882 50,000 13,417 13,417 50,000 38,189 38,189 50,000
30 41,856 3,298 3,298 50,000 16,393 16,393 50,000 65,235 65,235 75,672
35 56,902 * * * 18,017 18,017 50,000 109,081 109,081 116,716
</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-10
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 101 441 50,441 164 504 50,504 230 570 50,570
3 1,986 263 579 50,579 375 691 50,691 498 814 50,814
4 2,715 400 692 50,692 570 862 50,862 766 1,059 51,059
5 3,481 510 779 50,779 747 1,016 51,016 1,034 1,303 51,303
6 4,285 622 837 50,837 933 1,148 51,148 1,328 1,543 51,543
7 5,129 704 865 50,865 1,096 1,257 51,257 1,618 1,779 51,779
8 6,016 756 863 50,863 1,233 1,340 51,340 1,900 2,008 52,008
9 6,947 776 830 50,830 1,340 1,394 51,394 2,172 2,226 52,226
10 7,924 760 760 50,760 1,412 1,412 51,412 2,429 2,429 52,429
15 13,594 * * * 904 904 50,904 3,139 3,139 53,139
20 20,832 * * * * * * 2,157 2,157 52,157
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-11
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 173 513 50,513 238 578 50,578 306 646 50,646
3 1,986 410 727 50,727 531 847 50,847 664 980 50,980
4 2,715 645 937 50,937 837 1,129 51,129 1,056 1,348 51,348
5 3,481 876 1,145 51,145 1,155 1,423 51,423 1,487 1,756 51,756
6 4,285 1,134 1,349 51,349 1,516 1,731 51,731 1,991 2,206 52,206
7 5,129 1,389 1,550 51,550 1,891 2,052 52,052 2,541 2,703 52,703
8 6,016 1,641 1,748 51,748 2,280 2,388 52,388 3,144 3,252 53,252
9 6,947 1,890 1,943 51,943 2,685 2,739 52,739 3,805 3,859 53,859
10 7,924 2,136 2,136 52,136 3,105 3,105 53,105 4,529 4,529 54,529
15 13,594 2,856 2,856 52,856 4,992 4,992 54,992 8,879 8,879 58,879
20 20,832 2,717 2,717 52,717 6,414 6,414 56,414 14,976 14,976 64,976
25 30,068 1,325 1,325 51,325 6,726 6,726 56,726 23,329 23,329 73,329
30 41,856 * * * 4,677 4,677 54,677 34,294 34,294 84,294
35 56,902 * * * * * 50,000 48,004 48,004 98,004
</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-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Male Issue Age 40 Initial Specified Amount $ 50,000
Preferred Smoker Unerwriting Risk Initial Premium Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 600
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 105 445 50,000 169 509 50,000 235 575 50,000
3 1,986 271 587 50,000 384 700 50,000 508 825 50,000
4 2,715 412 705 50,000 585 878 50,000 785 1,077 50,000
5 3,481 528 797 50,000 771 1,040 50,000 1,064 1,333 50,000
6 4,285 646 861 50,000 966 1,181 50,000 1,373 1,588 50,000
7 5,129 736 898 50,000 1,141 1,303 50,000 1,681 1,842 50,000
8 6,016 796 904 50,000 1,292 1,400 50,000 1,987 2,095 50,000
9 6,947 825 879 50,000 1,416 1,470 50,000 2,290 2,344 50,000
10 7,924 819 819 50,000 1,508 1,508 50,000 2,584 2,584 50,000
15 13,594 * * * 1,135 1,135 50,000 3,650 3,650 50,000
20 20,832 * * * * * * 3,469 3,469 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-13
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 177 517 50,000 243 583 50,000 312 652 50,000
3 1,986 419 735 50,000 541 857 50,000 675 991 50,000
4 2,715 658 951 50,000 853 1,146 50,000 1,076 1,368 50,000
5 3,481 895 1,164 50,000 1,179 1,448 50,000 1,518 1,787 50,000
6 4,285 1,160 1,375 50,000 1,551 1,766 50,000 2,036 2,251 50,000
7 5,129 1,423 1,584 50,000 1,938 2,099 50,000 2,605 2,766 50,000
8 6,016 1,683 1,791 50,000 2,341 2,449 50,000 3,231 3,338 50,000
9 6,947 1,941 1,995 50,000 2,762 2,816 50,000 3,920 3,973 50,000
10 7,924 2,197 2,197 50,000 3,201 3,201 50,000 4,678 4,678 50,000
15 13,594 2,998 2,998 50,000 5,262 5,262 50,000 9,394 9,394 50,000
20 20,832 3,000 3,000 50,000 7,087 7,087 50,000 16,590 16,590 50,000
25 30,068 1,780 1,780 50,000 8,211 8,211 50,000 28,024 28,024 50,000
30 41,856 * * * 7,617 7,617 50,000 47,452 47,452 55,044
35 56,902 * * * 3,275 3,275 50,000 79,902 79,902 85,495
</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-14
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 101 441 50,441 164 504 50,504 230 570 50,570
3 1,986 263 579 50,579 375 691 50,691 498 814 50,814
4 2,715 400 692 50,692 570 862 50,862 766 1,059 51,059
5 3,481 510 779 50,779 747 1,016 51,016 1,034 1,303 51,303
6 4,285 622 837 50,837 933 1,148 51,148 1,328 1,543 51,543
7 5,129 704 865 50,865 1,096 1,257 51,257 1,618 1,779 51,779
8 6,016 756 863 50,863 1,233 1,340 51,340 1,900 2,008 52,008
9 6,947 776 830 50,830 1,340 1,394 51,394 2,172 2,226 52,226
10 7,924 760 760 50,760 1,412 1,412 51,412 2,429 2,429 52,429
15 13,594 * * * 904 904 50,904 3,139 3,139 53,139
20 20,832 * * * * * * 2,157 2,157 52,157
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-15
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 280 50,280 5 305 50,305 29 329 50,329
2 1,292 173 513 50,513 238 578 50,578 306 646 50,646
3 1,986 406 722 50,722 526 843 50,843 659 975 50,975
4 2,715 612 904 50,904 802 1,095 51,095 1,020 1,313 51,313
5 3,481 791 1,059 51,059 1,064 1,333 51,333 1,391 1,660 51,660
6 4,285 969 1,184 51,184 1,338 1,553 51,553 1,799 2,014 52,014
7 5,129 1,127 1,288 51,288 1,602 1,763 51,763 2,224 2,385 52,385
8 6,016 1,283 1,390 51,390 1,875 1,983 51,983 2,686 2,794 52,794
9 6,947 1,437 1,490 51,490 2,158 2,212 52,212 3,192 3,246 53,246
10 7,924 1,589 1,589 51,589 2,451 2,451 52,451 3,745 3,745 53,745
15 13,594 1,906 1,906 51,906 3,658 3,658 53,658 6,981 6,981 56,981
20 20,832 1,412 1,412 51,412 4,265 4,265 54,265 11,292 11,292 61,292
25 30,068 * * * 3,254 3,254 53,254 16,350 16,350 66,350
30 41,856 * * * * * 50,000 21,256 21,256 71,256
35 56,902 * * * * * * 23,893 23,893 73,893
</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-16
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Guaranteed Return with Guaranteed Return with Guaranteed
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 105 445 50,000 169 509 50,000 235 575 50,000
3 1,986 271 587 50,000 384 700 50,000 508 825 50,000
4 2,715 412 705 50,000 585 878 50,000 785 1,077 50,000
5 3,481 528 797 50,000 771 1,040 50,000 1,064 1,333 50,000
6 4,285 646 861 50,000 966 1,181 50,000 1,373 1,588 50,000
7 5,129 736 898 50,000 1,141 1,303 50,000 1,681 1,842 50,000
8 6,016 796 904 50,000 1,292 1,400 50,000 1,987 2,095 50,000
9 6,947 825 879 50,000 1,416 1,470 50,000 2,290 2,344 50,000
10 7,924 819 819 50,000 1,508 1,508 50,000 2,584 2,584 50,000
15 13,594 * * * 1,135 1,135 50,000 3,650 3,650 50,000
20 20,832 * * * * * * 3,469 3,469 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-17
<PAGE>
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
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Current Return with Current Return with Current
Premiums Cost of Insurance Rates (2)(3) Cost of Insurance Rates(2)(3) Cost of Insurance Rates (2)(3)
End of Accumulated ------------------------------ ----------------------------- ------------------------------
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>
1 630 0 282 50,000 6 306 50,000 31 331 50,000
2 1,292 177 517 50,000 243 583 50,000 312 652 50,000
3 1,986 414 731 50,000 536 853 50,000 670 986 50,000
4 2,715 626 918 50,000 819 1,112 50,000 1,041 1,333 50,000
5 3,481 812 1,081 50,000 1,091 1,360 50,000 1,425 1,693 50,000
6 4,285 999 1,214 50,000 1,377 1,592 50,000 1,850 2,065 50,000
7 5,129 1,166 1,328 50,000 1,657 1,818 50,000 2,298 2,459 50,000
8 6,016 1,332 1,440 50,000 1,947 2,055 50,000 2,789 2,897 50,000
9 6,947 1,497 1,551 50,000 2,250 2,304 50,000 3,330 3,384 50,000
10 7,924 1,662 1,662 50,000 2,566 2,566 50,000 3,925 3,925 50,000
15 13,594 2,055 2,055 50,000 3,955 3,955 50,000 7,569 7,569 50,000
20 20,832 1,670 1,670 50,000 4,931 4,931 50,000 12,988 12,988 50,000
25 30,068 * * * 4,585 4,585 50,000 21,020 21,020 50,000
30 41,856 * * * 1,212 1,212 50,000 33,809 33,809 50,000
35 56,902 * * * * * * 56,696 56,696 60,665
</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-18
<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 SECTION 26(E)(2)(A)
Life of Virginia hereby represents that the fees and charges deducted under
the Policy, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by Life of
Virginia.
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.
Representation pursuant to Section 26(e)(2)(A)
The signatures.
Written consents of the following persons:
(a) J. Neil McMurdie
(b) Messrs. Sutherland, Asbill & Brennan, L.L.P.
(c) Bruce E. Booker, F.S.A.
(d) KPMG Peat Marwick LLP
(e) 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)(l)
Resolution of Board of Directors of Life of Virginia authorizing the
establishment of two additional investment subdivisions of Separate
Account 4, 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.13/
(1)(m)
Resolution of Board of Directors of Life of Virginia authorizing
additional Investment Subdivisions investing in shraes of Growth and
Income Portfolio and Growth Opportunities Portfolio of Variable
Insurance Products Fund III; Growth II Portfolio and Large Cap
Growth Portfolio of the PBHG Insurance Series Fund, Inc.; and Global
Income Fund and Value Equity Fund of GE Investments Funds, Inc.
(1)(n)
Resolution of Board of Directors of Life of Virginia authorizing
additional Investment Subdivisions investing in shares of Capital
Appreciation Portfolio of Janus Aspen Series.
<PAGE>
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. 7/
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.7/
1A(8)(b)(iii)
Amendment to Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia.7/
1A(8)(c)
Participation Agreement among Variable Insurance Products Fund,
Fidelity Distributors Corporation, and The Life Insurance Company of
Virginia. 1/
<PAGE>
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/
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.7/
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(8)(k)
Fund Participation Agreement between Variable Insurance Products
Fund III and The Life Insurance Company of Virginia.
1A(8)(l)
Fund Participation Agreement between PBHG Insurance Series Fund,
Inc. and The Life Insurance Company of Virginia.
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, L.L.P.
3(c)
Consent of Independent Auditors
4
Not Applicable
5
Not Applicable
<PAGE>
6
Opinion and Consent of Bruce E. Booker, Actuary
7
Memorandum describing Life of Virginia's Issuance, Transfer,
Redemption and Exchange Procedures for Policies.7/
8
Undertaking to Guarantee performance of obligations of principal
underwriter. 1/
9
Notice of Withdrawal Right 1/
Power of Attorney 2/
Power of Attorney dated April 2, 1996
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.
7/ Filed May 1, 1996 with Post-Effective Amendment Number 13 to Form S-6 for
Life of Virginia Separate Account II, Registration Number 33-9651.
8/ Filed May 1, 1997 with Post-Effective Amendment Number 14 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 29th day of April,
1997.
Life of Virginia Separate Account II
(Seal)The Life Insurance Company of Virginia
(Depositor)
Attest: _______________________________ By: ___________________________________
Selywn L. Flournoy, Jr.
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 29th day of April, 1997.
(Seal)The Life Insurance Company of Virginia
Attest: ____________________________ By: ____________________________________
Selwyn L. Flournoy, Jr.
Senior Vice President
Given under my hand this ______ day of ____________, 19___ in the City/County of
_______________________, Commonwealth of Virginia.
- ---------------------------
Notary Public
- ---------------------------
My Commission Expires
<PAGE>
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.
Signature Title Date
RONALD V. DOLAN Director, Chairman of the Board 4/29/97
- ---------------
Ronald V. Dolan
PAUL E. RUTLEDGE III Director, President, and Chief Executive 4/29/97
- --------------------
Paul E. Rutledge III Officer
WILLIAM D. BALDWIN Director, Senior Vice President 4/29/97
- ------------------
William D.Baldwin
Director, Senior Vice President 4/29/97
- -----------------------
Selwyn L. Flournoy, Jr.
ROBERT A. BOWEN Director, Senior Vice President and Director 4/29/97
- ---------------
Robert A. Bowen
LINDA L. LANAM Director, Senior Vice President 4/29/97
- --------------
Linda L. Lanam
ROBERT D. CHINN Director, Senior Vice President 4/29/97
- ---------------
Robert D. Chinn
THOMAS A. BAREFIELD Director, Senior Vice President 4/29/97
- -------------------
Thomas A. Barefield
VICTOR C. MOSES Director 4/29/97
- ---------------
Victor C. Moses
GEOFFREY S. STIFF Director 4/29/97
- -----------------
Geoffrey S. Stiff
By _______________________________, pursuant to Power of Attorney executed on
April 16, 1997.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
EXHIBITS
Page
(1)(m) Resolution of the Board of Directors
(1)(n) Resolution of the Board of Directors
1A(8)(k) Participation Agreement
1A(8)(l) Participation Agreement
3(a) Opinion and Consent of Counsel
3(b) Consent of Messrs. Sutherland, Asbill
and Brennan, L.L.P.
3(c) Consent of Ernst & Young LLP
(d) Consent of KMPG Peat Marwick, LLP
6 Opinion and Consent of Bruce E. Booker, Actuary
The Life Insurance Company of Virginia
10(b) Power of Attorney
EXHIBIT (1)(m)
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 six additional investment subdivisions
of each of the aforesaid separate accounts which will invest in shares of the
Global Income Fund and the Value Equity Fund of the GE Investments Funds, Inc.,
the PBHG Growth II Portfolio and the PBHG Large Cap Growth Portfolio of the PBHG
Insurance Series Fund, Inc., and the Growth and Income Portfolio and the Growth
Opportunities Portfolio of the Fidelity's Variable Insurance Products Fund III;
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create six 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:
GE Investment Funds, Inc.
GEI Global Income Global Income Fund
GEI Value Equity Value Equity Fund
PBHG Insurance Series Fund, Inc.
PIL Growth II Growth II Portfolio
PIL Large Cap Growth Large Cap Growth Portfolio
Variable Insurance Products Fund III
FID Growth and Income Growth and Income Portfolio
FID Growth Opportunities Growth Opportunities 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.
FURTHER RESOLVED, That these resolutions shall take effect as of March 3, 1997.
<PAGE>
/s/WILLIAM D. BALDWIN 2/26/97 /s/ROBERT ALLEN BOWEN 2/26/97
- ---------------------------------- -----------------------------------
William D. Baldwin Date Robert Allen Bowen Date
/s/SELWYN L. FLOURNOY, JR. 2/26/97 /s/H. GAYLORD HODGES, Jr. 2/24/97
- ---------------------------------- -----------------------------------
Selwyn L. Flournoy, Jr. Date H. Gaylord Hodges Date
/s/LINDA L. LANAM 2/26/97 /s/JOHN J. PALMER 2/21/97
- ---------------------------------- -----------------------------------
Linda L. Lanam Date John J. Palmer Date
/s/PAUL E. RUTLEDGE III 2/29/97
- ----------------------------------
Paul E. Rutledge III Date
EXHIBIT (1)(n)
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 one additional investment subdivision
of each of the aforesaid separate accounts which will invest in shares of the
Capital Appreciation 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 one additional
investment subdivision 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:
Janus Aspen Series-
JAN Capital Appreciation Capital Appreciation 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.
FURTHER RESOLVED, That these resolutions shall take effect as of April 1, 1997.
/s/WILLIAM D. BALDWIN 2/26/97 /s/ROBERT ALLEN BOWEN 2/26/97
- ---------------------------------- -----------------------------------
William D. Baldwin Date Robert Allen Bowen Date
/s/SELWYN L. FLOURNOY, JR. 2/26/97 /s/H. GAYLORD HODGES, Jr. 2/24/97
- ---------------------------------- -----------------------------------
Selwyn L. Flournoy, Jr. Date H. Gaylord Hodges Date
/s/LINDA L. LANAM 2/26/97 /s/JOHN J. PALMER 2/21/97
- ---------------------------------- -----------------------------------
Linda L. Lanam Date John J. Palmer Date
/s/PAUL E. RUTLEDGE III 2/29/97
- ----------------------------------
Paul E. Rutledge III Date
EXHIBIT 1A(8)(k)
Participation Agreement between Life of Virginia and
Variable Insurance Products Fund III
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
THE LIFE INSURANCE COMPANY OF VIRGINIA
THIS AGREEMENT, made and entered into as of the 15th day of April, 1997
by and among THE LIFE INSURANCE COMPANY OF VIRGINIA, (hereinafter the
"Company"), a Virginia corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is or will, before it purchases any Fund shares,
be a duly organized, validly existing segregated asset account, established by
resolution of the Board of Directors of the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
<PAGE>
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their
<PAGE>
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 38.2-3113 of the Virginia Insurance Code and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly
<PAGE>
authorized for issuance and sold in compliance with the laws of the State of
Virginia and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Virginia and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Virginia to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Virginia and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
<PAGE>
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Virginia and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and will be covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimum coverage as required currently of entities
subject to the requirements of Rule 17g-1 of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall
<PAGE>
be borne by the Fund. If the Company chooses to receive camera-ready film in
lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in a particular separate account in the same proportion as Fund shares of such
portfolio for which instructions have been received in that separate account, so
long as and to the extent that the Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Fund calculates voting privileges
in a manner consistent with the standards set forth on Schedule B attached
hereto and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
<PAGE>
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material. The Fund or its designee
will use reasonable efforts to review materials within a shorter time period if
the Company makes a request for expedited review in a letter accompanying such
materials.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales
<PAGE>
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
<PAGE>
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, 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
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all
<PAGE>
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
<PAGE>
7.7. If and to the extent that 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
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, 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 the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company 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 or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company 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 the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the 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 the Company of any
such claim shall not relieve the Company 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, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company 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.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
<PAGE>
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, 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 the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful conduct of
the Fund, Adviser or Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund;
or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this
<PAGE>
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter 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
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter 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 the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the 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 the Underwriter of
any such claim shall not relieve the Underwriter 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, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter 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.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
<PAGE>
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements specified
in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from 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
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund 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 the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the 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 the Fund of any
such claim shall not relieve the Fund 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, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund 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.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of an Account,
or the sale or acquisition of shares of the Fund.
<PAGE>
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety (90)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
<PAGE>
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
<PAGE>
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Attention: Thomas A. Barefield, Senior Vice President
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may
<PAGE>
request in order to ascertain whether the insurance operations of the Company
are being conducted in a manner consistent with the California Insurance
Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared for filing with
the Virginia Bureau of Insurance under statutory accounting principles) and
annual report (prepared under generally accepted accounting principles ("GAAP"),
if any), as soon as practical and in any event within 120 days after the end of
each fiscal year;
(b) the Company's quarterly statutory
statements, as soon as practical and in any event within 45 days after the end
of each quarterly period:
(c) any registration statement (without
exhibits) and financial reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as soon as practical after
the filing thereof;
(d) any other report submitted to the Company by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after the receipt
thereof. However, the Company shall be under no obligation to provide any such
reports that contain privileged or confidential information.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: _________________________
Name: _________________________
Title: _________________________
VARIABLE INSURANCE PRODUCTS FUND III
By: ________________________
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Paul J. Hondros
President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
Life of Virginia Separate Account II P 1096 1/87
(August 21, 1986)
Life of Virginia Separate Account III P 1097 1/87
(February 10, 1987)
Life of Virginia Separate Account 4 P 1098 A 8/87
(August 18, 1987) P 1140 10/90
P 1142 4/94
P 1142 N 4/94
P 1143 4/94
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder meeting to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
<PAGE>
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall produce
and personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it
is printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund) (This and related steps
may occur later in the chronological process due to possible
uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed and
folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place in
another department or another vendor depending on process used. An often used
procedure is to sort Cards on arrival by proposal into vote categories of all
yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
<PAGE>
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new Card
and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the Cards
as they first arrive into categories depending upon their vote; an estimate of
how the vote is progressing may then be calculated. If the initial estimates and
the actual vote do not coincide, then an internal audit of that vote should
occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated in
terms of a percentage and the number of shares.) Fidelity Legal must review and
approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the vote
in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. Fidelity Legal
will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or accounting purposes, Fidelity Legal will be permitted
reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Fidelity Variable Insurance Products Fund:
<PAGE>
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio
Contrafund Portfolio
G.E. Investments Funds, Inc.
Money Market Fund
Government Securities Fund
Common Stock Index Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Value Equity Fund
Global Income Fund
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
Janus Aspen Series
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
International Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Capital Appreciation Portfolio
Federated Insurance Series
Federated Utility Fund II
Federated High Income Bond Fund II
Federated American Leaders Fund II
The Alger American Fund:
Alger American Growth Portfolio
Alger American Small Capitalization Portfolio
Fidelity Advisor Funds
Equity Income Fund
Equity Growth Fund
Growth Opportunities Fund
Income and Growth Fund
PBHG Insurance Series Fund, Inc.
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
EXHIBIT 1A(8)(l)
Participation Agreement between Life of Virginia and
PBHG Insurance Series Fund, Inc.
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of May, 1997, by and between
the PBHG INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM
BAXTER & ASSOCIATES, LTD. ("Adviser"), a Delaware corporation, THE LIFE
INSURANCE COMPANY OF VIRGINIA ("LIFE COMPANY"), a life insurance company
organized under the laws of the Commonwealth of Virginia.
WHEREAS, FUND is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"`40 Act"), as an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several
Portfolios ("Portfolios"), with those currently available being listed on
Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of 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, to the extent necessary to
permit shares of the Portfolios of the FUND to be sold to and held by Variable
Contract separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended and acts as the FUND's investment
adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE
COMPANY, FUND, and ADVISER agree as follows:
<PAGE>
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for investment
of purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 1.2, LIFE
COMPANY shall be the designee of FUND for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and FUND receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as FUND and LIFE COMPANY may agree in writing) of such
order by 8:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which FUND calculates its net asset value pursuant to the rules of the
SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption, in accordance with the provisions of
this agreement and FUND's Registration Statement. For purposes of this Section
1.3, LIFE COMPANY shall be the designee of FUND for receipt of requests for
redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by FUND; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and FUND receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as FUND and LIFE
COMPANY may agree in writing) of such request for redemption by 8:30 a.m. New
York time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. FUND shall notify LIFE
COMPANY or its designee of the number of shares so issued as payment of such
dividends and distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 7:00 p.m. New York time.
If FUND provides LIFE COMPANY with incorrect share net asset value information
through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the Separate
Accounts, shall be entitled to an adjustment to the number of shares purchased
or redeemed to reflect the correct share net asset value. Any error in the
calculation of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
<PAGE>
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of FUND shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to FUND by LIFE COMPANY by 8:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require FUND to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within three Business Days or such longer period permitted by the '40 Act or the
rules, orders or regulations thereunder and FUND shall notify the person
designated in writing by LIFE COMPANY as the recipient for such notice of such
delay by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY
transmits the redemption order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be
sold only to Participating Insurance Companies which have agreed to participate
in FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of the shares of or liquidate any Portfolio
of FUND if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Directors of the FUND
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry
only. Stock certificates will not be issued to LIFE COMPANY or the Separate
Accounts. Shares ordered from Portfolio will be recorded in appropriate book
entry titles for the Separate Accounts.
<PAGE>
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the Commonwealth
of Virginia and that it has legally and validly established each Separate
Account as a segregated asset account under such laws, and that Forth Financial
Securities Corporation, the principal underwriter for the Variable Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or,
prior to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the `40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts
will be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts
are currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the `33 Act and the `40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
<PAGE>
2.7 FUND represents and warrants that each Portfolio invested in by
the Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE
COMPANY, free of charge, with as many copies of the current prospectus for the
shares of the Portfolios as LIFE COMPANY may reasonably request for distribution
to existing Variable Contract owners whose Variable Contracts are funded by such
shares. FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's
expense, with as many copies of the current prospectus for the shares as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of LIFE COMPANY, as a
diskette in the form sent to the financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once a year (or more
frequently if the prospectus for the shares is supplemented or amended) to have
the prospectus for the FUND shares and the prospectuses for other funds serving
as underlying investments for the Variable Contract printed together in one
document. The expenses of such printing will be apportioned between (a) LIFE
COMPANY and (b) FUND in proportion to the number of pages of the FUND's
prospectus and the total number of pages of prospectus of other underlying
funds, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; FUND to bear the cost of
printing the FUND's prospectus portion of such document for distribution only to
owners of existing Variable Contracts funded by the FUND's shares and LIFE
COMPANY to bear the remaining expense; provided, however, LIFE COMPANY shall
bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Variable
Contracts not funded by the FUND's shares. In the event that LIFE COMPANY
requests that FUND or its designee provide FUND's prospectus in a "camera ready"
or diskette format, FUND shall be responsible for providing the prospectus in
<PAGE>
the format in which it is accustomed to formatting prospectuses and shall bear
the expense of providing the prospectus in such format (e.g. typesetting
expenses), and LIFE COMPANY shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy
of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all amendments
or supplements to any of the above that relate to the Portfolios promptly after
the filing of each such document with the SEC or other regulatory authority.
LIFE COMPANY will provide FUND with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly after
the filing of each such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to
FUND and ADVISER, each piece of sales literature or other promotional material
in which FUND or ADVISER is named, at least ten (10) Business Days prior to its
intended use. No such material will be used if FUND or ADVISER objects to its
use in writing within five (5) Business Days after receipt of such material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to
LIFE COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if LIFE
COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any
information or make any representations on behalf of LIFE COMPANY or concerning
LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except with
the prior written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by FUND or its designee, except with the
prior written permission of FUND.
<PAGE>
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities Dealers, Inc.
("NASD") rules, the `40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application
with the SEC to request an order granting relief from various provisions of the
'40 Act and the rules thereunder to the extent necessary to permit FUND shares
to be sold to and held by Variable Contract separate accounts of both affiliated
and unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 5. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 5, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement and the parties hereto agree to amend this Agreement consistent with
the Exemptive Order. The Fund will not enter into a participation agreement with
any other Participating Insurance Company unless it imposes the same conditions
and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board of Directors of the Fund (the "Board") will monitor
FUND for the existence of any material irreconcilable conflict between the
interests of Variable Contract owners of all separate accounts investing in FUND
and between the interests of Qualified Plan Participants, if any, and Variable
Contract Owners investing in Fund. An irreconcilable material conflict may arise
for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (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 FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners,
Qualified Plans or Qualified Plan Participants, if any; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of Variable
Contract owners and (g) if applicable, a decision by a Qualified Plan to
disregard the voting instructions of plan participants.
<PAGE>
5.3 LIFE COMPANY will report any potential or existing conflicts to
the Board. LIFE COMPANY will be responsible for assisting the Board in carrying
out its duties in this regard by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. The
responsibility includes, but is not limited to, an obligation by the LIFE
COMPANY to inform the Board whenever it has determined to disregard Variable
Contract owner voting instructions. These responsibilities of LIFE COMPANY will
be carried out with a view only to the interests of the Variable Contract
owners.
5.4 If a majority of the Board or majority of its disinterested
Directors, determines that a material irreconcilable conflict exists affecting
LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
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 FUND or any Portfolio
thereof and reinvesting those assets in a different investment medium, which may
include another Portfolio of FUND, or another investment company; (b) 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 or variable life insurance
Contract owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Variable Contract owners
the option of making such a change; and (c) establishing a new registered
management investment company (or series thereof) or managed separate account.
If a material irreconcilable conflict arises because of LIFE COMPANY's decision
to disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE COMPANY
may be required, at the election of FUND, to withdraw the Separate Account's
investment in 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 Variable Contract owners.
For the purposes of this Section 5.4, a majority of the
disinterested members of the Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict but in no event
will FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations under the Exemptive Order. Such
reports, materials, and data shall be submitted more frequently if deemed
appropriate by the Board.
<PAGE>
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
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
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY 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.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
if 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
Exemptive Order, then FUND, and/or the Participating Insurance Companies, 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.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to
indemnify and hold harmless FUND, ADVISER and each of their directors,
principals, officers, employees and agents and each person, if any, who controls
FUND or ADVISER within the meaning of Section 15 of the `33 Act (collectively,
the "Indemnified Parties" for purposes of this Article VII) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of LIFE COMPANY, which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, 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 FUND's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus
or sales literature for the Variable Contracts or
contained in the Variable Contracts (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY by or on
behalf of FUND for use in the registration statement
<PAGE>
or prospectus for the Variable Contracts or in the
Variable Contracts or sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or
FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration statement,
prospectus or sales literature of FUND not supplied by
LIFE COMPANY, or persons under its control) or wrongful
conduct of LIFE COMPANY or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such statement
or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to FUND for inclusion therein by or on behalf
of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to
provide substantially the services and furnish the
materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in
this Agreement or arise out of or result from any other
material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY 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 negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY 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 LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the 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 LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY 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 an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
<PAGE>
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY 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.
7.4 Indemnification by ADVISER. ADVISER agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors, officers, employees, and agents
and each person, if any, who controls LIFE COMPANY within the meaning of Section
15 of the `33 Act (collectively, the "Indemnified Parties" for the purposes of
this Article VII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of ADVISER which
consent shall not be unreasonably withheld) or litigation (including 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 FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or
prospectus or sales literature of FUND (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, provided
that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or
omission or such alleged statement or omission was
made in reliance upon and in conformity with
information furnished to ADVISER or FUND by or on
behalf of LIFE COMPANY for use in the registration
statement or prospectus for FUND or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of
the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Contracts not supplied by ADVISER or persons
under its control) or wrongful conduct of FUND or
ADVISER or persons under their control, with respect
to the sale or distribution of the Variable Contracts
or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales
literature covering the Variable Contracts, or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated therein or
<PAGE>
necessary to make the statements therein not
misleading, if such statement or omission or such
alleged statement or omission was made in reliance
upon and in conformity with information furnished to
LIFE COMPANY for inclusion therein by or on behalf of
FUND; or
(d) arise as a result of (i) a failure by FUND to provide
substantially the services and furnish the materials
under the terms of this Agreement; or (ii) a failure
by a Portfolio(s) invested in by the Separate Account
to comply with the diversification requirements of
Section 817(h) of the Code; or (iii) a failure by a
Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of
any representation and/or warranty made by ADVISER or
FUND in this Agreement or arise out of or result from
any other material breach of this Agreement by
ADVISER or FUND.
7.5 ADVISER 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 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.
7.6 ADVISER 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 ADVISER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the 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 ADVISER of any such claim shall not
relieve ADVISER 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, ADVISER shall be entitled to participate at its own expense
in the defense thereof. ADVISER also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from ADVISER to such party of ADVISER's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and ADVISER 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.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
<PAGE>
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or FUND at any time
from the date hereof upon six (6) months' prior
written notice, unless a shorter time is agreed to by
the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not
reasonably available to meet the requirements of the
Variable Contracts as determined by LIFE COMPANY.
Prompt notice of election to terminate shall be
furnished by LIFE COMPANY, said termination to be
effective ten days after receipt of notice unless
FUND makes available a sufficient number of shares to
reasonably meet the requirements of the Variable
Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution
of formal proceedings against FUND by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in LIFE COMPANY's reasonable judgment,
materially impair FUND's ability to meet and perform
FUND's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
LIFE COMPANY with said termination to be effective
upon receipt of notice;
(d) At the option of FUND, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in FUND's reasonable judgment, materially
impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with
said termination to be effective upon receipt of
notice;
(e) In the event FUND's shares are not registered, issued
or sold in accordance with applicable state or
federal law, or such law precludes the use of such
shares as the underlying investment medium of
Variable Contracts issued or to be issued by LIFE
COMPANY. Termination shall be effective upon such
occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease
to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code, or if FUND
reasonably believes that the Variable Contracts may
fail to so qualify. Termination shall be effective
upon receipt of notice by LIFE COMPANY;
<PAGE>
(g) At the option of LIFE COMPANY, upon FUND's breach of
any material provision of this Agreement, which
breach has not been cured to the satisfaction of LIFE
COMPANY within ten days after written notice of such
breach is delivered to FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of
any material provision of this Agreement, which
breach has not been cured to the satisfaction of FUND
within ten days after written notice of such breach
is delivered to LIFE COMPANY;
(i) At the option of FUND, if the Variable Contracts are
not registered, issued or sold in accordance with
applicable federal and/or state law. Termination
shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the
prior written consent of LIFE COMPANY, FUND, and
ADVISER, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, the FUND and the ADVISER at the option of LIFE COMPANY shall
continue to make available additional shares of the Fund pursuant to the terms
of this Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of Existing Contracts or LIFE
COMPANY, whichever shall have the legal authority to do so, shall be permitted
to reallocate investment in the FUND, redeem investments in the FUND and/or
invest in the FUND upon the making of additional premium payments under the
Existing Contracts. The parties agree that this Section 8.3 shall not apply to
any terminations under Article V of this Agreement.
8.4 In the event of a termination of this Agreement pursuant to
Section 8.2 hereof, LIFE COMPANY, as promptly as practicable under the
circumstances, shall notify FUND and ADVISER that it wishes to exercise the
option afforded by Section 8.3 hereof.
8.5 Except as necessary to implement Variable Contract owner
initiated transactions, or as required by state insurance laws or regulations or
as permitted by order of the Securities and Exchange Commission, LIFE COMPANY
shall not redeem the shares attributable to the Variable Contracts (as opposed
to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
<PAGE>
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to FUND:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to the ADVISER:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to LIFE COMPANY:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Attn: Thomas A. Barefield
With a copy to:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Attn: J. Neil McMurdie, Esq.
Notice shall be deemed given on the date of receipt by the addressee
as evidenced by the return receipt.
<PAGE>
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders of
the SEC granting exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Directors or officers of FUND or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
10.8 No provision of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
FUND, ADVISER and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Berrenak
---------------------
Name: Brian F. Berrenak
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Eric C. Schneider
---------------------
Name: Eric C. Schneider
Title: CFO
THE LIFE INSURANCE COMPANY
OF VIRGINIA
By: /s/ Thomas A. Barefield
-----------------------
Name: Thomas A. Barefield
Title: Sr. Vice President
<PAGE>
APPENDIX A
PBHG Insurance Series Fund, Inc. - Portfolios
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
<PAGE>
APPENDIX B
Separate Accounts Selected Portfolios
- ----------------- -------------------
Life of Virginia Separate Account II PBHG Growth II
Life of Virginia Separate Account III PBHG Large Cap Growth
Life of Virginia Separate Account 4
Life of Virginia Separate Account 5
EXHIBIT 3(a)
Opinion and Consent of Counsel
<PAGE>
April 23, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
With reference to Post-Effective Amendment No. 18 to Registration Statement
33-12470 on Form S-6, filed by The Life Insurance Company of Virginia and Life
of Virginia Separate Account III 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 III 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 use of this letter, or copy thereof, as an exhibit to
Post Effective Amendment No. 18 to the Registration Statement on Form S-6 (File
Number 33-12470) and the reference to me under the caption "Legal Matters" in
the Statement of Additional Information contained in said Post-Effective
Amendment.
Sincerely,
/s/ J.NEIL MCMURDIE
- -------------------
J. Neil McMurdie
Associate Counsel and
Assistant Vice President
Law Department
EXHIBIT 3(b)
Consent of Messrs. Sutherland, Asbill and Brennan, L.L.P.
<PAGE>
[Sutherland, Asbill & Brennan L.L.P. Letterhead]
1275 Pennsylvania Avenue, N.W. TEL: (202) 383-0100
Washington, D.C. 20004-2404 FAX: (202) 637-3593
April 29, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
RE: Life of Virginia Separate Account II
----------------------------------------
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of the Post-Effective Amendment No. 14
to the Registration Statement on Form S-6 filed by Life of Virginia Separate
Account II for certain variable life insurance contracts (File No. 33-9651). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By /s/STEPHEN E. ROTH
-------------------
Stephen E. Roth
EXHIBIT 3(c)
Consent of Independent Auditors
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and "Change
in Auditors" 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. 14 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.
ERNST & YOUNG LLP
Richmond, Virginia
April 25, 1997
[Letterhead of KPMG Peat Marwick LLP, Independent Auditors]
The Board of Directors
The Life Insurance Company of Virginia
Life of Virginia Separate Account II
We consent to the reference to our firm under the caption "Experts" and to the
use of our report with respect to the consolidated financial statements of the
Life Insurance Company of Virginia and subsidiaries as of December 31, 1996 and
for the nine month period ended December 31, 1996 and the preacquisition three
month period ended March 31, 1996, dated January 15, 1997, and our report with
respect to the financial statements of Life of Virginia Separate Account II as
of December 31, 1996 and for the year or periods then ended, dated, February 11,
1997, in Amendment No. 14 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.
Richmond, Virginia
April 25, 1997
EXHIBIT 6
Opinion and Consent of Bruce E. Booker, Actuary
The Life Insurance Company of Virginia
<PAGE>
April 29, 1997
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. 14 to Registration Statement No. 33-9651 on Form
S-6 describes the Policy. I have provided actuarial advice concerning the
preparation0 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 55 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,
/s/BRUCE E. BOOKER
- ------------------
Bruce E. Booker, FSA, MAAA
Vice President & Actuary
EXHIBIT 14(b)
Power of Attorney
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
POWER OF ATTORNEY
The Life Insurance Company of Virginia, a Virginia Corporation, (the "Company")
and each of its undersigned officers and directors, hereby nominate and appoint
Paul E. Rutledge III, Selwyn L. Flournoy, Jr., and J. Neil McMurdie, (with full
power to each of them to act alone) as his/her true and lawful attorney-in-fact
and agent, for him/her and in his/her name and place in any and all capacities,
to execute and sign all Registration Statements of the Company filed with the
Securities and Exchange Commission on form N-4 under the Securities Act of 1933
and the Investment Company Act of 1940 and on form S-6 under the Securities Act
of 1933 (including any and all pre- and post-effective amendments and any
supplements thereto), and to file with the Securities and Exchange Commission
all such Registration Statements, amendments and any supplements thereto, as
well as any and all exhibits and other documents necessary or desirable to such
Registration Statement, amendment or supplement, granting to such attorneys and
each of them, full power and authority to do and perform each and every act
necessary and/or appropriate as fully and with all intents and purposes as the
Company itself and the undersigned officers and directors themselves might or
could do.
IN WITNESS WHEREOF, THE LIFE INSURANCE COMPANY OF VIRGINIA has caused this power
of attorney to be executed in its full name and by its President and attested by
its Secretary, and the undersigned officers and directors have each executed
such power of attorney, on this 16th day of April, 1997.
THE LIFE INSURANCE COMPANY OF VIRGINIA
BY: /s/ PAUL E. RUTLEDGE III
-----------------------
Paul E. Rutledge III
President and Chief Executive Officer
ATTEST:
/s/ LINDA L. LANAM
- ------------------
Linda L. Lanam, Secretary
(Signatures Continue on Next Page)
<PAGE>
Name Title
/s/RONALD V. DOLAN Director and Chairman
- ------------------
Ronald V. Dolan
/s/PAUL E. RUTLEDGE III Director, President and Chief Executive Officer
- ----------------------- (Principal Executive Officer)
Paul E. Rutledge III
/s/SELWYN L. FLOURNOY, JR. Director and Senior Vice President
- -------------------------- (Principal Financial and Principal
Selwyn L. Flournoy, Jr. Accounting Officer)
/s/WILLIAM D. BALDWIN Director and Senior Vice President
- ---------------------
William D. Baldwin
/s/ROBERT A. BOWEN Director and Senior Vice President
- ------------------
Robert A. Bowen
/s/LINDA L. LANAM Director and Senior Vice President
- -----------------
Linda L. Lanam
/s/VICTOR C. MOSES Director
- ------------------
Victor C. Moses
/s/GEOFFREY S. STIFF Director
- --------------------
Geoffrey S. Stiff
/s/THOMAS A. BAREFIELD Director and Senior Vice President
- ----------------------
Thomas A. Barefield
/s/ROBERT D. CHINN Director and Senior Vice President
- ------------------
Robert D. Chinn
