PROSPECTUS
LIFE OF VIRGINIA SEPARATE ACCOUNT III
VARIABLE LIFE INSURANCE POLICY
FORM P1097 1/87
Issued by:
THE LIFE INSURANCE COMPANY OF VIRGINIA
6610 WEST BROAD STREET
RICHMOND, VIRGINIA 23230
(804) 281-6000
This Prospectus describes a variable life insurance policy ("Policy") issued
by The Life Insurance Company of Virginia ("Life of Virginia"). While the
Policy is designed to operate generally as a single premium policy, it does
offer an additional premium payment option (so long as there is no outstanding
Policy Debt), which provides limited premium flexibility.
The Policy provides for the payment of a Death Benefit upon the death of the
insured, and for a Cash Value that can be obtained by surrendering the Policy.
The Policy is a variable policy because the Death Benefit may, and the Cash
Value will, vary with the investment experience of Life of Virginia Separate
Account III ("Separate Account III"). The Policyowner bears the entire
investment risk; there is no guaranteed minimum Cash Value. In general, Life of
Virginia will not issue the Policy to insure persons older than age 75. The
minimum initial premium required to issue a Policy is $5,000.
Under the Policy, premiums are placed in Separate Account III. The
Policyowner selects the Investment Subdivision(s) of Separate Account III in
which to invest, and, after the Initial Investment Period, determines the
allocation of the premiums among those Investment Subdivisions. Each Investment
Subdivision of Separate Account III will invest solely in a designated portfolio
which is part of a series type of mutual fund. Currently, there are seven such
funds available under this Policy: The Variable Insurance Products Fund, the
Variable Insurance Products Fund II, the Advisers Management Trust, the Life of
Virginia Series Fund, Inc., the Oppenheimer Variable Account Funds, the Janus
Aspen Series, and the Insurance Management Series (collectively referred to as
the "Funds"). The Funds, their investment managers and their current available
portfolios are on the following page.
This Prospectus Must Be Read Along With
Current Prospectuses For The Funds
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES IN THE FUNDS AND INTERESTS IN THE POLICIES ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Please Read This Prospectus Carefully and Retain It For Future Reference.
The Date of This Prospectus is May 1, 1995.
<PAGE>
Variable Insurance Products Fund, which is managed by Fidelity Management &
Research Company, currently has five portfolios:
Money Market Portfolio
High Income Portfolio
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
Variable Insurance Products Fund II, which is managed by Fidelity Management &
Research Company, currently has five portfolios, two of which, Asset Manager
Portfolio and Contrafund Portfolio, are available to policyowners through
Separate Account III.
Neuberger & Berman Advisers Management Trust, which is managed by Neuberger &
Berman Management Incorporated, currently has seven portfolios, three of which
are available to Policyowners through Separate Account III:
Balanced Portfolio
Growth Portfolio
Limited Maturity Bond Portfolio
Life of Virginia Series Fund, Inc., which is managed by Aon Advisors, Inc.,
currently has six portfolios:
Money Market Portfolio
Government Securities Portfolio
Common Stock Index Portfolio
Total Return Portfolio
International Equity Portfolio
Real Estate Securities Portfolio
Oppenheimer Variable Account Funds, which is managed by Oppenheimer Management
Corporation, currently has nine portfolios, six of which are available to
Policyowners through Separate Account III:
Oppenheimer Money Fund
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
Janus Aspen Series, which is managed by Janus Capital Corporation, currently
has seven portfolios, three of which are available to Policyowners through
Separate Account III:
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
Insurance Management Series, which is managed by Federated Advisers, currently
has five portfolios, two of which, Utility Fund and Corporate Bond Fund, are
available to Policyowners through Separate Account III.
The accompanying prospectuses for the Funds describe the investment objectives
and the risks of each of the Funds' portfolios.
During the Initial Investment Period, all premiums will be placed in the
Investment Subdivision of Separate Account III that invests exclusively in the
Money Market Portfolio of the Life of Virginia Series Fund, Inc. At the end of
that period, the cash value at that time and all subsequent premiums will be
allocated in accordance with Policyowner instructions.
This policy is or may be a modified endowment contract. Any policy loan,
partial withdrawal or surrender may result in adverse tax consequences and/or
penalties.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns a variable life insurance policy.
<PAGE>
TABLE OF CONTENTS
Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Benefits at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 9
Charges and Deductions . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution of the Policy . . . . . . . . . . . . . . . . . . . . . . 10
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Refund Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Illustrations of Death Benefits, Cash Values and Surrender Values . . . 10
Life of Virginia and Separate Account III
The Life Insurance Company of Virginia . . . . . . . . . . . . . . . . 11
Aon Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Separate Account III . . . . . . . . . . . . . . . . . . . . . . . . . 11
Addition, Deletion, or Substitution of Investments . . . . . . . . . . 12
The Funds
Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . 13
Variable Insurance Products Fund II . . . . . . . . . . . . . . . . . . 14
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . 14
Life of Virginia Series Fund, Inc . . . . . . . . . . . . . . . . . . . 15
Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . . 16
Janus Aspen Series . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Insurance Management Series . . . . . . . . . . . . . . . . . . . . . . 17
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . . 17
Termination of Participation Agreements . . . . . . . . . . . . . . . . 18
The Policy
Purpose of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . 19
Purchasing the Policy . . . . . . . . . . . . . . . . . . . . . . . . . 19
Dates Under the Policy . . . . . . . . . . . . . . . . . . . . . . . . 19
Payments Made Under the Policy . . . . . . . . . . . . . . . . . . . . 19
Allocation of Premiums . . . . . . . . . . . . . . . . . . . . . . . . 21
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . . 21
Examination of Policy (Refund Privilege) . . . . . . . . . . . . . . . 22
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Policy Rights and Benefits
Cash Value Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dollar-Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . 25
Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Loan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Changes in the Specified Amount . . . . . . . . . . . . . . . . . . . . 28
Benefits at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 28
Optional Payment Plans . . . . . . . . . . . . . . . . . . . . . . . . 28
Charges and Deductions
Monthly Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Charges Against Separate Account III . . . . . . . . . . . . . . . . . 31
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reduction of Charges for Group Sales . . . . . . . . . . . . . . . . . 32
<PAGE>
TABLE OF CONTENTS (Cont.)
Page
General Provisions
Postponement of Payment . . . . . . . . . . . . . . . . . . . . . . . . 33
Limits on Contesting the Policy . . . . . . . . . . . . . . . . . . . . 33
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . 33
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Annual Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Nonparticipating . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Written Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Changing the Owner or Beneficiary . . . . . . . . . . . . . . . . . . . 34
Using the Policies as Collateral . . . . . . . . . . . . . . . . . . . 34
Optional Insurance Benefits . . . . . . . . . . . . . . . . . . . . . . 34
Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Distribution of the Policy . . . . . . . . . . . . . . . . . . . . . . . 35
Federal Tax Matters
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . . 35
Tax Treatment of Policy Proceeds . . . . . . . . . . . . . . . . . . . 36
Tax Treatment of Policy Loans and Other Distributions . . . . . . . . . 36
Taxation of Life of Virginia . . . . . . . . . . . . . . . . . . . . . 37
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . 37
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 37
Legal Developments Regarding Employment-Related Benefit Plans . . . . . . 38
Safekeeping of the Assets of Separate Account III . . . . . . . . . . . . 38
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
State Regulation of Life of Virginia . . . . . . . . . . . . . . . . . . 38
Executive Officers and Directors of Life of Virginia . . . . . . . . . . 39
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . 41
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
This Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. LIFE INSURANCE IS A LONG TERM INVESTMENT. PROSPECTIVE POLICYOWNERS
SHOULD CONSIDER THEIR NEED FOR INSURANCE COVERAGE AND THE POLICY'S LONG TERM
INVESTMENT POTENTIAL. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
<PAGE>
DEFINITIONS
Additional Premium Payment -- An additional premium payment of at least $250
made by the Policyowner, which does not exceed the maximum premiums limitation
shown in the policy data pages; a payment, of at least $1,000, which is required
for an increase in the specified amount; or a payment properly made during the
grace period.
Age -- The insured's age on his or her nearest birthday.
Attained Age -- The insured's age on the policy date plus the number of years
since the policy date.
Beneficiary -- Primary and contingent beneficiaries are designated by the
Policyowner in the application. More than one primary or contingent beneficiary
may be named. If changed, the primary beneficiary or contingent beneficiary is
as shown in the latest change filed with Life of Virginia. If no beneficiary
survives the insured, the Policyowner or the Policyowner's estate will be the
beneficiary. The interest of any beneficiary may be subject to that of any
assignee.
Business Day -- Any day on which the New York Stock Exchange is open for
business and any other day in which there is a change in the value of the shares
of a portfolio of any one of the funds sufficient to materially affect the value
of the assets in the Investment Subdivision of Separate Account III that invests
in that portfolio.
Cash Value -- The value of the Policy equal to the Cash Value allocated to the
Investment Subdivisions of Separate Account III, plus the Cash Value held in the
general account to secure any Policy Debt.
Death Benefit -- The benefit provided under a Policy upon the death of the
insured.
Due Proof of Death -- Proof of death that is satisfactory to Life of Virginia.
Such proof may consist of the following if acceptable to Life of Virginia:
(a) A certified copy of the death certificate; or
(b) A certified copy of the decree of a court of competent jurisdiction as to
the finding of death.
Funds -- The mutual funds available under this Policy. Currently there are
seven: the Variable Insurance Products Fund, the Variable Insurance Products
Fund II, the Neuberger & Berman Advisers Management Trust, the Life of Virginia
Series Fund, Inc., the Oppenheimer Variable Account Funds, the Janus Aspen
Series, and the Insurance Management Series.
General Account -- The assets of Life of Virginia that are not segregated in
any of the separate investment accounts of Life of Virginia.
Home Office -- The principal offices of The Life Insurance Company of Virginia
at 6610 West Broad Street, Richmond, Virginia 23230.
Initial Investment Period -- The period that commences on the date the initial
premium is received at the Home Office of Life of Virginia, and ends on the date
of receipt at the Home Office of the Policy Delivery and Acceptance Letter,
signed and dated by the policyowner, indicating that the policyowner has
received and accepted the Policy, or, if the Policy is not accepted, when all
amounts due are refunded, whichever is earlier. During this period, all premiums
will be placed in the Investment Subdivision of Separate Account III that
invests exclusively in the Money Market Portfolio of the Life of Virginia Series
Fund, Inc.
Insured -- The person upon whose life the Policy is issued.
Investment Subdivision -- A subdivision of Separate Account III. After the
Initial Investment Period, premiums are allocated, in accordance with the
instructions of the Policyowner, among no more than seven of the twenty-seven
Investment Subdivisions of Separate Account III, each of which invests
exclusively in shares of a designated portfolio of one of the Funds. All
twenty-seven Investment Subdivisions may not be available in all states.
Maturity Date -- The date on which a Policy's Cash Value less any outstanding
Policy Debt becomes payable to the Policyowner, if living. The Maturity Date
will be the policy anniversary nearest to the insured's 95th birthday. The
Policy terminates on the Maturity Date.
Maximum Loan Amount -- The maximum amount that may be borrowed under a Policy.
The maximum loan amount equals 90% of the Policy's Cash Value on the date of the
loan, less any surrender charge.
Monthly Anniversary Day -- The same date in each month as the policy date.
Whenever the monthly anniversary day falls on a date other than a Business Day,
the monthly anniversary will be deemed the next Business Day.
Policy -- The variable life insurance policy issued by Life of Virginia and
described in this Prospectus. The term "Policy" or "Policies" includes the
Policy described in this Prospectus, the policy application, any supplemental
applications, and any endorsements.
Policy Date -- The date a Policy becomes effective and the date used to
determine policy years and policy months for the original specified amount and
the initial premium. Policy anniversaries are measured from the policy date.
Policy Debt -- The total of all outstanding policy loans plus accrued
interest.
Policy Month -- A one-month period beginning on a monthly anniversary day and
ending on the day immediately preceding the next monthly anniversary day.
Policyowner (or "Owner") -- The person who owns a Policy. The original
policyowner is named in the application. Contingent owners may also be named.
Proceeds -- The amount payable upon either the surrender of the Policy or the
death of the insured.
Separate Account III (or "Account") -- Life of Virginia Separate Account III,
a separate investment account established by Life of Virginia to receive and
invest premiums paid under the Policies.
Specified Amount -- The amount of insurance coverage purchased under a Policy.
The specified amount is set forth on the data page in each Policy.
Surrender Value -- A Policy's Cash Value, reduced by any outstanding Policy
Debt and less any surrender charge. This amount is payable to the Policyowner
if the Policy matures or is surrendered.
Valuation Period -- The period between the close of business on a Business Day
and the close of business on the next succeeding Business Day.
<PAGE>
SUMMARY
The Following Summary of Prospectus Information Should Be Read In Conjunction
With The Detailed Information Appearing Elsewhere In This Prospectus.
The Policy
The variable life insurance policy described in this Prospectus is a life
insurance contract with a Death Benefit, Cash Value, surrender rights, policy
loan privileges, and other features associated with conventional life insurance.
The Policy is a "variable" policy because, unlike the fixed benefits of an
ordinary life insurance policy, the Cash Value and, under certain circumstances,
the Death Benefit of the Policy and the duration of the life insurance coverage,
may increase or decrease depending upon the investment experience of the
Investment Subdivisions of Separate Account III to which the Policyowner
allocates premiums. Accordingly, the Policyowner reaps the benefit of any
appreciation in value of the underlying assets, but also bears the investment
risk of any depreciation in the value of those assets. However, so long as the
Policy's Surrender Value (the Cash Value reduced by any outstanding Policy Debt,
and less any surrender charges) continues to be sufficient to pay the monthly
deduction, the Policy provides for a Death Benefit at least equal to the
specified amount of the Policy.
The Policy is issued in consideration of the application and payment of an
initial premium. The minimum initial premium is $5,000. All premium payments
are determined in accordance with the guideline premium test for life insurance
as set forth in the Internal Revenue Code. Although the Policy may operate as a
single premium policy, under certain circumstances additional premiums either
may be paid at the Policyowner's option or are required in order to keep the
Policy in force. (See Payments Made Under The Policy, p. 19.) The Policyowner
determines the allocation of the premiums and Cash Value among the Investment
Subdivisions of Separate Account III. (See Allocation of Premiums, p. 21.)
Separate Account III
Separate Account III currently has twenty-seven Investment Subdivisions. Each
Investment Subdivision invests exclusively in the shares of a portfolio of one
of the Funds. Currently, the Funds include the Variable Insurance Products
Fund, the Variable Insurance Products Fund II, the Advisers Management Trust,
the Life of Virginia Series Fund, Inc., the Oppenheimer Variable Account Funds,
the Janus Aspen Series, and the Insurance Management Series. Five of those
Investment Subdivisions, those investing in shares of the Contrafund Portfolio
of the Variable Insurance Products Fund II, those investing in shares of the
Utility Fund and the Corporate Bond Fund of the Insurance Management Series, and
those investing in shares of the International Equity Portfolio and the Real
Estate Securities Portfolio of Life of Virginia Series Fund, are not available
to policyowners in the State of California. The accompanying prospectuses for
the Funds describe the investment objectives and the risks of each of the Funds'
portfolios.
The Death Benefit may, and the Cash Value will, vary with the investment
experience of the Investment Subdivisions chosen by the Owner, as well as with
the frequency and amount of any Additional Premium Payments, and any charges
imposed in connection with the Policy. (See Cash Value Benefits, p. 23.)
Premiums
The initial premium is due on or before the Policy Date. The minimum initial
premium is $5,000. So long as there is no outstanding Policy Debt, the
Policyowner may make Additional Premium Payments. If there is outstanding
Policy Debt, any payment received by Life of Virginia will be treated as
repayment of Policy Debt rather than as an Additional Premium Payment.
Premiums will be allocated among the Investment Subdivisions in accordance
with the Policyowner's written instructions; however, during the Initial
Investment Period, all premiums will be placed in the Investment Subdivision of
Separate Account III that invests exclusively in the Money Market Portfolio of
the Life of Virginia Series Fund, Inc. The Initial Investment Period commences
on the date the initial premium is received at the Home Office of Life of
Virginia, and ends on the date of receipt at the Home Office of the Policy
Delivery and Acceptance Letter, signed and dated by the Policyowner, indicating
that the Policyowner has received and accepted the Policy, or, if the Policy is
not accepted, when all amounts due are refunded, whichever is earlier.
Therefore, in order to allocate money out of the Money Market Portfolio of the
Life of Virginia Series Fund for purposes of ending the Initial Investment
Period, the Policyowner must have submitted to Life of Virginia the signed and
dated Policy Delivery and Acceptance letter. Thereafter, a Policy's cash value
may not be invested in more than seven Investment Subdivisions at any given
point in time.
An Additional Premium Payment, a payment made in repayment of outstanding
Policy Debt, or both, may be required during the grace period in order to
prevent the Policy from lapsing. An Additional Premium Payment must be made if
a premium payment is required for an increase in specified amount. The
Policyowner also has the option to make an Additional Premium Payment, at his
discretion, so long as the amount of the payment is at least $250 and the
payment plus the total of all premiums previously paid does not exceed the
applicable maximum premiums limitation shown in the policy data pages. (See
Payments Made Under The Policy, p. 19.)
A Policy will lapse only when the Surrender Value is insufficient to pay the
monthly deduction (See Charges and Deductions -- Monthly Deduction, p. 30.), and
a grace period expires without a sufficient payment. (See Policy Lapse and
Reinstatement -- Lapse, p. 21.) This Policy, therefore, is different from a
conventional life insurance policy in that a Policy can lapse independent of the
amount and timing of premiums paid.
Policy Benefits
Cash Value Benefits. The Policy provides for a Cash Value. A Policy's Cash
Value in Separate Account III will reflect the amount of the initial premium and
any Additional Premium Payments, the investment experience of the Investment
Subdivisions of Separate Account III in which premiums are placed, policy loans,
transfers, and any charges imposed in connection with the Policy. Life of
Virginia does not guarantee a minimum Cash Value; therefore, the Policyowner
bears the entire investment risk. (See Cash Value Benefits -- Calculation of
Cash Value, p. 23.)
The Policyowner may at any time surrender a Policy during the insured's
lifetime and receive the Surrender Value. (See Cash Value Benefits -- Surrender
Privileges, p. 23.) Under certain circumstances, the Policyowner may also make a
Partial Withdrawal of certain portions of the cash value allocated to the
Separate Account. (See Partial Withdrawals, p. 23.)
Transfers. The Policyowner may transfer amounts among the Investment
Subdivisions of Separate Account III that are available at the time the transfer
is requested. Currently, there is no limit on the number of transfers that may
be made; however, Life of Virginia reserves the right to impose such a limit in
the future. Where permitted by state law, Life of Virginia also reserves the
right to refuse to execute transfers if any of the Investment Subdivisions that
would be affected by the transfer are unable to purchase or redeem shares of the
mutual funds in which they invest.
The first transfer in each calendar month will be made without a transfer
charge. Thereafter, each time amounts are transferred, a transfer charge of $10
will be imposed. (See Transfers, p. 24.) Life of Virginia may not honor
transfers made by third parties holding multiple powers of attorney. (See
Powers of Attorney, p. 25.)
Policy Loans. The Policyowner may exercise certain loan privileges under a
Policy. The amount available to be borrowed is the Maximum Loan Amount less any
outstanding Policy Debt. The Maximum Loan Amount is 90% of the Policy's Cash
Value at the end of the valuation period during which the loan request is
received, less any applicable surrender charge. The minimum loan amount is
$500. Loans will accrue interest daily at a fixed annual rate of 6%. Interest
is due and payable on each policy anniversary.
When a loan is made, a portion of the Policy's Cash Value sufficient to secure
the loan will be transferred from Separate Account III to Life of Virginia's
general account as security for the loan. Currently, Life of Virginia credits
such amounts with interest at an annual fixed rate of 6% for the part of the
Policy Debt equal to the Cash Value less the total of all premium payments made;
a 4% rate is credited for the part of the Policy Debt in excess of that amount.
Life of Virginia reserves the right to decrease, at its discretion, the rate of
interest credited to those amounts in the General Account that are held as
security for policy loans to not less than an annual fixed rate of 4%. Upon
partial or full loan repayment, the portion of Cash Value in the General Account
securing the repaid portion of the Policy Debt will be transferred to Separate
Account III. (See Loan Benefits, p. 26.)
Policy loans may have federal tax consequences, and prior to age 59 1/2 may
result in a 10% penalty tax. (See Federal Tax Matters, p. 35.) In addition, a
policy loan entails the risk that the Policy will lapse if interest credited to
the Cash Value in the general account while the loan is outstanding plus
earnings on Cash Value in the Investment Subdivisions is insufficient to prevent
policy debt from exceeding Cash Value less applicable surrender charges.
Adverse tax consequences may result from a lapse if policy debt is outstanding.
The risk of lapse due to a policy loan is greater where interest charged on the
loan is not paid when due.
Death Benefit. The Policy provides for the payment of a Death Benefit upon
the death of the Insured. The Death Benefit is based on the specified amount
shown in the policy data pages. The Death Benefit will be the greater of the
specified amount, or the Cash Value on the date of death multiplied by the
applicable corridor percentage, as set forth in the Policy.
So long as a Policy remains in force, the Death Benefit will not be less than
the specified amount of the Policy. The Death Benefit may, however, exceed the
specified amount. The amount by which the Death Benefit exceeds the specified
amount depends upon the Cash Value of the Policy. (See Death Benefit, p. 27.)
To determine the Death Benefit Proceeds, the Death Benefit will be reduced by
any outstanding Policy Debt and any due and unpaid monthly deductions. The
Proceeds may be paid in a lump sum or in accordance with an optional payment
plan. (See Optional Payment Plans, p. 28.)
After the first policy year, the Policyowner may, subject to certain
restrictions, adjust the Death Benefit Proceeds payable under a Policy by
increasing the specified amount. The minimum increase in specified amount that
Life of Virginia will allow under the Policy is one which requires a $1,000
Additional Premium Payment. (See Changes in the Specified Amount, p. 28.) In
addition, the Policyowner may change the optional payment plan in effect. (See
Optional Payment Plans, p. 28.)
Benefits at Maturity
On the Maturity Date of a Policy, if the Insured is still living, the
Policyowner will be paid the Cash Value reduced by any outstanding Policy Debt.
(See Benefits at Maturity, p. 28.)
Charges and Deductions
Life of Virginia will deduct certain charges daily from the assets of the
Separate Account and monthly from the Policy's Cash Value.
A daily charge, at an effective annual rate of 1.30% of the net assets of
Separate Account III, is imposed against those assets to compensate Life of
Virginia for certain mortality and expense risks incurred in connection with the
Policy (.90%) and for the cost of administering the Policy (.40%). (See Charges
Against Separate Account III, p. 31.)
A deduction is made on each Monthly Anniversary Day in order to compensate
Life of Virginia for the cost of insurance. The cost of insurance charge is
currently deducted at a rate equivalent to an annual rate of .55% of the
Policy's Cash Value in Separate Account III. Life of Virginia may, at its
discretion, increase or decrease this charge; however, in no event will the
current charge exceed amounts based on the 1980 Commissioners' Standard Ordinary
Mortality Table. (See Monthly Deduction, p. 30.)
A premium tax charge is deducted monthly during the first ten years following
each premium payment. (See Dates Under the Policy, p. 19.) This charge is
deducted at a rate equivalent to an annual rate of .20% of that portion of the
Policy's Cash Value in Separate Account III attributable to each premium
payment.
There are also two types of sales load charges. The first is called a
distribution expense charge and is deducted monthly during the first ten years
following each premium payment. The distribution expense charge is deducted at
a monthly rate of .0250% which is equivalent to an annual rate of .30% of that
portion of the Policy's Cash Value in Separate Account III attributable to each
premium payment. (See Monthly Deduction, p. 30.) The second is called a
surrender charge (sometimes referred to as a contingent deferred sales charge).
A surrender charge will be deducted if the Policy is surrendered within nine
years of any premium payments. If a Policy is surrendered during the first four
years following a premium payment, a surrender charge equal to 6% of that
premium payment will be imposed. During the six years that follow, the charge
decreases 1% per year, so that no surrender charge is ever attributable to a
premium payment made more than nine years prior to the date of surrender. (See
Dates Under the Policy, p. 19.) Furthermore, the surrender charge attributable
to a particular premium payment, when taken together with the total amount of
the distribution expense charges previously deducted attributable to that
premium payment, may never exceed 9% of the premium payment. (See Surrender
Charge, p. 31.) Depending on the investment experience of the Investment
Subdivisions chosen by the Policyowner, the maximum charge of 9% of a premium
payment may be collected before the ten-year period attributable to that premium
payment has run.
A charge equal to the lesser of (i) $25 or (ii) 2% of the amount withdrawn is
deducted from each Partial Withdrawal, (See Partial Withdrawals, p. 23.)
Finally, the value of the net assets of Separate Account III will also reflect
the investment advisory fee and other expenses incurred by the Funds.
Distribution of the Policy
The Policy will be distributed by registered representatives of Forth
Financial Securities Corporation, which will act as the principal underwriter of
the Policy. Forth Financial Securities Corporation is registered as a
broker-dealer with the Securities and Exchange Commission and is a member of the
National Association of Securities Dealers, Inc. This Policy will also be
distributed through other registered broker-dealers who have entered into
written sales agreements with the principal underwriter.
Tax Treatment
Cash Value under this Policy should be subject to the same federal income tax
treatment as cash value in a conventional fixed-benefit policy. Under existing
tax law, a Policyowner is not deemed to be in constructive receipt of cash
values under a policy until actual surrender. However, certain pre-death
distributions (including surrenders, Partial Withdrawals and loans to the extent
of any income in the contract, as well as any assignment or pledge) under this
policy will usually have tax consequences and may also incur a 10% penalty tax,
unless the policy is not a "modified endowment contract" for federal income tax
purposes. This policy will generally be a modified endowment contract if it is
entered into after June 20, 1988 (or certain changes are made in it after that
date), because premiums are paid into it more rapidly than the rate defined by a
"7-Pay test", but in certain limited circumstances this may not be the case.
Apart from this (even if the policy is not a modified endowment contract), a
change of owners or a surrender may have tax consequences depending on the
particular circumstances. (See Federal Tax Matters, p. 35.)
Like death benefits payable under conventional life insurance policies, the
Death Benefit payable under this Policy should be completely excludable from the
gross income of the Beneficiary. As a result, the Beneficiary generally will
not be taxed on these proceeds.
For a discussion of tax issues and related developments which may affect the
tax treatment of the Policies, see Federal Tax Matters, p. 35.
Refund Privilege
The Policyowner is granted a period of time to examine a Policy and return it
for refund. The applicable period of time is 10 days after the Policy is
received or 45 days after Part I of the Application is signed, whichever is
later. The amount of refund will equal the advisory fee deducted from the Fund
attributable to the Policy, plus the premiums allocated to Separate Account III
adjusted by gains and losses. In certain states the Policyowner may have more
than 10 days to return the policy for a refund. (See Examination of Policy
(Refund Privilege), p. 22.)
Exchange Privilege
During the first 24 Policy Months, the Policyowner may convert this Policy to
a permanent fixed benefit policy in accordance with Life of Virginia's
procedures. (See Exchange Privilege, p. 22.)
Illustrations of Death Benefits, Cash Values and Surrender Values
Illustrations in the Appendix show how the Death Benefit, Cash Value, and
Surrender Value may vary based on certain rate of return assumptions and how
these benefits compare with amounts which would accumulate if premiums were
invested to earn interest (after taxes) at 5% compounded annually. Nonetheless,
the illustrations are based on hypothetical investment rates of return and are
not guaranteed. They are illustrative only and are not a representation of past
or future performance. Actual rates of return may be more or less than those
reflected in the illustrations and, therefore, actual values will be different
from those illustrated. If the Policy is surrendered in the early policy years,
the Surrender Value will be low as compared with premiums accumulated with
interest, and consequently, the insurance protection provided will be costly.
<PAGE>
LIFE OF VIRGINIA AND SEPARATE ACCOUNT III
The Life Insurance Company of Virginia
Life of Virginia is a stock life insurance company operating under a charter
granted by the Commonwealth of Virginia on March 21, 1871. Life of Virginia
currently is a wholly-owned subsidiary of Combined Insurance Company of America,
which is a wholly-owned subsidiary of Aon Corporation ("Aon"). Life of Virginia
is principally engaged in the offering of life insurance and annuity policies
and ranks among the 25 largest stock life insurance companies in the United
States in terms of business in force. The Company is admitted to do business in
49 states and the District of Columbia. The principal offices of Life of
Virginia are at 6610 West Broad Street, Richmond, Virginia 23230.
Aon Corporation
Aon, a publicly owned Delaware corporation, is a holding corporation
principally engaged through subsidiaries in the insurance and insurance
brokerage business. Its principal executive offices are located at 123 North
Wacker Drive, Chicago, Illinois 60606. As of December 31, 1994, Mr. Patrick G.
Ryan, President and Chief Executive Officer of Aon, 123 North Wacker Drive,
Chicago, Illinois 60601, owned directly and beneficially 12,886,408 shares (12%)
of the common stock of Aon.
Aon indirectly owns the stock of Forth Financial Securities Corporation (a
broker/dealer registered with the Securities and Exchange Commission (the
"Commission"), which acts as principal underwriter for the Policies) and
directly owns the stock of Aon Advisors, Inc.(an investment advisor registered
with the Commission which acts in that capacity for the Life of Virginia Series
Fund, Inc. and Aon Asset Management Fund, Inc.).
Aon also owns all outstanding capital stock of Ryan Insurance Group, Inc. (an
independent marketer of credit life and accident and health insurance and
automobile repair insurance), Rollins Hudig Hall Co. (an insurance broker),
Union Fidelity Life Insurance Company, and Godwins, Booke & Dickenson (an
employee benefits consulting firm).
Separate Account III
Separate Account III was established by Life of Virginia as a separate
investment account on February 10, 1987. Separate Account III currently has
twenty-seven Investment Subdivisions available for allocation under the Policy,
but that number may change in the future. Each Investment Subdivision invests
exclusively in shares representing an interest in a separate corresponding
portfolio of one of the seven Funds described below. After the Initial
Investment Period, all premiums are allocated in accordance with the
instructions of the Policyowner among up to seven of the twenty-seven Investment
Subdivisions available under this Policy. The Investment Subdivisions that
invest in shares of the Contrafund Portfolio of the Variable Insurance Products
Fund II, the Utility Fund and the Corporate Bond Fund of the Insurance
Management Series, and the International Equity Portfolio and the Real Estate
Securities Portfolio of Life of Virginia Series Fund, are not available to
California policyowners.
Under the Code of Virginia, the assets of Separate Account III are the
property of Life of Virginia. Nonetheless, the assets in Separate Account III
attributable to the Policies are not chargeable with liabilities arising out of
any other business which Life of Virginia may conduct. The assets of Separate
Account III shall, however, be available to cover the liabilities of Life of
Virginia's General Account to the extent that the assets of Separate Account III
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
III are credited to or charged against the Account without regard to the income,
gains, or losses arising out of any other business Life of Virginia may conduct.
Separate Account III is registered with the Securities and Exchange
Commission, (the "Commission") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act") and meets the definition of a Separate
Account under the Federal Securities Laws. Registration with the Commission
does not involve supervision of the management or investment practices or
policies of Separate Account III by the Commission.
Addition, Deletion or Substitution of Investments
Life of Virginia reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for the shares of
the mutual fund portfolios that are held by Separate Account III or that
Separate Account III may purchase. If the shares of a portfolio are no longer
available for investment or if in its judgment further investment in any
portfolio should become inappropriate in view of the purposes of Separate
Account III, Life of Virginia reserves the right to eliminate the shares of any
of the portfolios of the Funds and to substitute shares of another portfolio or
of another open-end, registered investment company. Life of Virginia will not
substitute any shares attributable to a Policyowner's Cash Value in Separate
Account III without notice and prior approval of the Commission, to the extent
required by the Investment Company Act of 1940 or other applicable law. Nothing
contained herein shall prevent Separate Account III from purchasing other
securities for other series or classes of policies or from permitting a
conversion between portfolios or classes of policies on the basis of requests
made by Policyowners.
Life of Virginia also reserves the right to establish additional Investment
Subdivisions of Separate Account III, each of which would invest in a separate
portfolio of a Fund, or in shares of another investment company, with a
specified investment objective. New Investment Subdivisions may be established
when, in the sole discretion of Life of Virginia, marketing, tax or investment
conditions warrant, and any new Investment Subdivisions may be made available to
existing Policyowners on a basis to be determined by Life of Virginia. One or
more Investment Subdivisions may also be eliminated if, in the sole discretion
of Life of Virginia, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Life of Virginia may, by
appropriate endorsement, make such changes in these and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
Life of Virginia to be in the best interests of persons having voting rights
under the Policies, and if permitted by law, Life of Virginia may deregister
Separate Account III under the Investment Company Act of 1940 in the event such
registration is no longer required; manage Separate Account III under the
direction of a committee; or combine Separate Account III with other Life of
Virginia separate accounts. To the extent permitted by applicable law, Life of
Virginia may also transfer the assets of Separate Account III associated with
the Policies to another separate account. In addition, Life of Virginia may,
when permitted by law, restrict or eliminate any voting rights of Policyowners
or other persons who have voting rights as to Separate Account III.
The Policyowner will be notified of any material change in the investment
policy of any Portfolio in which the Owner has an interest. If the Policyowner
objects to the change, the Policy may be exchanged for a fixed-benefit policy.
In addition, the Policyowner may exercise the right to surrender the Policy.
(See Surrender Privileges, p. 23.) If the Policyowner chooses to exchange the
Policy, no evidence of insurability will be required. The new policy will be
subject to normal exchange rules and other conditions determined by Life of
Virginia. The exchange must be made within 60 days after the change in
investment policy becomes effective. Life of Virginia will notify Policyowners
of the options and procedures if any material change occurs.
THE FUNDS
Separate Account III currently invests in seven series-type mutual funds. All
of the Funds currently available under the Policy are registered with the
Commission as open-end, diversified investment companies. The Commission,
however, does not supervise the management or the investment practices and
policies of the Funds.
Each Investment Subdivision invests exclusively in a designated portfolio of
one of the Funds. The assets of each Fund portfolio are separate from other
portfolios of that Fund and each portfolio has separate investment objectives
and policies. As a result, each portfolio operates as a separate investment
portfolio and the investment performance of one portfolio has no effect on the
investment of any other portfolio. Some of the Funds may, in the future,
activate additional portfolios.
Each of the Funds sells its shares to Separate Account III in accordance with
the terms of a participation agreement between the Fund and Life of Virginia.
The termination provisions of those agreements vary. (See Termination of
Participation Agreements, p. 18.) Should an agreement between Life of Virginia
and a Fund terminate, the Separate Account will not be able to purchase
additional shares of the Fund. In that event, Policyowners will no longer be
able to allocate cash values or premium payments to Separate Account
Subdivisions investing in portfolios of that Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to the Separate Account
despite the fact that the participation agreement between the Fund and Life of
Virginia has not been terminated. Should a Fund or a portfolio of a Fund decide
not to sell its shares to Life of Virginia, Life of Virginia will be unable to
honor policyowner requests to allocate their cash values or premium payments to
Separate Account Subdivisions investing in shares of that Fund or portfolio.
Certain Investment Subdivisions of Separate Account III invest in Portfolios
that have similar investment objectives and/or policies; therefore, before
choosing Investment Subdivisions, carefully read the individual prospectuses for
the Funds, along with this prospectus.
Variable Insurance Products Fund
Variable Insurance Products Fund ("VIPF") currently has five portfolios: Money
Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth
Portfolio, and Overseas Portfolio.
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio will
invest only in high-quality U.S. dollar denominated money market securities of
domestic and foreign issuers.
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities, while
also considering growth of capital.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
Growth Portfolio seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The Portfolio provides a means for investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
Fidelity Management & Research Company ("FMR") serves as investment advisor to
the Fidelity Fund. For managing each portfolio's investments and business
affairs, each portfolio pays FMR a monthly fee.
VIPF Money Market Portfolio's fee is made up of two components: (a) a basic
fee rate and; (b) an income-based component. The basic fee rate is the sum of
the following two components:
(1) A group fee rate based on the monthly average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets in all these funds rise.
(2) An individual fund fee rate of .03% One-twelfth of the combined annual fee
rate is applied to the fund's net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month. If the
fund's gross yield is 5% or less, the basic fee is the total management
fee. The income-based component is added to the basic fee when the fund's
yield is greater than 5%. The income-based fee is 6% of that portion of
the fund's yield that represents a gross yield of more than 5% per year.
The maximum income-based component is .24%.
VIPF High Income Portfolio's fee is made up of the sum of two components: a
group fee rate based on the monthly average net assets of all the funds advised
by FMR (on an annual basis this rate cannot rise above .37% and it drops as
total assets in all these funds rise) and an individual fund fee rate of .45%.
Therefore, the maximum total management fee that can be charged is .82% of the
average net assets of this portfolio. One twelfth of the annual management fee
rate is applied to the Portfolio's net assets averaged over the most recent
month, resulting in a dollar amount which is the management fee for that month.
VIPF Equity-Income, Growth, and Overseas Portfolios' fee rates are each made
up of two components: (1) a group fee rate based on the monthly average net
assets of all the mutual funds advised by FMR; and (2) an individual portfolio
fee rate of .20% for the VIPF Equity-Income Portfolio, .30% for the VIPF Growth
Portfolio and .45% for the VIPF Overseas Portfolio. The group fee rate cannot
rise above .52% and it drops as total assets in all mutual funds rise.
Therefore, the maximum total management fees that can be charged is .97% of the
average net assets of these Portfolios. One-twelfth of the sum of the group fee
rate and the individual fee rate is applied to each portfolio's net assets
averaged over the most recent month, giving a dollar amount which is the
management fee for that month.
Variable Insurance Products Fund II
Variable Insurance Products Fund II, ("VIPF-II"), which is managed by FMR,
currently has five portfolios, two of which, Asset Manager Portfolio and
Contrafund Portfolio, are available to policyowners through Separate Account
III. THE CONTRAFUND PORTFOLIO IS NOT AVAILABLE IN CONNECTION WITH POLICIES
ISSUED TO CALIFORNIA POLICYOWNERS.
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
Contrafund Portfolio seeks capital appreciation by investing in securities of
companies believed to be undervalued or out-of-favor.
FMR serves as investment advisor to VIPF-II's Asset Manager Portfolio and
Contrafund Portfolio. For managing the Portfolios' investments and business
affairs, the Portfolios pay a monthly fee to FMR. Asset Manager Portfolio's fee
rate is the sum of the following two components: (i) an individual fund fee
rate of .40% of the Portfolio's average net assets; and (ii) a group fee rate
based on the monthly average net assets of all the mutual funds advised by FMR.
This rate can not rise above .52% and it drops as total assets in all these
funds rise. Therefore, the maximum total management fee that can be charged is
.92% of the average net assets of this Portfolio. Contrafund Portfolio's fee
rate is the sum of the following two components: (i) an individual fund fee
rate of .30% of the Portfolio's average net assets; and (ii) a group fee rate
based on the monthly average net assets of all the mutual funds advised by FMR.
This rate can not rise above .52% and it drops as total assets in all these
funds rise. Therefore, the maximum total management fee that can be charged
ranges from .58% to .82% of the average net assets of this Portfolio. One
twelfth of the sum of the group and individual fund fee rate is applied to the
portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the management fee for that month. FMR has voluntarily agreed
to reimburse the Contrafund Portfolio to the extent that total expenses exceed
1.00%. The adviser can terminate this voluntary reimbursement at any time.
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Advisers Management Trust, which is managed by Neuberger &
Berman Management Incorporated, currently has seven portfolios, three of which,
the Balanced Portfolio, the Growth Portfolio and the Limited Maturity Bond
Portfolio are available to Policyowners through Separate Account III.
Balanced Portfolio has the investment objective of long term capital growth
and reasonable current income without undue risk to principal. The Balanced
Portfolio will seek to achieve its objective through investment of a portion of
its assets in common stocks and a portion of its assets in debt securities.
Growth Portfolio seeks capital growth through investments in common stocks of
companies that the Investment Adviser believes will have above average earnings
or otherwise provide investors with above average potential for capital
appreciation. To maximize this potential, the Investment Adviser may also
utilize, from time to time, securities convertible into such common stocks,
warrants and options to purchase such stocks.
Limited Maturity Bond Portfolio's primary investment objective is the highest
current income consistent with low risk to principal and liquidity. As a
secondary objective, the Limited Maturity Bond Portfolio also seeks to enhance
its total return through capital appreciation when market factors, such as
falling interest rates and rising bond prices, indicate that capital
appreciation may be available without significant risk to principal.
Neuberger & Berman Management Incorporated serves as Investment Adviser to
AMT. AMT pays fees to the Investment Adviser for administrative and investment
management services. The fees for each portfolio are based on the average daily
net assets of the portfolio or the series in which the portfolio invests. For
administrative services the Investment Adviser is paid a fee at the following
rates: Growth Portfolio 0.30%, Balanced Portfolio 0.30%, and Limited Maturity
Bond Portfolio 0.40% of the average daily net assets of the portfolio. For
investment management services, the Investment Adviser is paid a fee at the
following rates for Growth Portfolio and Balanced Portfolio: 0.55% of the first
$250 million of the average daily net assets, 0.525% of the next $250 million,
0.50% of the next $250 million, 0.475% of the next $250 million, 0.45% of the
next $500 million, and 0.425% of average daily net assets of the series over
$1.5 billion. For Limited Maturity Bond Portfolio, the Investment Adviser is
paid a fee of 0.25% of the first $500 million of average daily net assets,
0.225% of the next $500 million, 0.20% of the next $500 million, 0.175% of the
next $500 million, and 0.15% of average daily net assets of the series over $2
billion.
Life of Virginia Series Fund, Inc.
The Life of Virginia Series Fund, Inc. ("Life of Virginia Series Fund")
currently has six portfolios: the Common Stock Index Portfolio, the Government
Securities Portfolio, the Money Market Portfolio, the Total Return Portfolio,
the International Equity Portfolio, and the Real Estate Securities Portfolio.
THE INTERNATIONAL EQUITY PORTFOLIO AND THE REAL ESTATE SECURITIES PORTFOLIO ARE
NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
Common Stock Index Portfolio has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index, through
investment in common stocks traded on the New York Stock Exchange and the
American Stock Exchange and, to a limited extent, in the over-the-counter
markets.
Government Securities Portfolio has the investment objective of seeking high
current income and protection of capital through investment in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Money Market Portfolio has the investment objective of providing the highest
level of current income as is consistent with high liquidity and safety of
principal by investing in high quality money market securities.
Total Return Portfolio has the investment objective of providing the highest
total return, composed of current income and capital appreciation, as is
consistent with prudent investment risk by investing in common stocks, bonds and
money market instruments, the proportion of each being continuously determined
by the investment advisor.
International Equity Portfolio has the investment objective of providing
long-term capital appreciation. The Portfolio seeks to achieve its objective by
investing primarily in equity and equity-related securities of companies that
are organized outside of the U.S. or whose securities are principally traded
outside of the U.S.
Real Estate Securities Portfolio has the investment objective of providing
maximum total return through current income and capital appreciation. The
Portfolio seeks to achieve its objective by investing primarily in securities of
U.S. issuers that are principally engaged in or related to the real estate
industry including those that own significant real estate assets. The Portfolio
will not invest directly in real estate.
Aon Advisors, Inc. serves as investment adviser to the Life of Virginia Series
Fund. The Life of Virginia Series Fund pays Aon Advisors, Inc. compensation in
the form of an investment advisory fee, computed and accrued daily, and paid
monthly. The investment advisory fee for each portfolio is based on the average
daily net assets of the portfolio at the following rates: for Common Stock
Index Portfolio .35%; Government Securities Portfolio, Money Market Portfolio,
and Total Return Portfolio .50% of the first $100,000,000, .45% of the next
$100,000,000, .40% of the next $100,000,000, .35% of the next $100,000,000, and
.30% of amounts in excess of $400,000,000; International Equity Portfolio 1.00%
on the first $100,000,00, .95% on the next $100,000,000, and .90% of the amounts
in excess of $200,000,000; Real Estate Securities Portfolio .85% of the first
$100,000,000, .80% on the next $100,000,000, and .75% of the amounts in excess
of $200,000,000. See the fund prospectus for further details. Aon Advisors,
Inc. has agreed to waive .80% of the investment advisory fee for the first
$100,000,000 of average daily net assets of the Money Market Portfolio for 1995,
resulting in a fee of .10%. There is no guarantee that the fee waiver will
continue after 1995.
Oppenheimer Variable Account Funds
Oppenheimer Variable Account Funds ("OVAF") currently has nine portfolios, six
of which are available to Policyowners through Separate Account III:
Oppenheimer Money Fund, Oppenheimer High Income Fund, Oppenheimer Bond Fund,
Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund, and Oppenheimer
Multiple Strategies Fund.
Oppenheimer Money Fund seeks the maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity.
Oppenheimer High Income Fund seeks a high level of current income from
investment in high yield fixed income securities, including unrated securities
or high risk securities in the lower rating categories. These securities may be
considered to be speculative.
Oppenheimer Bond Fund primarily seeks a high level of current income from
investment in high yield fixed income securities rated "Baa" or better by
Moody's or "BBB" or better by Standard & Poor's. Secondarily, it seeks capital
growth when consistent with its primary objective.
Oppenheimer Capital Appreciation Fund seeks to achieve capital appreciation by
investing in "growth-type" companies.
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing in
securities of well-known established companies.
Oppenheimer Multiple Strategies Fund seeks a total investment return (which
includes current income and capital appreciation in the value of its shares)
from investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
Oppenheimer Management Corporation ("OMC") serves as investment adviser to the
Oppenheimer Variable Account Funds ("OVAF"). The OVAF pay OMC a monthly
management fee. Effective September 1, 1994, the monthly fee payable to OMC is
computed separately on the net assets of each portfolio as of the close of
business each day. The management fee rates that became effective on that day
are as follows (i) for Money Fund: 0.450% of the first $500 million of net
assets, 0.425% of the next $500 million, 0.400% of the next $500 million, and
0.375% of net assets over $1.5 billion; (ii) for Capital Appreciation Fund,
Growth Fund, and Multiple Strategies Fund: 0.75% of the first $200 million of
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, and 0.60% of net assets over $800 million; and
(iii) for High Income Fund and Bond Fund: 0.75% of the first $200 million of net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets
over $1 billion. The management fee rates in effect prior to that date are in
Note 6 to the financial statements included in the OVAF Statement of Additional
Information.
Janus Aspen Series
The Janus Aspen Series ("JAS") currently has seven portfolios, three of which
are currently available to Policyowners through Separate Account II: Growth
Portfolio, Aggressive Growth Portfolio, and Worldwide Growth Portfolio.
Growth Portfolio has the investment objective of long-term capital growth in a
manner consistent with the preservation of capital. The Growth Portfolio is a
diversified portfolio that pursues its objective by investing in common stocks
of issuers of all sizes. Generally, this Portfolio emphasizes issuers with
larger market capitalizations.
Aggressive Growth Portfolio has the investment objective of long-term capital
growth in a manner consistent with the preservation of capital. The Aggressive
Growth Portfolio will seek to achieve its objective by normally maintaining an
average market capitalization between $1 billion and $5 billion.
Worldwide Growth Portfolio has the investment objective of long-term capital
growth in a manner consistent with the preservation of capital. The Worldwide
Growth Portfolio will seek to achieve its objective by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of all
sizes. The Portfolio normally invests in issuers from at least five different
countries including the United States.
Janus Capital Corporation serves as Investment Adviser to the portfolios of
the Janus Aspen Series. The portfolios pay a fee to the Investment Adviser.
The Growth, Aggressive Growth and Worldwide Growth Portfolios are each subject
to the following advisory fee schedule: 1% of the first $30 million, 0.75% of
the next $270 million, 0.70% of the next $200 million, 0.65% of amounts over
$500 million. Janus Capital has agreed to reduce each portfolio's advisory fee
to the extent that such fee exceeds the effective rate of the Janus retail fund
corresponding to such portfolio. In addition, Janus Capital has agreed to
reimburse each portfolio for advisory fees and other expenses in excess of a
specified percentage of net assets. The expense limits of the portfolios differ
and are set forth in the Statement of Additional Information for the Janus Aspen
Series.
Insurance Management Series
The Insurance Management Series ("IMS") currently has five portfolios, two of
which, Utility Fund and Corporate Bond Fund, are available to Policyowners
through Separate Account III. THE UTILITY FUND AND THE CORPORATE BOND FUND ARE
NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
Utility Fund has the investment objective of high current income and moderate
capital appreciation. The Utility Fund will seek to achieve its objective by
investing primarily in equity and debt securities of utility companies.
Corporate Bond Fund has the investment objective of high current income. The
Corporate Bond Fund will seek to achieve its objective by investing primarily in
a diversified portfolio of professionally managed fixed-income securities. The
fixed-income securities in which the Fund intends to invest are lower-rated
corporate debt obligations, commonly referred to as "junk bonds". The risks of
these securities are described in the prospectus for the IMS, which should be
read carefully before investing.
Federated Advisers serves as investment adviser to the Utility Fund and the
Corporate Bond Fund. The adviser receives an annual investment advisory fee
equal to .75% of the Utility Fund's average daily net assets and .60% of the
Corporate Bond Fund's average daily net assets. The adviser has voluntarily
chosen to waive all or a portion of its fee in order that the total annual
expenses for the Utility Fund and the Corporate Bond Fund would not exceed 0.85%
and 0.80%, respectively, of average net assets. Based on total expenses of
1.60% for the Utility Fund and 1.40% for the Corporate Bond Fund, the adviser
estimates that during 1995 it will waive management fees of 0.75% and 0.60%,
respectively. The adviser can terminate this voluntary waiver at any time at its
sole discretion.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in the
current prospectuses for the Funds which accompany or precede this Prospectus.
A prospectus for each Fund can be obtained by writing or calling Life of
Virginia's Home Office. The prospectus for each Fund should be read carefully
before any decision is made concerning the allocation of premium payments or
transfers among the Investment Subdivisions of Separate Account III.
Resolving Material Conflicts
The Funds are used as investment vehicles for variable life insurance and
variable annuity policies issued by Life of Virginia. In addition, all of the
Funds, other than the Life of Virginia Series Fund, Inc., are also available to
separate accounts of insurance companies other than Life of Virginia offering
variable life and variable annuity policies. As a result, there is a
possibility that a material conflict may arise between the interests of
Policyowners owning Policies whose Cash Values are allocated to Separate Account
III and of policyowners owning policies whose cash values are allocated to one
or more other separate accounts investing in any one of the Funds.
In addition, Neuberger & Berman Advisers Management Trust, Janus Aspen Series
and Life of Virginia Series Fund, Inc. may sell shares to certain retirement
plans. As a result, there is a possibility that a material conflict may arise
between the interests of policyowners generally or certain classes of
policyowners, and such retirement plans or participants in such retirement
plans.
In the event of a material conflict, Life of Virginia will take any necessary
steps, including removing Separate Account III from that Fund, to resolve the
matter. See the individual Fund prospectus for greater details.
Termination of Participation Agreements
The participation agreements pursuant to which the Funds sell their shares to
Separate Account III contain varying provisions regarding termination. The
following summarizes those provisions:
Fidelity Variable Insurance Products Fund and Variable Insurance Products
Fund II (the "Fund"). These agreements provide for termination (1) on one
year's advance notice by either party, (2) at Life of Virginia's option if
shares of the Fund are not reasonably available to meet requirements of the
policies, (3) at the option of either party if certain enforcement proceedings
are instituted against the other, (4) upon vote of the policyowners to
substitute shares of another mutual fund, (5) at Life of Virginia's option if
shares of the Fund are not registered, issued, or sold in accordance with
applicable laws or if the Fund ceases to qualify as regulated investment
companies under the Internal Revenue Code, (6) at the option of the Fund or
their principal underwriters if they determine that Life of Virginia has
suffered material adverse changes in its business or financial condition or is
the subject of material adverse publicity, (7) at the option of Life of
Virginia if the Funds have suffered material adverse changes in their business
or financial conditions or are the subject of material adverse publicity, or
(8) at the option of the Funds or their principal underwriters if Life of
Virginia decides to make another mutual fund available as a funding vehicle for
its policies.
Neuberger & Berman Advisers Management Trust. This agreement may be
terminated by either party on six months' written notice to the other.
Life of Virginia Series Fund, Inc. This agreement may be terminated by
either party on 360 days' written notice to the other.
Oppenheimer Variable Account Funds. This agreement may be terminated by the
parties on six months' advance written notice.
Janus Aspen Series. This agreement may be terminated by the parties on six
months' advance written notice.
Insurance Management Series. This agreement may be terminated by any of the
parties on 180 days advance written notice to the other parties.
<PAGE>
THE POLICY
This Prospectus describes the basic Policy. There may be differences in your
Policy because of requirements of the state where your Policy is issued. Any
such differences will be included in your Policy.
Purpose of the Policy
The Policy is designed to provide the Owner with lifetime insurance
protection. Although the Policy may operate as a single premium policy, under
certain circumstances additional premiums either may be paid at the
Policyowner's option or are required in order to keep the Policy in force.
Moreover, the Policy enables the Policyowner to adjust the level of Death
Benefit Proceeds payable under a Policy by increasing the specified amount.
Thus, as insurance needs or financial conditions change, the Policyowner has
flexibility to adjust Death Benefit Proceeds and to make Additional Premium
Payments.
The Policy is a "variable" policy because, unlike the fixed benefits of an
ordinary life insurance policy, the Cash Value will, and under certain
circumstances the Death Benefit may, increase or decrease depending upon the
investment experience of the Investment Subdivisions of Separate Account III to
which the Policyowner allocates premiums. Accordingly, the Policyowner reaps the
benefit of any appreciation in value of the underlying assets, but also bears
the investment risk of any depreciation in the value of those assets. The
payment of one or more premiums does not guarantee that the Policy will stay in
force. Instead, whether or not a Policy continues in force will depend on the
amount of the Surrender Value, which in turn will depend upon the investment
experience of the chosen Investment Subdivision(s) of Separate Account III. So
long as the Policy remains in force, the Death Benefit payable will never be
less than the specified amount; however, there is no guaranteed minimum Cash
Value.
Purchasing a Policy
Individuals wishing to purchase a Policy must complete an application and
submit it to an authorized registered agent or to Life of Virginia at its Home
Office at 6610 West Broad Street, Richmond, Virginia 23230. Life of Virginia
will not issue Policies to insure persons older than age 75. Acceptance of an
application is subject to Life of Virginia's underwriting rules and Life of
Virginia reserves the right to reject an application for any lawful reason and
in a manner such that similarly-situated risks are treated in a consistent
manner and unfair discrimination is avoided.
If the first full premium is not paid with the application, insurance will not
become effective until that premium is paid and the policy is delivered while
all persons proposed for insurance are insurable. If the first full 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 in the conditional receipt is the latest of (i)
the date of completion of the application, (ii) the date of completion of all
medical exams and tests required by Life of Virginia, and (iii) the policy date
requested by the applicant when that date is later than the date the application
is completed.
Dates Under The Policy
A Policy Date is assigned to each Policy when the Policy is issued. The
Policy Date will normally be a date between the date the application is signed
and the date the Policy is issued; however, the Policy Date may be any other
date mutually agreeable to Life of Virginia and the Policyowner. If the Policy
Date would otherwise fall on the 29th, 30th, or 31st day of a month, the Policy
Date will be the 28th.
"Policy years" for the original specified amount and the initial premium are
measured from the Policy Date. With regard to increases in the specified
amount, however, "years" are measured from the effective date of the increase,
while "years" for determining charges attributable to Additional Premium
Payments are measured from the first Monthly Anniversary Day coincident with or
following receipt of the Additional Premium Payment.
Payments Made Under The Policy
Initial Premium. The initial premium is due on or before the Policy Date. The
initial premium is the guideline single premium for life insurance as determined
in the Internal Revenue Code. This amount will be stated on the policy data
pages. The minimum initial premium is $5,000. All premiums are payable to Life
of Virginia at its Home Office.
If a Policy is issued as applied for, insurance coverage under the Policy
normally begins on the Policy Date or at the end of the Valuation Period during
which the initial premium is received at the Home Office, whichever is later. If
a Policy is issued on a basis other than as applied for, the insurance coverage
will normally begin on the date the Policy is accepted by the Policyowner or at
the end of the Valuation Period during which the initial premium is received at
the Home Office, whichever is later.
The initial premium purchases a Death Benefit initially equal to the Policy's
specified amount. The relationship between the initial premium and the
specified amount depends on the age and sex of the insured. Generally, the same
initial premium will purchase a higher specified amount for a younger insured
than for an older insured. Likewise, the same initial premium will purchase a
slightly higher specified amount for a female insured than for a male insured of
the same age. Representative specified amounts for a $10,000 initial premium
are set forth below:
Specified Amount for a $10,000 Initial Premium
Age Male Female
10 $170,445 $219,974
20 116,604 146,520
30 78,358 96,043
40 50,798 62,290
50 33,834 41,554
60 23,561 28,369
70 17,457 19,878
Additional Premium Payments. Although the Policy can operate as a single
premium policy, Additional Premium Payments may be made under certain
circumstances, so long as there is no outstanding Policy Debt. If there is
Policy Debt outstanding, any payment received by Life of Virginia will be
considered repayment of that debt. Should any such payment exceed the amount of
Policy Debt outstanding, the amount in excess of Policy Debt will be treated as
an Additional Premium Payment. The circumstances under which Additional Premium
Payments can be made are listed below:
(1) Increases in Specified Amount -- After the first Policy Year, the
Policyowner may request an increase in specified amount. (See Changes in
the Specified Amount, p. 28.) If the Policyowner's request is approved, Life
of Virginia will require the Policyowner to make an Additional Premium
Payment in order for an increase to become effective. The minimum Additional
Premium Payment Life of Virginia will allow in connection with an increase
in the specified amount is $1,000.
(2) In Order to Prevent Lapse -- If the Surrender Value on a Monthly Anniversary
Day is insufficient to cover the monthly deduction due on that Monthly
Anniversary Day, then in order to prevent lapse, the Policyowner must make a
payment during the grace period sufficient to cover the monthly deduction.
Payments received in excess of any outstanding Policy Debt will be treated
as Additional Premium Payments. The minimum payment that may be made in
this circumstance will be stated in the notice mailed to the Policyowner.
The Policyowner may make an Additional Premium Payment in an amount greater
than that required to prevent lapse as long as the total of all premium
payments, immediately after the payment to prevent lapse, is less than the
maximum premiums limitation shown in the policy data pages. If the
Policyowner does not make a sufficient payment, the Policy will lapse and
terminate without value. (See Policy Lapse and Reinstatement, p. 21.)
(3) At the Policyowner's Discretion -- Additional Premium Payments may be made,
at the Policyowner's discretion, so long as the amount of the payment is at
least $250 and the payment plus the total of all premiums previously paid
does not exceed the maximum premiums limitation shown in the policy data
pages. The maximum premiums limitation will be derived from the guideline
premium test for life insurance set forth in the Internal Revenue Code.
Because of that test, the maximum premiums limitation ordinarily will equal
the initial premium for a number of years; thus, discretionary Additional
Premium Payments normally will not be permitted during the early years of
the Policy.
In the event that a discretionary Additional Premium Payment is made that
causes the total amount of premiums paid under the Policy to exceed the maximum
premiums limitation, Life of Virginia will accept only the portion of the
premium which, together with premiums previously paid, equals the maximum
premiums limitation, and will return the excess to the Policyowner. Thereafter,
no discretionary Additional Premium Payments will be accepted until allowed by
the maximum premiums limitation.
Additional Premium Payments made in accordance with the terms of the Policy
are credited as of the next close of business (on a Business Day) following
receipt of payment at the Home Office.
Repayment of Outstanding Policy Debt. If there is any outstanding Policy Debt
on the date Life of Virginia receives a payment, the payment will be treated
first as a repayment of outstanding Policy Debt. (See Loan Benefits --
Repayment of Policy Debt, p. 26.) Only the portion of the payment in excess of
any outstanding Policy Debt will be treated as an Additional Premium Payment.
Allocation of Premiums
After the Initial Investment Period, the Policyowner determines the allocation
of premiums among Investment Subdivisions of Separate Account III. The initial
allocation is made in the application. The Policyowner may allocate premiums
totally to one Investment Subdivision of Separate Account III, or partially to
any of these Investment Subdivisions; however, at any one point in time, the
Cash Value may not be invested in more than seven Investment Subdivisions.
Furthermore, the minimum percentage that may be allocated to any one Investment
Subdivision is 10%.
Regardless of the allocation made in the application, during the Initial
Investment Period the initial premium will be placed in the Investment
Subdivision of Separate Account III which invests exclusively in the Money
Market Portfolio of the Life of Virginia Series Fund, Inc. The Initial
Investment Period commences on the date the initial premium is received at the
Home Office. It ends either on the date the Home Office receives the Policy
Delivery and Acceptance Letter, dated 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, whichever is earlier. At the
end of the Initial Investment Period, the Cash Value attributable to the initial
premium will be transferred from the Money Market Portfolio of the Life of
Virginia Series Fund, to the Investment Subdivisions of Separate Account III
that are available at the time of the transfer in accordance with the
Policyowner's written instructions in the application. Any Additional Premium
Payments received thereafter will be allocated to the available Investment
Subdivisions of Separate Account III in accordance with the written instructions
of the Policyowner.
The Policyowner may change the allocation of later premiums at any time,
without charge, simply by sending written notice to Life of Virginia at its Home
Office. The allocation will apply to any premiums received after Life of
Virginia records the change. The Cash Value will vary with the investment
performance of the Investment Subdivisions the Policyowner selects, and the
Policyowner bears the entire investment risk for the Cash Value in any
particular Investment Subdivision. The allocation of premiums will affect not
only the Policy's Cash Value, but it may also affect the Death Benefit. The
Policyowner should periodically review his allocation of Cash Value in light of
market conditions and overall financial planning requirements.
Policy Lapse and Reinstatement
Lapse. The Policy will lapse if, on a Monthly Anniversary Day, the Surrender
Value (Cash Value less outstanding Policy Debt and any applicable surrender
charge) is insufficient to cover the monthly deduction due on that Monthly
Anniversary Day (See Charges and Deductions -- Monthly Deduction, p. 30), and a
grace period expires without a sufficient payment. Life of Virginia allows the
Policyowner a 61-day grace period to make a payment sufficient to cover the
monthly deduction. The grace period will begin on the date Life of Virginia
mails notice of the insufficiency. Life of Virginia will mail notice to the
Policyowner and to any assignee of record in its Home Office.
The Policyowner must, during the grace period, make a payment which is
sufficient to cover any due and unpaid monthly deductions in order to avoid
lapse of the Policy. Failure to make a sufficient payment by the end of the
grace period will cause the Policy to lapse and terminate without value.
So long as there is outstanding Policy Debt, that portion of any sufficient
payment received during the grace period that is less than or equal to the
amount of the Policy Debt will be treated as a repayment of Policy Debt and not
as an Additional Premium Payment. If a payment is treated as repayment of
outstanding Policy Debt, Life of Virginia will transfer the amount of Cash Value
held in the General Account as security for that part of the Policy Debt being
repaid into Separate Account III, which increases the Surrender Value of the
Policy, thereby preventing lapse.
Insurance coverage continues during the grace period, but the Policy will be
deemed to have no Cash Value for purposes of policy loans and surrenders. If
the Insured dies during the grace period, the Death Benefit Proceeds payable
during the grace period will equal the amount of the Death Benefit in effect
immediately prior to the commencement of the grace period less any due and
unpaid monthly deductions. A lapse of the Policy may result in adverse tax
consequences. (See Federal Tax Matters, p. 35.)
Reinstatement. If the Policy is terminated during the Insured's life because
a grace period ended without a sufficient payment being made, the Policy can be
reinstated. Reinstatement must occur within three years of the expiration of the
grace period and prior to the Maturity Date. To reinstate, evidence
satisfactory to Life of Virginia must be submitted that the Insured is
insurable. In addition, a payment must be made which is sufficient to cover the
monthly deductions for the first two Policy Months following reinstatement.
Life of Virginia may, however, accept a payment larger than this amount as long
as immediately after the payment the total of all premium payments made is less
than the maximum premiums limitation shown in the policy data pages. Unless the
payment is repayment of outstanding Policy Debt, the amount paid will be treated
as an Additional Premium Payment. The Policy will be reinstated on the date the
reinstatement is approved by Life of Virginia.
Any Policy Debt which existed at the end of the grace period will be
reinstated if it is not paid. If Policy Debt is reinstated, all payments
received by Life of Virginia will be treated first as repayment of Policy Debt.
If a payment larger than the Policy Debt is made, the excess will be treated as
an Additional Premium Payment. Regardless of whether the payment made is
repayment of Policy Debt or an Additional Premium Payment, the amount of the
payment must be sufficient to cover the monthly deductions for the first two
policy months following reinstatement.
Life of Virginia will not reinstate a Policy that has been surrendered for its
Surrender Value.
Examination of Policy (Refund Privilege)
The Policyowner may examine the Policy and return it for refund within 10 days
after it is received, or within 45 days after Part I of the application is
signed, whichever is latest. The amount of refund will equal the advisory fee
deducted from the Funds attributable to the Policy, plus the premiums allocated
to Separate Account III adjusted by investment gains and losses. The state in
which the Policy is issued may require, instead, a refund of the gross premiums
paid. In certain states the Policyowner may have more than 10 days to return
the policy for a refund. A Policyowner wanting a refund should return the
Policy to either Life of Virginia at its Home Office or to the registered agent
who sold it.
Exchange Privilege
During the first 24 Policy Months, the Policyowner may convert this Policy to
a permanent fixed benefit policy. The amount of the new policy will be the
specified amount of this Policy on the date of exchange. Premiums will be based
on the same issue age and risk classification of the Insured as the existing
Policy. The conversion will be subject to an equitable adjustment in payments
and cash values to reflect variances, if any, in the payments and cash values
under the existing Policy and the new policy.
<PAGE>
POLICY RIGHTS AND BENEFITS
While the Policy is in effect it provides for certain benefits. Subject to
certain limitations, the Policyowner may at any time obtain the Surrender Value
by surrendering the Policy. (See Surrender Privileges, p. 23.) In addition,
the Policyowner has certain policy loan privileges under the Policy. (See Loan
Benefits, p. 26.) The Policy also provides for the payment of a Death Benefit
upon the death of the Insured. (See Death Benefit, p. 27.)
Cash Value Benefits
Surrender Privileges. During the Insured's life, and as long as the Policy is
in effect, a Policyowner may surrender the Policy at any time by sending a
written request in a form acceptable to Life of Virginia, along with the Policy,
to Life of Virginia at its Home Office.
The amount payable on surrender of the Policy is the Surrender Value at the
end of the Valuation Period during which the request is received. The Surrender
Value may be paid in a lump sum or under one of the optional payment plans
specified in the Policy. (See Optional Payment Plans, p. 28.)
Surrender Value. The Surrender Value equals the Cash Value on the date Life
of Virginia receives a request for surrender, less any outstanding Policy Debt
and less any applicable surrender charge. (See Surrender Charge, p. 31.)
Surrender Value will be determined at the end of the Valuation Period during
which the request for a surrender is received. Proceeds will generally be paid
within seven days of receipt of a request for a surrender. Postponement of
payments may occur in certain circumstances. (See Postponement of Payment, p.
33.)
Partial Withdrawals. In each Policy Year after the first, the Policyowner may
make one partial withdrawal from the Cash Value of the Policy. The amount which
may be withdrawn is that amount of Cash Value allocated to the Separate Account
which exceeds the sum of the premiums paid. A charge equal to the lesser of $25
or 2% of the amount withdrawn will be deducted from each withdrawal. No
surrender charge will apply.
The Policyowner may tell Life of Virginia how to allocate the partial
withdrawal from the Investment Subdivisions of the Separate Account. If no
notification is given, the partial withdrawal will be made from each Investment
Subdivision in the same proportion that the Policy's Cash Value in that
Investment Subdivision bears to the total Cash Value on the date the request for
withdrawal is received in the home office of the company.
If a partial withdrawal is made, the Specified Amount under the Policy will be
reduced by the amount which the Partial Withdrawal amount would purchase if paid
as a single premium on the date of the withdrawal.
Partial withdrawals may have federal tax consequences, and prior to age 59 1/2
may result in a 10% penalty tax. (See Federal Tax Matters, p. 35).
Calculation of Cash Value. The Policy provides for an accumulation of Cash
Value. Cash Value will be determined on a daily basis. A Policy's Cash Value
will reflect a number of factors, including premiums paid, partial withdrawals,
policy loans, charges assessed in connection with the Policy, and the investment
performance of the Investment Subdivisions of Separate Account III to which the
Cash Value is allocated. There is no guaranteed minimum Cash Value. The Cash
Value equals the sum of all amounts in each Investment Subdivision of Separate
Account III plus the value of any amount transferred to the General Account to
secure Policy Debt.
On the later of the Policy Date or the date the initial premium is received,
the Cash Value is the initial premium, less any due and unpaid monthly
deductions, adjusted by the Policy's share of investment gains and losses in
that Investment Subdivision. On that date, the Cash Value is allocated entirely
to the Investment Subdivision of Separate Account III that invests exclusively
in the Money Market Portfolio of the Life of Virginia Series Fund, Inc. and,
therefore, there is no Cash Value in the other Investment Subdivisions. (See
Allocation of Premiums, p. 21.)
At the end of each Valuation Period thereafter, the Cash Value in each
Investment Subdivision of Separate Account III is (a) plus (b) plus (c) minus
(d) minus (e) where:
(a) is the Cash Value allocated to the Investment Subdivision at the end of
the preceding Valuation Period, multiplied by the Investment Subdivision's
Net Investment Factor for the current period;
(b) is any Additional Premium Payments received during the current Valuation
Period that have been allocated to the Investment Subdivision;
(c) is any other amounts transferred into the Investment Subdivision during
the current Valuation Period; and
(d) is Cash Value transferred out of the Investment Subdivision during the
current Valuation Period; and
(e) is any Cash Value withdrawn as a partial withdrawal.
In addition, whenever a Valuation Period includes the Monthly Anniversary Day,
the Cash Value at the end of such period is reduced by the monthly deduction
allocated to the Cash Value in the Investment Subdivision for that Monthly
Anniversary Day. (See Charges and Deductions -- Monthly Deduction, p. 30.)
Unit Value. Each Investment Subdivision has a Unit Value. When premiums or
other amounts are transferred into an Investment Subdivision, a number of Units
are purchased based on the Unit Value of the Investment Subdivision as of the
end of the Valuation Period during which the transfer is made. Likewise, when
amounts are transferred out of an Investment Subdivision, including Partial
Withdrawals, Units are redeemed in a similar manner.
For each Investment Subdivision, the Unit Value for the first Valuation Period
was $10.00. The Unit Value for each subsequent period is the Net Investment
Factor for that period, multiplied by the Unit Value for the immediately
preceding period. The Unit Value for a Valuation Period applies to each day in
the period.
Net Investment Factor. The Net Investment Factor measures investment
performance of the Investment Subdivisions of Separate Account III during a
Valuation Period. Each Investment Subdivision has its own Net Investment Factor
for a Valuation Period. The Net Investment Factor of an Investment Subdivision
for a Valuation Period is (a) divided by (b), minus (c), where:
(a) is (1) the value of the net assets of that Investment Subdivision at the
end of the preceding Valuation Period, plus (2) the investment income and
capital gains, realized or unrealized, credited to the net assets of that
Investment Subdivision during the Valuation Period for which the Net
Investment Factor is being determined, minus (3) the capital losses,
realized or unrealized, charged against those assets during the Valuation
Period, minus (4) any amount charged against that Investment Subdivision
for taxes, or any amount set aside during the Valuation Period by Life of
Virginia as a provision for taxes attributable to the operation or
maintenance of that Subdivision; and
(b) is the value of the net assets of that Investment Subdivision at the end
of the preceding Valuation Period; and
(c) is a charge no greater than .0035750% for each day in the Valuation
Period. This corresponds to 1.30% per year of the net assets of that
Investment Subdivision for mortality and expense risks and administrative
expenses.
The value of the assets in Separate Account III will be taken at their fair
market value in accordance with generally accepted accounting principles and
applicable laws and regulations.
How The Period of Coverage Under a Policy Can Vary. The period of coverage
under a Policy depends upon the Surrender Value. The Policy will remain in
force as long as the Surrender Value is sufficient to pay the monthly deduction.
(See Charges and Deductions -- Monthly Deduction, p. 30.) When, however, the
Surrender Value is insufficient to pay the monthly deduction and the grace
period expires without an adequate payment by the Policyowner, the Policy will
lapse and terminate without value. (See Policy Lapse and Reinstatement --
Lapse, p. 21.)
Transfers
Policyowners may transfer amounts among the Investment Subdivisions of
Separate Account III that are available at the time of the request by sending a
written request to the Home Office. Telephone transfers are subject to Life of
Virginia's administrative requirements.
The transfer will be effective as of the end of the Valuation Period during
which the request is received at the Home Office. Currently, there is no limit
to the number of transfers that may be made; however, Life of Virginia reserves
the right to limit the number of transfers, if necessary, in order that the
Policy will continue to receive life insurance treatment by the Internal Revenue
Service. Where permitted by state law, Life of Virginia also reserves the right
to refuse to execute any transfer if any of the Investment Subdivisions that
would be affected by the transfer are unable to purchase or redeem shares of the
mutual funds in which they invest.
The first transfer in each calendar month will be made without charge.
Thereafter, each time amounts are transferred, a transfer charge of $10 will be
imposed. This charge is deducted from the amount transferred. The Cash Value
on the date of transfer will not be affected by the transfer except to the
extent of the transfer charge. The transfer charge is Life of Virginia's
estimate of the average actual cost of present and future typical transfers;
Life of Virginia does not expect to make a profit from the process of executing
transfers. Once a Policy is issued, the amount of the transfer charge is
guaranteed for the life of the Policy.
Telephone Transfers
Life of Virginia permits telephone transfers and may be liable for losses
resulting from unauthorized or fraudulent telephone transfers if it fails to
employ reasonable procedures to confirm that the telephone instructions that it
receives are genuine. Therefore, Life of Virginia will employ means to prevent
unauthorized or fraudulent telephone requests, such as sending written
confirmation, recording telephone requests, and/or requesting other identifying
information. In addition, Life of Virginia may require written authorization
before allowing Policyowners to make telephone transfers.
To request a telephone transfer, Policyowners should call Life of Virginia's
Telephone Transfer Line at 800-772-3844. Life of Virginia will record all
telephone transfer requests. Transfer requests received at least one hour prior
to the close of the New York Stock Exchange will be executed that Business Day
at that day's prices. Requests received after that time will be executed on the
next Business Day at that day's prices.
Dollar-Cost Averaging
Policyowners may elect to have Life of Virginia automatically transfer
specified amounts from one of certain designated Investment Subdivisions of
Separate Account III to any other subdivision(s) on a monthly or quarterly
basis. This privilege is intended to permit policyowners to utilize
"Dollar-Cost Averaging," a long-term investment method that provides for regular
investing over a period of time. Life of Virginia makes no representations or
guarantees that Dollar-Cost Averaging will result in a profit or protect against
loss.
Policyowners must select Dollar-Cost Averaging on the application or complete
a Dollar- Cost Averaging Agreement in order to begin the Dollar-Cost Averaging
program. Currently, the Investment Subdivisions available to allocate money for
the purpose of Dollar-Cost Averaging include each of the Money Market Investment
Subdivisions and the subdivision which invests in the Limited Maturity Bond
Portfolio of the Neuberger & Berman Advisers Management Trust. If Dollar-Cost
Averaging is elected on the application, all or a portion of initial premium
will be transferred, if necessary, to the Investment Subdivision designated for
Dollar-Cost Averaging following the Initial Investment Period. Money may also be
transferred to the designated Investment Subdivision from other subdivisions
within the Separate Account. Any amount allocated or transferred must conform
to the minimum amount and percentage requirements. (See Transfers p. 24).
Dollar-Cost Averaging will continue until the entire cash value in the
subdivision designated for Dollar-Cost Averaging is depleted. The policyowner
has the option of discontinuing Dollar-Cost Averaging by sending Life of
Virginia a written cancellation notice. Policyowners may make changes to their
Dollar-Cost Averaging program by calling Life of Virginia's Telephone Transfer
Line at 800-772-3844. Also, Life of Virginia reserves the right to discontinue
Dollar-Cost Averaging upon 30 days written notice to the policyowner.
Powers of Attorney
As a general rule and as a convenience to policyowners, Life of Virginia
allows the use of powers of attorney whereby policyowners give third parties the
right to effect cash value transfers on behalf of the policyowners. However,
when the same third party possesses powers of attorney executed by many
policyowners, the result can be simultaneous transfers involving large amounts
of cash value. Such transfers can disrupt the orderly management of the mutual
funds underlying the variable policy, can result in higher costs to
policyowners, and are generally not compatible with the long-range goals of
purchasers of variable policies. Life of Virginia believes that such
simultaneous transfers effected by such third parties are not in the best
interests of all shareholders of the funds underlying its policies, and this
position is shared by the managements of those mutual funds.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, Life of Virginia may not honor such powers of attorney and has
instituted or will institute procedures to assure that the transfer requests
that it receives have, in fact, been made by the policyowners in whose names
they are submitted. However, these procedures will not prevent policyowners
from making their own cash value transfer requests.
Loan Benefits
Policy Loans. As long as the Policy remains in effect, a Policyowner may
borrow money from Life of Virginia at any time, using the Policy as the only
security for the loan. Life of Virginia's claim for repayment of a policy loan
has priority over the claims of any assignee of the Policy or other person. The
minimum loan amount is $500. The Maximum Loan Amount is 90% of the Policy's
Cash Value at the end of the Valuation Period during which the loan request is
received, less any surrender charge. The amount available to be borrowed at any
given time is the Maximum Loan Amount reduced by any outstanding Policy Debt.
Policy loans ordinarily will be paid within seven days after Life of Virginia
receives a request for a loan at its Home Office, although payments may be
postponed under certain circumstances. (See Postponement of Payment, p. 33.)
When a policy loan is made, a portion of the Policy's Cash Value equal to the
loan amount will be transferred out of Separate Account III into Life of
Virginia's General Account. The Policyowner may indicate, in writing, from
which Investment Subdivisions the Cash Value is to be transferred out of
Separate Account III. If no such written instruction is received with the loan
request, the Cash Value transferred out will automatically be transferred from
the Investment Subdivisions in the same proportion that the Cash Value in each
Investment Subdivision bears to the total Cash Value in all Investment
Subdivisions on the date the loan is made.
Currently, Life of Virginia credits interest at an annual rate of 6% for that
part of the Policy Debt up to an amount equal to the Cash Value less the total
of all premium payments made. An annual rate of 4% is credited to that part of
the Policy Debt in excess of the above amount. For purposes of crediting these
two rates of interest, Policy Debt and the Cash Value as calculated on the
preceding Monthly Anniversary Day, or, if more recent, on any other Business Day
when a loan is made or Policy Debt is repaid, will be used. Life of Virginia
reserves the right to decrease, at its discretion, the rate of interest credited
to the amount of Cash Value transferred to the General Account to an effective
annual rate of not less than 4%. On each policy anniversary, the interest
earned since the preceding policy anniversary will be credited and transferred
to Separate Account III. Absent written instruction, Life of Virginia will
allocate this amount among the Investment Subdivisions of Separate Account III
in the same manner as policy loans are allocated.
Even though the loan may be repaid in whole or in part at any time while the
Insured is living, policy loans will permanently affect the Cash Value of a
Policy. The effect could be favorable or unfavorable depending upon whether the
investment performance of the Investment Subdivision(s) from which the Cash
Value is transferred is less than or greater than the interest rate being
credited to the Cash Value in the General Account while the loan is outstanding.
In comparison to a Policy under which no loan is made, Policy values will be
lower where such interest rate credited is less than the performance of the
Investment Subdivision(s), but will be greater where such interest rate is
greater than the performance of the Investment Subdivision(s). In addition,
Proceeds payable upon death or surrender will be reduced by the amount of any
outstanding Policy Debt.
Policy loans may have federal tax consequences, and prior to age 59 1/2 may
result in a 10% penalty tax. (See Federal Tax Matters, p. 35.) In addition, a
policy loan entails the risk that the Policy will lapse if interest credited to
the Cash Value in the general account while the loan is outstanding plus
earnings on Cash Value in the Investment Subdivisions is insufficient to prevent
policy debt from exceeding Cash Value less applicable surrender charges. Adverse
tax consequences may result from a lapse if policy debt is outstanding. The risk
of lapse due to a policy loan is greater where interest charged on the loan is
not paid when due.
Loan Interest Charged. Life of Virginia will charge a fixed interest rate of
6% per year on all outstanding policy loans. Interest accrues daily and is due
and payable on each policy anniversary. If interest is not paid when due, an
amount equal to the amount owed will be treated as a policy loan and interest
will be charged on that amount. Absent written instruction, the amount
transferred out of Separate Account III will be transferred from the Investment
Subdivisions of Separate Account III in the same proportion as policy loans are
transferred.
Policy Debt. Policy Debt equals the total of all outstanding policy loans,
plus accrued interest on policy loans. If Policy Debt exceeds the Cash Value
less any applicable surrender charge, Life of Virginia will notify the
Policyowner and any assignee of record. A payment at least equal to the excess
Policy Debt must be made to Life of Virginia within 61 days from the date notice
is sent; otherwise the Policy will lapse and terminate without value. (See
Policy Lapse and Reinstatement, p. 21.) The Policy may, however, later be
reinstated.
Repayment of Policy Debt. Policy Debt may be repaid in whole or in part any
time during the Insured's life while the Policy is in effect. So long as there
is any outstanding Policy Debt, any payments received by Life of Virginia will
be considered as repayment of the Policy Debt. The portion of a payment in
excess of any outstanding Policy Debt will be treated as an Additional Premium
Payment, if the other conditions for an Additional Premium Payment are met.
Whenever a repayment is made, the Cash Value in the General Account securing the
repaid portion of the Policy Debt will be transferred back to Separate Account
III and allocated among the Investment Subdivisions in accordance with the
written instructions of the Policyowner. If no written instruction is received
with the repayment, Life of Virginia will allocate the repaid portion among the
Investment Subdivisions of Separate Account III in the same manner as premium
payments are allocated.
Death Benefit
So long as the Policy remains in force, the Policy provides for the payment of
a Death Benefit upon the death of the Insured. The death benefit proceeds will
be paid to a named Beneficiary or Contingent Beneficiary. One or more Primary
Beneficiaries or Contingent Beneficiaries may be named. The amount of the Death
Benefit Proceeds will be determined on the date on which the Insured's death
occurred. The Death Benefit Proceeds may be paid in a lump sum or under an
optional payment plan. (See Optional Payment Plans, p. 28.) In determining the
Proceeds payable, the Death Benefit provided by the Policy will be reduced by
any outstanding Policy Debt and any due and unpaid monthly deductions. The
Proceeds will ordinarily be paid within seven days after Life of Virginia
receives due proof of death. Payment may, however, be postponed under certain
circumstances. (See Postponement of Payment, p. 33.)
The amount of the Death Benefit provided by a Policy will be the greater of:
(1) the specified amount; or (2) the Cash Value on the date of death, multiplied
by the applicable corridor percentage. Accordingly, the Death Benefit will
never be less than the specified amount, as long as the Policy remains in force.
Under the terms of the Policy, however, the Policy's Death Benefit may be
greater than the specified amount, depending upon the length of time the Policy
is in force, any Additional Premium Payments made, and the Policy's investment
results. If the death benefit is greater than the specified amount, it will
vary with the Policy's Cash Value. Initially, the specified amount is
determined when the Policy is issued by the amount of the initial premium and
the age and sex of the Insured. (See Premiums, p. 7.) After a Policy has been
in effect for one year, however, the specified amount may be increased. (See
Changes in the Specified Amount, p. 28.)
The calculation of the Death Benefit based upon the corridor percentage occurs
only when the Cash Value reaches a certain proportion of the specified amount.
Because there is no guaranteed Cash Value, there is no guarantee this will
occur. The corridor percentage depends upon the Attained Age of the Insured.
The corridor percentage for each age is set forth in the table below.
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
40 or younger 250% 54 157% 68 117%
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
48 197 62 126 through 105
49 191 63 124 90
50 185 64 122 91 104
51 178 65 120 92 103
52 171 66 119 93 102
53 164 67 118 94 101
Examples. For this purpose, assume that the Insured is under the age of 40,
the specified amount is $100,000, and that there is no outstanding Policy Debt
or any due and unpaid monthly deductions.
The Policy will initially provide for a $100,000 Death Benefit. However,
because the Death Benefit cannot be less than 250% (the applicable corridor
percentage) of Cash Value, any time the Cash Value of this Policy exceeds
$40,000, the Death Benefit will exceed the $100,000 specified amount. If the
Cash Value equals or exceeds $40,000, each additional dollar added to the Cash
Value will increase the Death Benefit by $2.50. Thus, for a Policy with a
specified amount of $100,000 and a Cash Value of $80,000, the Beneficiary will
be entitled to a Death Benefit of $200,000 (250% x $80,000); Cash Value of
$120,000 will yield a Death Benefit of $300,000 (250% x $120,000); and a Cash
Value of $200,000 will yield a Death Benefit of $500,000 (250% x $200,000).
Similarly, so long as Cash Value exceeds $40,000, each dollar decrease in Cash
Value will reduce the Death Benefit by $2.50. If at any time, however, the Cash
Value multiplied by the corridor percentage is less than the specified amount,
the Death Benefit will equal the specified amount of the Policy.
The applicable corridor percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the illustration were, for
example, 50 (rather than under age 40), the applicable corridor percentage would
be 185%. Therefore, the Death Benefit payable would not exceed the $100,000
specified amount unless the Cash Value exceeded approximately $54,054 (rather
than $40,000), and each $1 increase or decrease in the Cash Value would change
the Death Benefit by $1.85 (rather than $2.50).
Changes in the Specified Amount
After a Policy has been in effect for one year, a Policyowner may adjust the
existing insurance coverage by increasing the specified amount. To apply for an
increase, the Policyowner must first complete a supplemental application and
submit evidence, satisfactory to Life of Virginia, that the Insured is
insurable. In order for an increase to become effective, the Policyowner must
make an Additional Premium Payment after an increase is approved. The required
Additional Premium Payment depends on the amount of the increase requested and
the Attained Age and sex of the Insured. The premium required for a particular
increase in specified amount will increase as the Attained Age of the Insured
increases. The minimum increase in the specified amount that Life of Virginia
will allow under the Policy is one which requires a $1,000 Additional Premium
Payment.
Representative minimum increases are set forth below:
Specified Amount for a $1,000 Additional Premium Payment
Attained Age Male Female
10 $17,045 $21,997
20 11,660 14,652
30 7,836 9,604
40 5,080 6,229
50 3,383 4,155
60 2,356 2,837
70 1,746 1,988
The required Additional Premium Payment will be the lesser of (a) or (b),
where (a) is the increase in the guideline single premium due to the increase in
specified amount and (b) is the maximum premiums limitation allowed immediately
after the increase in specified amount, less the total premiums paid to date.
The increase in specified amount will become effective on the date Life of
Virginia receives the required payment, which will be shown in the supplemental
policy data pages.
A Partial Withdrawal will result in a reduction in the Specified Amount. The
amount of the reduction will be that which the Partial Withdrawal amount would
purchase if paid as a single premium on the date of the withdrawal.
A change in the existing insurance coverage may have federal tax consequences.
(See Federal Tax Matters, p. 35.)
Benefits at Maturity
If the Policy is in effect on the Maturity Date, Life of Virginia will pay to
the Policyowner the Policy's Cash Value less any outstanding Policy Debt. (See
Loan Benefits, p. 26.) Benefits payable upon maturity may be paid in a lump sum
or under an optional payment plan. The maturity date is the date shown in the
Policy.
Optional Payment Plans
"Proceeds" means the amount payable upon surrender or upon the death of the
Insured. If the Policy is surrendered, the Proceeds will be the Surrender
Value. The Proceeds payable on the death of the Insured will be the Death
Benefit less any Policy Debt and any due and unpaid monthly deductions. The
actual amount of Proceeds will depend on: the Death Benefit determined as
above; the use of the Cash Value during the Insured's life; the Insured's
suicide during the first two policy years; and any misstatement of the Insured's
age or sex.
Proceeds payable upon death of the Insured or upon surrender of the Policy,
and the benefits payable upon maturity, may be paid in whole or in part under an
optional payment plan. Any Death Benefit Proceeds that are paid in one lump sum
will include interest from the date of death to the date of payment. Interest
will be paid at a rate set by Life of Virginia, or by law if greater. The
minimum interest rate which will be paid is 2.5%. Interest will not be paid
beyond one year or any longer time set by law. There are currently five
optional payment plans available. A plan may be designated in the application
or by notifying Life of Virginia in writing at its Home Office. A choice or
change of a plan must be sent in writing to the Home Office of Life of Virginia.
Any amount left with Life of Virginia for payment under an optional payment plan
will be transferred to Life of Virginia's General Account. During the life of
the Insured, the Policyowner can select a plan. If a plan has not been chosen
at the Insured's death, a Beneficiary can choose a plan. If a Beneficiary is
changed, the plan selection will no longer be in effect unless the Policyowner
requests that it continue.
In selecting an optional payment plan: (1) the payee under a plan cannot be a
corporation, association or fiduciary; (2) the Proceeds applied under a plan
must be at least $10,000; and (3) the amount of each payment under a plan must
be at least $50. Payments under Plans 1, 2, 3 or 5 will begin on the date of the
Insured's death or on surrender. Payments under Plan 4 will begin at the end of
the first interest period after the date proceeds are otherwise payable.
Plan 1 -- Life Income. Equal monthly payments will be made for a guaranteed
minimum period. If the payee lives longer than the minimum period, payments
will continue for his or her life. The minimum period can be 10, 15 or 20
years. Guaranteed amounts payable under this plan will earn interest at 3%
compounded yearly. Life of Virginia may increase the interest rate and the
amount of any payment. If the payee dies before the end of the guaranteed
period, the amount of remaining payments for the minimum period will be
discounted at a yearly rate of 3%. The discounted amounts will be paid in one
sum to the payee's estate unless otherwise provided.
Plan 2 -- Income for a Fixed Period. Equal periodic payments will be made for
a fixed period not longer than 30 years. Payments can be annual, semi-annual,
quarterly, or monthly. Guaranteed amounts payable under this plan will earn
interest at 3% compounded yearly. Life of Virginia may increase the interest
and the amount of any payment. If the payee dies, the amount of the remaining
guaranteed payments will be discounted to the date of the payee's death at a
yearly rate of 3%. "Discounted" means that Life of Virginia will deduct the
amount of interest each remaining payment would have earned had it not been paid
out early. The discounted amount will be paid in one sum to the payee's estate
unless otherwise provided.
Plan 3 -- Income of a Definite Amount. Equal periodic payments of a definite
amount will be paid. Payments can be annual, semi-annual, quarterly, or
monthly. The amount paid each year must be at least $120 for each $1,000 of
Proceeds. Payments will continue until the Proceeds are exhausted. The last
payment will equal the amount of any unpaid Proceeds. Proceeds will earn
interest at 3% compounded yearly. Life of Virginia may increase the interest
rate; if the interest rate is increased, the payment period will be extended. If
the payee dies, the amount of the remaining Proceeds with earned interest will
be paid in one sum to his or her estate unless otherwise provided. If the payee
is age 80 or older, payments under Plan 3 may not qualify for favorable tax
treatment if the expected payment period exceeds the life expectancy of the
payee.
Plan 4 -- Interest Income. Periodic payments of interest earned from the
Proceeds left with Life of Virginia will be paid. Payments can be annual,
semi-annual, quarterly, or monthly, and will begin at the end of the first
period chosen. Proceeds will earn interest at 3% compounded yearly. Life of
Virginia may increase the interest rate and the amount of any payment. If the
payee dies, the amount of remaining Proceeds and any earned but unpaid interest
will be paid in one sum to his or her estate unless otherwise provided.
Plan 5 -- Joint Life and Survivor Income. Equal monthly payments will be made
to two payees for a guaranteed minimum of 10 years. Each payee must be at least
35 years old when payments begin. The guaranteed amount payable under this plan
will earn interest at 3% compounded yearly. Life of Virginia may increase the
interest rate and the amount of any payment. Payments will continue as long as
either payee is living. If both payees die before the end of the minimum
period, the amount of the remaining payments for the 10-year period will be
discounted at a yearly rate of 3%. The discounted amount will be paid in one
sum to the survivor's estate unless otherwise provided.
<PAGE>
CHARGES AND DEDUCTIONS
Monthly Deduction
On each Monthly Anniversary Day, a deduction will be made from the Policy's
Cash Value in Separate Account III in order to compensate Life of Virginia for
the cost of insurance and certain other expenses incurred in connection with the
Policies. The monthly deduction for a Policy Month will be allocated among the
Investment Subdivisions of Separate Account III in the same proportion that the
Policy's Cash Value in each Investment Subdivision bears to the total Cash Value
in all Investment Subdivisions at the beginning of the Policy Month. The actual
amount of each monthly deduction will vary because (1) some of these charges are
based on percentages of Cash Value which varies from one Valuation Period to the
next; (2) some of these charges are further based upon portions of Cash Value
attributable to Additional Premium Payments; and (3) the cost of insurance can
vary from month to month.
Charges Attributable to Premium Payments. During the first ten years
following a premium payment (See Dates Under the Policy, p. 19.), Life of
Virginia will deduct premium tax and distribution expense charges attributable
to that premium payment in order to recover premium taxes and distribution
expenses associated with that premium payment. In general, the amount of each
charge is calculated by multiplying the rate for the charge by the portion of
Cash Value in Separate Account III attributable to that premium payment.
Premium Tax Charge--Premium tax charges are not deducted at the time a
premium payment is made, although Life of Virginia does pay state premium taxes
attributable to a particular Policy when those taxes are incurred and expects
to pay an average state premium tax rate of 2.3% of premium for all states. To
reimburse Life of Virginia for the payment of such taxes, a premium tax charge
is deducted monthly during the first ten years following each premium payment.
This charge is computed on each Monthly Anniversary Day and will equal .0167%
of that portion of the Policy's Cash Value in each Investment Subdivision of
Separate Account III on that date attributable to each premium payment made
during the previous ten years. This is equivalent to an annual rate of .20%.
Distribution Expense Charge--Life of Virginia incurs certain sales and other
distribution expenses when the Policies are issued. The majority of these
expenses consist of commissions paid for sales of the Policies; however, other
distribution expenses are incurred in connection with the printing of
prospectuses, conducting seminars and other marketing, sales, and promotional
activities. To recover a portion of these expenses, a distribution expense
charge is deducted monthly during the first ten years following each premium
payment. This charge is computed on each Monthly Anniversary Day and will
equal .0250% of that portion of the Policy's Cash Value in each Investment
Subdivision of Separate Account III on that date attributable to each premium
payment made during the previous ten years. This is equivalent to an annual
rate of .30%.
In no event, however, will the sum of the cumulative distribution expense
charges previously deducted, attributable to a particular premium payment,
exceed 9% of that premium payment. Depending on the investment experience of
the Investment Subdivisions chosen by the Policyowner, the maximum charge of 9%
of a premium payment may be collected before the ten-year period attributable
to that premium payment has run.
For purposes of calculating these charges, Life of Virginia determines that
portion of the Cash Value in Separate Account III which is attributable to each
premium payment every time an Additional Premium Payment is received. Prior to
receiving the first Additional Premium Payment, the entire Cash Value under the
Policy is attributable to the initial premium payment. The portion of the Cash
Value in Separate Account III attributable to the first Additional Premium
Payment is calculated by dividing (a) by (b), where (a) is the amount of the
Additional Premium Payment and (b) is the Policy's total Cash Value in Separate
Account III immediately after receipt of the Additional Premium Payment. In
calculating the charges described above, Life of Virginia will use this ratio to
determine the portion of Cash Value in Separate Account III attributable to that
payment until another Additional Payment is made. The portion of Cash Value in
Separate Account III attributable to the initial premium payment is determined
using a ratio calculated as one (1) minus the ratio used for the Additional
Premium Payment.
These ratios are used by Life of Virginia, in connection with the premium tax
and distribution expense charges described above, to calculate that portion of
Cash Value held in Separate Account III attributable to premium payments made
during the previous ten years. Every time another Additional Premium Payment is
made, Life of Virginia recalculates the ratio for each premium payment. It does
so by multiplying the last calculated ratio for each prior premium payment by
the difference between one and the ratio calculated for the most recent
Additional Premium Payment.
Cost of Insurance Charge. A cost of insurance charge will be deducted on each
Monthly Anniversary Day. Currently, the charge is equal to .0458% of the
Policy's Cash Value in each Investment Subdivision on the Monthly Anniversary
Day. This is equivalent to an annual rate of .55% of a Policy's Cash Value in
Separate Account III. Life of Virginia may, at its discretion, increase or
decrease this charge; however, in no event will the current charge exceed the
guaranteed cost of insurance charge set forth in the Policy.
To determine the guaranteed cost of insurance charge, a Policy's net amount at
risk for a policy month is divided by 1,000 and the result is multiplied by the
applicable guaranteed maximum cost of insurance rate. To determine the net
amount at risk, the Death Benefit is divided by 1.0032737 (which reduces the net
amount at risk, solely for purposes of computing the cost of insurance, by
taking into account assumed monthly earnings at an annual rate of 4%) and then
the Policy's Cash Value is subtracted. Thus, the net amount at risk depends
upon and will be affected by changes in the Policy's Cash Value.
Changes in the Death Benefit may affect the amount of the guaranteed cost of
insurance charge deductible under the Policies. Because the cost of insurance
charge varies with the net amount at risk, an increase in specified amount or
the calculation of the Death Benefit based on the corridor percentage (See,
Death Benefit, p. 27.) may cause the guaranteed cost of insurance charge to
increase.
The guaranteed monthly cost of insurance rate is based on the Insured's sex
and Attained Age. The guaranteed maximum cost of insurance rates allowable
under the Policies are based on the Commissioners' 1980 Standard Ordinary
Mortality Table. The guaranteed cost of insurance rates generally increase as
the Insured's Attained Age increases.
Charges Against Separate Account III
Mortality and Expense Risk Charge. A charge will be deducted from each
Investment Subdivision of Separate Account III to compensate Life of Virginia
for certain mortality and expense risks assumed in connection with the Policies.
The charge will be deducted daily and equals .0024769% for each day in a
Valuation Period. The effective annual rate of this charge, which is compounded
daily, is .90%.
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. Life of Virginia has compared the mortality and expense risk charge
assessed under the Policies with charges under comparable contracts and
determined that its charge is reasonable in relation to the risks assumed and is
within the range of industry practice for comparable variable life insurance
contracts. Nevertheless, the mortality and expense risk charge may be a source
of profit for Life of Virginia if it proves to be more than sufficient to meet
risk-related expenses over the long run.
Administrative Expense Charge. A charge will be deducted from each Investment
Subdivision of Separate Account III to compensate Life of Virginia for certain
administrative expenses incurred in connection with the Policies. The charge
will be deducted daily and equals .0010981% for each day in a Valuation Period.
The effective annual rate of this charge, which is compounded daily, is .40%.
The administrative expense charge will compensate Life of Virginia for issuance,
underwriting, processing, start-up and on-going administration expenses. These
expenses include the cost of processing applications, conducting medical
examinations, determining insurability, establishing Policy records, premium
collection, recordkeeping, processing Death Benefit claims, surrenders,
transfers, policy loans and changes, and reporting and overhead costs. Life of
Virginia has set this charge at a level which is intended to recover no more
than the actual costs associated with administering the contract.
Life of Virginia may administer the Policy itself, or Life of Virginia may
purchase administrative services from such sources (including affiliates) as may
be available. Such services will be acquired on a basis which, in Life of
Virginia's sole discretion, affords the best services at the lowest cost. Life
of Virginia reserves the right to select a company to provide services which
Life of Virginia deems, in its sole discretion, is the best able to perform such
services in a satisfactory manner even though the costs for such services may be
higher than would prevail elsewhere.
Taxes. Currently, no charge is made to Separate Account III for federal
income taxes that may be attributable to it. Life of Virginia may, however,
make such a charge in the future. Charges for other taxes, if any, attributable
to Separate Account III may also be made. At present, state and local taxes,
other than premium or similar taxes, are not significant, and therefore Life of
Virginia is not currently making a charge against Separate Account III for such
amounts. (See Federal Tax Matters, p. 35.)
Surrender Charge
A surrender charge (sometimes referred to as a contingent deferred sales
charge) will be imposed upon surrenders that occur within nine years of any
premium payments to cover certain expenses relating to the sale of the Policy,
including premium taxes, commissions to registered representatives, and other
promotional expenses. The total surrender charge will equal the sum of the
surrender charges, if any, attributable to the premium payments made under the
Policy prior to surrender.
If the Policy is surrendered during the first four years following a premium
payment, a surrender charge equal to 6% of that premium payment will be imposed.
During the six years that follow, the charge decreases 1% per year, so that no
surrender charge is ever attributable to a particular premium payment made more
than nine years prior to the date of surrender. The surrender charge will be
further limited, such that the surrender charge attributable to a particular
premium payment, when taken together with the total amount of distribution
expense charges previously deducted attributable to that premium payment, will
never exceed 9% of that premium payment. Thus, in the event of surrender, if
the surrender charge otherwise calculated would cause the sum of those charges
to exceed 9% of a particular premium payment, the surrender charge will be
limited so that it equals the difference between 9% of the premium payment and
the total monthly Distribution Expense Charges attributable to premium payments
that have been deducted. This surrender charge, along with any outstanding
Policy Debt, will be deducted from the Cash Value to determine the amount
payable upon surrender.
Life of Virginia expects to incur the majority of its premium tax and
distribution expenses in the first policy year. Although the surrender charge
is higher in early policy years than in subsequent years, the surrender charge
in any policy year is not necessarily related to actual distribution expenses
incurred in that year. Life of Virginia expects to recover any deficiency due
to the insufficiency of amounts received from surrender charges and distribution
expense charges over the life of the Policy from Life of Virginia's general
assets, including amounts derived from the mortality and expense risk charge and
from mortality gains. Life of Virginia has reviewed this arrangement and
concluded that this distribution financing arrangement will benefit Separate
Account III and the Policyowners.
Partial Withdrawal Charge
A charge equal to the lesser of $25 or 2% of the amount withdrawn will be
deducted from the amount of any Partial Withdrawal. The surrender charge does
not apply to Partial Withdrawals.
Transfer Charge
The Policyowner may transfer amounts among the Investment Subdivisions of
Separate Account III. Currently, there is no limit on the number of transfers
that may be made; however, Life of Virginia reserves the right to impose such a
limit in the future. Where permitted by state law, Life of Virginia also
reserves the right to refuse to execute any transfer if any of the Investment
Subdivisions that would be affected by the transfer are unable to purchase or
redeem shares of the mutual funds in which they invest.
The first transfer in each calendar month will be made without charge.
Thereafter, each time amounts are transferred, a transfer charge of $10 will be
deducted from the amount transferred to compensate Life of Virginia for the
costs in making the transfer. Life of Virginia does not expect to make a profit
on the transfer charge. The transfer charge will not be imposed on transfers
that occur as a result of policy loans or the reallocation of Cash Value
following expiration of the Initial Investment Period.
Other Charges
Because Separate Account III purchases shares of the Funds, the net assets of
each Investment Subdivision in the Account will reflect the investment advisory
fee and other expenses incurred by the portfolio of the Fund in which the
Investment Subdivision invests. (See The Funds on p. 13 for a discussion of
these charges.) For more information concerning these charges, read the
individual Fund prospectus.
Reduction of Charges for Group Sales
The distribution expense charge and/or the surrender charge 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 expenses
incurred by Life of Virginia in connection with the sale of the Policies. The
entitlement to such a reduction in such charges will be determined by Life of
Virginia based on the following factors:
(1) The size of the group. Generally, the sales expenses for each individual
Policyowner for a larger group are less than for a smaller group because
more Policies can be implemented with fewer sales contacts and less
administrative cost.
(2) The total amount of premium payments to be received from a group. Per
Policy sales and other expenses are generally proportionately less on
larger purchase payments than on smaller ones.
(3) The purpose for which the Policies are purchased. Certain types of plans
are more likely to be stable than others. Such stability reduces the
number of sales contacts and administrative and other services required,
reduces sales administration and results in fewer Policy terminations. As
a result, sales and other expenses can be reduced.
(4) The nature of the group for which the Policies are being purchased.
Certain types of employee and professional groups are more likely to
continue Policy participation for longer periods than are other groups
with more mobile membership. If fewer Policies are terminated in a given
group, Life of Virginia's sales and other expenses are reduced.
(5) There may be other circumstances of which Life of Virginia is not
presently aware which could result in reduced sales expenses.
If, after consideration of the foregoing factors, Life of Virginia determines
that a group purchase would result in reduced sales expenses, such a group may
be entitled to a reduction in distribution expense charges and/or surrender
charges. Reductions in these charges will not be unfairly discriminatory
against any person including the affected owners and all other owners of
Policies funded by Separate Account III.
GENERAL PROVISIONS
Postponement of Payment
General. Amounts payable as a result of surrender, partial withdrawals,
policy loan, and the payment of Death Benefit Proceeds or benefits at maturity
may be postponed whenever: (1) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Commission; or (2) the Commission by
order permits postponement for the protection of Policyowners; or (3) an
emergency exists, as determined by the Commission, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably practicable
to determine the value of the net assets of Separate Account III.
Payment by Check. Payments under a Policy which are derived from any amount
paid to Life of Virginia by check or draft may be postponed until such time as
Life of Virginia is satisfied that the check or draft has cleared the bank upon
which it is drawn.
Limits on Contesting the Policy
Life of Virginia relies on statements in the policy application. In the
absence of fraud, the statements are considered representations, not warranties.
Life of Virginia can contest the Policy, or an increase in the specified amount,
if any material misrepresentation of fact was made in the application or in a
supplemental application, and a copy of that application was attached to the
Policy when issued or was made a part of the Policy when a change went into
effect. With respect to the original specified amount, a Policy will not be
contested after it has been in effect during the Insured's life for two years
from the Policy Date. With respect to increases in the specified amount, Life
of Virginia will not contest an increase in the specified amount after that
increase has been in effect during the Insured's life for two years from the
effective date of the increase.
The Contract
"Policy" means the Policy described in this Prospectus, the policy
application, any supplemental applications and any endorsements. A Policy is a
legal contract and constitutes the entire contract between the Policyowner and
Life of Virginia. An agent cannot change this contract. Any change to a Policy
must be in writing and approved by the President or a Vice President of Life of
Virginia.
Misstatement of Age or Sex
If the Insured's age or sex was misstated in an application, the Death Benefit
Proceeds will be adjusted. The adjusted Death Benefit Proceeds will be the
greater of (a) and (b), where: (a) is the specified amount including any
increases in the specified amount which should have been issued at the Insured's
true age or sex for the premiums that were required to be paid for the original
amount of, and any increases in, the specified amount; and (b) is the Cash Value
on the date of death, multiplied by the corridor percentage for the Insured's
true Attained Age on the date of death.
Suicide
If the Insured commits suicide, while sane or insane, within two years of the
Policy Date, Death Benefit Proceeds payable under the Policy will be limited to
the initial premium paid, plus any Additional Premium Payments, other than those
required for an increase in specified amount, less outstanding Policy Debt. If
the Insured commits suicide, while sane or insane, within two years after an
increase in the specified amount was effective, Life of Virginia will limit the
Proceeds payable with respect to the increase. The Proceeds thus limited will
equal the Additional Premium Payment required for the increase.
Annual Statement
Within 30 days after each policy anniversary, an annual statement will be sent
to each Policyowner. The statement will show the amount of the Death Benefit
payable under the Policy, the Cash Value for each Investment Subdivision, the
Surrender Value, and Policy Debt as of the policy anniversary. The statement
will also show premiums paid and charges made during the policy year.
Nonparticipating
The Policy does not participate in the divisible surplus of Life of Virginia.
No dividends are payable.
Written Notice
Any written notice should be sent to Life of Virginia at its Home Office at
6610 West Broad Street, Richmond, Virginia 23230. The notice should include the
Policy number and the Insured's full name. Any notice sent by Life of Virginia
to a Policyowner will be sent to the address shown in the application unless an
appropriate address change form has been filed with the Company.
The Owner
The Policyowner is the person so designated in the application or as
subsequently changed. The Policyowner has rights in a Policy during the
Insured's lifetime. If the Policyowner dies before the Insured and there is no
Contingent Owner, ownership passes to the Policyowner's estate. Unless an
optional payment plan is chosen, the Proceeds payable on surrender of the Policy
will be paid to the Policyowner in a lump sum.
The Beneficiary
The original Beneficiaries and Contingent Beneficiaries are designated by the
Policyowner in the application. If changed, the Primary Beneficiary or
Contingent Beneficiary is as shown in the latest change filed with Life of
Virginia. One or more Primary or Contingent Beneficiaries may be named in the
application. In such a case, the Proceeds will be paid in equal shares to the
survivors in the appropriate Beneficiary class, unless requested otherwise by
the Policyowner.
Unless an optional payment plan is chosen, the Death Benefit Proceeds payable
at the Insured's death will be paid in a lump sum to the primary Beneficiary.
If the primary Beneficiary dies before the Insured, the Proceeds will be paid to
the Contingent Beneficiary. If no Beneficiary survives the Insured, the
Proceeds will be paid to the Policyowner or the Policyowner's estate.
Changing the Owner or Beneficiary
During the Insured's life, the Policyowner may be changed. If the right is
reserved, the Beneficiary may also be changed during the Insured's life. To
make a change, written request must be sent to Life of Virginia at its Home
Office. The request and the change must be in a form satisfactory to Life of
Virginia and must actually be received by the Company. The change will take
effect as of the date the request is signed by the Policyowner. The change will
be subject to any payment made before the change is recorded by Life of
Virginia.
Using the Policies as Collateral
The Policy can be assigned as collateral security. Life of Virginia must be
notified in writing if a Policy is assigned. Any payment made before the
assignment is recorded at Life of Virginia's Home Office will not be affected.
Life of Virginia is not responsible for the validity of an assignment. A
Policyowner's rights and the rights of a Beneficiary may be affected by an
assignment.
Optional Insurance Benefits
There are currently no optional insurance benefits offered under the Policy.
Reinsurance
Life of Virginia intends to reinsure a portion of the risks assumed under the
Policies.
DISTRIBUTION OF THE POLICY
The Policies will be sold by individuals who, in addition to being licensed as
life insurance agents for Life of Virginia, are also registered representatives
of Forth Financial Securities Corporation, the principal underwriter of the
Policies, or of broker-dealers who have entered into written sales agreements
with the principal underwriter. Forth Financial Securities Corporation, a
Virginia corporation located at 6610 W. Broad St., Richmond, Virginia 23230, is
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. Forth Financial Securities Corporation also serves as principal
underwriter for other variable life insurance and variable annuity policies
issued by Life of Virginia. However, no amounts have been retained by Forth
Financial Securities Corporation for acting as principal underwriter of the Life
of Virginia policies.
Writing agents of Life of Virginia will receive commissions based on a
commission schedule and rules. Commissions depend on the premiums paid. The
agent will receive a commission of 2.9% of the initial premium paid and any
Additional Premium Payments.
Agents may also be eligible to receive certain bonuses and allowances, as well
as retirement plan credits, based on commissions earned. Field management of
Life of Virginia receives compensation which may be in part based on the level
of agent commissions in their management units. Broker-dealers and their
registered agents will receive first-year and subsequent year commissions
equivalent to the total commissions and benefits received by the field
management and writing agents of Life of Virginia.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
Tax Status of the Policy
The Internal Revenue Code of 1986 as amended, (the "Code"), in Section 7702,
establishes a statutory definition of life insurance for tax purposes. Life of
Virginia believes that the Policy meets the statutory definition of life
insurance, which places limitations on the amount of premiums that may be paid.
If the specified amount of a Policy is increased or decreased, the applicable
premium limitation may change.
The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") places limits on
certain of the policy charges used in determining the maximum amount of premiums
that may be paid under section 7702 for Policies entered into on or after
October 21, 1988. There is some uncertainty as to the interpretation of these
new limits. Nonetheless, Life of Virginia believes that the maximum amount of
premiums it has determined for the Policies will comply with the requirements of
section 7702 as amended by TAMRA. If it is determined that only a lower amount
of premiums may be paid for a Policy under TAMRA, Life of Virginia will refund
any premiums paid which exceed that lower amount within 60 days after each
anniversary of the Policy, and will reflect interest or earnings (which will be
includable in income subject to tax) as required by law on the amount refunded.
The Code (section 817(h)) also authorizes the Secretary of the Treasury (the
"Treasury") to set standards by regulation or otherwise for the investments of
Separate Account III to be "adequately diversified" in order for the Policy to
be treated as a life insurance contract for federal tax purposes. Separate
Account III, through the Funds, intends to comply with the diversification
requirements prescribed by the Treasury. Although Life of Virginia does not
control the Funds (other than the Life of Virginia Series Fund), it has entered
into agreements regarding participation in the Funds, which requires the Funds
to be operated in compliance with the requirements prescribed by the Treasury.
Thus, Life of Virginia believes that Separate Account III will be treated as
adequately diversified for federal tax purposes.
In certain circumstances, variable contract owners may be considered the
owners, for federal tax purposes, of the assets of the separate account used to
support such contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable contract owners'
gross income annually as earned. Several years ago, the Internal Revenue Service
(the "Service") stated in published rulings that a variable contract owner will
be considered the owner of separate account assets if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. More recently, the Treasury announced, in
connection with the issuance of temporary regulations concerning diversification
requirements, that those temporary regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulation or
published rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts [of a separate account] without being
treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those present in situations addressed by the Service in rulings
in which it was determined that contract owners were not owners of separate
account assets. For example, the owner of this Policy has the choice of more
Funds to which to allocate premiums and Cash Values and may be able to
reallocate more frequently than in such rulings. These differences could result
in a Policyowner being considered, under the standard of those rulings, the
owner of the assets of Separate Account III. To ascertain the tax treatment of
its Policyowners, Life of Virginia has requested, with regard to this policy, a
ruling from the Service that it, and not its Policyowners, is the owner of the
assets of Separate Account III for federal income tax purposes. The Service has
informed Life of Virginia that it will not rule on the request until issuance of
the promised guidance referred to in the preceding paragraph. Life of Virginia
has reserved the right to modify its practices to attempt to prevent the
Policyowner from being considered the owner of the assets of Separate Account
III.
Frequently, if the Service or the Treasury sets forth a new position which is
adverse to taxpayers, the position is applied on a prospective basis only.
Thus, if the Service or the Treasury were to issue regulations or a ruling which
treated a Policyowner as the owner of the assets of Separate Account III, that
treatment might apply only on a prospective basis. However, if the ruling or
regulations were not considered to set forth a new position, a Policyowner might
be retroactively determined to be the owner of the assets of Separate Account
III.
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 Death Benefits payable under the
Policy are excludable from the gross income of the Beneficiary under Section 101
of the Code, and the Policyowner is not deemed to be in constructive receipt of
the cash values under a Policy until actual surrender. If Proceeds payable upon
death of the Insured are paid under optional payment plan 4 (interest income),
the interest payments will be includable in the Beneficiary's income. If
Proceeds payable on death are applied under option payment plan 3 and the
Beneficiary is at an advanced age at such time, such as age 80 or older, it is
possible that payments would be treated in a manner similar to that under Plan
4. If 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.
Generally, interest paid on any loans under this Policy will not be tax
deductible under the current tax law. Interest on a loan may be deductible
under limited circumstances, however, and a Policyowner should consult a tax
advisor for advice on these circumstances.
The right to exchange the Policy for a permanent fixed benefit policy (See
Addition, Deletion, or Substitution of Investments, p. 12, and Exchange
Privilege, p. 10.), the right to change owners (See Changing the Owner or
Beneficiary, p. 34.), as well as provision for surrenders, and other changes
reducing future death benefits may have tax consequences depending on the
circumstances of such exchange, surrender, or change. Upon complete surrender
or when maturity benefits are paid, if the amount received plus the Policy Debt
exceeds the total premiums paid that are not treated as previously withdrawn by
the Policyowner, the excess generally will be treated as ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy Proceeds depend on the
circumstances of each Policyowner or Beneficiary.
Tax Treatment of Policy Loans and Other Distributions Under Certain Policies
TAMRA includes the following provisions, which affect the taxation of
distributions (other than proceeds paid at the death of the insured) from life
insurance contracts:
l. If premiums are paid more rapidly than the rate defined by a "7-Pay Test,"
the contract will be classified as a "modified endowment contract."
2. Any contract received in exchange for a policy classified as a modified
endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-Pay Test.
3. Loans (including unpaid interest thereon) from a modified endowment
contract will be considered distributions.
4. Distributions (including Partial Withdrawals, loans and loan interest,
assignments and pledges) from a modified endowment contract will be taxed
first as distributions of income from the contract (to the extent that the
cash value of the contract, before reduction by any surrender charge or
loan, exceeds the total premiums paid less any previous untaxed
withdrawals), and then as non-taxable recovery of premium.
5. An extra tax of 10% will be imposed on distributions (including surrenders,
partial withdrawals, loans and loan interest, assignments and pledges) from
a modified endowment contract includable in income, unless such
distributions are made (1) after the policyowner attains age 59 1/2, (2)
because the policyowner has become disabled, or (3) as substantially equal
annuity payments over the life or life expectancy of the policyowner (or
the joint lives or life expectancies of the policyowner and his or her
beneficiary).
Policies entered into prior to June 21, 1988, will not be classified as
modified endowment contracts unless the policyowner makes Additional Premium
Payments. Additional Premium Payments made in order to increase the Specified
Amount on or after June 21, 1988, may cause the Policy to be classified as a
modified endowment contract, and loans and other distributions would be treated
as described immediately above. Depending on the circumstances, other
Additional Premium Payments may also cause the Policy to be classified as a
modified endowment contract. If a Policy is not classified as a modified
endowment contract, a loan received under a Policy generally will be treated as
indebtedness of the Policyowner, so that no part of any loan under a Policy will
constitute income to the Policyowner so long as the Policy remains in force.
However, with respect to the portion of any loan that is attributable to cash
value in excess of the total premium payments under the Policy, it is possible
that the Service could treat the Policyowner as being in receipt of certain
amounts of income.
Policies entered into on or after June 21, 1988, are modified endowment
contracts because the initial premium exceeds the premium allowed by the 7-Pay
Test for the first year. Because these Policies are modified endowment
contracts, loans and other distributions will be treated as described in items
3, 4 and 5 above. (Exception: If a Policy is received in exchange for a policy
that was not a modified endowment contract, the Policy may not be a modified
endowment contract. If partial withdrawals are made from the Policy, however,
this might cause the Policy to become a modified endowment contract. Unless Life
of Virginia can so determine, Life of Virginia will assume that the Policy is a
modified endowment contract, and will withhold and report on that basis for
income tax purposes.)
Additionally, all life insurance contracts which are treated as modified
endowment contracts and which are issued by Life of Virginia or any of its
affiliates with the same person designated as the Policyowner within the same
calendar year, will be aggregated and treated as one contract for purposes of
determining any tax on distributions.
The provisions of TAMRA are complex and are open to considerable variation in
interpretation. Policyowners should consult their tax advisors before making
any decisions regarding increases in or additions to coverage or distributions
from their Policies.
Taxation of The Company
Because of its current status under the Code, Life of Virginia does not expect
to incur any federal income tax liability that would be chargeable to Separate
Account III. Based upon this expectation, no charge is being made currently to
Separate Account III for federal income taxes. If, however, Life of Virginia
determines that such taxes may be incurred, it may assess a charge for those
taxes from Separate Account III.
Life of Virginia may also incur state and local taxes (in addition to premium
taxes for which deductions are currently made) in several states. At present,
these taxes are not significant. If there is a material change in applicable
state or local tax laws, charges for such taxes attributable to Separate Account
III may be made.
Income Tax Withholding
Generally, unless the Policyowner provides Life of Virginia a written election
to the contrary before a distribution is made, Life of Virginia is required to
withhold income taxes from a portion of the money received by the Policyowner
upon partial or full surrender of the Policy or if the Policy matures (and, if
the Policy is a modified endowment contract, upon a Policy loan). If the
Policyowner requests that no taxes be withheld, or if Life of Virginia does not
withhold a sufficient amount of taxes, the Policyowner will be responsible for
the payment of any taxes and early distribution penalties that may be due on the
amounts received. The Policyowner may also be required to pay penalties under
the estimated tax rules, if the Policyowner's withholding and estimated tax
payments are insufficient. The Policyowner may, therefore, want to consult a
tax advisor.
Other Considerations
The foregoing discussion is general and is not intended as tax advice. Any
person concerned about these tax implications should consult a competent tax
advisor. This discussion is based on Life of Virginia's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of these current laws and interpretations. It should be further
understood that the foregoing discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
In 1983, the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. The Policy described in this Prospectus
contains guaranteed cost of insurance rates and guaranteed purchase rates for
certain optional payment plans that distinguish between men and women.
Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of Norris, and Title VII generally,
on any employment-related insurance or benefit program for which a Policy may be
purchased.
SAFEKEEPING OF THE ASSETS OF SEPARATE ACCOUNT III
Life of Virginia holds the assets of Separate Account III. The assets are
kept segregated and held separate and apart from the General Account. Life of
Virginia maintains records of all Separate Account III purchases and redemptions
of the shares of each portfolio of the Funds. A blanket fidelity bond issued by
Aetna Casualty and Surety Company of Illinois, in the amount of $15 million
covers all of the officers and employees of Life of Virginia.
VOTING RIGHTS
To the extent required by law, Life of Virginia will vote the Funds' shares
held in Separate Account III at regular and special shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in Separate Account III. If, however, the Investment Company Act of
1940 or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result, Life of Virginia
determines that it is permitted to vote Fund shares in its own right, it may
elect to do so.
The number of votes which each Policyowner has the right to instruct will be
determined by dividing a Policy's Cash Value in an Investment Subdivision of
Separate Account III by the net asset value per share of the corresponding
portfolio in which the Subdivision invests. Fractional shares will be counted.
The number of votes which the Policyowner has the right to instruct will be
determined as of the date coincident with the date established by a particular
Fund for determining shareholders eligible to vote at the meeting of that Fund.
Voting instructions will be solicited by written communications prior to such
meeting in accordance with procedures established by that Fund.
Life of Virginia will vote Fund shares held in Separate Account III as to
which no timely instructions are received and Fund shares held in Separate
Account III that it owns as a consequence of accrued charges under the Policies,
in proportion to the voting instructions which are received with respect to all
Policies funded through Separate Account III. Each person having a voting
interest will receive proxy materials, reports, and other materials relating to
the appropriate Portfolio.
Disregard of Voting Instructions. Life of Virginia may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of a Fund or one or more of its
portfolios or to approve or disapprove an investment advisory contract for a
portfolio of a Fund. In addition, Life of Virginia itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment advisor of a Portfolio of a Fund if Life of Virginia
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Life of Virginia determined that the change would have an adverse
effect on its General Account in that the proposed investment policy for the
portfolio may result in overly speculative or unsound investments. In the event
Life of Virginia does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next semi-annual report
to Policyowners.
STATE REGULATION OF LIFE OF VIRGINIA
Life of Virginia, a stock life insurance company organized under the laws of
Virginia, is subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. An annual statement is filed with the Virginia
Commissioner of Insurance on or before March 1 of each year covering the
operations and reporting on the financial condition of Life of Virginia as of
December 31 of the preceding year. Periodically, the Commissioner of Insurance
examines the liabilities and reserves of Life of Virginia and Separate Account
III and certifies their adequacy, and a full examination of Life of Virginia's
operations is conducted by the State Corporation Commission, Bureau of Insurance
of the Commonwealth of Virginia at least once every five years.
In addition, Life of Virginia is subject to the insurance laws and regulations
of other states within which it is licensed to operate. Generally, the
Insurance Department of any other state applies the laws of the state of
domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF LIFE OF VIRGINIA
Name and Position(s)
With Life of Virginia* Principal Occupations Last Five Years
Daniel T. Cox*** Chairman and Chief Executive Officer, Life of Virginia,
since 12/89; President and Chief Operating Officer, Life of
Virginia, 10/90 to 5/91, and 8/88 to 12/89; Director, Life
of Virginia, since 1987; President, Chief Executive Officer
and Director, Miller, Mason & Dickenson, Chicago, Illinois,
1987 to 1993; Chairman and Director, Brookfield, Inc.,
Chicago, Illinois since 1987; Chairman, Godwins, Booke &
Dickenson, Chicago, Illinois, since 1993; Executive Vice
President, Aon Corporation, since 1991.
Paul E. Rutledge III**
Director, President and Chief Operating Officer, Life of
Virginia, 5/91 to present; Executive Vice President and
Chief Operating Officer, United Investors Life Insurance
Company, Birmingham, Alabama, 9/87 to 4/91; Vice President,
Torchmark Corporation, Birmingham, Alabama, 4/83 to 9/87.
H. Gaylord Hodges, Jr.**
Director, Life of Virginia, since 1987; Senior Vice
President, Life of Virginia, since 1986.
John J. Palmer** Director, Life of Virginia, since 1986; Senior Vice
President, Life of Virginia, since 1980; President, Life of
Virginia Series Fund, Inc., since 1986; President, Forth
Financial Securities Corporation, since 2/92; President, Aon
Asset Management Fund, Inc., since 1991.
Harvey N. Medvin*** Director, Life of Virginia, since 1986; Executive Vice
President, Chief Financial Officer and Treasurer, Aon
Corporation, Chicago, Illinois since 1982.
Arthur F. Quern*** Director, Life of Virginia, since 1986; Chairman & Chief
Executive Officer, Rollins Hudig Hall Co., Chicago,
Illinois, since 1984.
Patrick G. Ryan*** Director, Life of Virginia since 1986; Chairman, Aon
Corporation, since 1991, Director, President & Chief
Executive Officer, Aon Corporation, Chicago, Illinois, since
1982.
William D. Baldwin**
Director, Life of Virginia since 1987; Senior Vice
President, Life of Virginia, since 1985.
Raymond I. Skilling***
Director, Life of Virginia, since 1988; Director, Executive
Vice President and Chief Counsel, Aon Corporation, since
1979.
Robert A. Bowen** Director, Life of Virginia, since 2/93; Senior Vice
President, Life of Virginia, since 1986; Systems Manager,
Life of Virginia, since 1986.
Selwyn L. Flournoy, Jr.**
Director, Life of Virginia, since 5/89; Senior Vice
President, Life of Virginia, since 1980.
Ray M. Perisho**** Director, Life of Virginia, since 1/90; President, Union
Fidelity Life Insurance Company, since 1/90; Employed by
Connecticut Mutual Life Insurance Company from 1981 through
1990 in the following positions: Director of Group
Insurance, 1981 to 1982; Chief Operating Officer of a Stock
Subsidiary, 1982 to 1985, Corporate Actuary, 1985 to 1987,
Chief Financial Officer - Individual Lines, 1987 to 1990.
Linda L. Lanam** Director, Life of Virginia, since 2/93, Vice President and
Senior Counsel, Life of Virginia, since 1989; Corporate
Secretary for Life of Virginia and for a number of Life of
Virginia affiliates, since 1992; Vice President and Senior
Counsel, Union Fidelity Life Insurance Company, from 1986 to
1989.
Michael A. Conway***
Director, Life of Virginia, since 1990; Director and
President, Aon Advisors since 1990; Director, Senior Vice
President and Senior Investment Officer, Combined Insurance
Company of America, since 1990; Senior Vice President and
Senior Investment Officer, Aon Corporation, since 1990;
President and Chief Executive Officer, Manhattan National
Corporation from 1985 to 1990.
Robert D. Chinn Senior Vice President - Agency, Life of Virginia, since
1/92; Vice President, Life of Virginia, since 1985.
Thomas A. Barefield Senior Vice President - Special Markets, Life of Virginia,
since 1993; Vice President - Special Markets, Life of
Virginia, 1/91 to 12/93; Vice President - Registered
Products, Life of Virginia, 12/86 to 1/91.
* The principal business address of each person listed, unless otherwise
indicated, is The Life Insurance Company of Virginia, 6610 W. Broad Street,
Richmond, VA 23230.
** Messrs. Baldwin, Bowen, Hodges, Palmer, Cox, Rutledge, Flournoy and Ms. Lanam
are members of the Executive Committee of the Board of Directors of Life of
Virginia.
*** The principal business address of these individuals is Aon Corporation, 123
North Wacker Drive, Chicago, Illinois 60606.
**** Principal business address of this individual is Union Fidelity Life
Insurance Company, 4850 Street Road, Trevose, Pennsylvania 19049.
LEGAL MATTERS
Certain legal matters relating to federal securities laws applicable to the
issue and sale of the variable life insurance Policy described in this
Prospectus have been passed upon by Sutherland, Asbill & Brennan of Washington,
D.C. All matters of Virginia law pertaining to the Policy, including the
validity of the Policy and Life of Virginia's right to issue the Policies under
Virginia insurance law, have been passed upon by William E. Daner, Jr., Counsel
of Life of Virginia.
LEGAL PROCEEDINGS
There are no legal proceedings to which Separate Account III is a party or to
which the assets of the Account are subject. Neither Life of Virginia nor Forth
Financial Securities Corporation is involved in any litigation that is of
material importance in relation to its total assets or that refers to Separate
Account III.
EXPERTS
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries and the financial statements of Life of Virginia
Separate Account III appearing in this prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein and in the
registration statement. Such financial statements have been included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Bruce E.
Booker, F.S.A., Vice President and Actuary of Life of Virginia, as stated in the
opinion filed as an exhibit to the Registration Statement.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and the amendments and exhibits to the
Registration Statement, to all of which reference is made for further
information concerning Separate Account III, Life of Virginia and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete statement
of the terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries included herein should be distinguished from the
financial statements of Separate Account III and should be considered only as
bearing on the ability of Life of Virginia to meet its obligations under the
Policy. Such consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries should not be considered as bearing on the investment
performance of the assets held in Separate Account III.
AUDITED FINANCIAL STATEMENTS
LIFE OF VIRGINIA SEPARATE ACCOUNT III
YEAR ENDED DECEMBER 31, 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Life of Virginia Separate Account III
Audited Financial Statements
Year Ended December 31, 1994
TABLE OF CONTENTS
Report of Independent Auditors......................................1
Statements of Assets and Liabilities................................3
Statements of Operations............................................8
Statements of Changes in Net Assets.................................8
Notes to Financial Statements......................................22
<PAGE>
Report of Independent Auditors
Policyholders
Life of Virginia Separate Account III
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 III (comprising, the Life of Virginia Series
Fund, Inc.--Common Stock Index, Government Securities, Money Market and Total
Return portfolios; the Oppenheimer Variable Account Funds--Money, Bond, Capital
Appreciation, Growth, High Income and Multiple Strategies portfolios; the
Variable Insurance Products Fund--Money Market, High Income, Equity-Income,
Growth and Overseas portfolios; the Variable Insurance Products Fund II--Asset
Manager portfolio; the Advisers Management Trust--Balanced, Bond and Growth
portfolios and the Janus Aspen--Aggressive Growth, Growth, and Worldwide Growth
portfolios) as of December 31, 1994, and the related statements of operations
and changes in net assets for each of the three years in the period then ended
for the Life of Virginia Series Fund, Inc. portfolios, the Oppenheimer Variable
Account Funds portfolios, the Variable Insurance Products Fund portfolios, the
Variable Insurance Products Fund II portfolio, the Advisers Management Trust
Balanced portfolio and for years ended December 31, 1994 and 1993 and for the
period from May 1, 1992 (date of inception) to December 31, 1992 for the
Advisers Management Trust Bond and Growth portfolios and for the period from May
11, 1994 (date of inception) to December 31, 1994 for the Janus Aspen
portfolios. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1994, by
correspondence with the custodians. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
1
<PAGE>
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
portfolios constituting Life of Virginia Separate Account III at December 31,
1994, and the results of their operations and changes in their net assets for
the periods described in the first paragraph, in conformity with generally
accepted accounting principles.
(Signature of Ernst & Young LLP)
Richmond, Virginia
February 9, 1995
2
<PAGE>
Life of Virginia Separate Account III
Statements of Assets and Liabilities
December 31, 1994
<TABLE>
<CAPTION>
LIFE OF VIRGINIA SERIES FUND, INC.
COMMON GOVERNMENT MONEY TOTAL
STOCK INDEX SECURITIES MARKET RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
ASSETS
Investment in Life of Virginia Series
Fund, Inc., at fair value (NOTE 2):
Common Stock Index Portfolio
(15,054 shares; cost - $258,169) $236,647
Government Securities Portfolio
(74,644 shares; cost - $767,069) $709,864
Money Market Portfolio
(447,007 shares; cost - $4,623,840) $4,546,057
Total Return Portfolio
(56,543 shares; cost - $747,252) $757,680
236,647 709,864 4,546,057 757,680
LIABILITIES
Accrued expenses payable to affiliate (NOTE 2,585 1,125 13,049 165
3)
Deposits pending policy approval - - 653,696 -
Withdrawal in process - - 151,923 -
TOTAL LIABILITIES 2,585 1,125 818,668 165
NET ASSETS $234,062 $708,739 $3,727,389 $757,515
Outstanding units 14,529 46,022 279,834 46,934
Net asset value per unit $ 16.11 $ 15.40 $ 13.32 $ 16.14
</TABLE>
SEE ACCOMPANYING NOTES.
3
Life of Virginia Separate Account III
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
CAPITAL HIGH MULTIPLE
MONEY BOND APPRECIATION GROWTH INCOME STRATEGIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Oppenheimer Variable
Account Funds, at fair value
(NOTE 2):
Money Fund (261,167 shares;
cost-$261,167) $261,167
Bond Fund (233,259 shares;
cost-$2,608,484) $2,514,530
Capital Appreciation Fund (58,750
shares; cost-$1,529,559) $1,524,570
Growth Fund 45,338 shares;
cost-$770,190) $801,581
High Income Fund (113,935
shares; cost-$1,193,357) $1,115,428
Multiple Strategies Fund (133,916
(shares; cost-$1,743,685) $1,728,851
Receivable from affiliate (NOTE 3) - 7,346 5,903 - - -
Deposits in process - 340 - - - 56,146
261,167 2,522,216 1,530,473 801,581 1,115,428 1,784,997
LIABILITIES
Accrued expenses payable to affiliate
(NOTE 3) 611 180 109 2,203 2,995 613
Withdrawal in process - - 43,580 - - -
TOTAL LIABILITIES 611 180 43,689 2,203 2,995 613
NET ASSETS $260,556 $2,522,036 $1,486,784 $799,378 $1,112,433 $1,784,384
Outstanding units 18,745 147,920 76,520 54,677 51,645 108,079
Net asset value per unit $ 13.90 $ 17.05 $ 19.43 $ 14.62 $ 21.54 $ 16.51
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Life of Virginia Separate Account III
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
MONEY HIGH EQUITY-
MARKET INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Variable Insurance
Products Fund, at fair value
(NOTE 2):
Money Market Portfolio
(4,283,332 shares;
cost-$4,283,332) $4,283,332
High Income Portfolio (234,306
shares; cost-$2,522,003) $2,521,131
Equity-Income Portfolio
(312,441 $4,795,973
shares; cost-$4,545,482)
Growth Portfolio (174,235
shares; cost-$3,622,480) $3,779,147
Overseas Portfolio (205,420
shares; cost-$3,160,410) $3,218,926
Receivable from affiliate (NOTE 3) 3,095 - 21,792 - -
Deposit in process - - 340 - -
4,286,427 2,521,131 4,818,105 3,779,147 3,218,926
LIABILITIES
Accrued expenses payable to
affiliate 306 4,098 345 5,027 70,989
(NOTE 3)
Withdrawal in process - - - 44,711 -
TOTAL LIABILITIES 306 4,098 345 49,738 70,989
NET ASSETS $4,286,121 $2,517,033 $4,817,760 $3,729,409 $3,147,937
Outstanding units 307,911 137,168 279,777 205,138 223,734
Net asset value per unit $ 13.92 $ 18.35 $ 17.22 $ 18.18 $ 14.07
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Life of Virginia Separate Account III
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
Variable
Insurance
Products
Fund II Advisers Management Trust
Asset
Manager Balanced Bond Growth
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Assets
Investment in Variable Insurance Products Fund
II,
at fair value (Note 2):
Asset Manager Portfolio (536,231 shares;
cost-$7,577,148) $7,394,629
Investment in Advisers Management Trust, at
fair value (Note 2):
Balanced Portfolio (130,194 shares;
cost-$1,854,054) $1,889,110
Bond Portfolio (56,334 shares; cost- $789,805
$792,693)
Growth Portfolio (15,010 shares;
cost-$330,490) $304,846
Deposit in process - - 24,010 -
7,394,629 1,889,110 813,815 304,846
Liabilities
Accrued expenses payable to affiliate (Note 3) 14,264 1,993 1,760 2,790
Withdrawal in process 90,358 - - -
Total liabilities 104,622 1,993 1,760 2,790
Net assets $7,290,007 $1,887,117 $812,055 $302,056
Outstanding units 467,908 148,475 75,260 27,788
Net asset value per unit $ 15.58 $ 12.71 $ 10.79 $ 10.87
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Life of Virginia Separate Account III
Statements of Assets and Liabilities (continued)
December 31, 1994
<TABLE>
<CAPTION>
Janus Aspen
Aggressive Worldwide
Growth Growth Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Assets
Investment in Janus Aspen, at
fair value (Note 2):
Aggressive Growth Portfolio (30,597 shares;
cost-$410,271) $ 416,738
Growth Portfolio (44,673 shares; cost-$471,311) $ 472,195
Worldwide Portfolio (34,395 shares;
cost-$417,431) $ 415,150
Receivable from affiliate (Note 3) 24,415 1,811 -
Deposit in process - 173,251 -
441,153 647,257 415,150
Liabilities
Accrued expenses payable to affiliate (Note 3) 31 34 1,912
Total liabilities 31 34 1,912
Net assets $ 441,122 $ 647,223 $ 413,238
Outstanding units 38,797 66,450 42,734
Net asset value per unit $ 11.37 $ 9.74 $ 9.67
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
Common Common
Stock Index Stock
Portfolio Portfolio
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Statements of Operations
Investment income (loss)
Income--Dividends $ 3,862 $15,976 $ 1,748
Expenses--Mortality and expense risk charges (Note 3) 2,438 1,015 1,996
Net investment income (loss) 1,424 14,961 (248)
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) 24,353 (255) 4,140
Unrealized appreciation (depreciation) on investments (18,877) (6,074) 130
Net realized and unrealized gain (loss) on investments 5,476 (6,329) 4,270
Increase (decrease) in net assets from operations $ 6,900 $ 8,632 $ 4,022
Statements of Changes in Net Assets
Increase (decrease) in net assets
From Operations:
Net investment income (loss) $ 1,424 $14,961 $ (248)
Net realized gain (loss) 24,353 (255) 4,140
Unrealized appreciation (depreciation) on investments (18,877) (6,074) 130
Increase (decrease) in net assets from operations 6,900 8,632 4,022
From Capital Transactions:
Net premiums - - -
Loan interest 1 (12) (2)
Transfers (to) from the general account of Life of
Virginia:
Surrenders (1,587) (1,324) -
Loans 2,349 - 120
Cost of insurance and administrative expense (Note
3) (2,040) (821) (1,580)
Transfer gain (loss) and transfer fees (Note 3) (2,559) 307 (378)
Interfund transfers 139,818 24,743 (71,625)
Increase (decrease) in net assets from capital
transactions 135,982 22,893 (73,465)
Increase (decrease) in net assets 142,882 31,525 (69,443)
Net assets at beginning of year 91,180 59,655 129,098
Net assets at end of year $ 234,062 $91,180 $ 59,655
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
Government
Securities Bond Money Market Total Return
Portfolio Portfolio Portfolio Portfolio
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 30,120 $ 37,428 $ 23,079 $ 121,314 $ 56,347 $ 28,017 $28,915 $42,460 $14,677
7,015 5,259 3,838 56,058 29,837 8,793 8,331 5,968 5,527
23,105 32,169 19,241 65,256 26,510 19,224 20,584 36,492 9,150
(726) 407 2,619 71,551 (27,086) (24,376) 12,297 9,288 16,239
(53,290) (5,864) (719) (35,496) (22,117) 17,013 (23,103) 3,955 (794)
(54,016) (5,457) 1,900 36,055 (49,203) (7,363) (10,806) 13,243 15,445
$ (30,911) $ 26,712 $ 21,141 $ 101,311 $ (22,693) $ 11,861 $ 9,778 $49,735 $24,595
$ 23,105 $ 32,169 $ 19,241 $ 65,256 $ 26,510 $ 19,224 $ 20,584 $36,492 $9,150
(726) 407 2,619 71,551 (27,086) (24,376) 12,297 9,288 16,239
(53,290) (5,864) (719) (35,496) (22,117) 17,013 (23,103) 3,955 (794)
(30,911) 26,712 21,141 101,311 (22,693) 11,861 9,778 49,735 24,595
- - - 20,660,275 10,578,102 3,070,704 38,027 - -
(1) (3) (18) 4 6 (13) (517) (224) (49)
- - - (9,028) - (23,876) (82,639) (1,311) -
- - - - - - 20,066 24,139 (123,972)
(5,709) (4,240) (3,072) (47,797) (24,901) (7,609) (6,767) (4,738) (4,358)
(1,072) 282 (226) (13,101) (3,674) (1,583) (11) (462) (365)
316,447 60,647 145,304 (19,072,381) (9,287,350) (2,772,116) 249,860 115,969 8,487
309,665 56,686 141,988 1,517,972 1,262,183 265,507 218,019 133,373 (120,257)
278,754 83,398 163,129 1,619,283 1,239,490 277,368 227,797 183,108 (95,662)
429,985 346,587 183,458 2,108,106 868,616 591,248 529,718 346,610 442,272
$ 708,739 $429,985 $346,587 $ 3,727,389 $ 2,108,106 $868,616 $757,515 $529,718 $346,610
</TABLE>
9
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
MONEY
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME (LOSS)
Income--Dividends $ 7,934 $ 8,325 $ 4,762
Expenses--Mortality and expense risk charges (NOTE 3) 2,444 2,669 2,375
Net investment income (loss) 5,490 5,656 2,387
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
Net realized and unrealized gain (loss) on investments - - -
Increase (decrease) in net assets from operations $ 5,490 $ 5,656 $ 2,387
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ 5,490 $ 5,656 $ 2,387
Net realized gain - - -
Unrealized appreciation (depreciation) on investments - - -
Increase (decrease) in net assets from operations 5,490 5,656 2,387
From Capital Transactions:
Loan interest - - -
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - (30,872)
Surrenders - - -
Loans - - -
Cost of insurance and administrative expense (NOTE
3) (1,573) (1,296) (2,093)
Transfer gain (loss) and transfer fees (NOTE 3) (795) (2,546) 2,013
Interfund transfers 209,744 (133,839) 139,014
Increase (decrease) in net assets from capital
transactions 207,376 (137,681) 108,062
INCREASE (DECREASE) IN NET ASSETS 212,866 (132,025) 110,449
NET ASSETS AT BEGINNING OF YEAR 47,690 179,715 69,266
NET ASSETS AT END OF YEAR $ 260,556 $ 47,690 $179,715
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
BOND CAPITAL APPRECIATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 77,461 $ 38,165 $ 37,273 $ 75,387 $ 4,362 $ 3,683 $ 7,353 $ 9,124 $ 3,429
11,684 7,280 6,385 12,482 5,050 5,631 9,424 5,508 3,278
65,777 30,885 30,888 62,905 (688) (1,948) (2,071) 3,616 151
1,885 4,114 22,870 (63,084) 87,712 159,351 1,904 27,000 19,198
(109,321) 24,422 (25,913) (44,360) 22,618 (36,304) (3,327) (4,304) 22,396
(107,436) 28,536 (3,043) (107,444) 110,330 123,047 (1,423) 22,696 41,594
$ (41,659) $ 59,421 $ 27,845 $ (44,539) $ 109,642 $ 121,099 $ (3,494) $ 26,312 $ 41,745
$ 65,777 $ 30,885 $ 30,888 $ 62,905 $ (688) $ (1,948) $ (2,071) $ 3,616 $ 151
1,885 4,114 22,870 (63,084) 87,712 159,351 1,904 27,000 19,198
(109,321) 24,422 (25,913) (44,360) 22,618 (36,304) (3,327) (4,304) 22,396
(41,659) 59,421 27,845 (44,539) 109,642 121,099 (3,494) 26,312 41,745
(25) (36) 6,449 (783) - (1,909) 855 36 (6)
- (20,675) - - - - - - -
(13,105) - - - (1,423) (31,731) (16,371) (15,445) (30,304)
(838) (4,551) 18,826 - - 281 771 (3,248) 762
(10,719) (5,774) (4,797) (10,705) (4,965) (4,415) (7,676) (4,453) (2,635)
7,513 (2,865) (6,976) 5,785 20,632 21,447 (2,179) (728) 1,375
1,974,504 104,351 (6,096) 671,394 536,499 (608,364) 232,662 197,216 224,975
1,957,330 70,450 7,406 665,691 550,743 (624,691) 208,062 173,378 194,167
1,915,671 129,871 35,251 621,152 660,385 (503,592) 204,568 199,690 235,912
606,365 476,494 441,243 865,632 205,247 708,839 594,810 395,120 159,208
$2,522,036 $606,365 $476,494 $1,486,784 $ 865,632 $ 205,247 $ 799,378 $ 594,810 $395,120
</TABLE>
11
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT
HIGH INCOME
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
STATEMENTS OF OPERATIONS (CONTINUED)
<S> <C> <C> <C>
INVESTMENT INCOME
Income--Dividends $ 66,988 $ 21,558 $ 77,131
Expenses--Mortality and expense risk charges (NOTE 3) 9,119 2,200 5,024
Net investment income 57,869 19,358 72,107
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) (7,921) 951 (7,288)
Unrealized appreciation on investments (88,498) 11,143 40
Net realized and unrealized gain (loss) on investments (96,419) 12,094 (7,248)
Increase (decrease) in net assets from operations $ (38,550) $ 31,452 $ 64,859
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 57,869 $ 19,358 $ 72,107
Net realized gain (loss) (7,921) 951 (7,288)
Unrealized appreciation (depreciation) on investments (88,498) 11,143 40
Increase (decrease) in net assets from operations (38,550) 31,452 64,859
From Capital Transactions:
Loan interest 116 374 228
Transfers (to) from the general account of Life of
Virginia:
Death benefits (13,450) - -
Surrenders (7,877) - (39,479)
Loans (976) 118 593
Cost of insurance and administrative expense (NOTE
3) (7,582) (1,698) (4,112)
Transfer gain (loss) and transfer fees (NOTE 3) (2,970) (1,948) 1,339
Interfund transfers 865,998 270,814 (222,888)
Increase (decrease) in net assets from capital
transactions 833,259 267,660 (264,319)
INCREASE (DECREASE) IN NET ASSETS 794,709 299,112 (199,460)
NET ASSETS AT BEGINNING OF YEAR 317,724 18,612 218,072
NET ASSETS AT END OF YEAR $ 1,112,433 $ 317,724 $ 18,612
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
FUNDS (CONTINUED)
<TABLE>
<CAPTION>
MULTIPLE STRATEGIES
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C>
$ 78,665 $ 42,136 $ 33,056
18,173 13,387 9,275
60,492 28,749 23,781
7,076 35,660 24,361
(115,438) 71,724 3,625
(108,362) 107,384 27,986
$ (47,870) $ 136,133 $ 51,767
$ 60,492 $ 28,749 $ 23,781
7,076 35,660 24,361
(115,438) 71,724 3,625
(47,870) 136,133 51,767
(876) (32) 31
- - (10,931)
(79,370) (181,607) (34,636)
18,360 76,257 (52,203)
(14,828) (10,359) (7,582)
(499) (1,610) (2,190)
912,293 147,100 32,706
835,080 29,749 (74,805)
787,210 165,882 (23,038)
997,174 831,292 854,330
$ 1,784,384 $ 997,174 $831,292
</TABLE>
13
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
STATEMENTS OF OPERATIONS (CONTINUED)
<S> <C> <C> <C>
INVESTMENT INCOME
Income--Dividends $ 117,080 $ 48,010 $ 55,304
Expenses--Mortality and expense risk charges (NOTE 3) 36,325 19,864 18,951
Net investment income 80,755 28,146 36,353
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
Net realized and unrealized gain (loss) on investments - - -
Increase (decrease) in net assets from operations $ 80,755 $ 28,146 $ 36,353
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 80,755 $ 28,146 $ 36,353
Net realized gain (loss) - - -
Unrealized appreciation (depreciation) on investments - - -
Increase (decrease) in net assets from operations 80,755 28,146 36,353
From Capital Transactions:
Net premiums - - -
Loan interest 459 468 62
Transfers (to) from the general account of Life of
Virginia:
Death benefits - - (30,867)
Surrenders (188,736) - -
Loans (127,953) (5,809) (32,661)
Cost of insurance and administrative expense (NOTE
3) (29,075) (15,888) (15,180)
Transfer gain (loss) and transfer fees (NOTE 3) 3,232 124 40
Interfund transfers 3,439,732 (82,633) 397,120
Increase (decrease) in net assets from capital
transactions 3,097,659 (103,738) 318,514
INCREASE (DECREASE) IN NET ASSETS 3,178,414 (75,592) 354,867
NET ASSETS AT BEGINNING OF YEAR 1,107,707 1,183,299 828,432
NET ASSETS AT END OF YEAR $ 4,286,121 $1,107,707 $ 1,183,299
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
HIGH INCOME EQUITY-INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 74,381 $ 39,264 $ 29,270 $ 223,035 $ 44,113 $ 24,271 $ 169,544 $ 22,662 $ 42,993
24,358 8,267 9,731 49,043 20,798 9,367 44,949 22,359 15,709
50,023 30,997 19,539 173,992 23,315 14,904 124,595 303 27,284
(9,188) 3,638 94,780 39,859 55,528 1,988 50,460 47,037 163,759
(98,535) 70,284 17,790 5,531 133,181 87,130 (175,677) 216,365 (38,238)
(107,723) 73,922 112,570 45,390 188,709 89,118 (125,217) 263,402 125,521
$ (57,700) $ 104,919 $ 132,109 $ 219,382 $ 212,024 $ 104,022 $ (622) $ 263,705 $ 152,805
$ 50,023 $ 30,997 $ 19,539 $ 173,992 $ 23,315 $ 14,904 $ 124,595 $ 303 $ 27,284
(9,188) 3,638 94,780 39,859 55,528 1,988 50,460 47,037 163,759
(98,535) 70,284 17,790 5,531 133,181 87,130 (175,677) 216,365 (38,238)
(57,700) 104,919 132,109 219,382 212,024 104,022 (622) 263,705 152,805
- - - - - - 38,543 - -
(394) 358 456 (242) (67) (9) (605) (698) (1,222)
- - - (9,401) - (10,936) - - -
- - (32,283) (91,168) (3,961) - (77,570) (18,213) -
(38,133) (14,899) 747 (46,996) 12,987 - (44,927) (4,225) (49,099)
(20,127) (6,706) (8,019) (41,229) (17,555) (7,457) (36,257) (19,003) (13,473)
(4,154) 1,008 5,080 21,282 17,578 1,222 (5,419) 17,017 (2,370)
1,830,069 236,515 85,878 2,288,157 1,391,206 138,637 1,173,835 1,354,413 (643,951)
1,767,261 216,276 51,859 2,120,403 1,400,188 121,457 1,047,600 1,329,291 (710,115)
1,709,561 321,195 183,968 2,339,785 1,612,212 225,479 1,046,978 1,592,996 (557,310)
807,472 486,277 302,309 2,477,975 865,763 640,284 2,682,431 1,089,435 1,646,745
$ 2,517,033 $ 807,472 $ 486,277 $ 4,817,760 $ 2,477,975 $ 865,763 $ 3,729,409 $2,682,431 $1,089,435
</TABLE>
15
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND (CONTINUED)
OVERSEAS
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
STATEMENTS OF OPERATIONS (CONTINUED)
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income--Dividends $ 25,352 $ 62,852 $ 15,097
Expenses--Mortality and expense risk charges (NOTE 3) 46,220 45,727 15,211
Net investment income (loss) (20,868) 17,125 (114)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) 799,938 15,392 (1,117)
Unrealized appreciation (depreciation) on investments (781,857) 979,332 (175,103)
Net realized and unrealized gain (loss) on investments 18,081 994,724 (176,220)
Increase (decrease) in net assets from operations $ (2,787) $ 1,011,849 $ (176,334)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ (20,868) $ 17,125 $ (114)
Net realized gain (loss) 799,938 15,392 (1,117)
Unrealized appreciation (depreciation) on investments (781,857) 979,332 (175,103)
Increase (decrease) in net assets from operations (2,787) 1,011,849 (176,334)
From Capital Transactions:
Net premiums - 2,553 -
Loan interest 176 (481) (4,224)
Transfers (to) from the general account of Life of
Virginia:
Death benefits (23,147) - -
Surrenders (8,499) - (35,386)
Loans (108,886) 135,805 (41,254)
Cost of insurance and administrative expense (NOTE
3) (36,676) (37,243) (12,463)
Transfer gain (loss) and transfer fees (NOTE 3) (69,891) 4,463 (1,595)
Interfund transfers (1,281,245) 925,760 1,779,862
Increase (decrease) in net assets from capital
transactions (1,528,168) 1,030,857 1,684,940
INCREASE (DECREASE) IN NET ASSETS (1,530,955) 2,042,706 1,508,606
NET ASSETS AT BEGINNING OF YEAR 4,678,892 2,636,186 1,127,580
NET ASSETS AT END OF YEAR $ 3,147,937 $ 4,678,892 $ 2,636,186
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGEMENT
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
STATEMENTS OF OPERATIONS (CONTINUED)
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income--Dividends $ 244,645 $ 31,941 $ 2,978
Expenses--Mortality and expense risk charges (NOTE 3) 85,004 32,174 2,919
Net investment income (loss) 159,641 (233) 59
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments (78,029) 20,784 2,960
Unrealized appreciation (depreciation) on investments (664,103) 450,922 22,155
Net realized and unrealized gain (loss on investments (742,132) 471,706 25,115
Increase (decrease) in net assets from operations $ (582,491) $ 471,473 $ 25,174
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ 159,641 $ (233) $ 59
Net realized gain (loss) (78,029) 20,784 2,960
Unrealized appreciation (depreciation) on investments (664,103) 450,922 22,155
Increase (decrease) in net assets from operations (582,491) 471,473 25,174
From Capital Transactions:
Net premiums - - -
Loan interest 248 (59) 250
Transfers (to) from the general account of Life of
Virginia:
Death benefits (36,529) - -
Surrenders (9,335) - -
Loans 28,270 21,120 (37,081)
Cost of insurance and administrative expense (NOTE
3) (69,410) (27,062) (2,391)
Transfer gain (loss) and transfer fees (NOTE 3) (13,452) 15,954 380
Interfund transfers 3,330,776 3,533,658 583,987
Increase in net assets from capital transactions 3,230,568 3,543,611 545,145
INCREASE IN NET ASSETS 2,648,077 4,015,084 570,319
NET ASSETS AT BEGINNING OF YEAR 4,641,930 626,846 56,527
NET ASSETS AT END OF YEAR $ 7,290,007 $4,641,930 $626,846
</TABLE>
SEE ACCOMPANYING NOTES.
17
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
ADVISERS MANAGEMENT TRUST
BALANCED
PORTFOLIO
YEAR ENDED DECEMBER 31,
1994 1993 1992
STATEMENTS OF OPERATIONS (CONTINUED)
<S> <C> <C> <C>
INVESTMENT INCOME
Income--Dividends $ 62,843 $ 20,151 $ 13,986
Expenses--Mortality and expense risk charges (NOTE 3) 22,785 19,172 12,574
Net investment income 40,058 979 1,412
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) 13,727 14,594 (1,777)
Unrealized appreciation (depreciation) on investments (137,181) 63,608 74,290
Net realized and unrealized gain (loss) on investments (123,454) 78,202 72,513
Increase (decrease) in net assets from operations $ (83,396) $ 79,181 $ 73,925
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 40,058 $ 979 $ 1,412
Net realized gain (loss) 13,727 14,594 (1,777)
Unrealized appreciation (depreciation) on investments (137,181) 63,608 74,290
Increase (decrease) in net assets from operations (83,396) 79,181 73,925
From Capital Transactions:
Net premiums 40 - -
Transfers (to) from the general account of
Life of Virginia:
Surrenders - (14,516) -
Loans (1,218) - -
Cost of insurance and administrative
charges (NOTE 3) (18,451) (16,437) (10,136)
Transfer gain and transfer fees (NOTE 3) (3,236) 7,865 302
Interfund transfers 417,986 233,345 717,014
Increase in net assets from capital transactions 395,121 210,257 707,180
INCREASE IN NET ASSETS 311,725 289,438 781,105
NET ASSETS AT BEGINNING OF YEAR 1,575,392 1,285,954 504,849
NET ASSETS AT END OF YEAR $ 1,887,117 $1,575,392 $1,285,954
</TABLE>
SEE ACCOMPANYING NOTES.
18
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
ADVISERS MANAGEMENT
BOND
PORTFOLIO
PERIOD FROM
MAY 1, 1992 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1994 1993 1992
STATEMENTS OF OPERATIONS (CONTINUED)
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income--Dividends $ 14,592 $ 2,591 $ -
Expenses--Mortality and expense risk charges (NOTE 3) 8,596 1,538 50
Net investment income (loss) 5,996 1,053 (50)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) (5,627) 3,222 -
Unrealized appreciation (depreciation) on investments (3,564) 422 254
Net realized and unrealized gain (loss) on investments (9,191) 3,644 254
Increase (decrease) in net assets from operations $ (3,195) $ 4,697 $ 204
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss) $ 5,996 $ 1,053 $ (50)
Net realized gain (loss) (5,627) 3,222 -
Unrealized appreciation (depreciation) on investments (3,564) 422 254
Increase (decrease) in net assets from operations (3,195) 4,697 204
From Capital Transactions:
Transfers (to) from the general account of Life of
Virginia:
Death benefits (8,977) - -
Surrenders (82,405) - -
Loans (26,252) - -
Cost of insurance and administrative charges (NOTE
3) (7,646) (1,250) (27)
Transfer gain (loss) and transfer fees (NOTE 3) (1,860) (3) 51
Interfund transfers 745,043 130,848 62,827
Increase in net assets from capital transactions 617,903 129,595 62,851
INCREASE IN NET ASSETS 614,708 134,292 63,055
NET ASSETS AT BEGINNING OF PERIOD 197,347 63,055 -
NET ASSETS AT END OF PERIOD $ 812,055 $197,347 $63,055
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Trust (continued)
<TABLE>
<CAPTION>
Growth
Portfolio
Period from May 1,
1992 to December
Year Ended December 31, 31,
1994 1993 1992
<S> <C> <C>
$ 32,391 $ 678 $ -
3,818 2,375 50
28,573 (1,697) (50)
(7,042) 1,209 1,083
(44,045) 18,281 120
(51,087) 19,490 1,203
$ (22,514) $ 17,793 $ 1,153
$ 28,573 $ (1,697) $ (50)
(7,042) 1,209 1,083
(44,045) 18,281 120
(22,514) 17,793 1,153
- - -
- - -
(20,645) - -
(3,141) (1,959) (80)
(1,848) 279 (435)
83,486 240,738 9,229
57,852 239,058 8,714
35,338 256,851 9,867
266,718 9,867 -
$ 302,056 $ 266,718 $ 9,867
</TABLE>
20
<PAGE>
Life of Virginia Separate Account III
<TABLE>
<CAPTION>
Janus Aspen
Aggressive WORLDWIDE
Growth Growth GROWTH
Portfolio Portfolio PORTFOLIO
Period from May 11, 1994
to December 31, 1994
Statements of Operations (continued)
<S> <C> <C> <C>
Investment income (loss)
Income--Dividends $ 3,044 $ 1,325 $ 8
Expenses--Mortality and expense risk charges (Note 3) 1,506 2,240 2,227
Net investment income (loss) 1,538 (915) (2,219)
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) 11,250 554 (4,342)
Unrealized appreciation (depreciation) on investments 6,467 884 (2,281)
Net realized and unrealized gain (loss) on investments 17,717 1,438 (6,623)
Increase (decrease) in net assets from operations $ 19,255 $ 523 $ (8,842)
Statements of Changes in Net Assets (continued)
Increase (decrease) in net assets
From Operations:
Net investment income (loss) $ 1,538 $ (915) $ (2,219)
Net realized gain (loss) 11,250 554 (4,342)
Unrealized appreciation depreciation on investments 6,467 884 (2,281)
Increase (decrease) in net assets from operations 19,255 523 (8,842)
From Capital Transactions:
Transfers (to) from the general account of Life of
Virginia:
Cost of insurance and administrative expense (Note
3) (1,760) (1,892) (1,830)
Transfer gain (loss) and transfer fees (Note 3) 24,384 1,810 (1,887)
Interfund transfers 399,243 646,782 425,797
Increase in net assets from capital transactions 421,867 646,700 422,080
Increase in net assets 441,122 647,223 413,238
Net assets at beginning of period - - -
Net assets at end of period $441,122 $647,223 $ 413,238
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
Life of Virginia Separate Account III
Notes to Financial Statements
December 31, 1994
1. DESCRIPTION OF ENTITY
Life of Virginia Separate Account III (the Account) is a separate investment
account established in 1987 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 single premium variable life
insurance policies issued by Life of Virginia. Life of Virginia is an indirect
wholly-owned subsidiary of Aon Corporation (Aon).
During 1994, the Janus Aspen portfolios were made available to
policyholders. Policyholders may invest in either the Aggressive Growth, Growth
or Worldwide Growth portfolios.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Effective May 1, 1993, the names of the Life of Virginia Series Fund, Inc.
Common Stock and Bond portfolios were changed to the Common Stock Index and
Government Securities portfolios, respectively, in conjunction with changing the
portfolios' underlying investment strategies.
Investments are stated at fair value of which is based on the percentage
owned by the Account of the net asset value of the respective portfolios or
funds. Purchases and sales of investments are recorded on the trade date.
Realized gains and losses on investments are determined on the average cost
basis. The units and unit values are disclosed as of the last business day in
the applicable year or period.
22
<PAGE>
Life of Virginia Separate Account III
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The aggregate cost of the investments acquired and the aggregate proceeds of
investments sold, for the year ended December 31, 1994, were:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Fund/Portfolio Acquired Shares Sold
<S> <C> <C>
Life of Virginia Series Fund, Inc.:
Common Stock Index $ 495,627 $ 355,662
Government Securities 350,815 16,984
Money Market 29,826,013 28,365,385
Total Return 509,411 270,815
Oppenheimer Variable Account Funds:
Money 2,225,806 2,012,168
Bond 2,091,996 76,648
Capital Appreciation 2,659,016 1,892,660
Growth 381,737 173,597
High Income 1,342,902 448,775
Multiple Strategies 1,130,301 290,396
Variable Insurance Products Fund:
Money Market 9,560,938 6,385,768
High Income 6,225,100 4,403,645
Equity-Income 2,794,580 521,819
Growth 2,962,281 1,740,086
Overseas 4,664,393 6,144,058
Variable Insurance Products Fund II:
Asset Manager 4,965,580 1,471,712
Advisers Management Trust:
Balanced 680,779 243,252
Bond 1,251,374 649,836
Growth 208,642 119,357
Janus Aspen:
Aggressive Growth 2,832,205 2,433,184
Growth 501,250 30,493
Worldwide Growth 728,654 306,881
</TABLE>
23
<PAGE>
Life of Virginia Separate Account III
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Account is not taxed separately because the operations of the Account
are part of the total operations of Life of Virginia. Life of Virginia is taxed
as a life insurance company under the Internal Revenue Code (the Code). Life of
Virginia is included in the Aon life -nonlife consolidated federal income tax
return. The Account will not be taxed as a regulated investment company under
subchapter M of the Code. Under existing federal income tax law, no taxes are
payable on the investment income or on the capital gains of the Account.
3. RELATED PARTY TRANSACTIONS
The 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. During the first ten years following a premium payment,
a charge is deducted monthly at an effective annual rate of .50% from the policy
cash value to cover distribution expenses and premium taxes. 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. Subject to certain
limitations, the charge generally equals 6% of the premium withdrawn in the
first four years, and this charge decreases 1% per year for every year
thereafter. A charge equal to the lesser of $25 or 2% of the amount paid on a
partial surrender will be made to compensate Life of Virginia for the costs
incurred in connection with the partial surrender.
A charge based on policy cash values, duration, the insured's sex, attained
age and risk class, is deducted from policy cash values each month to compensate
Life of Virginia for the cost of insurance and any benefits added by rider. In
addition, Life of Virginia charges the Account for the mortality and expense
risk that Life of Virginia assumes. This charge is deducted daily and equals
the effective annual rate of .90% of the net assets of the Account. Life of
Virginia also charges the Account for certain administrative charges which are
deducted daily and equal the effective annual rate of .40% of the net assets of
the Account.
Gains or losses resulting from the processing time between the receipt of
an initial premium and the investment of that premium are charged to Life of
Virginia. In addition, any such gain or loss resulting from the processing time
between a request for policy surrender and the payment is also charged to Life
of Virginia.
24
<PAGE>
Life of Virginia Separate Account III
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Life of Virginia Series Fund, Inc. (the Fund) is an open-end diversified
management investment company whose shares are sold to Life of Virginia's
Separate Accounts.
Forth Financial Securities Corporation (FFSC), an indirect wholly-owned
subsidiary of Aon, acts as principal underwriter (as defined in The Investment
Company Act of 1940) of the Account's policies pursuant to an agreement with
Life of Virginia.
Aon Advisors, Inc. (Investment Advisor), a wholly-owned subsidiary of Aon,
serves as investment advisor to the Fund and provides portfolio management,
investment advice, and related administrative services for the Fund. As
compensation for its services, the Investment Advisor is paid an investment
advisory fee by the Fund based on the average daily net assets at an effective
annual rate of .35% for the Common Stock Index portfolio and .50% for the
Government Securities, Money Market and Total Return portfolios. Effective July
1, 1994, the investment advisor agreed to waive a portion of the advisory fee
for the Money Market portfolio such that the effective annual rate is .10%.
Prior to May 1, 1993, the effective annual rate for the Common Stock Index
portfolio was .50%.
Certain officers and directors of Life of Virginia are also officers and
directors of FFSC, the Fund, the Investment Advisor or Aon.
4. SUBSEQUENT EVENTS
In January 1995, three new investment subdivisions were added to the
Account. Two of these subdivisions, the Utility and Corporate Bond invest solely
in a designated portfolio of the Insurance Management Series (IMS), a series
type mutual fund. The third new subdivision, the Contrafund, invests solely in
a designated portfolio of the Variable Insurance Product Fund II (VIP II), a
series type mutual fund. These investment subdivisions are not available in
connection with policies issued to California policyholders.
25
<PAGE>
Audited Consolidated Financial Statements
The Life Insurance Company of Virginia
and Subsidiaries
Year Ended December 31, 1994
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<PAGE>
____________________________________________________________________________
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Financial Statements
Consolidated Statements of Financial Position
as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
____________________________________________________________________________
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statements of financial
position of The Life Insurance Company of Virginia (an indirect wholly-
owned subsidiary of Aon Corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income,
stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Life
Insurance Company of Virginia and subsidiaries at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 1, 4 and 7, the Company changed its method of
accounting for certain investments in 1994 and income taxes and
postretirement benefits other than pensions in 1992.
Richmond, Virginia
February 9, 1995
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) December 31
1994 1993
Assets
Investments
Fixed maturities
Held to maturity - at amortized cost
(fair value: 1994 - $2,790.0;
1993 - $4,008.5) $3,023.7 $3,865.1
Available for sale - 1994 at fair value;
1993 at amortized cost
(1994 amortized cost: $2,065.4;
1993 fair value: $1,527.8) 1,910.5 1,494.6
Equity securities - at fair value
Common stocks (cost: 1994 - $10.9;
1993 - $39.1) 13.4 45.5
Preferred stocks (cost: 1994 - $117.2;
1993 - $241.4) 111.8 270.9
Mortgage loans on real estate (net of reserve
for losses: 1994 - $27.3; 1993 - $38.6) 527.6 508.1
Real estate (net of accumulated depreciation:
1994 - $6.5; 1993 - $6.1) 35.4 34.0
Policy loans 165.3 156.9
Other long-term investments 9.3 11.1
Short-term investments 106.9 105.2
Total investments 5,903.9 6,491.4
Cash 23.0 23.1
Receivables
Premiums and other 68.3 168.8
Accrued investment income 75.6 84.0
Receivable from affiliates 347.2 35.2
Total receivables 491.1 288.0
Deferred Policy Acquisition Costs 388.1 413.2
Cost of Insurance Purchased
(net of accumulated amortization: 1994 - $70.1;
1993 - $65.0) 48.6 53.7
Property and Equipment at Cost
(net of accumulated depreciation: 1994 - $23.5;
1993 - $20.3) 7.5 7.0
Assets Held Under Special Contracts 1,429.7 898.2
Other Assets 57.9 54.8
Total Assets $8,349.8 $8,229.4
======== ========
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- Continued
(millions)
December 31
1994 1993
Liabilities and Stockholder's Equity
Policy Liabilities
Future policy benefits $ 589.9 $ 594.6
Policy and contract claims 83.8 109.9
Unearned and advance premiums 229.7 318.5
Other policyholder funds 5,019.8 5,163.2
Total policy liabilities 5,923.2 6,186.2
General Liabilities
Commissions and general expenses 46.9 38.4
Current income taxes 14.5 50.2
Deferred income taxes 21.0 69.5
Liabilities held under special contracts 1,429.7 898.2
Other liabilities 147.1 130.8
Total Liabilities 7,582.4 7,373.3
Commitments and Contingent Liabilities
Stockholder's Equity
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Paid-in additional capital 704.1 704.1
Net unrealized investment gains (losses) (97.5) 23.6
Net foreign exchange losses (3.0) (2.3)
Retained earnings 159.8 126.7
Total Stockholder's Equity 767.4 856.1
Total Liabilities and Stockholder's Equity $8,349.8 $8,229.4
======== ========
_____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(millions)
Years ended December 31
1994 1993 1992
Revenue
Premiums and policy fees $230.1 $256.5 $248.5
Net investment income (Note 3) 490.6 513.5 507.2
Realized investment losses (25.8) (1.6) (16.3)
Other income 8.5 14.5 12.1
Total revenue earned 703.4 782.9 751.5
Benefits and Expenses
Benefits to policyholders 477.1 491.0 497.1
Commissions and general expenses 75.7 92.4 100.7
Amortization of deferred policy acquisition costs 57.1 65.7 61.5
Amortization of cost of insurance purchased 5.1 5.4 5.4
Total benefits and expenses 615.0 654.5 664.7
Income Before Income Tax and Cumulative Effect
of Changes in Accounting Principles 88.4 128.4 86.8
Provision for income tax (Note 4)
Current 21.0 52.9 46.7
Deferred - credit (5.7) (6.7) (13.7)
Income Before Cumulative Effect of Changes in
Accounting Principles 73.1 82.2 53.8
Cumulative effect of changes in accounting
principles - - 16.4
Net Income $ 73.1 $ 82.2 $ 70.2
====== ====== ======
_____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31
1994 1993 1992
Cash Flows from Operating Activities:
Net income $ 73.1 $ 82.2 $ 70.2
Adjustments to reconcile net income to
cash provided by (used by) operating
activities:
Policy liabilities 331.4 334.9 206.7
Accrued investment income 1.8 (2.3) 5.9
Deferred policy acquisition costs (91.8) (105.4) (94.7)
Amortization of deferred policy
acquisition costs 57.1 65.7 61.5
Amortization of cost of insurance purchased 5.1 5.4 5.4
Other amortization and depreciation 2.3 2.1 1.3
Premiums and operating receivables,
commissions and general expenses, income
taxes, other assets and other liabilities (139.7) (161.1) (16.9)
Realized investment losses 25.8 1.6 16.3
Cash Provided by Operating Activities 265.1 223.1 255.7
Cash Flows from Investing Activities:
Sale (purchase) of short-term investments-net (.3) (17.3) 36.4
Sale or maturity of investments
Fixed maturities - Held to maturity
Maturities 50.8 64.6 52.2
Calls and Prepayments 727.5 1,962.5 1,460.7
Sales - 28.0 188.5
Fixed maturities - Available for sale
Maturities 50.4 - 0.1
Calls and Prepayments 269.1 480.9 20.6
Sales 444.7 209.0 64.0
All other investments 231.1 184.3 154.1
Purchase of investments
Fixed maturities - Held to maturity (734.0) (2,142.7) (2,089.7)
Fixed maturities - Available for sale (1,018.5) (967.1) (163.8)
All other investments (357.1) (260.6) (111.5)
Property and equipment (1.8) 22.7 (1.9)
Cash Used by Investing Activities (338.1) (435.7) (390.3)
Cash Flows from Financing Activities:
Cash dividends to stockholder (20.0) (59.0) (56.0)
Interest sensitive life, annuity and
investment contract deposits 1,455.5 1,376.0 955.6
Interest sensitive life, annuity and
investment contract withdrawals (1,362.6) (1,089.9) (761.4)
Cash Provided by Financing Activities 72.9 227.1 138.2
Increase (Decrease) in Cash (.1) 14.5 3.6
Cash at Beginning of Year 23.1 8.6 5.0
Cash at End of Year $ 23.0 $ 23.1 $ 8.6
======== ======== ========
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(millions)
Years ended December 31
1994 1993 1992
Common Stock
Balance at January 1 and December 31 $ 4.0 $ 4.0 $ 4.0
Paid-in Additional Capital
Balance at January 1 and December 31 704.1 704.1 704.1
Net Unrealized Investment Gains (Losses)
Balance at January 1 23.6 17.0 9.9
Effect of change in accounting principles
at January 1 25.1 - -
Net unrealized investment gains (losses) (146.2) 6.6 7.1
Balance at December 31 (97.5) 23.6 17.0
Net Foreign Exchange Gains (Losses)
Balance at January 1 (2.3) (2.4) .4
Net foreign exchange gains (losses) (.7) .1 (2.8)
Balance at December 31 (3.0) (2.3) (2.4)
Retained Earnings
Balance at January 1 126.7 110.6 99.5
Net income 73.1 82.2 70.2
Dividends to stockholder (40.0) (59.0) (56.0)
Stock dividend to affiliate (Note 2) - (7.1) (3.1)
Balance at December 31 159.8 126.7 110.6
Stockholder's Equity at December 31 $767.4 $856.1 $833.3
====== ====== ======
____________________________________________________________________________
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles and Practices
Principles of Consolidation
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and
include the accounts of The Life Insurance Company of Virginia and
its subsidiaries ("Life of Virginia"). Life of Virginia is an
indirect wholly owned subsidiary of Aon Corporation ("Aon"). All
material intercompany accounts and transactions have been eliminated.
Recognition of Premium Revenue and Related Expenses
For universal life-type and investment products, generally there is no
requirement for payment of premium other than to maintain account
values at a level sufficient to pay mortality and expense charges.
Consequently, premiums for universal life-type policies and investment
products are not reported as revenue, but as deposits. Policy fee
revenue for universal life-type policies and investment products
consists of charges for the cost of insurance, policy administration,
and surrenders assessed during the period. Expenses include interest
credited to policy account balances and benefit claims incurred in
excess of policy account balances.
In general, for accident and health products, premiums collected are
reported as earned proportionately over the period covered by the
policies. For all other life products, premiums are recognized as
revenue when due. Benefits and related expenses associated with the
premium revenues are charged to expense proportionately over the lives
of the policies through a provision for future policy benefit
liabilities and through deferral and amortization of deferred policy
acquisition costs.
Reinsurance
Reinsurance premiums, commissions, and expense reimbursements on
reinsured business are accounted for on a basis consistent with those
used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums and benefits ceded to other
companies have been reported as a reduction of premium revenue and
benefits. Expense reimbursements received in connection with
reinsurance ceded have been accounted for as a reduction of the
related policy acquisition costs or, to the extent such reimbursements
exceed the related acquisition costs, as other revenue. All
reinsurance receivables and prepaid reinsurance premium amounts are
reported as assets.
Special Charges
In 1992, Life of Virginia recorded special charges for employee
reductions, which included an early retirement program and a reserve
for insurance industry insolvencies. The above charges aggregated
$11.4 million before income taxes and are reported in commissions and
general expenses.
Income Tax
Deferred income taxes have been provided for the effects of temporary
differences between financial reporting and tax bases of assets and
liabilities and have been measured using the enacted marginal tax
rates and laws that are currently in effect.
Investments
Fixed maturities, where the intent is to hold to maturity, are carried
generally at amortized cost. As a result of adopting Statement of
Financial Accounting Standards ("Statement") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" on January 1, 1994,
fixed maturities that are available for sale are carried at fair value
at December 31, 1994. At December 31, 1993, fixed maturities
available for sale were carried, on an aggregate basis, at the lower
of amortized cost or fair value. The amortized cost of fixed
maturities is adjusted for amortization of premiums and accretion of
discounts to maturity that are included in net investment income.
Included in fixed maturities are investments in collateralized
mortgage obligations ("CMOs"). Premiums and discounts arising from
the purchase of CMOs are treated as yield adjustments and included in
net investment income. Equity securities are valued at fair value.
Unrealized gains and temporary unrealized losses on fixed maturities
available for sale and equity securities are excluded from income and
are recorded directly to stockholder's equity, net of related deferred
income taxes. Mortgage loans are carried at amortized cost, net of
reserves. Real estate is carried generally at cost less accumulated
depreciation. Policy loans are carried at unpaid principal balance.
Other long-term investments are carried generally at cost. Realized
investment gains or losses are computed using specific costs of
securities sold.
Investments that have declines in fair value below cost, that are
judged to be other than temporary, are written down to estimated fair
values and reported as realized investment losses. Additionally,
reserves for mortgage loans and certain other long-term investments
are established based on an evaluation of the respective investment
portfolio, past credit loss experience, and current economic
conditions. Writedowns and reserves are included in realized
investment gains and losses in the statements of income. In general,
Life of Virginia ceases to accrue investment income where interest or
dividend payments are in arrears.
Accounting policies relating to derivative financial instruments are
discussed in Note 12.
Deferred Policy Acquisition Costs
Costs of acquiring new business, principally the excess of new
commissions over renewal commissions, underwriting and sales expenses
that vary with and are primarily related to the production of new
business, are deferred. For non-universal life-type products,
amortization of deferred acquisition costs and the cost of insurance
purchased is related to and based on the expected premium revenues on
the policies. In general, such amortization is adjusted to reflect
current withdrawal experience. Expected premium revenues are
estimated by using the same assumptions used in estimating future
policy benefits.
In general, deferred policy acquisition costs and cost of insurance
purchased related to universal life-type policies and investment
products are amortized in relation to the present value of expected
gross profits on the policies. Such amortization is adjusted
periodically to reflect differences in actual and assumed gross
profits.
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment of deferred policy
acquisition costs had those gains or losses actually been realized,
the related deferred policy acquisition cost adjustments are recorded
along with the unrealized gains or losses included in stockholder's
equity with no effect on net income.
Other Intangible Assets
The excess of cost over net assets purchased relating to business
acquisitions and the cost of insurance purchased are being amortized
into income on a straight-line basis over a range of seven to forty
years.
Property and Equipment
Property and equipment are generally depreciated using the straight-
line method over their estimated useful lives.
Assets and Liabilities Held Under Special Contracts
Assets held under special contracts principally represent designated
funds of group pension, variable life and annuity policyholders.
These assets are offset by liabilities that represent such
policyholders' equity in those assets. The net investment income
generated from these assets is not included in the consolidated
statements of income.
Future Policy Benefit Liabilities and Unearned Premiums and Policy and
Contract Claims
Future policy benefit liabilities on non-universal life-type and
accident and health products have been provided on the net level
premium method. The liabilities are calculated based on assumptions
as to investment yield, mortality, morbidity and withdrawal rates that
were determined at the date of issue or acquisition of Life of
Virginia by Aon, and provide for possible adverse deviations.
Interest assumptions are graded and range from 9% to 4.5%. Withdrawal
assumptions are based principally on experience and vary by plan, year
of issue, and duration.
Policyholder liabilities on universal life-type and investment
products are generally based on policy account values. Interest
credit rates for these products range from 7.8% to 5.6%.
Unearned premiums generally are calculated using the pro rata method
based on gross premiums. However, in the case of credit life and
credit accident and health, the unearned premiums are calculated such
that the premiums are earned over the period of risk in a reasonable
relationship
to anticipated claims.
Policy and contract claim liabilities represent estimates for reported
claims, as well as provisions for losses incurred, but not yet
reported. These claim liabilities are based on historical experience
and are estimates of the ultimate amount to be paid when the claims
are settled. Changes in the estimated liability are reflected in
income as the estimates are revised.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair
values for financial instruments. The carrying amounts in the
consolidated statements of financial position for cash and short-term
investments approximate their fair values. Fair values for fixed
maturity securities and equity securities are based on quoted market
prices or, if they are not actively traded, on estimated values
obtained from independent pricing services. The fair values for
mortgage loans and policy loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Fair values
of derivatives are based on quoted prices for exchange-traded
instruments or the cost to terminate or offset with other contracts.
In general, other long-term investments are comprised of real estate
joint ventures and limited partnerships. It was not practicable to
estimate the fair value of other long-term investments because of the
lack of quoted market prices and the inability to estimate fair value
without incurring excessive costs. In addition, the determination of
the fair value of investment commitments was deemed impracticable due
to the inability to estimate future cash flows.
Fair values for liabilities for investment-type contracts are
estimated using discounted cash flow calculations based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Foreign Currency Translation
Foreign revenues and expenses are translated at average exchange
rates. Foreign assets and liabilities are translated at year-end
exchange rates. Unrealized foreign exchange gains or losses on
translation are generally reported in stockholder's equity. No tax
effect was taken into consideration for unrealized losses.
Accounting Changes
On January 1, 1994, Life of Virginia adopted Statement No. 115 which
requires categorization of fixed maturities either as held to
maturity, available for sale or trading and equity securities as
available for sale or trading. Investments in fixed maturities and
equity investments, that are categorized as available for sale, are
carried at fair value, with unrealized gains and losses (net of
applicable tax and adjustment to amortization of deferred policy
acquisition costs) excluded from income and recorded directly as a
separate component of stockholder's equity. Life of Virginia does not
categorize any fixed maturities or equity securities as trading.
The adoption of Statement No. 115 had no effect on Life of Virginia's
accounting for equity securities. In accordance with Statement No.
115, prior period financial statements have not been restated to
reflect the change in accounting principle.
In addition, Life of Virginia adopted Statement No. 112, "Employers'
Accounting for Postemployment Benefits" in 1994. Implementation of
this Statement did not have a material effect on Life of Virginia's
financial statements. Life of Virginia adopted Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (Note 7) and Statement No. 109, "Accounting for Income
Taxes" (Note 4) in 1992.
The Financial Accounting Standards Board has issued Statements No. 114
and 118 which relate to accounting by creditors for impairment of a
loan. The Statements require that impaired loans are to be valued at
the present value of expected future cash flows, at the loan's
observable market price, or at the fair value of the collateral if the
loan is collateral dependent. Life of Virginia anticipates adopting
these Statements in its 1995 financial statements as required.
Implementation of these Statements is not expected to have a material
effect on Life of Virginia's financial statements.
2. Business Combinations and Disposals
In December 1993, Life of Virginia contributed 267,800 shares at cost
of Aon common stock to Combined Insurance Company of America
("Combined"). The fair value and cost of the Aon shares were $12.6
million and $7.1 million, respectively.
In September 1992, Life of Virginia contributed, in the form of a
stock dividend, all outstanding shares of common stock of its wholly-
owned subsidiary, Associated Home Life Insurance Company, to Combined.
Total assets of Associated Home Life Insurance Company transferred by
the stock dividend were $3.1 million.
3. Investments
The components of net investment income are as follows:
(millions)
Years ended December 31
1994 1993 1992
Fixed maturities $404.1 $426.8 $420.6
Equity securities 25.2 19.7 17.7
Mortgage loans on real estate 49.9 50.0 54.8
Short-term investments 3.8 1.5 4.2
Other investments 18.0 23.9 20.6
Gross investment income 501.0 521.9 517.9
Investment expenses 10.4 8.4 10.7
Net investment income $490.6 $513.5 507.2
====== ====== ======
Realized gains (losses) on investments are as follows:
Years ended December 31
1994 1993 1992
Fixed maturities:
Held to maturity $ 1.5 $ 16.3 $ 3.9
Available for sale (30.6) - -
Equity securities (1.9) 2.2 5.7
Mortgage loans on real estate 9.6 (15.8) (18.5)
Other investments (4.4) (4.3) (7.4)
Total before tax (25.8) (1.6) (16.3)
Less applicable tax 9.0 .5 6.1
Total $(16.8) $ (1.1) $(10.2)
====== ====== ======
Gross gains of $24.0 million, and gross losses of $56.5 million, were
realized on available for sale fixed maturities and equity sales
during 1994. Gross gains of $11.3 million and gross losses of $9.8
million were realized on calls and prepayments of held to maturity
fixed maturities during 1994. Gross gains of $49.8 million and $27.9
million and gross losses of $33.5 million and $24.0 million were
realized on fixed maturity sales during 1993 and 1992, respectively.
The cumulative effect as of January 1, 1994 of adopting Statement No.
115 increased stockholder's equity by $25.1 million (net of
adjustments to deferred policy acquisition costs of $14.0 million and
deferred income taxes of $20.2 million) to reflect the net unrealized
fixed maturities holding gains on securities previously carried at
amortized cost; there was no effect on net income as a result of the
adoption of Statement No. 115. As of December 31, 1994, those holding
gains decreased by $120.6 million (net of adjustments to deferred
policy acquisition costs of $44.2 million and deferred income taxes of
$49.4 million) to a net unrealized loss of $95.5 million.
In connection with the adoption of Statement No. 115, Life of Virginia
reclassified certain fixed maturity investments with an amortized cost
of $785.5 million and fair value of $811.6 million from held to
maturity to available for sale. Subsequent to January 1, 1994 there
were no additional reclassifications between available for sale and
held to maturity.
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
Years ended December 31
1994 1993 1992
Fixed maturities:
Held to maturity $(351.0) $35.2 $(87.9)
Available for sale (214.2) (.2) 33.4
Equity securities (38.8) 10.1 10.9
Total $(604.0) $45.1 $(43.6)
======= ===== ======
The amortized cost and fair values of investments in fixed maturities
are as follows:
<TABLE>
<CAPTION>
(millions)
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
U. S. government
and agencies $ 3.2 $ .1 $ - $ 3.3
States and
political subdivisions 2.3 .1 - 2.4
Foreign governments .1 - - .1
Corporate securities 1,428.3 14.8 (96.5) 1,346.6
Mortgage-backed
securities 1,589.8 1.0 (153.2) 1,437.6
Total held to
maturity $3,023.7 $16.0 $(249.7) $2,790.0
======== ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
(millions)
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. government
and agencies $ 26.2 $ .1 $ (.4) $ 25.9
States and political
subdivisions .4 - - .4
Foreign governments 43.7 .8 (1.0) 43.5
Corporate securities 869.9 6.3 (47.1) 829.1
Mortgage-backed
securities 1,118.3 .8 (113.7) 1,005.4
Other fixed
maturities 6.9 .1 (.8) 6.2
Total fixed
maturities 2,065.4 8.1 (163.0) 1,910.5
Total equity
securities 128.1 5.6 (8.5) 125.2
Total available
for sale $2,193.5 $13.7 $(171.5) $2,035.7
======== ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
U. S. government
and agencies $ 28.1 $ 2.5 $ - $ 30.6
States and political
subdivisions 3.3 .4 - 3.7
Foreign governments 12.7 1.8 - 14.5
Corporate securities 1,843.4 134.7 (5.6) 1,972.5
Mortgage-backed
securities 1,977.6 24.6 (15.0) 1,987.2
Total held to
maturity $3,865.1 $164.0 $(20.6) $4,008.5
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
(millions)
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. government
and agencies $ 44.2 $ .4 $ (.1) $ 44.5
Foreign governments 8.8 .5 - 9.3
Corporate securities 834.6 35.9 (3.6) 866.9
Mortgage-backed
securities 596.7 5.7 (6.0) 596.4
Other fixed
maturities 10.3 .6 (.2) 10.7
Total fixed
maturities 1,494.6 43.1 (9.9) 1,527.8
Total equity
securities 280.5 37.0 (1.1) 316.4
Total available
for sale $1,775.1 $80.1 $(11.0) $1,844.2
======== ===== ====== ========
</TABLE>
Net unrealized investment losses at December 31, 1994 of $97.5 million
are net of deferred income tax credit of $40.1 million and a $20.2
after-tax deferred policy acquisition cost adjustment. Net unrealized
investment gains at December 31, 1993 of $23.6 million are net of a
deferred income tax charge of $12.3 million.
The amortized cost and fair value of fixed maturities, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
(millions)
Held to maturity: December 31, 1994
Amortized Fair
Cost Value
Due in one year or less $ 14.1 $ 14.3
Due after one year through five years 135.2 134.8
Due after five years through ten years 753.4 692.5
Due after ten years 531.2 510.8
Mortgage-backed securities 1,589.8 1,437.6
Total held to maturity $3,023.7 $2,790.0
======== ========
Available for sale: December 31, 1994
Amortized Fair
Cost Value
Due in one year or less $ 52.1 $ 52.5
Due after one year through five years 344.2 340.2
Due after five years through ten years 475.1 441.7
Due after ten years 75.7 70.7
Mortgage-backed securities 1,118.3 1,005.4
Total available for sale $2,065.4 $1,910.5
======== ========
Securities on deposit for regulatory authorities as required by law
amounted to $31.1 million and $31.5 million at December 31, 1994 and
1993, respectively.
At December 31, 1994 and 1993, respectively, Life of Virginia had $5.9
million and $10.0 million of non-income producing investments.
Commercial mortgage loans represent over 96% of total mortgage loans
at December 31, 1994 and 1993. Mortgage loans on real estate and real
estate in the South Atlantic region totaled $288.0 million and $26.8
million, respectively, at December 31, 1994 and $269.1 and $27.9
million, respectively, at December 31, 1993.
4. Income Tax
Beginning in 1992, Life of Virginia was included in the consolidated
life-nonlife federal income tax return of Aon Corporation and its
principal domestic subsidiaries. In accordance with intercompany
policy, Life of Virginia provides taxes on income based on a separate
company basis.
The Omnibus Budget Reconciliation Act of 1993 changed Life of
Virginia's prevailing federal income tax rate from 34% to 35%
effective January 1, 1993. The application of the 35% tax rate to the
December 31, 1992 deferred income tax liability balance resulted in a
$2.3 million increase in federal income tax expense for 1993. A
reconciliation of the income tax provisions based on the statutory
corporate tax rate to the provisions reflected in the consolidated
financial statements is as follows:
1994 1993 1992
Statutory tax rate 35.0% 35.0% 34.0%
Tax-exempt investment income deductions (0.9) (0.6) (1.0)
Increase in deferred taxes due to
enacted rate increase from 34% to 35% - 1.8 -
Reversal of overaccrual of prior taxes (13.3) - -
Other - net (3.5) (0.2) 5.0
Effective tax rate 17.3% 36.0% 38.0%
===== ===== =====
Significant components of Life of Virginia's deferred tax liabilities
and assets as of December 31 are as follows (in millions):
1994 1993
Deferred tax liabilities:
Policy acquisition costs $116.2 $119.3
Employee benefits 9.4 9.9
Other 38.4 44.4
Total deferred tax liabilities 164.0 173.6
Deferred tax assets:
Insurance reserve amounts 66.2 86.7
Unrealized investment losses 40.1 -
Other 36.7 17.4
Total deferred tax assets 143.0 104.1
Net deferred tax liabilities $ 21.0 $ 69.5
====== ======
As of December 31, 1994 the deferred tax asset relating to unrealized
investment losses is net of a $15 million valuation allowance that was
provided directly in stockholders' equity in 1994. No valuation
allowance was provided at December 31, 1993.
Prior to 1984, life insurance companies were required to accumulate
certain untaxed amounts in a memorandum "policyholders' surplus
account." Under the Tax Reform Act of 1984, the "policyholders'
surplus account" balances were "capped" at December 31, 1983 and the
balances will be taxed only to the extent distributed to stockholders
or when they exceed certain prescribed limits. As of December 31,
1994, the "policyholders' surplus account" of Life of Virginia's life
insurance subsidiary approximates $13.5 million. Life of Virginia's
life insurance subsidiary does not intend to make any taxable
distributions or exceed the prescribed limits in the foreseeable
future; therefore, no income tax provision has been made for those
purposes. However, if such taxes were assessed, the amount of tax
payable would be $4.7 million.
The amount of income taxes paid for 1994, 1993 and 1992 was $56.7
million, $65.6 million and $38.1 million, respectively.
Effective January 1, 1992, Life of Virginia changed its method of
accounting for income taxes from the deferred method to the liability
method required by Statement No. 109, "Accounting for Income Taxes."
The cumulative effect of adopting Statement 109 for periods prior to
January 1, 1992 was to increase 1992 net income by $20.2 million.
5. Reinsurance amd Claim Reserves
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. Life of Virginia's reinsurance
consists primarily of short-duration contracts that are entered into
with numerous automobile dealerships, financial institutions, and
related party reinsurance as described in Note 9. Life of Virginia
would remain liable to the extent that the reinsuring companies are
unable to meet their obligations. Ceded premiums earned were $193.7
million, $204.3 million and $180.2 million for 1994, 1993, and 1992,
respectively, while ceded premiums written were $196.3 million and
$214.2 million for 1994 and 1993, respectively. Assumed premiums
earned were $8.3 million, $13.7 million and $16.4 million for 1994,
1993 and 1992, respectively, while assumed premiums written were $8.7
million and $12.5 million for 1994 and 1993, respectively. Benefits
to policyholders are net of reinsurance recoveries of $102.1 million
and $113.5 million during 1994 and 1993, respectively.
Activity in the liability for policy and contract claims is summarized
as follows:
(millions) Years ended December 31
1994 1993 1992
Liabilities at beginning of year $ 92.9 $ 78.9 $ 76.8
Incurred losses 147.9 160.2 163.7
Deduct payment of claims:
Current year claims (107.2) (97.2) (109.4)
Prior years claims (52.5) (49.0) (52.2)
Liability released through reinsurance (51.7) - -
Liabilities at end of year
(net of insurance recoverables:
1994 - 54.4, 1993 - 17.0) $ 29.4 $ 92.9 $ 78.9
======= ====== =======
6. Stockholder's Equity
Generally, the capital and surplus of Life of Virginia available for
transfer to Aon are limited to the amounts that the statutory capital
and surplus exceed minimum statutory capital requirements; however,
payments of the amounts as dividends may be subject to approval by
regulatory authorities. Non-cash dividends paid in 1993 and 1992 were
recorded at Life of Virginia's basis in the underlying assets.
Net income, as determined using statutory accounting practices,
amounted to $58.2 million, $89.3 million and $75.4 million for the
years ended December 31, 1994, 1993 and 1992, respectively. Statutory
stockholder's equity amounted to $400.6 million and $377.9 million at
December 31, 1994 and 1993, respectively.
7. Employee Benefits
Savings Plan
Life of Virginia participates in Aon's contributory savings plan for
the benefit of salaried and commissioned employees. Provisions made
for the savings plan were $1.2 million, $1.1 million and $1.0 million
for 1994, 1993 and 1992, respectively.
Employee Stock Ownership Plan
Aon maintains a leveraged ESOP for the benefit of salaried and certain
commissioned employees. Shares are allocated to eligible employees
over a period of ten years through 1998. Contributions to the ESOP
for 1994, 1993 and 1992 charged to Life of Virginia's operations
amounted to $.6 million, $.7 million, and $.8 million, respectively.
Pension Plan
Life of Virginia participates in Aon's non-contributory defined benefit
pension plan providing retirement benefits for salaried employees and
certain commissioned employees based on years of service and salary. Aon's
funding policy is to contribute amounts to the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as Aon determines to be
appropriate from time to time. The components of net periodic pension cost
and benefit obligations of the Aon defined benefit plan are not separately
available for Life of Virginia. In connection with Life of Virginia's
participation in the Aon defined benefit plan, net pension credits of $3.1
million were recorded in 1994 and 1993, and $2.2 million in 1992.
Postretirement Benefits Other Than Pensions
Aon sponsors two defined benefit postretirement health and welfare
plans in which Life of Virginia participates that cover both salaried
and nonsalaried employees. One plan provides medical benefits, prior
to and subsequent to Medicare eligibility, and the other provides life
insurance benefits. The postretirement health care plan is
contributory, with retiree contributions adjusted annually; the life
insurance plan is noncontributory. Both plans are funded on a pay-as-
you-go basis.
In 1993, the accounting for the health care plan reflects changes in
the future cost-sharing provisions of the plan. These changes limit
the employer's liability for future plan cost increases in any year to
5% per annum. In prior years, Aon anticipated that the retiree's
share of future cost would increase at the same rate as the employer's
share.
In 1992, Aon and Life of Virginia adopted Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." The effect of adopting the new rules increased Life of
Virginia's 1992 net periodic postretirement benefit cost by $2.2
million to $2.4 million. The net periodic postretirement benefit cost
for 1994 and 1993 were $1.3 million and $2.0 million, respectively.
Life of Virginia's share of the cumulative effect of adopting
Statement No. 106 is $3.8 million, which is net of income taxes of
$2.0 million, and is recorded in the 1992 statement of income. The
cumulative effect recorded represents Life of Virginia's share of
Aon's postretirement benefit cost, less the January 1, 1992 amount of
the postretirement health care and life benefit liability previously
recorded. The total recorded amount represents the cumulative
postretirement benefit obligation for periods prior to January 1,
1992.
8. Lease Commitments
Life of Virginia has noncancelable operating leases for certain office
space, equipment and automobiles. Future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1994
are as follows:
(millions) Minimum Lease Payments
1995 $ 3.6
1996 2.7
1997 2.1
1998 1.8
1999 1.4
Later years 4.7
Total minimum payments required $16.3
=====
Rental expenses for all operating leases for the years ended December
31, 1994, 1993, and 1992 amounted to $5.1 million, $4.5 million, and
$3.3 million, respectively.
9. Related Party Transactions
Life of Virginia pays investment advisory fees and other fees to
affiliates. Amounts incurred for these items aggregated $37.8
million, $33.5 million and $26.7 million for 1994, 1993, and 1992,
respectively. Life of Virginia charges affiliates for certain
services and for the use of facilities and equipment which aggregated
$101.2 million, $88.8 million and $54.8 million for 1994, 1993, and
1992, respectively.
Life of Virginia deposits excess cash in an intercompany cash
management fund maintained by Aon. The amount deposited at December
31, 1994 and 1993 was $61.0 million and $64.5 million, respectively.
Interest earned on the fund for 1994, 1993, and 1992 was $1.4 million,
$.8 million, and $1.5 million, respectively.
At December 31, 1994 and 1993, Life of Virginia held investments in
securities of certain affiliates amounting to $47.4 million and $49.7
million, respectively. Amounts included in net investment income related
to these holdings totalled $3.5 million, $4.0 million and $4.2 million for
1994, 1993, and 1992, respectively.
In December 1994, Life of Virginia exchanged common stocks with a fair
value of $61.4 million and cost of $67.1 million for Combined's
available for sale fixed maturities and related accrued income with
fair values of $60.9 million and $.5 million, respectively. Life of
Virginia recorded the fixed maturity securities at Combined's fair
value of $60.9 million resulting in a $5.7 million realized loss that
is reflected in the statement of income.
In December 1994, Life of Virginia ceded to Combined $406.6 million of
its Guaranteed Investment Contract liabilities. In conjunction with
the liability cession, Life of Virginia transferred to Combined
available for sale fixed maturities with a fair value of $278.1
million and a cost of $287.2 million and preferred stock with a fair
value of $110.5 million and a cost of $119.7 million. There was no
effect on net income.
In July 1994, Life of Virginia ceded to Union Fidelity Life Insurance
Company ("UFLIC") $280.7 million of its credit life and health
reserves and associated acquisition costs of $107.0 million. In
conjunction with the liability cession, Life of Virginia transferred
to UFLIC the following invested assets in November 1994:
(millions)
Amortized
Cost Accrued
or Cost Market Interest
Fixed maturities:
Held to maturity $ 22.3 $ 19.6 $ .5
Available for sale 212.3 203.7 4.0
Preferred stock 66.9 66.0 -
Common stock 3.8 7.7 -
Totals $305.3 $297.0 $4.5
====== ====== ====
Included in receivable from affiliate is $107.0 million from UFLIC
related to the acquisition costs.
This transaction resulted in a $29.1 million loss which is reflected
as a $20.8 million reduction in premiums ceded and an $8.3 million
realized loss on investments.
Premiums, benefits to policyholders, and commissions and general
expenses ceded to UFLIC during the second six months of 1994 amounted
to $35.0 million, $14.4 million, and $14.2 million, respectively.
These amounts have been classified as a receivable from affiliate.
In 1993, Life of Virginia formed and then purchased all 100
outstanding shares of Newco for $100. Life of Virginia then
transferred to Newco, in the form of a capital contribution, certain
properties, including all company-occupied properties, which had a
book value of $24.5 million. The Newco common stock was then sold to
Combined for $21.5 million. A realized loss of $3.0 million has been
included in the consolidated statement of income.
10. Litigation
Life of Virginia is subject to numerous claims and lawsuits that arise
in the ordinary course of business. In some of these cases the
remedies that may be sought or damages claimed are substantial,
including cases that seek punitive or extraordinary damages. Accruals
for these lawsuits have been provided to the extent that losses are
deemed probable and are estimable. Although the ultimate outcome of
these suits cannot be ascertained and liabilities in indeterminate
amounts may be imposed on Life of Virginia, on the basis of present
information, availability of insurance coverages, and advice received
from counsel, it is the opinion of management that the disposition or
ultimate determination of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position of Life
of Virginia.
11. Segment Information
Life of Virginia operates primarily in the life insurance industry
offering life and annuity, and accident and health products.
Significant data concerning these segments are as follows:
(millions) Years ended December 31
1994 1993 1992
Revenues
Life and Annuity $ 655.6 $ 666.8 $ 649.5
Accident and Health 14.9 53.9 52.5
Corporate and Other 32.9 62.2 49.5
$ 703.4 $ 782.9 $ 751.5
======== ======== ========
Income (loss) Before Income Tax
Life and Annuity $ 76.7 $ 73.1 $ 60.0
Accident and Health (11.5) 6.0 3.4
Corporate and Other 23.2 49.3 23.4
$ 88.4 $ 128.4 $ 86.8
======== ======== ========
Identifiable Assets
Life and Annuity $7,182.7 $6,943.1 $5,862.6
Accident and Health 241.1 251.3 228.6
Corporate and Other 926.0 1,035.0 1,035.3
$8,349.8 $8,229.4 $7,126.5
======== ======== ========
The above results include allocations of investment income and certain
expense elements considered reasonable under the circumstances. Other
acceptable methods of allocation might produce different results.
12. Financial Instruments
Derivative Financial Instruments
Life of Virginia uses derivative financial instruments ("derivatives")
for purposes other than trading. Interest rate swap agreements are
used primarily to manage asset and liability durations relating to
capital accumulation life and annuity business. As of December 31,
1994, Life of Virginia was paying fixed rates and receiving variable
rates on interest rate swap contracts, with a notional amount of
$750.0 million, with the effect of lengthening liability durations.
As of December 31, 1993, Life of Virginia was paying variable rates
and receiving fixed rates on interest rate swap contracts with a
notional amount of $200.0 million. The net effect of interest rate
swap payments is settled periodically and reported in investment
income. There is no settlement of underlying notional amounts.
The interest rates on Life of Virginia's principal outstanding swaps
at December 31 are presented below:
Pay Receive Receive Pay
Fixed Variable Fixed Variable
1994 7.7 - 8.3% 7.8% - -
1993 - - 6.1 - 6.3% 3.4 - 3.5%
Life of Virginia performs frequent analysis to measure the degree of
correlation associated with its derivative programs. Life of Virginia
assesses the adequacy of the correlation analysis results in
determining whether the derivatives qualify for hedge accounting.
Realized gains and losses on derivatives that qualify as hedges are
deferred and reported as an adjustment of the cost basis of the hedged
item. Deferred gains and losses are amortized into income over the
life of the hedged item. Outstanding derivatives that are hedges of
items carried at fair value are reflected in the financial statements
with the derivatives' fair value reported as unrealized gains and
losses directly in stockholder's equity.
As of December 31, 1994, the principal swaps have maturities ranging
from October 1998 to October 2000 and variable rates based on the
five-year treasury rate. As of December 31, 1993, Life of Virginia
paid variable rates based on the three and six month LIBOR index.
Life of Virginia is exposed to credit risk of derivative contracts in
the event of nonperformance by the counterparties to the financial
instruments. The credit risk is generally limited to the fair value
of those contracts that are favorable to Life of Virginia. Life of
Virginia has limited its credit risk by restricting its investments in
derivative contracts to a diverse group of highly rated major
financial institutions. See Note 1 regarding the methods and
assumptions used to estimate fair market value for financial
instruments.
Other Financial Instruments
Life of Virginia has certain investment commitments to provide capital and
fixed-rate loans as well as certain forward contract purchase commitments.
The investment commitments, which would be collateralized by related
properties of the underlying investments, involve varying elements of
credit and market risk. Investment commitments outstanding at December 31,
1994 and 1993, totaled $32.1 million and $447.2 million, respectively.
Fair Value of Financial Instruments
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of policy liabilities, various other non-
financial instruments, or other intangible items related to Life of
Virginia's business. Accordingly, care should be exercised in
deriving conclusions about Life of Virginia's business or financial
condition based on the fair value disclosures.
The carrying value and fair value of certain of Life of Virginia's
financial instruments are as follows:
(millions) As of December 31
1994 1993
Carrying Fair Carrying Fair
Value Value Value Value
Assets:
Fixed maturities and equity
securities (Note 3) $5,059.4 $4,825.7 $5,676.1 $5,852.7
Mortgage loans on real estate 527.6 530.8 508.1 576.2
Policy loans 165.3 162.0 156.9 154.5
Cash, short-term investments,
and receivables 621.0 621.0 416.3 416.3
Derivatives - - - 5.8
Liabilities:
Investment type insurance
contracts 3,380.3 3,295.5 3,721.1 3,736.4
Commissions and general
expenses 46.9 46.9 38.4 38.4
Derivatives - 3.7 - -
13. Subsequent Events
In January 1995, Life of Virginia ceded to Combined $600 million of
its Single Premium Deferred Annuity liabilities. In conjunction with
the liability cession, Life of Virginia transferred to Combined
available for sale fixed maturities with a fair value of $436.1
million and cost of $501.4 million and held to maturity fixed
maturities with a fair value of $81.4 million and a cost of $95.1
million. In addition, $5.5 million of accrued income related to the
assets above was transferred to Combined.
In January 1995, Life of Virginia dividended 100% of its Globe Life
Insurance Company ("Globe") common stock to Combined. At December 31,
1994, Globe had total assets of $954.9 million, total liabilities of
$765.7 million and total stockholder's equity of $189.2 million.
In January 1995, Life of Virginia received from Combined, in the form
of a capital contribution, $39.9 million of fixed maturities that will
be classified as held to maturity.
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND SURRENDER VALUES
The following tables illustrate how the Death Benefits, Cash Values and
Surrender Values of a Policy change with the investment experience of Separate
Account III and with changes in the cost of insurance charges.
The tables on the following pages illustrate a Policy issued to a male, age
55, $140,178 specified amount of insurance, with an initial premium of $50,000.
The second column of the illustrations shows the accumulated value of the
premiums paid at the stated interest rate. The remaining columns illustrate the
Death Benefit, Cash Value and Surrender Value of a Policy over the designated
period under varying assumptions of investment rates of return and cost of
insurance charges. Death benefits, cash and surrender values also take into
account charges deducted from premium payments. (See Charges and Deductions, p.
30.)
The guaranteed cost of insurance charges allowable under the Policy (shown in
the illustrations as "guaranteed") are based upon the 1980 Commissioners'
Standard Ordinary Mortality Table. These guaranteed charges are used to
determine the maximum monthly deduction for cost of insurance. Life of Virginia
currently deducts lower cost of insurance charges (shown in the illustrations as
"current") and anticipates deducting these charges for the foreseeable future.
The current cost of insurance charges are equal to the lesser of (a) or (b),
where: (a) is .0458%, the monthly equivalent to .55%, of the Cash Value of the
Policy in Separate Account III; and (b) is the maximum monthly deduction for
cost of insurance.
The illustration columns using the guaranteed cost of insurance charges will
show the minimum values that would be available under the Policy's terms based
on the assumed investment rates of return of 0, 6 or 12%. The Death Benefits,
Cash Values and Surrender Values would be different from those shown if the
gross annual investment rates of return averaged 0, 6 or 12%, over a period of
years, but fluctuated above and below those averages for individual Policy
years.
The illustration columns using the cost of insurance charges currently
deducted by Life of Virginia assume those current cost of insurance charges are
continued for the entire period indicated. Although Life of Virginia currently
makes deductions for cost of insurance based upon the current charges, and
anticipates continuing such practice for the foreseeable future, THERE IS NO
GUARANTEE THAT SUCH CHARGES WILL BE CONTINUED. At the discretion of Life of
Virginia, the charges could be increased or decreased, based upon its estimate
of expected mortality. Thus, the values in the ninth through the eleventh
columns of those illustrations using current cost of insurance charges indicates
values that would be available, assuming the stated investment rates of return,
if the current cost of insurance charges are continued. THOSE COLUMNS DO NOT
ILLUSTRATE VALUES THAT WOULD BE GUARANTEED IF THE HYPOTHETICAL INVESTMENT RATES
OF RETURN WERE EARNED.
The amounts shown for the Death Benefit, Cash Values and Surrender Values
reflect the fact that the net investment return of the Investment Subdivision is
lower than the gross, after-tax return on the assets held in the particular Fund
as a result of expenses paid by it and charges levied against the Investment
Subdivision. The values shown take into account an investment advisory fee of
.54% of the aggregate average daily net assets of the Funds, which represents an
average of the fees incurred by the Funds, (the actual investment advisory fees
are shown below.), a charge of .17%, that is an estimate of the Funds' expenses
based on an average of the actual expenses incurred by the Funds in 1993, and a
charge of .01%, which reflects the maximum 12b-1 fee for certain portfolios.
The actual fees and expenses will depend on the Investment Subdivisions chosen
by the Policyowner. The amounts shown also take into account the daily charges
by Life of Virginia to an Investment Subdivision for assuming mortality and
expense risks and administrative expenses, which is equivalent to a charge at an
annual rate of l.30% 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 -2.02%,
3.98% and 9.98%, respectively.
The annual expenses used for all the funds in these illustrations are net of
certain reimbursements and fee waivers by the Funds' investment advisors. Life
of Virginia cannot guarantee that the reimbursements will continue.
Absent reimbursements, the total annual expenses during 1994 for the
portfolios of the Variable Insurance Products Fund were 0.27% for Money Market
Portfolio, 0.71% for High Income Portfolio, 0.60% for Equity-Income Portfolio,
0.70% for Growth Portfolio, and 0.92% for Overseas Portfolio.
Absent reimbursements, the total annual expenses during 1994 for the Asset
Manager Portfolio of Variable Insurance Products Fund II were 0.81%
The Contrafund Portfolio was recently organized and has no operating history.
Based on the Group Management Fees for October 1994 as described in the VIPF II
prospectus, the total management fee for 1994 would have been 0.62% of the
portfolio's average net assets. The VIPF II has provided an estimate for 1995 of
0.27% for other expenses. The adviser has voluntarily agreed to reimburse the
portfolio to the extent that total expenses exceed 1.00%. The adviser can
terminate this voluntary reimbursement at any time. Life of Virginia does not
represent that this estimate is true and complete, and disclaims all
responsibility for such figures. Actual expenses may be greater or less than
those shown.
The anticipated annual management fees and other expenses for the portfolios
of the Neuberger & Berman Advisers Management Trust are .97% for the Balanced
Portfolio, .91% for the Growth Portfolio, and .73% for the Limited Maturity Bond
Portfolio.
Until May 1, 1995, the Portfolios of the Advisers Management Trust had a
Distribution Plan pursuant to Rule 12b-1 which provided for the reimbursement of
Neuberger & Berman Management for certain Trust distribution expenses up to a
maximum of 0.25% on an annual basis of each Portfolio's average daily net
assets. The anticipated annual expenses shown above would be increased by the
following percentages if the 12b-1 fees for the months of January through April,
1995 were taken into account: 0.02% for the Balanced Portfolio; 0.02% for the
Growth Portfolio; and 0.02% for the Limited Maturity Bond Portfolio.
Absent reimbursements, the management fees and other expenses during 1994 for
the portfolios of Life of Virginia Series Fund would have been 1.16% for Common
Stock Index Portfolio, .81% for Government Securities Portfolio, .71% for Money
Market Portfolio, and .77% for Total Return Portfolio.
Since the International Equity Portfolio and the Real Estate Securities
Portfolio were recently organized and have no operating history, the annual
expenses listed for these portfolios are estimates provided by the Fund. The
estimated total annual expenses are 1.75% for International Equity Portfolio,
and 1.50% for Real Estate Securities Portfolio. Actual expenses may be different
than those shown.
The management fees and other expenses during 1994 for the portfolios of the
Oppenheimer Variable Account Funds were .50% for Oppenheimer Money Fund, .81%
for Oppenheimer High Income Fund, .81% for Oppenheimer Bond Fund, .80% for
Oppenheimer Capital Appreciation Fund, .79% for Oppenheimer Multiple Strategies
Fund; and .81% for Oppenheimer Growth Fund.
Absent certain expense waivers, the total annual expenses for the portfolios
of the Janus Aspen Series would have been 1.22% for Growth Portfolio, 1.28% for
Aggressive Growth Portfolio, and 1.49% for Worldwide Growth Portfolio for the
fiscal year ended December 31, 1994.
The total annual expenses for the Utility Fund and the Corporate Bond Fund are
0.85% and 0.80%, respectively, of the average daily net assets. The adviser has
agreed to waive all or a portion of its fee so that the total annual expenses
would not exceed 0.85% of average net assets for the Utility Fund and 0.80% of
average net assets for the Corporate Bond Fund. The adviser can terminate this
voluntary waiver at any time at its sole discretion. Without this waiver, the
advisory fee would be 0.75% of average annual net assets for the Utility Fund
and 0.60% of average annual net assets for the Corporate Bond Fund, and the
total annual expenses for the Utility Fund and the Corporate Bond Fund would be
1.60% and 1.40%, respectively, of average net assets.
The amounts shown reflect a monthly deduction, during the first ten policy
years after a premium payment is made, for premium taxes and distribution
expenses incurred by Life of Virginia. The premium tax deduction is equivalent
to an annual rate of .20% of that portion of the Policy's cash value
attributable to the premium payment. The distribution expense deduction is
equivalent to an annual rate of .30% of that portion of the cash value
attributable to the premium payment.
The hypothetical values shown in the tables do not reflect any charges for
federal income taxes against Separate Account III, since Life of Virginia is not
currently making such charges. However, such charges may be made in the future
and, in that event, the gross annual investment rate of return would have to
exceed 0%, 6% or 12% by an amount sufficient to cover the tax charges in order
to produce the death benefits and Cash Values illustrated. (See Federal Tax
Matters, p. 35.)
The tables also do not reflect any reduction in sales charges available to
certain groups (See Reduction in Charges for Group Sales, p. 32.); if the
reduced charges were illustrated they would show increased Cash Values.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all premiums are allocated to Separate Account III, and if no Policy loans,
partial withdrawals or transfer requests have been made. The tables are also
based on the assumption that the Policyowner has not requested an increase in
the specified amount of the Policy.
Upon request, Life of Virginia will provide a comparable illustration based
upon the proposed Insured's age and sex and the proposed premium payments.
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $142,833
Standard Underwriting Risk Initial Premium $ 50,000
Level Death Benefit Additional Premium (1) $ 0
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Current
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(4)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 44,711 47,711 142,833 47,678 50,678 142,833 48,382 51,382 142,833
2 55,125 42,363 45,363 142,833 48,293 51,293 142,833 49,803 52,803 142,833
3 57,881 39,949 42,949 142,833 48,838 51,838 142,833 51,263 54,263 142,833
4 60,775 37,458 40,458 142,833 49,306 52,306 142,833 52,763 55,763 142,833
5 63,814 35,376 37,876 142,833 50,185 52,685 142,833 54,805 57,305 142,833
6 67,005 33,186 35,186 142,833 50,960 52,960 142,833 56,889 58,889 142,833
7 70,355 30,863 32,363 142,833 51,613 53,113 142,833 59,018 60,518 142,833
8 73,873 28,379 29,379 142,833 52,120 53,120 142,833 61,191 62,191 142,833
9 77,566 25,699 26,199 142,833 52,451 52,951 142,833 63,410 63,910 142,833
10 81,445 22,787 22,787 142,833 52,577 52,577 142,833 65,677 65,677 142,833
15 103,946 1,147 1,147 142,833 47,901 47,901 142,833 77,181 77,181 142,833
20 132,665 * * * 30,203 30,203 142,833 90,700 90,700 142,833
25 169,318 * * * * * * 106,587 106,587 142,833
30 216,097 * * * * * * 125,256 125,256 142,833
35 275,800 * * * * * * 147,195 147,195 154,555
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume no additional premiums are paid. Values
would be different if premiums are paid with a different frequency or in
different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans have been made. Excessive loans may cause this Policy
to lapse because of insufficient Cash Value.
(3) The values and benefits are shown using the maximum cost of insurance
charges 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.
(4) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0% AND 6% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.15% AND 3.85%. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT
RATE OF RETURN AVERAGES 0% AND 6% 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.
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $142,833
Standard Underwriting Risk Initial Premium $ 50,000
Level Death Benefit Additional Premium (1) $ 0
<TABLE>
<CAPTION>
0% Assumed Hypothetical 12% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Current
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(4)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 44,711 47,711 142,833 50,647 53,647 142,833 51,351 54,351 142,833
2 55,125 42,363 45,363 142,833 54,583 57,583 142,833 56,081 59,081 142,833
3 57,881 39,949 42,949 142,833 58,844 61,844 142,833 61,222 64,222 142,833
4 60,775 37,458 40,458 142,833 63,468 66,468 142,833 66,811 69,811 142,833
5 63,814 35,376 37,876 142,833 68,998 71,498 142,833 73,385 75,885 142,833
6 67,005 33,186 35,186 142,833 74,982 76,982 142,833 80,489 82,489 142,833
7 70,355 30,863 32,363 142,833 81,476 82,976 142,833 88,167 89,667 142,833
8 73,873 28,379 29,379 142,833 88,543 89,543 142,833 96,470 97,470 142,833
9 77,566 25,699 26,199 142,833 96,260 96,760 142,833 105,452 105,952 142,833
10 81,445 22,787 22,787 142,833 104,723 104,723 142,833 115,172 115,172 142,833
15 103,946 1,147 1,147 142,833 162,462 162,462 188,456 179,331 179,331 208,024
20 132,665 * * * 253,350 253,350 271,084 279,800 279,800 299,386
25 169,318 * * * 397,688 397,688 417,572 439,207 439,207 461,168
30 216,097 * * * 617,602 617,602 648,482 684,038 684,038 718,240
35 275,800 * * * 942,873 942,873 990,017 1,064,491 1,064,491 1,117,715
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume no additional premiums are paid. Values would
be different if premiums are paid with a different frequency or in
different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans have been made. Excessive loans may cause this Policy
to lapse because of insufficient Cash Value.
(3) The values and benefits are shown using the maximum cost of insurance
charges 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.
(4) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.15% AND 9.85%. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT
RATE OF RETURN AVERAGES 0% 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.
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $142,833
Standard Underwriting Risk Initial Premium $ 50,000
Level Death Benefit Additional Premium (1) $ 4,000
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Current
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(4)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 44,711 47,711 142,833 47,678 50,678 142,833 48,382 51,382 142,833
2 55,125 42,363 45,363 142,833 48,293 51,293 142,833 49,803 52,803 142,833
3 57,881 39,949 42,949 142,833 48,838 51,838 142,833 51,263 54,263 142,833
4 60,775 37,458 40,458 142,833 49,306 52,306 142,833 52,763 55,763 142,833
5 63,814 35,376 37,876 142,833 50,185 52,685 142,833 54,805 57,305 142,833
6 67,005 33,186 35,186 142,833 50,960 52,960 142,833 56,889 58,889 142,833
7 70,355 30,863 32,363 142,833 51,613 53,113 142,833 59,018 60,518 142,833
8 73,873 28,379 29,379 142,833 52,120 53,120 142,833 61,191 62,191 142,833
9 77,566 25,699 26,199 142,833 52,451 52,951 142,833 63,410 63,910 142,833
10 81,445 22,787 22,787 142,833 52,577 52,577 142,833 65,677 65,677 142,833
15 108,146 4,952 5,192 142,833 51,950 52,190 142,833 81,052 81,292 142,833
20 161,233 * * * 61,489 62,809 142,833 115,808 117,128 142,833
25 228,986 * * * 62,442 64,002 142,833 157,690 159,250 167,213
30 315,458 * * * 38,552 40,112 142,833 206,518 208,078 218,482
35 425,821 * * * * * * 263,746 265,306 278,571
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $4,000 premium is paid at the beginning of
the fifteenth policy year and at the beginning of each policy year
thereafter. Values would be different if premiums are paid with a different
frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans have been made. Excessive loans may cause this Policy
to lapse because of insufficient Cash Value.
(3) The values and benefits are shown using the maximum cost of insurance
charges 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.
(4) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0% AND 6% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.15% AND 3.85%. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT
RATE OF RETURN AVERAGES 0% AND 6% 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.
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $142,833
Standard Underwriting Risk Initial Premium $ 50,000
Level Death Benefit Additional Premium (1) $ 4,000
<TABLE>
<CAPTION>
0% Assumed Hypothetical 6% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Guaranteed Return with Guaranteed Return with Current
End of Accumulated Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(3) Cost of Insurance Rates (2)(4)
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 44,711 47,711 142,833 50,647 53,647 142,833 51,351 54,351 142,833
2 55,125 42,363 45,363 142,833 54,583 57,583 142,833 56,081 59,081 142,833
3 57,881 39,949 42,949 142,833 58,844 61,844 142,833 61,222 64,222 142,833
4 60,775 37,458 40,458 142,833 63,468 66,468 142,833 66,811 69,811 142,833
5 63,814 35,376 37,876 142,833 68,998 71,498 142,833 73,385 75,885 142,833
6 67,005 33,186 35,186 142,833 74,982 76,982 142,833 80,489 82,489 142,833
7 70,355 30,863 32,363 142,833 81,476 82,976 142,833 88,167 89,667 142,833
8 73,873 28,379 29,379 142,833 88,543 89,543 142,833 96,470 97,470 142,833
9 77,566 25,699 26,199 142,833 96,260 96,760 142,833 105,452 105,952 142,833
10 81,445 22,787 22,787 142,833 104,723 104,723 142,833 115,172 115,172 142,833
15 108,146 4,952 5,192 142,833 166,569 166,809 193,499 183,440 183,680 213,068
20 161,233 * * * 284,560 285,880 305,892 311,020 312,340 334,204
25 228,986 * * * 471,963 473,523 497,199 513,496 515,056 540,809
30 315,458 * * * 758,085 759,645 797,627 824,941 826,501 867,826
35 425,821 * * * 1,182,177 1,183,737 1,242,924 1,308,964 1,310,524 1,376,050
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a $4,000 premium is paid at the beginning of
the fifteenth policy year and at the beginning of each policy year
thereafter. Values would be different if premiums are paid with a different
frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no policy loans have been made. Excessive loans may cause this Policy
to lapse because of insufficient Cash Value.
(3) The values and benefits are shown using the maximum cost of insurance
charges 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.
(4) The values and benefits are shown using the cost of insurance charges
currently deducted by Life of Virginia. Although Life of Virginia
anticipates deducting these charges for the foreseeable future, THESE
CHARGES ARE NOT GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF LIFE OF
VIRGINIA. Accordingly, even if the assumed hypothetical gross annual
investment return were earned, the values and benefits under an actual
Policy with the listed specifications may be less than those shown if the
cost of insurance charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0% AND 12% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.15% AND 9.85%. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT
RATE OF RETURN AVERAGES 0% 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.
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1995
FOR LIFE OF VIRGINIA SEPARATE ACCOUNT III
General Information
Contributions and/or transfers to the Guarantee Account, as described below,
become part of the General Account of Life of Virginia. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933, (the "1933 Act"), and the General
Account is not registered as an investment company under the Investment Company
Act of 1940, (the "1940 Act"). Accordingly, neither the General Account nor any
interests therein are subject to the provisions of the 1933 Act or the 1940 Act,
and the information in this supplement has not been reviewed by the staff of the
Securities and Exchange Commission. Disclosure regarding the Guarantee Account
and the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The Guarantee Account
The Policyowner may allocate premium payments to the Guarantee Account or
transfer amounts between the Guarantee Account and the Investment Subdivisions
of Separate Account III. Upon maturity or surrender of the policy, the cash
value of the policy, reduced by any Policy Debt, and after deduction of any
applicable surrender charge, is paid in a lump sum, or applied under an optional
payment plan, (see Optional Payment Plans, p. 28). The cash value of the policy
includes the cash value in the Guarantee Account, the cash value in the Separate
Account, and the cash value held in the General Account to secure policy debt.
Amounts allocated or transferred to the Guarantee Account earn interest at the
interest rate in effect at the time of such allocation. This rate is guaranteed
to be at least 4% per annum, however a higher rate of interest may be credited.
Any interest credited in excess of the guaranteed interest rate of 4% per annum
will be determined at the sole discretion of Life of Virginia. Life of Virginia
has no obligation to credit excess interest. With respect to each amount
allocated, the interest rate in effect at the time of allocation will be
credited for one year from that date. Each year for which a particular interest
rate is guaranteed with respect to a particular allocation is the interest rate
guarantee period. At the end of the interest rate guarantee period, a new
interest rate will become effective, and a new interest rate guarantee period
will commence with respect to that portion of the cash value in the Guarantee
Account represented by that particular allocation.
Charges
The mortality and expense risk charge is not deducted from the Guarantee
Account. This charge is borne solely by the Separate Account. The
administrative expense charge will be deducted daily from the cash value of the
Guarantee Account, at an annual effective rate of .40%.
Monthly deductions for cost of insurance are taken from the cash value in the
Guarantee Account in the same manner in which these deductions apply to cash
value in the Separate Account.
The distribution expense charge and the premium tax recovery charge do not
apply to and are not deducted from the cash value in the Guarantee Account.
Surrender and Partial Withdrawal charges apply to cash value allocated to the
Guarantee Account in the same manner in which these charges apply to cash value
allocated to the Separate Account.
Transfers
The policyowner may transfer amounts between the Guarantee Account and the
Investment Subdivisions of Separate Account III. Transfers will be effective on
the date the Policyowner's transfer request is received by the company.
With respect to transfers between the Guarantee Account and the Investment
Subdivisions of Separate Account III, the following restrictions may be imposed:
Transfers from any particular allocation to the Guarantee Account to
subdivisions of Separate Account III may be made only during the 30 day
period following the interest rate guarantee period applicable to that
particular allocation. The company may limit the amount which may be
transferred, but that amount will not be limited to less than 25% of that
portion of that particular allocation, plus any accrued interest on that amount.
No transfers from any subdivision of Separate Account III to the Guarantee
Account may be made during the six month period following the transfer of any
amount from the Guarantee Account to any subdivisions of the Separate Account.
In all other respects, the rules and charges applicable to transfers between
the various Investment Subdivisions of the Separate Account will apply to
transfers involving the Guarantee Account.
Surrenders, Partial Withdrawals and Loans
Surrenders, partial withdrawals and loans may be made from the Guarantee
Account in addition to the Separate Account, (see Policy Rights and Benefits p.
23). If a partial withdrawal or loan is requested, the Policyowner may specify
the accounts from which amounts should be taken. If no account is specified,
amounts will be taken first from the Investment Subdivisions of the Separate
Account on a pro-rata basis, in proportion to the cash value in each subdivision
of the Separate Account. Any amount remaining will be taken from the cash value
in the Guarantee Account. Amounts taken from the Guarantee Account will come
from the amounts, (including interest credited to such amounts), which have been
in the Guarantee Account for the longest period of time.
Deferral of Payment
Life of Virginia may defer payment of any amount from the Guarantee Account
for up to six months. Payment will not be deferred if applicable law requires
earlier payment, or if the amount payable is to be used to pay premiums on
policies in force with the company.
THE GUARANTEE ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES OR MARKETS
Dated May 1, 1995
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
<PAGE>
SUPPLEMENT DATED MAY 30, 1995
TO PROSPECTUS DATED MAY 1, 1995
Life of Virginia Separate Account III
As of the date of this supplement, Policyowners in the State of California may
invest in the three Investment Subdivisions of Separate Account III that were
previously unavailable to them. These are the ones investing in shares of the
Contrafund Portfolio of the Variable Insurance Products Fund II, and the ones
investing in shares of the Utility Fund and the Corporate Bond Fund of the
Insurance Management Series.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
May 1, 1995
Supplement to Prospectuses for
Life of Virginia Separate Accounts II, III, and 4
In August 1994 the shareholders of the Neuberger & Berman Advisers Management
Trust (the "AMT") approved a plan to convert the AMT into a "master-feeder" fund
structure. Life of Virginia has recently learned that the AMT and the new
master fund have applied to the Internal Revenue Service for a private letter
ruling with respect to certain tax issues that relate to the "master-feeder"
fund structure. One of those issues relates to the applicability of the
"look-through" rule of Section 817 of the Internal Revenue Code to the new fund
structure. The ruling request seeks assurance that the "look-through" rule will
be applied in a manner that will treat separate accounts investing in the new
fund structure as owners of the underlying assets of the new master fund for tax
purposes. If the "look-through" rule is not applied in this manner, variable
life insurance and variable annuity policies whose cash/account values are
invested in the new fund structure will not be treated as life insurance and
annuity policies for tax purposes. (See "SPECIAL CONSIDERATIONS", page 16 of
the AMT Balanced Portfolio prospectus, page 15 of the AMT Growth Portfolio
prospectus and page 14 of the AMT Limited Maturity Bond Portfolio prospectus,
all dated May 1, 1995.)
<PAGE>
May 30, 1995
Supplement to Prospectuses Dated May 1, 1995 for
Life of Virginia Separate Accounts II, III and 4
As of the date of this supplement, Policyowners in the State of California may
invest in three Investment Subdivisions of Separate Account II, III or 4 that
were previously unavailable to them. These are the ones investing in shares of
the Utility Fund and the Corporate Bond Fund of the Insurance Management Series,
and the one investing in shares of the Contrafund Portfolio of the Variable
Insurance Products Fund II.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
<PAGE>
Supplement Dated September 8, 1995
to Prospectus Dated May 1, 1995
Life of Virginia Separate Account III
Effective October 2, 1995, premium payments and cash value transfers may no
longer be allocated to the investment subdivisions of Separate Account II that
invest in shares of the following Portfolios of the Funds:
Variable Insurance Products Fund:
-- Money Market Portfolio
-- High Income Portfolio
Neuberger & Berman Advisers Management Trust
-- Balanced Portfolio
-- Growth Portfolio
-- Limited Maturity Bond Portfolio
Oppenheimer Variable Account Funds
-- Oppenheimer Money Fund
Although premium payments and cash value transfers may not be allocated to
the investment subdivisions listed above as of October 2, 1995, cash values
that are allocated to those subdivisions as of October 1, 1995 may remain in
those subdivisions.
Policyowners currently allocating premium payments to any of the six investment
subdivisions mentioned above may, by written notice to the Home Office,
re-allocate those payments to other investment subdivisions prior to October 2,
1995. If a Policyowner does not do so, the portions of any premiums received on
or after October 2, 1995 that would have been allocated to any of the six
investment subdivisions will be refunded to the Policyowner. Similarly,
transfer requests to any of the six investment subdivisions received on or after
October 2, 1995 will not be implemented.
If a Policyowner has a Dollar Cost Averaging program in effect which
automatically transfers account values into any of the six investment
subdivisions mentioned above, the transfers into those subdivisions will cease
as of October 2, 1995. Policyowners in this situation should, by written notice
to the Home Office, re-allocate those Dollar Cost Averaging transfers to other
investment subdivisions prior to October 2, 1995. If they do not re-allocate
their Dollar Cost Averaging transfers prior to that date, the transfers which
would have been allocated to the six investment subdivisions mentioned above
will remain in the investment subdivision that is being used to fund the
Policyowner's Dollar Cost Averaging transfers.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
