<PAGE>
As Filed with the Securities and Exchange Commission on May 1 1998
Registration No. 333-41031
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
PRE-EFFECTIVE AMENDMENT NO. 3
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST
REGISTERED ON FORM N-8B-2
---------------
Life Of Virginia Separate Account II
(Exact name of trust)
The Life Insurance Company Of Virginia
(Name of depositor)
6610 West Broad Street
Richmond, Virginia 23230
(Complete address of depositor's principal executive offices)
<TABLE>
<S> <C>
Name and complete address of agent for service: Copy to:
Linda L. Lanam, Esq. Stephen E. Roth, Esq.
The Life Insurance Company of Virginia Sutherland, Asbill & Brennan, LLP
6610 West Broad Street 1275 Pennsylvania Av.e, N.W.
Richmond, Virginia 23230 Washington, DC 20004-2415
</TABLE>
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Title of Securities Being Registered:
Interests in a Separate Account Under Flexible Premium Variable Life Insurance
Policies
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
THE LIFE INSURANCE COMPANY OF VIRGINIA
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 ........... Cover Page
2 ........... Cover Page
3 ........... Not applicable
4 ........... Sale of the Policies
5 ........... Separate Account II
6 ........... Separate Account II
7 ........... Not applicable
8 ........... Separate Account II
9 ........... Litigation
10 .......... Summary and Diagram of the Policy; Premiums; Allocation
Options; Death Benefits; Other Policy Benefits and
Provisions; Surrender Benefits; Loan Benefits; Separate
Account II; Voting of Fund Shares
11 .......... Separate Account II; Allocation Options
12 .......... Separate Account II; Allocation Options
13 .......... Charges and Deductions
14 .......... Premiums
15 .......... Premiums; Allocation Options
16 .......... Allocation Options
17 .......... Premiums; Surrender Benefits; Loan Benefits; Requesting
Payments and Telephone Transactions
18 .......... Separate Account II; Allocation Options; Other Policy
Benefits and Provisions
19 .......... Reports to Policy Owners
20 .......... Separate Account II
21 .......... Loan Benefits
22 .......... Not applicable
23 .......... Life of Virginia
24 .......... Not applicable
25 .......... Life of Virginia
26 .......... Charges and Deductions
27 .......... Life of Virginia
28 .......... Life of Virginia
29 .......... Life of Virginia
30 .......... Not applicable
31 .......... Not applicable
32 .......... Not applicable
33 .......... Not applicable
34 .......... Not applicable
35 .......... Life of Virginia
36 .......... Not applicable
37 .......... Not applicable
38 .......... Sale of the Policies
39 .......... Sale of the Policies
40 .......... Not Applicable
41 .......... Sale of the Policies
42 .......... Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- -------------- ----------------------------------------------------------
<S> <C>
43 ......... Not applicable
44 ......... How Your Policy Account Values Vary
45 ......... Not applicable
46 ......... How Your Policy Account Values Vary
47 ......... Allocation Options
48 ......... Life of Virginia; Separate Account II; Allocation Options
49 ......... Not applicable
50 ......... Separate Account II; Allocation Options
51 ......... Premiums; Allocation Options; Charges and Deductions;
Surrender Benefits
52 ......... Separate Account II; Allocation Options; Other Policy
Benefits and Provisions
53 ......... Tax Considerations
54 ......... Not applicable
55 ......... Hypothetical Illustrations
56 ......... Not applicable
57 ......... Not applicable
58 ......... Not applicable
59 ......... Financial Statements
</TABLE>
<PAGE>
PART I
<PAGE>
PROSPECTUS DATED May 1, 1998
Flexible Premium Variable Life Insurance Policy
Form 1250 CR 10/97
LIFE OF VIRGINIA SEPARATE ACCOUNT II
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Telephone (800) 352-9910
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This prospectus describes a flexible premium variable life insurance
policy offered by The Life Insurance Company of Virginia. The Policy is
designed to provide life insurance protection on the Insured named in the
Policy and at the same time provide flexibility to vary the amount and timing
of premiums and to change the amount of death benefit payable under the Policy.
This flexibility allows you to provide for changing insurance needs under a
single insurance policy.
You may allocate Net Premiums and Account Value to one or more of the 37
Investment Subdivisions of the Life of Virginia Separate Account II, within
certain limits. Each Investment Subdivision of Account II will invest solely in
a designated investment portfolio that is part of a series-type investment
company. Currently, there are ten such Funds available under this Policy: the
Janus Aspen Series, 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 Federated
Insurance Series, the Alger American Fund, the PBHG Insurance Series Fund, Inc.
and Goldman Sachs Variable Insurance Trust (collectively referred to as the
"Funds"). The Funds, their investment managers and their currently available
portfolios are listed on the following page. 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").
You can elect one of two Death Benefit Options under the Policy. Under
Option A, the Life Insurance Proceeds will equal the greater of (1) the
Specified Amount plus the Policy's Account Value, or (2) the Account Value
multiplied by the applicable corridor percentage. Under Option B, the Life
Insurance Proceeds will equal the greater of (1) the Specified Amount, or (2)
the Account Value multiplied by the applicable corridor percentage. Under both
options, the Specified Amount and Account Value are determined on the date of
the Insured's death. We guarantee that the Life Insurance Proceeds will never
be less than the Specified Amount so long as the Policy is in force.
The Policy provides for a Surrender Value. Because this value is based on
the performance of the Funds, to the extent of allocations to Separate Account
II, there is no guaranteed Surrender Value or guaranteed minimum Surrender
Value. On any given day, the Surrender Value could be more or less than the
premiums paid. If the Surrender Value is insufficient to cover the charges due
under the Policy, the Policy will lapse without value. However, the Policy will
not lapse during the Continuation Period, regardless of the sufficiency of the
Surrender Value, so long as the Net Total Premium is at least equal to the
Continuation Amount.
The Policy also provides for Policy loans and permits partial surrenders
within limits. In addition, you can elect dollar-cost averaging or portfolio
rebalancing programs.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
PROSPECTUSES FOR THE FUNDS MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
INTERESTS IN THE POLICIES AND FUNDS ARE NOT DEPOSITS WITH, OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK OR BANK AFFILIATE, AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY AND DIAGRAM OF
THE POLICY 3
Fund Charges 6
DEFINITIONS 7
PREMIUMS 9
Applying for a Policy 9
Free Look Right to Cancel 9
Premiums 9
Periodic Premium Plan 10
Premium to Prevent Lapse 10
Minimum Premium Payment 10
Death Benefit Guarantee 10
Crediting Premium to the Policy 10
ALLOCATION OPTIONS 10
Net Premium Allocations 10
Investment Subdivisions 11
Transfers 15
Dollar-Cost Averaging 15
Portfolio Rebalancing 16
Powers of Attorney 16
CHARGES AND DEDUCTIONS 16
Premium Charge 16
Mortality and Expense Risk Charge 16
Monthly Deduction 17
Surrender Charge 17
Cost of Insurance 17
Other Charges 17
Reduction of Charges for Group Sales 18
HOW YOUR ACCOUNT VALUE VARIES 18
Account Value 18
Surrender Value 18
Investment Subdivision Values 18
Unit Values 18
Net Investment Factor 18
DEATH BENEFITS 19
Amount of Death Benefit Payable 19
Death Benefit Options 19
Changing the Death Benefit Option 19
Accelerated Benefit Rider 19
Effect of Partial Surrenders on
Life Insurance Proceeds 20
Change in Existing Coverage 20
Changing the Beneficiary 20
LOAN BENEFITS 21
Interest 21
Repayment of Policy Debt 21
Effect of Policy Loan 21
SURRENDER BENEFITS 21
Full Surrender 21
Partial Surrender 21
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
HYPOTHETICAL ILLUSTRATIONS 22
REQUESTING PAYMENTS AND
TELEPHONE TRANSACTIONS 33
Requesting Payments 33
Telephone Transactions 33
OTHER POLICY BENEFITS AND 33
PROVISIONS
Exchange Privilege 33
Optional Payment Plans 33
Other Policy Provisions 34
Owner 34
Beneficiary 34
Reinstatement 34
Trustee 34
Other Changes 34
Reports 34
Change of Owner 35
Supplemental Benefits 35
Using the Policy as Collateral 35
Reinsurance 35
LIFE OF VIRGINIA 35
The Life Insurance Company of Virginia 35
State Regulation 35
Executive Officers and Directors 36
Separate Account II 36
Changes to Separate Account II 37
Voting of Fund Shares 37
TAX CONSIDERATIONS 37
Tax Status of the Policy 37
Tax Treatment of Policy Proceeds 38
Tax Treatment of Policy Loans and Other 39
Distributions
Taxation of Life of Virginia 39
Income Tax Withholding 39
Other Considerations 40
LEGAL DEVELOPMENTS -
REGARDING EMPLOYMENT
RELATED BENEFIT PLANS 40
Legal Proceedings 40
ADDITIONAL INFORMATION 40
Sale of Policies 40
Other Information 40
Year 2000 Compliance 40
Litigation 41
Legal Matters 41
Experts 41
Change in Auditors 41
Financial Statements 41
Life of Virginia Separate Account II Financials A-1
Life of Virginia Subsidiary Financials B-1
</TABLE>
2
<PAGE>
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not be lawfully made. No person is authorized to make any
representations in connection with this offering other than those
representations contained in this prospectus and the Fund prospectuses and
Statements of Additional Information.
SUMMARY AND DIAGRAM OF THE POLICY
The following summary of prospectus information and diagram of the important
features of the Policy should be read in conjunction with the more detailed
information appearing elsewhere in this prospectus. Unless otherwise indicated,
the description of the Policy in this prospectus assumes that the Policy is in
force and there is no Policy Debt. Definitions of certain terms used in this
prospectus may be found by referring to the DEFINITIONS section immediately
following the diagram.
Who We Are. Life of Virginia is a stock life insurance company and is a
member of the Insurance Marketplace Standards Association (IMSA). Life of
Virginia may use the IMSA membership logo and language in its advertisements,
as outlined in IMSA's Marketing and Graphics Guidelines. Companies that belong
to IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities.
Purpose of the Policy. The Policy is designed to provide insurance
benefits with a long-term investment element. The Policy should be considered
in conjunction with your other insurance. It may not be advantageous to replace
existing insurance with the Policy.
Comparison with Universal Life Insurance. The Policy is similar in many
ways to universal life insurance. As with universal life insurance: the Owner
pays premiums for insurance coverage on the Insured; the Policy provides for
the accumulation of Surrender Value that is payable if the Policy is
surrendered during the Insured's lifetime; and the Surrender Value may be
substantially lower than the premiums paid. However, the Policy differs from
universal life insurance in that the Surrender Value may decrease if the
investment performance of the Investment Subdivisions to which Account Value is
allocated is sufficiently adverse. If the Surrender Value becomes insufficient
to cover charges when due and the Continuation Period is not in effect, the
Policy will lapse without value after a grace period. See "Premium to Prevent
Lapse."
Tax Considerations. We intend for the Policy to satisfy the definition of
a life insurance contract under section 7702 of the Internal Revenue Code of
1986, as amended (the "Code"). Under certain circumstances, a Policy could be
treated as a "modified endowment contract." We will monitor Policies and will
attempt to notify you on a timely basis if your Policy is in jeopardy of
becoming a modified endowment contract. For further discussion of the tax
status of a Policy and the tax consequences of being treated as a life
insurance contract or a modified endowment contract, see the "TAX
CONSIDERATIONS" section below.
Free Look Right to Cancel. For a limited time after the Policy is issued,
you have the right to cancel your Policy and receive the sum of all charges
deducted from premiums paid plus Net Premiums adjusted by investment gains and
losses or, if required by state law, a full refund of all premiums paid. See
"Free Look Right to Cancel" and "Net Premium Allocations."
Other Policies. We offer other variable life insurance policies which also
invest in the same portfolios of the Funds. These Policies may have different
charges that could affect the value of the Investment Subdivisions and may
offer different benefits more suitable to your needs. To obtain more
information about these policies, contact your agent, or call (800) 352-9910.
Inquiries. If you have any questions, you may write or call our Home
Office at 6610 West Broad Street, Richmond, Virginia 23230, (800) 352-9910.
3
<PAGE>
DIAGRAM OF POLICY
PREMIUMS
o You select a premium payment plan. You are not required to pay premiums
according to the plan, but may vary the frequency and amount, within
limits, and can skip planned premiums. See "Periodic Premium Plan."
o Premium amounts depend on the Insured's Age, sex (where applicable), risk
class, Specified Amount selected, and any supplemental benefit riders. See
"Premiums."
o Unscheduled premium payments may be made, within limits. See "Premiums."
o Under certain circumstances, extra premiums may be required to prevent lapse.
See "Premium to Prevent Lapse."
DEDUCTION FROM PREMIUMS
o Currently, a 8% premium charge (10% maximum) is deducted from each premium
before allocation to an Investment Subdivision resulting in a Net Premium A
premium charge will not be assessed against the policy loan portion of a
premium received from the rollover of a life insurance policy. See "Premium
Charge."
ALLOCATION OF NET PREMIUMS
o You direct the allocation of Net Premiums among up to seven of the Investment
Subdivisions of Separate Account II. For states that require the refund of
premiums during the free look period, we will allocate Net Premiums to the
Money Market Investment Subdivision for 15 days, then to your designated
Investment Subdivisions. See "Net Premium Allocations" for rules and
limits.
o The Investment Subdivisions invest in corresponding portfolios of the
following Funds:
<TABLE>
<CAPTION>
Janus Aspen Series GE Investments Funds, Inc. (Continued)
------------------ -------------------------------------
<S> <C>
Growth Portfolio Global Income Fund
Aggressive Growth Portfolio Value Equity Fund
International Growth Portfolio Income Fund
Worldwide Growth Portfolio U.S. Equity Fund
Balanced Portfolio
Flexible Income Portfolio Oppenheimer Variable Account Funds
Capital Appreciation Portfolio Oppenheimer Bond Fund
Oppenheimer Aggressive Growth Fund
Variable Insurance Products Fund Oppenheimer Growth Fund
VIP Equity-Income Portfolio Oppenheimer High Income Fund
VIP Overseas Portfolio Oppenheimer Multiple Strategies Fund
VIP Growth Portfolio
Federated Insurance Series
Variable Insurance Products Fund II Federated American Leaders Fund II
VIP II Asset Manager Portfolio Federated Utility Fund II
VIP II Contrafund Portfolio Federated High Income Bond Fund II
Variable Insurance Products Fund III The Alger American Fund
VIP III Growth & Income Portfolio Alger American Growth Portfolio
VIP III Growth Opportunities Portfolio Alger American Small
Capitalization Portfolio
GE Investments Funds, Inc. PBHG Insurance Series Fund, Inc.
S&P 500 Index Fund PBHG Growth II Portfolio
Money Market Fund
Total Return Fund PBHG Large Cap Growth Portfolio
International Equity Fund Goldman Sachs Variable Insurance Trust
Real Estate Securities Fund Growth and Income Fund
Mid Cap Equity Fund
See "Investment Subdivisions Options."
</TABLE>
4
<PAGE>
DEDUCTION FROM ASSETS
o Management fees and other expenses are deducted from the assets of each Fund.
See "Fund Charges."
o A daily mortality and expense risk charge at a current effective annual rate
of 0.70% (maximum effective annual rate of 0.70%) is deducted from assets
in the Investment Subdivisions. See "Mortality and Expense Risk Charge."
o A monthly deduction is made each month from the Account Value for (1) the
cost of insurance, (2) a current monthly policy charge of $15 in the first
Policy Year ($15 per month maximum in the first Policy Year) and $6 per
month thereafter ($12 per month maximum after the first Policy Year), and
(3) supplemental benefit charges. The monthly deduction will also include
the increase charge for the first month following an increase in the
Specified Amount. See "Monthly Deduction."
ACCOUNT VALUE
o Account Value is the total amount under the Policy in each Investment
Subdivision and the General Account. See "Account Value" and "Investment
Subdivision Account Value."
o Account Value serves as the starting point for calculating certain values
under a Policy, such as the Surrender Value and the Life Insurance
Proceeds. Account Value varies from day to day to reflect investment
experience of the Investment Subdivisions, charges deducted and other
Policy transactions (such as Policy loans, transfers and partial
surrenders.) See "HOW YOUR ACCOUNT VALUE VARIES."
o Account Value can be transferred among the Investment Subdivisions. A $10
transfer processing fee applies to each transfer made after the first
transfer in a Policy Month. See "Transfers" for rules and limits. Policy
loans reduce the amount available for allocations and transfers.
o There is no minimum guaranteed Account Value. During the Continuation Period,
the Policy will lapse if the Surrender Value is insufficient to cover the
monthly deduction and the Net Total Premium is less than the Continuation
Amount. After the Continuation Period, the Policy will lapse if the
Surrender Value is insufficient to cover the monthly deduction. See
"Premium to Prevent Lapse."
CASH BENEFITS
o Policy loans are available for amounts up to 90% of Account Value less
any Surrender Charges, less any Policy Debt. See "LOAN BENEFITS" for
discussion of interest on Policy loans and additional rules and
limits. See also "TAX CONSIDERATIONS."
o Partial surrenders are available under the Policy. The minimum partial
surrender amount is $500, and a fee equal to the lesser of $25 or 2%
of the amount of the partial surrender will apply to each Partial
Surrender. See "Partial Surrender" for rules and limits.
o The Policy can be surrendered at any time for its Surrender Value
(Account Value minus Policy Debt and minus any applicable surrender
charge). A surrender charge will apply during the first 15 Policy
Years. See "Full Surrender" and "Surrender Charge."
o A variety of payment options are available. See "Requesting Payments."
DEATH BENEFITS
o The minimum Specified Amount available is $100,000.
o A death benefit is available under one of two options: Option A
(greater of Specified Amount plus Account Value, or a specified
percentage of Account Value); or Option B (greater of Specified
Amount, or a specified percentage of Account Value). See "DEATH
BENEFITS."
o A death benefit is payable as a lump sum or under a variety of
payment options.
o The Specified Amount and the Death Benefit Option may be changed See
"Change in Existing Coverage" and "Changing the Death Benefit
Option" for rules and limits.
o During the Continuation Period, the death benefit guarantee keeps the
Policy in force regardless of the sufficiency of Surrender Value
so long as Net Total Premium is at least equal to the Continuation
Amount. See "Death Benefit Guarantee."
5
<PAGE>
Fund Charges. The fees and expenses for each of the Funds (as a percentage
of net assets) for the year ended December 31, 1997 are set forth in the
following table. For more information on these fees and expenses, see the
prospectuses for the Funds which accompany this prospectus.
<TABLE>
<CAPTION>
Management Fees
(after fee Other Expenses
waiver as (after reimbursement- Total Annual
Fund applicable) as applicable) Expenses
- -------------------------------------------------------- ---------------- ----------------------- -------------
<S> <C> <C> <C>
Janus Aspen Series:
Growth Portfolio ...................................... 0.65% 0.05% 0.70%
Aggressive Growth Portfolio ........................... 0.73% 0.03% 0.76%
International Growth Portfolio ........................ 0.67% 0.29% 0.96%
Worldwide Growth Portfolio ............................ 0.66% 0.08% 0.74%
Balanced Portfolio .................................... 0.76% 0.07% 0.83%
Flexible Income Portfolio ............................. 0.65% 0.10% 0.75%
Capital Appreciation Portfolio ........................ 0.23% 1.03% 1.26%
Variable Insurance Products Fund: *
Equity-Income Portfolio ............................... 0.50% 0.08% 0.58%
Overseas Portfolio .................................... 0.75% 0.17% 0.92%
Growth Portfolio ...................................... 0.60% 0.09% 0.69%
Variable Insurance Products Fund II: *
Asset Manager Portfolio ............................... 0.55% 0.10% 0.65%
Contrafund Portfolio .................................. 0.60% 0.11% 0.71%
Variable Insurance Products Fund III: *
Growth & Income Portfolio ............................. 0.49% 0.21% 0.70%
Growth Opportunities Portfolio ........................ 0.60% 0.14% 0.74%
GE Investments Funds, Inc.:
S&P 500 Index Fund .................................... 0.34% 0.12% 0.46%
Money Market Fund ..................................... 0.20% 0.12% 0.32%
Total Return Fund ..................................... 0.50% 0.15% 0.65%
International Equity Fund ............................. 0.98% 0.36% 1.34%
Real Estate Securities Fund ........................... 0.83% 0.12% 0.95%
Global Income Fund .................................... 0.40% 0.17% 0.57%
Value Equity Fund ..................................... 0.37% 0.09% 0.46%
Income Fund ........................................... 0.42% 0.17% 0.59%
U.S. Equity Fund ...................................... 0.55% 0.25% 0.80%
Oppenheimer Variable Account Funds:
Oppenheimer Bond Fund ................................. 0.73% 0.05% 0.78%
Oppenheimer Aggressive Growth Fund .................... 0.71% 0.02% 0.73%
Oppenheimer Growth Fund ............................... 0.73% 0.02% 0.75%
Oppenheimer High Income Fund .......................... 0.75% 0.07% 0.82%
Oppenheimer Multiple Strategies Fund .................. 0.72% 0.03% 0.75%
Federated Insurance Series:
Federated American Leaders Fund II .................... 0.66% 0.19% 0.85%
Federated Utility Fund II ............................. 0.48% 0.37% 0.85%
Federated High Income Bond Fund II .................... 0.51% 0.29% 0.80%
The Alger American Fund:
Alger American Growth Portfolio ....................... 0.75% 0.04% 0.79%
Alger American Small Capitalization Portfolio ......... 0.85% 0.04% 0.89%
PBHG Insurance Series Fund, Inc.:
PBHG Growth II Portfolio .............................. 0.00% 1.20% 1.20%
PBHG Large Cap Growth Portfolio ....................... 0.00% 1.10% 1.10%
Goldman Sachs Variable Insurance Trust:
Goldman Sachs Growth and Income Fund .................. 0.75% 0.15% 0.90%
Goldman Sachs Mid Cap Equity Fund ..................... 0.80% 0.15% 0.95%
</TABLE>
*The fees and expenses reported for Variable Insurance Products Fund,
Variable Insurance Products Fund II and Variable Insurance Products Fund III
are prior to any fee waiver and/or reimbursement as applicable.
6
<PAGE>
Other Policies
We offer other variable life insurance policies which also invest in the
same portfolios of the Funds. These Policies may have different charges that
could affect the value of the Investment Subdivisions and may offer different
benefits more suitable to your needs. To obtain more information about these
policies, contact your agent, or call (800) 352-9910.
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 4 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.
The expense information regarding the Funds was provided by those Funds.
Janus Aspen Series, The Variable Insurance Products Fund, Variable Insurance
Products Fund II, Variable Insurance Products Fund III, Oppenheimer Variable
Account Funds, Federated Insurance Series, The Alger American Fund, PBHG
Insurance Series Fund, Inc., Goldman Sachs 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 except for Variable Insurance Product Funds,
Variable Insurance Product Funds II and Variable Insurance Product Funds III.
Life of Virginia cannot guarantee that the reimbursements will continue.
Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1997 would have been .78% for Growth Portfolio, .78%
for Aggressive Growth Portfolio, 1.08% for International Growth Portfolio, .81%
for Worldwide Growth Portfolio, .83% for Balanced Portfolio and 2.19% for
Capital Appreciation Portfolio.
With reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund during 1997 would have been .57% for VIP
Equity-Income Portfolio, .90% for VIP Overseas Portfolio and .67% for VIP
Growth Portfolio.
With reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund II during 1997 would have been .64% for VIPII
Asset Manager Portfolio and .68% for VIPII Contrafund Portfolio.
With reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund III during 1997 would have been .73% for
VIPIII 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 1997
would have been .46% for S&P 500 Index Fund, .48% for Money Market Fund, .65%
for Total Return Fund, 1.43% for International Equity, .96% for Real Estate
Fund, .57% for Global Income Fund, .46% for Value Equity Fund, .76% for Income
Fund and .86% for U.S. Equity Fund.
Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of the Federated Insurance Series during 1997 would have been
.94% for Federated American Leaders Fund II, 1.12% for Federated Utility Fund
II, and .89% for Federated High Income Bond Fund II.
Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of PBHG Insurance Series Funds, Inc. during 1997 would have been
4.38% for Growth II Portfolio and 5.21% for Large Cap Growth Portfolio.
Absent reimbursements, the total annual expenses of the portfolios of
Goldman Sachs Variable Insurance Trust are estimated to be 1.51% for Goldman
Sachs Growth and Income Fund and 1.33% for Med Cap Equity Fund.
DEFINITIONS
Account Value -- Account Value is the total amount under the Policy in
each Investment Subdivision and the General Account.
Age -- The age on the Insured's birthday nearest the Policy Date or a
Policy Anniversary.
Attained Age -- The Insured's Age on the Policy Date plus the number of
full years since the Policy Date.
7
<PAGE>
Beneficiary -- The person or entity designated by you to receive the death
benefit payable at the death of the Insured.
Continuation Amount -- A cumulative amount set forth on the Policy data
pages for each month of the Continuation Period representing the minimum Net
Total Premium required to keep the Policy in force during the Continuation
Period.
Continuation Period -- The number of Policy years during which the Policy
will not lapse if the Net Total Premium is at least equal to the Continuation
Amount for the number of Policy Months that the Policy has been in force. The
Continuation Period varies by issue Age as follows: 25 years for Ages 0 - 45;
20 years for Ages 46 - 55; 15 years for Ages 56 - 70; and 10 years for Ages 71
and older.
Eligible Proceeds -- Total Proceeds subject to a maximum of $250,000 from
all our policies or certificates covering the Insured.
Fund -- Any open-end management investment company, or unit investment
trust, in which Separate Account II invests. General Account - Assets of Life
of Virginia other than those allocated to Separate Account II or any of our
other separate accounts.
Home Office -- Life of Virginia's offices at 6610 West Broad Street,
Richmond, Virginia 23230, 1-804-281-6000.
Insured -- The person upon whose life the Policy is issued.
Investment Subdivision -- A subdivision of Separate Account II, the assets
of which are invested exclusively in a corresponding Fund.
Life Insurance Proceeds -- The amount payable upon the death of the
Insured. The Life Insurance Proceeds will be reduced by outstanding Policy Debt
and past due charges, if any, to determine the death benefit payable under the
Policy.
Life of Virginia -- The Life Insurance Company of Virginia. "We," "us," or
"our" refers to Life of Virginia.
Monthly Anniversary Day -- The same day in each month as the Policy Date.
Net Premium -- The portion of each premium paid allocated to one or more
Investment Subdivision, and used in determining the Account Value.
Net Premium Factor -- The factor used in determining the Net Premium which
represents a deduction from each premium paid.
Net Total Premium -- On any date, Net Total Premium equals the total of
all premiums paid to that date less (a) divided by (b), where:
(a) is any outstanding Policy Debt, plus the sum of any partial
surrenders to date; and (b) is the Net Premium Factor.
Optional Payment Plan -- A plan under which Life Insurance Proceeds or
Surrender Value proceeds can be used to provide a series of periodic payments
to you or a Beneficiary.
Owner -- The Owner of the Policy. "You" or "your" refers to the Owner.
Contingent Owners may also be named.
Planned Periodic Premium -- A level premium amount scheduled for payment
at fixed intervals over a specified period of time.
Policy -- The Policy with any attached application(s), and any riders and
endorsements.
Policy Date -- The date as of which the Policy is issued and as of which
it becomes effective. Policy Years and Anniversaries are measured from the
Policy Date.
Policy Debt -- The amount of outstanding 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.
Separate Account II -- The segregated asset account of Life of Virginia to
which Net Premiums are allocated.
Specified Amount -- An amount used in determining the insurance coverage
on an insured life.
Surrender Value -- The amount payable to you upon surrender of the Policy.
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Total Proceeds -- Life Insurance Proceeds plus any additional term
insurance on a terminally ill Insured added to the Policy by rider, not
including the Children's Insurance Rider. Total proceeds will not include any
proceeds payable under the Accidental Death Benefit Rider or any proceeds
payable under the Policy or any additional term insurance rider on the Insured
that would expire within 24 months of the date we receive proof of terminal
illness. No adjustment to the Total Proceeds will be made for any Policy Debt,
but adjustments will be made for any misstatement of age or sex of a terminally
ill Insured.
Unit Value -- Unit of measure used to calculate the Account Value for each
Investment Subdivision.
Valuation Day -- For each Investment Subdivision, each day on which the
New York Stock Exchange is open for business except for days that the
Investment Subdivision's corresponding Fund does not value its shares.
Valuation Period -- The period that starts at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next succeeding Valuation Day.
PREMIUMS
Applying for a Policy. To purchase a Policy, you must complete an
application and submit it to us at our Home Office at 6610 West Broad Street,
Richmond, VA 23230. You also must pay an initial premium of a sufficient
amount. See "Premiums," below. Your initial premium can be submitted with your
application or at a later date. Coverage becomes effective as of the Policy
Date.
Generally, we will issue a Policy covering an Insured up to Age 85 if
evidence of insurability satisfies our underwriting rules. Required evidence of
insurability may include, among other things, a medical examination of the
Insured. We may, in our sole discretion, issue a Policy covering an Insured
over Age 85. We reserve the right not to accept an application for any lawful
reason.
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.
Free Look Right to Cancel. During your "free-look" period, you may cancel
your Policy and receive a refund of all charges deducted from premiums paid,
plus the Net Premiums allocated to Separate Account II adjusted for investment
gains and losses. Some states require the refund of all premiums paid.
Generally, the free look period expires 10 days after you receive your Policy.
Some states may require a longer period. If you decide to cancel the Policy,
you must return it by mail or other delivery to us or to our authorized agent.
Immediately after mailing or delivery, the Policy will be deemed void from the
beginning.
Premiums. The premium amounts sufficient to fund a Policy depend on a
number of factors, such as the Age, sex (where appropriate) and risk class of
the proposed Insured, the desired Specified Amount, any supplemental benefits,
and investment performance of the Investment Subdivisions. After the initial
premium is paid, unscheduled premium payments may be paid in any amount and at
any time. We reserve the right, however, to limit the number and amount of any
unscheduled premium payment. Additionally, total premiums paid may not exceed
guideline premium limitations for life insurance set forth in the Code. We
reserve the right to reject any premium, or portion thereof, that would result
in the Policy being disqualified as life insurance under the Code and will
refund any rejected premium along with any interest accrued thereon. In
addition, we will monitor Policies and will attempt to notify you on a timely
basis if your Policy is in jeopardy of becoming a modified endowment contract
under the Code. See "TAX CONSIDERATIONS."
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
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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.
Periodic Premium Plan. When you apply for a Policy, you select a periodic
premium payment plan. You may choose to send premiums directly to us either
annually, semi-annually, or quarterly. You can also arrange for annual,
semi-annual, quarterly or monthly premium payments to be paid via automatic
deduction from your bank account or a similar account acceptable to us. You are
not required to pay premiums in accordance with this premium plan; rather, you
can pay more or less than planned or skip a planned premium payment entirely.
You can change the amount of planned premiums and payment arrangements, or
switch between frequencies, whenever you want by providing satisfactory written
or telephone instructions to our Home Office, which will be effective upon our
receipt of the instructions. Depending on the Account Value at the time of an
increase in the Specified Amount and the amount of the increase requested, a
change in your periodic premium payments may be advisable. See "Change in
Existing Coverage."
Premium to Prevent Lapse. Failure to make a planned premium payment will
not automatically cause a Policy to lapse. Generally, a Policy will lapse if
the Surrender Value is not sufficient to cover the monthly deduction when due.
However, a Policy will not lapse during the Continuation Period, regardless of
the sufficiency of the Surrender Value, so long as the Net Total Premium is at
least equal to the Continuation Amount. See "Monthly Deduction." If additional
premium is necessary to prevent a Policy from lapsing, we will mail to you
notice of the amount required to be paid to keep the Policy in force, and you
will have a 61-day grace period from the date we mail the notice to make the
required premium payment.
Your Policy will remain in effect during the grace period. If the Insured
should die during the grace period before the required premium is paid, the
death benefit will still be payable to the Beneficiary, although the amount of
the Life Insurance Proceeds will be reduced by the amount of premium that would
have been required to keep the Policy in force. See "DEATH BENEFITS -- Amount
of Death Benefit Payable." If the required premium has not been paid before the
grace period ends, your Policy will lapse. It will have no value and no
benefits will be payable. But see "Death Benefit Guarantee" and "Reinstatement"
for a mention of your reinstatement rights.
A grace period also may begin if Policy Debt on any Monthly Anniversary
Day exceeds the Account Value less any applicable surrender charges. See
"Effect of Policy Loan" for details.
Minimum Premium Payment. Generally, the minimum amount of premium we will
accept in connection with a periodic premium payment plan is $20 ($15 for
payments made via automatic deduction from your bank or similar account).
Notwithstanding payment of this minimum amount, a Policy may lapse. See
"Premium to Prevent Lapse." 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
amount and the actual payment amount is not more than 10%. All other premium
payments will be deemed unscheduled premium payments.
Death Benefit Guarantee. On any Monthly Anniversary Day during the
Continuation Period, so long as the Net Total Premium is at least equal to the
Continuation Amount for your Policy, the Policy will remain in force,
regardless of the sufficiency of Surrender Value to cover the monthly
deduction. At the end of the Continuation Period, you may, however, have to
make an additional premium payment to keep the Policy in force. See "Premium to
Prevent Lapse."
An increase in Specified Amount will increase the Continuation Amounts.
Any termination and subsequent reinstatement of the Policy will reduce the
Continuation Amounts. Notwithstanding termination and reinstatement, the
Continuation Period will be as though the Policy had been in effect
continuously from its original Policy Date. See "Reinstatement."
Crediting Premium to the Policy. Your initial premium payment will be
credited to the Policy on the Policy Date. Any subsequent premium payment (see
"Net Premium Allocations," below) will be credited to the Policy on the
Valuation Day it is received at our Home Office.
ALLOCATION OPTIONS
Net Premium Allocations. When you apply for a Policy, you specify the
percentage of Net Premium to be allocated to each Investment Subdivision. You
may not allocate your Net Premiums and Account Value to more than seven
Investment Subdivisions at any given time. You can change the allocation
percentages at any time by sending satisfactory written instructions to our
Home Office. The change will apply to all premiums received with or after we
receive your instructions. Net Premium allocations must be in percentages
totaling 100%, and each allocation percentage must be a whole number of at
least 1%.
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In general, during the free look period Net Premiums will be allocated to
the Investment Subdivisions based on the Net Premium allocation percentages
specified in the application. However, for states requiring the refund of
premiums during the free look period, all Net Premiums will be allocated to the
Investment Subdivision investing in the Money Market Fund of GE Investments
Funds. Fifteen days following this allocation, the Account Value is transferred
to the Investment Subdivisions based on the Net Premium allocation percentages
selected by you. See "How Your Policy Account Values Vary."
Investment Subdivisions. Separate Account II currently invests in ten
series-type mutual funds. Each of the Funds currently available under the
Policy is registered with the Securities and Exchange Commission ("SEC") as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). There are currently thirty-seven
Investment Subdivisions available under the Policy. 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. The Funds may, in the future, activate additional portfolios.
Before choosing the Investment Subdivisions to allocate your Net Premium
and Account Value, carefully read the individual prospectuses for the Funds,
along with this prospectus. The investment objectives of each of the portfolios
are summarized below. There is no assurance that these objectives will be met.
THE FUNDS
Account II currently invests in ten 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 such 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 performance of any other portfolio. Some of the Funds
may, in the future, create additional portfolios.
Each of the Funds sells its shares to 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. A summary of these termination
provisions may be found in the Statement of Additional Information. Should an
agreement between Life of Virginia and a Fund terminate, the Account will not
be able to purchase additional shares of that Fund. In that event, Policyowners
will no longer be able to allocate Account 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 Account II 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 account values or premium payments to
Investment Subdivisions investing in shares of that Fund or portfolio.
Certain Investment Subdivisions 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.
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).
Janus Aspen Series
The Janus Aspen Series has seven portfolios that are currently available
under this Policy: Growth Portfolio, Aggressive Growth Portfolio, Worldwide
Growth Portfolio, International Growth Portfolio, Balanced Portfolio, Flexible
Income Portfolio, and Capital Appreciation Portfolio
Growth Portfolio has the investment objective of long-term capital growth
in a manner consistent with the preservation of capital. The Growth Portfolio
is a diversified portfolio that pursues its objective by investing in common
stocks of companies of any size. Generally, this portfolio emphasizes larger,
more established issuers.
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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 Janus Aspen Series, which
should be read carefully before investing.
Capital Appreciation Portfolio has the investment objective of seeking
long-term growth of capital by investing primarily in common stocks of
companies of any size.
Janus Capital Corporation serves as investment adviser to Janus Aspen
Series.
Variable Insurance Products Fund
Variable Insurance Products Fund has three portfolios that are currently
available under this Policy: VIP Equity-Income Portfolio, VIP Overseas
Portfolio and VIP Growth Portfolio.
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 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.
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.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund.
Variable Insurance Products Fund II
Variable Insurance Products Fund II has two portfolios that are currently
available under this Policy: VIPII Asset Manager Portfolio and VIPII Contrafund
Portfolio.
VIPII 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 money market instruments.
VIPII 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
Variable Insurance Products Fund II.
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Variable Insurance Products Fund III
Variable Insurance Products Fund III has two portfolios that are currently
available under this Policy: VIPIII Growth & Income Portfolio and VIPIII Growth
Opportunities Portfolio.
VIPIII Growth & Income Portfolio seeks high total return through a
combination of current income and capital appreciation by investing mainly in
equity securities.
VIPIII Growth Opportunities Portfolio seeks capital growth by investing
primarily in common stock and securities convertible to common stock.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund III.
GE Investments Funds, Inc.
GE Investments Funds, Inc. (GE Investments Funds) has nine portfolios that
are currently available under this Policy: S&P 500 Index Fund, Money Market
Fund, Total Return Fund, International Equity Fund, Real Estate Securities
Fund, Global Income Fund, Value Equity Fund, Income Fund and U.S. Equity Fund.
The U.S. Equity Fund is not available in California at this time.
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.
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.
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.
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.
Income Fund has the investment objective or providing maximum income
consistent with prudent investment management and preservation of capital by
investing primarily in income-bearing debt securities and other income bearing
instruments.
U.S. Equity Fund has the investment objective of providing long term
growth of capital by investing primarily in equity securities of U.S.
companies.
GE Investment Management Incorporated serves as investment adviser to GE
Investments Funds.
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(1)"Standard & Poor's," "S&P," and "S&P 500" are trademarks of Mc-Graw 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, regarding the advisability of investing in this
Fund or the Policy.
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Oppenheimer Variable Account Funds
Oppenheimer Variable Account Funds has five portfolios that are currently
available under this Policy: Oppenheimer High Income Fund, Oppenheimer Bond
Fund, Oppenheimer Aggressive Growth 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.
Secondarily, this Fund seeks capital growth when consistent with its primary
objective. Bond Fund will, under normal market conditions, invest at least 65%
of its total assets in investment grade debt securities.
Oppenheimer Aggressive Growth Fund seeks to achieve capital appreciation
by investing in "growth-type" companies. Prior to May 1, 1998 this fund was
known as Capital Appreciation Fund.
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.
OppenheimerFunds, Inc. serves as investment adviser to Oppenheimer
Variable Accounts Funds.
Federated Insurance Series
The Federated Insurance Series has three portfolios that are currently
available under this Policy: 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.
Federated Advisers serves as investment adviser to Federated Insurance
Series.
The Alger American Fund
The Alger American Fund has two portfolios that are currently available
under this Policy: Alger American Growth Portfolio and Alger American Small
Capitalization Portfolio.
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.
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
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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 combined range and in excess of that amount (up to 100% of its
assets) during temporary defensive periods.
Fred Alger Management, Inc. serves as the investment manager to The Alger
American Fund.
PBHG Insurance Series Fund, Inc.
PBHG Insurance Series Fund, Inc. (PBHG Insurance Series Fund) has two
portfolios that are currently available under this Policy: Growth II Portfolio
and Large Cap Growth Portfolio.
Growth II Portfolio seeks capital appreciation by investing at least 65%
of its total assets in equity securities of small and medium sized growth
companies (market capitalization of up to $4 billion) that, in the adviser's
opinion, have an outlook for strong earnings growth and the potential for
significant capital appreciation.
Large Cap Growth Portfolio seeks long-term growth of capital by investing
primarily in the equity securities of large capitalization companies (market
capitalization of greater than $1 billion) that, in the adviser's opinion, have
an outlook for strong growth in earnings and potential for capital
appreciation.
Pilgrim Baxter & Associates, Ltd. serves as the investment adviser to PBHG
Insurance Series Fund, Inc.
Goldman Sachs Variable Insurance Trust
Goldman Sachs Variable Trust has two portfolios that are currently under
this Policy: Goldman Sachs Growth and Income Fund and Goldman Sachs Mid Cap
Equity Fund. These funds are not available in California at this time.
Goldman Sachs Growth and Income Fund seeks long-term capital income,
primarily through equity securities that, in the management team's view, offer
favorable capital appreciation and/or dividend-paying ability.
Goldman Sachs Mid Cap Equity Fund seeks to meet its objective primarily
through investments in equity securities of companies with public stock market
capitalizations within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion).
Goldman Sachs Asset Management serves as Investment Adviser to Goldman
Sachs Variable Insurance Trust.
Transfers. You may transfer Account Value among the Investment
Subdivisions at any time after the end of the free look period. Transfer
requests may be made in writing or in any other form acceptable to us. A
transfer will take effect as of the end of the Valuation Period during which we
receive your request at our Home Office.
We may defer transfers under the same conditions that we may delay paying
proceeds. See "Requesting Payments." Currently, there is no limit on the number
of transfers among the Investment Subdivisions, but we reserve the right to
limit the number of transfers to twelve each calendar year. However, there is a
$10 transfer charge for each transfer after the first transfer in any calendar
month. The transfer charge is taken from the amount transferred. For purposes
of assessing this fee, each transfer request is considered one transfer,
regardless of the number of Investment Subdivisions affected by the transfer.
We reserve the right to modify, restrict, suspend or eliminate the transfer
privileges, including telephone transfer privileges, at any time, for any
reason.
Dollar-Cost Averaging. The dollar-cost averaging program permits you to
systematically transfer on a monthly or quarterly basis a set dollar amount
from the Investment Subdivision investing in the Money Market Fund of GE
Investments Funds to any combination of other Investment Subdivisions. The
dollar-cost averaging method of investment is designed to reduce the risk of
making purchases only when the price of units is high, but you should carefully
consider your financial ability to continue the program over a long enough
period of time to purchase units when their value is low as well as when it is
high. Dollar-cost averaging does not assure a profit or protect against a loss.
You may participate in the dollar-cost averaging program by selecting the
program on the application, completing a dollar-cost averaging agreement, or
calling our Home Office. To use the dollar-cost averaging program, you must
transfer at least $100 from the Money Market Investment Subdivision with each
transfer. Any amount allocated or transferred must also conform to the minimum
percentage requirements for Net Premium allocations. See "Net Premium
Allocations." Once elected, dollar-cost averaging remains in effect from the
date we receive your request until the value of the Investment Subdivision from
which transfers are being made is depleted, or until you cancel the program by
written request or by telephone if we have your telephone authorization on
file. There is no additional charge for dollar-cost averaging. A transfer under
this program will not count toward the free transfer permitted each calendar
month nor any limit on the maximum
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number of transfers we may impose for a calendar year. We reserve the right to
discontinue offering or to modify the dollar-cost averaging program at any time
and for any reason.
Portfolio Rebalancing. Once your money has been allocated among the
Investment Subdivisions, the performance of each Investment Subdivision may
cause your allocation to shift. You may instruct us to automatically rebalance
(on a quarterly, semi-annual or annual basis) your Account Value to return to
the percentages specified in your allocation instructions. You may elect to
participate in the portfolio rebalancing program at any time by completing the
portfolio rebalancing agreement. Your percentage allocations must be in whole
percentages and be at least 1% per allocation. Subsequent changes to your
percentage allocations may be made at any time by written or telephone
instructions to the Home Office. Once elected, portfolio rebalancing remains in
effect from the date we receive your written request until you instruct us to
discontinue portfolio rebalancing. There is no additional charge for using
portfolio rebalancing, and a portfolio rebalancing transfer is not considered a
transfer for purposes of assessing a transfer charge nor for calculating any
limit on the maximum number of transfers we may impose for a calendar year. We
reserve the right to discontinue offering the portfolio rebalancing program at
any time and for any reason. Portfolio rebalancing does not guarantee a profit
or protect against loss.
Powers of Attorney. As a general rule and as a convenience to you, we
allow the use of powers of attorney whereby you give a third party the right to
effect transfers on your behalf. However, when the same third party possesses
powers of attorney executed by many Owners, the result can be simultaneous
transfers involving large amounts of Account Value. Such transfers can disrupt
the orderly management of the Funds underlying the Policy, can result in higher
costs to Owners, and are generally not compatible with the long-range goals of
Owners. We believe that such simultaneous transfers effected by such third
parties are not in the best interests of all shareholders of the Funds
underlying the Policies, and this position is shared by the managements of
those Funds.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, we may not honor such powers of attorney and have instituted or will
institute procedures to assure that the transfer requests that we receive have,
in fact, been made by the Owners in whose names they are submitted. These
procedures will not, however, prevent Owners from making their own transfer
requests.
CHARGES AND DEDUCTIONS
The following charges are deducted. Certain of the charges depend on a
number of variables, and are illustrated in the hypothetical illustrations
below. The charges are for the services and benefits provided, costs and
expenses incurred, and risks assumed by us under or in connection with the
Policies. The services and benefits provided include: the cash and death
benefits provided by the Policy; investment options, including Net Premium
allocations, dollar-cost averaging and portfolio rebalancing programs;
administration of various elective options under the Policy; and the
distribution of various reports to Owners. The costs and expenses incurred
include: those associated with underwriting applications, increases in
Specified Amount, and riders; various overhead and other expenses associated
with providing the services and benefits provided by the Policy; sales and
marketing expenses; and other costs of doing business, such as federal, state
and local premium and other taxes and fees. The risks assumed include the risks
that insureds may live for a shorter period of time than estimated, resulting
in the payment of greater death benefits than expected, and that the costs of
providing the services and benefits under the Policies will exceed the charges
deducted.
We may profit from any charges deducted, such as the mortality and expense
risk charge. We may use any such profits for any purpose, including payment of
distributions expenses.
Premium Charge. We currently deduct an 8% charge (10% maximum) from each
premium before allocating the resulting Net Premium to the Investment
Subdivisions. A premium charge will not be assessed against the policy loan
portion of a premium received from the rollover of a life insurance policy.
Mortality and Expense Risk Charge. We currently deduct a daily charge from
assets in the Investment Subdivisions attributable to the Policies at an
effective annual rate of 0.70% of net assets. This charge is guaranteed not to
exceed an effective annual rate of 0.70% of net assets. This charge is factored
into the net investment factor. See "How Your Account Values Vary."
The mortality risk assumed is the risk that Insureds may live for a
shorter period of time than estimated and, therefore, a greater amount of Death
Benefit 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. If proceeds from this charge are not needed to cover
mortality and expense risks, Life of Virginia may use proceeds to finance
distribution of the Policies.
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Monthly Deduction. We make a monthly deduction on the Policy Date and each
Monthly Anniversary Day from Account Value. The monthly deduction for each
Policy consists of (1) the cost of insurance charge discussed below, (2) a
current monthly policy charge of $15 in the first Policy Year ($15 per month
maximum in the first Policy Year) and $6 per month thereafter ($12 per month
maximum after the first Policy Year), and (3) any charges for additional
benefits added by riders to the Policy (see "Supplemental Benefits"). If an
increase in Specified Amount becomes effective, there will be a one-time charge
(per increase) of $1.50 per $1,000 of increase included in the monthly
deduction (it can not exceed $300 per increase). See "Change in Existing
Coverage."
Surrender Charge. If the Policy is fully surrendered during the surrender
charge period, we will deduct a surrender charge. The surrender charge is
calculated by multiplying a factor times the lowest Specified Amount in effect
prior to the surrender, divided by 1000. The Factor depends on the issue age,
sex (where applicable), and risk class to the Insured. The surrender charge
remains level for the first five Policy Years and then decreases each Policy
month to zero over the next 10 Policy Years or at Age 95, whichever is earlier.
The surrender charge will be deducted before the Surrender Value is paid.
The chart below lists the minimum and maximum surrender charges per Policy
Year. Your surrender charge will depend on the applicable Factor and the Policy
Year in which your surrender occurs.
Minimum Surrender Charges Factors by Maximum surrender Charges Factors by
Policy Year Policy Year
Rate Per 1000 Rate Per 1000
Policy Year of Specified Amount Policy Year of Specified Amount
- ------------- --------------------- ------------- --------------------
1 $ 4.09 1 $ 51.36
2 4.09 2 51.36
3 4.09 3 51.36
4 4.09 4 51.36
5 4.09 5 51.36
6 3.68 6 46.22
7 3.27 7 41.08
8 2.86 8 35.95
9 2.45 9 30.81
10 2.04 10 25.68
11 1.63 11 20.54
12 1.22 12 15.40
13 0.81 13 10.27
14 0.40 14 5.13
15 0 15 0
Decreases in the Specified Amount to less than the lowest Specified Amount
that had previously been in effect (other than as a result of partial
surrenders or changes in Death Benefit Options), will also incur a surrender
charge. The amount of surrender charge will be the charge for a full surrender
multiplied by the ratio of (a) to (b), where:
(a) is the lowest Specified Amount that was in effect prior to the current
decrease, minus the Specified Amount after the current decrease; and
(b) is the lowest Specified Amount that was in effect prior to the current
decrease. (See Partial Surrenders under SURRENDER BENEFITS.)
Surrender charges are disclosed on the data pages to the policy. Upon
request, we will furnish you with an illustration showing the surrender charges
applicable to your Policy.
A surrender charge is not imposed in connection with a partial surrenders.
(See "Partial Surrenders" under "SURRENDER BENEFITS".)
Cost of Insurance. The cost of insurance is a significant charge under
your Policy because it is the primary charge for the death benefit provided by
your Policy. The cost of insurance charge depends on a number of variables that
cause the charge to vary from Policy to Policy and from Monthly Anniversary Day
to Monthly Anniversary Day. It is calculated separately for the Specified
Amount at issue and for any increase in the Specified Amount. The cost of
insurance is calculated on each Monthly Anniversary Day and is based on the net
amount at risk. The net amount at risk is calculated by dividing the Life
Insurance Proceeds by 1.0032737, and then subtracting the Account Value. To
determine the cost of insurance for a particular Policy Month, we divide the
net amount at risk by 1000 and multiply that result by the applicable cost of
insurance rate. If Option B is in effect, and the Specified Amount has
increased, the Account Value is first considered part of the initial Specified
Amount. If the Account Value is more than the initial Specified Amount, it will
be considered part of the increased Specified Amounts resulting from increases
in the order of the increases.
The monthly cost of insurance rate is based on the Insured's sex (where
appropriate), Age at issue, policy duration and risk class. The risk class
(and, therefore, the cost of 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 we currently charge are, at most ages,
lower than the maximum permitted under the Policies and are determined by us
according to our expectation of future experience with respect to mortality,
expenses, persistency, and taxes. The rates may be changed from time to time at
our sole discretion, but will never be more than the 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 monthly cost of insurance rate generally increases as the Insured's
Age increases. Therefore, the older the Insured, the higher the investment
experience necessary to achieve the same impact on Life Insurance Proceeds and
Account Value. See "Hypothetical Illustrations" for examples showing the
effects of the cost of insurance charge.
Other Charges. If you request a projection of illustrative future life
insurance under the Policy and Policy values, we reserve the right to charge a
maximum fee of $25 for the cost of preparing the projection. See also
"Transfers," for a discussion of the transfer charge, and "Partial Surrenders,"
for a discussion of the partial surrender processing fee.
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<PAGE>
Reduction of Charges for Group Sales. Charges and/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 charges or deductions will be determined by us based on the
following factors:
1. The size of the group. Generally, the sales expenses for each individual
owner 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 premium payments to be received from a group. Per
Policy sales and other expenses are generally proportionately less on
larger premium 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, our sales and other expenses are 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, our sales and other expenses are reduced.
5. There may be other circumstances of which we are not presently aware,
which could result in reduced sales expenses.
If, after consideration of the foregoing factors, we determine that a
group purchase would result in reduced sales expenses, such a group may be
entitled to a reduction in charges and/or deductions. Reductions in these
charges and/or deductions will not be unfairly discriminatory against any
person, including the affected owners and all other owners of Policies funded
by Separate Account II.
HOW YOUR ACCOUNT VALUE VARIES
Account Value. The Account Value serves as a starting point for
calculating certain values under a Policy. It is the sum of the Account Value
in each Investment Subdivision and the Account Value held in the General
Account to secure Policy Debt. See "Loan Benefits." The Account Value is
determined first on the Policy Date and thereafter on each Valuation Day. The
Account Value will vary to reflect the performance of the Investment
Subdivisions to which amounts have been allocated and Policy Debt, charges,
transfers, partial surrenders, Policy loan interest, and Policy loan
repayments. It may be more or less than premiums paid.
Surrender Value. The Surrender Value on a Valuation Day is the Account
Value reduced by both any surrender charge that would be deducted if the Policy
were surrendered that day and any Policy Debt.
Investment Subdivision Values. On any Valuation Day, the value of an
Investment Subdivision is equal to the number of Investment Subdivision units
credited to the Policy multiplied by the Unit Value for that day. When
allocations are made to an Investment Subdivision, either by Net Premium
allocation, transfer of Account Value, transfer of loan interest from the
General Account, or repayment of a Policy loan, your Policy is credited with
units in that Investment Subdivision. The number of units is determined by
dividing the amount allocated, transferred or repaid to the Investment
Subdivision by the Investment Subdivision's Unit Value for the Valuation Day
when the allocation, transfer or repayment is effected. The number of units
credited to a Policy will decrease whenever the allocated portion of the
monthly deduction is taken from the Investment Subdivision, a Policy loan is
taken from the Investment Subdivision, an amount is transferred from the
Investment Subdivision, a partial surrender is taken from the Investment
Subdivision, or the Policy is surrendered.
Unit Values. An Investment Subdivision's Unit Value varies to reflect the
investment experience of the underlying Fund, and may increase or decrease from
one Valuation Day to the next. The unit value for each Investment Subdivision
was arbitrarily set at $10 when the Investment Subdivision was established. For
each Valuation Period after the date of establishment, the Unit Value is
determined by multiplying the value of a unit for an Investment Subdivision for
the prior Valuation Period by the net investment factor for the Investment
Subdivision for the current Valuation Period.
Net Investment Factor. The net investment factor is an index used to
measure the investment performance of an Investment Subdivision from one
Valuation Period to the next. The net investment factor reflects the change in
the net asset value of each share of the Fund held in the Investment
Subdivision from one Valuation Period to the next, adjusted for the daily
deduction of the mortality and expense risk charge from assets in the
Investment Subdivision. If any "ex-dividend" date occurs during the Valuation
Period, the per share amount of any dividend or capital gain distribution is
taken into account.
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<PAGE>
Also, if any taxes need to be reserved, a per share charge or credit for any
taxes reserved for, which is determined by us to have resulted from the
operations of the Investment Subdivision, is taken into account.
DEATH BENEFITS
As long as the Policy remains in force, we will pay the death benefit upon
receipt at our Home Office of satisfactory proof of the Insured's death. See
"Requesting Payments." The death benefit will be paid to the Beneficiary.
Amount of Death Benefit Payable. The amount of death benefit payable
equals the Life Insurance Proceeds determined under the Death Benefit Option in
effect on the date of the Insured's death, plus any supplemental death benefits
provided by rider, minus any Policy Debt on that date and, if the date of death
occurred during a grace period, minus the premium that would have been required
to keep the Policy in force. Under certain circumstances, the amount of the
death benefit payable may be further adjusted. See "OTHER POLICY PROVISIONS --
Incontestability" and "Misstatement of Age or Sex."
Death Benefit Options. Under Option A, the Life Insurance Proceeds equals
the greater of (1) the Specified Amount plus the Account Value, or (2) the
applicable corridor percentage of the Account Value as determined using the
table of percentages shown below. Under Option B, the Life Insurance Proceeds
equals the greater of (1) the Specified Amount, or (2) the applicable corridor
percentage of the Account Value as determined using the table of percentages
shown below. Under both options, the Specified Amount and Account Value are
determined on the date of the Insured's death. The percentage is 250% to Age 40
and declines thereafter as the Insured's Attained Age increases. If the table
of percentages currently in effect becomes inconsistent with any federal income
tax laws and/or regulations, we reserve the right to change the table.
<TABLE>
<CAPTION>
Table of Percentages of Account Value
- --------------------------------------------------------------------------------------------
Corridor Corridor Corridor
Attained Age Percentage Attained Age Percentage Attained Age Percentage
- -------------- ------------ -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
0-40 250% 54 157% 68 117%
41 243% 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 - 90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94+ 101%
52 171% 66 119%
53 164% 67 118%
</TABLE>
Under Option A, the Life Insurance Proceeds will vary directly with the
investment performance of the Account Value. Under Option B, the Life Insurance
Proceeds ordinarily will not change until the applicable percentage amount of
the Account Value exceeds the Specified Amount or you change the Specified
Amount. To see how and when investment performance may begin to affect the Life
Insurance Proceeds, please see the hypothetical illustrations below.
Changing the Death Benefit Option. You select the Death Benefit Option
when you apply for the Policy. You may change the Death Benefit Option on your
Policy subject to the following rules. Each change must be submitted by written
request received by our Home Office. The effective date of the change will be
the Monthly Anniversary Day after we receive the request for the change. We
will send you revised Policy schedule pages reflecting the new Death Benefit
Option and the effective date of the change. If you request a change from
Option A to Option B, the Specified Amount will be increased by the Account
Value on the effective date of the increase. If you request a change from
Option B to Option A, the Specified Amount after the change will be decreased
by the Account Value on the effective date of the change. A change in Death
Benefit Option will affect the cost of insurance charges.
Accelerated Benefit Rider. Provided the Accelerated Benefit Rider to the
Policy is approved in your state, you may elect an accelerated benefit if the
Insured is terminally ill. For purposes of determining if an accelerated
benefit is available, terminal illness is defined as a medical condition
resulting from bodily injury, or disease, or both: (1) which has been diagnosed
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<PAGE>
by a licensed physician; (2) which diagnosis is supported by clinical,
radiological, laboratory or other evidence which is satisfactory to us; and (3)
which a licensed physician certifies is expected to result in death within 12
months from the date of such certification. Any request for payment of an
accelerated benefit must be in a form satisfactory to us, and any payment of an
accelerated benefit requires satisfactory proof of a terminal illness and is
subject to our administrative procedures as well as the conditions set forth in
the Accelerated Benefit Rider.
The accelerated benefit available under the Accelerated Benefit Rider
equals the Eligible Proceeds: (1) discounted for the life expectancy of the
Insured at the rate of interest charged for Policy loans; (2) less the product
of the ratio of the Eligible Proceeds to the Total Proceeds and the amount of
the single premium required to keep the Policy in effect for the life
expectancy of the Insured assuming current cost of insurance rates, current
expense charges, and the interest rate stated; and (3) less the product of the
ratio of the Eligible Proceeds to the Total Proceeds and the Policy Debt on the
date of the accelerated benefit payment.
If the Eligible Proceeds are equal to the Life Insurance Proceeds
otherwise payable on the death of the Insured, then payment of the accelerated
benefit will result in termination of all insurance coverage on the life of the
Insured and any insurance coverage under the Policy and riders on any other
named insured will be treated as if the Insured had died. If the Eligible
Proceeds are less than the Life Insurance Proceeds otherwise payable on the
death of the Insured, then the Policy will continue with the Specified Amount,
Account Value, Policy Debt and any additional term rider coverage on such
Insured reduced by the ratio of Eligible Proceeds to Total Proceeds. We will
waive any surrender charge for the resulting decrease in Specified Amount as
well as the minimum Specified Amount requirement under the Policy. Other rider
benefits will continue without reduction.
Effect of Partial Surrenders on Life Insurance Proceeds. A partial
surrender will reduce both the Account Value and the Life Insurance Proceeds by
the amount of the partial surrender. We will not permit partial surrenders
during the first Policy Year if Death Benefit Option B is in effect.
Change in Existing Coverage. After a Policy has been in effect for one
year, you may increase or decrease the Specified Amount. To make a change, you
must send a written request and the Policy to our 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 your cost of insurance. See "Monthly
Deduction" and Cost of Insurance." In addition, any change in the Specified
Amount affects the maximum premium limitation. If decreases in the Specified
Amount cause the premiums to exceed new lower limitations required by federal
tax law, the excess will be withdrawn from Account Value and refunded so that
the Policy will continue to meet these requirements. The Account Value so
withdrawn and refunded will be withdrawn from each Investment Subdivision in
the same proportion that the Account Value in that Investment Subdivision bears
to the total Account Value in all Investment Subdivisions under the Policy at
the time of the withdrawal (i.e. on a pro-rata basis).
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 Continuation Period, we will not allow a decrease
unless the Account Value less any Policy Debt is greater than the surrender
charge. The Specified Amount following a decrease can never be less than the
minimum Specified Amount for the Policy when it was issued. A decrease may
cause a surrender charge to be assessed and may require a payment to you of
excess Account Value.
To apply for an increase, you must complete a supplemental application and
submit evidence of insurability satisfactory to us. 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 monthly deduction 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 decrease becomes effective. This
charge will never exceed $300 per increase.
A change in the existing insurance coverage may have federal tax
consequences. See "TAX CONSIDERATIONS."
Changing the Beneficiary. If the right is reserved, the Beneficiary may
also be changed during the Insured's life. To make a change, send a written
request to our Home Office. The request and the change must be in a form
satisfactory to us and must actually be received by us. The change will take
effect as of the date you signed the request.
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<PAGE>
LOAN BENEFITS
You may borrow up to 90% of the difference between (1) your Account Value
at the end of the Valuation Period during which the loan request is received,
and (2) any surrender charges on the date of the loan. See "Requesting
Payments." Requests for Policy loans may be made in writing or by telephone.
See "REQUESTING PAYMENTS AND TELEPHONE TRANSACTIONS." Outstanding Policy Debt,
including accrued interest, reduces the amount available for new loans.
When a loan is made, an amount equal to the loan proceeds is transferred
from the Account Value in Separate Account II to our General Account and is
held as "collateral" for the loan. If you do not direct an allocation for this
transfer when requesting the loan we will make it on a pro-rata basis. When a
loan is repaid, an amount equal to the repayment is transferred from our
General Account to Separate Account II and allocated as you direct when
submitting the repayment. If you provide no direction, the amount will be
allocated in accordance with your standing instructions for Net Premium
allocations.
A portion of Policy loans taken or existing on or after the Preferred Loan
Availability Date (as shown on the Policy data pages) will be designated as
Preferred Policy Debt. In Policy Years 11 through 20, Preferred Policy Debt
will be that portion of Policy Debt which equals the difference between the
Account Value and the sum of all premium payments made. After the 20th Policy
Year, Preferred Policy Debt will be that portion of Policy Debt which equals
130% of the difference between the Account Value and the sum of all premium
payments made. We redetermine the amount of Preferred Policy Debt each Policy
Month. We currently intend to credit interest at an annual rate of 6% to that
portion of Account Value transferred to the General Account which is equal to
Preferred Policy Debt. We reserve the right to change, at our sole discretion,
the rate of interest credited to the amount of Account Value transferred to the
General Account and guarantee that Preferred Policy Debt will earn at least a
minimum annual interest rate of 4%. An annual rate of 4% is and will be
credited to that portion of Account Value transferred to the General Account
which exceeds Preferred Policy Debt.
Interest. We will charge interest daily on any outstanding Policy loan at
an effective annual rate of 6%. Interest is due and payable at the end of each
Policy Year while a Policy loan is outstanding. If, on any Policy Anniversary,
interest accrued since the last Policy Anniversary has not been paid, the
amount of the interest is added to the loan and becomes part of the outstanding
Policy Debt. Interest transferred out of Separate Account II will be
transferred from each Investment Subdivision on a pro-rata basis.
Repayment of Policy Debt. You may repay all or part of your Policy Debt at
any time while the Insured is living and the Policy is in force. Any payments
by you other than planned periodic premiums will be treated first as the
repayment of any outstanding Policy Debt. The portion of the payment in excess
of any outstanding Policy Debt will be treated as an unscheduled premium
payment. We will first apply any repayment to reduce the portion of Policy Debt
that is not Preferred Policy Debt. Loan repayments must be sent to our Home
Office and will be credited as of the date received. A Policy loan repayment is
not treated as a premium payment and is not subject to the current 8% premium
charge.
Effect of Policy Loan. A Policy loan, whether or not repaid, will affect
Policy values over time because the investment results of the Investment
Subdivisions will apply only to the non-loaned portion of the Account Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Investment Subdivisions while the
Policy loan is outstanding, the effect could be favorable or unfavorable.
Policy loans, particularly if not repaid, could make it more likely than
otherwise for a Policy to terminate. See "Tax Considerations," below, for a
discussion of adverse tax consequences if a Policy lapses with Policy loans
outstanding. If the death benefit becomes payable while there is an outstanding
Policy loan, Policy Debt will be deducted from the Life Insurance Proceeds. If
Policy Debt exceeds the Account Value less any applicable surrender charge on
any Monthly Anniversary Day and the Continuation Period is not in effect, the
Policy will lapse without payment of a required loan payment. During the
Continuation Period, if Policy Debt on any Monthly Anniversary Day exceeds the
Account Value less any applicable surrender charge, and the Net Total Premium
is less than the Continuation Amount, your Policy will lapse without payment of
a required loan payment. In either event, we will mail to you notice of the
amount required to be paid to keep the Policy in force, and you will have a
61-day grace period from the date we mail the notice to make the required loan
payment.
SURRENDER BENEFITS
Full Surrender. You may surrender your Policy at any time for its
Surrender Value. See "Requesting Payments." A surrender charge may apply. See
"Schedule of Surrender Charge." Your Policy will terminate and cease to be in
force if it is surrendered for a lump sum. It cannot later be reinstated.
Partial Surrender. You may make partial surrenders under your Policy. See
"Requesting Payments." Requests for partial surrenders may be made in writing
or by telephone. See "REQUESTING PAYMENTS AND TELEPHONE TRANSACTIONS."
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<PAGE>
The minimum partial surrender amount is $500. A partial surrender processing
fee equal to the lesser of $25 or 2% of the amount surrendered will be assessed
for a partial surrender. The amount of a partial surrender will equal the
amount requested for surrender plus the partial surrender processing fee. When
you request a partial surrender, you can direct how the partial surrender will
be deducted from your Account Value. If you provide no directions, the partial
surrender will be deducted from your Account Value in the Investment
Subdivisions on a pro-rata basis.
HYPOTHETICAL ILLUSTRATIONS
The following illustrations show how certain values under a sample Policy
change with assumed investment performance over an extended period of time. In
particular, they illustrate how Account Values, Surrender Values and Life
Insurance Proceeds payable under a Policy covering an Insured of a given Age on
the Policy Date, would vary over time. The illustrations assume planned
premiums were paid annually and the return on the assets in the Investment
Subdivisions were a uniform gross annual rate of 0%, 6% or 12%, before
deduction of any fees and charges. The values reflect the deduction of all
Policy and Fund fees and charges. The tables also show planned premiums
accumulated at 5% interest. The values under a Policy would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The hypothetical investment rates of
return are illustrative only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return for a particular
Policy may be more or less than the hypothetical investment rates of return
used in the illustrations.
The illustrations assume an average annual expense ratio of .80% of the
average daily net assets of the Funds available under the Policies, based on
the estimated expense ratios of each of the Funds incurred in 1997, or on
estimates, as may be the case. For information on Fund expenses, see the
prospectus for the Funds accompanying this prospectus. 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 -1.50%, 4.50% and 10.50%,
respectively.
The illustrations also reflect the monthly deduction for the hypothetical
Insured. Our current charges and the higher guaranteed charges we have the
contractual right to charge are reflected in separate illustrations on each of
the following pages. All the illustrations reflect the fact that no charges for
Federal or state income taxes are currently made against Separate Account II
and assume no Policy Debt or charges for supplemental benefits.
The illustrations are based on our sex distinct rates for non-tobacco
users. Upon request, we will furnish a comparable illustration based upon the
proposed Insured's individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated.
22
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 45 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $ 13,100
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,755 6,485 10,613 260,613 7,160 11,287 261,287 7,835 11,963 261,963
2 28,198 16,908 21,035 271,035 18,923 23,051 273,051 21,021 25,149 275,149
3 43,363 27,102 31,229 281,229 31,142 35,269 285,269 35,515 39,642 289,642
4 59,286 37,066 41,194 291,194 43,831 47,958 297,958 51,449 55,577 305,577
5 76,005 46,795 50,922 300,922 57,001 61,129 311,129 68,964 73,091 323,091
6 93,560 56,700 60,413 310,413 71,085 74,798 324,798 88,636 92,348 342,348
7 111,993 66,352 69,652 319,652 85,669 88,969 338,969 110,211 113,511 363,511
8 131,348 75,739 78,626 328,626 100,760 103,647 353,647 133,873 136,761 386,761
9 151,670 84,849 87,324 337,324 116,365 118,840 368,840 159,827 162,302 412,302
10 173,009 93,666 95,728 345,728 132,485 134,548 384,548 188,289 190,351 440,351
15 296,813 132,870 132,870 382,870 220,984 220,984 470,984 377,736 377,736 627,736
20 454,822 159,932 159,932 409,932 320,251 320,251 570,251 676,811 676,811 926,811
25 656,486 172,222 172,222 422,222 429,282 429,282 679,282 1,152,853 1,152,853 1,402,853
30 913,866 162,092 162,092 412,092 540,596 540,596 790,596 1,909,584 1,909,584 2,159,584
35 1,242,356 115,980 115,980 365,980 637,342 637,342 887,342 3,109,913 3,109,913 3,359,913
</TABLE>
- ---------
(1) The values illustrated assume the planned premium of $13,100 is paid at
the beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
23
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 45 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $ 13,100
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical
Gross Annual Investment 6% Assumed Hypothetical 12% Assumed Hypothetical
Return with Maximum Charges Gross Annual Investment Gross Annual Investment
Premiums (2)(3) Return with Maximum Charges (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ---------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,755 6,853 10,981 260,981 7,548 11,675 261,675 8,242 12,370 262,370
2 28,198 17,718 21,845 271,845 19,798 23,925 273,925 21,962 26,089 276,089
3 43,363 28,357 32,484 282,484 32,535 36,662 286,662 37,056 41,183 291,183
4 59,286 38,768 42,896 292,896 45,775 49,902 299,902 53,662 57,790 307,790
5 76,005 48,949 53,077 303,077 59,534 63,661 313,661 71,933 76,061 326,061
6 93,560 59,325 63,038 313,038 74,257 77,970 327,970 92,466 96,179 346,179
7 111,993 69,475 72,775 322,775 89,546 92,846 342,846 115,030 118,330 368,330
8 131,348 79,387 82,274 332,274 105,409 108,297 358,297 139,823 142,710 392,710
9 151,670 89,061 91,536 341,536 121,870 124,345 374,345 167,075 169,550 419,550
10 173,009 98,482 100,545 350,545 138,935 140,997 390,997 197,023 199,085 449,085
15 296,813 144,178 144,178 394,178 236,845 236,845 486,845 401,060 401,060 651,060
20 454,822 183,027 183,027 433,027 354,532 354,532 604,532 731,901 731,901 981,901
25 656,486 214,308 214,308 464,308 495,805 495,805 745,805 1,270,886 1,270,886 1,520,886
30 913,866 235,572 235,572 485,572 662,975 662,975 912,975 2,148,842 2,148,842 2,398,842
35 1,242,356 243,723 243,723 493,723 858,130 858,130 1,108,130 3,580,836 3,580,836 3,830,836
</TABLE>
- ---------
(1) The values illustrated assume the planned premium of $13,100 is paid at
the beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although Life of Virginia anticipates
deducting these charges for the forseeable 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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
24
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 45 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 5,000
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,250 0 3,445 250,000 0 3,683 250,000 0 3,922 250,000
2 10,763 2,693 6,821 250,000 3,388 7,515 250,000 4,112 8,239 250,000
3 16,551 5,961 10,088 250,000 7,335 11,463 250,000 8,827 12,955 250,000
4 22,628 9,119 13,247 250,000 11,402 15,530 250,000 13,981 18,109 250,000
5 29,010 12,163 16,290 250,000 15,587 19,715 250,000 19,617 23,744 250,000
6 35,710 15,504 19,217 250,000 20,309 24,022 250,000 26,200 29,913 250,000
7 42,746 18,714 22,014 250,000 25,145 28,445 250,000 33,363 36,663 250,000
8 50,133 21,783 24,670 250,000 30,091 32,978 250,000 41,162 44,049 250,000
9 57,889 24,701 27,176 250,000 35,143 37,618 250,000 49,664 52,139 250,000
10 66,034 27,453 29,515 250,000 40,295 42,357 250,000 58,938 61,001 250,000
15 113,287 38,336 38,336 250,000 67,460 67,460 250,000 120,448 120,448 250,000
20 173,596 40,645 40,645 250,000 94,503 94,503 250,000 219,808 219,808 268,166
25 250,567 31,734 31,734 250,000 122,430 122,430 250,000 383,157 383,157 444,462
30 348,804 1,192 1,192 250,000 150,450 150,450 250,000 646,405 646,405 691,653
35 474,182 * * * 178,183 178,183 250,000 1,075,864 1,075,864 1,129,657
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep the policy in
effect.
(1) The values illustrated assume the planned premium of $5,000 is paid at the
beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
25
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 45 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 5,000
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,250 0 3,653 250,000 0 3,900 250,000 21 4,148 250,000
2 10,763 3,183 7,310 250,000 3,912 8,039 250,000 4,671 8,799 250,000
3 16,551 6,738 10,865 250,000 8,189 12,317 250,000 9,763 13,891 250,000
4 22,628 10,187 14,314 250,000 12,609 16,736 250,000 15,342 19,469 250,000
5 29,010 13,527 17,655 250,000 17,174 21,301 250,000 21,457 25,585 250,000
6 35,710 17,184 20,896 250,000 22,315 26,027 250,000 28,593 32,305 250,000
7 42,746 20,736 24,036 250,000 27,619 30,919 250,000 36,396 39,696 250,000
8 50,133 24,173 27,060 250,000 33,086 35,974 250,000 44,932 47,820 250,000
9 57,889 27,496 29,971 250,000 38,724 41,199 250,000 54,287 56,762 250,000
10 66,034 30,690 32,752 250,000 44,529 46,591 250,000 64,540 66,602 250,000
15 113,287 46,758 46,758 250,000 78,445 78,445 250,000 135,320 135,320 250,000
20 173,596 58,841 58,841 250,000 118,181 118,181 250,000 250,812 250,812 305,991
25 250,567 66,874 66,874 250,000 167,076 167,076 250,000 440,113 440,113 510,531
30 348,804 69,022 69,022 250,000 229,442 229,442 250,000 749,459 749,459 801,922
35 474,182 62,441 62,441 250,000 309,917 309,917 325,413 1,257,797 1,257,797 1,320,686
</TABLE>
- ---------
(1) The values illustrated assume the planned premium of $5,000 is paid at the
beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although Life of Virginia anticipates
deducting these charges for the forseeable 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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
26
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 55 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 8,300
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,715 0 5,289 250,000 0 5,671 250,000 0 6,054 250,000
2 17,866 3,567 10,382 250,000 4,667 11,482 250,000 5,816 12,631 250,000
3 27,474 8,426 15,241 250,000 10,586 17,401 250,000 12,935 19,750 250,000
4 37,563 13,045 19,860 250,000 16,613 23,428 250,000 20,656 27,471 250,000
5 48,156 17,406 24,221 250,000 22,738 29,553 250,000 29,036 35,851 250,000
6 59,279 22,175 28,307 250,000 29,636 35,769 250,000 38,828 44,961 250,000
7 70,958 26,651 32,101 250,000 36,616 42,066 250,000 49,431 54,881 250,000
8 83,220 30,803 35,573 250,000 43,660 48,430 250,000 60,932 65,702 250,000
9 96,097 34,601 38,689 250,000 50,753 54,841 250,000 73,440 77,528 250,000
10 109,616 38,004 41,412 250,000 57,872 61,279 250,000 87,080 90,487 250,000
15 188,057 47,990 47,990 250,000 93,711 93,711 250,000 179,648 179,648 250,000
20 288,170 36,373 36,373 250,000 125,474 125,474 250,000 337,031 337,031 360,623
25 415,942 * * * 154,759 154,759 250,000 595,006 595,006 624,756
30 579,015 * * * 183,794 183,794 250,000 1,001,900 1,001,900 1,051,995
35 787,141 * * * 223,493 223,493 250,000 1,625,091 1,625,091 1,706,346
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep the policy in
effect
(1) The values illustrated assume the planned premium of $8,300 is paid at the
beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
27
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 55 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 8,300
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,715 0 5,817 250,000 0 6,221 250,000 0 6,625 250,000
2 17,866 4,723 11,538 250,000 5,901 12,716 250,000 7,131 13,946 250,000
3 27,474 10,234 17,049 250,000 12,570 19,385 250,000 15,107 21,922 250,000
4 37,563 15,533 22,348 250,000 19,418 26,233 250,000 23,810 30,625 250,000
5 48,156 20,613 27,428 250,000 26,448 33,263 250,000 33,321 40,136 250,000
6 59,279 26,350 32,483 250,000 34,551 40,683 250,000 44,617 50,749 250,000
7 70,958 32,089 37,539 250,000 43,090 48,540 250,000 57,165 62,615 250,000
8 83,220 37,841 42,611 250,000 52,100 56,870 250,000 71,120 75,890 250,000
9 96,097 43,636 47,724 250,000 61,634 65,721 250,000 86,665 90,752 250,000
10 109,616 49,503 52,910 250,000 71,742 75,150 250,000 103,995 107,402 250,000
15 188,057 74,808 74,808 250,000 127,352 127,352 250,000 221,929 221,929 257,438
20 288,170 90,014 90,014 250,000 192,403 192,403 250,000 413,126 413,126 442,045
25 415,942 97,664 97,664 250,000 279,334 279,334 293,301 727,134 727,134 763,490
30 579,015 92,884 92,884 250,000 387,243 387,243 406,605 1,236,014 1,236,014 1,297,815
35 787,141 64,299 64,299 250,000 517,217 517,217 543,078 2,052,924 2,052,924 2,155,570
</TABLE>
- ---------
(1) The values illustrated assume the planned premium of $8,300 is paid at the
beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although Life of Virginia anticipates
deducting these charges for the forseeable 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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
28
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 65 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 14,300
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,015 0 7,435 250,000 0 8,043 250,000 0 8,655 250,000
2 30,781 3,323 14,413 250,000 5,023 16,113 250,000 6,805 17,895 250,000
3 47,335 9,792 20,882 250,000 13,076 24,166 250,000 16,666 27,756 250,000
4 64,717 15,735 26,825 250,000 21,110 32,200 250,000 27,243 38,333 250,000
5 82,967 21,125 32,215 250,000 29,115 40,205 250,000 38,640 49,730 250,000
6 102,131 27,008 36,990 250,000 38,164 48,146 250,000 52,075 62,058 250,000
7 122,252 32,077 40,949 250,000 46,986 55,859 250,000 66,462 75,335 250,000
8 143,380 36,474 44,236 250,000 55,754 63,516 250,000 82,179 89,942 250,000
9 165,564 39,941 46,596 250,000 64,280 70,935 250,000 99,343 105,998 250,000
10 188,857 42,346 47,891 250,000 72,509 78,054 250,000 118,277 123,822 250,000
15 324,002 33,289 33,289 250,000 108,536 108,536 250,000 261,260 261,260 274,323
20 496,485 * * * 124,871 124,871 250,000 503,509 503,509 528,685
25 716,622 * * * 89,032 89,032 250,000 876,473 876,473 920,297
30 997,579 * * * * * * 1,476,201 1,476,201 1,490,963
35 1,356,159 * * * * * * 2,459,603 2,459,603 2,484,199
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep the policy in
effect.
(1) The values illustrated assume the planned premium of $14,300 is paid at
the beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
29
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 65 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 14,300
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,015 0 9,754 250,000 0 10,443 250,000 45 11,135 250,000
2 30,781 8,190 19,280 250,000 10,197 21,287 250,000 12,292 23,382 250,000
3 47,335 17,380 28,470 250,000 21,357 32,447 250,000 25,680 36,770 250,000
4 64,717 26,234 37,324 250,000 32,860 43,950 250,000 40,363 51,453 250,000
5 82,967 34,753 45,843 250,000 44,740 55,830 250,000 56,528 67,618 250,000
6 102,131 44,460 54,443 250,000 58,546 68,529 250,000 75,884 85,867 250,000
7 122,252 54,229 63,101 250,000 73,204 82,077 250,000 97,566 106,438 250,000
8 143,380 64,198 71,961 250,000 88,893 96,656 250,000 121,966 129,729 250,000
9 165,564 74,354 81,009 250,000 105,651 112,306 250,000 149,377 156,032 250,000
10 188,857 84,753 90,298 250,000 123,572 129,117 250,000 180,155 185,700 250,000
15 324,002 128,178 128,178 250,000 225,608 225,608 250,000 391,605 391,605 411,185
20 496,485 156,616 156,616 250,000 351,994 351,994 369,593 725,841 725,841 762,133
25 716,622 180,740 180,740 250,000 504,742 504,742 529,980 1,262,505 1,262,505 1,325,630
30 997,579 205,847 205,847 250,000 695,027 695,027 701,977 2,141,022 2,141,022 2,162,432
35 1,356,159 239,818 239,818 250,000 936,551 936,551 945,917 3,599,185 3,599,185 3,635,177
</TABLE>
- ---------
(1) The values illustrated assume the planned premium of $14,300 is paid at
the beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although Life of Virginia anticipates
deducting these charges for the forseeable 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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
30
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 75 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 25,800
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 27,090 0 8,677 250,000 0 9,642 250,000 0 10,617 250,000
2 55,534 4,516 16,259 250,000 7,071 18,814 250,000 9,770 21,512 250,000
3 85,401 10,926 22,668 250,000 15,719 27,461 250,000 21,024 32,767 250,000
4 116,761 16,113 27,856 250,000 23,836 35,579 250,000 32,810 44,552 250,000
5 149,689 19,964 31,707 250,000 31,372 43,114 250,000 45,318 57,060 250,000
6 184,264 23,436 34,003 250,000 39,374 49,942 250,000 59,932 70,500 250,000
7 220,567 25,031 34,423 250,000 46,473 55,866 250,000 75,750 85,143 250,000
8 258,685 24,276 32,494 250,000 52,376 60,593 250,000 93,147 101,364 250,000
9 298,710 20,520 27,565 250,000 56,681 63,726 250,000 112,690 119,735 250,000
10 340,735 12,947 18,817 250,000 58,912 64,782 250,000 135,309 141,179 250,000
15 584,563 * * * 5,985 5,985 250,000 342,954 342,954 360,101
20 895,757 * * * * * * 698,579 698,579 705,565
25 1,292,927 * * * * * * 1,278,158 1,278,158 1,290,940
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep the policy in
effect.
(1) The values illustrated assume the planned premium of $25,800 is paid at
the beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
31
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
Male Issue Age 75 Initial Specified Amount $250,000
Preferred Nonsmoker Underwriting Risk Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 25,800
</TABLE>
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment 12% Assumed Hypothetical
Return with Maximum Charges Return with Maximum Charges Gross Annual Investment
Premiums (2)(3) (2)(3) Return with Maximum Charges (2)(3)
End Accumulated ------------------------------- ------------------------------- -------------------------------------
of At 5% Interest Surrender Account Death Surrender Account Death Surrender Account Death
Policy Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 27,090 5,375 17,118 250,000 6,612 18,354 250,000 7,853 19,595 250,000
2 55,534 22,186 33,929 250,000 25,796 37,539 250,000 29,568 41,310 250,000
3 85,401 38,645 50,387 250,000 45,846 57,588 250,000 53,684 65,426 250,000
4 116,761 54,823 66,565 250,000 66,934 78,677 250,000 80,676 92,419 250,000
5 149,689 70,785 82,528 250,000 89,257 101,000 250,000 111,120 122,863 250,000
6 184,264 88,341 98,908 250,000 114,719 125,286 250,000 147,304 157,872 250,000
7 220,567 106,359 115,752 250,000 142,337 151,730 250,000 188,741 198,133 250,000
8 258,685 124,873 133,090 250,000 172,297 180,514 250,000 236,151 244,368 256,587
9 298,710 143,906 150,951 250,000 204,765 211,810 250,000 288,630 295,675 310,458
10 340,735 163,479 169,349 250,000 239,788 245,658 257,941 346,433 352,303 369,919
15 584,563 262,226 262,226 275,337 435,354 435,354 457,122 731,086 731,086 767,640
20 895,757 352,179 352,179 355,700 669,438 669,438 676,132 1,347,928 1,347,928 1,361,407
25 1,292,927 437,796 437,796 442,174 965,242 965,242 974,895 2,371,055 2,371,055 2,394,765
</TABLE>
- ---------
(1) The values illustrated assume the planned premium of $25,800 is paid at
the beginning of each Policy year. Values will 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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although Life of Virginia anticipates
deducting these charges for the forseeable 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 -1.50%, 4.50% AND 10.50%. THE DEATH BENEFIT
AND ACCOUNT 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.
32
<PAGE>
REQUESTING PAYMENTS AND TELEPHONE TRANSACTIONS
Requesting Payments. Written requests for payment (except for telephone
requests) must be sent to our Home Office or given to our authorized agent for
forwarding to our Home Office. We will ordinarily pay any Life Insurance
Proceeds, loan proceeds or surrender or partial surrender proceeds in a lump
sum within seven days after receipt at our Home Office of all the documents
required for such a payment. Other than the Life Insurance Proceeds, which are
determined as of the date of the Insured's death, the amount will be determined
as of the date our Home Office receives all required documents. 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 us, 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.
We may delay making a payment or processing a transfer request if: (1) the
disposal or valuation of Separate Account II's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists; or (2) the SEC by order permits postponement
of payment to protect our Policy Owners. We also may defer making payments
attributable to a check that has not cleared the bank on which it is drawn.
Telephone Transactions. You may make certain requests under the Policy by
telephone provided we have your written authorization on file at the Home
Office. These include requests for transfers, partial surrenders, Policy loans,
changes in premium allocation designations, dollar-cost averaging changes and
changes in the portfolio rebalancing program. Our Home Office will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by
telephone, providing written confirmation of such transactions, and/or tape
recording of telephone instructions. Your request for telephone transactions
authorizes us to record telephone calls. If reasonable procedures are not
employed, we may be liable for any losses due to unauthorized or fraudulent
instructions. However, if reasonable procedures are employed, we will not be
liable for any losses due to unauthorized or fraudulent instructions.
OTHER POLICY BENEFITS AND PROVISIONS
Exchange Privilege. During the first 24 Policy Months, you may convert the
Policy to a permanent fixed benefit policy. If you object to a material change
in the investment policy of Separate Account II or the Investment Subdivisions,
you may also convert the Policy to a permanent fixed benefit policy within 60
days after the change. In either case, you 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 Age at issue and risk
classification of the Insured as the existing Policy. The conversion will be
subject to an equitable adjustment in payments and Account Value to reflect
variances, if any, in the payments and Account Value under the existing Policy
and the new policy. See your Policy for further information.
Optional Payment Plans. The Policy currently offers the following five
optional payment plans as alternatives to the payment of a death benefit or
Surrender Value in a lump sum:
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.
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.
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.
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.
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.
An optional payment plan can be selected in the application or by
notifying us in writing at our Home Office. Any amount left with us for payment
under an optional payment plan will be transferred to our general account.
Payments under an optional payment plan will not vary with the investment
performance of Separate Account II because they are all forms
33
<PAGE>
of fixed-benefit annuities. See "Tax Treatment of Policy Proceeds." Certain
conditions and restrictions apply to payments received under an optional
payment plan. For further information, review your Policy or contact an
authorized Life of Virginia agent.
Other Policy Provisions. The Policy contains provisions addressing the
following matters:
Dividends. The Policy is non-participating. No dividends will be paid on
the Policy.
Incontestability. The Policy limits our right to contest the Policy as
issued or as increased, except for material misstatements contained in the
application or a supplemental application, after it has been in force during
the Insured's lifetime for a minimum period, generally for two years from the
Policy Date or effective date of the increase. This provision does not apply to
riders that provide disability benefits.
Suicide Exclusion. If the Insured commits suicide while sane or insane,
within two years of the Policy Date, Life Insurance Proceeds payable under the
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, more than two years
after the Policy Date but 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 cost of insurance applied to the increase.
Misstatement of Age or Sex. Life Insurance Proceeds will be adjusted if
the Insured's Age or sex has been misstated in the application.
Written Notice. Any written notice should be sent to us at our 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 us to you
will be sent to the address shown in the application unless an appropriate
address change form has been filed with us.
Owner. You have rights in the Policy during the Insured's lifetime. If you
die before the Insured and there is no contingent Owner, ownership passes to
your estate.
Beneficiary. You designate the primary Beneficiaries and contingent
Beneficiaries when you apply for the Policy. If changed, the primary
Beneficiary and contingent Beneficiary is as shown in the latest change filed
with us. One or more primary Beneficiaries 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 you
request otherwise.
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(ies). If
the primary Beneficiary(ies) dies before the Insured, the proceeds will be paid
to the contingent Beneficiary(ies). If no Beneficiary(ies) survives the
Insured, the proceeds will be paid to you or your estate.
Reinstatement. If the Policy has not been surrendered, the Policy may be
reinstated within three years after lapse, subject to compliance with certain
conditions, including the payment of a necessary premium and submission of
satisfactory evidence of insurability. See your Policy for further information.
Trustee. If a trustee is named as the Owner or Beneficiary of the Policy
and subsequently exercises ownership rights or claims benefits thereunder, we
will have no obligation to verify that a trust is in effect or that the trustee
is acting within the scope of his/her authority. Payment of policy benefits to
the trustee will release us from all obligations under the Policy to the extent
of the payment. When we make a payment to the trustee, we will have no
obligation to ensure that such payment is applied according to the terms of the
trust agreement.
Other Changes. At any time we may make such changes in the Policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code; to make the Policy, our operations, or the
operation of Separate Account II conform with any law or regulation issued by
any government agency to which they are subject; or to reflect a change in the
operation of Separate Account II, if allowed by the Policy. Only the President
or Vice President of Life of Virginia has the right to change the Policy. No
agent has the authority to change the Policy or waive any of its terms. All
endorsements, amendments, or riders must be signed by such officer to be valid.
Reports. We maintain records and accounts of all transactions involving
the Policy, Separate Account II and Policy Debt. Within 30 days after each
Policy Anniversary, you will be sent a report showing information about your
Policy for the period covered by the report. The report will show the amount of
Life Insurance Proceeds, the Account Value in each Investment Subdivision, the
Surrender Value and Policy Debt. The report will also show premiums paid and
charges made during the Policy Year. You will also be sent an annual and a
semi-annual report for each Fund underlying an Investment
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<PAGE>
Subdivision to which you have allocated Account Value, as required by the 1940
Act. In addition, when you pay premiums (other than by pre-authorized checking
account deduction), or if you take out a Policy loan, make transfers or make
partial surrenders, you will receive a written confirmation of these
transactions.
Change of Owner. You may change the Owner of the Policy by sending a
written request on a form satisfactory to us to our Home Office while the
Insured is alive and the Policy is in force. The change will take effect the
date you sign the written request, but the change will not affect any action we
have taken before we receive the written request. A change of Owner does not
change the Beneficiary designation.
Supplemental Benefits. Supplemental benefits are available and may be
added to your Policy by rider. Monthly charges for these benefits will be
deducted from your Account Value as part of the monthly deduction. See "Monthly
Deduction." Examples of these supplemental benefits include term insurance on a
spouse or children, additional death benefits if the insured dies in an
accident, and waiver of either the monthly deduction or a stipulated amount if
the Insured becomes disabled as defined in the rider. Additional rules and
limits apply to these supplemental benefits. Please ask your authorized Life of
Virginia agent for further information or contact our Home Office.
Using the Policy as Collateral. The Policy can be assigned as collateral
security. We must be notified in writing if you assign the Policy. Any payments
made before the assignment and recorded at our Home Office will not be
affected. We are not responsible for the validity of an assignment. Your rights
and the rights of the Beneficiary may be affected by an assignment.
Reinsurance. We intend to reinsure a portion of the risks assumed under
the Policies.
LIFE OF VIRGINIA
The Life Insurance Company of Virginia. We are a stock life insurance
company operating under a charter granted by the Commonwealth of Virginia on
March 21, 1871. We are principally engaged in the offering of life insurance
and annuity policies and rank among the 25 largest stock life insurance
companies in the United States in terms of business in force. We are admitted
to do business in 49 states and the District of Columbia. Our principal offices
are at 6610 West Broad Street, Richmond, Virginia 23230.
Eighty percent of our capital stock is owned by General Electric Capital
Assurance Corporation ("GE Capital Assurance"). The remaining 20% is owned by
GE Financial Assurance Holdings, Inc. GE Capital Assurance. and GE Financial
Assurance Holdings, Inc. are indirectly wholly-owned subsidiaries of General
Electric Capital Corporation ("GE Capital"). GE Capital, a New York
corporation, is a diversified financial services company whose subsidiaries
consist of specialty insurance, equipment management, and commercial and
consumer financing businesses. GE Capital's ultimate parent, General Electric
Company, founded more than one hundred years ago by Thomas Edison, is the
world's largest manufacturer of jet engines, engineering plastics, medical
diagnostic equipment and large electric power generation equipment.
State Regulation. We are 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 our operations and reporting on our financial condition as of December
31 of the preceding year. Periodically, the Commissioner of Insurance examines
our liabilities and reserves and those of Separate Account II and certifies
their adequacy, and a full examination of our operations is conducted by the
State Corporation Commission, Bureau of Insurance of the Commonwealth of
Virginia at least every five years.
We are also subject to the insurance laws and regulation of other states
within which it is licensed to operate.
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Executive Officers and Directors. We are managed by a board of directors.
The following table sets forth the name, address and principal occupations
during the past five years of each of our executive officers and directors.
<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 1992-1997; President, First Colony Corporation since 1985.
Selwyn L. Flournoy, Jr.* Director, Life of Virginia since 5/89; Senior Vice President, Life of
Virginia, since 1980. Chief Financial Officer since 1980.
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.
Elliott Rosenthal Senior Vice President -- Investment Products since 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 5/96. Director of GNA since April
1994. Senior Vice President, Business Development, and Chief
Actuary of GNA since Mary 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 5/96. 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, Flournoy, Chinn and Ms. Lanam are members of our Executive
Committee.
The principal business address of each person listed, unless otherwise
indicated, is The Life Insurance Company of Virginia, 6610 W. Broad Street,
Richmond, Virginia 23230.
The principal business address for Mr. Dolan and Mr. Stiff is First Colony
Life Insurance Company, 700 Main Street, Post Office 1280, Lynchburg, VA
24505-1280.
The principal business address for Mr. Moses is GNA Corporation, Two Union
Square, 601 Union Street, Seattle, WA 98101.
Separate Account II. Separate Account II was established by us as a
separate investment account on August 21, 1986. Separate Account II currently
has thirty-seven Investment Subdivisions available 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 ten Funds described above. Net Premiums are allocated
in accordance with your instructions among up to seven of the thirty-seven
Investment Subdivisions available under the Policy.
The assets of Separate Account II belong to us. Nonetheless, the assets in
Separate Account II attributable to the Policies are not chargeable with
liabilities arising out of any other business which we may conduct. The assets
of Separate Account II shall, however, be available to cover the liabilities of
our 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 Separate Account II without regard to the
income, gains or losses arising out of any other business we may conduct.
Separate Account II is registered with the SEC as a unit investment trust
under the 1940 Act and meets the definition of a separate account under the
federal securities laws. Registration with the SEC does not involve supervision
of the management or investment practices or policies of Separate Account II by
the SEC.
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<PAGE>
Changes to Separate Account II. Separate Account II may include other
Investment Subdivisions that are not available under the Policy and are not
otherwise discussed in this prospectus. We may substitute another investment
subdivision or insurance company separate account under the Policy if, in our
judgment, investment in a Investment Subdivision should no longer be possible
or becomes inappropriate to the purposes of the Policies, or if investment in
another investment subdivision or insurance company separate account is in the
best interest of Owners. No substitution may take place without notice to
Owners and prior approval of the SEC and insurance regulatory authorities, to
the extent required by the 1940 Act and applicable law.
We may also, where permitted by law: (1) create new separate accounts; (2)
combine separate accounts, including Separate Account II; (3) add new
Investment Subdivisions or remove Investment Subdivisions from Separate Account
II; (4) make the Investment Subdivisions available under other policies we
issue; (5) deregister Separate Account II under the 1940 Act; and (6) operate
Separate Account II under the direction of committee or in another form.
Voting of Fund Shares. We are the legal owner of shares held by the
Investment Subdivisions and as such have the right to vote on all matters
submitted to shareholders of the Funds. However, as required by law, we will
vote shares held in the Investment Subdivisions at regular and special meetings
of shareholders of the Funds in accordance with instructions received from
Owners with Account Value in the Investment Subdivisions. To obtain voting
instructions from Owners, before a meeting of shareholders of the Funds, we
will send Owners voting instruction material, a voting instruction form and any
other related material. Shares held by an Investment Subdivision for which no
timely instructions are received will be voted by us in the same proportion as
those shares for which voting instructions are received. Should the applicable
federal securities laws, regulations or interpretations thereof change so as to
permit us to vote shares of the Funds in our own right, we may elect to do so.
We may, if required by state insurance officials, disregard your voting
instructions if such instructions would require shares to be voted so as to
cause a change in sub-classification or investment objectives of one or more of
the Funds, or to approve or disapprove an investment advisory agreement. In
addition, we may under certain circumstances disregard voting instructions that
would require changes in the investment policy or investment adviser of one or
more of the Funds, provided that we reasonably disapprove of such changes in
accordance with applicable federal regulations. If we ever disregard voting
instructions, Owners will be advised of that action and of the reasons for such
action in the next report to Owners.
TAX CONSIDERATIONS
The following discussion is general and is not intended as tax advice.
Tax Status of the Policy. The Code, in section 7702, establishes a
statutory definition of life insurance for tax purposes. We believe 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 you 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 your 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 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 policy for federal tax purposes.
Separate Account II, through the Funds, intends to comply with the
diversification requirements prescribed by the Treasury. Although we do not
control the Funds, we have 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, we believe that Separate Account
II will be treated as adequately diversified for federal tax purposes.
In certain circumstances, variable policy 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 has announced, in connection
with the issuance of regulations concerning diversification requirements, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor, rather than the insurance company, to be treated as the
owner of the
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<PAGE>
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 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 policy owners were not owners of
separate account assets. For example, you have 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 you being
considered, under the standard of those rulings, the owner of the assets of
Separate Account II. To ascertain the tax treatment of our policyowners, we
have requested, with regard to a policy similar to this Policy, a ruling from
the Service that we, and not our policyowners, are the owner of the assets of
the separate account there involved for federal income tax purposes. The
Service informed us that it will not rule on the request until issuance of the
promised guidance referred to in the preceding paragraph. Because we do not
know what standards will be set forth in the regulations or revenue rulings
which the Treasury has stated it expects to issue, we have reserved the right
to modify our practices to attempt to prevent you from being considered the
owner of the assets of Separate Account II.
Frequently, if the Service or the Treasury sets forth a new position which
is adverse to taxpayers, the position is applied on a prospective basis only.
Thus, if the Service or the Treasury were to issue regulations or a ruling
which treated you 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, you might be
retroactively determined to be the owner of a portion of the assets of Separate
Account II for tax purposes.
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 you will
not be deemed to be in constructive receipt of the Surrender Value 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."
For an Insured who survived beyond the end of the Commissioners' 1980
Standard Ordinary Mortality Table, there may be a question about taxation of
death benefit proceeds and constructive receipt. Because we continue to charge
for the insurance risk beyond age 100, we believe that the proceeds will
continue to be protected from taxation. Therefore, we have no current plans to
withhold or report taxes in this situation.
Except as noted below, a loan received under a Policy will be treated as
your indebtedness, so that no part of any loan under a Policy will constitute
income to you 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 you as being in
receipt of certain amounts of income. Benefits received from the Accelerated
Benefit Rider on account of the insured's certified terminal illness generally
are not includible in income.
Generally, interest paid on loans under a Policy will not be tax
deductible, except in the case of certain loans under a Policy covering a "key
person." In addition, in the case of Policies issued to a non-natural taxpayer,
such as a corporation or trust (or held for the benefit of such an entity), a
portion of the taxpayer's otherwise deductible interest expenses may not be
deductible as a result of ownership of a Policy even if no loans are taken
under the Policy. An exception to this rule is provided for certain life
insurance contracts which cover the life of an individual who is a 20-percent
owner, or an officer, director, or employee of, a trade or business. Entities
that are considering purchasing the Policy, or entities that will be
beneficiaries under a Policy, should consult a tax advisor.
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<PAGE>
The right to exchange the Policy for a permanent fixed benefit policy (see
"Exchange Privilege"), the right to change Owners (see "Change of Owner"), the
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, if the amount received plus the Policy Debt
exceeds the total premiums paid (less any amounts treated as previously
withdrawn by you), the excess generally will be treated as ordinary income.
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 Owner or Beneficiary.
Tax Treatment of Policy Loans and Other Distributions. The Technical
Miscellaneous Revenue Act of 1988 (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 Policy 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 Policy 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 unpaid interest thereon) from a Policy classified as
a modified endowment contract will be considered distributions.
4. Distributions (including partial surrenders, loans and loan interest,
assignments and pledges) from a Policy classified as a modified endowment
contract will be taxed first as distributions of income from the Policy (to
the extent that the cash value of the Policy, before reduction by any
surrender charge or loan, exceeds the total premiums paid less any previous
untaxed withdrawals), and then as a non-taxable recovery of premium.
5. A penalty tax of 10% will be imposed on distributions includable in
income (including complete and partial surrenders, loans and loan interest,
assignments and pledges) from a Policy classified as a modified endowment
contract, unless such distributions are made (1) after you attain age
59 1/2, (2) because you have become disabled, or (3) as substantially equal
annuity payments over your life or life expectancy (or over the joint lives
or life expectancies of you and your beneficiary).
In order to avoid classification as a modified endowment contract, a
Policy must not have been issued in exchange for a modified endowment contract,
and premiums paid under the Policy must not be paid more rapidly than the 7-Pay
Test allows. We will provide you guidance as to the amount of premium payments
that may be paid if you wish to avoid treatment of the Policy as a modified
endowment contract.
Additionally, all life insurance contracts which are treated as modified
endowment contracts and which are issued by us or any of our affiliates with
the same person designated as the owner 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. You should consult your tax advisor before making any
decisions regarding increases or decreases in or additions to coverage or
distributions from your Policy.
Taxation of Life of Virginia. Because of our current status under the
Code, we do 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, we determine that such taxes may be incurred, we may assess a charge
for those taxes from Separate Account II.
Income Tax Withholding. Generally, unless you provide us with a written
election to the contrary before a distribution is made, we are required to
withhold income taxes from any portion of the money received by you upon
surrender of the Policy (and if the Policy is a modified endowment contract,
upon a partial surrender or a Policy loan). If you request that no taxes be
withheld, or if we do not withhold a sufficient amount of taxes, you will be
responsible for the payment of any taxes and early distribution penalties that
may be due on the amounts received. You may also be required to pay penalties
under the estimated tax rules, if your withholding and estimated tax payments
are insufficient to satisfy your total tax liability. You may, therefore, want
to consult a tax advisor.
The foregoing discussion is general and is not intended as tax advice.
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<PAGE>
Other Considerations. Any person concerned about these tax implications
should consult a competent tax advisor. This discussion is based on our
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 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.
Legal Proceedings. Life of Virginia, like all other companies, is involved
in lawsuits, including class action lawsuits. In some class action and other
lawsuits involving insurance companies, substantial damages have been sought
and/or material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Life of Virginia believes that
at the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on it or Account II.
ADDITIONAL INFORMATION
Sale of Policies. The Policies will be sold by our licensed life insurance
agents who are also registered representatives of Capital Brokerage Corporation
Securities Corporation, the principal underwriter of the Policies, or of
broker-dealers who have entered into written sales agreements with the
principal underwriter. Capital Brokerage Corporation, a Virginia Corporation,
located at 6630 W. Broad Street, Richmond, Virginia 23230, is registered with
the SEC under the Securities Exchange Act of 1934 as a broker-dealer and a
member of the National Association of Securities Dealers, Inc. Capital
Brokerage Corporation also serves as principal underwriter for other variable
life insurance and variable annuity policies issued by us. However, no amounts
have been retained by Capital Brokerage Corporation for acting as principal
underwriter of these other policies.
Our writing agents will receive commissions based on a commission schedule
and rules. First-year commissions depend on the Insured's Age, risk class, and
the size of the policy. In the first Policy Year, the agent will receive a
commission of up to 95% of the maximum commissionable premium plus up to 5% of
premiums paid in excess of the maximum commissionable premium. In renewal
years, the agent receives up to 8.5% of the premiums paid. A trail commission
equal to an annual rate of 0.25% of Account Value may be paid on Policies.
Other Information. A registration statement under the Securities Act of
1933 has been filed with the SEC relating to the offering described in this
prospectus. This prospectus does not include all the information set forth in
the registration statement. The omitted information may be obtained at the
SEC's principal office in Washington, D.C. by paying the SEC's prescribed fees.
Year 2000 Compliance. Like other financial services providers, Life of
Virginia utilizes computer systems that may be affected by Year 2000 date data
processing issues and it also relies on services providers, including banks,
custodians, administrators, and investment managers that also may be affected.
Life of Virginia is engaged in a process to evaluate and develop plans to have
its computer systems and critical applications ready to process Year 2000 date
data. It is also confirming that its service providers are also so engaged. The
resources that are being devoted to this effort are substantial. Remedial
actions include inventorying the company's computer systems, applications and
interfaces, assessing the impact of the Year 2000 date data on them, developing
a range of solutions specific to particular situations and implementing
appropriate solutions. Some systems, applications and interfaces will be
replaced or upgraded to new software or new releases of existing software which
are Year 2000 ready. Others will be modified as necessary to become ready. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on Life of Virginia and Account II. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 readiness implementation. Life of Virginia's target dates
for completion of these activities depend upon the particular situation. The
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Company's goal is to be substantially Year 2000 ready for critical applications
by mid-1999, but there can be no assurance that Life of Virginia will be
successful in meeting its goal, or that interaction with other service
providers will not impair Life of Virginia's services at that time.
Litigation. No legal or administrative proceeding is pending that would
have a material effect upon Separate Account II.
Legal Matters. The legal matters in connection with the Policy described
in this prospectus have been passed on by J. Neil McMurdie, Associate Counsel
and Assistant Vice President of Life of Virginia. Sutherland, Asbill & Brennan
LLP of Washington, D.C. has provided advice on matters relating to the federal
securities laws.
EXPERTS
KPMG Peat Marwick LLP.
The consolidated balance sheets of The Life Insurance Company of Virginia
and subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1997, the nine month period ended December 31, 1996 and the
preacquisition three month period ended March 31, 1996, and the statement of
assets and liabilities of Life of Virginia Separate Account II as of December
31, 1997 and the related statements of operations and changes in net assets for
each of the two years or lesser periods then ended have been included herein
and in the registration statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of such firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick LLP with respect to the consolidated
financial statements of The Life Insurance Company of Virginia and subsidiary
contains an explanatory paragraph that states 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.
Ernst & Young LLP.
The consolidated statements of income, stockholders's equity and cash flows
of The Life Insurance Company of Virginia and subsidiaries for the year ended
December 31, 1995 and the statements of operations and statements of changes in
net assets of Life of Virginia Separate Account II for the year or period ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, to the extent indicated
in their reports thereon also appearing elsewhere herein, and 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 us by GNA Corporation on April 1, 1996,
we selected KPMG Peat Marwick LLP to be our auditor. Accordingly, our 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, the indirect parent of GNA Corporation. This change was approved by
the members of our Board of Directors.
Neither KPMG Peat Marwick LLP's nor Ernst & Young LLP's reports on the
financial statements contain any adverse opinion or a disclaimer of opinion,
or was qualified or modified as to uncertainty or audit scope. 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 matters of the
disagreement in connection with their reports.
FINANCIAL STATEMENTS
The consolidated financial statements of Life 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 our ability to
meet our obligations under the Policies. Such consolidated financial statements
of Life of Virginia and subsidiaries should not be considered as bearing on the
investment performance of the assets held in Separate Account II.
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LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities (Audited)
Year ended December 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Table of Contents
Year ended December 31, 1997
===================================================================
Page
Independent Auditors' Report...................................1
Financial Statements:
Statements of Assets and Liabilities.....................3
Statements of Operations.................................9
Statements of Changes in Net Assets.....................20
Notes to Financial Statements.................................31
=====================================================================
<PAGE>
1
Report of Independent Auditors
Policyholders
Life of Virginia Separate Account II
and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of assets and liabilities of Life of
Virginia Separate Account II (the Account) (comprising the GE Investments Funds,
Inc.--S&P 500 Index, Money Market, Total Return, International Equity, Real
Estate Securities, Global Income, Value Equity and Income Funds; the Oppenheimer
Variable Account Funds--Bond, Capital Appreciation, Growth, High Income and
Multiple Strategies Funds; the Variable Insurance Products Fund--Equity-Income,
Growth and Overseas Portfolios; the Variable Insurance Products Fund II--Asset
Manager and Contrafund Portfolios; Variable Insurance Products Fund III--Growth
& Income and Growth Opportunities Portfolios; the Federated Investors Insurance
Series--American Leaders, High Income Bond and Utility Funds II; the Alger
American--Small Cap and Growth Portfolios; the PBHG Insurance Series Fund--PBHG
Large Cap Growth and PBHG Growth II Portfolios; and the Janus Aspen
Series--Aggressive Growth, Growth, Worldwide Growth, Balanced, Flexible Income,
International Growth and Capital Appreciation Portfolios) as of December 31,
1997 and the related statements of operations and changes in net assets for the
aforementioned funds and the GE Investments Funds, Inc.--Government Securities
Fund; Oppenheimer Variable Account Funds--Money Fund; Variable Insurance
Products Fund--Money Market and High Income Portfolios; and Neuberger & Berman
Advisers Management Trust--Balanced, Bond and Growth Portfolios of Life of
Virginia Separate Account II for each of the two years or lesser 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 audits. The accompanying statements of operations and
changes in net assets of Life of Virginia Separate Account II for the year or
period ended December 31, 1995, were audited by other auditors, whose report
thereon dated February 8, 1996 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the underlying mutual funds or their transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
<PAGE>
In our opinion, the 1997 and 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, 1997 and the results of their operations and changes in their net
assets for each of the two years or lesser periods then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
February 13, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Policyholders
Life of Virginia Separate Account II and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of operations and changes in
net assets for the year 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, the
Janus Aspen Aggressive Growth, Growth and Worldwide Growth 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 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 audit.
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. 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 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.
ERNST & YOUNG LLP
Richmond, Virginia
February 8, 1996
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.)
-------------------------------------------------------
S&P 500 Money Total
Index Market Return
Assets Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in GE Investments Funds, Inc., at fair value (note 2):
S&P 500 Index Fund (177,190 shares; cost - $3,199,555) $ 3,407,368 - -
Money Market Fund (2,394,566 shares; cost - $2,394,047) - 2,394,566 -
Total Return Fund (252,424 shares; cost - $3,888,937) - - 3,334,515
International Equity Fund (7,074 shares; cost - $81,487) - - -
Real Estate Securities Fund (13,085 shares; cost - $200,184) - - -
Global Income Fund (938 shares; cost - $9,564) - - -
Value Equity Fund (1,032 shares; cost - $13,530) - - -
Income Fund (31,553 shares; cost - $381,579) - - -
Receivable from affiliate 1,802 - 270,286
Receivable for units sold 99 22,746 87
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,409,269 2,417,312 3,604,888
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 1,280 155,396 1,220
Payable for units withdrawn - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,280 155,396 1,220
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders $ 3,407,989 2,261,916 3,603,668
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding units 82,478 139,024 117,921
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit $ 41.32 16.27 30.56
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.)
----------------------------------------------------------
International Real Estate Global
Equity Securities Income
Assets Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in GE Investments Funds, Inc., at fair value (note 2):
S&P 500 Index Fund (177,190 shares; cost - $3,199,555) - - -
Money Market Fund (2,394,566 shares; cost - $2,394,047) - - -
Total Return Fund (252,424 shares; cost - $3,888,937) - - -
International Equity Fund (7,074 shares; cost - $81,487) 75,551 - -
Real Estate Securities Fund (13,085 shares; cost - $200,184) - 199,931 -
Global Income Fund (938 shares; cost - $9,564) - - 9,235
Value Equity Fund (1,032 shares; cost - $13,530) - - -
Income Fund (31,553 shares; cost - $381,579) - - -
Receivable from affiliate - 497 -
Receivable for units sold - 50 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 75,551 200,478 9,235
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 47 69 12
Payable for units withdrawn - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 47 69 12
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders 75,504 200,409 9,223
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding units 5,950 10,723 896
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit 12.69 18.69 10.29
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.)
-----------------------------------------------------
Value
Equity Income
Assets Fund Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in GE Investments Funds, Inc., at fair value (note 2):
S&P 500 Index Fund (177,190 shares; cost - $3,199,555) - -
Money Market Fund (2,394,566 shares; cost - $2,394,047) - -
Total Return Fund (252,424 shares; cost - $3,888,937) - -
International Equity Fund (7,074 shares; cost - $81,487) - -
Real Estate Securities Fund (13,085 shares; cost - $200,184) - -
Global Income Fund (938 shares; cost - $9,564) - -
Value Equity Fund (1,032 shares; cost - $13,530) 13,531 -
Income Fund (31,553 shares; cost - $381,579) - 382,102
Receivable from affiliate 35 -
Receivable for units sold - 672
- ----------------------------------------------------------------------------------------------------------------
Total assets 13,566 382,774
- ----------------------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 5 4,723
Payable for units withdrawn 2 -
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 7 4,723
- ----------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders 13,559 378,051
- ----------------------------------------------------------------------------------------------------------------
Outstanding units 1,028 37,767
- ----------------------------------------------------------------------------------------------------------------
Net asset value per unit 13.19 10.01
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
--------------------------------------------------
Capital
Bond Appreciation Growth
Assets Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Oppenheimer Variable Account Funds, at fair value (note 2):
Bond Fund (24,675 shares; cost - $285,798) $ 293,873 - -
Capital Appreciation Fund (75,642 shares; cost - $2,781,093) - 3,098,278 -
Growth Fund (70,077 shares; cost - $1,792,473) - - 2,273,298
High Income Fund (143,091 shares; cost - $1,583,597) - - -
Multiple Strategies Fund (38,927 shares; cost - $579,533) - - -
Receivable from affiliate - - 2,610
Receivable for units sold - 2,461 2,878
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 293,873 3,100,739 2,278,786
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 1,450 1,663 873
Payable for units withdrawn 10 - -
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,460 1,663 873
- -------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders $ 292,413 3,099,076 2,277,913
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding units 13,037 76,126 54,030
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit $ 22.43 40.71 42.16
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
----------------------------------------------
High Multiple
Income Strategies
Assets Fund Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Oppenheimer Variable Account Funds, at fair value (note 2):
Bond Fund (24,675 shares; cost - $285,798) - -
Capital Appreciation Fund (75,642 shares; cost - $2,781,093) - -
Growth Fund (70,077 shares; cost - $1,792,473) - -
High Income Fund (143,091 shares; cost - $1,583,597) 1,648,403 -
Multiple Strategies Fund (38,927 shares; cost - $579,533) - 662,141
Receivable from affiliate 2,974 4,474
Receivable for units sold - 105
- ----------------------------------------------------------------------------------------------------------------
Total assets 1,651,377 666,720
- ---------------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 626 254
Payable for units withdrawn - -
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 626 254
- ---------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders 1,650,751 666,466
- ---------------------------------------------------------------------------------------------------------------
Outstanding units 48,043 22,561
- ---------------------------------------------------------------------------------------------------------------
Net asset value per unit 34.36 29.54
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
------------------------------------------------
Equity-
Income Growth Overseas
Assets Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Variable Insurance Products Fund, at fair value (note 2):
Equity-Income Portfolio (220,390 shares; cost - $4,396,274) $ 5,351,063 - -
Growth Portfolio (133,529 shares; cost - $4,006,008) - 4,953,922 -
Overseas Portfolio (90,312 shares; cost - $1,566,587) - - 1,733,985
Receivable from affiliate 45,062 8,654 4,438
Receivable for units sold 3,537 1,075 1,424
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 5,399,662 4,963,651 1,739,847
- -----------------------------------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 2,070 1,904 667
Payable for units withdrawn - - -
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,070 1,904 667
- -----------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders $ 5,397,592 4,961,747 1,739,180
- -----------------------------------------------------------------------------------------------------------------------
Outstanding units 134,168 115,551 72,315
- -----------------------------------------------------------------------------------------------------------------------
Net asset value per unit $ 40.23 42.94 24.05
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Variable Insurance
Products Fund II Products Fund III
------------------------- ---------------------------
Asset Growth & Growth
Manager Contrafund Income Opportunities
Assets Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Investment in Variable Insurance Products Fund II, at fair value (note 2):
Asset Manager Portfolio (231,056 shares; cost - $3,570,825) $4,161,312 - - -
Contrafund Portfolio (99,615 shares; cost - $1,718,112) - 1,986,321 - -
Investment in Variable Insurance Product Fund III, at fair value (note 2):
Growth & Income Portfolio (3,792 shares; cost - $48,622) - - 47,520 -
Growth Opportunities Portfolio (3,671 shares; cost - $67,316) - - - 70,749
Receivable from affiliate 9,326 24,966 - 859
Receivable for units sold 371 2,807 - -
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $4,171,009 2,014,094 47,520 71,608
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 1,604 771 73 28
Payable for units withdrawn - - 88 3
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,604 771 161 31
- --------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders $4,169,405 2,013,323 47,359 71,577
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding units 163,699 97,028 3,813 5,805
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit $ 25.47 20.75 12.42 12.33
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Federated Investors
Insurance Series
-------------------------------------------
American High
Leaders Income Bond Utility
Assets Fund II Fund II Fund II
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in Federated Investors Insurance Series, at fair value (note 2):
American Leaders Fund II (2,354 shares; cost - $43,154) $ 46,208 - -
High Income Bond Fund II (8,592 shares; cost - $87,736) - 94,083 -
Utility Fund II (11,466 shares; cost - $133,879) - - 163,847
Investment in Alger American, at fair value (note 2):
Small Cap Portfolio (17,963 shares; cost - $812,937) - - -
Growth Portfolio (20,074 shares; cost - $760,160) - - -
Investment in PBHG Insurance Series Fund, at fair value (note 2):
PBHG Large Cap Growth Portfolio (2,210 shares; cost - $26,028) - - -
PBHG Growth Portfolio (1,829 shares; cost - $19,804) - - -
Receivable from affiliate 47 768 -
Receivable for units sold - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 46,255 94,851 163,847
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 18 37 568
Payable for units withdrawn 8 8 3
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 26 45 571
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders $ 46,229 94,806 163,276
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding units 3,169 6,188 9,543
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit $ 14.59 15.32 17.11
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Insurance
Alger American Series Fund
-------------------------- ------------------------
PBHG
Small Large Cap PBHG
Cap Growth Growth Growth II
Assets Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in Federated Investors Insurance Series, at fair value (note 2):
American Leaders Fund II (2,354 shares; cost - $43,154) - - - -
High Income Bond Fund II (8,592 shares; cost - $87,736) - - - -
Utility Fund II (11,466 shares; cost - $133,879) - - - -
Investment in Alger American, at fair value (note 2):
Small Cap Portfolio (17,963 shares; cost - $812,937) 785,901 - - -
Growth Portfolio (20,074 shares; cost - $760,160) - 858,363 - -
Investment in PBHG Insurance Series Fund, at fair value (note 2):
PBHG Large Cap Growth Portfolio (2,210 shares; cost - $26,028) - - 26,120 -
PBHG Growth Portfolio (1,829 shares; cost - $19,804) - - - 19,662
Receivable from affiliate 34,258 7,119 400 -
Receivable for units sold - - - 1,471
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 820,159 865,482 26,520 21,133
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 314 333 10 33
Payable for units withdrawn 150 37 2 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 464 370 12 33
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders 819,695 865,112 26,508 21,100
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding units 76,251 63,799 2,254 1,972
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit 10.75 13.56 11.76 10.70
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series
-------------------------------------------
Aggressive Worldwide
Growth Growth Growth
Assets Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Janus Aspen Series, at fair value (note 2):
Aggressive Growth Portfolio (95,370 shares; cost - $1,908,924) $ 1,959,861 - -
Growth Portfolio (105,234 shares; cost - $1,689,937) - 1,944,717 -
Worldwide Growth Portfolio (131,053 shares; cost - $2,692,376) - - 3,065,339
Balanced Portfolio (36,099 shares; cost - $572,600) - - -
Flexible Income Portfolio (5,976 shares; cost - $70,239) - - -
International Growth Portfolio (17,080 shares; cost - $298,567) - - -
Capital Appreciation Portfolio (683 shares; cost - $7,921) - - -
Receivable from affiliate 65,297 16,839 16,400
Receivable for units sold 812 193 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,025,970 1,961,749 3,081,739
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 778 751 1,178
Payable for units withdrawn - - 1,742
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 778 751 2,920
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders $ 2,025,192 1,960,998 3,078,819
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding units 116,793 108,163 161,110
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit $ 17.34 18.13 19.11
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series
--------------------------------------------------------
--------
Flexible International Capital
Balanced Income Growth Appreciation
Assets Portfolio Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Janus Aspen Series, at fair value (note 2):
Aggressive Growth Portfolio (95,370 shares; cost - $1,908,924) - - - -
Growth Portfolio (105,234 shares; cost - $1,689,937) - - - -
Worldwide Growth Portfolio (131,053 shares; cost - $2,692,376) - - - -
Balanced Portfolio (36,099 shares; cost - $572,600) 630,652 - - -
Flexible Income Portfolio (5,976 shares; cost - $70,239) - 70,394 - -
International Growth Portfolio (17,080 shares; cost - $298,567) - - 315,644 -
Capital Appreciation Portfolio (683 shares; cost - $7,921) - - - 8618
Receivable from affiliate 1,353 278 1,155 5
Receivable for units sold 295 - 4,131 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 632,300 70,672 320,930 8,623
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 236 22 122 3
Payable for units withdrawn - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 236 22 122 3
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable life policyholders 632,064 70,650 320,808 8,620
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding units 42,477 5,589 23,264 684
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value per unit 14.88 12.64 13.79 12.60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.)
------------------------------------------------------------------------
S&P 500 Government
Index Securities
Fund Fund
---------------------------------- ------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 88,899 751,436 20,611 - 31,170 18,835
Expenses - Mortality and expense
risk charges (note 3) 17,405 9,854 5,975 2,085 2,175 1,930
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 71,494 741,582 14,636 (2,085) 28,995 16,905
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 18,179 65,600 33,666 1,254 289 2,130
Unrealized appreciation
(depreciation) on investments 504,771 (498,697) 203,288 18,064 (28,379) 23,073
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 522,950 (433,097) 236,954 19,318 (28,090) 25,203
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 594,444 308,485 251,590 17,233 905 42,108
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.)
------------------------------------------------------------------------------
Money Market Total Return
Fund Fund
----------------------------------- ------------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 107,705 97,157 64,373 456,798 846,101 210,985
Expenses - Mortality and expense
risk charges (note 3) 13,717 15,476 12,610 24,218 20,200 9,371
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 93,988 81,681 51,763 432,580 825,901 201,614
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) 298,840 (325,593) 68,408 (54,073) 68,427 17,126
Unrealized appreciation
(depreciation) on investments (300,439) 345,223 (25,977) 123,159 (708,053) 18,487
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (1,599) 19,630 42,431 69,086 (639,626) 35,613
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 92,389 101,311 94,194 501,666 186,275 237,227
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.) (continued)
------------------------------------------------------------------------------
International Real Estate
Equity Fund Securities Fund
------------------------------------------ -----------------------------------
Period from
August 25,
Year ended Year ended 1995 to Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 8,566 1,884 176 20,680 1,678
Expenses - Mortality and expense risk
charges (note 3) 399 152 11 814 57
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 8,167 1,732 165 19,866 1,621
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) gain on
investments:
Net realized gain 654 510 4 2,800 381
Unrealized appreciation (depreciation)
on investments (5,290) (839) 193 (2,725) 2,468
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) gain on
investments (4,636) (329) 197 75 2,849
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 3,531 1,403 362 19,941 4,470
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.) (continued)
-------------------------------------------------------------
Global Value
Real Estate Income Equity Income
Securities Fund Fund Fund Fund
----------------- -------------- -------------- --------------
Period from Period from Period from Period from
October 5, June 18, June 17, December 12,
1995 to 1997 to 1997 to 1997 to
December 31, December 31, December 31, December 31,
1995 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 22 461 115 992
Expenses - Mortality and expense risk
charges (note 3) - 30 17 116
- --------------------------------------------------------------------------------------------------------------------
Net investment income 22 431 98 876
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) gain on investments:
Net realized gain - 35 (9) (838)
Unrealized appreciation (depreciation)
on investments 4 (329) 1 523
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) gain on
investments 4 (294) (8) (315)
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 26 137 90 561
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
------------------------------------------------------------------------------------
Money Bond
Fund Fund
--------------------------------------- --------------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 27 224 662 17,586 16,705 8,365
Expenses - Mortality and expense
risk charges (note 3) 4 31 82 1,872 1,790 844
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 23 193 580 15,714 14,915 7,521
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) - - - 276 128 407
Unrealized appreciation
(depreciation) on investments - - - 5,965 (3,916) 9,889
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments - - - 6,241 (3,788) 10,296
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 23 193 580 21,955 11,127 17,817
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
--------------------------------------------------------------------------------------
Capital
Appreciation Growth
Fund Fund
------------------------------------------- ------------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 119,431 99,449 5,317 94,465 72,782 10,459
Expenses - Mortality and expense
risk charges (note 3) 19,370 13,659 10,098 13,535 7,950 3,854
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 100,061 85,790 (4,781) 80,930 64,832 6,605
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 264,595 128,677 57,411 112,639 59,611 22,586
Unrealized appreciation
(depreciation) on investments (89,502) 103,509 281,347 226,521 113,315 125,878
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 175,093 232,186 338,758 339,160 172,926 148,464
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 275,154 317,976 333,977 420,090 237,758 155,069
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds (continued)
------------------------------------------
High
Income
Fund
-------------------------------------------
Year ended December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 105,625 78,385 47,571
Expenses - Mortality and expense risk charges (note 3) 8,770 5,650 3,622
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 96,855 72,735 43,949
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 11,476 8,045 1,112
Unrealized appreciation (depreciation) on investments 28,520 28,139 30,017
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 39,996 36,184 31,129
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 136,851 108,919 75,078
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds (continued)
--------------------------------------------------
Multiple
Strategies
Fund
--------------------------------------------------
Year ended December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 45,313 33,554 35,104
Expenses - Mortality and expense risk charges (note 3) 4,459 3,353 3,322
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 40,854 30,201 31,782
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 26,553 22,006 5,112
Unrealized appreciation (depreciation) on investments 27,703 14,047 48,453
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 54,256 36,053 53,565
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 95,110 66,254 85,347
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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,
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 31,897 17,813 34,581 16,812 24,435 12,908
Expenses - Mortality and expense
risk charges (note 3) 1,948 2,449 4,231 1,461 1,779 1,682
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 29,949 15,364 30,350 15,351 22,656 11,226
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) - - - 41,295 7,114 4,603
Unrealized appreciation
(depreciation) on investments - - - (23,320) 1,632 25,411
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments - - - 17,975 8,746 30,014
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 29,949 15,364 30,350 33,326 31,402 41,240
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
--------------------------------------------------------------------------------------
Equity-
Income Growth
Portfolio Portfolio
------------------------------------------- -------------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 339,803 85,939 72,375 135,480 213,091 9,023
Expenses - Mortality and expense
risk charges (note 3) 30,384 17,180 8,801 30,276 25,014 16,541
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 309,419 68,759 63,574 105,204 188,077 (7,518)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 125,398 98,124 44,633 193,439 342,839 237,960
Unrealized appreciation
(depreciation) on investments 539,549 149,934 255,114 566,792 (104,224) 415,406
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 664,947 248,058 299,747 760,231 238,615 653,366
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 974,366 316,817 363,321 865,435 426,692 645,848
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Variable Insurance
Products Fund (continued) Variable Insurance Products Fund II
-------------------------------------- -------------------------------------------
Asset
Overseas Manager
Portfolio Portfolio
-------------------------------------- -------------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 155,793 36,638 6,739 417,972 183,395 38,074
Expenses - Mortality and expense
risk charges (note 3) 12,638 11,528 8,185 26,984 19,647 16,293
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 143,155 25,110 (1,446) 390,988 163,748 21,781
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 95,087 39,291 6,569 68,861 105,006 25,753
Unrealized appreciation
(depreciation) on investments (45,710) 126,664 107,430 222,652 98,064 313,566
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 49,377 165,955 113,999 291,513 203,070 339,319
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 192,532 191,065 112,553 682,501 366,818 361,100
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Variable Insurance
Variable Insurance Products Fund II Products Fund III
------------------------------------------- ------------------------------
Growth & Growth
Contrafund Income Opportunities
Portfolio Portfolio Portfolio
------------------------------------------- ------------------------------
Period from Period from Period from
February 7, May 30, May 30,
Year ended Year ended 1995 to 1997 to 1997 to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1997
- --------------------------------------------------------------------------------------- ------------------------------
<S> <C>
Investment income:
Income - Dividends 33,739 2,964 3,470 - -
Expenses - Mortality and expense
risk charges (note 3) 11,153 4,608 700 45 148
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 22,586 (1,644) 2,770 (45) (148)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 198,947 14,028 2,651 1,642 472
Unrealized appreciation
(depreciation) on investments 135,687 119,895 12,626 (1,102) 3,433
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 334,634 133,923 15,277 540 3,905
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 357,220 132,279 18,047 495 3,757
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statements of Operations, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust
-------------------------------------------------------------------------------------
Balanced Bond
Portfolio Portfolio
---------------------------------------- --------------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 16,310 41,530 5,568 4,664 7,068 2,839
Expenses - Mortality and expense
risk charges (note 3) 1,723 1,799 1,863 462 581 491
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 14,587 39,731 3,705 4,202 6,487 2,348
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 36,568 4,564 5,430 (162) 38 450
Unrealized appreciation
(depreciation) on investments (14,898) (28,989) 43,147 (48) (3,678) 3,567
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 21,670 (24,425) 48,577 (210) (3,640) 4,017
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 36,257 15,306 52,282 3,992 2,847 6,365
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust
---------------------------------------------
Growth
Portfolio
---------------------------------------------
Year ended December 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 11,458 13,580 4,462
Expenses - Mortality and expense
risk charges (note 3) 982 1,005 1,076
- ------------------------------------------------------------------------------------------
Net investment income (expense) 10,476 12,575 3,386
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 37,624 4,264 6,665
Unrealized appreciation
(depreciation) on investments (18,849) (6,024) 29,994
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 18,775 (1,760) 36,659
- ------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 29,251 10,815 40,045
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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
August 14, October 31,
Year ended 1996 to Year ended Year
ended 1995 to Year ended December
31, December 31, December 31,
December 31, December 31, December
31,
1997 1996 1997 1996 1995 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 148 9 3,619 1,592 7 4,929
Expenses - Mortality and expense
risk charges (note 3) 113 2 656 127 1 860
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 35 7 2,963 1,465 6 4,069
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 598 4 836 51 - 1,782
Unrealized appreciation
(depreciation) on investments 3,025 29 5,274 1,038 35 25,287
Net realized and unrealized gain (loss)
on investments 3,623 33 6,110 1,089 35 27,069
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 3,658 40 9,073 2,554 41 31,138
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Utility Fund II
- ----------------------------------------------------------------------------
Period from
March 22,
Year ended
Year ended 1995 to
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 2,283 862
Expenses - Mortality and expense
risk charges (note 3) 364 132
- ----------------------------------------------------------------------------
Net investment income (expense) 1,919 730
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 2,332 167
Unrealized appreciation
(depreciation) on investments 700 3,982
Net realized and unrealized gain (loss)
on investments 3,032 4,149
- ----------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 4,951 4,879
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Alger American
- ---------------------------------------------------------------------------------------------------------------------------------
Small
Cap Growth
Portfolio Portfolio
-----------------------------------------------------------------------------------
Period from
October 11,
Year ended Year ended 1995 to Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 23,157 502 - 10,016 3,815
Expenses - Mortality and expense
risk charges (note 3) 5,518 1,659 24 7,350 2,350
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 17,639 (1,157) (24) 2,666 1,465
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 109,665 4,156 (52) 103,893 1,107
Unrealized appreciation
(depreciation) on investments (21,855) (4,745) (436) 100,012 (1,956)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 87,810 (589) (488) 203,905 (849)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 105,449 (1,746) (512) 206,571 616
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PBHG Insurance
Series Fund
- ------------------------------------------------------------------------------------------------
PBHG
Large Cap PBHG
Growth Growth II
Portfolio Portfolio
--------------------------------------------------
Period from Period from Period from
October 23, May 30, May 30,
1995 to 1997 to 1997 to
December 31, December 31, December 31,
1995 1997 1997
- ------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends - - -
Expenses - Mortality and expense
risk charges (note 3) 12 63 43
- ------------------------------------------------------------------------------------------------
Net investment income (expense) (12) (63) (43)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 7 584 34
Unrealized appreciation
(depreciation) on investments 147 92 (142)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 154 676 (108)
- ------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 142 613 (151)
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series
--------------------------------------------------------------------------
Aggressive Growth Portfolio Growth Portfolio
--------------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
------------ ----------- ---------- --------- --------- --------
<S> <C>
Investment income:
Income -- Dividends ..................... $ -- 9,052 7,589 47,255 21,456 7,206
Expenses -- Mortality and expense risk
charges (note 3) ...................... 10,376 6,061 3,092 11,319 5,068 1,335
--------- ----- ----- ------ ------ -----
Net investment income (expense) .......... (10,376) 2,991 4,497 35,936 16,388 5,871
--------- ----- ----- ------ ------ -----
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ................ 202,593 49,684 24,104 94,811 21,606 8,766
Unrealized appreciation (depreciation) on
investments ........................... (21,456) (6,584) 74,041 155,268 67,602 33,088
--------- ------ ------ ------- ------ ------
Net realized and unrealized gain (loss) on
investments ............................. 181,137 43,100 98,145 250,079 89,208 41,854
--------- ------ ------ ------- ------ ------
Increase (decrease) in net assets from
operations .............................. $ 170,761 46,091 102,642 286,015 105,596 47,725
========= ====== ======= ======= ======= ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
---------------------------------------------------------------------------
Worldwide Growth Portfolio Balanced Portfolio
------------------------------- -------------------------------------------
Period from
November 14,
Year ended Year ended 1995 to
Year ended December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1996 1995
---------- --------- ---------- -------------- -------------- -------------
<S> <C>
Investment income:
Income -- Dividends .................... $ 35,818 17,129 1,537 12,092 3,497 584
Expenses -- Mortality and expense
risk charges (note 3) ................ 16,118 6,046 2,178 2,145 931 66
-------- ------ ----- ------ ----- ---
Net investment income (expense) ......... 19,700 11,083 (641) 9,947 2,566 518
-------- ------ ----- ------ ----- ---
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ............... 89,852 102,324 8,523 8,229 2,098 395
Unrealized appreciation (depreciation)
on investments ....................... 251,916 66,974 56,274 41,009 14,575 2,467
-------- ------- ------ ------ ------ -----
Net realized and unrealized gain (loss)
on investments ......................... 341,768 169,298 64,797 49,238 16,673 2,862
-------- ------- ------ ------ ------ -----
Increase (decrease) in net assets from
operations ............................. $361,468 180,381 64,156 59,185 19,239 3,380
======== ======= ====== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
----------------------------------------------------------------------------------------
Capital
International Growth Appreciation
Flexible Income Portfolio Portfolio Portfolio
-------------------------------------------- ----------------------------- -------------
Period from Period from Period from
December 20, July 9, May 21,
Year ended Year ended 1995 to Year ended 1996 to 1997 to
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1996 1997
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C>
Investment income:
Income -- Dividends ................. $3,492 541 1 1,716 136 27
Expenses -- Mortality and
expense risk charges (note 3) ..... 240 34 -- 1,442 40 34
------ --- -- ----- --- --
Net investment income (expense) ...... 3,252 507 1 274 96 (7)
------ --- -- ----- --- -----
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ............ 305 13 -- 5,037 152 106
Unrealized appreciation
(depreciation) on investments ..... 72 83 (1) 16,037 1,040 697
------ --- ----- ------ ----- ----
Net realized and unrealized gain
(loss) on investments ............... 377 96 (1) 21,074 1,192 803
------ --- ----- ------ ----- ----
Increase (decrease) in net assets
from operations ..................... $3,629 603 -- 21,348 1,288 796
====== === ==== ====== ===== ====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.)
------------------------------------------------------------------
S&P 500 Government
Index Securities
Fund Fund
---------------------------------- ------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income $ 71,494 741,582 14,636 (2,085) 28,995 16,905
Net realized gain (loss) 18,179 65,600 33,666 1,254 289 2,130
Unrealized appreciation (depreciation) on investments 504,771 (498,697) 203,288 18,064 (28,379) 23,073
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 594,444 308,485 251,590 17,233 905 42,108
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 496,133 308,147 205,386 36,517 37,229 37,525
Loan interest (2,663) (455) (592) 290 878 244
Transfers (to) from the general account of Life of Virginia:
Death benefits (146,232) (1,955) - - - -
Surrenders (28,437) (15,204) (35,272) (15,385) (3,155) -
Loans (12,720) (16,280) 33 (4,137) (2,302) -
Cost of insurance and administrative expense (note 3) (235,713) (158,228) (112,723) (23,090) (23,586) (22,993)
Transfer gain (loss) and transfer fees (793) 109 1,890 (675) (75) (368)
Interfund transfers 954,081 289,390 91,482 (322,397) (18,963) 21,812
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 1,023,656 405,524 150,204 (328,877) (9,974) 36,220
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,618,100 714,009 401,794 (311,644) (9,069) 78,328
Net assets at beginning of year 1,789,889 1,075,880 674,086 311,644 320,713 242,385
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 3,407,989 1,789,889 1,075,880 - 311,644 320,713
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.)
-------------------------------------------------------------------
Money Market Total Return
Fund Fund
------------------------------------ -----------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income 93,988 81,681 51,763 432,580 825,901 201,614
Net realized gain (loss) 298,840 (325,593) 68,408 (54,073) 68,427 17,126
Unrealized appreciation (depreciation) on investments (300,439) 345,223 (25,977) 123,159 (708,053) 18,487
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 92,389 101,311 94,194 501,666 186,275 237,227
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 3,634,434 5,619,954 5,903,130 169,809 143,160 180,914
Loan interest (3,118) (1,840) (33) (299) (178) (130)
Transfers (to) from the general account of Life of Virginia:
Death benefits (15,944) (1,302) - (7,452) (25,232) -
Surrenders (10,646) (7,042) (25,025) (14,564) (14,027) (22,038)
Loans (5,231) (59,410) 215 (3,824) (6,948) (6,501)
Cost of insurance and administrative expense (note 3) (284,457) (257,113) (201,089) (357,384) (339,757) (173,014)
Transfer gain (loss) and transfer fees (233,325) (28,760) (164,726) 39,224 125,446 105,770
Interfund transfers (3,317,791) (4,363,145) (5,222,614) (2,809) 124,895 2,309,889
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (236,078) 901,342 289,858 (177,299) 7,359 2,394,890
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (143,689) 1,002,653 384,052 324,367 193,634 2,632,117
Net assets at beginning of year 2,405,605 1,402,952 1,018,900 3,279,301 3,085,667 453,550
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 2,261,916 2,405,605 1,402,952 3,603,668 3,279,301 3,085,667
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.) (continued)
--------------------------------------------------------------
International Real Estate
Equity Fund Securities Fund
-------------------------------------- -------------------
Period from
August 25,
Year ended Year ended 1995 to Year ended
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
From operations:
Net investment income $ 8,167 1,732 165 19,866
Net realized gain 654 510 4 2,800
Unrealized appreciation (depreciation) on investments (5,290) (839) 193 (2,725)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 3,531 1,403 362 19,941
From capital transactions:
Net premiums 23,197 18,822 3,961 79,557
Loan interest 4 7 - 2
Transfers (to) from the general account of Life of Virginia:
Death benefits - - - -
Surrenders (904) (1,403) - (692)
Loans (289) (229) - (874)
Cost of insurance and administrative expense (note 3) (5,480) (3,119) (316) (17,806)
Transfer gain (loss) and transfer fees (1,837) 86 (5) 300
Interfund transfers 22,059 10,273 5,381 89,769
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 36,750 24,437 9,021 150,256
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 40,281 25,840 9,383 170,197
Net assets at beginning of period 35,223 9,383 - 30,212
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 75,504 35,223 9,383 200,409
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.) (continued)
--------------------------------------------------------------------
Global Value
Real Estate Income Equity Income
Securities Fund Fund Fund Fund
----------------------- ---------- ----------- ------------
Period from Period from Period from Period from
October 5, June 18, June 17, December 12,
Year ended 1995 to 1997 to 1997 to 1997 to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
From operations:
Net investment income 1,621 22 431 98 876
Net realized gain 381 - 35 (9) (838)
Unrealized appreciation (depreciation) on investments 2,468 4 (329) 1 523
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 4,470 26 137 90 561
From capital transactions:
Net premiums 15,327 143 1,293 5,797 735
Loan interest - - - 2 12
Transfers (to) from the general account of Life of Virginia:
Death benefits - - - - -
Surrenders (347) - - - -
Loans - - (243) - -
Cost of insurance and administrative expense
(note 3) (1,892) (31) (373) (1,002) (1,655)
Transfer gain (loss) and transfer fees 190 2 (9) 35 (30)
Interfund transfers 12,060 264 8,418 8,637 378,428
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 25,338 378 9,086 13,469 377,490
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 29,808 404 9,223 13,559 378,051
Net assets at beginning of period 404 - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 30,212 404 9,223 13,559 378,051
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
------------------------------------------------------------------
Money Bond
Fund Fund
-------------------------------- ---------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 23 193 580 15,714 14,915 7,521
Net realized gain (loss) - - - 276 128 407
Unrealized appreciation (depreciation) on investments - - - 5,965 (3,916) 9,889
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 23 193 580 21,955 11,127 17,817
From capital transactions:
Net premiums 111 - 7,628 56,837 41,062 36,446
Loan interest - - - (13) (2) 1
Transfers (to) from the general account of Life of Virginia:
Death benefits - - - - - -
Surrenders - - (954) (17,569) (3,478) (1,208)
Loans - - - (2,018) - (134)
Cost of insurance and administrative expense (note 3) (205) (997) (1,976) (23,294) (21,145) (15,526)
Transfer gain (loss) and transfer fees 15 (8) (12) (1,279) 6 (54)
Interfund transfers (651) (10,491) (3,849) (12,046) 50,864 63,844
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (730) (11,496) 837 618 67,307 83,369
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (707) (11,303) 1,417 22,573 78,434 101,186
Net assets at beginning of year 707 12,010 10,593 269,840 191,406 90,220
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ - 707 12,010 292,413 269,840 191,406
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Oppenheimer Variable Account Funds
--------------------------------------------------------------------
Capital
Appreciation Growth
Fund Fund
----------------------------------- ------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 100,061 85,790 (4,781) 80,930 64,832 6,605
Net realized gain (loss) 264,595 128,677 57,411 112,639 59,611 22,586
Unrealized appreciation (depreciation) on investments (89,502) 103,509 281,347 226,521 113,315 125,878
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 275,154 317,976 333,977 420,090 237,758 155,069
From capital transactions:
Net premiums 794,773 615,934 394,900 460,957 310,615 175,911
Loan interest 305 (174) (114) (541) (155) 12
Transfers (to) from the general account of Life of Virginia:
Death benefits (313) - (2,168) - (3,934) (2,519)
Surrenders (41,954) (128,744) (58,441) (69,141) (18,216) (7,126)
Loans (38,517) (8,425) (9,348) (12,664) (21,680) (5,542)
Cost of insurance and administrative expense (note 3) (307,499) (242,592) (174,402) (176,831) (107,526) (61,493)
Transfer gain (loss) and transfer fees 13,531 6,908 (5,711) (4,635) (1,119) 2,839
Interfund transfers 61,532 270,794 151,112 180,805 266,465 216,857
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 481,858 513,701 295,828 377,950 424,450 318,939
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 757,012 831,677 629,805 798,040 662,208 474,008
Net assets at beginning of year 2,342,064 1,510,387 880,582 1,479,873 817,665 343,657
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $3,099,076 2,342,064 1,510,387 2,277,913 1,479,873 817,665
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds (continued)
-----------------------------------------------------------------
High Multiple
Income Strategies
Fund Fund
------------------------------------ ----------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income $ 96,855 72,735 43,949 40,854 30,201 31,782
Net realized gain (loss) 11,476 8,045 1,112 26,553 22,006 5,112
Unrealized appreciation (depreciation) on investments 28,520 28,139 30,017 27,703 14,047 48,453
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 136,851 108,919 75,078 95,110 66,254 85,347
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 359,877 311,435 225,228 132,071 122,291 183,632
Loan interest (10) 16 179 (129) (18) (48)
Transfers (to) from the general account of Life of Virginia:
Death benefits - (18,532) (386) - (17,498) -
Surrenders (19,540) (7,723) (26,138) (51,445) (183,972) (11,026)
Loans (25,149) (133,614) (3,839) (4,961) (729) (617)
Cost of insurance and administrative expense (note 3) (162,386) 559 (106,764) (65,223) (50,034) (67,361)
Transfer gain (loss) and transfer fees 944 111,802 692 (84) 6,336 (572)
Interfund transfers 367,417 - 132,318 (13,534) 87,158 52,156
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 521,153 263,943 221,290 (3,305) (36,466) 156,164
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 658,004 372,862 296,368 91,805 29,788 241,511
Net assets at beginning of year 992,747 619,885 323,517 574,661 544,873 303,362
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 1,650,751 992,747 619,885 666,466 574,661 544,873
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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,
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 29,949 15,364 30,350 15,351 22,656 11,226
Net realized gain (loss) - - - 41,295 7,114 4,603
Unrealized appreciation (depreciation) on investments - - - (23,320) 1,632 25,411
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 29,949 15,364 30,350 33,326 31,402 41,240
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - 1,850 96,485 208 - 91,883
Loan interest (34) (14) 102 (41) (22) 245
Transfers (to) from the general account of Life of Virginia:
Death benefits - - - - - (393)
Surrenders (2) (19,871) (2,975) (2,471) (36,177) (6,219)
Loans (1,093) (1,250) - (1,664) (2,449) -
Cost of insurance and administrative expense
(note 3) (18,137) (30,816) (65,636) (16,918) (30,421) (49,478)
Transfer gain (loss) and transfer fees (15,912) (5,041) (991) 1,294 (553) 373
Interfund transfers (310,424) (89,691) (162,335) (226,946) (34,288) 36,951
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (345,602) (144,833) (135,350) (246,538) (103,910) 73,362
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (315,653) (129,469) (105,000) (213,212) (72,508) 114,602
Net assets at beginning of year 315,653 445,122 550,122 213,212 285,720 171,118
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ - 315,653 445,122 - 213,212 285,720
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund
------------------------------------------------------------------
Equity-
Income Growth
Portfolio Portfolio
--------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 309,419 68,759 63,574 105,204 188,077 (7,518)
Net realized gain (loss) 125,398 98,124 44,633 193,439 342,839 237,960
Unrealized appreciation (depreciation) on investments 539,549 149,934 255,114 566,792 (104,224) 415,406
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 974,366 316,817 363,321 865,435 426,692 645,848
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 1,111,418 923,240 487,170 1,063,353 928,744 621,255
Loan interest 623 (54) 34 (786) (476) (2,442)
Transfers (to) from the general account of Life of Virginia:
Death benefits (276) (22,109) - (12,511) (24,929) (2,486)
Surrenders (74,706) (120,408) (19,474) (119,903) (179,684) (78,450)
Loans (43,806) (12,984) (4,694) (102,452) (72,457) 5,101
Cost of insurance and administrative expense
(note 3) (475,456) (336,646) (199,167) (468,850) (419,528) (324,187)
Transfer gain (loss) and transfer fees 21,702 18,395 3,592 (321) 34,069 (20,621)
Interfund transfers 662,909 643,935 410,782 127,136 (78,376) 590,049
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 1,202,408 1,093,369 678,243 485,666 187,363 788,219
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 2,176,774 1,410,186 1,041,564 1,351,101 614,055 1,434,067
Net assets at beginning of year 3,220,818 1,810,632 769,068 3,610,646 2,996,591 1,562,524
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 5,397,592 3,220,818 1,810,632 4,961,747 3,610,646 2,996,591
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Insurance
Products Fund (continued)
-------------------------------------------------
Overseas
Portfolio
------------------------------------------------
Year ended December 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 143,155 25,110 (1,446)
Net realized gain (loss) 95,087 39,291 6,569
Unrealized appreciation (depreciation) on investments (45,710) 126,664 107,430
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 192,532 191,065 112,553
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 366,213 455,202 445,508
Loan interest (656) (10) (29)
Transfers (to) from the general account of Life of Virginia:
Death benefits (264) (3,636) -
Surrenders (78,977) (76,054) (19,836)
Loans (29,580) (29,577) (7,544)
Cost of insurance and administrative expense
(note 3) (181,619) (199,651) (190,510)
Transfer gain (loss) and transfer fees 2,923 5,668 (13,025)
Interfund transfers (292,022) (2,943) 233,172
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (213,982) 148,999 447,736
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets (21,450) 340,064 560,289
Net assets at beginning of period 1,760,630 1,420,566 860,277
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 1,739,180 1,760,630 1,420,566
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund II
--------------------------------------------------------
Asset
Manager
Portfolio
-------------------------------------------------------
Year ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 390,988 163,748 21,781
Net realized gain (loss) 68,861 105,006 25,753
Unrealized appreciation (depreciation) on investments 222,652 98,064 313,566
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 682,501 366,818 361,100
- -----------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 644,004 695,446 756,041
Loan interest (381) (44) 209
Transfers (to) from the general account of Life of Virginia:
Death benefits - (22,120) (1,919)
Surrenders (122,367) (107,389) (51,751)
Loans (29,206) 70 (20,572)
Cost of insurance and administrative expense
(note 3) (329,030) (341,676) (352,049)
Transfer gain (loss) and transfer fees 12,971 (36) (3,037)
Interfund transfers 430,161 (462,667) 294,547
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 606,152 (238,416) 621,469
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets 1,288,653 128,402 982,569
Net assets at beginning of period 2,880,752 2,752,350 1,769,781
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 4,169,405 2,880,752 2,752,350
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund II (continued)
-------------------------------------------------------
Contrafund
Portfolio
------------------------------------------------------
Period from
February 7,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 22,586 (1,644) 2,770
Net realized gain (loss) 198,947 14,028 2,651
Unrealized appreciation (depreciation) on investments 135,687 119,895 12,626
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 357,220 132,279 18,047
- -------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 617,546 331,802 104,232
Loan interest (140) 107 4
Transfers (to) from the general account of Life of Virginia:
Death benefits (5,439) - -
Surrenders (90,538) (8,625) -
Loans (13,250) (4,921) (396)
Cost of insurance and administrative expense
(note 3) (207,378) (91,674) (18,015)
Transfer gain (loss) and transfer fees 17,537 1,153 3,247
Interfund transfers 292,298 398,084 180,143
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 610,636 625,926 269,215
- -------------------------------------------------------------------------------------------------------------------------
Increase in net assets 967,856 758,205 287,262
Net assets at beginning of period 1,045,467 287,262 -
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 2,013,323 1,045,467 287,262
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Variable Insurance
Products Fund III
-----------------------------------
Growth & Growth
Income Opportunities
Portfolio Portfolio
-----------------------------------
Period from Period from
May 30, May 30,
1997 to 1997 to
December 31, December 31,
1997 1997
- -----------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) (45) (148)
Net realized gain (loss) 1,642 472
Unrealized appreciation (depreciation) on investments (1,102) 3,433
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 495 3,757
- -----------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 5,448 6,899
Loan interest - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - -
Surrenders - -
Loans - -
Cost of insurance and administrative expense
(note 3) (1,504) (1,447)
Transfer gain (loss) and transfer fees 1,159 860
Interfund transfers 41,761 61,508
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 46,864 67,820
- -----------------------------------------------------------------------------------------------------
Increase in net assets 47,359 71,577
Net assets at beginning of period - -
- -----------------------------------------------------------------------------------------------------
Net assets at end of period 47,359 71,577
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust
------------------------------------------------------
Balanced
Portfolio
-----------------------------------------------------
Year ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 14,587 39,731 3,705
Net realized gain (loss) 36,568 4,564 5,430
Unrealized appreciation (depreciation) on investments (14,898) (28,989) 43,147
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 36,257 15,306 52,282
- -----------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 321 - 52,871
Loan interest (32) (7) 6
Transfers (to) from the general account of Life of Virginia:
Death benefits - (16,809) (1,989)
Surrenders (12,775) (3,543) (3,754)
Loans (1,513) - (305)
Cost of insurance and administrative expense
(note 3) (11,724) (16,515) (24,013)
Transfer gain (loss) and transfer fees (153) (143) 7
Interfund transfers (254,395) (26,358) 5,186
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (280,271) (63,375) 28,009
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (244,014) (48,069) 80,291
Net assets at beginning of year 244,014 292,083 211,792
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ - 244,014 292,083
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust (continued)
--------------------------------------------------------
Bond
Portfolio
--------------------------------------------------------
Year ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 4,202 6,487 2,348
Net realized gain (loss) (162) 38 450
Unrealized appreciation (depreciation) on investments (48) (3,678) 3,567
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 3,992 2,847 6,365
- -----------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - - 37,211
Loan interest - - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (61) - (3,175)
Loans - - -
Cost of insurance and administrative expense
(note 3) (1,655) (3,975) (6,373)
Transfer gain (loss) and transfer fees (1,438) (55) (170)
Interfund transfers (80,382) (11,128) 5,181
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (83,536) (15,158) 32,674
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (79,544) (12,311) 39,039
Net assets at beginning of year 79,544 91,855 52,816
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year - 79,544 91,855
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust (continued)
--------------------------------------------------------
Growth
Portfolio
------------------------------------------------------
Year ended December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 10,476 12,575 3,386
Net realized gain (loss) 37,624 4,264 6,665
Unrealized appreciation (depreciation) on investments (18,849) (6,024) 29,994
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 29,251 10,815 40,045
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 578 30 43,607
Loan interest (111) (118) 2
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (3,450) - (9,384)
Loans (1,168) (4,361) (1,132)
Cost of insurance and administrative expense
(note 3) (6,896) (8,829) (13,364)
Transfer gain (loss) and transfer fees 2,241 273 (357)
Interfund transfers (154,994) (24,783) (2,815)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (163,800) (37,788) 16,557
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (134,549) (26,973) 56,602
Net assets at beginning of year 134,549 161,522 104,920
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year - 134,549 161,522
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Federated Investors
Insurance Series
---------------------------------
American
Leaders
Fund II
----------------------------------
Period from
August 14,
Year ended 1996 to
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 35 7
Net realized gain (loss) 598 4
Unrealized appreciation (depreciation) on investments 3,025 29
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 3,658 40
- --------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 26,104 941
Loan interest - -
Transfers (to) from the general account of Life of Virginia:
Surrenders - -
Loans - -
Cost of insurance (note 3) (3,533) (101)
Transfer gain (loss) and transfer fees 46 (1)
Interfund transfers 17,684 1,391
- --------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 40,301 2,230
- --------------------------------------------------------------------------------------------------------------
Increase in net assets 43,959 2,270
Net assets at beginning of period 2,270 -
- --------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 46,229 2,270
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Federated Investors
Insurance Series
-----------------------------------------------------
High
Income
Bond
Fund II
-----------------------------------------------------
Period from
October 31,
Year ended Year ended 1995
December 31, December 31, December 31
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 2,963 1,465 6
Net realized gain (loss) 836 51 0
Unrealized appreciation (depreciation) on investments 5,274 1,038 35
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 9,073 2,554 41
- -------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 41,464 18,547 8
Loan interest - - -
Transfers (to) from the general account of Life of Virginia:
Surrenders - - -
Loans (3,068) - -
Cost of insurance (note 3) (9,342) (3,746) (74)
Transfer gain (loss) and transfer fees 332 362 62
Interfund transfers 20,749 9,630 8,214
- -------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 50,135 24,793 8,210
- -------------------------------------------------------------------------------------------------------------------------
Increase in net assets 59,208 27,347 8,251
Net assets at beginning of period 35,598 8,251 -
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 94,806 35,598 8,251
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Federated Investors
Insurance Series
-------------------------------------------------------
Utility
Fund II
------------------------------------------------------
Period from
March 22,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 4,069 1,919 730
Net realized gain (loss) 1,782 2,332 167
Unrealized appreciation (depreciation) on investments 25,287 700 3,982
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 31,138 4,951 4,879
- ------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 43,641 27,264 39,132
Loan interest - - -
Transfers (to) from the general account of Life of Virginia:
Surrenders - (60) -
Loans - - -
Cost of insurance (note 3) (10,455) (6,249) (3,417)
Transfer gain (loss) and transfer fees (196) (372) 30
Interfund transfers 11,808 236 20,946
- ------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 44,798 20,819 56,691
- ------------------------------------------------------------------------------------------------------------------------
Increase in net assets 75,936 25,770 61,570
Net assets at beginning of period 87,340 61,570 -
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 163,276 87,340 61,570
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Alger American
-------------------------------------
Small
Cap
Portfolio
-------------------------------------
Year ended Year ended
December 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ 17,639 (1,157)
Net realized gain (loss) 109,665 4,156
Unrealized appreciation (depreciation) on investments (21,855) (4,745)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 105,449 (1,746)
- ---------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 293,677 151,593
Loan interest 1,571 (3,345)
Transfers (to) from the general account of Life of Virginia:
Surrenders (3,177) (1,160)
Loans (3,833) (13,496)
Cost of insurance (note 3) (88,074) (37,209)
Transfer gain (loss) and transfer fees 22,932 9,170
Interfund transfers 69,375 281,412
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 292,471 386,965
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets 397,920 385,219
Net assets at beginning of period 421,775 36,556
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 819,695 421,775
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American
-----------------------------------------------------------------
Small Cap Growth
Portfolio Portfolio
--------------- ---------------------------------------------------
Period from Period from
October 11, October 23,
1995 to Year ended Year ended 1995 to
December 31, December 31, December 31, December 31,
1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) (24) 2,666 1,465 (12)
Net realized gain (loss) (52) 103,893 1,107 7
Unrealized appreciation (depreciation) on investments (436) 100,012 (1,956) 147
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (512) 206,571 616 142
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 4,392 338,476 180,079 2,473
Loan interest - 578 31 2
Transfers (to) from the general account of Life of Virginia:
Surrenders - (17,220) (1,243) -
Loans - (5,609) (956) -
Cost of insurance (note 3) (879) (109,328) (34,162) (500)
Transfer gain (loss) and transfer fees 208 (92,300) 6,248 170
Interfund transfers 33,347 (862,640) 1,232,717 20,967
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 37,068 (748,043) 1,382,714 23,112
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 36,556 (541,472) 1,383,330 23,254
Net assets at beginning of period - 1,406,584 23,254 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 36,556 865,112 1,406,584 23,254
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PBHG Insurance
Series Fund
--------------------------------------
Large Cap
Growth Growth II
Portfolio Portfolio
--------------------------------------
Period from Period from
May 30, May 30,
1997 to 1997 to
December 31, December 31,
1997 1997
- ------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) (63) (43)
Net realized gain (loss) 584 34
Unrealized appreciation (depreciation) on investments 92 (142)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 613 (151)
- ------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 4,425 10,354
Loan interest - -
Transfers (to) from the general account of Life of Virginia:
Surrenders (181) -
Loans - -
Cost of insurance (note 3) (1,384) (1,598)
Transfer gain (loss) and transfer fees 401 (24)
Interfund transfers 22,634 12,519
- ------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 25,895 21,251
- ------------------------------------------------------------------------------------------------------
Increase in net assets 26,508 21,100
Net assets at beginning of period - -
- ------------------------------------------------------------------------------------------------------
Net assets at end of period 26,508 21,100
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series
-----------------------------------------------------------
Aggressive
Growth Portfolio
-----------------------------------------------------------
Year ended December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) $ (10,376) 2,991 4,497
Net realized gain (loss) 202,593 49,684 24,104
Unrealized appreciation (depreciation) on investments (21,456) (6,584) 74,041
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 170,761 46,091 102,642
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 525,446 440,252 272,031
Loan interest (1,809) 50 101
Transfers (to) from the general account of Life of Virginia:
Death benefits - (155) -
Surrenders (39,796) (55,525) (6,433)
Loans (7,351) (9,797) (590)
Cost of insurance and administrative expense (note 3) (186,650) (128,435) (69,676)
Transfer gain (loss) and transfer fees 45,321 5,450 10,642
Interfund transfers 436,211 161,707 197,192
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 771,372 413,547 403,267
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 942,133 459,638 505,909
Net assets at beginning of period 1,083,059 623,421 117,512
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 2,025,192 1,083,059 623,421
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
--------------------------------------------------------------
Growth
Portfolio
------------------------------------------------------------
Year ended December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 35,936 16,388 5,871
Net realized gain (loss) 94,811 21,606 8,766
Unrealized appreciation (depreciation) on investments 155,268 67,602 33,088
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 286,015 105,596 47,725
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 531,252 350,437 130,419
Loan interest 514 59 -
Transfers (to) from the general account of Life of Virginia:
Death benefits - (151) -
Surrenders (19,282) (67,362) (364)
Loans (17,285) (5,035) (28)
Cost of insurance and administrative expense (note 3) (173,865) (88,814) (39,647)
Transfer gain (loss) and transfer fees 8,623 5,548 1,834
Interfund transfers 231,416 454,994 138,995
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 561,373 649,676 231,209
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 847,388 755,272 278,934
Net assets at beginning of period 1,113,610 358,338 79,404
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 1,960,998 1,113,610 358,338
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
-------------------------------------------------------------
Worldwide
Growth
Portfolio
------------------------------------------------------------
Year ended December 31,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income (expense) 19,700 11,083 (641)
Net realized gain (loss) 89,852 102,324 8,523
Unrealized appreciation (depreciation) on investments 251,916 66,974 56,274
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 361,468 180,381 64,156
- --------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 822,511 381,650 165,843
Loan interest 740 270 -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (35,503) (40,322) (6,089)
Loans (11,414) (19,483) 5
Cost of insurance and administrative expense (note 3) (279,525) (115,529) (55,173)
Transfer gain (loss) and transfer fees 3,261 8,504 1,721
Interfund transfers 795,994 610,432 97,041
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 1,296,064 825,522 203,348
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 1,657,532 1,005,903 267,504
Net assets at beginning of period 1,421,287 415,384 147,880
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 3,078,819 1,421,287 415,384
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
---------------------------------------------------------
Balanced
Portfolio
---------------------------------------------------------
Period from
November 14,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income $ 9,947 2,566 518
Net realized gain 8,229 2,098 395
Unrealized appreciation (depreciation) on investments 41,009 14,575 2,467
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 59,185 19,239 3,380
- --------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 73,161 19,054 336
Loan interest 6 - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (6,904) - -
Loans (577) - -
Cost of insurance (note 3) (31,146) (11,055) (792)
Transfer gain (loss) and transfer fees 305 1,193 (248)
Interfund transfers 369,258 63,919 73,750
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 404,103 73,111 73,046
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 463,288 92,350 76,426
Net assets at beginning of period 168,776 76,426 -
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 632,064 168,776 76,426
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
--------------------------------------------------------------
Flexible
Income
Portfolio
-----------------------------------------------------------
Period from
December 20,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income 3,252 507 1
Net realized gain 305 13 -
Unrealized appreciation (depreciation) on investments 72 83 (1)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 3,629 603 -
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 40,176 3,048 13
Loan interest - - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders - - -
Loans - - -
Cost of insurance (note 3) (10,448) (840) (4)
Transfer gain (loss) and transfer fees 271 1 1
Interfund transfers 28,139 6,026 35
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 58,138 8,235 45
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 61,767 8,838 45
Net assets at beginning of period 8,883 45 -
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 70,650 8,883 45
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series (continued)
-------------------------------------------------------------
International Capital
Growth Appreciation
Portfolio Portfolio
--------------------------------------- --------------------
Period from Period from
July 9, May 21,
Year ended 1996 to 1997 to
December 31, December 31, December 31,
1997 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets From operations:
Net investment income 274 96 (7)
Net realized gain 5,037 152 106
Unrealized appreciation (depreciation) on investments 16,037 1,040 697
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 21,348 1,288 796
- -------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 137,587 19,750 1,504
Loan interest 7 - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (3,539) - -
Loans (462) - -
Cost of insurance (note 3) (30,132) (1,705) (1,135)
Transfer gain (loss) and transfer fees 1,187 (43) 4
Interfund transfers 140,874 34,648 7,451
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 245,522 52,650 7,824
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 266,870 53,938 8,620
Net assets at beginning of period 53,938 - -
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 320,808 53,938 8,620
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Notes to Financial Statements
===========================================================================
(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. The Life Insurance Company 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. The remaining 20% is owned by GE Financial
Assurance Holdings, Inc. General Electric Capital Assurance Corporation
and GE Financial Assurance Holdings, 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 (GE), a New York corporation.
Prior to April 1, 1996, Life of Virginia was an indirect wholly-owned
subsidiary of Aon Corporation (Aon).
In May 1997, seven new investment subdivisions were added to the
Account. The Growth & Income Portfolio and Growth Opportunities
Portfolio each invest solely in a designated portfolio of the Variable
Insurance Products Fund III. The Global Income Fund and the Value
Equity Fund each invest solely in a designated portfolio of the GE
Investments Funds, Inc. The Capital Appreciation Portfolio invests
solely in a designated portfolio of the Janus Aspen Series. The Growth
II Portfolio and the Large Cap Growth Portfolio each invest solely in a
designated portfolio of the PBHG Insurance Series Fund. All designated
portfolios described above are series type mutual funds.
During 1997, the Life of Virginia Series Fund, Inc. changed its name to
the GE Investments Funds, Inc. As a result the Life of Virginia Series
Funds, Inc.--Common Stock Index, Government Securities, Money Market,
Total Return, International Equity and Real Estate Securities
Portfolios were renamed the GE Investments Funds, Inc.--S&P 500 Index,
Government Securities, Money Market, Total Return, International Equity
and Real Estate Securities Funds, respectively. On December 12, 1997,
the Account added the GE Investments Funds, Inc.--Income Fund as a new
investment subdivision and made the following substitutions of shares
held by the investment subdivisions:
<TABLE>
<S> <C>
Before the Substitution After the Substitution
Shares of Money Market Portfolio - Shares of Money Market Fund -
Variable Insurance Products Fund GE Investments Funds, Inc.
<PAGE>
(1) Continued
Before the Substitution After the Substitution
Shares of Money Fund - Shares of Money Market Fund -
Oppenheimer Variable Account Funds GE Investments Funds, Inc.
Shares of Government Securities Fund - Shares of Income Fund -
GE Investments Funds, Inc. GE Investments Funds, Inc.
Shares of Bond Portfolio - Shares of Income Fund -
Neuberger & Berman Advisers GE Investments Funds, Inc.
Management Trust
Shares of High Income Portfolio - Shares of High Income Fund -
Variable Insurance Products Fund Oppenheimer Variable Account Funds
Shares of Growth Portfolio - Shares of Growth Portfolio Fund -
Neuberger & Berman Advisers Management Trust Variable Insurance Products Fund
Shares of Balanced Portfolio - Shares of Balanced Portfolio -
Neuberger & Berman Advisers Management Trust Janus Aspen Series
</TABLE>
The foregoing substitutions were carried out pursuant to an order of
the Securities and Exchange Commission (Commission) issued on December
11, 1997, with the approval of any necessary department of insurance.
The effect of such a share substitution was to replace certain
portfolios of Variable Insurance Products Fund, Oppenheimer Variable
Account Funds, GE Investments Funds, Inc., and Neuberger & Berman
Advisers Management Trust with those of GE Investments Funds, Inc.,
Oppenheimer Variable Account Funds, Variable Insurance Products Fund,
and Janus Aspen Series as investment options.
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 invest
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 invest solely
in a designated portfolio of GE Investment
<PAGE>
(1) Continued
Funds, Inc., a series type mutual fund. The Balanced Portfolio and
Flexible Income Portfolio each invest solely in a designated portfolio
of the Janus Aspen Series, a series type mutual fund. The Growth
Portfolio and Small Cap Portfolio each invest 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 invest 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 invest 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 and
income distributions are recorded on the ex-dividend 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,
1997, were:
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
- ----------------------------------------------------------------------------
GE Investments Funds, Inc.:
S&P 500 Index $ 2,421,588 571,889
Government Securities 410,712 711,146
Money Market 12,663,722 12,135,125
Total Return 1,505,900 444,003
International Equity 63,352 13,258
Real Estate Securities 214,996 40,188
Global Income 12,578 3,048
Value Equity 14,881 1,342
Income 761,837 379,420
Oppenheimer Variable Account Funds:
Money 1,813 2,492
Bond 127,847 110,136
Capital Appreciation 2,465,078 1,896,848
Growth 998,636 535,975
High Income 879,871 262,329
Multiple Strategies 262,282 224,756
Variable Insurance Products Fund:
Money Market 77,914 384,986
High Income 22,730 254,138
Equity-Income 2,606,594 1,084,415
Growth 1,850,462 1,260,670
Overseas 744,665 820,557
Variable Insurance Products Fund II:
Asset Manager 1,731,479 753,717
Contrafund 2,267,666 1,656,816
Variable Insurance Products Fund III
Growth & Income 75,900 28,920
Growth Opportunities 84,040 17,196
<PAGE>
(2) Continued
Cost of Proceeds
Shares from
Fund/Portfolio, Continued Acquired Shares Sold
- ---------------------------------------------------------------------------
Advisers Management Trust:
Balanced $ 17,148 283,936
Bond 61,870 141,290
Growth 20,097 172,844
Federated Investors Insurance Series:
American Leaders II 49,651 9,336
High Income Bond II 71,541 18,670
Utility II 74,818 25,430
Alger American:
Small Cap 4,515,733 4,229,406
Growth 3,338,095 4,049,014
PBHG Insurance Series Fund:
PBHG Large Cap Growth 44,351 18,907
PBHG Growth II 21,715 1,945
Janus Aspen Series:
Aggressive Growth 7,117,628 6,402,194
Growth 1,384,477 762,866
Worldwide Growth 1,955,465 639,065
Balanced 478,781 65,175
Flexible Income 142,813 81,679
International Growth 305,903 65,108
Capital Appreciation 9,058 1,243
- ---------------------------------------------------------------------------
Capital Transactions
The increase (decrease) in outstanding units from capital transactions
for the years or periods ended December 31, 1997, 1996 and 1995 are as
follows:
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT II
Notes to Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(2) Continued
GE Investments Funds, Inc.
-------------------------------------------------------------------------
Government International
S&P 500 Index Securities Money Market Total Return Equity
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 35,274 15,187 72,058 24,280
Net premiums 8,832 2,156 290,272 8,350 388
Loan interest (25) 14 (2) (6) -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - -
Surrenders (1,517) - (1,231) (1,017) -
Loans 1 - 11 (300) -
Cost of insurance and administrative expenses (4,847) (1,321) (9,888) (7,985) (31)
Interfund transfers 3,934 1,253 (256,809) 106,601 527
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 6,378 2,102 22,353 105,643 884
- ----------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 41,652 17,289 94,411 129,923 884
Net premiums 10,935 2,279 364,289 5,129 1,663
Loan interest (16) 54 (119) (6) 1
Transfers (to) from the
general account of Life of Virginia:
Death benefits (69) - (84) (904) -
Surrenders (540) (193) (456) (503) (124)
Loans (578) (141) (3,851) (249) (20)
Cost of insurance and administrative expenses (5,615) (1,444) (16,666) (12,173) (276)
Interfund transfers 10,270 (1,161) (282,823) 4,475 908
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 14,387 (606) 60,290 (4,231) 2,152
- ----------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 56,039 16,683 154,701 125,692 3,036
Net premiums 12,804 1,856 229,013 6,095 1,752
Loan interest (69) 15 (196) (11) -
Transfers (to) from the
general account of Life of Virginia:
Death benefits (3,774) - (1,005) (267) -
Surrenders (734) (782) (671) (523) (68)
Loans (328) (210) (330) (137) (22)
Cost of insurance and administrative expenses (6,083) (1,174) (17,924) (12,827) (414)
Interfund transfers 24,623 (16,388) (224,564) (101) 1,666
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions 26,439 (16,683) (15,677) (7,771) 2,914
- ----------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 82,478 - 139,024 117,921 5,950
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(2) Continued
GE Investments Funds, Inc.
-----------------------------------------------------------
Real Estate
Securities Global Income Value Equity Income
Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994
Net premiums 13 - - -
Loan interest - - - -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - -
Surrenders - - - -
Loans - - - -
Cost of insurance and administrative expenses (3) - - -
Interfund transfers 25 - - -
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 35 - - -
- --------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 35 - - -
Net premiums 1,148 - - -
Loan interest - - - -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - -
Surrenders (26) - - -
Loans - - - -
Cost of insurance and administrative expenses (142) - - -
Interfund transfers 903 - - -
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 1,883 - - -
- --------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 1,918 - - -
Net premiums 4,672 128 444 74
Loan interest - - - 1
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - -
Surrenders (41) - - -
Loans (51) (24) - -
Cost of insurance and administrative expenses (1,046) (37) (77) (166)
Interfund transfers 5,271 829 661 37,858
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions 8,805 896 1,028 37,767
- --------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 10,723 896 1,028 37,767
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(2) Continued
Oppenheimer Variable Account Funds
---------------------------------------------------------------------------
Capital High Multiple
Money Bond Appreciation Growth Income Strategies
Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 746 5,276 37,680 17,304 14,353 16,523
Net premiums 539 4,449 4,997 17,058 4,813 9,487
Loan interest - 4 - (5) - (2)
Transfers (to) from the
general account of Life of Virginia:
Death benefits - (8) - (94) (69) -
Surrenders (67) (516) (166) (2,524) (195) (570)
Loans - (76) (18) (404) (152) (32)
Cost of insurance and administrative expenses (140) (2,109) (2,129) (7,533) (1,682) (3,480)
Interfund transfers (272) 2,613 8,754 6,527 5,933 2,695
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 60 4,357 11,438 13,025 8,648 8,098
- -------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 806 9,633 49,118 30,329 23,001 24,621
Net premiums - 4,046 8,958 16,813 6,706 5,628
Loan interest - - - (5) (3) (1)
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - (85) (805)
Surrenders - (241) (759) (3,514) (393) (8,467)
Loans - (100) - (230) (468) (34)
Cost of insurance and administrative expenses (66) (1,736) (4,613) (6,622) (2,322) (2,303)
Interfund transfers (695) 1,453 11,095 7,391 5,754 4,012
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions (761) 3,422 14,681 13,833 9,189 (1,970)
- -------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 45 13,055 63,799 44,162 32,190 22,651
Net premiums 6 (539) 20,919 11,890 10,966 3,690
Loan interest - - 8 (14) - (4)
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - (8) - - -
Surrenders - 167 (1,104) (1,783) (595) (1,437)
Loans - 19 (1,014) (327) (766) (139)
Cost of insurance and administrative expenses (12) 221 (8,094) (4,561) (4,949) (1,822)
Interfund transfers (39) 114 1,620 4,663 11,197 (378)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions (45) (18) 12,327 9,868 15,853 (90)
- -------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 - 13,037 76,126 54,030 48,043 22,561
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(2) Continued
Variable Insurance Products
Variable Insurance Products Fund Fund II
----------------------------------------------------------------------------------
Money High Equity-
Market Income Income Growth Overseas Asset Manager
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 38,823 9,102 37,010 68,322 48,521 110,061
Net premiums 6,426 4,512 20,189 22,373 24,216 45,133
Loan interest 7 12 1 (88) (2) 12
Transfers (to) from the
general account of Life of Virginia:
Death benefits - (19) - (90) - (115)
Surrenders (198) (305) (807) (2,825) (1,078) (3,089)
Loans - - (195) 184 (410) (1,228)
Cost of insurance and administrative
expenses (4,372) (2,430) (8,253) (11,675) (10,355) (21,016)
Interfund transfers (10,812) 1,815 17,022 21,249 12,674 17,584
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions (8,949) 3,585 27,957 29,128 25,045 37,281
- ------------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 29,874 12,687 64,967 97,450 73,566 147,342
Net premiums 127 - 31,658 34,244 23,922 34,545
Loan interest (1) (1) (2) (18) (1) (2)
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - (758) (919) (191) (1,099)
Surrenders (1,370) (1,514) (4,129) (6,625) (3,997) (5,334)
Loans (86) (103) (445) (2,672) (1,554) 3
Cost of insurance and administrative
expenses (2,125) (1,273) (11,544) (15,468) (10,492) (16,972)
Interfund transfers (6,185) (1,435) 22,081 (2,890) (155) (22,982)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions (9,640) (4,326) 36,861 5,652 7,532 (11,841)
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 20,234 8,361 101,828 103,102 81,098 135,501
Net premiums - 6 30,443 27,236 14,830 30,613
Loan interest (2) (1) 17 (20) (27) (18)
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - (8) (320) (11) -
Surrenders - (83) (2,046) (3,071) (3,198) (5,817)
Loans (67) (56) (1,200) (2,624) (1,198) (1,388)
Cost of insurance and administrative
expenses (1,113) (571) (13,023) (12,010) (7,354) (15,641)
Interfund transfers (19,052) (7,656) 18,157 3,258 (11,825) 20,449
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions (20,234) (8,361) 32,340 12,449 (8,783) 28,198
- ------------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 - - 134,168 115,551 72,315 163,699
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(2) Continued
Variable Insurance Variable Insurance
Products Fund II Products Fund III Advisers Management Trust
------------------------------------------------------------------------------
Growth & Growth
Contrafund Income Opportunities Balanced Bond Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 - - - 16,155 4,819 9,495
Net premiums 8,054 - - 2,225 7,196 3,178
Loan interest - - - - - -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - - (120)
Surrenders - - - (190) (1,548) (226)
Loans (31) - - - (187) (18)
Cost of insurance and administrative expenses (1,392) - - (381) (2,205) (1,443)
Interfund transfers 13,917 - - 310 (465) 312
- -------------------------------------------------------------------- --------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 20,548 - - 1,964 2,791 1,683
- -------------------------------------------------------------------- --------------------------------------------------------------
Units outstanding at December 31, 1995 20,548 - - 18,119 7,610 11,178
Net premiums 22,057 - - - - -
Loan interest 7 - - - (4) -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - - (687)
Surrenders (573) - - - - (145)
Loans (327) - - - (143) -
Cost of insurance and administrative expenses (6,094) - - (1,013) (290) (676)
Interfund transfers 26,464 - - (2,836) (815) (1,078)
- -------------------------------------------------------------------- --------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 41,534 - - (3,849) (1,252) (2,586)
- -------------------------------------------------------------------- --------------------------------------------------------------
Units outstanding at December 31, 1996 62,082 14,270 6,358 8,592
Net premiums 36,387 454 598 17 - 30
Loan interest (8) - - (2) - (6)
Transfers (to) from the
general account of Life of Virginia:
Death benefits (320) - - - - -
Surrenders (5,335) - - (651) (5) (179)
Loans (781) - - (77) - (60)
Cost of insurance and administrative expenses (12,219) (125) (125) (597) (128) (357)
Interfund transfers 17,222 3,484 5,332 (12,960) (6,225) (8,020)
- -------------------------------------------------------------------- --------------------------------------------------------------
Net increase (decrease) in units
from capital transactions 34,946 3,813 5,805 (14,270) (6,358) (8,592)
- -------------------------------------------------------------------- --------------------------------------------------------------
Units outstanding at December 31, 1997 97,028 3,813 5,805 - - -
- -------------------------------------------------------------------- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(2) Continued
Federated Investors
Insurance Series Alger American
--------------------------------------------------------
American
Leaders High Income Utility Small Cap Growth
Fund II Fund II Fund II Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 - - - - -
Net premiums - - 3,462 464 260
Loan interest - - - - -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - -
Surrenders - - - - -
Loans - - - - -
Cost of insurance and administrative expenses - (6) (302) (93) (53)
Interfund transfers - 697 1,854 3,522 2,203
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions - 691 5,014 3,893 2,410
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 - 691 5,014 3,893 2,410
Net premiums 86 1,470 1,811 15,849 16,630
Loan interest - - - (350) 3
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - -
Surrenders - - (4) (121) (115)
Loans - - - (1,411) (88)
Cost of insurance and administrative expenses (9) (297) (415) (3,890) (3,155)
Interfund transfers 128 763 16 29,422 113,835
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 205 1,936 1,408 39,499 127,110
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 205 2,627 6,422 43,392 129,520
Net premiums 1,922 2,964 3,027 35,801 33,924
Loan interest - - - 192 58
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - -
Surrenders - - - (387) (1,726)
Loans - (219) - (467) (562)
Cost of insurance and administrative expenses (260) (668) (725) (10,737) (10,957)
Interfund transfers 1,302 1,484 819 8,457 (86,458)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions 2,964 3,561 3,121 32,859 (65,721)
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 3,169 6,188 9,543 76,251 63,799
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(2) Continued
PBHG Insurance
Series Fund Janus Aspen Series
-------------------------- ------------------------
Large Cap Aggressive
Growth Growth II Growth Growth
Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 - - 10,290 8,119
Net premiums - - 151 14,001
Loan interest - - - 5
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - -
Surrenders - - - (331)
Loans - - - (30)
Cost of insurance and administrative expenses - - (355) (3,586)
Interfund transfers - - 33,027 10,149
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions - - 32,823 20,208
- -------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 - - 43,113 28,327
Net premiums - - 7,091 50,232
Loan interest - - - 6
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - (18)
Surrenders - - - (6,335)
Loans - - - (1,118)
Cost of insurance and administrative expenses - - (4,114) (14,654)
Interfund transfers - - 23,785 18,450
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions - - 26,762 46,563
- -------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 - - 69,875 74,890
Net premiums 391 960 33,956 31,979
Loan interest - - (117) 31
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - -
Surrenders (16) - (2,572) (1,161)
Loans - - (475) (1,040)
Cost of insurance and administrative expenses (122) (148) (12,062) (10,466)
Interfund transfers 2,001 1,160 28,188 13,930
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions 2,254 1,972 46,918 33,273
- -------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 2,254 1,972 116,793 108,163
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(2) Continued
Janus Aspen Series
------------------------------------------------------------------
Flexible International Capital
Worldwide Balanced Income Growth Appreciation
Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding at December 31, 1994 15,214 - - - -
Net premiums 10,566 5,909 1 - -
Loan interest - - - - -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - -
Surrenders (29) (217) - - -
Loans (2) - - - -
Cost of insurance and administrative expenses (3,212) (1,966) - - -
Interfund transfers 11,262 3,457 3 - -
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 18,585 7,183 4 - -
- ---------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 33,799 7,183 4 - -
Net premiums 30,707 3,070 287 1,725 -
Loan interest 5 2 - - -
Transfers (to) from the
general account of Life of Virginia:
Death benefits (13) - - - -
Surrenders (5,903) (324) - - -
Loans (441) (157) - - -
Cost of insurance and administrative expenses (7,782) (929) (79) (149) -
Interfund transfers 39,868 4,910 568 3,026 -
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units from
capital transactions 56,441 6,572 776 4,602 -
- ---------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 90,240 13,755 780 4,602 -
Net premiums 45,089 5,204 3,339 10,507 131
Loan interest 41 - - 1 -
Transfers (to) from the
general account of Life of Virginia:
Death benefits - - - - -
Surrenders (1,946) (491) - (270) -
Loans (626) (41) - (35) -
Cost of insurance and administrative expenses (15,323) (2,215) (868) (2,301) (99)
Interfund transfers 43,635 26,265 2,338 10,760 652
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
from capital transactions 70,870 28,722 4,809 18,662 684
- ---------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 161,110 42,477 5,589 23,264 684
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and
assumptions that affect amounts and disclosures reported therein.
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
GE Investments Funds, Inc. (the Fund) is an open-end diversified
management investment company.
Capital Brokerage Corporation, an affiliate of Life of Virginia, is a
Washington Corporation registered with the Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc. Capital Brokerage
Corporation also serves as principal underwriter for variable life
insurance Policies issued by Life of Virginia.
GE Investment Management Incorporated (Investment Advisor), a
wholly-owned subsidiary of GE, currently serves as investment advisor
to GE Investments Funds, Inc. 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 S&P 500 Index Fund, .10% for the Government Securities Fund, .50%
for the Money Market and Total Return Funds, 1.00% for the
International Equity Fund and .85% for the Real Estate Securities Fund.
Prior to May 1, 1997, Aon Advisors, Inc. served as investment advisor
to the Fund and was subject to the same compensation arrangement as GE
Investment Management Incorporated.
Certain officers and directors of Life of Virginia are also officers
and directors of Capital Brokerage Corporation.
<PAGE>
THE LIFE INSURANCE COMPANY OF
VIRGINIA AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The 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 subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year ended December 31, 1997 and 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 consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The accompanying consolidated
financial statements of The Life Insurance Company of Virginia for the year
ended December 31, 1995, were audited by other auditors whose report, dated
February 8, 1996 on those consolidated 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Life Insurance
Company of Virginia and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the year ended December 31,
1997, 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.
KPMG Peat Marwick LLP
Richmond, Virginia
January 6, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITIORS
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statements of income,
stockholder's equity, and cash flows of The Life Insurance Company of Virginia
and subsidiaries for the year 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 audit.
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. 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 financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of The Life Insurance Company of Virginia and subsidiaries for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Richmond, Virginia
February 8, 1996
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
(in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments:
Fixed maturities:
Available for sale - at fair value (amortized cost:
December 31, 1997 - $5,468.1; 1996 - $5,102.2) $ 5,622.6 5,142.7
Equity securities - at fair value
Common stocks (cost: December 31, 1997 - $43.1; 1996 - $31.6) 54.1 34.7
Preferred stocks (cost: December 31, 1997 - $87.6; 1996 - $123.5) 97.6 130.8
Mortgage loans on real estate (net of reserve for losses:
December 31, 1997 - $17.2; 1996 - $20.8) 496.2 585.4
Real estate (net) 11.8 19.4
Policy loans 188.4 179.5
Short-term investments - 42.4
- ------------------------------------------------------------------------------------------------------------------
Total investments 6,470.7 6,134.9
- ------------------------------------------------------------------------------------------------------------------
Cash 0.2 6.4
Receivables:
Premiums and other 6.6 7.9
Reinsurance recoverable 8.7 13.1
Accrued investment income 123.1 116.6
- ------------------------------------------------------------------------------------------------------------------
Total receivables 138.4 137.6
Deferred policy acquisition costs 165.0 70.3
Goodwill (net of accumulated amortization: December 31, 1997 - $11.3;
1996 - $5.0) 117.1 125.4
Present value of future profits (net) 332.6 419.2
Property and equipment at cost (net) 3.2 1.7
Deferred income taxes 57.4 72.9
Other assets 15.4 12.3
Assets held in separate accounts 4,066.4 2,762.7
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 11,366.4 9,743.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1997 and 1996
(in millions, except share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Policy liabilities:
Future policy benefits $ 520.6 518.3
Policy and contract claims 83.0 69.1
Unearned and advance premiums 0.1 0.1
Other policyholder funds 5,369.2 5,094.4
- ------------------------------------------------------------------------------------------------------------------
Total policy liabilities 5,972.9 5,681.9
General liabilities:
Payable to affiliate, net 9.4 8.8
Commissions and general expenses 51.1 46.8
Current income taxes 45.8 45.4
Other liabilities 71.5 192.2
Liabilities related to separate accounts 4,066.4 2,762.7
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 10,217.1 8,737.8
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Additional paid-in capital 925.9 928.1
Net unrealized investment gains 74.3 19.4
Retained earnings 145.1 54.1
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,149.3 1,005.6
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,366.4 9,743.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Statements of Income
For the year ended December 31, 1997, the periods from April 1, 1996 to December
31, 1996 and from January 1, 1996 to March 31, 1996, and the year ended December
31, 1995 (in millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Preacquisition
--------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenue
Premiums and policy fees $ 273.2 154.7 92.4 179.3
Separate account fees 44.4 23.1 5.9 17.7
Net investment income (note 2) 472.5 334.4 112.0 402.1
Realized investment gains (losses) (note 2) 13.3 6.0 9.0 (76.5)
Other income 2.5 0.6 1.0 2.8
- ----------------------------------------------------------------------------------------------------------------------
Total revenue earned 805.9 518.8 220.3 525.4
- ----------------------------------------------------------------------------------------------------------------------
Benefits and Expenses
Benefits to policyholders 509.8 326.4 166.0 372.9
Commissions and general expenses 82.5 53.2 28.8 43.7
Amortization of intangibles 59.6 50.1 0.6 3.2
Amortization of deferred policy acquisition
costs 10.8 3.2 6.0 39.3
- ----------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 662.7 432.9 201.4 459.1
Income Before Income Tax 143.2 85.9 18.9 66.3
Provision for income tax (note 3)
Current expense (benefit) 64.8 39.7 (3.8) 37.9
Deferred expense (benefit) (12.6) (7.9) 10.8 (10.8)
- ----------------------------------------------------------------------------------------------------------------------
52.2 31.8 7.0 27.1
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 91.0 54.1 11.9 39.2
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the year ended December 31, 1997, the periods from April 1, 1996 to December
31, 1996 and from January 1, 1996 to March 31, 1996, and the year ended December
31, 1995 (in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Preacquisition
---------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Common stock
$1,000 par value common stock, authorized,
issued and outstanding 4,000 in 1997,
1996 and 1995)
- ------------------------------------------------------------------------------------------------------------------
Balance at beginning and end of period $ 4.0 4.0 4.0 4.0
- ------------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital
Balance at beginning of period 928.1 818.4 749.1 704.1
Adjustment to reflect purchase method (note 1) (2.2) 109.7 - -
Capital contribution from parent (notes 4, 7) - - 69.3 45.0
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period 925.9 928.1 818.4 749.1
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized Investment Gains (Losses)
Balance at beginning of period 19.4 11.9 103.1 (97.5)
Adjustment to reflect purchase method
(note 1) - (11.9) - -
Net unrealized investment gains (losses) 54.9 19.4 (91.2) 200.6
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period 74.3 19.4 11.9 103.1
- ------------------------------------------------------------------------------------------------------------------
Net Foreign Exchange Gains (Losses)
Balance at beginning of period - - - (3.0)
Net foreign exchange gains (losses) - - - 3.0
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period - - - -
- ------------------------------------------------------------------------------------------------------------------
Retained Earnings (Deficit)
Balance at beginning of period 54.1 (22.4) (34.3) 159.8
Adjustment to reflect purchase method
(note 1) - 22.4 - -
Net income 91.0 54.1 11.9 39.2
Dividends to stockholder - - - (40.0)
Stock dividend to affiliate (note 7) - - - (193.3)
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period 145.1 54.1 (22.4) (34.3)
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity at end of period $ 1,149.3 1,005.6 811.9 821.9
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the year ended December 31, 1997, the periods from April 1, 1996 to December
31, 1996 and from January 1, 1996 to March 31, 1996, and the year ended December
31, 1995 (in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Preacquisition
----------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 91.0 54.1 11.9 39.2
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Change in policy liabilities 239.0 53.5 (32.8) 114.2
Change in accrued investment income (6.5) (37.6) 4.1 (2.1)
Deferred policy acquisition costs (112.3) (74.9) (22.2) (76.1)
Amortization of deferred policy acquisition costs 10.8 3.2 6.0 39.3
Amortization of intangibles 59.6 50.1 0.6 3.2
Other amortization and depreciation 8.0 7.3 1.4 (1.2)
Premiums and operating receivables, commissions and general
expenses, income taxes and other (128.5) 77.8 22.9 (65.7)
Realized investment (gains) losses (13.3) (6.0) (9.0) 76.5
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 147.8 127.5 (17.1) 127.3
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale (purchase) of short-term investments - net 42.4 49.4 (10.1) (18.8)
Sale or maturity of investments
Fixed maturities - held to maturity:
Maturities - - - 3.9
Calls and prepayments - - - 60.9
Fixed maturities - available for sale
Maturities - 201.5 46.1 35.0
Calls and prepayments - 353.5 101.0 58.6
Sales 739.1 452.0 115.8 1,700.3
All other investments 145.1 177.3 44.9 124.6
Purchase of investments:
Fixed maturities - available for sale (1,104.1) (1,279.5) (144.1) (1,950.7)
All other investments (30.8) (39.5) (65.5) (183.5)
Purchase of property and equipment (2.4) - (0.2) (0.8)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (210.7) (85.3) 87.9 (170.5)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Capital contribution - - 2.8 -
Cash dividends to stockholder - - (40.0) (6.0)
Change in cash overdrafts 4.7 (12.7) 28.8 -
Interest sensitive life, annuity and investment contract deposits 1,894.2 1,275.4 301.9 1,059.5
Interest sensitive life, annuity and investment contract withdrawals (1,842.2) (1,305.6) (358.8) (1,031.7)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 56.7 (42.9) (65.3) 21.8
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (6.2) (0.7) 5.5 (21.4)
Cash at beginning of period 6.4 7.1 1.6 23.0
- ------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 0.2 6.4 7.1 1.6
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997
===============================================================================
(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 ("Life
of Virginia" or "Company") and its subsidiary, Assigned Settlements
Inc. 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 Financial Assurance Holdings, Inc. ("GEFAH").
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 23%, 34% and 43% of premium and
annuity consideration collected, in 1997, 1996, and 1995, respectively,
came from customers residing in the South Atlantic region of the United
States.
Although the Company markets its products through numerous
distributors, approximately 22%, 21% and 14% of the Company's sales in
1997, 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.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARY
Notes to Consolidated Financial Statements
===============================================================================
(1) Continued
Estimates
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and
assumptions that could affect amounts and disclosures reported therein.
Actual results could differ from those estimates. 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.
Certain 1996 and 1995 amounts have been reclassified to conform to 1997
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. The net purchase price for Life of Virginia and
its subsidiary of $929.9 million was allocated 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.
In addition to revaluing all material tangible assets and liabilities
to their respective estimated fair values as of the closing date of the
sale, Life of Virginia also recorded in its consolidated 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 $118
million (net of purchase accounting adjustments of $2.2 million in
1997), 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.
<PAGE>
(1) Continued
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 (which becomes the new cost basis) 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
an appropriate rate.
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 range 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 12.4%,
11.6%, 10.8%, 9.5% and 8.1% for the years ended December 31, 1998
through 2002, 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.
<PAGE>
(1) Continued
The projected ending balance of PVFP will be further adjusted to
reflect the impact of unrealized gains or losses on fixed maturities
classified 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 applicable income
tax. The components of PVFP are as follows:
<TABLE>
<CAPTION>
Preacquisition
------------------------------
Nine months Three months
Year ended ended ended Year ended,
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
PVFP - beginning of period $ 419.2 - 32.6 48.6
Adjustment related to the purchase
method of accounting - 484.0 - -
Interest accreted at 6.75% for 1997
and 6.25% for 1996 28.4 22.4 0.5 2.1
Gross amortization, excluding interest (81.6) (67.5) (1.1) (5.3)
Dividend of Globe Life Insurance
Company (note 7) - - - (12.8)
Effect of net unrealized
investment (gains) losses (33.4) (19.7) - -
- ---------------------------------------------------------------------------------------------------------------
PVFP - end of period $ 332.6 419.2 32.0 32.6
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Goodwill
Under the purchase method of accounting, Goodwill is the excess of the
purchase price over the fair value of assets and liabilities acquired
and PVFP. The Company has elected to amortize goodwill on the straight
line basis over a 20 year period.
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 consolidated
financial statements. As of December 31, 1997, the Company believes
that no such adjustment is necessary.
<PAGE>
(1) Continued
Deferred Tax Assets and Liabilities
Pursuant to the acquisition on April 1, 1996, GE Capital, 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 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 the payment of a premium other than to maintain account
values at a level sufficient to pay mortality and expense charges.
Consequently, premiums for universal life-type policies and investment
products are not reported as revenue, but as deposits. Policy fee
revenue for universal life-type policies and investment products
consists of charges for the cost of insurance, policy administration,
and surrenders assessed during the period. Expenses include interest
credited to policy account balances and benefit claims incurred in
excess of policy account balances.
In general, for accident and health products, premiums collected are
reported as earned proportionately over the period covered by the
policies. For all other life products, premiums are recognized as
revenue when due. Benefits and related expenses associated with the
premium revenues are charged to expense proportionately over the lives
of the policies through a provision for future policy benefit
liabilities and through deferral and amortization of deferred policy
acquisition costs.
<PAGE>
(1) Continued
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 classified as available for sale and 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 mortgage-backed securities. Investment income on
mortgage-backed securities is initially based upon yield, cash flow and
prepayment assumptions at the date of purchase. Subsequent revisions in
those assumptions are recorded using the retrospective method, whereby
the amortized cost of the securities is adjusted to the amount that
would have existed had the revised assumptions been in place at the
date of purchase. The adjustments to amortized cost are recorded as a
charge or credit to investment income.
Short-term investments are carried at amortized cost which approximates
fair value. Equity securities are valued at fair value. Mortgage loans
are carried at their unpaid principal balance, net of allowances for
estimated uncollectible amounts. 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.
Changes in the market values of investments available-for-sale, net of
the effect on deferred policy acquisition costs, present value of
future profits and deferred federal income taxes are reflected as
unrealized investment gains or losses in a separate component of
stockholders' interest and accordingly, have no effect on net income.
<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
value 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 consolidated statements of
income. In general, the Company ceases to accrue investment income when
interest or dividend payments are in arrears.
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.
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.
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 policy acquisition costs is 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.
<PAGE>
(1) Continued
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.
The components of deferred policy acquisition costs are as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred policy acquisition costs - $ 70.3 - 363.9 388.1
beginning of period
Commissions and expenses deferred 112.3 74.9 22.2 76.1
Amortization (10.8) (3.2) (6.0) (39.3)
Dividend of Globe Life Insurance
Company (note 7) - - - (22.8)
Effect of net unrealized investment
(gains) losses (6.8) (1.4) 17.9 (38.2)
- ------------------------------------------------------------------------------------------------------------
Deferred policy acquisition costs - end of period $ 165.0 70.3 398.0 363.9
- ------------------------------------------------------------------------------------------------------------
</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
<PAGE>
(1) Continued
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.
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, 1997, approximately $44.6 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
<PAGE>
(1) Continued
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.
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 fair 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.
<PAGE>
(2) Continued
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, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Available for sale:
U.S. government and agencies $ 44.3 1.3 - 45.6
States and political subdivisions 1.8 0.3 - 2.1
Foreign governments 200.1 6.5 (0.3) 206.3
Corporate securities 3,362.1 120.6 (8.1) 3,474.6
Mortgage-backed securities 1,859.8 39.6 (5.4) 1,894.0
- ----------------------------------------------------------------------------------------------------------------
Total fixed maturities 5,468.1 168.3 (13.8) 5,622.6
Total equity securities 130.7 21.5 (0.5) 151.7
- ----------------------------------------------------------------------------------------------------------------
Total available for sale $ 5,598.8 189.8 (14.3) 5,774.3
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<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>
<PAGE>
(2) Continued
The scheduled maturity distribution of the fixed maturity portfolio at
December 31 follows. Expected maturities may differ from scheduled
contractual maturities because issuers of securities may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
1997
---------------------------
Amortized Fair
(millions) Cost Value
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Due in one year or less $ 105.8 106.7
Due after one year through five years 1,196.8 1,224.3
Due after five years through ten years 1,654.9 1,705.3
Due after ten years 650.8 692.3
- -----------------------------------------------------------------------------------------------------------
Subtotals 3,608.3 3,728.6
Mortgage-backed securities 1,859.8 1,894.0
- -----------------------------------------------------------------------------------------------------------
Totals $ 5,468.1 5,622.6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
As required by law, the Company has investments on deposit with
governmental authorities and banks for the protection of policyholders
of $4.7 million and $4.5 million at December 31, 1997 and 1996,
respectively.
At December 31, 1997, approximately 24.8% and 15.9% of the Company's
investment portfolio is comprised of securities issued by the
manufacturing and financial industries, respectively, the vast majority
of which are rated investment grade, and which are senior secured
bonds. No other industry group comprises more than 10% of the Company's
investment portfolio. This portfolio is widely diversified among
various geographic regions in the United States, and is not dependent
on the economic stability of one particular region.
At December 31, 1997, the Company did not hold any fixed maturity
securities, other than securities issued or guaranteed by the U.S.
government, which exceeded 10% of shareholders interest.
<PAGE>
(2) Continued
The credit quality of the fixed maturity portfolio at December 31,
follows. The categories are based on the higher of the ratings
published by Standard & Poors or Moody's.
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Fair Fair
value Percent value Percent
- ------------------------------------------------------------------------------------------------------
<S> <C>
Agencies and treasuries $ 308 5.5% $ 317 6.2%
AAA/Aaa 1,465 26.0 1,437 27.9
AA/Aa 320 5.7 247 4.8
A/A 1,101 19.6 988 19.2
BBB/Baa 1,862 33.1 1,864 36.3
BB/Ba 307 5.5 207 4.0
B/B 77 1.4 13 0.3
Not rated 182 3.2 69 1.3
- -----------------------------------------------------------------------------------------------------
Totals $ 5,622 100.0% $ 5,142. 100.0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Bonds with earnings ranging from AAA/Aaa to BBB-/Baa3 are generally
regarded as investment grade securities. Some agencies and treasuries
(that is, those securities issued by the United States government or an
agency thereof) are not rated, but all are considered to be investment
grade securities. Finally, some securities, such as private placements,
have not been assigned a rating by any rating service and are therefore
categorized as "not rated." This has neither positive nor negative
implications regarding the value of the security.
<PAGE>
(2) Continued
The Company had $6.4 million and $12.6 million of non-income producing
investments on December 31, 1997 and December 31, 1996, respectively.
"Impaired" loans are defined under generally accepted accounting
principles as loans for which it is probable that the lender will be
unable to collect all amounts due according to the original contractual
terms of the loan agreement. That definition excludes, among other
things, leases or large groups of smaller-balance homogenous loans, and
therefore applies principally to the Company's commercial loans.
Under these principles, the Company has two types of "impaired" loans
as of December 31, 1997 and 1996: loans requiring allowances for losses
and loans expected to be fully recoverable because the carrying amount
has been reduced previously through charge-offs or deferral at income
recognition ($23.0 million and $-, respectively). There was no
allowance for losses on these loans as of December 31, 1997 and 1996.
Average investment in impaired loans during 1997 was $23.0 million and
interest income earned on these loans while they were considered
impaired was $2.0 million. There were no impaired loans nor related
interest income earned on such loans in 1996.
The Company's mortgage and real estate portfolio is distributed by
geographic location and type. However, the Company has concentration
exposures in certain regions and in certain types as shown in the
following two tables.
Geographic distribution as of December 31, 1997:
<TABLE>
<CAPTION>
Mortgage Real estate
- -----------------------------------------------------------------------------------------------------------
<S> <C>
South Atlantic 47.0% 60.3%
East North Central 14.8 2.3
Mountain 14.1 -
West South Central 12.0 37.4
Pacific 6.6 -
Middle Atlantic 3.9 -
East South Central 1.6 -
- ------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
Type distribution as of December 31, 1997:
<TABLE>
<CAPTION>
Mortgage Real estate
- --------------------------------------------------------------------------------------------------------
<S> <C>
Office building 19.8% 51.1%
Retail 23.7 21.3
Industrial 21.2 -
Apartments 21.8 25.3
Other 13.5 2.3
- --------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains and losses on investment securities classified as
available-for-sale are reduced by deferred income taxes and adjustments
to the present value of future profits and deferred policy acquisition
costs that would have resulted had such gains and losses been realized.
Net unrealized gains and losses on available-for-sale investment
securities reflected as a separate component of stockholders' equity
are summarized as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Net unrealized gains on available-for-sale investment securities before
adjustments:
Fixed maturities $ 154.5 40.5 2.8 143.8
Equity securities 21.0 10.4 5.8 23.2
- --------------------------------------------------------------------------------------------------------------------
Subtotal 175.5 50.9 8.6 167.0
Adjustments to the present value
of future profits and deferred policy
acquisition costs (61.2) (21.1) 9.9 (8.0)
Deferred income taxes (40.0) (10.4) (6.6) (55.9)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized gains on
available-for-sale investment
securities 74.3 19.4 11.9 103.1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
The source of investment income of the Company is as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities $ 398.5 274.4 93.1 332.8
Equity securities 7.3 8.7 4.2 10.8
Mortgage loans on real estate 48.3 41.3 13.5 49.8
Short-term investments 1.0 2.5 0.5 3.5
Other investments 22.3 12.9 3.0 13.2
- --------------------------------------------------------------------------------------------------------------
Gross investment income 477.4 339.8 114.3 410.1
Investment expenses (4.9) (5.4) (2.3) (8.0)
- --------------------------------------------------------------------------------------------------------------
Net investment income $ 472.5 334.4 112.0 402.1
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Gross realized investment gains and losses resulting from the sales of
investment securities were as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities available for sale:
Gross gains $ 8.3 0.6 0.5 12.9
Gross losses - (0.7) (1.4) (90.2)
Fixed maturities held to maturity:
Gross gains - - - 1.1
Gross losses - - - (13.8)
Equity securities 3.4 6.0 10.3 5.6
Mortgage loans on real estate (0.8) - (0.4) 2.3
Other 2.4 0.1 - 5.6
- ---------------------------------------------------------------------------------------------------
Total before tax 13.3 6.0 9.0 (76.5)
Less applicable tax (4.7) (2.3) (1.9) 26.8
- ----------------------------------------------------------------------------------------------------
Total $ 8.6 3.7 7.1 (49.7)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<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
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities:
Available for sale $ 114.0 40.5 (141.0) 298.7
Held to maturity - - - 233.7
Equity securities 10.6 10.4 (17.4) 26.1
- --------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ 124.6 50.9 (158.4) 558.5
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Income Tax
Beginning April 1, 1996, Life of Virginia and its subsidiary have been
included in the life insurance company consolidated federal income tax
return of GE Capital Assurance and are also subject to a separate
tax-sharing agreement, as approved by state insurance regulators, the
provisions of which are substantially the same as the tax-sharing
agreement with GE Capital. Prior to 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.
<PAGE>
(3) Continued
Income taxes are recorded in the statements of income and directly in
stockholders' equity accounts. Income taxes for the years ending
December 31 was allocated as follows:
<TABLE>
<CAPTION>
Preacquisition
-----------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Statement of income:
Operating income (excluding
realized investment gains
and losses) $ 47.5 29.5 5.1 53.9
Realized investment gains/losses 4.7 2.3 1.9 (26.8)
- --------------------------------------------------------------------------------------------------------
Income tax expense included
in the statement of income 52.2 31.8 7.0 27.1
Stockholders' equity:
Unrealized gains/(losses) on
securities available for sale 29.6 10.4 (49.3) 86.0
- --------------------------------------------------------------------------------------------------------
Total $ 81.8 42.2 (42.3) 113.1
- --------------------------------------------------------------------------------------------------------
</TABLE>
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
Year ended ended ended Year ended
December 31, December 31, December 31, December 31,
1997 1996 1996 1995
--------------------- --------------------- -------------------- ---------------------
<S> <C>
Statutory tax rate ..................... $ 50.1 35.0% $ 30.1 35.0% $ 6.6 35.0% $ 23.2 35.0%
Tax-exempt investment income
deductions ............................ ( 0.9) (0.7) ( 1.0) (1.2) -- (0.1) ( 0.1) (0.1)
Adjustment of prior year taxes ......... -- -- -- -- -- -- 3.5 5.3
Other-net .............................. 3.0 2.2 2.7 3.2 0.4 2.1 0.5 0.7
------- ---- ------- ---- ------ ---- ------- ----
Effective tax rate ..................... $ 52.2 36.5% $ 31.8 37.0% $ 7.0 37.0% $ 27.1 40.9%
======= ==== ======= ==== ====== ==== ======= ====
</TABLE>
Significant compnents of Life of Virginia's deffered tax liabilities and
assets are as follows (in millions):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------- -------------
<S> <C>
Deferred tax liabilities:
Present value of future profits ......... $ 79.1 89.9
Unrealized investment gains ............. 40.0 10.4
Other ................................... 2.7 6.5
------ -----
Total deferred tax liabilities ........... 121.8 106.7
------ -----
Deferred tax assets:
Insurance reserve amounts ............... 142.9 120.4
Policy acquisition costs ................ 11.8 34.3
Guaranty fund amounts ................... 9.4 10.8
Other ................................... 15.1 14.1
------ -----
Total deferred tax assets ................ 179.2 179.6
------ -----
Net deferred tax assets .................. $ 57.4 72.9
====== =====
</TABLE>
Deferred taxes are allocated to individual subsidiaries by applying the
asset and liability method of accounting for deferred income taxes.
Intercompany balances are settled annually.
<PAGE>
(3) Continued
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 (refunded) for the year ended December
31, 1997, the nine months ended December 31, 1996, three months ended
March 31, 1996, and the year ended December 31, 1995 was $64.4 million,
$38.6 million, $(2.4) million and $44.9 million, respectively.
(4) Reinsurance and Claim Reserves
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. Life of Virginia's reinsurance
consists primarily of long-duration contracts that are entered into
with 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
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
--------------- --------------- --------------- ---------------
Earned Earned Earned Earned
--------------- --------------- --------------- ---------------
<S> <C>
Direct $ 337.3 210.5 77.2 261.5
Assumed 20.7 6.6 35.0 4.3
Ceded 84.8 62.4 19.8 86.5
- -------------------------------------------------------------------------------------------------------
Net premiums 273.2 154.7 92.4 179.3
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(4) Continued
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
$72.7 million, $60.5 million, $17.2 million and $63.1 million for the
year ended December 31, 1997, the nine months ended December 31, 1996,
three months ended March 31, 1996 and the year ended December 31, 1995,
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.
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 book
value of $501.4 million and held to maturity fixed maturities with a
fair value of $81.4 million and a book value 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.
<PAGE>
(4) Continued
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 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.
<TABLE>
<CAPTION>
Millions Fair 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>
<PAGE>
(5) Employee Benefits
Savings Plan
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employees participated in a General Electric contributory savings plan.
Provisions made for the savings plan were $.9 million and $.6 million
for the year ended December 31, 1997 and 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 and $.8 million for the three months ended March
31, 1996, and the year ended December 31, 1995, 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 year ended December 31, 1995
charged to Life of Virginia's operations amounted to $.1 million and
$.5 million, respectively. This plan terminated upon the acquisition of
Life of Virginia by GE Capital.
Pension Plan
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employees 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 $.6 million and $.4 million expense were
incurred for the year ended December 31, 1997 and the nine months ended
December 31, 1996.
<PAGE>
(5) Continued
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
determined 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, the Company had net pension credits of $1.2 million and
$3.8 million in the three months ended March 31, 1996 and the year
ended December 31, 1995. This plan terminated upon the acquisition of
Life of Virginia by GE Capital.
Postretirement Benefits Other Than Pensions
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employees participated in a General Electric retiree health and life
insurance benefit plan. The plans principally provides 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 year ended
December 31, 1997 and the nine months ended December 31, 1996 for the
retiree health and life insurance benefit plan were $1.9 million and
$1.3 million, respectively.
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 provided medical benefits, prior to and subsequent
to Medicare eligibility, and the other provided life insurance
benefits. The postretirement health care plan was contributory, with
retiree contributions adjusted annually; the life insurance plan was
noncontributory. Both plans were funded on a pay-as-you-go basis. These
plans terminated upon the acquisition of Life of Virginia by GE
Capital.
<PAGE>
(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, 1997
are as follows:
<TABLE>
<CAPTION>
(millions) Minimum lease payments
- ------------------------------------------------------------------------
<S> <C>
1998 $ 1.1
1999 0.8
2000 0.5
2001 0.3
2002 -
Later years -
- ------------------------------------------------------------------------
Total minimum payments required $ 2.7
- ------------------------------------------------------------------------
</TABLE>
Rental expense for all operating leases for the year ended December 31,
1997, for the nine months ended December 31, 1996, the three months
ended March 31, 1996 and the year ended December 31, 1995 amounted to
$1.3 million, $2.5 million, $.8 million and $3.6 million, respectively.
(7) Related Party Transactions
Life of Virginia pays investment advisory fees and other fees to
affiliates. Amounts incurred for these items aggregated $7.6 million,
$3.2 million, $3.5 million and $5.8 million for the year ended December
31, 1997, the nine months ended December 31, 1996, the three months
ended March 31, 1996 and the year ended December 31, 1995,
respectively. Life of Virginia charges affiliates for certain services
and for the use of facilities and equipment which aggregated $4.6
million, $2.0 million, $1.0 million, and $10.0 million for the year
ended December 31, 1997, the nine months ended December 31, 1996, the
three months ended March 31, 1996, and the year ended December 31,
1995, respectively.
<PAGE>
(7) Continued
At December 31, 1997 and 1996, Life of Virginia held investments in
securities of certain affiliates amounting to $2.6 million. Amounts
included in net investment income related to these holdings totaled
$0.1 million, $0.1 million, $0.2 million and $1.0 million for the year
ended December 31, 1997, for the nine months ended December 31, 1996,
the three months ended March 31, 1996 and the year ended December 31,
1995, respectively.
In January 1995, Life of Virginia dividend 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
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 book value of $7.5
million, common stocks with a fair value of $5.6 million and book value
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.
(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.
<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, 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 no interest rate swaps outstanding at December 31,
1997 and 1996.
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.
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.
<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, 1997 and December 31, 1996,
totaled $16.7 million and $1.7 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 Company has no derivative financial instruments as defined by SFAS
No. 119 at December 31, 1997, other than mortgage loan commitments of
$67.7 million.
<PAGE>
(9) Continued
The carrying amount and fair value of certain of Life of Virginia's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------------
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Fixed maturities and
equity securities
(note 2) $ 5,774.3 5,774.3 5,308.2 5,308.2
Mortgage loans on
real estate 496.2 532.2 585.4 622.6
Policy loans 188.4 188.4 179.5 179.5
Cash, short-term
investments and
receivables 138.6 138.6 186.4 186.4
Assets held in separate accounts 4,066.4 4,066.4 2,762.7 2,762.7
- ------------------------------------------------------------------------------------------------------------
Liabilities:
Investment type
insurance contracts 3,113.8 3,100.7 3,055.0 3,027.6
Commissions and
general expenses 51.1 51.1 46.8 46.8
Liabilities related to separate accounts 4,066.4 4,066.4 2,762.7 2,762.7
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 1 regarding the method used to estimate fair values.
<PAGE>
1
(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,
1997, is $51.8 million.
Statutory net income (loss) and stockholders' equity is summarized
below:
<TABLE>
<CAPTION>
Preacquisition
------------------------------
Nine months Three months
Year ended ended ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Statutory net income $ 73.9 69.7 (8.3) 53.9
Statutory stockholders' equity 522.5 419.1 360.5 364.2
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The National Association of Insurance Commissioners has developed
certain Risk Based Capital (RBC) requirements to help regulators
identify life insurers that may be inadequately capitalized. 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,
1997 the Company's Total Adjusted Capital and Authorized Control Level
- RBC were above the calculated minimum regulatory thresholds.
<PAGE>
Part II
OTHER INFORMATION
<PAGE>
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 (the "Act") 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.
REPRESENTATION 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.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The prospectus consisting of ___ pages. The undertaking to file
reports. The Rule 484 undertaking. 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 LLP
(c) Bruce E. Booker, F.S.A.
(d) KPMG Peat Marwick LLP
(e) Ernst & Young LLP
The following exhibits, corresponding to those required by paragraph A
of the instructions as to exhibits in Form N-8B-2:
(1)(a) Resolution of the Board of Directors of Life of Virginia
authorizing the establishment of Separate Account II.12/
(1)(b) Resolution of the Board of Directors of Life of Virginia
authorizing the addition of Investment Subdivisions to
Separate Account II.12/
(1)(c) Resolution of the Board of Directors of Life of Virginia
authorizing the establishment of Investment Subdivisions of
Separate Account II which invest in shares of the Fidelity
Variable Insurance Products Fund II Asset Manager Portfolio
and Neuberger and Berman Advisers Management Trust Balanced
Portfolio.12/
(1)(d) Resolution of the 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.12/
(1)(e) Resolution of the Board of Directors of Life of Virginia
authorizing the establishment of Investment Subdivisions of
Separate Account II which invest in shares of the Utility Fund
of the Investment Management Series.12/
(1)(f) Resolution of the 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.12/
(1)(g) Resolution of the 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)(h) Resolution of the 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. 7/
(1)(i) Resolution of the Board of Directors of Life of Virginia
authorizing additional Investment Subdivisions investing in
shares 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.8/
(1)(j) Resolution of the Board of Directors of Life of Virginia
authorizing additional Investment Subdivisions investing in
shares of Capital Appreciation Portfolio of Janus Aspen
Series.8/
(1)(i) Resolution of the Board of Directors
1A(2) Not Applicable
1A(3)(a) Underwriting Agreement12/
1A(3)(a)(i) Underwriting Agreement dated April 2, 1996, between The Life
Insurance Company of Virginia and Fourth Financial Securities
Corporation.7/
1A(3)(a)(ii) Underwriting Agreement dated December 12, 1997 between The
Life Insurance Company of Virginia and Capital Brokerage
Corporation.11/
1A(3)(b) Broker-Dealer Sales Agreement11/
1A(4) Not Applicable
1A(5) Policy Form, Commonwealth Four.10/
1A(5)(a) Endorsement to policy
(a) Accelerated Benefit Rider 11/
(b) Disability Benefit Rider 9/
(c) Disability Benefit Rider 9/
(d) Insurance Rider for Additional Insured Person 9/
(e) Children's Insurance Rider 9/
(f) Accidental Death Benefit Rider 9/
(g) Guarantee Account Rider 9/
(h) Unisex Rider 9/
(i) Unit Value Endorsement 9/
1A(6)(a) Articles of Incorporation of The Life Insurance Company of
Virginia 12/
1A(6)(b) By-Laws of The Life Insurance Company of Virginia 12/
1A(7) Not Applicable
1A(8)(a) Stock Sale Agreement 12/
1A(8)(a)(i) Amendment to Stock Sale Agreement between The Life Insurance
Company of Virginia and Life of Virginia Series Fund, Inc.12/
1A(8)(b) Amendment to Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and The
Life Insurance Company of Virginia.7/
1A(8)(b)(i) Amendment to Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia.12/
1A(8)(b)(ii) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia.12/
1A(8)(c) Agreement between Oppenheimer Variable Account Funds,
Oppenheimer Management Corporation, and The
Life Insurance Company of Virginia.12/
1A(8)(d) Amendment to the Participation Agreement between Oppenheimer
Variable Account Funds, Oppenheimer Management Corporation,
and The Life Insurance Company of Virginia.12/
1A(8)(e) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and The Life Insurance
Company of Virginia.12/
1A(8)(f) Fund Participation Agreement between Janus Aspen Series and
The Life Insurance Company of Virginia.12/
1A(8)(g) Fund Participation Agreement between Insurance Management
Series, Federated Securities Corporation, and The Life
Insurance Company of Virginia.12/
1A(8)(h) 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.8/
1A(8)(l) Fund Participation Agreement between PBHG Insurance Series
Fund, Inc., and The Life Insurance Company of Virginia.8/
1A(8)(m) Fund Participation Agreement between Goldman Sachs Variable
Insurance Trust, Goldman Sachs and Company and The Life
Insurance Company of Virginia 13/
1A(9) Administrative Agreement12/
1A(10) Application for Commonwealth Four Policy11/
2 See Exhibit 1(A)5
3(a) Opinion and Consent of Counsel 13/
3(b) Consent of Messrs. Sutherland, Asbill & Brennan LLP 13/
3(c) Consent of KPMG Peat Marwick LLP 13/
3(d) Consent of Ernst & Young LLP 13/
4 Not Applicable
5 Not Applicable
6 Opinion and Consent of Bruce E. Booker, Actuary. 13/
7 Memorandum describing Life of Virginia's Issuance, Transfer,
Redemption and Exchange Procedures for the Policies.11/
8 Undertaking to Guarantee performance of obligations of
principal underwriter.12/
9
Power of Attorney dated April 16, 1997.8/
- --------------------
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 33-965 1
9. Filed November 18, 1997 with Pre-Effective Amendment No. 1 to Form S-6
for Life of Virginia Separate Account II, Registration Number 333-32071.
10. Filed November 25, 1997 with initial filing to Form S-6 for Life of
Virginia Separate Account II, Registration Number 333-41031
11. Filed February 20, 1998 with Pre-Effective Amendment No. 1 to Form S-6
for Life of Virginia Separate Account II, Registration Number 333-41031.
12. Incorporated by reference with Post-Effective Amendment No.___ to Form
S-6 for Life of Virginia Separate Account II, Registration Number 33-9651
13. Incorporated herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Life of Virginia Separate Account II has duly caused this
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 10th day of March,
1998.
Life of Virginia Separate Account II
(Seal) The Life Insurance Company of Virginia
(Depositor)
Attest: /s/LAURA C. DEUSEBIO
By:_/s/SELWYN L. FLOURNOY, JR.
Selwyn 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 has duly caused this
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 10TH day of March,
1998.
(Seal) The Life Insurance Company of Virginia
Attest: /s/LAURA C. DEUSEBIO
By:/s/SELWYN L. FLOURNOY, JR.
Selwyn L. Flournoy, Jr.
Senior Vice President
Given under my hand this 10TH day of March, 1998 in the City/County of
Henrico, Commonwealth of Virginia.
/s/LAURA C, DEUSEBIO
Notary Public
My Commission Expires January 31, 2000
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
<TABLE>
<S> <C>
Signature Title Date
/s/RONALD V. DOLAN
Ronald V. Dolan Director, Chairman of the Board 3/10/98
/s/SELWYN L. FLOURNOY, JR.
Selwyn L. Flournoy, Jr. Director, Senior Vice President 3/10/98
Chief Financial Officer
/s/LINDA L. LANAM
Linda L. Lanam Director, Senior Vice President 3/10/98
/s/ROBERT D. CHINN
Robert D. Chinn Director, Senior Vice President 3/10/98
/s/VICTOR C. MOSES
Victor C. Moses Director 3/10/98
/s/GEOFFREY S. STIFF
Geoffrey S. Stiff Director 3/10/98
</TABLE>
By /s/SELWYN L. FLOURNOY, JR., pursuant to Power of Attorney executed on April
16, 1997.
<PAGE>
EXHIBIT LIST
1A(8)(m) Fund Participation Agreement
3(a) Opinion and Consent of Counsel
3(b) Consent of Messrs. Sutherland, Asbill & Brennan LLP
3(c) Consent of KPMG Peat Marwick LLP
3(d) Consent of Ernst & Young LLP
6 Opinion and Consent of Bruce E. Booker, Actuary.
FORM OF PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this __ day of May, 1998 by and
between GOLDMAN SACHS VARIABLE INSURANCE TRUST, an unincorporated business trust
formed under the laws of Delaware (the "Trust"), GOLDMAN, SACHS & CO., a New
York limited partnership (the "Distributor"), and THE LIFE INSURANCE COMPANY OF
VIRGINIA, a Virginia life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares, each such Series representing an interest in a
particular investment portfolio of securities and other assets (a "Fund"), and
which Series may be subdivided into various classes ("Classes") with each such
Class supporting a distinct charge and expense arrangement; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies and may also be utilized by qualified retirement plans; and
WHEREAS, the Distributor has the exclusive right to distribute Trust
shares to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for a certain separate account(s) of the Company and the Distributor
desires to sell shares of certain Series and/or Class(es) to such separate
account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
the Distributor and the Company agree as follows:
ARTICLE I
Additional Definitions
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement. If more than one separate account
is described on Schedule 1, the term shall refer to each separate account so
described.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust's Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and any
successor thereto.
1.4. "Contracts" -- the class or classes of variable annuity contracts
and/or variable life insurance policies issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.8. "Participating Plan" -- any qualified retirement plan investing in
the Trust.
1.9. "Participating Investor" -- any Participating Account,
Participating Insurance Company or Participating Plan, including the Account and
the Company.
1.10. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts, including the Contracts.
1.11. "Product Owners" -- owners of Products, including Contract
Owners.
1.12. "Trust Board" -- the board of trustees of the Trust.
1.13. "Registration Statement" -- with respect to the Trust shares or a
class of Contracts, the registration statement filed with the SEC to register
such securities under the 1933 Act, or the most recently filed amendment
thereto, in either case in the form in which it was declared or became
effective. The Contracts' Registration Statement for each class of Contracts is
described more specifically on Schedule 2 to this Agreement. The Trust's
Registration Statement is filed on Form N-1A (File No. 333-35883).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or
the Account, the registration statement filed with the SEC to register such
person as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account's 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust's 1940 Act
Registration Statement is filed on Form N-1A (File No.
811-08361).
1.15. "Prospectus" -- with respect to shares of a Series (or Class) of
the Trust or a class of Contracts, each version of the definitive prospectus or
supplement thereto filed with the SEC pursuant to Rule 497 under the 1933 Act.
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version for the applicable Series, Class or Contracts last so filed prior to
the taking of such action. For purposes of Article IX, the term "Prospectus"
shall include any statement of additional information incorporated therein.
1.16. "Statement of Additional Information" -- with respect to the
shares of the Trust or a class of Contracts, each version of the definitive
statement of additional information or supplement thereto filed with the SEC
pursuant to Rule 497 under the 1933 Act. With respect to any provision of this
Agreement requiring a party to take action in accordance with a Statement of
Additional Information, such reference thereto shall be deemed to be the last
version so filed prior to the taking of such action.
1.17. "SEC" -- the Securities and Exchange Commission.
1.18. "NASD" -- The National Association of Securities Dealers, Inc.
1.19. "1933 Act" -- the Securities Exchange Act of 1933, as amended.
1.20. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II
Sale of Trust Shares
2.1. Availability of Shares
(a) The Trust has granted to the Distributor exclusive
authority to distribute the Trust shares and to select which Series or
Classes of Trust shares shall be made available to Participating
Investors. Pursuant to such authority, and subject to Article X hereof,
the Distributor shall make available to the Company for purchase on
behalf of the Account, shares of the Series and Classes listed on
Schedule 3 to this Agreement, such purchases to be effected at net
asset value in accordance with Section 2.3 of this Agreement. Such
Series and Classes shall be made available to the Company in accordance
with the terms and provisions of this Agreement until this Agreement is
terminated pursuant to Article X or the Distributor suspends or
terminates the offering of shares of such Series or Classes in the
circumstances described in Article X.
(b) Notwithstanding clause (a) of this Section 2.1, Series or
Classes of Trust shares in existence now or that may be established in
the future will be made available to the Company only as the
Distributor may so provide, subject to the Distributor's rights set
forth in Article X to suspend or terminate the offering of shares of
any Series or Class or to terminate this Agreement.
(c) The parties acknowledge and agree that: (i) the Trust may
revoke the Distributor's authority pursuant to the terms and conditions
of its distribution agreement with the Distributor; and (ii) the Trust
reserves the right in its sole discretion to refuse to accept a request
for the purchase of Trust shares, including but not limited to requests
for purchases by persons considered by the Trust to be market timers.
2.2. Redemptions. The Trust shall redeem, at the Company's request, any
full or fractional Trust shares held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Article X of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series or Class to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the Prospectus for
such Series or Class.
2.3. Purchase and Redemption Procedures
(a) The Trust hereby appoints the Company as an agent of the
Trust for the limited purpose of receiving purchase and redemption
requests on behalf of the Account (but not with respect to any Trust
shares that may be held in the general account of the Company) for
shares of those Series or Classes made available hereunder, based on
allocations of amounts to the Account or subaccounts thereof under the
Contracts, other transactions relating to the Contracts or the Account
and customary processing of the Contracts. Receipt of any such requests
(or effectuation of such transaction or processing) on any Business Day
by the Company as such limited agent of the Trust prior to the Trust's
close of business as defined from time to time in the applicable
Prospectus for such Series or Class (which as of the date of execution
of this Agreement is defined as the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. New York Time)) shall
constitute receipt by the Trust on that same Business Day, provided
that the Company uses its best efforts to provide actual and sufficient
notice of such request to the Trust by 8:30 a.m. New York Time on the
next following Business Day and the Trust receives such notice no later
than 9:00 a.m. New York time on such Business Day. Such notice may be
communicated by telephone to the office or person designated for such
notice by the Trust as indicated on Schedule 5 to this Agreement, and
shall be confirmed by facsimile.
(b) The Company shall pay for shares of each Series or Class
on the same day that it provides actual notice to the Trust of a
purchase request for such shares. Payment for Series or Class shares
shall be made in Federal funds transmitted to the Trust by wire to be
received by the Trust by 3:30 p.m. New York Time on the day the Trust
receives actual notice of the purchase request for Series or Class
shares (unless the Trust determines and so advises the Company that
sufficient proceeds are available from redemption of shares of other
Series or Classes effected pursuant to redemption requests tendered by
the Company on behalf of the Account). In no event may proceeds from
the redemption of shares requested pursuant to an order received by the
Company after the Trust's close of business on any Business Day be
applied to the payment for shares for which a purchase order was
received prior to the Trust's close of business on such day. If the
issuance of shares is canceled because Federal funds are not timely
received, the Company shall indemnify the respective Fund and
Distributor with respect to all costs, expenses and losses relating
thereto. Upon the Trust's receipt of Federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become
the responsibility of the Trust. If Federal funds are not received on
time, such funds will be invested, and Series or Class shares purchased
thereby will be issued, as soon as practicable after actual receipt of
such funds but in any event not on the same day that the purchase order
was received.
(c) Payment for Series or Class shares redeemed by the Account
or the Company shall be made in Federal funds transmitted by wire to
the Company or any other person properly designated in writing by the
Company. The Trust shall use its best efforts to transmit such funds by
6:00 p.m. New York Time on the same Business Day after the Trust
receives actual notice of the redemption order for Series or Class
shares (unless redemption proceeds are to be applied to the purchase of
Trust shares of other Series or Classes in accordance with Section
2.3(b) of this Agreement), except that the Trust reserves the right to
redeem Series or Class shares in assets other than cash and to delay
payment of redemption proceeds to the extent permitted by the 1940 Act,
any rules or regulations or orders thereunder, or the applicable
Prospectus. The Trust shall not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds by the
Company; the Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Series or Class
shares held or to be held in the Company's general account shall be
effected at the net asset value per share next determined after the
Trust's actual receipt of such request, provided that, in the case of a
purchase request, payment for Trust shares so requested is received by
the Trust in Federal funds prior to close of business for determination
of such value, as defined from time to time in the Prospectus for such
Series or Class.
(e) Prior to the first purchase of any Trust shares hereunder,
the Company and the Trust shall provide each other with all information
necessary to effect wire transmissions of Federal funds to the other
party and all other designated persons pursuant to such protocols and
security procedures as the parties may agree upon. Should such
information change thereafter, the Trust and the Company, as
applicable, shall notify the other in writing of such changes,
observing the same protocols and security procedures, at least three
Business Days in advance of when such change is to take effect. The
Company and the Trust shall observe customary procedures to protect the
confidentiality and security of such information.
(f) The procedures set forth herein are subject to any
additional terms set forth in the applicable Prospectus for the Series
or Class or by the requirements of applicable law.
2.4. Net Asset Value. The Trust shall make the net asset value per
share for each Series or Class available to the Company on a daily basis as soon
as reasonably practicable after the net asset value per share for such Series or
Class is calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York Time each business day. The Trust will
notify the Company as soon as possible if on any Business Day it is determined
that the calculation of net asset value per share will be available after 6:30
p.m. New York Time. The Trust shall calculate such net asset value in accordance
with the Prospectus for such Series or Class.
2.5. Dividends and Distributions. The Trust shall furnish notice to the
Company as soon as reasonably practicable of any income dividends or capital
gain distributions payable on any Series or Class shares. The Company, on its
behalf and on behalf of the Account, hereby elects to receive all such dividends
and distributions as are payable on any Series or Class shares in the form of
additional shares of that Series or Class. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends and capital gain distributions in cash; to be effective, such
revocation must be made in writing and received by the Trust at least three (3)
Business Days prior to a dividend or distribution date. The Trust shall notify
the Company promptly of the number of Series or Class shares so issued as
payment of such dividends and distributions.
2.6. Book Entry. Issuance and transfer of Trust shares shall be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7. Pricing Errors. Any material errors in the calculation of net
asset value, dividends or capital gain information shall be reported immediately
upon discovery to the Company. An error shall be deemed "material" based on the
Trust's reasonable interpretation of the SEC's position and policy with regard
to materiality, as it may be modified from time to time. Neither the Trust, any
Fund, the Distributor, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by or on behalf of the Company or any
other Participating Company to the Trust or the Distributor[; otherwise if the
Trust provides the Company with a materially incorrect share net asset value,
the Company on behalf of the Account(s) described in Schedule 1, shall be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect correct net asset value.]
2.8. Limits on Purchasers. The Distributor and the Trust shall sell
Trust shares only to insurance companies and their separate accounts and to
persons or plans ("Qualified Persons") that qualify to purchase shares of the
Trust under Section 817(h) of the Code and the regulations thereunder without
impairing the ability of the Account to consider the portfolio investments of
the Trust as constituting investments of the Account for the purpose of
satisfying the diversification requirements of Section 817(h). The Distributor
and the Trust shall not sell Trust shares to any insurance company or separate
account unless an agreement complying with Article VIII of this Agreement is in
effect to govern such sales. The Company hereby represents and warrants that it
and the Account are Qualified Persons.
ARTICLE III
Representations and Warranties
3.1. Company. The Company represents and warrants that: (i) the Company
is an insurance company duly organized and in good standing under Virginia
insurance law; (ii) the Account is a validly existing separate account, duly
established and maintained in accordance with applicable law; (iii) the
Account's 1940 Act Registration Statement will be or has been filed with the SEC
in accordance with the provisions of the 1940 Act and the Account will be or is
duly registered as a unit investment trust thereunder; (iv) the Contracts'
Registration Statement has been declared effective by the SEC prior to the
issuance or sale of the Contracts; (v) the Contracts will be issued in
compliance in all material respects with all applicable Federal and state laws;
(vi) the Contracts have been filed, qualified and/or approved for sale under the
insurance laws and regulations of the states in which the Contracts will be
offered only if and to the extent required by applicable law; (vii) the Account
will maintain its registration under the 1940 Act and will comply in all
material respects with the 1940 Act; (viii) subject to Article VI hereof, the
Contracts currently are, and at the time of issuance and for so long as they are
outstanding will be, treated as annuity contracts or life insurance policies,
whichever is appropriate, under applicable provisions of the Code; and (ix) the
Company's entering into and performing its obligations under this Agreement does
not and will not violate its charter documents or by-laws, rules or regulations,
or any agreement to which it is a party. The Company will notify the Trust
promptly if for any reason it is unable to perform its obligations under this
Agreement.
3.2. Trust. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Delaware law; (ii) the Trust's 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust's Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act during the term of this
Agreement; (vi) each Fund of the Trust qualifies or will qualify as a "regulated
investment company" under Subchapter M of the Code and complies or will comply
with the diversification standards prescribed in Section 817(h) of the Code and
the regulations thereunder; and (vii) the investment policies of each Fund are
in material compliance with any investment restrictions set forth on Schedule 4
to this Agreement. The Trust, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state.
3.3. Distributor. The Distributor represents and warrants that: (i) the
Distributor is a limited partnership duly organized and in good standing under
New York law; (ii) the Distributor is registered as a broker-dealer under
federal and applicable state securities laws and is a member of the NASD; and
(iii) the Distributor is registered as an investment adviser under federal
securities laws. The Distributor further represents that it will sell and
distribute Fund shares in accordance with applicable federal and state
securities laws, including without limitation, the 1933 Act, the Securities
Exchange Act of 1934, and the 1940 Act.
3.4. Legal Authority. Each party represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate, partnership or trust action, as applicable, by such party, and, when
so executed and delivered, this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
ARTICLE IV
Regulatory Requirements
4.1. Trust Filings. The Trust shall amend the Trust's Registration
Statement and the Trust's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of Trust shares in
compliance with applicable law and to maintain the Trust's registration under
the 1940 Act for so long as Trust shares are sold.
4.2. Contracts Filings. The Company shall amend the Contracts'
Registration Statement and the Account's 1940 Act Registration Statement from
time to time as required in order to effect the continuous offering of the
Contracts in compliance with applicable law or as may otherwise be required by
applicable law, but in any event shall maintain a current effective Contracts'
Registration Statement and the Account's Registration Statement under the 1940
Act for so long as the Contracts are outstanding unless the Company (i) has
supplied the Trust with an SEC no-action letter or opinion of counsel
satisfactory to the Trust's counsel to the effect that maintaining such
Registration Statement(s) on a current basis is no longer required, or (ii) has
made a reasonable determination based on SEC no-action or interpretive positions
that maintaining such Registration Statement(s) is no longer required, provided
that this subsection (ii) shall not apply to circumstances where the Company has
determined that maintaining such registration(s) is not required pursuant to
Section 3(c)(1) or 3(c)(7) of the 1940 Act or the non-public offering exemptions
under the 1933 Act. The Company shall be responsible for filing all such
Contract forms, applications, marketing materials and other documents relating
to the Contracts and/or the Account with state insurance commissions, as
required or customary, and shall use its best efforts: (a) to obtain any and all
approvals thereof, under applicable state insurance law, of each state or other
jurisdiction in which Contracts are or may be offered for sale; and (b) to keep
such approvals in effect for so long as the Contracts are outstanding.
4.3. Voting of Trust Shares. With respect to any matter put to vote by
the holders of Trust shares ("Voting Shares"), the Company will provide
"pass-through" voting privileges to owners of Contracts registered with the SEC
as long as the 1940 Act requires such privileges in such cases. In cases in
which "pass-through" privileges apply, the Company will (i) solicit voting
instructions from Contract Owners of SEC-registered Contracts; (ii) vote Voting
Shares attributable to Contract Owners in accordance with instructions or
proxies timely received from such Contract Owners; and (iii) vote Voting Shares
held by it that are not attributable to reserves for SEC-registered Contracts or
for which it has not received timely voting instructions in the same proportion
as instructions received in a timely fashion from Owners of SEC-registered
Contracts. The Company shall be responsible for ensuring that it calculates
"pass-through" votes for the Account in a manner consistent with the provisions
set forth above and with other Participating Insurance Companies. Neither the
Company nor any of its affiliates will in any way recommend action in connection
with, or oppose or interfere with, the solicitation of proxies for the Trust
shares held for such Contract Owners, except with respect to matters as to which
the Company has the right under Rule 6e-2 or 6e-3(T) under the 1940 Act, to vote
Voting Shares without regard to voting instructions from Contract Owners.
4.4. State Insurance Restrictions. The Company acknowledges and agrees
that it is the responsibility of the Company and other Participating Insurance
Companies to determine investment restrictions and any other restrictions,
limitations or requirements under state insurance law applicable to any Fund or
the Trust or the Distributor, and that neither the Trust nor the Distributor
shall bear any responsibility to the Company, other Participating Insurance
Companies or any Product Owners for any such determination or the correctness of
such determination. Schedule 4 sets forth the investment restrictions that the
Company and/or other Participating Insurance Companies have determined are
applicable to any Fund and with which the Trust has agreed to comply as of the
date of this Agreement. The Company shall inform the Trust of any investment
restrictions imposed by state insurance law that the Company determines may
become applicable to the Trust or a Fund from time to time as a result of the
Account's investment therein, other than those set forth on Schedule 4 to this
Agreement. Upon receipt of any such information from the Company or any other
Participating Insurance Company, the Trust shall determine whether it is in the
best interests of shareholders to comply with any such restrictions. If the
Trust determines that it is not in the best interests of shareholders (it being
understood that "shareholders" for this purpose shall mean Product Owners) to
comply with a restriction determined to be applicable by the Company, the Trust
shall so inform the Company, and the Trust and the Company shall discuss
alternative accommodations in the circumstances. If the Trust determines that it
is in the best interests of shareholders to comply with such restrictions, the
Trust and the Company shall amend Schedule 4 to this Agreement to reflect such
restrictions, subject to obtaining any required shareholder approval thereof.
4.5. Drafts of Filings. The Trust and the Company shall provide to each
other copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, prepared by or on behalf of either of them
and that mentions the other party by name. Such drafts shall be provided to the
other party sufficiently in advance of filing such materials with regulatory
authorities in order to allow such other party a reasonable opportunity to
review the materials; provided that each party shall only comment on that
portion of the draft that relates to that party or the conduct of its business.
4.6. Copies of Filings. The Trust and the Company shall provide to each
other at least one complete copy of all Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations of voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Trust, the Contracts or
the Account, as the case may be, promptly after the filing by or on behalf of
each such party of such document with the SEC or other regulatory authorities
(it being understood that this provision is not intended to require the Trust to
provide to the Company copies of any such documents prepared, filed or used by
Participating Investors other than the Company and the Account).
4.7. Regulatory Responses. Each party shall promptly provide to all
other parties copies of responses to no-action requests, notices, orders and
other rulings received by such party with respect to any filing covered by
Section 4.6 of this Agreement.
4.8. Complaints and Proceedings
(a) The Trust and/or the Distributor shall immediately notify
the Company of: (i) the issuance by any court or regulatory body of any
stop order, cease and desist order, or other similar order (but not
including an order of a regulatory body exempting or approving a
proposed transaction or arrangement) with respect to the Trust's
Registration Statement or the Prospectus of any Series or Class; (ii)
any request by the SEC for any amendment to the Trust's Registration
Statement or the Prospectus of any Series or Class; (iii) the
initiation of any proceedings for that purpose or for any other
purposes relating to the registration or offering of the Trust shares;
or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Trust shares or any Class or Series in any state or
jurisdiction, including, without limitation, any circumstance in which
(A) such shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or
(B) such law precludes the use of such shares as an underlying
investment medium for the Contracts. The Trust will make every
reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
(b) The Company shall immediately notify the Trust and the
Distributor of: (i) the issuance by any court or regulatory body of any
stop order, cease and desist order, or other similar order (but not
including an order of a regulatory body exempting or approving a
proposed transaction or arrangement) with respect to the Contracts'
Registration Statement or the Contracts' Prospectus; (ii) any request
by the SEC for any amendment to the Contracts' Registration Statement
or Prospectus; (iii) the initiation of any proceedings for that purpose
or for any other purposes relating to the registration or offering of
the Contracts; or (iv) any other action or circumstances that may
prevent the lawful offer or sale of the Contracts or any class of
Contracts in any state or jurisdiction, including, without limitation,
any circumstance in which such Contracts are not registered, qualified
and approved, and, in all material respects, issued and sold in
accordance with applicable state and federal laws. The Company will
make every reasonable effort to prevent the issuance of any such stop
order, cease and desist order or similar order and, if any such order
is issued, to obtain the lifting thereof at the earliest possible time.
(c) Each party shall immediately notify the other parties when
it receives notice, or otherwise becomes aware of, the commencement of
any litigation or proceeding against such party or a person affiliated
therewith in connection with the issuance or sale of Trust shares or
the Contracts.
(d) The Company shall provide to the Trust and the Distributor
any complaints it has received from Contract Owners pertaining to the
Trust or a Fund, and the Trust and Distributor shall each provide to
the Company any complaints it has received from Contract Owners
relating to the Contracts.
4.9. Cooperation. Each party hereto shall cooperate with the other
parties and all appropriate government authorities (including without limitation
the SEC, the NASD and state securities and insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry by any such authority relating to this
Agreement or the transactions contemplated hereby. However, such access shall
not extend to attorney-client privileged information.
ARTICLE V
Sale, Administration and Servicing of the Contracts
[5.1. Sale of the Contracts. The Company shall be responsible for the
sale and marketing of the Contracts. Subject to Article II and Section 5.4, the
Company shall provide Contracts, the Contracts' and Trust's Prospectuses,
Contracts' and Trust's Statements of Additional Information, and all amendments
or supplements to any of the foregoing to Contract Owners and prospective
Contract Owners, all in material compliance accordance with federal and state
laws. The Company shall, consistent with industry practice, use its best efforts
to ensure that all persons offering the Contracts are duly licensed and
registered under applicable insurance and securities laws. The Company shall
ensure that procedures are in place that sales of the Contracts satisfy
applicable suitability requirements under insurance and securities laws and
regulations, including without limitation the rules of the NASD. The Company
shall adopt and implement procedures reasonably designed to ensure that
information concerning the Trust and the Distributor that is intended for use
only by brokers or agents selling the Contracts (i.e., information that is not
intended for distribution to Contract Owners or offerees) is so used.]
5.2. Administration and Servicing of the Contracts. In connection with
the offering of the Contracts, the Company shall be fully responsible for the
underwriting, issuance, service and administration of the Contracts and for the
administration of the Account, including, without limitation, the calculation of
performance information for the Contracts, the timely payment of Contract Owner
redemption requests and processing of Contract transactions, and the maintenance
of a service center. The Company shall use its best efforts to perform such
functions in all respects at a level commensurate with those standards
prevailing in the variable insurance industry. Subject to Section 5.4, the
Company shall provide to Contract Owners all Trust reports, solicitations for
voting instructions including any related Trust proxy solicitation materials,
and updated Trust Prospectuses as required under the federal securities laws.
5.3. Customer Complaints. The Company shall establish reasonable
procedures to promptly address all customer complaints and resolve such
complaints consistent with high ethical standards and principles of ethical
conduct.
5.4. Trust Prospectuses and Reports. In order to enable the Company to
fulfill its obligations under this Agreement and the federal securities laws,
the Trust shall provide the Company with a copy, in camera-ready form or form
otherwise suitable for printing or duplication of: (i) the Trust's Prospectus
for the Series and Classes listed on Schedule 3 and any supplement thereto; (ii)
each Statement of Additional Information and any supplement thereto; (iii) any
Trust proxy soliciting material for such Series or Classes; and (iv) any Trust
periodic shareholder reports or other communications with shareholders. The
Trust and the Company may agree upon alternate arrangements, but in all cases,
the Trust reserves the right to approve the printing of any such material. The
Trust shall provide the Company at least 10 days advance written notice when any
such material shall become available, provided, however, that in the case of a
supplement, the Trust shall provide the Company notice reasonable in the
circumstances, it being understood that circumstances surrounding such
supplement may not allow for advance notice. The Company may not alter any
material so provided by the Trust or the Distributor (including without
limitation presenting or delivering such material in a different medium, e.g.,
electronic or Internet) without the prior written consent of the Distributor.
5.5. Trust Advertising Material. No piece of advertising or sales
literature or other promotional material in which the Trust or the Distributor
is named shall be used by the Company or any person directly or indirectly
authorized by the Company, including without limitation, underwriters,
distributors, and sellers of the Contracts, except with the prior written
consent of the Trust or the Distributor, as applicable, as to the form, content
and medium of such material, which consent shall not be unreasonably withheld;
provided that such prior written consent shall not be required if the Company
receives a written or facsimile acknowledgement from the Trust or the
Distributor that such material has been received by the Trust or the Distributor
for review at least 10 Business Days prior to its use, and, after the expiration
of such 10 Business Day period, the Trust or the Distributor has not commented
upon the content of such material and is therefore deemed to consent to its use.
No further changes may be made to material approved in accordance with this
Section 5.5 without obtaining the Trust's or Distributor's consent to such
changes as set forth in the preceding sentence. The Trust or Distributor may at
any time in its sole discretion revoke such consent upon reasonable
determination that such revocation is necessary, and upon notification of such
revocation, the Company shall discontinue use of the material subject to such
revocation, it being understood that the Company shall be afforded a reasonable
period of time to discontinue such use. Until further notice to the Company, the
Trust has delegated its rights and responsibilities under this provision to the
Distributor.
5.6. Contracts Advertising Material. No piece of advertising or sales
literature or other promotional material in which the Company is named shall be
used by the Trust or the Distributor, except with the prior written consent of
the Company, which consent shall not be unreasonably withheld; provided that
such prior written consent shall not be required if the Trust receives a written
or facsimile acknowledgement that such material has been received by the Company
for review at least 10 Business Days prior to its use and, after the expiration
of such 10 Business Day period, the Company has not commented upon the content
of such material and is therefore deemed to consent to its use. The Company may
at any time in its sole discretion revoke any consent upon reasonable
determination that such revocation is necessary, and upon notification of such
revocation, the Trust and the Distributor shall discontinue use of the material
subject to such revocation, it being understood that Trust and Distributor shall
be afforded a reasonable period of time to discontinue such use. The Company,
upon prior written notice to the Trust, may delegate its rights and
responsibilities under this provision to the principal underwriter for the
Contracts.
5.7. Trade Names. No party shall use any other party's names, logos,
trademarks or service marks, whether registered or unregistered, without the
prior written consent of such other party, or after written consent therefor has
been revoked, provided that separate consent is not required under this Section
5.7 to the extent that consent to use a party's name, logo, trademark or service
mark in connection with a particular piece of advertising or sales literature
has previously been given by a party under Section 5.5 or 5.6 of this Agreement.
The Company shall not use in advertising, publicity or otherwise the name of the
Trust, Distributor, or any of their affiliates nor any trade name, trademark,
trade device, service mark, symbol or any abbreviation, contraction or
simulation thereof of the Trust, Distributor, or their affiliates without the
prior written consent of the Trust or the Distributor in each instance. The
Trust and the Distributor shall not use in advertising, publicity or otherwise
the name of the Company, or any of its affiliates nor any trade name, trademark,
trade device, service mark, symbol or any abbreviation, contraction or
simulation thereof of the Company, or its affiliates without the prior written
consent of the Company in each instance.
5.8. Representations by Company. Except with the prior written consent
of the Trust, the Company shall not give any information or make any
representations or statements about the Trust or the Funds nor shall it
authorize or allow any other person to do so except information or
representations contained in the Trust's Registration Statement or the Trust's
Prospectuses or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved in writing by the Trust or its
designee in accordance with this Article V, or in published reports or
statements of the Trust in the public domain.
5.9. Representations by Trust. Except with the prior written consent of
the Company, the Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts' Registration Statement or Contracts' Prospectus or in published
reports of the Account which are in the public domain or in sales literature or
other promotional material approved in writing by the Company in accordance with
this Article V.
5.10. Advertising. For purposes of this Article V, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
material constituting sales literature or advertising under the NASD rules, the
1940 Act or the 1933 Act.
5.11 Periodic Trust Information. The Trust agrees to use its best
efforts to provide to the Company, within 5 Business Days after the end of a
calendar month and shall provide no later than 10 Business Days after the end of
the calendar month, the following information with respect to each Fund of the
Trust set forth on Schedule 3, each as of the last Business Day of such calendar
month: each Fund's 10 largest portfolio holdings (based on the percentage of
each Fund's net assets); the five industry sectors in which each Fund's
investments are most heavily weighted; and year-to-date SEC standardized
performance data. In addition, the Trust agrees to use its best efforts to
provide to the Company within 10 Business Days after the end of a calendar
quarter and shall provide no later than 15 Business Days after the end of the
calendar quarter a market commentary from the portfolio manager of each Fund set
forth on Schedule 3, as of the last Business Day of such quarter. Also, the
Trust agrees to provide the Company, within 15 Business Days after a request is
submitted to the Trust by the Company, the following information with respect to
each Fund set forth on Schedule 3, each as of the date or dates specified in
such request: net asset value; net asset value per share; and such other share
information as may be agreed by the Company and the Trust from time to time. The
Trust acknowledges that such information may be furnished to the Company's
internal or independent auditors and to the insurance departments in which the
Company does business.
ARTICLE VI
Compliance with Code
6.1. Section 817(h). Each Fund of the Trust shall comply with Section
817(h) of the Code and the regulations issued thereunder to the extent
applicable to the Fund as an investment company underlying the Account, and the
Trust shall (i) notify the Company immediately upon having a reasonable basis
for believing that a Fund has ceased to so qualify or that it might not so
qualify in the future, and (ii) take all reasonable steps to adequately
diversify a Fund to achieve compliance with the grace period afforded by
Treasury Regulation 1.817-5.
6.2. Subchapter M. Each Fund of the Trust shall maintain the
qualification of the Fund as a registered investment company (under Subchapter M
or any successor or similar provision), and the Trust shall (i) notify the
Company immediately upon having a reasonable basis for believing that a Fund has
ceased to so qualify or that it might not so qualify in the future, and (ii)
take all reasonable steps to maintain qualification or to requalify the Funds as
a registered investment company under Subchapter M.
6.3. Contracts. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor 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.
ARTICLE VII
Expenses
7.1. Expenses. All expenses incident to each party's performance under
this Agreement (including expenses expressly assumed by such party pursuant to
this Agreement) shall be paid by such party to the extent permitted by law.
7.2. Trust Expenses. Expenses incident to the Trust's
performance of its duties and obligations under this Agreement include, but
are not limited to, the costs of:
(a) registration and qualification of the Trust shares under the
federal securities laws;
(b) preparation and filing with the SEC of the Trust's
Prospectuses, Trust's Statement of Additional Information,
Trust's Registration Statement, Trust proxy materials and
shareholder reports, and preparation of a camera-ready copy of
the foregoing;
(c) preparation of all statements and notices required by any
Federal or state securities law;
(d) printing of all materials and reports required to be provided
by the Trust to existing shareholders and Contract Owners;
(e) all taxes on the issuance or transfer of Trust shares;
(f) payment of all applicable fees relating to the Trust,
including, without limitation, all fees due under Rule 24f-2
in connection with sales of Trust shares to qualified
retirement plans, custodial, auditing, transfer agent and
advisory fees, fees for insurance coverage and Trustees' fees;
and
(g) any expenses permitted to be paid or assumed by the Trust
pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act.
7.3. Company Expenses. Expenses incident to the Company's performance
of its duties and obligations under this Agreement include, but are not limited
to, the costs of:
(a) registration and qualification of the Contracts under the
federal securities laws;
(b) preparation and filing with the SEC of the Contracts'
Prospectus and Contracts' Registration Statement;
(c) the sale, marketing and distribution of the Contracts,
including printing and dissemination of Contracts' and the
Trust's Prospectuses for new sales of Contracts and
compensation for Contract sales;
(d) administration of the Contracts;
(e) distribution of and solicitation of voting instructions with
respect to Trust proxy materials to existing Contract Owners;
(f) mailing of all materials and reports required to be provided
by the Trust to existing Shareholders and Contract Owners;
(g) payment of all applicable fees relating to the Contracts,
including, without limitation, all fees due under Rule 24f-2;
(h) preparation, printing and dissemination of all statements and
notices to Contract Owners required by any Federal or state
insurance law other than those paid for by the Trust; and
(i) preparation, printing and dissemination of all marketing
materials for the Contracts and Trust (to the extent it
relates to the Contracts) except where other arrangements are
made in advance.
7.4. 12b-1 Payments. The Trust shall pay no fee or other compensation
to the Company under this Agreement, except that if the Trust or any Series or
Class adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then payments may be made to the Company in
accordance with such plan. The Trust currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act or in contravention of such rule, although it may make payments pursuant to
Rule 12b-1 in the future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1 and such formulation is required by the 1940 Act
or any rules or order thereunder, the Trust undertakes to have a Board of
Trustees, a majority of whom are not interested persons of the Trust, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
ARTICLE VIII
Potential Conflicts
8.1. Exemptive Order. The parties to this Agreement acknowledge that
the Trust has received an order (the "Exemptive Order") granting relief from
various provisions of the 1940 Act and the rules thereunder to the extent
necessary to permit Trust shares to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and other Qualified Persons (as defined in
Section 2.8 hereof). The Exemptive Order requires the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VIII. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings on that company as are imposed on
the Company pursuant to this Article VIII.
8.2. Company Monitoring Requirements. The Company will monitor its
operations and those of the Trust for the purpose of identifying any material
irreconcilable conflicts or potential material irreconcilable conflicts between
or among the interests of Participating Plans, Product Owners of variable life
insurance policies and Product Owners of variable annuity contracts.
8.3. Company Reporting Requirements. The Company shall report any
conflicts or potential conflicts to the Trust Board and will provide the Trust
Board, at least annually, with all information reasonably necessary for the
Trust Board to consider any issues raised by such existing or potential
conflicts or by the conditions and undertakings required by the Exemptive Order.
The Company also shall assist the Trust Board in carrying out its obligations
including, but not limited to: (a) informing the Trust Board whenever it
disregards Contract Owner voting instructions with respect to variable life
insurance policies, and (b) providing such other information and reports as the
Trust Board may reasonably request. The Company will carry out these obligations
with a view only to the interests of Contract Owners.
8.4. Trust Board Monitoring and Determination. The Trust Board shall
monitor the Trust for the existence of any material irreconcilable conflicts
between or among the interests of Participating Plans, Product Owners of
variable life insurance policies and Product Owners of variable annuity
contracts and determine what action, if any, should be taken in response to
those conflicts. A majority vote of Trustees who are not interested persons of
the Trust as defined in the 1940 Act (the "disinterested trustees") shall
represent a conclusive determination as to the existence of a material
irreconcilable conflict between or among the interests of Product Owners and
Participating Plans and as to whether any proposed action adequately remedies
any material irreconcilable conflict. The Trust Board shall give prompt written
notice to the Company and Participating Plan of any such determination.
8.5. Undertaking to Resolve Conflict. In the event that a material
irreconcilable conflict of interest arises between Product Owners of variable
life insurance policies or Product Owners of variable annuity contracts and
Participating Plans, the Company will, at its own expense, take whatever action
is necessary to remedy such conflict as it adversely affects Contract Owners up
to and including (1) establishing a new registered management investment
company, and (2) withdrawing assets from the Trust attributable to reserves for
the Contracts subject to the conflict and reinvesting such assets in a different
investment medium (including another Fund of the Trust) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected Contract Owners, and, as appropriate, segregating the assets supporting
the Contracts of any group of such owners that votes in favor of such
withdrawal, or offering to such owners the option of making such a change. The
Company will carry out the responsibility to take the foregoing action with a
view only to the interests of Contract Owners.
8.6. Withdrawal. If a material irreconcilable conflict arises because
of the Company's decision to disregard the voting instructions of Contract
Owners of variable life insurance policies and that decision represents a
minority position or would preclude a majority vote at any Fund shareholder
meeting, then, at the request of the Trust Board, the Company will redeem the
shares of the Trust to which the disregarded voting instructions relate. No
charge or penalty, however, will be imposed in connection with such a
redemption.
8.7. Expenses Associated with Remedial Action. In no event shall the
Trust be required to bear the expense of establishing a new funding medium for
any Contract. The Company shall not be required by this Article to establish a
new funding medium for any Contract if an offer to do so has been declined by
vote of a majority of the Contract Owners materially adversely affected by the
irreconcilable material conflict.
8.8. Successor Rules. 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 provisions of the 1940 Act or the rules promulgated thereunder with respect
to mixed and shared funding on terms and conditions materially different from
those contained in the Exemptive Order, then (i) the Trust and/or the Company,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the
extent such rules are applicable, and (ii) Sections 8.2 through 8.5 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 IX
Indemnification
9.1. Indemnification by the Company. The Company hereby agrees to, and
shall, indemnify and hold harmless the Trust, the Distributor and each person
who controls or is affiliated with the Trust or the Distributor within the
meaning of such terms under the 1933 Act or 1940 Act (but not any Participating
Insurance Companies or Qualified Persons) and any officer, trustee, partner,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any
material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if such
statement or omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Trust or the Distributor for use in the
Contracts Registration Statement, Contracts Prospectus or in
the Contracts or sales literature or promotional material for
the Contracts (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained
in the Trust Registration Statement, any Prospectus for Series
or Classes or sales literature or other promotional material
of the Trust (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Trust or Distributor in writing
by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of, or
violation of federal or state law by, the Company or persons
under its control or by any broker-dealers or agents
authorized to sell the Contracts, with respect to the sale,
marketing or distribution of the Contracts or Trust shares; or
(d) arise as a result of any failure by the Company, or persons
under its control or any third party with which the Company
has contractually delegated administration responsibilities
for the Contracts, to provide services, furnish materials or
make payments as required under this Agreement; or
(e) arise out of any material breach by the Company or persons
under its control of this Agreement (including any breach of
any warranties contained in Article III hereof); or
(f) arise out of any failure to transmit a request for redemption
or purchase of Trust shares or payment therefor on a timely
basis in accordance with the procedures set forth in Article
II, or any unauthorized use of the names or trade names of the
Trust or the Distributor.
This indemnification is in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
9.2. Indemnification by the Trust. The Trust hereby agrees to, and
shall, indemnify and hold harmless the Company and each person who controls or
is affiliated with the Company within the meaning of such terms under the 1933
Act or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any
material fact contained in the Trust Registration Statement,
any Prospectus for Series or Classes or sales literature or
other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Trust
or the Distributor for use in the Trust Registration
Statement, Trust Prospectus or sales literature or promotional
material for the Trust (or any amendment or supplement to any
of the foregoing) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained
in the Contracts Registration Statement, Contracts Prospectus
or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in
writing by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of or
violation of federal or state law by the Trust or its Trustees
or officers or persons under its control with respect to the
sale of Trust shares; or
(d) arise as a result of any failure by the Trust or its Trustees
or officers or persons under its control to provide services,
furnish materials or make payments as required under the terms
of this Agreement;
(e) arise out of any material breach by the Trust of this
Agreement or persons under its control (including any breach
of Section 6.1 of this Agreement and any warranties contained
in Article III hereof);
(f) arise out of any unauthorized use of the names or trade names
of the Company; or
[(g) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate,
provided the foregoing shall not apply where such
miscalculation or report is the result of (i) incorrect
information supplied by or on behalf of the Company or any
other Participating Company to the Trust or the Distributor,
or (ii) circumstances outside the Trust's or the Distributor's
control.]
it being understood that in no way shall the Trust be liable to the Company with
respect to any violation of insurance law, compliance with which is a
responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Trust in accordance with Section 4.4 hereof.
This indemnification is in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
9.3. Indemnification by the Distributor. The Distributor hereby agrees
to, and shall, indemnify and hold harmless the Company and each person who
controls or is affiliated with the Company within the meaning of such terms
under the 1933 Act or 1940 Act and any officer, director, employee or agent of
the foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any
material fact contained in the Trust Registration Statement,
any Prospectus for Series or Classes or sales literature or
other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Trust
or Distributor for use in the Trust Registration Statement,
Trust Prospectus or sales literature or promotional material
for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained
in the Contracts Registration Statement, Contracts Prospectus
or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in
writing by the Distributor to the Company; or
(c) arise out of or are based upon wrongful conduct of or
violation of federal or state law by the Distributor or
persons under its control with respect to the sale of Trust
shares; or
(d) arise as a result of any failure by the Distributor or persons
under its control to provide services, furnish materials or
make payments as required under the terms of this Agreement;
(e) arise out of any material breach by the Distributor or persons
under its control of this Agreement (including any breach of
Section 6.1 of this Agreement and any warranties contained in
Article III hereof); or
(f) arise out of any unauthorized use of the names or trade names
of the Company;
it being understood that in no way shall the Distributor be liable to the
Company with respect to any violation of insurance law, compliance with which is
a responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Distributor in accordance with Section 4.4
hereof. This indemnification is in addition to any liability that the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is caused
by the wilful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
9.4. Rule of Construction. It is the parties' intention that, in the
event of an occurrence for which the Trust has agreed to indemnify the Company,
the Company shall seek indemnification from the Trust only in circumstances in
which the Trust is entitled to seek indemnification from a third party with
respect to the same event or cause thereof.
9.5. Indemnification Procedures. After receipt by a party entitled to
indemnification ("indemnified party") under this Article IX of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article IX ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article IX, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX. The
indemnification provisions contained in this Article IX shall survive any
termination of this Agreement.
ARTICLE X
Relationship of the Parties; Termination
10.1. Non-Exclusivity and Non-Interference. The parties hereto
acknowledge that the arrangement contemplated by this Agreement is not
exclusive; the Trust shares may be sold to other insurance companies and
investors (subject to Section 2.8 hereof) and the cash value of the Contracts
may be invested in other investment companies, provided, however, that until
this Agreement is terminated pursuant to this Article X:
(a) the Company shall promote the Trust and the Funds made
available hereunder on a substantially similar basis as other
funding vehicles available under the Contracts;
(b) the Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action
to operate the Account as a management investment company
under the 1940 Act;
(c) the Company shall not, without the prior written consent of
the Distributor, which consent shall not be unreasonably
withheld, solicit, induce or encourage Contract Owners to
change or modify the Trust, or to change the Trust's
distributor or investment adviser (unless otherwise required
by applicable law);
(d) the Company shall not solicit, induce or encourage Contract
Owners to transfer or withdraw Contract Values allocated to a
Fund or to exchange their Contracts for contracts not allowing
for investment in the Trust, except with 60 days prior written
notice to the Distributor under circumstances where the
Company has determined such solicitation, inducement or
encouragement to be in the best interests of Contract Owners
(unless otherwise required by applicable law), provided that
the foregoing shall not apply in connection with the
implementation and operation of an asset allocation program by
the Company;
(e) the Company shall not substitute another investment company
for one or more Funds without providing written notice to the
Distributor at least [30] days in advance of effecting any
such substitution; and
(f) the Company shall not withdraw the Account's investment in the
Trust or a Fund of the Trust except as necessary to facilitate
Contract Owner requests and routine Contract processing.
10.2. Termination of Agreement. This Agreement shall not terminate
until (i) the Trust is dissolved, liquidated, or merged into another entity, or
(ii) as to any Fund that has been made available hereunder, the Account no
longer invests in that Fund and the Company has confirmed in writing to the
Distributor, if so requested by the Distributor, that it no longer intends to
invest in such Fund. However, certain obligations of, or restrictions on, the
parties to this Agreement may terminate as provided in Sections 10.3 through
10.5 and the Company may be required to redeem Trust shares pursuant to Section
10.6 or in the circumstances contemplated by Article VIII. Article IX and
Sections 5.7 and 10.7 shall survive any termination of this Agreement.
10.3. Termination of Offering of Trust Shares. The obligation of the
Trust and the Distributor to make Trust shares available to the Company for
purchase pursuant to Article II of this Agreement shall terminate at the option
of the Distributor upon written notice to the Company as provided below:
(a) upon institution of formal proceedings against the Company, or
the Distributor's reasonable determination that institution of
such proceedings is being considered by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of the Account,
the administration of the Contracts or the purchase of Trust
shares, or an expected or anticipated ruling, judgment or
outcome which would, in the Distributor's reasonable judgment
exercised in good faith, materially impair the Company's or
Trust's ability to meet and perform the Company's or Trust's
obligations and duties hereunder, such termination effective
upon 15 days prior written notice;
(b) subject to the Trust's compliance with Article VI, in the
event any of the Contracts are not registered, issued or sold
in accordance with applicable federal and/or state law, such
termination effective immediately upon receipt of written
notice;
(c) if the Distributor shall determine, in its sole judgment
exercised in good faith, that either (1) the Company shall
have suffered a material adverse change in its business or
financial condition or (2) the Company shall have been the
subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of
either the Trust or the Distributor, such termination
effective upon 30 days prior written notice;
(d) if the Distributor suspends or terminates the offering of
Trust shares of any Series or Class to all Participating
Investors or only designated Participating Investors, if such
action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Distributor
acting in good faith, suspension or termination is necessary
in the best interests of the shareholders of any Series or
Class (it being understood that "shareholders" for this
purpose shall mean Product Owners), such notice effective
immediately upon receipt of written notice, it being
understood that a lack of Participating Investor interest in a
Series or Class may be grounds for a suspension or termination
as to such Series or Class and that a suspension or
termination shall apply only to the specified Series or Class;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the
Account to another insurance company pursuant to an assumption
reinsurance agreement) unless the Trust consents thereto, such
termination effective upon 30 days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction
of the Trust within 10 days after written notice of such
breach has been delivered to the Company, such termination
effective upon expiration of such 10-day period;
(g) upon (i) the determination of the Trust's Board to dissolve,
liquidate or merge the Trust as contemplated by Section
10.2(i), in connection with which the Trust and the
Distributor undertake to provide the Company with advance
notice of any such meeting at which dissolution, liquidation
or merger of the Trust is considered, (ii) termination of the
Agreement pursuant to Section 10.2(ii), or (iii) notice from
the Company pursuant to Section 10.4 or 10.5, such termination
pursuant hereto to be effective upon 15 days prior written
notice; or
(h) at any time upon six months prior notice.
Except in the case of an option exercised under clause (b), (d) or (g), the
obligations shall terminate only as to new Contracts and the Distributor shall
continue to make Trust shares available to the extent necessary to permit owners
of Contracts in effect on the effective date of such termination (hereinafter
referred to as "Existing Contracts") to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts.
10.4. Termination of Investment in a Fund. The Company may elect to
cease investing in a Fund, promoting a Fund as an investment option under the
Contracts, or withdraw its investment or the Account's investment in a Fund,
subject to compliance with applicable law, upon written notice to the Trust of
any of the following events (unless provided otherwise below, effective as soon
as reasonably practicable but in no event later than 10 days after the
occurrence of the event):
(a) if the Trust informs the Company pursuant to Section 4.4 that
it will not cause such Fund to comply with investment
restrictions as requested by the Company and the Trust and the
Company are unable to agree upon any reasonable alternative
accommodations;
(b) if shares in such Fund are not reasonably available to meet
the requirements of the Contracts as determined by the Company
(including any non-availability as a result of notice given by
the Distributor pursuant to Section 10.3(d)), and the
Distributor, after receiving written notice from the Company
of such non-availability, fails to make available, within 5
Business Days after receipt of such notice, a sufficient
number of shares in such Fund to meet the requirements of the
Contracts; or
(c) if such Fund fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations
thereunder and the Trust, upon written request, fails to
provide reasonable assurance that it will take action to cure
or correct such failure;
(d) if the Company determines in its sole judgement, exercised in
good faith, that either the Investment Adviser or the
Distributor has suffered a material adverse change in its
business, operations or financial condition since the date of
this Agreement, or is the subject of material adverse
publicity which is likely to have a material adverse impact
upon the business and operations of the Company, such
termination effective upon 30 days prior written notice;
(e) upon the Trust's or the Distributor's assignment of this
Agreement, unless the Company consents thereto, such
termination effective upon 30 days prior written notice; or
(f) at any time upon 6 months prior notice.
Such termination shall apply only as to the affected Fund and shall not apply to
any other Fund in which the Company or the Account invests.
10.5. Termination of Investment by the Company. The Company may elect
to cease investing in all Series or Classes of the Trust made available
hereunder, promoting the Trust as an investment option under the Contracts, or
withdraw its investment or the Account s investment in the Trust, subject to
compliance with applicable law, upon written notice to the Trust within 15 days
of the occurrence of any of the following events (unless provided otherwise
below):
(a) upon institution of formal proceedings against the Trust or
the Distributor (but only with regard to the Trust) by the
NASD, the SEC or any state securities or insurance commission
or any other regulatory body;
(b) if, with respect to the Trust or a Fund, the Trust or the Fund
ceases to qualify as a regulated investment company under
Subchapter M of the Code, as defined therein, or any successor
or similar provision, or if the Company reasonably believes
that the Trust may fail to so qualify, and the Trust, upon
written request, fails to provide reasonable assurance that it
will take action to cure or correct such failure within 30
days;
(c) if the Trust or Distributor is in material breach of a
provision of this Agreement, which breach has not been cured
to the satisfaction of the Company within 10 days after
written notice of such breach has been delivered to the Trust
or the Distributor, as the case may be, such termination
effective upon expiration of such 10-day "cure" period;
(d) if the Company determines in its sole judgement, exercised in
good faith, that either the Investment Adviser or the
Distributor has suffered a material adverse change in its
business, operations or financial condition since the date of
this Agreement, or is the subject of material adverse
publicity which is likely to have a material adverse impact
upon the business and operations of the Company, such
termination effective upon 30 days prior written notice;
(e) upon the Trust's or the Distributor's assignment of this
Agreement, unless the Company consents thereto, such
termination effective upon 30 days prior written notice; or
(f) at any time upon 6 months prior notice.
10.6. Company Required to Redeem. The parties understand and
acknowledge that it is essential for compliance with Section 817(h) of the Code
that the Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if any of the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Trust reasonably believes that any such Contracts may fail
to so qualify, the Trust shall have the right to require the Company to redeem
Trust shares attributable to such Contracts upon notice to the Company and the
Company shall so redeem such Trust shares in order to ensure that the Trust
complies with the provisions of Section 817(h) of the Code applicable to
ownership of Trust shares. Notice to the Company shall specify the period of
time the Company has to redeem the Trust shares or to make other arrangements
satisfactory to the Trust and its counsel, such period of time to be determined
with reference to the requirements of Section 817(h) of the Code. In addition,
the Company may be required to redeem Trust shares pursuant to action taken or
request made by the Trust Board in accordance with the Exemptive Order described
in Article VIII or any conditions or undertakings set forth or referenced
therein, or other SEC rule, regulation or order that may be adopted after the
date hereof. The Company agrees to redeem shares in the circumstances described
herein and to comply with applicable terms and provisions. Also, in the event
that the Distributor suspends or terminates the offering of a Series or Class
pursuant to Section 10.3(d) of this Agreement, the Company, upon request by the
Distributor, will cooperate in taking appropriate action to withdraw the
Account's investment in the respective Fund.
10.7. Confidentiality. A party will keep confidential any information
acquired as a result of this Agreement regarding the business and affairs of the
other parties to this Agreement and their affiliates.
ARTICLE XI
Applicability to New Accounts and New Contracts
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts, any Series or Class, additions of new classes of Contracts to be
issued by the Company and separate accounts therefor investing in the Trust.
Such amendments may be made effective by executing the form of amendment
included on each schedule attached hereto. The provisions of this Agreement
shall be equally applicable to each such class of Contracts, Series, Class or
separate account, as applicable, effective as of the date of amendment of such
Schedule, unless the context otherwise requires. The parties to this Agreement
may amend this Agreement from time to time by written agreement signed by all of
the parties.
ARTICLE XII
Notice, Request or Consent
Any notice, request or consent to be provided pursuant to this
Agreement is to be made in writing and shall be given:
If to the Trust:
Douglas C. Grip
President
Goldman Sachs Variable Insurance Trust
One New York Plaza
New York, NY 10004
If to the Distributor:
Douglas C. Grip
Vice President
Goldman Sachs & Co.
One New York Plaza
New York, NY 10004
If to the Company:
______________________________[Name]
______________________________[Title]
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier, and shall be
effective upon receipt. Notices pursuant to the provisions of Article II may be
sent by facsimile to the person designated in writing for such notices.
ARTICLE XIII
Miscellaneous
13.1. Interpretation. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the state
of Delaware, without giving effect to the principles of conflicts of laws,
subject to the following rules:
(a) This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended,
and the rules, regulations and rulings thereunder, including
such exemptions from those statutes, rules, and regulations as
the SEC may grant, and the terms hereof shall be limited,
interpreted and construed in accordance therewith.
(b) 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.
(c) 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.
(d) 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.
13.2. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which together shall constitute one and the
same instrument.
13.3. No Assignment. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by the Company, the Distributor or the
Trust without the prior written consent of the other parties.
13.4. Declaration of Trust. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of State of the state of Delaware, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as trustees, and is not binding upon any of the Trustees,
officers or shareholders of the Trust individually, but binding only upon the
assets and property of the Trust. No Series of the Trust shall be liable for the
obligations of any other Series of the Trust.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
Date:_______________ By:___________________________________
Name:
Title:
GOLDMAN, SACHS & CO.
(Distributor)
Date:_______________ By:___________________________________
Name:
Title:
THE LIFE INSURANCE COMPANY OF VIRGINIA
(Company)
Date:_______________ By:___________________________________
Name:
Title:
<PAGE>
Schedule 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<TABLE>
<CAPTION>
Date Established by
Name of Account and Board of Directors of SEC 1940 Act Type of Product Supported
Subaccounts the Company Registration Number by Account
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
[Form of Amendment to Schedule 1]
Effective as of , the following separate accounts of the Company are hereby
added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
Date Established by
Name of Account and Board of Directors of SEC 1940 Act Type of Product Supported
Subaccounts the Company Registration Number by Account
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
- ---------------------------------- ------------------------------------
Goldman Sachs Variable Insurance Trust The Life Insurance Company of Virginia
- ---------------------------------- ------------------------------------
Goldman, Sachs & Co.
<PAGE>
Schedule 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
Date Established by
Name of Account and Board of Directors of SEC 1940 Act Type of Product Supported
Subaccounts the Company Registration Number by Account
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
[Form of Amendment to Schedule 2]
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
Date Established by
Name of Account and Board of Directors of SEC 1940 Act Type of Product Supported
Subaccounts the Company Registration Number by Account
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
- ---------------------------------- ------------------------------------
Goldman Sachs Variable Insurance Trust The Life Insurance Company of Virginia
- ---------------------------------- ------------------------------------
Goldman, Sachs & Co.
<PAGE>
Schedule 3
Trust Classes and Series
Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Classes
and Series are available under the Contracts:
Contracts Marketing Name Trust Classes and Series
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
[Form of Amendment to Schedule 3]
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Classes and Series:
Contracts Marketing Name Trust Classes and Series
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
- ---------------------------------- ------------------------------------
Goldman Sachs Variable Insurance Trust The Life Insurance Company of Virginia
- ---------------------------------- -----------------------------------
Goldman, Sachs & Co.
<PAGE>
Schedule 4
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
- ------------------------------------------------------------------------------
[Form of Amendment to Schedule 4]
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
- ---------------------------------- ------------------------------------
Goldman Sachs Variable Insurance Trust The Life Insurance Company of Virginia
- ---------------------------------- -----------------------------------
Goldman, Sachs & Co.
<PAGE>
Schedule 5
Notice Provided Pursuant to Section 2.3(a)
Notice provided to the Trust by the Company concerning purchases and redemption
orders pursuant to Section 2.3(a) of this Agreement shall be made to:
Goldman Sachs Asset Management
Shareholder Services (Chicago)
April 23, 1998
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
With reference to Pre-Effective Amendment No. 3 to Registration Statement
333-41031 on Form S-6, filed by The Life Insurance Company of Virginia and Life
of Virginia Separate Account II with the Securities and Exchange Commission
covering flexible premium variable life insurance policies, I have examined such
documents and such law as I considered necessary and appropriate, and on the
basis of such examination, it is my opinion that:
1. The Life Insurance Company of Virginia is duly organized and validly
existing under the laws of the Commonwealth of Virginia and has been duly
authorized to issue individual flexible premium variable life insurance
policies by the Bureau of Insurance of the State Corporation Commission of
the Commonwealth of Virginia.
2. Life of Virginia Separate Account II is a duly authorized and existing
separate account established pursuant to the provisions of Section
38.2-3113 of the Code of Virginia.
3. The flexible premium variable life insurance policies, when issued as
contemplated by said Form S-6 Registration Statement, will constitute
legal, validly issued and binding obligations of The Life Insurance Company
of Virginia.
I hereby consent to the use of this letter, or copy thereof, as an exhibit to
Pre Effective Amendment No. 3 to the Registration Statement on Form S-6 (File
Number 333-41031) 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 & BRENNAN LLP
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Re: Life of Virginia Separate Account II
File No. 333-41031
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Pre-Effective Amendment No. 3 to
Form S-6 for Life of Virginia Separate Account II, which Prospectus describes
certain flexible premium variable life insurance policies. 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 LLP
By: /s/ Stephen E. Roth
---------------------------
Stephen E. Roth
[letterhead of KPMG Independent Auditors]
Consent of Independent Auditors
The Board of Directors
The Life Insurance Company of Virginia:
We consent to the use of our reports for The Life Insurance Company of Virginia
and Life of Virginia Separate Account II included herein (pre-effective
amendment no. 3 to Form S-6 of registration no. 333-41031) and to the references
to our firm under the caption "Experts" in the prospectus.
Our report with respect to The Life Insurance Company of Virginia dated January
6, 1998, contains an explanatory paragraph that states 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
----------------------
KPMG Peat Marwick LLP
Richmond, Virginia
April 29, 1998
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 Life of
Virginia Separate Account II, in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-6 No. 333-41031) and related Prospectus of Life
of Virginia Separate Account II of the registration of an indefinite amount of
securities.
ERNST & YOUNG LLP
Richmond, Virginia
April 27, 1998
EXHIBIT 6
OPINION AND CONSENT OF BRUCE E. BOOKER, ACTUARY
March 12, 1998
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
Pre-Effective Amendment No. 3 to Registration Statement No. 333-41031 on Form
S-6 describes the Policy. I have provided actuarial advice concerning the
preparation of the Registration Statement and the preparation of the Policy form
described in the Registration Statement and Exhibits thereto.
In my professional opinion, the illustration of death benefits and account
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 than at ages or
classes not shown, or for female.
Additionally, the prospectus information contained in the examples of the death
benefit options, based on the assumptions stated in those examples, are
consistent with the provisions of the policy.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Sincerely,
Bruce E. Booker, FSA, MAAA
Vice President & Actuary
